6
0
2

0

6
0
2

0

6
0
0
2

Bonding Systems

Movement Systems

Movement Systems

Forbo Holding AG
Lindenstrasse 8
CH-6340 Baar
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com
Forbo International SA
Lindenstrasse 8
CH-6340 Baar
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com

Forbo Annual Report

Bonding Systems

Forbo Annual Report

Flooring Systems

Forbo Annual Report

Flooring Systems

Our Annual Reportis published in German andin an English translation.
Typesetting, Litho and Printing:
Neidhart +Schön AG, Zurich

Photos:Markus Senn, Biel
Luxwerk, Zurich (page 14 two photos)

Concept and Design:
Gottschalk+Ash Int’l, Zurich

Publisher:
Forbo Holding AG, Baar

Imprint

March 2007

Annual Report 2006

Forbo is back on the path to success
One Group
In the year under review, Forbo continued to pursue its goal of developing
all three divisions – flooring, adhesives and belting – into one market-driven
company under a single umbrella brand.
A prerequisite for sustainable success is the ability to adapt to continuously
changing markets. This also implies changes within the company: processes
have to be continuously optimized, and an innovative mindset is essential
to adapt products and services to customer needs that are evolving all the time.
At the end of such a long-term and successful process is greater market acceptance, a stronger global presence and a more efficient use of resources.
One identity
To implement plans on this scale successfully, the company needs proactive,
motivated people who approach customers, suppliers, business partners andcolleagues with an identical way of thinking and who share the same values.
What does Forbo stand for? How does it develop a success-driven culture
geared to generating ideas and solving problems? Which shared values areimportant for us? These are the questions that senior management fromaround the world had dealt with in order to define the shared Forbo values atthe beginning of 2006. By the end of the summer of 2006, all employees
were familiarized with these values and principles as they were cascaded downwards in local workshops. ‘The Forbo Way to Win’ – that’s what Forbo calls
the joint path to success.

Until now:

Flooring
Until now:

Adhesives
Until now:

Belting

One brandIn order to be present on the market with a common objective – i.e. to be thepreferred partner in all its core competencies – Forbo will take the next logical step and transform its brand strategy into a master brand concept. From
many different brands one brand standing for the company’s competencies
will emerge, aligned with the company’s ambitious growth targets.
All companies in the Forbo Group are now involved in adopting the Forbomaster brand in order to signal their affiliation with the Group.

This development process was started in 2005, and now isnearing the launch of a new era, thanks to the invaluableparticipation of all employees: Forbo is ready to rise to thechallenge of the market as one corporate group with a uniform identity.
This consistent identity is also evident from the new namesof our three divisions.

New:

Flooring Systems
New:

Bonding Systems
New:

Movement Systems
The addition of the word ‘Systems’ is motivated by the determination to be open
and flexible for internal and external developments in the future: for instance,by making targeted acquisitions in order to round off and extend our current
range of products and services. The idea of systems is associated with a systematic approach – from procurement of raw materials right up to communication with the end users – and is characterized by discernment, efficiency
and intelligence in connection with people, resources and the environment.

Contents
Forbo Annual Report 2006
6 Forbo Portrait
7 Financial Overview Group
8 To our Shareholders
10 Innovative Products and Services

Forbo Flooring Systems
Forbo Bonding Systems
Forbo Movement Systems
16 Forbo Group:
Strong earnings growth in all divisions
22 Flooring Systems:
System provider approach is paying off
25 Bonding Systems:
Successful entry in the Chinese market
28 Movement Systems:
Strong growth worldwide
31 Group Structure
34 Corporate Governance
52 The Forbo Share
Forbo Group Financial Report
57 Consolidated Income Statement
58 Consolidated Balance Sheet
59 Consolidated Cash Flow Statement
60 Consolidated Statement of Recognized Income and Expenses
61 Group Accounting Policies
70 Notes
94 Group Companies
98 Report of the Group Auditors
99 Consolidated Income Statements 2002–2006
100 Consolidated Balance Sheets 2002–2006

Financial Statements of Forbo Holding AG
102 Income Statement
103 Balance Sheet
104 Notes to the Financial Statements
107 Proposal for Appropriation of Available Earnings
108 Report of the Statutory Auditors

Forbo is a leading producer of flooring systems, chemical bonds andadhesives, as well as power transmission and conveyor belt solutions. The
company employs some 5,800 people and has an international networkof 30 production companies with distribution, and 40 sales organizations in a total of 33 countries. Forbo is headquartered in Baar in the
canton of Zug, Switzerland.
Forbo .
Flooring Systems .

Flooring Systems provides environmentally friendly linoleum, high-quality
vinyls, needlefelt and parquetry. Thanks to their excellent attributes and attractive design, the floor coverings from Forbo are invariably the first choicein public buildings, hospitals, schools, commercial offices and in residential
markets. With a market share of nearly 65 percent, Forbo is the world leader
in linoleum.

Forbo .
Bonding Systems .

Bonding Systems is among the top suppliers worldwide of industrial adhesives.
Its high-performance products ensure stable and durable bonding and aresuited for a wide range of materials in key markets such as paper processing,shoe and textile industries, automotive interior trims and furniture as wellas product assembly. Bonding Systems also provides ready-made adhesives forlaying flooring and tiles as well as welding rods and leveling compounds forthe construction industry. Synthetic polymers are the third pillar of Bonding
Systems; this unit specializes in emulsion polymers for various markets suchas the adhesives and paint industries or the construction industry.

Forbo .
Movement Systems .

Movement Systems is a global industry leader providing first-class power transmission belts, high-quality conveyor and processing belts as well as plastic
modular belts, timing and flat belts. These products are known under the brandname Siegling. They are used in a wide range of applications in industry,
trade and the service sector, e.g. as conveyor belts in the food industry, treadmill belts in fitness studios and as flat belts in mail distribution centers.

Net sales by divisions
CHF m

Change on previous year*
2006 effective %currency adj. %Flooring Systems
Bonding Systems
Movement Systems
Total

794.2
731.1
354.2
1,879.5

6.3
16.3
8.5
10.4

%

4.9
42.3
14.7
38.9
8.1
18.8
9.1 100.0

Employees by divisions
2006

Forbo Annual Report 2006

Flooring Systems
Bonding Systems
Movement Systems
Headquarters
Total

6

2,322
1,512
1,926
41
5,800

Change2005/2006 %%0.1 40.0
14.6 26.1
3.5 33.2
4.7
0.7
4.7 100.0

Financial Overview Group
2006

2005

2006

2005

m CHF

m CHF

m EUR 2)m EUR 2)

Income statement
1,879.5

1,702.0

1,194.1

1,097.4

Flooring Systems

794.2

747.0

504.6

481.6

Bonding Systems

731.1

628.5

464.5

405.2

Movement Systems

354.2

326.5

225.0

210.5

EBITDA before special charges

182.3

135.1

115.8

87.1

EBITDA

182.3

109.3

115.8

70.5

EBIT before special charges and impairment

109.6

64.7

69.6

41.7

EBIT

109.6

23.9

69.6

15.4

Group profit/loss

61.2

–16.5

38.9

–10.6

Total assets

1,498.6

1,591.0

952.1

1,025.8

Operating assets

Net sales

Balance sheet
1,181.9

1,156.1

750.9

745.4

Shareholders’ equity

638.6

558.1

405.7

359.8

Net debt

43.3

109.3

27.5

70.5

Cash flow from operating activities

157.3

134.9

99.9

87.0

Capital investments

67.0

46.4

42.6

29.9

Free cash flow

90.3

88.5

57.4

57.1

%

%

9.7

7.9

(EBIT operating assets)

9.3

5.6

Equity ratio (shareholders’ equity/total assets)

42.6

35.1

Gearing (Net debt/shareholders’ equity)

6.8

19.6

Cash flow statement

Key figures
ROS, gross(EBITDA net sales)
ROA

Employees (as of December 31)

NumberNumber

5,800

5,538

CHF

CHF

EUR 2)EUR 2)

Details per share
Earnings (undiluted)

23.60

–6.26

15.00

–4.04

Equity246.35211.81156.51

136.62

6.0 1)

0.0 1)

3.8

0.0

m CHF

m CHF

m EUR 2)m EUR 2)

1,252.5

750.9

Par value reduction

Stock market capitalization (as of December 31)

2)

484.1

Proposal of the Board of Directors to theAnnual General Meeting.
EUR values translated at the annual average rate of
CHF 1.574/1 EUR (2006) and 1.551/1 EUR (2005).

