Securitas AB Annual Report 2005

Notes and comments to the consolidated fi nancial statements
Tangible fi xed assets (IAS 16 and IAS 36)
Tangible fi xed assets are recognized at cost and subsequently carried at cost less
accumulated depreciation according to plan and any accumulated impairment losses.
Depreciation according to plan is based on historical acquisition values and the
useful life of the asset.
Linear depreciation is used for all asset classes, as follows:
Machinery and equipment 10–25 percent
Buildings and land improvements 1.5–4 percent
Land 0 percent
Impairment (IAS 36)
Assets that have an indefi nite useful life are not subject to amortization and are
tested annually for impairment. Assets that are subject to amortization are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment loss is recognized in
the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. Value in use is measured as expected future discounted cash fl ows.
The calculation of value in use necessitates that a number of assumptions and
estimates are made. The main assumptions concern the organic sales growth, the
development of the operating margin and the necessary operating capital employed
requirement as well as the relevant WACC-rate used to discount future cash fl ows.
For the purposes of impairment testing, assets are grouped at the lowest levels for
which there are separately identifi able cash fl ows (cash-generating units).
Previously recognized impairment losses, with the exception of impairment
losses related to goodwill, are reversed only if a change has occurred regarding the
assumptions that formed the basis for determining the recoverable value when the
impairment loss was recognized. If this is the case a reversal of the impairment
loss is carried out in order to increase the book value of the impaired asset to its
recoverable value. A reversal of a previous impairment loss is only recognized to
the extent that the new book value does not exceed what should have been the
book value (after depreciation and amortization) if the impairment loss had not
been recognized in the fi rst place. Impairment losses related to goodwill are never
reversed.
Leasing contracts (IAS 17)
When a leasing contract means that the Group, as the lessee, essentially receives
the economic benefi ts and bears the economic risk associated with the leased asset –
termed fi nance leases – the asset is accounted as a fi xed asset in the consolidated
balance sheet. The net present value of the corresponding obligation to pay leasing
fees in the future is accounted as a liability. In the consolidated statement of income,
leasing payments are divided between depreciation and interest. The Group
has no signifi cant fi nance leases where it is the lessor.
Operational leases, where the Group is the lessee, are accounted in the statement
of income as an operating expense. In cases where the Group is the lessor,
revenue is accounted as sales in the period the lease relates to. Depreciation is
accounted under operating income.
Accounts receivable
Accounts receivable are accounted net after provisions for probable bad debt.
Probable and recognized bad debt losses are included in the line Production
e xpenses in the statement of income. Payments received in advance are accounted
under Other current liabilities.
Inventories (IAS 2)
Inventories are valued at the lower of cost and net realizable value. Cost is determined
according to the fi rst-in, fi rst-out principle. The cost of fi nished goods and
work in progress comprises of material, direct labour and other direct costs. Net
realizable value is the estimated selling price in the ordinary course of business,
less applicable variable selling expenses. The necessary deductions for obsolescence
are made.
Financial Instruments: Recognition and Measurement
(IAS 39 1 ) – adopted from January 1, 2005
A fi nancial instrument is any contract that gives rise to a fi nancial asset of one entity
and a fi nancial liability or equity instrument of another entity. The defi nition of
fi nancial instruments thus include equity instruments of another entity but also for
example contractual rights to receive cash such as accounts receivable.
Financial instruments are recorded initially at fair value with the subsequent measurement
depending on the designation of the instrument.
1 Refers to IAS 39 in its current version as adopted by the European Union.
The Group designates its fi nancial instruments in the following categories:
■ Financial assets or fi nancial liabilities at fair value through profi t or loss
(including derivatives not designated as hedging instruments),
■ Loans and receivables,
■ Held-to-maturity investments,
■ Available-for-sale fi nancial assets,
■ Financial liabilities designated for hedging,
■ Other fi nancial liabilities and
■ Derivatives designated for hedging.
The designation depends on the purpose for which the fi nancial instrument is
acquired. Management determines the designation of its fi nancial instruments
at initial recognition and re-evaluates this designation at each reporting date.
Financial assets or fi nancial liabilities at fair value through profi t or loss
Financial assets at fair value through profi t or loss have two sub-categories: fi nancial
assets held for trading, and those designated at fair value through profi t or loss
at inception. A fi nancial asset is classifi ed in this category if acquired principally
for the purpose of selling in the short term or if so designated by management. Fair
value derivative assets are also categorised as held for trading unless they qualify
for hedge accounting. Assets in this category are classifi ed as current assets if they
are either held for trading or are expected to be realised within 12 months of the
balance sheet date. Financial liabilities at fair value are trading securities with
negative fair value; normally derivative liabilities unless they qualify for hedge
accounting.
Loans and receivables
Loans and receivables are non-derivative fi nancial assets with fi xed or determinable
payments that are not quoted in an active market. They arise when the Group
provides money, goods or services directly to a debtor with no intention of trading
the receivable. They are included in current assets, except for maturities later than
12 months after the balance sheet date.
Held-to-maturity investments
Held-to-maturity investments are non-derivative fi nancial assets with fi xed or
determinable payments and fi xed maturities that the Group’s management has the
positive intention and ability to hold to maturity.
Available-for-sale fi nancial assets
Available-for-sale fi nancial assets are non-derivatives that are either designated in
this category or not classifi ed in any of the other categories. They are included in
non-current assets unless management intends to dispose of the investment within
12 months of the balance sheet date.
Financial liabilities designated for hedging
Financial liabilities designated for hedging are liabilities that are hedged instruments
in a hedge relationship qualifying for hedge accounting. The hedging instrument
is normally a derivative included in the category derivatives designated for
hedging. They are included in non-current liabilities except for maturities later
than 12 months from the balance sheet date.
Other fi nancial liabilities
Other fi nancial liabilities are any fi nancial liabilities that are not included under
fi nancial liabilities designated for hedging. They are included in non-current
liabilities except for maturities later than 12 months from the balance sheet date.
Derivatives designated for hedging
Derivatives designated for hedging are instruments designated as hedging instruments
and qualifying for hedge accounting. The Group normally only enters into
derivative contracts when they qualify for hedge accounting.
Most of the Group’s current assets are loans and receivables (including
accounts receivable and most other current receivables). Financial assets or fi nancial
liabilities at fair value through profi t or loss, held-to-maturity investments and
available-for-sale fi nancial assets are normally categories in which the Group has
no or very limited positions in. Financial liabilities designated for hedging
includes both long-term and short-term loans designated as hedged instruments
and hedged effectively via derivatives designated for hedging. Other fi nancial liabilities
comprise all other fi nancial liabilities including such items as accounts
payable and other current liabilities and also any long-term and short-term loans
not included in fi nancial liabilities designated for hedging.
82 SECURITAS 2005