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 30. Contingent liabilities Senior Facility Agreement FS Funding A/S has executed a share pledge over its shares in ISS A/S as security for ISS Global´s senior facilities and a secondary share pledge over such shares as security for the subordinated notes issued by FS Funding A/S. ISS Global A/S, a 100% owned subsidiary of ISS A/S, acceded to the senior facilities agreement and thereby obtained a right to make borrowings under the senior facilities. ISS A/S, ISS Global A/S and certain material subsidiaries of ISS Global A/S in Australia, Belgium, Denmark, Finland, France, the Netherlands, Norway, Spain, Sweden, and the United Kingdom have provided guarantees for ISS Global A/S' borrowings under the senior facilities. The guarantees have been backed up by security over bank accounts, trade receivables, intra-group receivables and intellectual property rights of ISS A/S and these subsidiaries. In addition, the shares in the material subsidiaries and shares in certain of their subsidiaries as well as shares in certain subsidiaries in Austria, Germany, Hong Kong, Ireland, Portugal, Singapore and Switzerland have been pledged. Neither ISS A/S nor any of its direct of indirect subsidiaries have guaranteed or granted any security for FS Funding's borrowing used for financing the acquisition of ISS A/S. Operating leases Operating leases consist of leases and rentals of properties, vehicles (primarily cars) and other equipment. The total expense under operating leases in the income statement amounted to DKK 1,679 million (DKK 1,462 million in 2005). Assuming the current car fleet etc. is maintained, the future minimum lease payments under operating leases are: Year 1 Year 2 Year 3 Year 4 Year 5 After 5 years Total lease payment At 31 December 2006 1,161 820 574 393 262 424 3,634 At 31 December 2005 1,029 749 511 323 205 303 3,120 Additional future lease payments of DKK 10 million (DKK 26 million in 2005) existed regarding associates at 31 December. Commitment vehicle leases On 1 January 2005 ISS Global entered into a new global car fleet lease framework agreement for three years, including an option for extension for another subsequent three year term. The framework agreement contains an option for ISS Global to terminate the underlying agreement for an entire country or the entire commitment with four weeks notice, to the end of a quarter subject to payment of a termination amount. The majority of the underlying agreements have a duration of 3-5 years. The disclosed contingent liablity includes ISS Global's total leasing commitment assuming no early termination of any agreement. Guarantee commitments Indemnity and guarantee commitments at 31 December 2006 amounted to DKK 361 million (DKK 243 million in 2005). Performance guarantees ISS Global issued performance guarantee bonds for service contracts with an annual revenue of DKK 983 million (DKK 869 million in 2005) of which DKK 758 million (DKK 667 million in 2005) were bankguaranteed performance bonds. Such performance bonds are issued in the ordinary course of business in the service industry. Outsourcing of IT ISS Global has an IT outsourcing agreement with Computer Sciences Corporation (CSC) running until 2015. ISS Global's contractual obligations related to the agreement at 31 December 2006 amounted to approximately DKK 388 million (DKK 430 million in 2005). ISS Global and CSC have been in discussions on implications of certain aspects of the outsourcing agreement. These discussions included various claims of each party and have lead to change of scope of the contract. As part of the re-scoping of the IT outsourcing agreement ISS Global has incurred costs amounting to DKK 100 million, which have been recognised at 31 December 2006 in Other income and expenses, net. The subsequent discussions regarding re-scoping of the contract between ISS Global and CSC as well as the incurred costs, which have been recognised at 31 December 2006, have resulted in a reduction of ISS Global's contractual obligations of at least DKK 160 million. Continues _____________________________________________________________________________________________________________ ANNUAL REPORT 2006 / Consolidated Financial Statements 88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 January – 31 December. Amounts in DKK millions 30. Contingent liabilities (continued) Divestments ISS Global makes provisions for claims from purchasers or other parties in connection with divestments and representations and warranties given in relation to such divestments. Management believes that provisions made at 31 December 2006 are adequate. However, there can be no assurance that one or more major claims arising out of ISS Global's divestment of companies will not adversely affect ISS Global's activities, results of operations and financial position. Legal proceedings ISS Global is party to certain legal proceedings. Management believes that these proceedings (which are to a large extent labour cases incidental to its business) will not have a material impact on ISS Global's financial position beyond the assets and liabilities already recognised in the balance sheet at 31 December 2006. Other contingent liabilities The Brazilian tax authorities have filed two claims and raised certain other inquiries against ISS Brazil relating to corporate income tax for the year 1995 on realisation of inflationary gain, federal taxes related to 1999 and other federal taxes and social securities amounting to DKK 87 million. These claims and inquiries are unlikely to be resolved in the short to medium term and the outcome is uncertain. _____________________________________________________________________________________________________________ ANNUAL REPORT 2006 / Consolidated Financial Statements 89
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ISS Global A/S Bredgade 30 DK - 126
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Key Figures Amounts in DKK millions
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growth. Furthermore, the effect of
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In 2006, ISS Global continued the p
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to costs related to a turnaround pl
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structure, ISS established an Opera
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Strategy ISS Global is a fully owne
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Geography ISS intends to increasing
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Openness and transparency In additi
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tors. The controllers perform follo
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Risk Factors ISS Global is a fully
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tual obligations could harm ISS’s
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If ISS fails to manage growth and i
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ISS may incur substantial liabiliti
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thus reduce or prevent dividend pay
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Independent Auditor’s Report To t
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Organic growth ISS Global uses esti
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2006 primarily related to redundanc
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Page 41 and 42: CONSOLIDATED CASH FLOW STATEMENT 1
Page 43 and 44: CONSOLIDATED STATEMENT OF TOTAL REC
Page 45 and 46: NOTES TO THE CONSOLIDATED FINANCIAL
Page 87: NOTES TO THE CONSOLIDATED FINANCIAL
Page 103 and 104: CASH FLOW STATEMENT OF THE PARENT C
Page 105 and 106: STATEMENT OF TOTAL RECOGNISED INCOM
Page 107 and 108: NOTES TO THE FINANCIAL STATEMENTS O
Page 123: Definitions EBITDA = Operating prof
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Annual Report 2006 ISS Global A/S

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