Basware Corporation is a public Finnish company founded under Finnish law. The company’s domicile is Espoo, Finland. The shares of the parent company Basware Corporation have been listed on NASDAQ OMX Helsinki Ltd. since 2000. Basware develops software for Enterprise Purchase to Pay and Financial Management solutions.

A copy of the Group financial statements is available on the Internet at www.basware.fi or the parent company's headquarters, address Linnoitustie 2, Espoo.

The Board of Directors has approved the financial statements to be published on January 24, 2013. The financial statements may also be revised in the Annual General Meeting.

1. ACCOUNTING PRINCIPLES

Accounting principles

Basware Corporations’ financial statements have been prepared according to the International Financial Reporting Standards (IFRS), approved for use in EU countries, in accordance with the IAS and IFRS standards and IFRIC interpretations valid on December 31, 2012. The Group’s Financial Statements are presented in thousands of euro, which is the primary and reporting currency of the Group's parent company, and they are based on acquisition costs unless otherwise stated in the accounting principles. The amounts presented in the financial statements are rounded, so the sum of individual figures may differ from the sum reported.

As of January 1, 2012, the Group has applied the following new and revised standards and interpretations:

  • Amendment: IFRS 7 Financial Instruments: Disclosures – Transfers of Financial Assets. The amendment improves the transparency of notes with regard to transfers and derecognition of financial assets. The amendments help users of financial statements to understand the effects of transfer and derecognition of financial assets and identify any risks associated with continuing involvement in derecognized assets. The group estimates that the amendments have not had a significant effect on the group’s financial statements.
  • Annual improvements to IFRSs (amendments to several standards)

The IFRIC interpretation (International Financial Reporting Interpretations Committee) 20 Stripping Costs in Production Phase of a Surface Mine have not had an effect on the group’s financial statements.

The Group will adopt in 2013 the following standards and interpretations whose application is not yet compulsory in the financial statements.

  • Amendment: IFRS 1 First-time Adoption of IFRSs − Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters. The amendment to the standard defines a new deemed cost-related exception for an entity that is publishing its first IFRS financial statements in a situation where its functional currency is or has been hyperinflatory. The group estimates that the amendment will not have an effect on the group's future financial statements.

  • Amendment: IAS 12 Income Taxes: Recovery of Underlying Assets. Deferred tax liabilities and assets associated with investment properties measured at fair value and property, plant and equipment measured with the revaluation model are measured on the basis of the assumption that the carrying amount of the underlying asset will be recovered entirely by sale. The group estimates that the amendment will not have an effect on the group's future financial statements.

  • Amendment: IFRS 1 Government Loan. Based on the amendment, first-time adopters need not apply IAS 39 Financial Instruments: Recognition and Measurement retroactively to government loans whose interest rate is below market interest rates. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • Amendment: IFRS 7 Financial Instruments: Disclosures and IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities. The aim is to improve disclosures in the financial statements on the effects of the offsetting of receivables and liabilities on the company’s balance sheet, rights, and liabilities. The group estimates that the amendments will not have a significant effect on the group's future financial statements.  

  • IFRS 10 Consolidated financial statements and IAS 27 Separate Financial Statements (revised). The new IFRS 10 standard on consolidated financial statements will replace the consolidated financial statements-related sections of IAS 27 Consolidated and Separate Financial Statements and the SIC-12: Consolidation – Special Purpose Entities interpretation. IFRS 10 has no effect on how a company is consolidated but whether the company is consolidated according to the new definition of control. The standard amends the concept of control and may amend whether companies and structured entities are consolidated in the financial statements or not. The group estimates that the amendments will not have a significant effect on the group's future financial statements.  

