Securitas AB Annual Report 2005

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Notes and comments to the consolidated fi nancial statements NOTE 29 CONVERTIBLE DEBENTURE LOANS Loan 2002/2007 Series 1–4 The loan was issued within the framework of Securitas’ employee incentive program on May 2, 2002 to a special purpose company, Securitas Employee Convertible 2002 Holding S.A. in Luxembourg, in which employees have subscribed for shares. The loan matures on May 2, 2007 and conversions may be requested no earlier than 90 days before and no later than 14 days after the loan’s maturity. The loans carry a variable interest rate equivalent to 90 percent of the 3-month EURIBOR plus 0.49 percentage points. Interest expense on the loan was charged against net income for the year in the amount of MSEK 77,9 (94.6 and 94.6). The reference price for the Securitas share, measured as the average closing price during the period April 24–30, 2002, was set at SEK 186.90. The EUR–SEK exchange rate was set at SEK 9.23. This produces a conversion rate of EUR 20.30 (0 percent premium) on the fi rst convertible loan. The second, third and fourth series will have a conversion rate of EUR 24.30 (20 percent premium), EUR 28.40 (40 percent premium) and EUR 32.40 (60 percent premium), respectively. During 2005 Securitas has repurchased and redeemed part of the convertible debenture loan. The redemption amounts to EUR 47,245,625 for each of the four series, in total EUR 189,982,500.Outstanding convertible debenture loan as per December 31, 2005 amounts to EUR 254,497,500. The loan amounts and conversion rates are as follows Outstanding Conversion rate No. of new amount, EUR EUR SEK 1 B shares Loan 2002/2007 series 1 63,624,375 20.30 190.41 3,134,206 Loan 2002/2007 series 2 63,624,375 24.30 227.93 2,618,287 Loan 2002/2007 series 3 63,624,375 28.40 266.39 2,240,295 Loan 2002/2007 series 4 63,624,375 32.40 303.91 1,963,715 Total 254,497,500 9,956,503 1 Equivalent values in SEK are based on the exchange rate on December 31, 2005, (9.38). NOTE 30 LONG-TERM LIABILITIES EXCLUDING PROVISIONS 1 MSEK IFRS 2005 IFRS 2004 Swedish GAAP 2004 Convertible debenture loan EUR, 2002/2007, Series 1–42, 3 2,388.4 3,940.6 3,940.6 Total convertible debenture loans 2,388.4 3,940.6 3,940.6 EMTN Nom MEUR 350, 2000/2006, 6.125 % 2, 3, 4 – 2,407.8 2,407.8 EMTN Nom MEUR 500, 2001/2008, 6.125 % 2, 3 4,895.7 3,259.3 3,259.3 Finance leases 292.5 467.8 467.8 Other long-term loans3 2,388.4 2,388.4 – 4,895.7 292.5 29.5 66.3 66.3 Derivatives with negative fair value, long-term 29.1 – – Total other long-term loan liabilities 5,246.8 6,201.2 6,201.2 Long-term liability, Group Management bonus5 – 48.9 48.9 Pensions balances, defi ned contribution plans6 – 41.0 – – Other long-term liabilities 58.1 41.9 41.9 Total other long-term liabilities 99.1 90.8 90.8 Total long-term liabilities 7,734.3 10,232.6 10,232.6 1 For further information regarding fi nancial instruments, refer to Note 5. 2 Bond loans (Euro Medium Term Notes – EMTN) and the convertible debenture loan are issued by the Parent Company. Interest on bond loans refers to the coupon rate of interest for the entire loan period. 3 The Group uses derivatives to hedge interest rate and foreign currency risks. In the table above, currency refers to the currency in which the loans are issued. The book value for 2004 is when applicable shown adjusted for currency hedges. 4 The maturity date of Bond loan EMTN Nom MEUR 350, 2000/2006 is January 12, 2006 and is included under Other short-term loan liabilities as per December 31, 2005. 5 For further information regarding Long-term liability, Group Management bonus, refer to Note 7. 6 Refers to liability for insured pension plan excluding social costs. For further information, refer to Note 7. Long-term liabilities fall due for payment as follows MSEK IFRS 2005 IFRS 2004 Swedish GAAP 2004 Maturity < 5 years 7,675.5 10,223.9 10,223.9 Maturity > 5 years 58.8 8.7 8.7 Total long-term liabilities 7,734.3 10,232.6 10,232.6 NOTE 31 PROVISIONS FOR PENSIONS AND SIMILAR COMMITMENTS The Group operates or participates in a number of defi ned benefi t and defi ned contribution pension and other long-term employee post benefi t plans throughout the world. These plans are structured in accordance with local conditions and practices. The overall cost of these plans for the Group is included in Note 11. USA The majority of the Group’s U.S. employees are eligible to join their respective employer’s defi ned contribution retirement