Forbo Annual Report 2006

1)

795.7

7

To our Shareholders

Dear Ladies and Gentlemen,
We are on .
the right path .

Following a difficult period of restructuring and reorientation in all threedivisions, Forbo can look back on a successful business year 2006. We succeededin significantly increasing sales and profits in all divisions. Decisive for thisturnaround was the successful completion of the measures taken in the past two
years to raise profitability. Moreover, the defined strategies and measures toincrease efficiency were systematically implemented in all three divisions. Thevery positive trend on most markets also helped us in our activities.
This result impressively confirms that Forbo is back on the path to success.
Progress in all three divisions

Strong organic .
growth .

Sales were increased by 10.4 % from CHF 1,702.0 million to CHF 1,879.5 million.
Organic growth came to 7.0 %. The positive impact of currency exchanges
accounted for 1.3 % of the increase and the acquisition of Victa (Guangzhou)
Chemicals Co. Ltd. in China as well as the purchase of the net assets of a Belgian
dealer accounted for 2.1%.
Profitability improved in all areas

Net profit .
increased four-fold .

A number of factors contributed to a positive raise in profitability for the
Forbo Group: solid growth in sales revenue, the successful implementation of
measures to increase efficiency and profits, and the elimination of special
charges.
Forbo increased operating cash flow (EBITDA) by 34.9 % versus the previous
year to CHF 182.3 million. Operating profit (EBIT) rose by 69.4 % to CHF 109.6
million, while net profit came to CHF 61.2 million, nearly four times higher
than the previous year (before special charges).
The EBIT margin target of 6–7% for 2007 announced back in 2004 is now withinreach: the EBIT margin in 2006 came to 5.8 % (previous year 3.8 %). All threedivisions contributed to this good result.
Solid equity base and good profitability

Forbo Annual Report 2006

Net debt reduced .

8

Forbo succeeded in further reducing its financial debt by means of careful management of its current assets and owing to the steep rise in profits. Adjusted
for the purchase of its own shares, Forbo would not have any net debt at the endof 2006.

We now have a strong financial foundation with a solid equity base and a healthybalance sheet structure. The equity ratio was 42.6 % at the end of the year.
Furthermore, Forbo holds 5 % of its own shares that can be used for acquisitions or stock option plans. With the substantial improvement in the company’s
profitability and borrowing possibilities, Forbo can grow again through acquisitions.
Over a third of the share capital represented on the Board of Directors
Stable, long-term and .
success-driven .
shareholder base .

The Board of Directors has a direct stake of well over a third in Forbo. This
constellation enables the Executive Board to take a long-term view of businessactivities and gives the other shareholders the security of a success-driven
approach.
Proposal to the ordinary Annual General Meeting

Resumption of .
cash distributions .

Forbo’s dividend policy is geared to the profit development of the Group. Given
the positive trend in profits, the Board of Directors proposes to the Annual
General Meeting that the cash distribution to shareholders should be resumed.
The payout is by way of a par value reduction of CHF 6.00 per share.
Outlook

Motivated .
for the future .

We have started off well in the new year. Although we have noted a slight downturn in the US since the end of 2006, we see growth potential in most of ourmarkets. Following the effective restructuring, we now have the financial resources and a solid management team so that we can successfully tackle the challenges of corporate development over the long-term. We will continue to focus ourefforts on improving profitability, which is not yet at the level we would liketo see and on strengthening our organic and external growth. In particular, wewant to reinforce our position in the fast-growing markets of Eastern Europe
and Asia. For 2007, we anticipate a further increase in sales revenue and a betterthan-average rise in profits.
Thank you

The achievement of the past year has only been possible because everybody at
all levels has worked with motivation and commitment. We would therefore liketo express our gratitude and appreciation especially to all our employees fortheir dedication day after day and for their exemplary effort.
We thank all our partners for the close working relationship and their trust in
Forbo; in particular we would like to express our gratitude to our shareholders
and our loyal customers.

Baar, March 2007

Dr. Albert Gnägi
Chairman of the Board

This E. Schneider
President and CEO
Forbo Annual Report 2006

Our gratitude .
for your commitment .
and trust .

9

10

Forbo Annual Report 2006
Forbo-Geschäftsbericht
2006

Forbo Flooring Systems

Floors create space and determine the use itis put to, their ambiance and comfort. The more
specialized the use, the higher the demands
placed on the quality of the flooring.
Appropriate flooring transforms abstract professional space into a personalized ‘living’room. This is an art that architects and interior
designers master, an art in which the use of
the right materials is essential.
In developing product collections, the Forbo
designers draw their inspiration from nature,art and the latest design trends. The broad
diversity of these designs, which range fromwarm and exotic to cool and sophisticated,with colors stretching from natural wood tosparkling metal, add a unique touch to theambiance.
Flawless and versatile, floorings ensure a highlevel of functionality in innumerable areas,
with minimal maintenance and a long life. In
order to be able to guarantee this high standard
over time, Forbo combines its long-standing
production know-how with new and innovative
trends and materials that are matched to theneeds of a varied clientele.

Forbo Annual Report 2006
Forbo-Geschäftsbericht
2006With eight production facilities and sales organizations in more than 30 countries
around the globe, Flooring Systems is always
close to its customers and provides expert
advice on the spot.

11

Forbo Bonding Systems

High-quality product design often stems froma combination of unusual materials. For a large
number of industries, adhesives and chemicalbonds from Forbo ensure that things thathave been designed to be joined actually stick
together. Forbo’s powerful products ensurestable and durable joints and are suitable fora wide range of materials.
Adhesives are usually not visible, yet they arepresent in innumerable applications fromeveryday life. Adhesives provide long lastingstability to sports shoes and high-quality items
such as footballs resilient but sturdy; they
impart stability to furniture; they join pages
together to make a book; they ensure reliableand durable joints for wooden elements inbridges and prefabricated houses; they bondtiles to the wall; they fix flooring; they join
diverse materials on the inside of vehicles andthey ensure odor-free and stable packaging.
The wide range of uses of Forbo’s high-performance adhesives and chemical bonds is theresult of intensive research and the technological lead this has given us. Our aim is toprovide an even broader range of products,
services technologies and niche solutions to
our customers.

Forbo Annual Report 2006
Forbo-Geschäftsbericht
2006With about 20 production facilities and salesorganizations worldwide, Bonding Systems
is always close to its customers and can givethem expert advice on the spot.

12

13

Forbo Annual Report 2006
Forbo-Geschäftsbericht
2006

14

Forbo Annual Report 2006

Forbo Movement Systems

The world is in motion, and Forbo is contributing its part. Global markets today require
maximum mobility and flexibility in all areasof business – from product innovation toquality management and right up to customer
service. Forbo is not always visible in thisprocess, but it is present almost everywhere,
making sure that things move smoothly.
High-quality conveyor and processing belts inthe food industry ensure that fresh products
are processed efficiently and under hygienic
conditions. Treadmill belts in fitness centers
keep sports enthusiasts on the move. Conveyor
belts and flat belts are key components inpaper manufacturing and processing machines.
They are crucial for printing daily newspapers,
magazines and journals. Conveyor belts provide smooth baggage handling at airports andan efficient flow in the distribution of lettersand packages in logistics centers with state-ofthe-art equipment.