  • IFRS 11 Joint Arrangements and IAS 28 Associates and Joint Ventures (revised). The new standard will replace the IAS 31 Interests In Joint Ventures standard and the SIC 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers interpretation. According to the new standard, more attention must be paid to the actual nature than the legal form of the arrangement in identifying joint ventures. A significant amendment to the previous treatment of joint ventures is that in the future, joint ventures in which the parties have the right to the net assets related to the venture (joint venture) can no longer be consolidated proportionately but only with the equity method. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • IFRS 12 Disclosures of Interests in Other Entities. The new standard compiles all of the requirements for notes to consolidated financial statements in a single standard and includes the requirements for notes concerning subsidiaries, joint ventures, associates, and structured entities. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • IFRS 13 Fair Value Measurement. The standard sets out a single definition of fair value applicable to all IFRS standards and a single approach to measuring fair value. It does not amend the regulations regarding when the reporting entity should measure an asset or liability at fair value. Furthermore, the standard significantly increases the notes to be disclosed on the use of fair values. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • Amendment: IAS 1 Presentation of Items of Other Comprehensive Income. Items of other comprehensive income will be classified to those that will be subsequently reclassified through profit or loss and those that will never be reclassified through profit or loss. The amendment has no impact on which items are recognized in comprehensive income or when the items are reclassified through profit or loss and when not. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • Revised: IAS 19 Employee benefits. The revised standard includes several amendments to harmonize the recognition of defined benefit pension plans and to improve comparability. In addition, the amendments to presentation will improve the comparability of financial statements and provide a clearer view of the financial commitments related to defined benefit plans. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

Annual improvements to IFRSs

The group will adopt the following standards provided that they are approved by the EU. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • IFRS 1 First-time Adoption of IFRSs. The amendment specifies how IFRS 1 is applied in a situation where the entity has previously applied IFRSs, then discontinued the application of IFRSs, and begins to apply IFRSs again. In addition, the amendment specifies the treatment of borrowing costs capitalized based on the previous financial statements standards when adopting IFRSs.

  • IAS 1 Presentation of Financial Statements. The amendment clarifies certain requirements for the presentation of comparison data.

  • IAS 16 Property, Plant and Equipment. The amendment clarifies that significant spare parts and maintenance tools that meet the definition of property, plant and equipment, i.e. the entity expects to use them during more than one financial periods, are not inventories.

  • IAS 32 Financial Instruments: Presentation. The amendment omits the income tax-related regulations of IAS 32 and requires that entities apply the regulations of IAS 12 Income Taxes.

  • IAS 34 Interim Financial Reporting. The amendment clarifies the requirements for information on assets and liabilities to be presented for operating segments in connection with interim reports so that the requirements are consistent with IFRS 8 Operating Segments.

Amendments that will enter into force at a later time

The group will adopt the following standards during subsequent financial periods, provided that they are approved by the EU. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • IFRS 9 Financial Instruments. IFRS 9 will completely replace the existing IAS 39 Financial Instruments: Recognition and Measurement. The initial measurement of financial instruments is made at fair value for all financial assets. Financial assets that are debt instruments and to which the fair value option is not applied are measured following initial recognition either at amortized cost or fair value, depending on the company’s business model for the management of financial assets and contractual cash flows of the financial assets. As a rule, all equity instruments are measured at fair value following the initial measurement, either through profit or loss or through other comprehensive income. With regard to financial liabilities, the main amendment is that when applying the fair value option, the effect of changes in the entity's own credit risk on the fair value of the financial liability will be recognized through other comprehensive income. The group estimates that the amendments will not have a significant effect on the group's future financial statements.

  • Amendments: IFRS 10, IFRS 12, IAS 27, and IAS 28 regarding the consolidation of Investment entities. The IASB published an amendment to IFRS 10 Consolidated Financial Statements in October 2012. A special provision on consolidation regarding entities engaged in investment activities was added to the standard. The amendment includes the criteria which an entity must meet in order to be an investment entity and eligible for applying the special provision. Units that meet the criteria will not consolidate their subsidiaries in the financial statements; they will be treated according to IFRS Financial Instruments or IAS Financial Instruments: Recognition and Measurement at fair value through profit or loss.

