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ASSA ABLOY Annual Report 2007 68 Note 1 cont. Minority interests Minority interests are based on subsidiaries’ accounts with application of fair value adjustments resulting from completed acquisition analysis. Minority participations in subsidiaries’ income are reported in the income statement with net income divided between the Parent company’s shareholders and minority interests. Minority participations in subsidiaries’ equity are reported as a separate item in the Group’s equity. Transactions with minority shareholders are accounted for as third-party transactions. Associates Associates are defined as companies which are not subsidiaries but in which the Group has a significant, but not a controlling, interest. This is usually taken to be companies where the Group’s shareholding represents between 20 and 50 percent of the voting rights. Participations in associates are accounted for in accordance with the equity method. In the consolidated balance sheet, shareholdings in associates are reported at cost, adjusted for participation in income after the date of acquisition. Dividends from associates are reported as a reduction in the carrying amount of the investment. Participations in the income of associates are reported in the consolidated income statement as part of operating income as the investments are related to business operations. Segment reporting The Group’s business operations are split organizationally into five divisions. Three divisions are based on products sold in local markets in the respective division: EMEA, Americas and Asia Pacific. Global Technologies’ and Entrance Systems’ products are sold worldwide. The divisions reflect a partition of the Group’s operations according to major risks and returns. The divisions form the operational structure for internal control and reporting and also constitute the Group’s segments for external financial reporting. There are no secondary segments. Foreign currency translation Functional currency corresponds to local currency in each country where Group companies operate. Transactions in foreign currencies are translated to functional currency by application of the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses arising from the settlement of such transactions are normally reported in the income statement, as are those arising from translation of monetary balances in foreign currencies at the closing-day rate. Exceptions are transactions relating to qualifying cash flow hedges, which are reported in equity. Receivables and liabilities are valued at the closing-day rate. In translating the accounts of foreign subsidiaries, prepared in functional currencies other than the Group’s presentation currency, all balance sheet items except net income are translated at the closing-day rate and net income is translated at the average rate. The income statement is translated at the average rate for the period. Exchange-rate differences arising from the translation of foreign subsidiaries are reported in the translation reserve in equity. The rates for currencies used in the Group, relative to the Group’s presentation currency (SEK), were as follows – the weighted average for the year, and the closing-day rate. Average rate Closing-day rate Country Currency 2006 2007 2006 2007 Argentina ARS 2.40 2.16 2.24 2.04 Australia AUD 5.57 5.65 5.44 5.64 Brazil BRL 3.38 3.46 3.22 3.59 Canada CAD 6.52 6.29 5.92 6.54 Switzerland CHF 5.88 5.63 5.63 5.68 Chile CLP 0.014 0.013 0.013 0.013 China CNY 0.93 0.89 0.88 0.88 Czech Republic CZK 0.33 0.33 0.33 0.35 Denmark DKK 1.24 1.24 1.21 1.26 Estonia EEK 0.59 0.59 0.58 0.60 Euro zone EUR 9.26 9.24 9.05 9.42 United Kingdom GBP 13.57 13.48 13.49 12.79 Hong Kong HKD 0.95 0.86 0.88 0.82 Hungary HUF 0.035 0.037 0.036 0.037 Israel ILS 1.66 1.65 1.63 1.66 Kenya KES 0.102 0.100 0.099 0.101 South Korea KRW 0.0077 0.0073 0.0074 0.0068 Lithuania LTL 2.68 2.68 2.62 2.73 Mexico MXN 0.68 0.62 0.63 0.59 Malaysia MYR 2.01 1.96 1.95 1.94 Norway NOK 1.15 1.15 1.09 1.18 New Zealand NZD 4.82 4.97 4.85 4.97 Poland PLN 2.38 2.45 2.36 2.62 Russia RUR 0.27 0.26 0.26 0.26 Singapore SGD 4.64 4.48 4.48 4.45 Slovenia SIT 0.039 0.039 0.038 0.038 Slovakia SKK 0.25 0.27 0.26 0.28 Thailand THB 0.19 0.20 0.19 0.19 USA USD 7.38 6.74 6.87 6.40 South Africa ZAR 1.10 0.96 0.99 0.94 Revenue Revenue comprises the fair value of goods sold, excluding VAT and discounts and after eliminating intra-group sales. The Group’s sales revenue arises principally from sales of products. Service related to products sold makes up a very limited fraction of revenue. Revenue from sales of the Group’s products is recognized when all significant risks and rewards associated with ownership are transferred to the purchaser in accordance with applicable conditions of sale, which is normally upon delivery. If the product requires installation at the customer’s premises, revenue is recognized when installation is