Forbo Annual Report 2006

Forbo’s power transmission and conveyor belt
solutions are synonymous with outstanding
professionalism, quality consciousness as wellas efficiency and reliability. Industrial, tradeand service companies the world over use theseproducts with great success and benefit fromthe dense international service and distribution
network comprising more than 300 service
locations globally.

15

Forbo Group: Strong earnings
growth in all divisions
The positive trend in 2005 continued in 2006 at a higher level. Group salesrose by 10.4 % to CHF 1,879.5 million. In local currencies, this corresponded
to a 9.1% increase. Growth in all three divisions was driven by the robust
US economy, ongoing dynamic expansion in the Asian markets and an
improved economic situation in Europe. The positive trend was confronted
with rising raw material prices, which impacted especially on Bonding
Systems and Movement Systems.
Nevertheless, net income increased almost four-fold to CHF 61.2 million
versus the previous year (before special charges). This is one of the best
results ever achieved by Forbo.
Return on assets (ROA) rose from 5.6 % the previous year to 9.3 % in 2006.

Systematic implementation of the measures to increase efficiency and sales
and to improve profitability had a positive impact on all three divisions and put
Forbo back on track for success. The financial statements for the year 2006
reflect this positive performance in detail.
Satisfying growth in all three divisions
Organic growth .
in all divisions .

Flooring Systems raised sales revenue by CHF 47.2 million to CHF 794.2 million,
which comes to an increase of 6.3%. The environmentally friendly linoleum
floorings posted satisfying sales especially in North America and Europe. New
colors and designs enhanced collections in the vinyl flooring segment and had
a positive impact on the residential segment. Homogeneous, pressed vinyl tiles
with conducting properties also reported strong growth on the whole.
In Bonding Systems all three business segments were instrumental in achieving
solid performance. In industrial adhesives, the segment with the highest revenues generated double-digit sales growth, while the two other segments – building and constructions adhesives and synthetic polymers – developed positively
as well. The division raised sales revenue by a total of CHF 102.6 million to
CHF 731.1 million, which comes to an increase of 16.3 %. Upbeat market
sentiment in all regions gave additional support to this positive trend. Of thestrategic segments, wood, paper and textile processing in particular weresuccessful on the markets with their attractive products.

Forbo Annual Report 2006

Movement Systems raised sales revenue by CHF 27.7 million to CHF 354.2 million, corresponding to a growth of 8.5 %. All regions contributed to this growthin sales revenue, with Europe the strongest, followed by America and Asia.

16

Targeted investments over the past two years to promote development inindividual markets, along with the expansion of the distribution network, helped
the positive trend. In addition, new product launches, especially for the
food-processing industry, have laid a sound foundation for sustainable development. The industrial production and logistics segments also witnessed promising growth.
Net sales by geographic areas%

North, Central and South America
Germany
Benelux
FranceSouthern Europe
Scandinavia
Asia/Australia/Africa
Great Britain/Ireland
Eastern Europe
Switzerland

26.7
11.7
11.5
10.7
9.8
8.5
8.4
5.2
4.9
2.6

Change on previous year
effective % currency adj. %

13.0
7.8
5.8
7.0
31.6
9.8
7.9
1.7
11.5
–5.1

11.7
6.2
4.3
5.5
11.7
7.8
6.8
–0.1
9.8
–5.1

CHF m

2006

502.5
219.1
215.5
200.8
184.3
159.5
159.1
98.1
91.6
49.0
0

50

100

150

200

250

300

350

400

450

500

550

A big improvement in profit margins

A strong growth in volume coupled with the success of the measures to increase
efficiency and profits produced a significant rise in Forbo Group’s profit margins. For the Group as a whole, operating profit before depreciation and amortization (EBITDA) came to CHF 182.3 million, up from CHF 135.1 million
before exceptional charges the previous year. Operating profit (EBIT) was at
CHF 109.6 million, which marked a strong increase compared to the previous
year (CHF 64.7 million before special charges). The EBIT margin thus rose from
3.8 % to 5.8 %, which means that the interim target for 2007 of a 6 –7 % returnon sales has almost been reached.
The Flooring Systems division lifted its operating profit before depreciation andamortization (EBITDA) to CHF 96.2 million, up 11.6 % compared to the previous year (CHF 86.2 million). The strategic reorientation that focused on streamlining core processes, developing new market strategies, and scaling backcosts by exploiting potential synergies had a positive impact. Targeted efforts todevelop certain markets and to complete the product range also impacted
beneficially.
Owing to active management of raw material prices and measures taken to
optimize production, the Bonding Systems division significantly increased
operating profit before depreciation and amortization (EBITDA) to CHF 62.5
million, a 34.7 % increase over the previous year (CHF 46.4 million). Following steady growth as a result of small-scale acquisitions in recent years,
processes and structures were revised in order to better manage future growth.
The Movement Systems division lifted operating profit before depreciation
and amortization (EBITDA) to CHF 33.2 million, a strong 97.6 % rise versus theprevious year (CHF 16.8 million).

Forbo Annual Report 2006

Strong gain in profits .
despite rise in raw .
material prices .

17

The structural and management adjustments made during the previous year
had a considerable impact on earnings for the first time. In addition, by systematically utilizing the location advantages of the various production andfabrication sites, the business was able to increase its efficiency. However, rising
raw material prices eroded margins, though this trend was largely offset byproductivity gains.
The return on assets increased positively from 5.6 % the previous year (before
special charges) to 9.3 %. The net profit development was convincing; it rosealmost four-fold to CHF 61.2 million (in the previous year CHF 16.1 million,
before exceptional charges).
EBIT by divisions
CHF m

Flooring Systems
Bonding Systems
Movement Systems
Headquarters/consolidation

2006

Change*2005/2006 %

64.6
44.9
13.1
–13.0

28.9
43.0
2,083.3
n/a
–50

*

–25

0

25

50

75

100

EBIT 2005 before special charges and impairment

Net financial .
expense .

Net financial expense was reduced from CHF 18.8 million to CHF 13.4 million,
mainly owing to the decrease in debt.

Free cash flow .

Forbo increased cash flow from operating activities by CHF 22.4 million to
CHF 157.3 million. This positive cash flow was offset by an increase of
CHF 20.6 million in investments, bringing total investments to CHF 67.0 million. The resulting free cash flow in the period under review amounted to
CHF 90.3 million (2005: CHF 88.5 million).
Free cash flow 2006
CHF m

Cash flow from operating activities
Cash flow from investing activitites
Free cash flow

157
–67
90
0

25

50

75

100

125

150

175

200

75

100

125

150

175

200

Free cash flow 2005
CHF m

Cash flow from operating activities
Cash flow from investing activitites
Free cash flow1)

135
–46
89
0

Forbo Annual Report 2006

1)

18

Vor Barausschüttung an Aktionäre sowie
Erwerb und Veräusserung von Aktivitäten.

25

50

Balance sheet: sound financial basis for further growth

Total assets declined by CHF 92.4 million to CHF 1,498.6 million comparedwith the end of 2005. All three divisions achieved improvements in the
management of net current assets. Furthermore, Forbo repaid a bond in theamount of CHF 150.0 million on June 8, 2006.

Net debt .