arrangements under which the employer matches employee contributions up to certain limits, although take-up rates are low. Changes were made in January 2002 to integrate the plan designs following the Burns acquisition in September 2000. The Group’s U.S. operations also operates two defi ned benefi t pension plans which are closed to new entrants and future benefi t accruals. One of these plans are funded with assets held separately from those of the employer. The Group’s plan for health care was for the most part terminated during 2005. The effect of this termination amounts to MSEK 89.9 and is included in the line Curtailments och settlements in the table Pension costs below. UK Two funded defi ned benefi t plans are operated in the UK with assets held separately from those of the employer. Both provide benefi ts linked to members’ service and fi nal salary. In addition, the operations in the UK sponsor various defi ned contribution arrangements. Sweden Blue-collar workers are covered by the SAF-LO collective pension plan, an industrywide multi-employer defi ned contribution arrangement. White-collar workers are covered by the industry-wide ITP plan, which is a defi ned benefi t plan based on a collective agreement and operated on a multi-employer basis. According to a statement (URA 42) issued by the Swedish Emerging Issues Task Force this is a multiemployer defi ned benefi t plan. Alecta, the insurance company that operates this plan has been unable to provide Securitas, or other Swedish companies, with suffi cient information to determine its share of the total assets and liabilities for this arrangement. In line with a statement issued by the Swedish Institute of Authorised Public Accountants this arrangement is therefore accounted for on a defi ned contribution basis. The cost for 2005 amounts to MSEK 46.9 (33.4 and 33.4). The surplus in Alecta can be allocated to the insured employer and/or the insured employees. Alecta’s level of consolidation was 128.5 percent (128.0 and 128.0) as of December 31,2005. The level of consolidation is calculated as the fair value of Alecta’s plan assets in percent of the obligations calculated according to Alecta’s actuarial assumptions. This calculation is not in line with IAS 19. Norway The majority of employees participate in a group pension plan, which is a funded defi ned benefi t arrangement with assets held under a separate insurance policy. In addition, the group participates in two unfunded arrangements; one provides early retirement bridging benefi ts for employees, the other providing individual pension promises as agreed with the company. In 2005, the Norwegian pension plans were partly closed to new entrants. Other countries There are also defi ned benefi t arrangements in other countries than those mentioned above. The material plans are : Retirement indemnity plans mandatory for all French companies, which by law provides a lump sum to employees on retirement. Three schemes exists in Germany. A pension arrangement closed to new entrants, a jubilee arrangement (long service award) based on collective bargaining agreements and old-age part time working pensions for certain employees. As part of the transition to IAS 19/RR 29 Employee benefi ts the disability element of the TEL-plan, which is mandatory in Finland, was also included in the opening balance of the adjusted net liability for pensions and similar commitments. In 2004 it was agreed that changes would be made to the TEL-plan to come into effect from January 1, 2006. This has resulted in a curtailment gain of MSEK 4.5 (52.5 and 52.5), which is included within the line Settlements/curtailments/terminations in the table Pension costs below. In addition to this, there were some further curtailments and settlements during the year of MSEK 3.0 (0.2 and 0.2). Other information As of December 31, 2005 the following assumptions were used for the major plans in Securitas concerning mortality : USA – ”193 Group Annuity Mortality Table”. UK – ”PA 92 series of tables with allowance for future improvements, and the medium cohort effect on current pensioners”. Norway – tables in series ”K63”. These tables have been establised for use after consultation with the company’s actuaries and refl ect Securitas’ view concerning future mortality considering future expected increases in the lenght of life. 98 SECURITAS 2005
