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NOTES TO THE ACCOUNTS |
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| Regulatory framework The Norwegian Central Securities Depository (VPS) was converted into a public limited company (ASA) in 2003, in accordance with section 12-2 of Act No. 64 of 5 July 2002 relating to the registration of financial instruments and regulations issued by the Ministry of Finance on 20 December 2002. It is stipulated in section 3-1 of the Act that a licence is required to register financial instruments. VPS ASA was granted a licence by the Ministry of Finance on 29 January 2003. Licencees are subject to supervision by the Banking, Insurance and Securities Commission. VPS Holding ASA holds 100% of the shares in VPS ASA and Manamind AS. VPS ASA undertakes the registration of financial instruments and provides services associated with this registration. Manamind AS distributes information services linked with securities trading. Accounting principles The annual accounts have been drawn up in accordance with Norwegian accounting legislation and generally accepted accounting principles. VPS ASA and Manamind AS are wholly owned subsidiaries of VPS Holding ASA. The shares in both companies are evaluated according to the cost price method. Figures for Manamind AS have been included in the consolidated accounts since 1 October 2004. VPS complies with the Norwegian accounting standard for pension costs. This standard recommends that estimate variances are not posted in the accounts and that the variances are kept out of the balance sheet. The standard also recommends spreading the estimate variances over the remaining earning period, or using the corridor principle, i.e. only entering parts of the variances in the balance sheet. VPS applies the corridor principle in the computation of pension costs and pension commitments. VPS complies with the provisional Norwegian accounting standards for funds flow statements, indirect model. VPS complies with the provisional Norwegian accounting standard for tax on earnings. Taxes are entered as expenses as they accrue, i.e. taxes are linked with the pre-tax profit in the accounts. Taxes comprise tax payable on taxable profit for the year and changes in deferred tax/deferred tax assets. Depreciation of fixed assets is based on the estimated life of the assets and calculated according to the straight line method. Direct and fixed costs relating to development work are capitalized. This applies both to internal and external development resources and to purchases of ready-made software. Development costs are capitalized from the date on which the decision to go ahead is made. The costs of preparation and planning, marketing activities and training are not capitalized. Depreciation is calculated according to the straight line method and the depreciation period is normally three years, but can vary from two to five years. Depreciation starts when the project is completed, or when clearly defined subsystems go into operation. Unless otherwise stated, all figures in the Notes are given in NOK ‘000. Change over to International Financial Reporting Standards VPS has decided to change over to International Financial Reporting Standards (IFRS) with effect from 1st quarter 2005. VPS has calculated the effects of this implementation. The effect on accounting of pensions will be seen in the adapted balance sheet at 1 January 2004. This effect is calculated to be an increase of approximately NOK 30 million in pension commitments and is due to estimate variances not entered under the Norwegian accounting standards (NRS), and an increase due to a somewhat lower discount rate. The increase in pension commitments will be entered directly against equity capital at 1 January 2004. The principles for depreciation of systems development will be adapted to the anticipated period of use, which means a slightly longer depreciation period than used previously. This will have an effect on computed depreciation for 2004 when adapted to IFRS. The effect of the change in accounting principles for pensions on the profit/loss figure will be a somewhat higher pension costs in 2004 than reported under NRS. The total effect of the adaptation to IFRS on the profit for 2004 will be minimal.
