Annual Report 2006 ISS Global A/S

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 January – 31 December. Amounts in DKK millions 1. Significant accounting policies The consolidated financial statements of ISS Global A/S as of and for the year ended 31 December 2006, comprise ISS Global A/S and its subsidiaries (together referred to as “ISS Global”) and ISS Global’s interests in associates and jointly controlled entities. STATEMENT OF COMPLIANCE The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU being effective for accounting periods beginning on 1 January 2006, and the statutory order on the adoption of IFRS issued pursuant to the Danish Financial Statements Act. Amendments to IAS 21, “The Effects of Changes in Foreign Exchange Rates”, and IAS 39, “Financial Instruments: Recognition and Measurement”, both being effective for accounting periods beginning on 1 January 2006, have had no impact on the consolidated financial statements of ISS Global A/S. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements except for the change described below in respect of the changed classification of Interest paid in the cash flow statement. BASIS OF PREPARATION The consolidated financial statements have been prepared on the historical cost basis, as modified by the revaluation of available-forsale financial assets, and financial assets and liabilities (including derivative financial instruments) at fair value through the income statement. CHANGES IN ACCOUNTING POLICIES Compared to prior years, the presentation of interest paid in the cash flow statement has been changed. To better reflect the distinction between operating and financing activities following the acquisition of ISS A/S by FS Funding A/S interest paid is now included in cash flow from financing activities instead of cash flow from operating activities. Comparative figures have been restated accordingly. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. ISS Global believes the following are the areas involving critical accounting estimates and judgements used in the preparation of the consolidated financial statements: revenue recognition and determination of deferred income the valuation of identifiable assets, liabilities and contingent liabilities in connection with the acquisition of subsidiaries/operations the impairment testing of goodwill, brands, customer contract portfolios and related customer relationships, and any other acquisition-related intangible assets the actuarial calculations regarding pension benefits the valuation of provisions other than pension benefits the assessment of ongoing litigations and the valuation of contingent liabilities the valuation of tax assets and bad debt provisions. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revisions affect only that period, or in the period of the revision and future periods if the revision affects both current and future periods. BASIS OF CONSOLIDATION Subsidiaries The consolidated financial statements include ISS Global A/S and all subsidiaries in which ISS Global A/S, directly or indirectly, holds more than 50% of the voting rights or otherwise has a controlling interest. The consolidated financial statements are based on the financial statements of ISS Global A/S and the individual subsidiaries by adding items of a similar nature. Associates Entities, which are not regarded as subsidiaries, but in which ISS Global holds investments and exercises a significant, but not a controlling influence are regarded as associates. The proportionate share of the associate’s profit or loss after tax is recognised in the income statement in the consolidated financial statements in accordance with the equity method. Continues _____________________________________________________________________________________________________________ ANNUAL REPORT 2006 / Consolidated Financial Statements 46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 January – 31 December. Amounts in DKK millions 1. Significant accounting policies (continued) Joint ventures ISS Global’s interests in jointly controlled entities are regarded as joint ventures and recognised in the consolidated financial statements by including ISS Global’s proportionate share of the entities’ assets, liabilities, income and expenses on a lineby-line basis with items of a similar nature. Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses on income and expenses arising from intra-group transactions are eliminated when preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of ISS Global’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Business combinations Acquired entities are included in the consolidated financial statements as from the date when control commences. Entities that are divested or wound-up are included until the date where control ceases or the entity is wound-up. Comparative figures are not restated for entities acquired, divested or wound-up. Acquisitions are treated in accordance with the purchase method, under which identifiable assets, liabilities and contingent liabilities of acquired entities are recognised in the balance sheet at fair value at the date of acquisition. Identifiable intangible assets are recognised