Securitas Annual Report 2007

Note 1. General corporate information
Operations
Securitas AB (the Parent Company) and its subsidiaries (together the Securitas Group) provides security services including specialized guarding, mobile services, monitoring, as well as consulting and investigation services. In addition Loomis provides cash handling services. Securitas is present in more than 30 countries in North America, South America, Europe and Asia, with more than 250,000 employees.
Information regarding Securitas AB
Securitas AB, corporate registration number 556302-7241, is a Swedish public company and has its registered office in Sweden. The address of the head office is:

Securitas AB
Lindhagensplan 70
SE-102 28 Stockholm


Securitas AB has been listed on the Stockholm Stock Exchange, now OMX Nordic Exchange Stockholm since 1991 and is included in the Nordic Exchange’s OMXS and OMXS 30 indexes.
Information regarding the Annual Report and the Consolidated Financial Statements
This Annual Report including the Consolidated Financial Statements was signed by the Board of Directors of Securitas AB and also approved for publication on February 18, 2008.
The statements of income and balance sheets for the Parent Company and the Group included in the Annual Report and the Consolidated Financial Statements are subject to adoption by the Annual General Meeting on April 17, 2008.
Note 2. Accounting principles
Basis of preparation
Securitas’ consolidated financial statements are from January 1, 2005 prepared in accordance with International Financial Reporting Standards (formerly IAS) as endorsed by the European Union (EU), The Swedish Financial Accounting Standards Council standard RR 30:06 Complementary Accounting Rules for Groups and the Swedish Annual Accounts Act. The consolidated financial statements have been prepared in accordance with the historical cost convention method with the exception of available-for-sale financial assets and financial assets or financial liabilities at fair value through profit or loss (including derivatives).
Estimates and judgments
The preparation of financial reports requires the Board of Directors and Group Management to make estimates and judgments. Estimates and judgments will impact both the statement of income and the balance sheet as well as disclosures such as contingent liabilities. Actual results may differ from these judgments under different assumptions or conditions. For further information regarding estimates and judgments refer to Note 4.
Adoption and impact of new and revised IFRS for 2007
IAS 1 supplement – Presentation of financial statements: capital disclosures
Came into effect on January 1, 2007. This supplement has not resulted in any additional disclosures in the Annual Report.
IFRS 7 Financial instruments: disclosures
This standard came into effect on January, 1 2007. For Securitas this standard has resulted in further supplementary disclosures in the Annual Report.
IFRIC 7 Application of the IAS 29 inflationary adjustment method financial reporting in hyperinflationary economies
IFRIC 7 came into effect on March 1, 2006 and will apply to financial years beginning after March 1, 2006. The Group does not currently have operations in any countries where the adoption of financial reporting in hyperinflationary economies is likely.
IFRIC 8 Scope of IFRS 2
Came into effect on May 1, 2006 and applies to financial years beginning after May 1, 2006. According to IFRIC 8 the rules in IFRS 2 relate to goods and services received in exchange for a vendor’s capital instruments even if such goods and services, wholly or partly, cannot be specifically identified. This interpretation does not apply to the Group since this type of transaction does not occur.
IFRIC 9 Reassessment of embedded derivatives
Came into effect on June 1, 2006 and applies to financial years beginning after June 1, 2006. This interpretation does not apply to the Group since this type of transaction does not occur.
IFRIC 10 Interim financial reporting and impairment
Came into effect on January 1, 2006 and applies to financial years beginning after that date. According to the interpretation the reversal of impairment losses recognized in an earlier reporting period is not permitted in a later interim or full-year report. The Group has applied IFRIC 10 with effect from January 1, 2007. The application of this interpretation has not had any impact on the consolidated financial statements.
Introduction and effect of new and revised IFRS
When the consolidated financial statements as of December 31, 2007 were being prepared, a number of standards and interpretations had been published but had not yet come into effect. The following is a preliminary assessment of the effect that the introduction of these standards and interpretations will have on Securitas’ financial statements:
IAS 1 amendment – Presentation of financial statements
This amendment will come into effect on January 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The changes apply particularly to the presentation and names of the financial statements. Consequently, the future presentation of the Group´s financial statements will be influenced by the introduction of this amendment.
IAS 23 amendment – Borrowing costs
This amendment will come into effect on January 1, 2009. The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately
expensing those borrowing costs will be removed. The group will apply IAS 23 (amended) from January 1, 2009 but is currently not applicable to the Group as there are no qualifying assets.
IAS 27 amendment – Consolidated and separate financial statements
This amendment will come into effect on July 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The change implies, among other things, that minority interest shall always be recognised even if the minority interest is negative, transactions with minority interests shall always be recorded in equity and in those cases when a partial disposal of a subsidiary results in that the entity loses control of the subsidiary any remaining interest should be revaluated to fair value. The change in the standard will influence the accounting of future transactions.
IAS 32 Financial instruments: presentation and IAS 1 Presentation of financial statements (amendment) – puttable financial instruments and obligations arising on liquidation.
The amendments classify the following types of financial instruments as equity, provided they have particular features and meet specific conditions:
