Annual and Sustainability Report 2011 - Teracom

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The Group uses forward contracts and loans in foreign currency to hedge certain foreign net investments. Exchange rate differences arising as result of these contracts and loans are transferred to consolidated other comprehensive income to the extent they correspond to translation differences. Following the divestment of a foreign subsidiary, the accumulated exchange rate differences, which were previously transferred to Other comprehensive income, are reported in the profit/loss for the period as a part of the profit or loss attributable to the sale. Segment reporting For the Teracom Group, the Group management team has been identified as the senior-most decision making body. The Group management team has established operating segments based on the information used to make strategic decisions. The operating segments are responsible for the operating profit and the working capital that they manage. Financial expenses, financial income and income tax are dealt with at the Group level. The "Other" item comprises Group functions, including Group management. These functionbased departments have income of insignificant amounts, which is why they are not considered to be separate operating segments (in accordance with IFRS 8). The segments are reported in accordance with the same accounting principles that are applied by the Group. Sales between segments occur at market terms and prices that are fair estimates of current market prices. Recognition of revenue Revenue is recognized when it is probable that the financial benefits will flow to the Group and the amount of revenue can be measured reliably. Revenue from fixed-price contracts for all segments is reported in the Parent Company in accordance with the percentage of completion method. Profit is thus recorded at the same rate as the work is completed, provided that the costs incurred or to be incurred in respect of the transaction can be measured reliably. Any expected loss on such contracts is recognized as an expense as soon as such loss is probable. For subscription contracts that provide the customer access to TV programs, revenue is recognized on a linear basis over the course of the contract term. This also applies to direct costs associated with such contracts, which are also recognized on a linear basis over the course of the contract term. Costs and income for program cards (which are needed to see the coded channels via a box and antenna) are not distributed over the course of the contract term since these cards cannot be returned. Both the income and costs for program cards are reported at the time card fee is invoiced to the customer. Net sales Net sales pertains to revenue from services that have been sold and subscriptions that are part of the Group's ordinary operations, less any discounts and value-added tax. Other income/other operating income Other income is income obtained from activities that are not part of the Group's ordinary operations. Borrowing costs Borrowing costs, i.e. interest rates and other costs incurred in connection with the borrowing of funds, are recognized in the income statement for the period to which they refer. There are no loan expenses that are directly attributable to the purchase, performance or production of a qualified asset and thereby should be capitalized in the asset's cost of acquisition. Taxes Reported tax is made up of current tax and deferred tax. Current tax refers to the profit or loss for the period and is valued at the tax rate prevailing on the balance sheet date. Deferred tax is comprised of amounts to be paid in the future or a reduction of future tax. Deferred tax is calculated in accordance with the tax rates decided or announced on the balance sheet date. Deferred tax is based on all identifiable temporary differences that exist on the balance sheet date. Temporary differences are defined as the difference between the carrying amount of an asset or liability and its tax base. Deferred tax assets on deficit deductions and temporary differences are reported as assets to the extent it is probable they will be utilized in the future. Deferred tax assets and deferred tax liabilities are reported net when they are attributable to a single tax authority and when a company or a group of companies, for example via a Group contribution, is legally entitled to net tax assets against tax liabilities. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Any such reduction is subsequently reversed to the extent that it becomes probable that sufficient taxable profit will be available. Property, plant and equipment Items of property, plant, and equipment are recognized as assets when it is probable that the future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably. Property, plant and equipment are reported at historic cost with deductions for linear, accumulated depreciation and any impairment. Depreciation is calculated from the point when an asset is acquired or a new plant is put into operation. Estimated useful lives are applied to both groups of assets and individual assets. Land is not depreciated since its useful life is judged to be unlimited. In all other cases, depreciation is calculated on a linear basis and is based on the following expected useful lives: Assets Land and buildings Buildings Land improvements Plant and machinery Permanent equipment in buildings Distribution equipment Radio equipment Power generating equipment Antenna sites Mast installations Equipment, tools, fixtures and fittings Vehicles Other equipment Useful life, years 20-40 years 10-20 years 10-15 years 3-10 years 7-15 years 10-15 years 10-20 years 20-30 years 3-6 years 3-5 years Construction-in-progress Construction in progress refers primarily to facilities that are being built. Construction-in-progress is valued in the same way as acquired assets, i.e. in accordance with the cost method at the cost of acquisition including directly attributable expenses – that is, valuation in accordance with the actual costs incurred. Intangible assets Goodwill Goodwill is reported as an intangible asset with an uncertain useful life at cost with deductions for accumulated impairment. Brands Acquired brands refers to Teracom's entitlement to use the Plus TV brand, which was acquired in June 2009, in Finland. The brand is reported as an intangible asset that is considered to have an uncertain useful life and is not amortized. Customer agreements The acquisition of