if separable or if they arise from contractual or other legal rights, provided that the fair value can be measured reliably. Tax impact related to fair value adjustments is taken into account. Excess cost of acquisition over the fair value of acquired assets, liabilities and contingent liabilities is capitalised as goodwill. Goodwill is allocated to cash-generating units and tested for impairment annually. The first impairment test is prepared no later than at the end of the year of acquisition. For acquisitions made prior to implementing IFRS as at 1 January 2004, goodwill is included on the basis of its deemed cost, which represents the net book value as at 31 December 2003, recorded under previously applied accounting policies. If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is effected, adjustments made within twelve months of the acquisition date to the provisional fair value of acquired assets, liabilities and contingent liabilities or cost of the acquisition, are adjusted to the initial goodwill. The adjustment is calculated as if it was recognised at the acquisition date. Comparative figures are restated. Subsequent to this period, goodwill is only adjusted for changes in estimates of the cost of the acquisition being contingent on future events. However, subsequent realisation of deferred tax assets not recognised on acquisition will result in the recognition in the income statement of the tax benefit concurrently with a write-down of the carrying amount of goodwill to the amount that would have been recognised if the deferred tax asset had been recognised at the time of the acquisition. Gains or losses on the divestment or winding-up of subsidiaries or associates are measured as the difference between the sales or winding-up sum adjusted for directly related divestment or winding-up costs and the carrying amount of the net assets at the time of disposal or winding-up including any carrying value of goodwill. Accumulated exchange rate adjustments on divested or wound-up subsidiaries or associates recognised in equity after 1 January 2004, the date of transition to IFRS, are included in the income statement under Net finance costs at the time of divestment or wind-up. Foreign currency Items included in the financial statements of each of ISS Global’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Danish kroner, which is the functional and presentation currency of ISS Global A/S. Transactions in foreign currency are translated into the functional currency at the exchange rate ruling at the date of transaction. Monetary assets and liabilities in foreign currency are translated at the exchange rate ruling at the balance sheet date. Nonmonetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction. The income statements of foreign subsidiaries are translated into Danish kroner using the average exchange rates prevailing during the year, whereas balance sheet items are translated by applying the exchange rates ruling at the balance sheet date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity having a functional currency different from Danish kroner are treated as assets and liabilities belonging to the foreign entity and translated into Danish kroner at the exchange rates ruling at the balance sheet date. Continues _____________________________________________________________________________________________________________ ANNUAL REPORT 2006 / Consolidated Financial Statements 47
Page 1 and 2: ISS Global A/S Bredgade 30 DK - 126
Page 3 and 4: Key Figures Amounts in DKK millions
Page 5 and 6: growth. Furthermore, the effect of
Page 7 and 8: In 2006, ISS Global continued the p
Page 9 and 10: to costs related to a turnaround pl
Page 11 and 12: structure, ISS established an Opera
Page 13 and 14: Strategy ISS Global is a fully owne
Page 15 and 16: Geography ISS intends to increasing
Page 17 and 18: Openness and transparency In additi
Page 19 and 20: tors. The controllers perform follo
Page 21 and 22: Risk Factors ISS Global is a fully
Page 23 and 24: tual obligations could harm ISS’s
Page 25 and 26: If ISS fails to manage growth and i
Page 27 and 28: ISS may incur substantial liabiliti
Page 29 and 30: thus reduce or prevent dividend pay
Page 31 and 32: Independent Auditor’s Report To t
Page 33 and 34: Organic growth ISS Global uses esti
Page 35 and 36: 2006 primarily related to redundanc
Page 37 and 38: Tempo as well as a number of smalle
Page 39 and 40: including non-interest-bearing debt
Page 41 and 42: CONSOLIDATED CASH FLOW STATEMENT 1
Page 43 and 44: CONSOLIDATED STATEMENT OF TOTAL REC
Page 45: NOTES TO THE CONSOLIDATED FINANCIAL
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NOTES TO THE CONSOLIDATED FINANCIAL
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CASH FLOW STATEMENT OF THE PARENT C
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STATEMENT OF TOTAL RECOGNISED INCOM
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NOTES TO THE FINANCIAL STATEMENTS O
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Definitions EBITDA = Operating prof
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Annual Report 2006 ISS Global A/S

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