completed. Revenue from service contracts is recognized through distribution over the contract period. Intra-group sales Transactions between Group companies are carried out at arm’s length and thus at market prices. Intra-group sales are eliminated from the consolidated income statement, and profits on such transactions have been eliminated in their entirety. Government grants Grants and support from governments, public authorities etc are reported when there is reasonable assurance that the company will comply with the conditions attaching to the grant and that the grant will be received. Grants related to assets are handled by reducing the carrying amount of the asset by the amount of the grant. Research and development Research costs are expensed as they are incurred. The costs of development work are reported in the balance sheet only to the extent that they are expected to generate future economic benefits for the Group and provided such
Note 1 cont. benefits can be reliably measured. Development costs so reported are amortized over the expected useful life. Development costs recorded as assets but not yet in use are subject to annual impairment testing. Costs for development of existing products are expensed as they are incurred. Borrowing costs Borrowing costs are recognized as expenses in the period in which they are incurred. Tax on income The income statement includes all tax that is to be paid or received for the current year, adjustments relating to tax due for previous years, and changes in deferred tax. Tax sums have been calculated as nominal amounts in accordance with the tax regulations in each country and in accordance with tax rates that have either been decided or have been notified and can confidently be expected to be confirmed. For items reported in the income statement, associated tax effects are also reported in the income statement. The tax effects of items reported directly against equity are themselves reported against equity. Deferred tax is accounted for under the liability method. This means that deferred tax is accounted for on all temporary differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax receivables relating to tax losses carried forward or other future tax allowances are reported to the extent that it is probable that the allowance can be set against taxable income in future taxation. Deferred tax liabilities relating to temporary differences resulting from investments in subsidiaries are not reported in the consolidated financial statements since the Parent company can control the time at which the temporary differences are cancelled and it is not considered likely that such cancellation will occur in the foreseeable future. Deferred tax receivables and deferred tax liabilities are offset when there is a legal right to do so and when the deferred tax amounts concern the same tax authority. Cash flow statement The cash flow statement has been prepared according to the indirect method. The reported cash flow includes only transactions involving cash payments. Cash and cash equivalents ‘Cash and cash equivalents’ covers cash and bank balances and short-term financial investments with durations of less than three months from the date of acquisition. Goodwill and acquisition-related intangible assets Goodwill represents the positive difference between the cost of acquisition and the fair value of the Group’s share of the acquired company’s net identifiable assets at the date of acquisition, and is reported at cost less accumulated impairment losses. Goodwill is allocated to Cash-Generating Units (CGU) and each year is systematically tested for impairment using a valuation model based on discounted future cash flow. Deferred tax receivables based on local tax rates are reported in terms of tax-deductible goodwill (with corresponding reduction of the goodwill value). Such deferred tax receivables are expensed as the tax deduction is utilized. ASSA ABLOY Annual Report 2007 69 Other acquisition-related intangible assets consist chiefly of various types of intangible rights such as brands, patents and customer relationships. Identifiable acquisition-related intangible assets are initially recognized at fair value at the date of acquisition and subsequently at cost less accumulated amortization and impairment losses. Amortization is on a straight-line basis over estimated useful life. Acquisition-related intangible assets with indefinite useful life are tested for impairment every year in the same way as goodwill, as described above. Other intangible assets An intangible asset that is not acquisition-related is reported only if it is likely that the future economic benefits associated with the asset will flow to the Group and if the cost of the asset can be measured reliably. Such an asset is initially recognized at cost and is amortized over its estimated useful life, usually between three and five years. Its carrying amount is cost less accumulated