  •  puttable financial instruments (for example, some shares issued by co-operative  entities)
  • instruments, or components of instruments, that impose on the entity an obligation  to deliver to another party a pro rata share of the net assets of the entity only on liquidation (for example, some partnership interests and some shares issued by limited life entities).
The amendment is effective for financial years beginning on or after January 1, 2009.
IFRS 2 amendment – Share-based payment – vesting conditions and cancellations
This amendment will come into effect on January 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The amendment effects the definition of vesting conditions and introduces a new concept of non-vesting conditions. The amendment has no impact on the financial statements of the Group.
IFRS 3 amendment – Business combinations
This amendment will come into effect on July 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The amendment will have an effect on how future business combinations will be accounted for, that is the accounting of transaction costs, possible contingent considerations and business combinations achieved in stages. The Group will apply the standard from January 1, 2010. The amendment shall be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2010. The amendment to the standard will not have any impact on previous business combinations but will impact future transactions.
IFRS 8 Operating segments
This standard will come into effect on January, 1 2009. It will apply to financial years beginning on or after this date. The standard deals with the breakdown of the company’s operations into different segments. According to the standard, the company shall base this on its internal reporting structure and decide the segments to be reported on in accordance with this structure. Securitas’ segment reporting will not be impacted by this standard.
IFRIC 11 IFRS 2 Group and treasury share transactions
Will come into effect on January 1, 2008 and will apply to financial years beginning after that date. The Group will apply IFRIC 11 as of January 1, 2008 but the interpretation is not expected to have any impact on the consolidated financial statements.
IFRIC 12 Service concession arrangements
Comes into effect on January 1, 2008 and will apply to financial years beginning after that date. This interpretation does not apply to the Group since this type of transaction does not occur.
IFRIC 13, Customer loyalty programmes
This interpretation will come into effect on July 1, 2008. IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group’s operations.
IFRIC 14 – IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction
This interpretation will come into effect on January 1, 2008. The interpretation is still subject to endorsement by the European Union. IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The group will apply IFRIC 14 from 1 January 2008, but it is not expected to have any material impact on the Group’s financial statements.
Scope of the consolidated financial statements (IFRS 3)
The consolidated financial statements relate to the Parent Company Securitas AB and all subsidiaries. Subsidiaries are all companies where the Group has the right to govern the financial and operational policies in order to achieve economic benefits, in a way that normally follows a shareholding of more than one half of the voting rights.
Purchase method of accounting (IFRS 3)
The purchase method of accounting is used to account for the acquisitions of subsidiaries and operations by the Group. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of income.
The consolidated financial statements include companies acquired with effect from the date of the acquisition. Companies divested are excluded with effect from the divestment date.
Pricing of deliveries among Group companies is based on normal business principles. Inter-company transactions, balances and unrealized gains between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Minority interests (IFRS 3)
The Group has adopted the principle of treating transactions with minority interests as transactions with parties outside the Group. Disposals of minority interests result in gains and losses for the Group and are recognized via the statement of income. Acquisitions of minority interests give rise to goodwill that is determined as the difference between the purchase price paid and the acquired share of the book value of the subsidiaries’ net assets.
Investments in associates (IAS 28)
The equity method is used to account for shareholdings that are neither subsidiaries nor joint ventures, but where Securitas can exert a significant influence, generally accompanying a shareholding of between 20 percent and 50 percent of the voting rights. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed as a result of the acquisition are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is attributed to goodwill. If the cost of acquisition is less than the fair value of the net assets of the associated company acquired, the difference is recognized directly in the consolidated statement of income.
The consolidated financial statements include associated companies with effect from the date of the acquisition. Associated companies divested are excluded with effect from the divestment date. Inter-company transactions, balances and unrealized gains between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associate. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Share in income of associated companies are recognized in the consolidated statement of income depending on the purpose of the investment. Associated companies that have been acquired to contribute to the operations (operational) are included in operating income after amortization. Associated companies that have been acquired as part of the financing of the Group (financial investments) are included in income before taxes as a separate line within the finance net. In both cases the share in income of associated companies are net of tax. The classification of associated companies has been Services Pvt Ltd, which was acquired in 2007, and Facility Network A/S, which was formed in 2007, have been classified as operational associates. The associated company Securitas Employee Convertible 2002 Holding S.A., has up until its liquidation in 2007 been classified as a financial investment. In the consolidated balance sheet, investments in associated companies are stated at cost including the cost of the acquisition that is attributed to goodwill, adjusted for dividends and the share of income after the acquisition date.
