Annual Report 2006 ISS Global A/S

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 January – 31 December. Amounts in DKK millions
1. Significant accounting policies (continued)
Brands Acquisition related brands are recognised at fair value at the date of acquisition. Subsequently, acquired brands with
indefinite useful lives are measured at historical cost less any accumulated impairment losses while acquired brands with finite useful
lives are measured at historical cost less accumulated amortisation and any accumulated impairment losses. Amortisation is
provided on a straight-line basis over the expected useful life of the brand.
The valuation of acquired brands is based on a discounted cash flow model using the after-tax royalty payments (the royalty relief
method). Cash flows are discounted on an after tax basis using the local Weighted Average Cost of Capital (WACC) plus a risk
premium for the assumed risk inherent in the brand.
The net present value of the cash flow is increased with an estimated portion of the discounted tax amortisation benefit applicable for
a potential buyer based on the local tax amortisation opportunity available for brand names when bought as a trade and asset
purchase. The tax amortisation benefit is discounted. This increased value of the brand equals the fair value at the date of
acquisition.
A deferred tax liability is calculated at the local tax rate on the difference between the book value and the tax value. The initial
recognition of this deferred tax liability increases the amount of goodwill.
The value of brands is tested for impairment as part of the impairment test.
Customer contract portfolios and related customer relationships Acquisition related customer contract portfolios and related
customer relationships are recognised at fair value at the date of acquisition and subsequently carried at cost less accumulated
amortisation and any accumulated impairment losses. The value is amortised based on the churn rate of the acquired portfolio using
the declining balance method. This churn rate is calculated on a contract by contract basis and has historically averaged
approximately 12% to 13% annually. In certain cases the value of customer contracts is amortised on a straight line basis based on
the legal duration of the acquired contract.
The valuation of customer contract portfolios and related customer relationships is based on a discounted cash flow model using an
estimated split of the acquired revenue in business segments and the related churn rates and profitability of the revenue at the time
of the acquisition. A contributory asset charge as a cost or return requirement for assets supporting the intangible asset has been
included in the model. Cash flows are discounted on an after tax basis using the local Weighted Average Cost of Capital (WACC)
plus a risk premium for the assumed risk inherent in customer contract portfolios and related customer relationships.
The net present value of the cash flow is increased with an estimated portion of the discounted tax amortisation benefit applicable for
a potential buyer based on the local tax amortisation opportunity available for customer contract portfolios and customer relationships
when bought as a trade and asset purchase. The tax amortisation benefit is discounted. This increased value of customer contract
portfolios and related customer relationships equals the fair value at the date of acquisition.
A deferred tax liability is calculated at the local tax rate on the difference between the book value and the tax value. The initial
recognition of this deferred tax liability increases the amount of goodwill.
The value of customer contract portfolios and related customer relationships is tested for impairment as part of the impairment test.
Software and other intangible assets and property, plant and equipment are measured at cost less accumulated amortisation,
depreciation, impairment loss and write-down.
Cost of assets includes cost price as well as costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended. To the cost price is added the estimated cost of dismantling and removing
the item and restoring the site on which it is located to the extent that this cost is recognised as a provision.
Subsequent costs of replacing part of an item are recognised as an asset if it is probable that the future economic benefits embodied
with the item will flow to ISS Global. The remaining carrying amount of the replaced item is de-recognised in the balance sheet and
transferred to the income statement. All other costs for common repairs and maintenance are recognised in the income statement as
and when incurred.
When measuring the value of software developed for internal use, external costs to consultants and software as well as internal direct
and indirect costs related to the development are capitalised. Other development costs for which it cannot be rendered probable that
future economic benefit will flow to ISS Global are recognised in the income statement as and when incurred.
Amortisation and depreciation is provided on a straight-line basis over the expected useful lives of the assets taking into account the
estimated residual value. The amortisation and depreciation methods, useful lives and residual values are reassessed annually.
Continues
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ANNUAL REPORT 2006 / Consolidated Financial Statements
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