Principles of consolidation

Basware’s Group financial statements include the parent company Basware Corporation and the subsidiaries controlled by it. With regard to subsidiaries, the parent company’s control is based on full ownership of the share capital or a majority holding. The Company does not own shares in joint enterprises or affiliates. The subsidiaries have been included in the Group financial statements as of the acquisition date. Intra-group holding is eliminated using the acquisition cost method. Acquired companies are accounted for using the purchase method according to which the assets and liabilities of the acquired company are measured at their fair value when it has been possible to determine the value reliably. Deferred taxes of the acquisition cost adjustments are recognized according to the valid tax rate and the remainder is recognized as goodwill on the balance sheet. Intra-group business transactions, internal liabilities and receivables, and internal profit distribution are eliminated in the Group financial statements.

Transactions in foreign currencies

Transactions in foreign currencies are recorded in the operating currency at the approximate exchange rates prevailing at the transaction dates. Monetary items in foreign currencies have been translated into the operating currency using the exchange rates at the end of the reporting period. Non-monetary items denominated in foreign currencies are carried at the exchange rate at the date of the transaction. Foreign exchange gains and losses related to normal business operations are entered in the appropriate income statement account before operating profit.

In the Group financial statements, the income statements of foreign subsidiaries are translated into euros at the average rate for the financial period and balance sheets at the exchange rate of the balance sheet date. Average rate difference due to different exchange rates on the statement of comprehensive income and balance sheet are entered in other comprehensive income. Translation differences arising from the elimination of foreign subsidiaries and translation of equity items accumulated after the acquisition are entered in other comprehensive income. Foreign currency gains and losses from monetary items part of the net investment in a foreign unit are recognized in other comprehensive income and entered on the statement of comprehensive income when the net investment is abandoned.

Revenue recognition

The group’s net sales are generated by license sales, service sales, maintenance, and automation services. 

Revenue recognition of product sales requires that there is a binding agreement of the sale, the product has been delivered, proceeds from the transaction can be reliably specified, the financial gain will benefit the company with sufficient probability, and significant benefits and risks related to ownership or rights of use of the product have been transferred to the buyer. License agreements with a right of return or conditions related to the product's functionality or implementation project are recognized as revenue once the right of return has expired or the above-mentioned conditions have been fulfilled. 

Service revenue is recognized at the time of delivery. Revenue and costs of fixed-price business transactions are recognized as revenue and expenditure on the basis of the percentage of completion when the outcome of the business transaction can be reliably estimated. The degree of completion of business transactions is specified as the proportion of hours worked of the estimated total number of hours. If the resulting costs and recognized profits exceed the amount invoiced for the transaction, the difference is presented in “Trade and other receivables” on the balance sheet. If the resulting costs and recognized profits are lower the invoicing for the transaction, the difference is presented in “Trade payables and other liabilities” on the balance sheet. When it is likely that the total costs required for completing the business transaction exceed the total revenue from the transaction, the expected loss is recognized as an expense immediately.

Maintenance revenue is allocated over the contract period. 

Automation Services revenue is mainly comprised of start-up, transaction, and use fees. Start-up fees are recognized as revenue when the work related to the start-up procedure has been completed and the customer has been connected to the service environment. Transaction revenue is recognized on the basis of actual transaction volumes and use charges on a monthly basis on the basis of the existence of an agreement. 

When net sales are calculated, sales revenue is adjusted for exchange rate differences of foreign currency sales.

Other operating income

Other operating income includes proceeds from the sale of property, plant and equipment and possible rental income, recognized on a straight-line basis over the rental period.