Teracom A/S in September 2010 included customer agreements, which were reported as an intangible asset. Acquired customer agreements are amortized on a linear basis over their useful life, which is 3 years. Customer relations Both the acquisition of Digi-TV Plus Oy in June 2009 and the acquisition of Teracom A/S in September 2010 included customer relationships that were reported as intangible assets. These acquired customer relationships are amortized on a linear basis over their useful lives, which are judged to be 8 and 9 years, respectively. Patents, licenses and similar rights Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the asset will flow to the Group and the cost of the asset can be measured reliably. Acquired patents, licenses and similar rights are reported at cost with deductions for accumulated amortization and any impairment. Patents, licenses and similar rights are amortized on a linear basis over the useful life, which is 3 years. The network activities include capacity rights that are amortized over a useful life of 10 years. Test of impairment on fixed assets The Group assesses at each balance sheet date if there is any indication that the value of a non-current asset has depreciated. If such an indication arises, 68
the Group conducts an impairment test, i.e. an assessment of the asset's recoverable amount. Recoverable amount refers to the higher of an asset's fair value, less sales expenses, and its value-in-use. Value-in-use is calculated as the present value of expected future cash flows that the asset is expected to generate. The asset is written down by the amount to which the asset's carrying amount exceeds the recoverable amount. When determining write-down requirements, the assets are grouped into cash-generating units. A cash-generating unit is the smallest group of assets generating cash flows that are in all material aspects independent of cash flows from other assets or groups of assets. In addition, the Group conducts an annual review of intangible assets with uncertain useful lives and intangible assets that are not yet available for use. An assessment of whether there are any indications of impairment is carried out at least once per year. Leases A lease is classified as a financial lease if it transfers substantially all of the risks and rewards incident to ownership from the lessor to the lessee. All other leases are classified as operating leases. Teracom as lessor Leases where the lessor retains substantially all of the risks and rewards incident to ownership are classified as operating leases. The Group's income from operating leases primarily comes from rental agreements related to co-locations in the Group's masts. Any leasing income that arises is allocated to the proper period and revenue is recognized linearly over the lease term. However, any costs that arise, including depreciation, are expensed as occurred. Depreciation is in accordance with the rules for each type of asset, respectively. Teracom as lessee Leasing agreements pertaining to fixed assets, where the Group retains substantially all of the risks and rewards incident to ownership, are classified as financial leases. At the inception of the lease, financial leases are reported in the balance sheet at the leased asset's fair value or the present value of the minimum lease payments (whichever is lower). Fixed assets obtained through financial lease agreements are primarily vehicles, which are depreciated over the asset's useful life or the term of the lease (whichever is shorter). Financial lease payments are appropriated between financial expenses, interest and the reduction (amortization) of the outstanding financial liability, so as to produce a constant periodic rate of interest on the remaining balance of the liability. The corresponding payment obligations, less the deduction of financial expenses, are included in the balance sheet items: Liabilities to credit institutions (long-term and short-term financial liabilities, respectively). Financial expenses are recognized in the income statement. For operating leases, the lease payments are recognized as an expense in the income statement over the lease term on a straight-line basis. Financial instruments Financial instruments are any type of contract that gives rise to a financial asset, financial liability or one's own capital instrument in another company. For the Group, financial instruments are comprised of the following: cash equivalents, interest-bearing receivables, accounts receivable, accounts payable, borrowings and derivatives. Classification of financial assets Management determines the initial classification of the financial asset. The purpose of the acquisition of the financial asset determines its classification. a) Financial assets valued at fair value via the income statement A financial asset is transferred to this category if it was acquired primarily to be sold in the short term. Derivatives are classified as held for trading, provided that they are not identified as hedges, which are valued at fair value via the income statement. Derivatives are only used for the purpose of managing the Group’s electricity, currency and interest rate risks. b) Loan receivables and accounts receivable Loan receivables and accounts receivable are financial assets with fixed or determinable payments. The receivables are reported as current assets, with the exception of receivables maturing more than 12 months after the balance sheet date, which are classified as non-current assets. The Group's cash equivalents, accounts receivable and loan receivables are included in this category. Cash equivalents consist of cash, bank balances and other current investments with high liquidity and a maturity of no more than three months that can be easily converted to a known cash amount and are only exposed to negligible risk of fluctuation in value. c) Investments held until maturity Investments held to maturity are non-derivative financial assets with fixed or determinable payments and fixed maturity that the company management has the positive intention and ability to hold to maturity. Recognition and measurement of financial assets Acquisitions and sales of financial assets are reported on the transaction date, i.e. the date the Group undertakes a binding commitment to buy or sell the asset. Financial assets are reported in the balance sheet when the Group has transferred the material risks and rewards associated with the transaction and the counterpart has an obligation to pay. A