Loans to employees total NOK 0.8 million. Interest is calculated at the normal rate of interest. No loans have been granted to the president & CEO, senior employees or members of the Board of Directors. TOP
VPS Holding ASA and VPS ASA have the same board of directors and president & CEO. Their remuneration is paid by VPS ASA, while the cost is split pro rata between the companies. Fees paid to the auditors do not include VAT. Fees entered as expenses in 2004 for assistance in addition to ordinary auditing are related to questions concerning taxes, charges and reporting and assistance relating to special evaluations. The Group has also received accounting assistance from the auditing company’s consultancy department. A collective pension scheme premium of NOK 1 million paid for the president and CEO in 2004 is not included in the above table. The president and CEO has six months notice and the right to six months’ salary after termination of employment. In special cases, salary can be paid for a further twelve months. The agreed pension age for the president and CEO is 63. His contract of employment may be extended beyond this age if both parties so wish. In 2004, the Group introduced an agreement on variable pay which can be paid as a bonus after an assessment of the company’s overall financial results. This scheme applies to all employees and is given in accordance with fixed rules. No agreements have been reached within the Group with members of the Board on profit-sharing, allocation of options, or similar. TOP
Additions/disposals for the past 5 years of computer hardware, movables and structural installations
Computer hardware is depreciated over three to five years, depending on its estimated life. Movables and other equipment are depreciated over five years. Structural installations must be fully depreciated when the initial periods of the leases expire in 2008 and 2013. The straight line method is applied. TOP
With effect from 1999, VPS has entered its own systems development in the balance sheet. The projects that are capitalized have clearly defined future cash flows. Systems development is depreciated over a period of 2 to 5 years. The average depreciation period is less then 3 years. Capitalized systems development covers VPS’s own development and/or adaptation of mercantile systems, systems linked with infrastructure and administrative systems. Projects linked with systems developed by VPS with a cost price of less than NOK 1 million are entered as expenses.
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Goodwill is amortized over five years using the straight line method. Amortization has been calculated from 1 October 2004. TOP NOTE 7 - Leases The Group has leases for premises in Oslo. Rental expenses for 2004, including joint expenses, totalled NOK 12.8 million. Most of these expenses refer to a ten-year lease, which expires on 1 May 2013. VPS has leasing agreements for production equipment. The contractual period is 5 years, starting on 1 September 2000. Leasing fees charged to the accounts in 2004 amounted to NOK 1.0 million. TOP NOTE 8 – Other commitments VPS has been notified of a possible claim for NOK 1.2 million from a supplier. This claim has been disputed and has not been included in the accounts.
TOP NOTE 10 – Receivables, customers Net receivables amounted to NOK 25,135,601 at 31 December 2004. This figure refers mainly to December invoices to customers. TOP
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Shares in subsidiaries are entered in the accounts for VPS Holding ASA according to the cost price method. TOP NOTE 13 – Liquid assets The company’s tied up capital amounts to NOK 4.3 million and comprises tax withholdings. Liquid reserves are managed on the principle of lowest possible risk. The company has elected to invest available liquid reserves in interest-bearing paper split between bond and money market funds with a low risk profile. At the end of 2004, investments stood at NOK 100 million. These funds are classified as liquid assets in the balance sheet. TOP NOTE 14 - Liability for compensation Under the Financial Instruments Registration Act of 5 July 2002, VPS ASA is liable for losses resulting from errors that occur in connection with registration activities. Legal liability only applies to direct losses and is limited to NOK 500 million per claim. For losses that are due to circumstances unrelated to registration activities, VPS has a normal liability that is not limited. It is presumed in the Act that losses will be covered through insurance or other guarantees. Pursuant to the new Act, the account operators no longer have a joint and several liability. VPS ASA has therefore increased its liability insurance to NOK 1 bn per year, with a deductible of NOK 2 million per claim. No claims for compensation were lodged in 2004. The company is not aware of any other events that can entail liability. TOP NOTE 15 – Pension commitments VPS has a group pension insurance policy, which covers all employees. The pension basis corresponds to ordinary salaries. The pension age for employees is 67, while it is 63 for the President & CEO. All pension commitments are included in the actuarial calculation. The calculation of pension costs and commitments was carried out by an actuary, based on the same assumptions as for the previous accounting year:
The actuarial calculations show net pension commitments amounting to NOK 3.8 million which have been entered under financial fixed assets in the Balance Sheet. These calculations also show accumulated commitments totalling NOK 16.4 million resulting from estimate variances and changes, that have not been entered in the Profit and Loss Account. The corresponding figure in 2003 was NOK 23 million and the change is mainly due to the fact that the estimated value of pension funds in 2003 were NOK 8.5 million too low.
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