Net debt at the end of the year was at CHF 43.3 million. This significant
CHF 66.0 million reduction in debt essentially reflects the free cash flow generated less the purchase of the company’s own shares. Equity increased by
CHF 80.5 million to CHF 638.6 million, which brought the equity ratio to 42.6 %(in 2005: 35.1 %).
Gearing (net financial liabilities/equity) at the end of December 2006 amounted
to 6.8 % (end of 2005: 19.6 %).
Investments to sustainably improve margins

The Forbo Group invested CHF 64.2 million in fixed assets in 2006 (in 2005:
CHF 49.3 million). The funds were used primarily to finance projects designed
to expand production capacity, to improve efficiency, and to develop newmarkets.

Investments .

Investments at Flooring Systems and Movements Systems were on a par withthe previous year (CHF 17.6 million and CHF 12.7 million, respectively), while
Bonding Systems invested significantly more (CHF 31.0 million) than in theprevious year (in 2005: CHF 19.1 million). This was mainly due to the expansionof plant facilities for higher-value products and the development of the Russian
and Chinese markets.
Proceeds from the sale of fixed assets came to CHF 1.2 million.

Capital investments 2002–2006

2006
2005
2004
2003
2002

Flooring
Systems
CHF m

Bonding
Systems
CHF m

Movement
Systems
CHF m

Corporate

Total

CHF m

CHF m

18
15
27
25
23

31
19
10
10
10

13
14
14
10
11

3
1
4
1
1

65
49
55
46
45
0

10

20

30

40

50

60

70

Forbo Annual Report 2006

Flooring Systems
Bonding Systems
Movement Systems
Corporaten

19

Headcount development
New positions .
in China and Russia .

At the end of the year, Forbo was employing 5,800 people, i.e. 262 more thanat the and of the previous year. In some instances, headcount continued to
decline marginally as a result of the restructuring, but this was compensated forby the strong increase in Eastern Europe and Asia-Pacific. The bulk of the increase in the number of personnel can be attributed to the acquisition of Victa(Guangzhou) Chemicals Co. Ltd. in China.

Employees by geographic areas
Benelux
North, Central and South America
Germany
Asia/Australia/Africa
FranceScandinavia
Great Britain/IrelandSouthern Europe
Switzerland
Eastern Europe%

Change2005/2006 %

2006

20.0
16.6
13.7
11.6
9.7
7.9
6.1
5.4
4.9
4.1

1.9
0.3
–2.3
49.1
0.5
2.0
–10.3
–1.1
–4.5
52.7

1,158
962
795
671
562
461
354
316
284
237

Forbo Annual Report 2006

0

20

200

400

600

800

1 000

1 200

21

Forbo Annual Report 2006

Flooring Systems:
System provider approach is paying off‘ Throughout 2006 our employees strove to attain our claim of system
leadership in all relevant market segments. We expanded our productrange and increased our market presence. The positive sales trend
confirms that customers globally endorse our system offering. We willcontinue to pursue this path with all our energy.’

Tom Kaiser, Executive Vice President Flooring Systems

The Flooring Systems division generated sales revenue of CHF 794.2 million
in 2006. This corresponds to a growth of 6.3 % compared to the previous
year. The increase amounts to 4.9 % in local currencies. Flooring Systems
accounted for 42 % of Group sales (in the previous year: 44 %). Linoleum
sales were above-average in North America and Eastern Europe, while
Germany and Northern Europe also reported satisfying growth. Vinyl
floor coverings for the commercial segment posted large gains, while
revenues in the residential segment declined in general. Operating profit (EBIT) rose to CHF 64.6 million, up by 14.5 million or 28.9 % comparedto the previous year.

Market situation: broad-based growth
Stronger demand .
for environmentally .
friendly floorings .

In the vast majority of our core markets, we saw a positive trend that steadily
gained momentum, leading to buoyant growth. Construction volume, which
had been declining for years in Germany, an important linoleum market,
has now recovered. Demand for environmentally friendly flooring increased,
especially in North America, Eastern Europe, Germany and Scandinavia.
Prices for raw materials and energy again increased significantly, but could beoffset by prompt measures to boost efficiency and by selective price adjustments.
Measures and investments: optimizing production processes

Forbo Annual Report 2006

Market development .
in Eastern Europe .
and China .

22

Extensive measures and investments were made to optimize production
processes and the IT infrastructure. We focused on market development andon completing the product range, achieving our goals for 2006. In particular,
we significantly strengthened the Eastern Europe sales organization andfocused it on the commercial business. In China, we prepared the field for
rapid expansion of the commercial segment.

Products: promising new colors and designs
Linoleum – .
architectural .
innovation prize .

We are pleased that we are on the right track with our linoleum collection
through the key success factor ‘design’. We developed the Marmoleum Dutch
Design with twelve well-known designers. This design won us the ‘Innovationspreis der Architektur’ (architectural innovation prize) in 2007 at the leading
trade fair Domotex in Germany. Flooring Systems also launched a new collection ‘Marmoleum Sport’ in 2006, a universal, environmentally friendly
floor for indoor sports facilities. In its second year on the market, Topshieldwith its outstanding care and cleaning properties very successfully stood
the test with our customers.

New developments .
in the vinyl flooring .
segment .

A new collection called ‘Traffic Hagar-Caldera’ was developed for the important
French market; it addresses the residential construction project business inparticular. New colors and designs generated good sales of the newly launched‘Novilon’ vinyl flooring for residential use. ‘Allura’ design tiles complete our
product range with over a hundred new, exclusive designs in wood, stone, metaland glass look and are aimed at customers in shop fitting and retailing.
Business trend linoleum: sustainable growth

Eastern Europe .
and North America .
post gains .

The linoleum product group again grew by about 7 % to CHF 371 million, thus
contributing 47% to the Group’s total sales revenue. Double-digit sales growthin linoleum markets such as North America and Eastern Europe were achieved.
Germany and the Scandinavian countries also posted good growth rates.
Business trend vinyls: strong performance in the commercial market

The vinyl flooring product group posted revenues of CHF 306 million, contributing 39% to the Group’s total sales. The project business performed wellin the vast majority of our markets, reporting revenue growth of around 18 %.
Sales in the residential market, though, declined as a result of a deliberate
range rationalization policy.
Other product and accessory segments expanded by 7% to CHF 117 million.

Forbo Annual Report 2006

Range rationalization .
in the .
residential market .

23Outlook: creating added value as a system provider
Invest and .
support systems .

We will very selectively expand our product range wherever we can offer evengreater value for our customers as a system provider. Distribution operations are being steadily expanded in Eastern Europe and Asia. Believing as we
do in the significance of the distribution process in the complex, internationalcommercial segment, we are planning major investments in support systems
and training.

Forbo Annual Report 2006

As we are confident that the activities we have planned will meet our customers’
expectations, we expect our flooring business to continue to prosper in 2007.

24

Bonding Systems: Successful entry
in the Chinese market‘ In the 2006 business year, we posted better-than-average growth in
all regions, and for the first time again this trend was supported byexpansion in Europe. The acquisition in the year under review of Victa(Guangzhou) Chemicals Co. Ltd., a manufacturer of hotmelt adhesives
and water-based adhesive materials, enabled us to successfully enter
the market of the future, China. While rising raw material prices werea cause for concern again this year, we were able to cushion the impact
through successful margin management.’
Michel Riva, Executive Vice President Bonding Systems

The Bonding Systems division lifted sales revenue in 2006 by 16.3 % toCHF 731.1 million, equivalent to 14.7 % in local currencies. Bonding
Systems thus accounted for 39 % of Group sales (in the previous year:37 %). While the European markets performed well especially as of thesecond quarter, North America weakened slightly in the fourth quarter.
Despite the further rise in raw material prices, Bonding Systems
increased operating profit substantially by 43.0 % to CHF 44.9 million.

Market situation: positive signals from all regions
Stronger growth .
in Europe .