Joint ventures (IAS 31)
The proportional method is applied to joint ventures in which there is a shared controlling interest. According to this method, all statement of income and balance sheet items are stated in the consolidated statement of income, the consolidated statement of cash flow and the consolidated balance sheet in proportion to ownership. The proportional method of consolidation is used with effect from the date when a shared controlling interest is achieved and up until a shared controlling interest ceases to exist.
Translation of foreign subsidiaries (IAS 21)
The functional currency of each Group company is normally determined by the primary economic environment in which the company operates, that is the currency in which the company primarily generates and expends cash. The functional currency of the Parent Company and the presentation currency of the Group, that is the currency in which the financial statements are presented, is the Swedish krona (SEK).
The financial statements of each foreign subsidiary are translated according to the following method. Each month’s statement of income is translated using the exchange rate prevailing on the last day of the month, which means that income for each month is not affected by foreign exchange fluctuations during subsequent periods. Balance sheets are translated using exchange rates prevailing at each balance sheet date. Translation differences arising in the conversion of balance sheets are posted directly to equity and thus do not affect income for the year. The translation difference arising because statements of income are translated using average rates, while balance sheets are translated using exchange rates prevailing at each balance sheet date, is posted directly to equity. Where loans have been raised to reduce the Group’s foreign exchange/translation exposure in foreign net assets, and qualify for the hedge accounting criteria, exchange rate differences on such loans are recognized together with the exchange rate differences arising from the translation of foreign net assets in the translation reserve in equity. When a foreign operation or part thereof is sold, such exchange differences are recognized in the statement of income as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Revenue recognition (IAS 11 and IAS 18)
The Group’s revenue is generated from various types of security services and cash handling services as well as from some remaining revenue arising from the sale of alarm products. Revenue from services is recognized in the period in which it is
earned. Alarm installations accordance with the percentage of completion method. According to this method, revenue, expenses, and thus, income are recognized in the period in which the work was that can be recognized as revenue is based on the time spent in relation to the total estimated time.
Trademark fees from the former subsidiaries Securitas Direct AB and Securitas Systems AB relating to the use of the Securitas trademark are recognized on an accrual basis in accordance with the substance of the agreement, and are based on the sales recognized by Securitas Direct AB and Securitas Systems AB.
Interest income and borrowing costs are recognized in the statement of income in the period to which they are attributable.
Segment reporting (IAS 14)
The Group’s operations are as of January 1, 2007 divided into four divisions (Security Services North America, Security Services Europe, Mobile and Monitoring, and Loomis) that provide the operational structure for governance, monitoring and reporting. Each division represents a primary segment. The segment structure has been changed compared to last year as follows: The primary segment Mobile and Monitoring consists of the two business units Mobile and Alert Services, which previously where included in Security Services Europe. The guarding operations in Argentina, which previously was included in Security Services Europe now together with the newly acquired subsidiaries in Uruguay, Colombia and Peru as well as the newly acquired associated company in India form part of Other. Other already includes general administrative expenses, expenses for head offices and other central expenses that according to IAS 14 should be excluded from the segments as relating to the Group as a whole. The Group’s joint venture Securitas Direct S.A. (Switzerland) is also included in Other. Moreover, the assets and liabilities of each segment include only those items that have been utilized or arisen in ongoing operations. Non-operational balance sheet items, primarily current tax, deferred tax, and provisions for taxes, are accounted for under the Other heading. The segments Security Services North America and Loomis (previously Cash Handling Services) have not been affected by the changed segment structure. For further information regarding the segments operations, refer to Note 9. The secondary segments are the geographical areas in which the Group is active: Nordic region, Europe excluding Nordic Region, North America and the operations outside these regions included in the Rest of world. The geographical breakdown represents various levels of market development in terms of wages, employee turnover, product mix, market growth and profitability. The total sales for each geographical segment are based on the location of the sales. The location of the sales corresponds in all material aspects to the location of the customers.
Accounting for government grants and disclosure of government assistance (IAS 20)
Securitas like other employers is eligible for a variety of grants relating to employees. These grants relate to training, incentives for hiring new staff, reduction of working hours, etc. All grants are accounted for in the statement of income as a cost reduction in the same period as the related underlying cost.
Taxes (IAS 12)
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
A deferred tax asset is recognized when it is probable that sufficient taxable income will arise that the deferred tax asset can be offset against. Deferred tax assets are valued as of the balance sheet date, and any potential previously unvalued deferred tax asset is recognized when it is expected to be usable, or correspondingly, reduced when it is expected to be wholly or partly unusable against future taxable income.