financial asset is removed from the balance sheet when the right to receive cash flows from the asset has expired or was transferred and all risks and rewards associated with ownership were transferred from the Group. a) Financial assets valued at fair value via the income statement are valued at fair value on a continual basis. b) Loan receivables and accounts receivable are reported initially at fair value and thereafter at amortized cost less any deductions for impairment provisions. Impairment provisions are made when it is apparent that the company will not be able to collect the total outstanding amount in accordance with the original terms. Group companies with pay TV operations, which have end consumers as part of their customer base, make provisions in accordance with a pre-determined ladder that has been adapted to the conditions of each geographic market. Group companies with network activities, which do business with other companies, make provisions based on an individual assessment of each customer and receivable. The change in the provision is reported in the income statement as a cost of sales. c) Investments held to maturity are reported initially at fair value plus transaction costs. They are then reported at amortized cost, which is equal to the present value of the remaining cash flows using the effective interest method. Derivative instruments and hedging The Group's finance policy only allows derivatives to decrease an underlying exposure. Using a derivative for trading or any purpose other than hedging is not allowed. Given this restriction, the Group only holds the following types of derivatives at the end of the year: - Currency derivatives held to hedge future payments and accounts payable in foreign currency. These derivatives do not qualify for hedge accounting. - A portfolio with electricity derivatives to hedge Swedish electricity price risk which constitute a cash flow hedge. - A loan in SEK with a variable interest rate that was converted to a DKK loan with a variable interest rate using a currency interest rate swap, which should hedge the currency risk in the net investment in the Danish subsidiary, Teracom A/S. - A fixed interest rate swap that hedges the interest rate risk in parts of the above-mentioned loans with variable interest rates. Derivative instruments are reported in the balance sheet at the contract date and at fair value, both initially and following subsequent revaluations. The method for reporting gain or loss depends on whether the derivative instrument was designated as a hedging instrument and the nature of the hedged item. When the hedge is entered into, the Group documents the relationship between the hedging instrument and the hedged items as well as the company's objective for its risk management and the risk management strategy for the hedge. The Group also documents, even when the hedge is entered into on an ongoing basis, its assessment of whether the derivatives used for the hedging transactions are expected to be very effective at neutralizing changes in fair value or cash flows attributable to the hedged risk. Changes in the hedge reserve are reported under Other comprehensive income in the consolidated income statement. Cash flow hedging The effective portion of the changes in fair value of a derivative instrument designated as a cash flow hedge is reported under Other comprehensive income. The gain or loss attributable to the ineffective portion is reported directly under net financial income in the income statement. For the Group this refers to the hedging of electricity price risk and hedging of interest rate risk via interest rate swaps. 69
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Annual and Sustainability Report 20
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Read more about the Swedish busines
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Denmark has been and continues to b
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Teracom Group On 1 June, Teracom Gr
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An integrated TV business The Group
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digital radio and, in connection wi
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Subsidized public transportation en
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Sweden Sweden is the Group’s firs
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The market The competition primaril
Page 20 and 21: 67 PR5 Customer satisfaction for Bo
Page 22 and 23: Denmark Denmark is the Group's youn
Page 24 and 25: Chris Corneliussen, Boxer Denmark
Page 26 and 27: Finland PlusTV is the largest Pay-T
Page 28 and 29: Kimi »The Iceman« Räikkönen is
Page 30 and 31: Sustainability - corporate responsi
Page 32 and 33: The Teracom Group’s sustainabilit
Page 34 and 35: The Group's breakdown of climate im
Page 36 and 37: Employees For the Teracom Group, hi
Page 38 and 39: Media plurality requires a long-ter
Page 40 and 41: Reporting in accordance with GRI gu
Page 42 and 43: GRI G3 Index Reference Comments 1.
Page 44: Contents 44 Directors’ Report 49
Page 47 and 48: Operating profit for the year amoun
Page 49 and 50: Diversity and equal opportunity Div
Page 51 and 52: Corporate Governance Report The Cor
Page 53 and 54: Teracom AB's 2011 AGM Teracom AB's
Page 55 and 56: Evaluation of the Board of Director
Page 57 and 58: ously striving to achieve long-term
Page 59 and 60: 1 2 3 4 5 6 7 8 9 10 11 12 Board of
Page 61 and 62: Consolidated Income Statement MSEK
Page 63 and 64: Consolidated Cash Flow Statement MS
Page 65 and 66: Parent Company Income Statement MSE
Page 67 and 68: Parent Company Cash Flow Statement
Page 69: Notes Contents Note Description Pag
Page 73 and 74: No major changes will be made for f
Page 75 and 76: Note 4 Segment reporting The Group
Page 77 and 78: Notice period and severance pay The
Page 79 and 80: Return on plan assets 2011 2010 For
Page 81 and 82: Note 13. Tax on profit for the year
Page 83 and 84: Note 16. Goodwill and other intangi
Page 85 and 86: Note 17. Other financial assets Gro
Page 87 and 88: Net investments of foreign operatio
Page 89 and 90: Financial derivative instruments Th
Page 91 and 92: Note 26. Shares and participations
Page 93 and 94: Auditors' report on overall review
Page 95: Responsibility of the auditor It is
Page 98 and 99: Technical definitions Broadcasting
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Annual and Sustainability Report 2011 - Teracom

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