Market sentiment in the Bonding Systems division was basically upbeat in all
regions. Growth picked up in Europe as of the second quarter, but North
America weakened slightly in the fourth quarter owing to the economic downturn. Better-than-average growth was recorded in the packaging and graphic
industry, in wood processing and in assembly (textile lining and sandwich
panels). The building and construction segment was also given a boost by
the upturn in the Western European construction industry and by the rise inexports to Eastern Europe.

Raw material .
prices still a cause .
for concern .

The cost pressures caused by higher raw material prices in 2005 showed no
let-up in 2006. In addition, delivery bottlenecks occurred for certain commodities, which was a special challenge for management.
Measures and investments:
targeted investments in Russia and North America

The two major investments initiated in early 2006 are now in the implementation phase. At Stary Oskol in Russia, about 550 km south of Moscow, thebuilding of a new production facility for cement-based products in the construction industry is in full swing. The start-up of production is scheduled
for the third quarter of 2007. This local production is expected to open up further development opportunities in Russia and Eastern Europe. The construction of a third reactor in North America for synthetic polymers at Seneca,
south of Chicago, proceeded according to schedule and can come on stream
in the second quarter of 2007.

Forbo Annual Report 2006

Capacity expansion .

25

Introduction of .
lean manufacturing .

The Bonding Systems division has grown continuously worldwide in recent
years through various acquisitions, with the aim of providing even more efficient customer service. The business has revised processes and structuresand launched a production cost optimization program with the aim of structuring this growth more effectively and of being prepared for further expansion. The program involves optimization of production sites and the global
launch of a lean manufacturing drive at all plants, which is expected to achieve
better quality, higher earnings, faster lead time and less waste.
Products: innovative range of polyurethane-based adhesives

Innovative products .

Building on the new products launched in the previous year, Forbo focusedon developing its range of polyurethane-based adhesives in 2006. These
products are employed as dispersions, as reactive hotmelts or as one- or twocomponent reactive adhesives. They can be used universally, are easy toprocess and are environmentally friendly. They thus meet the maximum requirements for modern adhesive systems. Dispersions are found in car interiors
or in the textile industry; reactive hotmelts are gaining importance in the production of sandwich elements for doors or caravan walls; and reactive adhesives
are employed mainly in construction and in the textile and packaging industries.

Forbo Annual Report 2006

Business trend: balanced growth in segments and regions

26

All product groups .
well ahead of .
previous year .

The biggest-selling segment – industrial adhesives – generated double-digit sales
growth. The other two segments – building and construction adhesives and synthetic polymers – also performed satisfactorily. Of the strategic segments, wood,
paper and textile processing in particular turned in a very gratifying performance with their attractive products.

Very strong growth .
in all regions .

Sales growth in Asia was above-average owing to the acquisition in China. North
America also reported double-digit growth, mainly due to the contribution
from Industrial Adhesives Ltd., a company acquired at the end of 2005, and to
price increases in the US market for industrial adhesives and synthetic polymers. Taking the business as a whole, Bonding Systems generated 52 % of its
sales in Europe, 40 % in North America, 7 % in Asia and 1% in other countries.

Outlook: harmonizing the various expansion efforts

In order to be able to harmonize activities worldwide and respond more directly
to the needs of the various market segments, Bonding Systems revamped its
organizational structure at the beginning of 2007, creating a matrix organizationthat factors in both functional and regional aspects.
The trend for raw material prices will remain a challenge in 2007. In order tocounteract this trend, we are stepping up our streamlining and cost-cutting
efforts.
Generally speaking, we expect a positive market trend in Europe and Asia,
though at a lower level than the previous year. North America is expected tofeel the pinch of the economic downturn. In addition to increasing profitability, the focus remains on growth in emerging markets such as Russia andChina.

Forbo Annual Report 2006

Focus on growth in .
emerging markets .

27

Movement Systems:
Strong growth worldwide‘ In the 2006 business year, we achieved broad-based growth worldwide,
driven in particular by strong OEM business and major projects inall core segments and markets. The firm trend of the world economy
also helped. By an accelerating implementation of the segment strategy, we generated growth that was higher than the market average.’

Matthias P. Huenerwadel, Executive Vice President Movement Systems

The Movement Systems division increased sales revenue in the past twelve
months by 8.5 % to CHF 354.2 million. The increase was 8.1% in local
currencies. This accounts for 19 % of total Group sales, the same as theprevious year. All regions contributed to this growth, with Europe thestrongest, followed by America and Asia. Sales in Europe benefited in addition from a small-scale acquisition in Belgium. Growth in Russia andChina was over proportional. Rising raw material prices eroded margins,
but the pressure was alleviated in part by switching over to alternative
materials where possible and by achieving efficiency gains in production
and fabrication. Operating profit (EBIT) came to CHF 13.1 million, which
was considerably higher than the previous year (CHF 0.6 million).

Market situation: expansion in emerging markets
Strong performamce .
in the OEM sector .

With the economy in good shape, OEM plant engineering turned in a strong
performance, thus giving the belting business an additional boost in Europe,
especially in Germany and Italy. Movement Systems was able to gain market
share in the OEM and end customer businesses thanks to its focus on segmentation. The trend in volume-intensive large-scale projects remains positive. In
the year under review, the airports in Seoul, Barcelona and Moscow were outfitted with our belting systems.
Growth in the emerging markets – in particular China and Eastern Europe –was especially pleasing. America benefited from the economy, which remained
strong.

Forbo Annual Report 2006

Logistics in motion .

28

The logistics customer segment, which includes major projects for airports
and distribution centers, reported the largest increase in sales revenue. The foodprocessing industry and the paper and printing industry also performed very
well.

Measures and investments:
targeted investments to develop selected markets
Strengthening .
the organization .

In order to enhance efficiency and flexibility, Movement Systems restructured its
organization in the past year. Marketing and sales for key accounts, the supply
chain, IT and New Product Development are now coordinated at the global level
and headed by expert teams. Moreover, the management team was reinforced
by selective appointments and promotions.

Capitalizing on .
location advantages .

Targeted investments to develop selected markets, the extension of the distribution network and the general reinforcement of the sales organizations were all
factors accelerating sales growth. In addition, the gains in efficiency achieved bycapitalizing on the location of the various production and fabrication sites also
had a positive impact on the bottom line.
Products: innovation for the food industry

Innovation for the .
food industry .

In 2006, Movement Systems focused primarily on developments for the foodprocessing industry. A new line of blue conveyor belts was launched to improve
both hygiene and working conditions. The blue background contrasts with thegoods being conveyed, thus improving hygiene since contamination is identified
more quickly and easily.
A new product development was patented in America: this is a belt designed
specifically for the transport of dairy and meat products. Moreover, an easy-toclean plastic conveyor belt module was developed that meets the demanding
hygiene standards of meat, fish and poultry processing.
There is further growth potential in the food-processing, industrial manufacturing and logistics segments.

Strong stimuli from the OEM business and large-scale projects were a major
factor in the 8.5% increase in sales. The reorganization has been largely completed and will act as a springboard for further healthy, sustainable growth.

Margin pressure .
from rising .
raw material prices .

The ongoing price pressure in the markets, in particular for commodity products and in large-scale projects, along with rising prices for raw materials, led
to margin pressure, which was offset by efficiency gains and streamlining ofinternal processes. There is further room for optimization in global harmonization and organizational integration.

Forbo Annual Report 2006

Business trend: broad-based, global growth
Reorganization .
largely completed .

29

Outlook: implementation of the defined strategy
Sales growth driven .
by segment focus .

The goal of Movement Systems is to accelerate the progress achieved by meansof focused implementation of the strategy and by completing the integration of
its organization. This year, we will concentrate on improving our customer
focus by expanding distribution operations in selected countries, by rounding
off the segment product lines, and by extending the range of services offered.