Current and deferred taxes are posted directly to shareholders’ equity if the relevant
Note 1. General corporate information
Operations
Securitas AB (the Parent Company) and its subsidiaries (together the Securitas Group) provides security services including specialized guarding, mobile services, monitoring, as well as consulting and investigation services. In addition Loomis provides cash handling services. Securitas is present in more than 30 countries in North America, South America, Europe and Asia, with more than 250,000 employees.
Information regarding Securitas AB
Securitas AB, corporate registration number 556302-7241, is a Swedish public company and has its registered office in Sweden. The address of the head office is:

Securitas AB
Lindhagensplan 70
SE-102 28 Stockholm


Securitas AB has been listed on the Stockholm Stock Exchange, now OMX Nordic Exchange Stockholm since 1991 and is included in the Nordic Exchange’s OMXS and OMXS 30 indexes.
Information regarding the Annual Report and the Consolidated Financial Statements
This Annual Report including the Consolidated Financial Statements was signed by the Board of Directors of Securitas AB and also approved for publication on February 18, 2008.
The statements of income and balance sheets for the Parent Company and the Group included in the Annual Report and the Consolidated Financial Statements are subject to adoption by the Annual General Meeting on April 17, 2008.
 
Note 2. Accounting principles
Basis of preparation
Securitas’ consolidated financial statements are from January 1, 2005 prepared in accordance with International Financial Reporting Standards (formerly IAS) as endorsed by the European Union (EU), The Swedish Financial Accounting Standards Council standard RR 30:06 Complementary Accounting Rules for Groups and the Swedish Annual Accounts Act. The consolidated financial statements have been prepared in accordance with the historical cost convention method with the exception of available-for-sale financial assets and financial assets or financial liabilities at fair value through profit or loss (including derivatives).
Estimates and judgments
The preparation of financial reports requires the Board of Directors and Group Management to make estimates and judgments. Estimates and judgments will impact both the statement of income and the balance sheet as well as disclosures such as contingent liabilities. Actual results may differ from these judgments under different assumptions or conditions. For further information regarding estimates and judgments refer to Note 4.
Adoption and impact of new and revised IFRS for 2007
IAS 1 supplement – Presentation of financial statements: capital disclosures
Came into effect on January 1, 2007. This supplement has not resulted in any additional disclosures in the Annual Report.
IFRS 7 Financial instruments: disclosures
This standard came into effect on January, 1 2007. For Securitas this standard has resulted in further supplementary disclosures in the Annual Report.
IFRIC 7 Application of the IAS 29 inflationary adjustment method financial reporting in hyperinflationary economies
IFRIC 7 came into effect on March 1, 2006 and will apply to financial years beginning after March 1, 2006. The Group does not currently have operations in any countries where the adoption of financial reporting in hyperinflationary economies is likely.
IFRIC 8 Scope of IFRS 2
Came into effect on May 1, 2006 and applies to financial years beginning after May 1, 2006. According to IFRIC 8 the rules in IFRS 2 relate to goods and services received in exchange for a vendor’s capital instruments even if such goods and services, wholly or partly, cannot be specifically identified. This interpretation does not apply to the Group since this type of transaction does not occur.
IFRIC 9 Reassessment of embedded derivatives
Came into effect on June 1, 2006 and applies to financial years beginning after June 1, 2006. This interpretation does not apply to the Group since this type of transaction does not occur.
IFRIC 10 Interim financial reporting and impairment
Came into effect on January 1, 2006 and applies to financial years beginning after that date. According to the interpretation the reversal of impairment losses recognized in an earlier reporting period is not permitted in a later interim or full-year report. The Group has applied IFRIC 10 with effect from January 1, 2007. The application of this interpretation has not had any impact on the consolidated financial statements.
Introduction and effect of new and revised IFRS
When the consolidated financial statements as of December 31, 2007 were being prepared, a number of standards and interpretations had been published but had not yet come into effect. The following is a preliminary assessment of the effect that the introduction of these standards and interpretations will have on Securitas’ financial statements:
 