Operating profit

The IAS 1 Presentation of Financial Statements standard does not define the concept of operating profit. The Group uses the following definition of operating profit: operating profit is the net sum of operating income added to net sales, less the cost of purchase for finished goods which is adjusted with inventory changes, less the costs resulting from employee benefits, depreciation and possible impairment loss as well as other operating expenses. All other items of the income statement are presented after operating profit. Exchange differences and fair value changes of derivatives are included in operating profit, provided that they result from items related to business operations; otherwise they are recognized under financing items.

Impairment of tangible and intangible assets

The Group performs an annual impairment test of goodwill, those intangible assets that have unlimited useful lives, and unfinished development projects. Additionally indications of impairment are evaluated regularly. In case of such indications, the recoverable amount of the cash-generating unit or asset is evaluated.

The need for impairment is evaluated at the level of the cash-generating units, or the lowest nit level mainly independent of other units and whose cash flows can be differentiated and are highly independent of the cash flows of other corresponding units.

The book value of the cash generating unit and assets allocated to the unit are compared to the unit’s recoverable amount (value in use). Value in use refers to the estimated future net cash flows from the asset or cash-generating unit in question discounted to the current value.

The current value of future cash flows is based on the so-called perpetuity assumption (time period is infinite). The forecast cash flows are estimated for a period of five years and the value of the so-called residual part of use value after the forecast period is determined using the Gordon model. Value in use is based on cash flows according to business plans for the first year (annual budget) and according to long-term predictions (Planning Frame) for the two subsequent years. The cash flows for the following two years are estimated by extrapolating the cash flow of the third year with the zero-growth assumption. The terminal period growth rate is 2%. The discount rates employed are the weighted average of capital costs and its starting point is determining the risk in accordance with CAPM. The discount rate includes a risk-free interest rate that takes the time value of money into consideration and a risk premium.

If the value in use is lower than the carrying amount of the asset, the impairment is entered as an expense on the income statement and allocated primarily to goodwill and thereafter against other assets on a pro rata basis.

If there is a positive change in the estimated recoverable amount  of money, depreciation loss related to tangible fixed assets and  other intangible assets, excluding goodwill, is nullified. However, an impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized. Goodwill impairment loss is not reversed in any situation. Additionally, the impairment loss of equity instruments that are recognized as available-for-sale financial assets is not reversed through profit and loss.

Goodwill

Goodwill is measured as the excess of the cost of the acquisition over the Group’s share of the fair values of the acquiree’s net assets at the time of the acquisition. Goodwill is recognized at the original acquisition cost less accumulated amortization.

Other intangible assets

Other intangible assets include software, capitalized product development costs, other long-term expenses, and customer relationships. Intangible assets are recognized at the original acquisition cost less accumulated amortization according to plan and possible impairment. Public subsidies related to the acquisition of an intangible asset are deducted from the acquisition cost of the asset and recognized as income by reducing the amortization charge of the asset they are related to. The expected useful lives of intangible assets are 3-10 years.

Research and development costs

Research expenses are booked as an expense as they are incurred. Development costs of new products and new product versions with significant enhancements are capitalized and recognized and amortized over the useful life of 3–5 years. In determining the useful life, the obsolescence of technology and the typical life cycle of products in the industry are taken into consideration. Amortization starts once the product version is ready for use. Maintenance of existing products and minor enhancements are recognized as they are incurred. Unfinished development projects are tested for impairment at the balance sheet date.

Tangible assets

Tangible assets include machinery and equipment. Tangible assets are recognized on the balance sheet at the original acquisition cost less accumulated depreciation according to plan and possible impairment. The useful lives of tangible assets are 3–10 years.

The useful life of an asset is reviewed at least at the end of each financial year and, if necessary, any change in expectations for financial benefit is accounted for.

Sales gains and losses on disposal or transfer of tangible assets are recognized through profit or loss.

Maintenance costs are recognized through profit or loss as they are incurred.

The company recognizes borrowing costs as an expense in the period during which they are incurred. If the borrowing costs are due to an asset whose completion for the intended purpose or sale necessarily requires a considerably long time, the borrowing costs are capitalized as part of the acquisition cost of the asset.