Forbo Annual Report 2006

The Movement Systems division is again expecting good sales and earnings in2007. We are aiming for further growth by concentrating on the needs ofour customer segments and by handling already awarded large-scale projects,
for instance the expansion of the UPS distribution hub in Louisville, USA,professionally and efficiently.

30

Group StructureThis E. Schneider
President and CEO

Tom Kaiser
Flooring Systems

Michel Riva
Bonding Systems

Matthias P. Huenerwadel
Movement Systems

Jörg Riboni
Corporate Finance

Gerold A. Zenger
Corporate Services

Regional Sales
and Marketing

North America

North and South America

Controlling

Internal Audit

Treasury

Legal Services

IT

Pensions

Services

Northern Europe

Western Europe

EuropeTax

Projects

Investor Relations

Corporate Governance

Asia/PacificCentral Europe

Southern Europe

Asia/Pacific

Building and Construction

Forbo Annual Report 2006

Supply Chain Management

31

32

Forbo Annual Report 2006

Jörg Riboni
Chief Financial Officer,
Executive Vice President

Matthias P. Huenerwadel
Executive Vice President
Movement Systems

Gerold A. Zenger
Head Corporate Services,
Deputy CEO

This E. Schneider
President and CEO

Michel Riva
Executive Vice President
Bonding Systems

Tom Kaiser
Executive Vice President
Flooring Systems

Executive Board

This E. Schneider
President .
and CEO .

This E. Schneider, born in 1952, is a Swiss citizen. He studied economics at the University of
St. Gallen (lic. oec. HSG) and at the Graduate School of Business, Stanford University, California,
USA. After various management functions in Europe and the USA, he joined the Executive Boardof Schmidt-Agency, where he was responsible for strategic planning, operations and logistics from1984 to 1990. From 1991 to 1993 he was Chairman and CEO of the publicly listed company
SAFAA, Paris. In 1994, he became a member of the Executive Board of Valora, with responsibility forthe canteen and catering division. From 1997 to 2002, he was President and Vice Chairman of
the Board of Directors of Selecta Group. This E. Schneider has been President and CEO of the ForboGroup since March 2004. In addition, he is a member of the Board of Directors of Galenica SA
and Minibar AG.

Gerold A. Zenger
Deputy CEO, .
Head .
Corporate Services .

Gerold A. Zenger, born in 1945, is a Swiss citizen. He worked from 1968 to 1970 with Crown Life
Insurance in Toronto, Canada in Group Accounting Services. From 1970 to 1973, he studied at theAdvanced School of Economics and Business Administration in Zurich and worked part-time with
Swiss Aluminium Ltd in various functions. From the end of 1973, he was responsible for Group
reporting and consolidation. In October 1976, Gerold A. Zenger joined Forbo as an Assistant Corporate Controller, and he assumed responsibility for Corporate Treasury in 1979. From 1987 to
December 2005 he was the Group’s Chief Financial Officer and became a member of the Executive
Board in 1998. In January 2006, Gerold A. Zenger was appointed Deputy CEO and is responsible
for the Group’s Corporate Services.

Jörg Riboni
Executive .
Vice President, .
CFO .

Jörg Riboni, born in 1957, is a Swiss citizen. He studied economics at the University of St. Gallen(lic. oec. HSG) and is a Swiss certified public accountant. After various positions in the auditing
and consultancy sector, Jörg Riboni joined the Cosa Liebermann Group where he was Head of Controlling and Finances for the European Division. In 1995, he was appointed Chief Financial Officer
of Jelmoli AG, which was sold at the end of 1996. From 1997 to December 2005, he was Chief
Financial Officer of Sarna Kunststoff Holding AG in Sarnen. At the beginning of 2006, Jörg Riboni
joined the Forbo Group. He is a member of the Executive Board and Chief Financial Officer.

Tom Kaiser
Executive .
Vice President .
Flooring Systems .

Tom Kaiser, born in 1956, is a German citizen. He completed his commercial apprenticeship (Grossund Aussenhandelskaufmann) at Stahlwerke Süwestfalen in 1978. In 1992, he attended theInternational Executive Program INSEAD, Fontainebleau. From 1979 to 1988 he worked for Krupp
Handel GmbH, among other areas in North and South America. From 1988 to 1998 he held various
management positions with Vaillant GmbH. In 1998, he joined the Wolf Group as Managing Director.
In March 2004, Tom Kaiser was appointed Executive Vice President Flooring Systems and memberof the Executive Board of Forbo.

Michel Riva
Executive .
Vice President .
Bonding Systems .

Michel Riva, born in 1964, is a Swiss citizen. He studied economics at the University of Applied
Sciences Basel and the IMD Lausanne, where he completed his MBA. From 1989 to 1994 he held
various positions in finance at F. Hoffmann-La Roche. Subsequently, he headed Strapex Corporation, Charlotte, NC, USA. From 1998 to 2004, he held various Managing Director positions for thechemical company DuPont, latterly as Business Director Europe, Middle East and Africa for the
DuPont Powder Coatings business unit. In October 2004, Michel Riva was appointed Executive
Vice President Bonding Systems and member of the Executive Board of Forbo.

Matthias P. Huenerwadel
Matthias P. Huenerwadel, born in 1968, is a Swiss citizen. He studied engineering at the Federal
Institute of Technology, specializing in manufacturing technologies and technology management.
He began his professional career as assistant to the Executive Board of Franke Holding AG. In 1997,
he moved to the USA, where he was responsible for logistics, information technology and customer
service with Federal Home Products, Ruston, LA. From 1999, he held various sales and marketing
managerial positions for Franke Foodservice Systems and managed its European operations from2002–2005. Matthias P. Huenerwadel assumed the management of the Movement Systems
Division in October 2005 and is a member of the Executive Board of Forbo.

Forbo Annual Report 2006

Executive .
Vice President .
Movement Systems .

33

Corporate GovernanceAt Forbo, the concept of corporate governance encompasses the entire setof principles and rules on organization, conduct and transparency designed to protect shareholder interests. Forbo’s aim is to strike a carefulbalance between management and control. The central rules are contained in the Articles of Association, the Organizational Regulations, andthe bylaws of the committees of the Board of Directors. The following information is set out in line with the Directive on Information relating toCorporate Governance (Corporate Governance Directive, DCG) and the relevant publications of SWX Swiss Exchange.
Group structure and shareholders
Group structure .

Forbo Holding AG, domiciled at Lindenstrasse 8, 6340 Baar, is a limited company under Swiss law. The holding company holds all companies, directly or
indirectly, that belong to the Forbo Group. The operational structure of theGroup is shown in the organizational chart on page 31. The scope of consolidation of Forbo Holding AG does not include any listed companies. The unlist
ed companies within the scope of consolidation of Forbo Holding AG are
listed under ‘Group companies’ starting on page 94 of the Financial Report. The
company name and domicile, share capital and percentage of participation
along with information relating to the allocation of the Group companies to theGroup’s businesses can also be found in this list.

Significant .
shareholders .

As of December 31, 2006, 2,571 shareholders were listed in the share register ofForbo Holding AG, 108 or 4 % fewer than in the previous year.
Disclosure of significant shareholders is effected in accordance with Article 20of the Federal Stock Exchange and Securities Trading Act (SESTA) and theprovisions of the Ordinance of the Federal Banking Commission on stock exchanges and securities trading. According to the publications in the Swiss
Commercial Gazette in the year under review, the following major shareholders or groups of shareholders have exceeded or fallen below the thresholds set
out in Article 20 SESTA:
Rudolf Maag announced on March 24, 2006 that he had fallen below the 5 %threshold. This E. Schneider announced on April 10, 2006 that he had exceeded
the 5 % threshold. Forbo Holding AG announced on July 27, 2006 that it had
exceeded the 5 % threshold.
A further disclosure related to a change in the composition of the shareholders’group of Michael Pieper, Hergiswil, Franke Holding AG, Aarburg and Artemis
Beteiligungen I AG, Hergiswil. According to an announcement made on April 12,
2006, this group now consists of Michael Pieper, Hergiswil, and Artemis
Beteiligungen I AG, Hergiswil.
For further information on significant shareholders or shareholder groups,
we refer the reader to page 106 (duty of disclosure pursuant to Article 663c,
Swiss Code of Obligations).