IAS 1 amendment – Presentation of financial statements
This amendment will come into effect on January 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The changes apply particularly to the presentation and names of the financial statements. Consequently, the future presentation of the Group´s financial statements will be influenced by the introduction of this amendment.
IAS 23 amendment – Borrowing costs
This amendment will come into effect on January 1, 2009. The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately
expensing those borrowing costs will be removed. The group will apply IAS 23 (amended) from January 1, 2009 but is currently not applicable to the Group as there are no qualifying assets.
IAS 27 amendment – Consolidated and separate financial statements
This amendment will come into effect on July 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The change implies, among other things, that minority interest shall always be recognised even if the minority interest is negative, transactions with minority interests shall always be recorded in equity and in those cases when a partial disposal of a subsidiary results in that the entity loses control of the subsidiary any remaining interest should be revaluated to fair value. The change in the standard will influence the accounting of future transactions.
IAS 32 Financial instruments: presentation and IAS 1 Presentation of financial statements (amendment) – puttable financial instruments and obligations arising on liquidation.
The amendments classify the following types of financial instruments as equity, provided they have particular features and meet specific conditions:
  •  puttable financial instruments (for example, some shares issued by co-operative  entities)
  • instruments, or components of instruments, that impose on the entity an obligation  to deliver to another party a pro rata share of the net assets of the entity only on liquidation (for example, some partnership interests and some shares issued by limited life entities).
The amendment is effective for financial years beginning on or after January 1, 2009.
IFRS 2 amendment – Share-based payment – vesting conditions and cancellations
This amendment will come into effect on January 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The amendment effects the definition of vesting conditions and introduces a new concept of non-vesting conditions. The amendment has no impact on the financial statements of the Group.
IFRS 3 amendment – Business combinations
This amendment will come into effect on July 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. The amendment will have an effect on how future business combinations will be accounted for, that is the accounting of transaction costs, possible contingent considerations and business combinations achieved in stages. The Group will apply the standard from January 1, 2010. The amendment shall be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2010. The amendment to the standard will not have any impact on previous business combinations but will impact future transactions.
IFRS 8 Operating segments
This standard will come into effect on January, 1 2009. It will apply to financial years beginning on or after this date. The standard deals with the breakdown of the company’s operations into different segments. According to the standard, the company shall base this on its internal reporting structure and decide the segments to be reported on in accordance with this structure. Securitas’ segment reporting will not be impacted by this standard.
IFRIC 11 IFRS 2 Group and treasury share transactions
Will come into effect on January 1, 2008 and will apply to financial years beginning after that date. The Group will apply IFRIC 11 as of January 1, 2008 but the interpretation is not expected to have any impact on the consolidated financial statements.
IFRIC 12 Service concession arrangements
Comes into effect on January 1, 2008 and will apply to financial years beginning after that date. This interpretation does not apply to the Group since this type of transaction does not occur.
IFRIC 13, Customer loyalty programmes
This interpretation will come into effect on July 1, 2008. IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group’s operations.
IFRIC 14 – IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction
This interpretation will come into effect on January 1, 2008. The interpretation is still subject to endorsement by the European Union. IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The group will apply IFRIC 14 from 1 January 2008, but it is not expected to have any material impact on the Group’s financial statements.