Pension cost MSEK IFRS 2005 Notes and comments to the consolidated fi nancial statements IFRS 2004 Swedish GAAP 2004 Current service cost –103.9 –96.6 –96.6 Interest cost –181.6 –152.2 –152.2 Expected return on assets 169.2 142.3 142.3 Recognised actuarial gain/loss –1.6 –0.9 –0.9 Recognised past service cost –0.1 2.9 2.9 Settlements/curtailments/terminations 97.4 52.7 52.7 Total pension cost –20.6 –51.8 –51.8 This table shows the total cost for defi ned benefi t plans. The settlement/curtailments relate mainly to the curtailment gain resulting from a reduction of a health care plan in the USA and from the changed status of the TEL-plan in Finland. Included above are pension cost for non-material defi ned benefi t plans of MSEK 1.3 (2.2 and 2.2). The cost for defi ned contribution plans was MSEK 514.3 (384.0 and 384.0). The actual return on plan assets over 2005 was MSEK 253.6 (180.5 and 180.5). Provisions for pensions and similar commitments, net MSEK IFRS IFRS Swedish GAAP Dec 31, 2005 Dec 31, 2004 Dec 31, 2004 Plans reported under Other long-term Plans reported under Provisions for pensions 113.8 70.6 70.6 and similar commitments Total provisions for pensions and similar –885.1 –851.4 –851.4 commitments, net –771.3 –771.3 –780.8 –780.8 This table shows the distribution in the balance sheet after taking into consideration plan assets. defi ned benefi t obligations, unrecognized net actuarial gains and losses, expected return on assets and the limit on balance sheet of paragraph 58 (b). Plans with a net asset are reported under Other long-term receivables and plans with a net provision are reported under Provisions for pensions and similar commitments. Movements in provision for pensions and similar commitments, net MSEK IFRS 2005 IFRS 2004 Swedish GAAP 2004 Opening balance net asset according to accounting principle – – 28.4 Change in accounting principle IAS 19/RR 29 Adjusted opening balance net provision – – –820.7 according to IAS 19/RR 29 –780.8 –792.3 –792.3 Pension cost –20.6 –51.8 –51.8 Payment of benefi ts 117.0 120.6 120.6 Acquisitions/divestitures –0.8 –72.8 –72.8 Reclassifi cations –1.1 –20.0 –20.0 Translation difference –85.0 35.5 35.5 Closing balance sheet net provision –771.3 –780.8 –780.8 This table shows the movements in the balance sheet according to IAS 19 (IAS 19 and RR 29), the net increase resulting from the net pension cost for the year, the net reduction of cash paid out as well as the impact of the fair value of provisions resulting from the acquisition of subsidiaries. Reclassifi cations made during 2004 were carried out in order to include certain death benefi ts that fell outside the scope of IAS 19/RR 29 at the start of the year. Funded status, net MSEK IFRS IFRS Swedish GAAP Dec 31, 2005 Dec 31, 2004 Dec 31, 2004 Fair value of plan assets 2,572.1 2,054.5 2,054.5 Defi ned benefi t obligation funded plans –3,067.8 –2,282.2 –2,282.2 Defi ned benefi t obligation unfunded plans –695.4 –666.8 –666.8 Funded status, net –1,191.1 –894.5 –894.5 Unrecognized net actuarial gains and losses 419.8 113.7 113.7 Closing balance sheet net provision –771.3 –780.8 –780.8 This table shows the how the funded status reconciles to the net balance sheet provision at the end and start of the year. Main actuarial assumptions as of December 31, 2005 (December 31, 2004) Percent (per annum) USA Eurozone Other countries Discount rate Expected return 5.50 (6.00) 4.00–4.25 (4.50–4.75) 4.00–5.00 (4.50–5.75) on plan assets 8.50 (8.50) 4.80 (5.20) 5.50–6.75 (5.75–7.00) General salary increases1 n/a 2.50–3.50 (2.50–3.50) 2.50–4.25 (2.50–4.75) Infl ation1 n/a 1.75–2.20 (1.75–2.00) 2.50–2.75 (2.50–2.75) Pension increases1 n/a 1.75–2.00 (1.75–2.00) 2.25–2.75 (2.25–2.75) Health care cost infl ation2 n/a (5.25) n/a n/a This table shows the main actuarial assumptions as per December 31, 2005 used to value the defi ned-benefi t obligation at the end of 2005 as well as in determining the pension costs for 2006. The table also shows the assumptions as per December 31, 2004 used to value the defi nedbenefi t obligation at the end of 2004 as well as in determining the pension cost for 2005. 1 Plans in the USA are non-infl ation linked cash balance plans which are closed to future benefi t accrual. 