Forbo Annual Report 2006

Cross- .
shareholdings .

34

Forbo Holding AG has not entered any cross-shareholdings with mutual capitalshareholdings or voting rights.

Capital structure
Share capital .

As of December 31, 2006, Forbo Holding AG had a fully paid up share capital of
CHF 54,263,040, which was divided into 2,713,152 listed registered shares, eachwith a par value of CHF 20. Of this amount:– 70.52 % were registered in the name of 2,514 shareholders with voting rights– 23.30 % were shares of banks and the SIS (SegaInterSettle AG) pending
registration of transfer– 6.18 % were registered in the share register without voting rights
The shares of Forbo Holding AG (security number 000354151/ISIN
CH0003541510) are listed on SWX Swiss Exchange. There are no different
categories of shares; each share entitles the shareholder to one vote. Further
information on the Forbo share can be found on page 53. Further informationon the rights of participation associated with the share can be found on page 47.
Pursuant to § 6 of the Articles of Association, Forbo Holding AG has a maximum conditional capital of CHF 3,329,000, corresponding to 166,450 registeredshares to be paid up in full with a par value of CHF 20 each. The capitalincrease takes place in accordance with the Articles of Association through theexercise of option and convertible rights which are granted in connection
with the bonds issued by the company or one of its subsidiaries or through theexercise of option rights which are granted to the shareholders. Except forshareholder options, shareholders have no right of subscription. Holders ofoption or convertible rights are entitled to subscribe to new share issues.
The registration of new shares in the share register is subject to the restrictions
set out in the Articles of Association.
There is no authorized capital.

Forbo Annual Report 2006

Conditional and .
authorized capital .

35

Changes .
in capital .

The share capital of Forbo Holding AG did not change either in the reporting
year 2006 or in 2005. For the changes in capital in 2004, the reader is referred topage 36 of the 2005 Annual Report.

Participation .
certificates and .
‘Genussscheine’ .

Forbo Holding AG has neither participation certificates nor non-voting equity
securities.

Limitations on .
transferability and .
nominee registrations .

Forbo Holding AG does not have any percentage limitations on voting rights.
The Board of Directors may only refuse to register stock in the share register
if the acquirer of the stock does not expressly declare at the company’s requestthat he has acquired the shares in his own name and for his own account.
The Articles of Association contain no clauses concerning nominees. As ageneral rule, a nominee agreement is concluded with nominees in which itis determined that nominees may only be registered with voting rights if thenominee discloses the beneficial owner to the company. In the absence of sucha nominee agreement, nominees are registered without voting rights.
Resolutions on the amendment or abrogation of the clause on the registrationof registered shares requires a majority of two thirds of the votes represented
at the Annual General Meeting and the absolute majority of the par value ofshares represented.

Forbo Annual Report 2006

Convertible bonds .
and warrants/options .

36

Forbo Holding AG has no outstanding convertible bonds nor has it issued any
marketable warrants/options. Information on the option program available to
the Executive Board can be found on page 45 in this Annual Report.

Board of Directors
Board of Directors .

The cut-off date for the following information is December 31, 2006.

Dr. Albert Gnägi, .
Chairman .

Albert Gnägi, born in 1944, is a Swiss citizen. He studied law at the Universityof Zurich and in Rome and graduated in jurisprudence (Dr. iur.). He practices
law in Zurich, specializing in commercial law, company law and inheritancelaw. From the IPO in 1997 until the takeover by the British company Compass
Group in early 2001, he was Chairman of the Board of Directors of SelectaGroup. From 1982 to 1997, he was a member and Chairman of the Board of
Directors of Immuno International AG, a manufacturer of biological pharmaceuticals, which went public in Zurich in 1989. Since 1980, Albert Gnägi has
been a member of the Board of Trustees of the Sanitas Hospital in Kilchberg,
and its president since 2002. He holds additional board memberships in othercompanies and foundations. He has been Chairman of the Board of Directorsof Forbo Holding AG since March 2005.

Michael Pieper, .
Vice Chairman .

Michael Pieper, born in 1946, is a Swiss citizen. Michael Pieper studied economics at the University of St. Gallen (lic. oec. HSG). He has been with theFranke Group since 1988 and its owner and CEO since 1989. He is a member ofthe Board of Directors of Hero AG, advalTech Holding AG, Feintool International Holding AG and of the Supervisory Board of ThyssenKrupp Stainless AG(Germany). He was first elected to the Board of Directors of Forbo Holding AG
in 2000.

This E. Schneider, .
President an CEO .

For the curriculum vitae of This E. Schneider, see page 33.

Forbo Annual Report 2006

With the exception of This E. Schneider, President and CEO, none of the members of the Board of Directors listed below has or has had any operational
management tasks for Forbo Holding AG or its Group companies. With the
exception of This E. Schneider, none of the members of the Board of Directors
sat on the Executive Board of Forbo Holding AG or the management of its
Group companies in the three business years preceding the period under review.
There are no essential business relationships between the members of theBoard of Directors and Forbo Holding AG or its Group companies.

37

Forbo Annual Report 2006

38

Dr. Peter Altorfer .

Peter Altorfer, born in 1953, is a Swiss citizen. He studied law at the Universityof Zurich and holds a doctorate degree (Dr. iur.). He attended the PED at the
IMD, Lausanne. Until 1988, he worked at Bank Leu AG. He subsequently joined
the law firm Wenger & Vieli in Zurich, where he is now a partner, specializing
in bank and company law. Peter Altorfer is a member of the Board of Directorsof various companies, including Huber+Suhner AG, Herisau, agta record ag,
Fehraltorf, and Abegg Holding AG, Zurich, and of several private and foreignbanks in Switzerland. He has been a member of the Board of Directors ofForbo Holding AG since March 2005.

Dr. Rudolf Huber .

Rudolf Huber, born in 1955, is a Swiss citizen. He studied at the University of
Zurich, where he took his doctorate (Dr. oec. publ.). From 1987 to 1992 heled the Finance and Information Technology departments of Bucher Guyer AG
and was Head of Corporate Finance at Bucher Holding AG. In 1992, he moved
to the Geberit Group, where he was a member of the Executive Board and CFO
until 2004. He currently works as an independent consultant. Rudolf Huber
is a member of the Board of Directors of several companies, including Georg
Fischer AG, Swiss Prime Site AG and Kardex AG. He is a part-time lecturer at
the University of Business Studies Lucerne and lecturer at the University of
St. Gallen. Since 2006 he has also been President of the recently founded CFO
Forum Schweiz-CFOs.

Cross-involvement .

There is no cross-involvement between the Board of Directors of Forbo Holding AG
and any other listed company.

Elections and .
terms of office .

The members are elected by the Annual General Meeting for a term of four
years and may be reelected several times. This E. Schneider’s term will end
in 2008; the terms of the other members of the Board of Directors will expire
in 2009. Detailed information can be found in the following table. In accordance with the Organizational Regulations of Forbo Holding AG, members who
have reached the age of 70 resign from the Board of Directors at the Annual
General Meeting of the following year. The average age of the incumbent members of the Board is around 56. In determining the composition of the Boardof Directors, importance is attached to the election of independent individuals
with international experience in industrial companies as well as in the financial and consultancy sectors.