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Scope of the consolidated financial statements (IFRS 3)
The consolidated financial statements relate to the Parent Company Securitas AB and all subsidiaries. Subsidiaries are all companies where the Group has the right to govern the financial and operational policies in order to achieve economic benefits, in a way that normally follows a shareholding of more than one half of the voting rights.
Purchase method of accounting (IFRS 3)
The purchase method of accounting is used to account for the acquisitions of subsidiaries and operations by the Group. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of income.
The consolidated financial statements include companies acquired with effect from the date of the acquisition. Companies divested are excluded with effect from the divestment date.
Pricing of deliveries among Group companies is based on normal business principles. Inter-company transactions, balances and unrealized gains between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Minority interests (IFRS 3)
The Group has adopted the principle of treating transactions with minority interests as transactions with parties outside the Group. Disposals of minority interests result in gains and losses for the Group and are recognized via the statement of income. Acquisitions of minority interests give rise to goodwill that is determined as the difference between the purchase price paid and the acquired share of the book value of the subsidiaries’ net assets.
Investments in associates (IAS 28)
The equity method is used to account for shareholdings that are neither subsidiaries nor joint ventures, but where Securitas can exert a significant influence, generally accompanying a shareholding of between 20 percent and 50 percent of the voting rights. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed as a result of the acquisition are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is attributed to goodwill. If the cost of acquisition is less than the fair value of the net assets of the associated company acquired, the difference is recognized directly in the consolidated statement of income.
 
The consolidated financial statements include associated companies with effect from the date of the acquisition. Associated companies divested are excluded with effect from the divestment date. Inter-company transactions, balances and unrealized gains between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associate. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
 
Share in income of associated companies are recognized in the consolidated statement of income depending on the purpose of the investment. Associated companies that have been acquired to contribute to the operations (operational) are included in operating income after amortization. Associated companies that have been acquired as part of the financing of the Group (financial investments) are included in income before taxes as a separate line within the finance net. In both cases the share in income of associated companies are net of tax. The classification of associated companies has been Services Pvt Ltd, which was acquired in 2007, and Facility Network A/S, which was formed in 2007, have been classified as operational associates. The associated company Securitas Employee Convertible 2002 Holding S.A., has up until its liquidation in 2007 been classified as a financial investment. In the consolidated balance sheet, investments in associated companies are stated at cost including the cost of the acquisition that is attributed to goodwill, adjusted for dividends and the share of income after the acquisition date.
Joint ventures (IAS 31)
The proportional method is applied to joint ventures in which there is a shared controlling interest. According to this method, all statement of income and balance sheet items are stated in the consolidated statement of income, the consolidated statement of cash flow and the consolidated balance sheet in proportion to ownership. The proportional method of consolidation is used with effect from the date when a shared controlling interest is achieved and up until a shared controlling interest ceases to exist.
Translation of foreign subsidiaries (IAS 21)
The functional currency of each Group company is normally determined by the primary economic environment in which the company operates, that is the currency in which the company primarily generates and expends cash. The functional currency of the Parent Company and the presentation currency of the Group, that is the currency in which the financial statements are presented, is the Swedish krona (SEK).
 