2 The health care plan has for the most part been terminated during 2005. NOTE 32 PROVISIONS The movement in the balance sheet for Provisions for pensions and similar commitments is provided in Note 31. MSEK Deferred tax liabilities Other provisions Opening balance 474.9 790.0 Reclassifi cation –206.5 1.0 New/increased provisions 174.0 117.2 Provisions utilized –37.9 –174.2 Reversal of unutilized provisions –11.9 –7.0 Divestitures –4.1 –2.1 Translation difference 39.2 145.9 Closing balance 427.7 870.8 Other provisions MSEK IFRS 2005 IFRS 2004 Swedish GAAP 2004 Liability insurance-related claims reserves1 612.7 469.7 469.7 Provisions for taxes 136.7 228.6 228.6 Provisions for restructuring2 612.7 136.7 – 3.1 34.3 Other items 121.4 88.6 88.6 Total other provisions 870.8 870 8 790.0 821.2 1 Liability insurance-related claims reserves primarily consist of estimated provisions for the portion of claims payable by the Group, i.e. its self-retention. 2 Of the provisions for restructuring as of December 31, 2004 under Swedish GAAP, MSEK 31,2 have been reversed according to IFRS. NOTE 33 OTHER SHORT-TERM LOAN LIABILITIES 1 MSEK IFRS 2005 IFRS 2004 Swedish GAAP 2004 EMTN Nom MEUR 350, 2000/2006, 6.125 % 2, 3, 4 3,244.6 – – Commercial paper issued4, 5 1,744.0 1,938.2 1,938.2 Finance leases 174.2 47.6 47.6 Other short-term loans4, 6 3,244.6 1,744.0 174.2 4,306.4 1,764.1 215.1 Derivatives with negative fair value, short-term 146.5 – – Total other short-term loan liabilities 9,615.7 3,749.9 2,200.9 1 For further information on fi nancial instruments, refer to Note 5. 2 The bond loan (Euro Medium Term Notes – EMTN) is issued by the Parent Company. Interest on the bond loan refers to the coupon rate of interest for the entire loan period. 3 The bond loan EMTN Nom MEUR 350, 2000/2006 is maturing on January 12, 2006 and is in 2005 reported under Other short-term loan liabilities. Previously, this loan has been reported under Long-term liabilities 4 The Group uses derivatives to hedge interest rate and foreign currency risks. In the table above, currency refers to the currency in which the loans are issued. The book value for 2004 is when applicable shown adjusted for currency hedges. 5 Commercial paper is issued by the Parent Company within the framework of a MSEK 5,000 Swedish commercial paper program. 6 Other short-term loans include loans raised within the framework of a MUSD 1,100 (800 and 800) Multi Currency Revolving Credit Facility maturing in June 2010 (December 2008 and December 2008). There are also according to IFRS loans raised within the framework of the securitization of MUSD 250 (250). SECURITAS 2005 99
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Securitas AB Annual Report 2005
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Sales per region A world
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A positive 2005 lays the foundation
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A history of growth Securitas was f
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The wheel of fortune Rationalizatio
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Koncernen 12 Comments by the CEO 14
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and customers have been convinced t
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The Securitas Group - sales growth,
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From multi-service providers to sec
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The entire organization supports th
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Our values Our values - Integrity,
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New sales of customer contracts tha
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25 20 15 10 5 0 Return on capital e
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Risk business plans Each division a
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Swedish GAAP IFRS MSEK 2001 2002 20
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Income 2004 MSEK IFRS Q1 2004 IFRS
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Market capitalization & Enterprise
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Report of the Board of Directors -
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Financial overview BDM, Switzerland
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Financial overview Divestment of re
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Report of the Board of Directors -
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Security Services USA Security Offi
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Security Services USA Security Offi
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Page 117 and 118: NOTE 50 LIQUID ASSETS Liquid assets
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Securitas AB Annual Report 2005

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