amortization and impairment losses. Tangible assets Tangible assets are reported at cost less accumulated depreciation and impairment losses. Cost includes expenditure that can be directly attributed to the acquisition of the asset. Subsequent expenditure is added to the carrying amount if it is probable that economic benefits associated with it will flow to the Group and if the cost can be reliably measured. Expenditure on repairs and maintenance is expensed as it is incurred. Depreciable amount is the cost of an asset less its residual value. No depreciation is applied to land. For other assets, cost is depreciated over estimated useful life, which for the Group leads to the following depreciation periods (on average): • office buildings, 50 years • industrial buildings, 25 years • machinery and other technical plant, 7–10 years • equipment and tools, 3–6 years. An asset’s residual value and useful life are reviewed at each financial year-end and adjusted when needed. Profit or loss on the disposal of a tangible asset is recognized in the income statement as ‘Other operating income’ or ‘Other operating expenses’, based on the difference between the selling price and the carrying amount. Leasing The Group’s leasing is chiefly operational leasing. The leasing payments are expensed at a constant rate over the period of the contract and are reported as operating costs. Impairment Assets with indefinite useful life are not amortized but are tested for impairment on an annual basis. For impairment testing purposes assets are grouped at the lowest organizational level where there are separate identifiable cash flows, so called Cash-Generating Units (CGU). For assets that are depreciated/amortized, impairment testing is carried out when events or circumstances indicate that the carrying amount may not be recoverable. When impairment has been established, the value of the asset is reduced to its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell, and its value in use.
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Annual Report 2007 The global leade
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Significant events Financials in br
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ASSA ABLOY is the global leader in
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CEO’s statement 4 innovative prod
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1 Excluding restructuring costs. 2
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Presence and strong relationships t
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In the security market today, manuf
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HID’s Crescendo Smart Card allows
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Check in with your cellphone Signat
Page 21 and 22: ASSA ABLOY worked closely with the
Page 23 and 24: The division manufactures and sells
Page 25 and 26: Security a top concern at new biote
Page 27 and 28: Woodside in Australia is one of the
Page 29 and 30: The division sells electronic secur
Page 31 and 32: “In today’s turbulent times, bu
Page 33 and 34: In 2007 ASSA ABLOY Entrance Systems
Page 35 and 36: More information about sustainable
Page 37 and 38: Open House in Brazil Sustainable de
Page 39 and 40: Tom Devine from ASSA ABLOY Australi
Page 41 and 42: Report of the Board of Directors, C
Page 43 and 44: Report of the Board of Directors Th
Page 45 and 46: End Corporate governance report ASS
Page 47 and 48: CEO reported on the Group’s perfo
Page 49 and 50: Gustaf Douglas Melker Schörling Ca
Page 51 and 52: Operational management and internal
Page 53 and 54: The Board’s proposed guidelines f
Page 55 and 56: The Executive Team From left: Ulf S
Page 57 and 58: Income statement - Group ASSA ABLOY
Page 59 and 60: Results by division ASSA ABLOY Annu
Page 61 and 62: Balance sheet - Group ASSA ABLOY An
Page 63 and 64: Cash flow statement - Group ASSA AB
Page 65 and 66: Income statement Parent company Bal
Page 67 and 68: Financial risk management ASSA ABLO
Page 69 and 70: Maturity - financial liabilities an
Page 71: Note 1 Notes Note 1 Significant acc
Page 75 and 76: Note 1 cont. USA, which are reporte
Page 77 and 78: Notes 9-12 Note 9 Employee benefits
Page 79 and 80: Note 15 cont. ASSA ABLOY Annual Rep
Page 81 and 82: Notes 17 -18 Note 17 Shares in subs
Page 83 and 84: Notes 24-25 Note 24 Cash and cash e
Page 85 and 86: Note 29 cont. A) Specification of a
Page 87 and 88: Notes 30-35 Note 30 Other provision
Page 89 and 90: Note 36 Adams Rite On 24 March 2006
Page 91 and 92: Five years in summary 2003 Business
Page 93 and 94: Quarterly information ASSA ABLOY An
Page 95 and 96: Proposed disposition of earnings Th
Page 97 and 98: The ASSA ABLOY share Share price tr
Page 99 and 100: Convertible debentures for personne
Page 101 and 102: Production: Hallvarsson & Halvarsso
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20% - Assa Abloy

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