The financial statements of each foreign subsidiary are translated according to the following method. Each month’s statement of income is translated using the exchange rate prevailing on the last day of the month, which means that income for each month is not affected by foreign exchange fluctuations during subsequent periods. Balance sheets are translated using exchange rates prevailing at each balance sheet date. Translation differences arising in the conversion of balance sheets are posted directly to equity and thus do not affect income for the year. The translation difference arising because statements of income are translated using average rates, while balance sheets are translated using exchange rates prevailing at each balance sheet date, is posted directly to equity. Where loans have been raised to reduce the Group’s foreign exchange/translation exposure in foreign net assets, and qualify for the hedge accounting criteria, exchange rate differences on such loans are recognized together with the exchange rate differences arising from the translation of foreign net assets in the translation reserve in equity. When a foreign operation or part thereof is sold, such exchange differences are recognized in the statement of income as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Revenue recognition (IAS 11 and IAS 18)
The Group’s revenue is generated from various types of security services and cash handling services as well as from some remaining revenue arising from the sale of alarm products. Revenue from services is recognized in the period in which it is
earned. Alarm installations accordance with the percentage of completion method. According to this method, revenue, expenses, and thus, income are recognized in the period in which the work was that can be recognized as revenue is based on the time spent in relation to the total estimated time.
Trademark fees from the former subsidiaries Securitas Direct AB and Securitas Systems AB relating to the use of the Securitas trademark are recognized on an accrual basis in accordance with the substance of the agreement, and are based on the sales recognized by Securitas Direct AB and Securitas Systems AB.
Interest income and borrowing costs are recognized in the statement of income in the period to which they are attributable.
Segment reporting (IAS 14)
The Group’s operations are as of January 1, 2007 divided into four divisions (Security Services North America, Security Services Europe, Mobile and Monitoring, and Loomis) that provide the operational structure for governance, monitoring and reporting. Each division represents a primary segment. The segment structure has been changed compared to last year as follows: The primary segment Mobile and Monitoring consists of the two business units Mobile and Alert Services, which previously where included in Security Services Europe. The guarding operations in Argentina, which previously was included in Security Services Europe now together with the newly acquired subsidiaries in Uruguay, Colombia and Peru as well as the newly acquired associated company in India form part of Other. Other already includes general administrative expenses, expenses for head offices and other central expenses that according to IAS 14 should be excluded from the segments as relating to the Group as a whole. The Group’s joint venture Securitas Direct S.A. (Switzerland) is also included in Other. Moreover, the assets and liabilities of each segment include only those items that have been utilized or arisen in ongoing operations. Non-operational balance sheet items, primarily current tax, deferred tax, and provisions for taxes, are accounted for under the Other heading. The segments Security Services North America and Loomis (previously Cash Handling Services) have not been affected by the changed segment structure. For further information regarding the segments operations, refer to Note 9. The secondary segments are the geographical areas in which the Group is active: Nordic region, Europe excluding Nordic Region, North America and the operations outside these regions included in the Rest of world. The geographical breakdown represents various levels of market development in terms of wages, employee turnover, product mix, market growth and profitability. The total sales for each geographical segment are based on the location of the sales. The location of the sales corresponds in all material aspects to the location of the customers.
Accounting for government grants and disclosure of government assistance (IAS 20)
Securitas like other employers is eligible for a variety of grants relating to employees. These grants relate to training, incentives for hiring new staff, reduction of working hours, etc. All grants are accounted for in the statement of income as a cost reduction in the same period as the related underlying cost.
Taxes (IAS 12)
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
A deferred tax asset is recognized when it is probable that sufficient taxable income will arise that the deferred tax asset can be offset against. Deferred tax assets are valued as of the balance sheet date, and any potential previously unvalued deferred tax asset is recognized when it is expected to be usable, or correspondingly, reduced when it is expected to be wholly or partly unusable against future taxable income.

Current and deferred taxes are posted directly to shareholders’ equity if the relevant