Leases

Leases on property, plant and equipment are classified as finance leases if they transfer a substantial portion of the risks and rewards incident to ownership. Finance leases are recognized on the balance sheet at the beginning of the lease as assets and liabilities at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Commodities acquired using finance leases are amortized according to plan and possible impairment losses are recognized. Finance lease liabilities are recognized under interest-bearing in short and long term liabilities.

If the risks and benefits typical of ownership remain with the lessor, the contract is handled as another rental agreement and the payments executed based on the agreement are recognized as an expense in fixed installments over the lease period.

Financial assets

The Group’s financial assets are categorized to the following categories:

  • Financial assets at fair value through profit or loss

  • Held-to-maturity investment
  • Loans and other receivables
  • Available-for-sale financial assets

The categorization is based on the purpose of the acquisition of the financial assets, and it is performed in connection with the original acquisition. Transaction costs are included in the original book value of the financial assets, when the item in question is not recognized at fair value through profit or loss. All purchases and sales of financial assets are recognized at the transaction date, which is the date on which the Group commits to purchase or sell the financial instruments. Derecognition of a financial assets is done when the Group has lost its contractual right to money flow or when it has, for a significant extent, transferred risks and profits to outside the group.

Financial assets at fair value through profit or loss

A financial asset is grouped into Financial assets at fair value through profit or loss category if it is acquired as held for trading, or it is designated as at fair value through profit or loss upon initial recognition. Held-for-trading financial assets are mainly acquired in order to obtain gains from changes in short-term market prices. The assets are valued at the fair market price at the balance sheet date, and the change in value is recognized under finance income on the income statement. There were no such financing items on the balance sheet at the closing date.

Derivatives that are not eligible for hedge accounting are classified as held for trading. Derivatives held for trading are included in long-term assets if they mature in more than 12 months; otherwise they are categorized in short-term assets, as are financial assets that mature in 12 months. There were no such derivatives on the balance sheet at the closing date..

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity.

They are valued at amortized cost and are included in non-current assets. There were no such financing items on the balance sheet at the closing date.

Loans and other receivables

Loans and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are not held by the Group with the intent to sell. Loans and other receivables are valued at amortized cost using the effective rate method. They are included in current or non-current trade receivables and other receivables category on the balance sheet in accordance with their nature. If the receivable matures in more than 12 months, it is categorized in long-term receivables.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets specifically designated to this group or not categorized otherwise. They are included in long-term assets unless they are intended to be held for less than 12 months as of the closing date, in which case they are included in short-term assets. Available-for-sale financial assets are measured at fair value. When the fair value cannot be reliably determined, they are measured at acquisition cost.

Changes in the fair value of available-for-sale financial assets are entered in other comprehensive income and presented in the fair value reserve, taking into account the tax effect. Changes in fair value are transferred from equity to the income statement as adjustments when the instrument is sold or its value has decreased so that an impairment loss has to be recognized for the instrument.

Cash and cash equivalents 

Cash and cash equivalents consist of cash, bank deposits that can be withdrawn on demand and other current highly liquid investments that can be exchanged to an amount of cash assets that is known in advance, and with a low risk of changes in value. Items classified as cash and cash equivalents have a maximum maturity of three months from acquisition.

Financial liabilities 

Financial liabilities are initially recognized at fair value. Transaction costs have been included in the original carrying amount of financial liabilities measured at amortized cost. Subsequently, all financial liabilities, excluding derivative liabilities, are valued at amortized cost using the effective interest rate method. Financial liabilities are divided into current and non-current liabilities and they can either be interest-bearing or non-interest-bearing.

Derivative contracts

Derivative contracts are recognized initially at fair value at the date on which the Group enters into the agreement, and subsequently they are still measured at fair value. Gains and losses resulting from fair value measurement are treated in accounting as specified by the purpose of the derivative contract. There were no such derivative contracts on the balance sheet at the closing date.

Impairment of financial assets

Based on a risk assessment, impairment is made for uncertain sales receivables. Significant financial problems of a debtor, likelihood of bankruptcy, default of payments or a delay of more than 180 days of a payment are indications of the impairment of sales receivables. If the amount of the impairment loss is decreased during a subsequent period and the decrease can be objectively considered to be associated with an event after the impairment was recognized, the recognized loss is reversed through profit or loss.

Additionally, an assessment is conducted at each closing date to determine if there is objective evidence of impairment of an item or a category included in the financial assets.

Provisions

A provision is recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that the obligation will have to be settled, and the amount of the obligation can be reliably estimated. Provisions are measured at the present value required in order to cover the obligation. The present value factor used in the calculation of the present value is selected so that it represents the market insight into the time value of money and liability-related risks at the time of the assessment.

Pensions 

The statutory pension coverage of Basware Corporation employees is provided through insurance policies taken out with a pension institution. Pension coverage for personnel employed by units outside Finland is arranged in line with the requirements of local legislation and social security provisions. Payments related to defined contribution pension plans are recognized on the income statement in the year they are incurred. There are no defined benefit plans.

Share-based payment costs

The Group has incentive schemes in which the payments are made as either equity instruments or in cash. The benefits granted in the schemes are measured at fair value at the grant date and recognized as an expense evenly during the earnings period. In schemes where the payments are made in cash, the liability recognized and change in its fair value is correspondingly allocated as expenses. The result impact of the schemes is presented under employee benefits expenses.

Taxation

The tax expenses on the income statement comprise of tax based on the taxable income for the financial year and deferred taxes. Tax expenses are recognized in the income statement except for the expenses entered directly to shareholders’ equity when they are entered on the balance sheet as part of shareholders’ equity. Taxes based on the results of the Group companies are recorded according to the local tax rules of each country. 

Deferred taxes are calculated from all temporary differences between the carrying amount and taxable value. Deferred tax is not recognized for non-tax deductible goodwill and deferred tax is not recognized for non-distributed profits of subsidiaries in so far as the difference is not likely to be discharged in the foreseeable future. 

At the closing date, a company-specific assessment of the amount of deferred tax assets included on the balance sheet is conducted and it is reduced to the extent that likely cannot be utilized in the taxation of the company in question. Deferred tax liabilities are wholly included on the balance sheet.

The most significant temporary differences arise from depreciation of property, plant and equipment, unused tax losses, adjustments for fair values in connection with acquisitions, and restructuring provisions.

Own shares

Share repurchase and conveyance of shares and related costs are presented under shareholders’ equity.

Accounting principles requiring management’s consideration and key uncertainties relating to the estimates

When preparing the financial statements, estimates and supposition regarding the future have to be made. Realization may, however, differ from these estimates. Additionally, discretion must be used when applying the accounting principles. The estimates are based on the best views of the management at the time of the closing of the books. Possible changes in the estimates and suppositions are recorded in accounting in the period when the estimate or supposition is adjusted and in all the following financial periods. 

The management believes that the estimates and suppositions are accurate enough to be used as basis for fair value assessment.

Additionally, the Group reviews the possible indications of depreciation regarding both tangible and intangible assets at each closing date, at the latest. 

The most significant estimates included in the financial statements are related to measurement of assets, current sales receivables (Note 16), utilization of deferred tax assets (Note 18) and capitalization of product development expenses (Note 11).

The Group performs an annual impairment test of goodwill, those intangible assets that have unlimited useful lives, and unfinished development projects and evaluates indications of impairment as presented above. Recoverable amounts of cash-generating units have been determined by calculations based on value in use. More information on the measurement of intangible assets in company mergers can be found in note 3. Product development costs are capitalized in intangible assets regarding new products as well as product versions with significant upgrades and amortized during the useful life after the product has been completed.