AFC

HRC

Elected until

Member since

Board of Directors of Forbo Holding AG
as per December 31, 2006

2005 2009

M

C

2000 2009–

M

2004 2008––2005 2009

M

M

2005 2009C–

Chairman
Dr. Albert Gnägi
Non-executive member
Vice Chairman
Michael Pieper
Non-executive member
Members
This E. Schneider
CEO and executive member
Dr. Peter Altorfer
Non-executive member
Dr. Rudolf Huber
Non-executive member
Secretary General to the Board of Directors
Nicole Häfeli
Non-member
AFC : Audit and Finance Committee
HRC : Committee for Human Resources and Remuneration
C : Chair
M : Member

The allocation of tasks within the Board of Directors and the composition of
the two Board committees are shown above.
Decisions are as a general rule taken by the full Board of Directors. The Board
constitutes two standing committees from its own ranks – the Audit and
Finance Committee, the AFC, and the Committee for Human Resources andRemuneration, HRC – to deal with clearly defined subject areas of overriding
importance. These two committees have mainly advisory and control functions.
The members of these two committees are elected by the Board of Directors
on an annual basis and can be dismissed at any time.
As a rule, the Chairman of the Board of Directors chairs the meetings of theBoard and the Annual General Meeting. He plans and conducts the meetings ofthe Board and the Annual General Meeting. The meetings of the Board andthe relevant agenda are prepared by the Chairman in consultation with the CEO.
The Chairman monitors the execution of the measures adopted by the Boardand is in regular contact with the CEO for this purpose. He is the direct superiorof the CEO. In addition, the Chairman, in consultation with the CEO, represents
the Board vis-à-vis the public, the authorities and the shareholders.
The Vice Chairman is tasked with deputizing for the Chairman should the latter be prevented for any reason whatever. In accordance with the Organizational
Regulations and general practice, the Vice Chairman has no further duties.

Forbo Annual Report 2006

Internal .
organizational .
structure .

39

The President is also CEO and as such is responsible for the operational management of the company and for the tasks delegated to him by the Boardof Directors. The members of the Executive Board report to the CEO to support
him in his function.
The Chairman, Vice Chairman and President (CEO) are elected by the Boardof Directors.
The Board of Directors meets on being convened by the Chairman, as often as
business requires but at least four times a year. When the Board is convened,
the items on the agenda must be notified at least five working days before the dayof the meeting. This notification period may be shortened in urgent cases. In
2006, the Board of Directors met six times, the meetings usually lasting a wholeday.
The Chairman and the CEO may invite members of the Executive Board or othersenior managers to attend meetings of the Board for specific items. Regularuse is made of this option. External consultants participate in the meetings ofthe Board of Directors, the AFC or the HRC occurs only in exceptional circumstances for the treatment of specific items. As a rule, however, the meetings
are held without external consultants.
Audit and .
Finance Committee .

The Audit and Finance Committee (AFC) advises the Board of Directors in respect of its duties on behalf of the company in the areas of financial reporting, the accounting standards and systems used, and significant financial decisions. The AFC also stipulates and assesses the tasks of the internal auditing
function and the selection and proposal of the audit mandates to the Annual
General Meeting. The CEO and CFO are regularly requested to attend meetingsin an advisory capacity, while the internal auditors and the external auditors
may receive a special invitation.

Forbo Annual Report 2006

The AFC convenes as often as business requires, but at least twice a year. In 2006,
three meetings were convened, which normally lasted half a day.

40

The Committee for Human Resources and Remuneration (HRC) advises theBoard of Directors in respect of its human resources duties on behalf of theGroup, in particular as regards the Board itself and senior management personnel. The HRC prepares human resources policy proposals for the attentionof the Board of Directors regarding the employment of the Board and theCEO, and it assesses and approves the proposals of the CEO regarding the employment of the Executive Board members. It prepares recommendations
for the Board of Directors regarding the remuneration of the Board, the Chairman, the Committee members and the CEO. The CEO is regularly involvedin an advisory capacity. Agenda items and matters affecting the function or the
person of the CEO are deliberated in his absence.
The HRC convenes as often as business requires. In 2006, three meetings wereconvened lasting between two and four hours.

Forbo Annual Report 2006

Committee for .
Human Resources .
and Remuneration .

41

Areas of .
responsibility .

The Board of Directors bears ultimate responsibility for the management of
Forbo Holding AG. The main duties of the Board are the following nontransferable and indefeasible tasks pursuant to the Swiss Code of Obligations
and the Articles of Association:– ultimate management of the company and the issuance of directives– stipulation of the organization– organization of auditing, financial controlling and financial planning– appointment and dismissal of persons entrusted with management of thecompany– preparation of the Annual Report and of the Annual General Meeting andimplementation of its resolutions– notification of the court in the event of overindebtedness
The Board of Directors bears ultimate responsibility for supervising and monitoring management of the company and is responsible for the corporate
strategy. It issues guidelines for business policy and is regularly briefed on thecurrent state of business.
Business to be dealt with by the Board of Directors is regularly submitted inadvance to the AFC, HRC, to ad hoc committees or individual members,
depending on the subject, for review or an opinion. With the exception of its
non-transferable and indefeasible tasks, the Board of Directors may transfer
tasks and responsibilities in full or in part to individual members of the Boardor to third parties.
The Board of Directors is entitled to take decisions on all matters which are
not reserved or transferred to the Annual General Meeting or another body ofForbo by law, the Articles of Association or regulations.
Management of the company has been delegated in full to the CEO. Accordingly,
the CEO is responsible for the operational management of the company.
In carrying out his tasks, the CEO is supported by the members of the Executive
Board, who report to him directly. The Executive Board comprises the CEO,the Head of Corporate Services, the Chief Financial Officer (CFO) and the Headsof the three divisions. It is responsible for the long-term success and marketdriven management of the Forbo Group. This involves preparing the bases for
decision-making for the Board of Directors regarding:– corporate strategy, corporate targets, business policy, medium-term plans
and budgets– corporate organization– organization of auditing, financial controlling and financial planning– financing and treasury principles– human resources and compensation policy

Forbo Annual Report 2006

The members of the Executive Board are responsible for their particular areaof activity and also bear responsibility for safeguarding the interests of the company and achieving the financial result.

42

The Executive Board meets as often as business requires, normally once a month.
In 2006, twelve meetings were held, each lasting a whole day.
At the meetings of the Board of Directors, any member may request information about all matters concerning the Forbo Group. Outside the meetings, such
requests for information are to be addressed to the Chairman. The CEO andthe other members of the Executive Board inform the Board of Directors at eachregular meeting about the current state of business, important businessevents and significant deviations from the budget.
The Chairmen of the AFC and HRC report at the Board meetings on the activities of their committees and express their opinions and recommendations on
the business items on which decisions are to be taken. Each member of theBoard of Directors has the right to inspect the minutes of the AFC and HRC
meetings. The Executive Board reports to the AFC through the CEO, the Headof Corporate Services and the CFO, and it reports to the HRC through the CEO.
The Board is also regularly briefed outside meetings about events and challenges facing the Group and the general performance of the divisions. In addition,
the Chairman, Vice Chairman and CEO are in continuous contact when essential policy issues are involved. For important, particularly urgent events, theCEO informs the Chairman and the other members of the Board immediately.
The President, who is at the same time CEO, conducts the meetings of the
Executive Board. For details concerning the participation of members of
the Executive Board in meetings of the Board of Directors and its committees,
see the sections on internal organization, the AFC and the HRC on page 39 ff.
The Board of Directors fulfils supervisory and monitoring obligations as
regards financial reporting and its role in the planning cycle. The internal andexternal auditors assist the Board in this task.
Within the framework of financial reporting, the Board of Directors is briefed
quarterly in writing about the current state of business and the company’s
financial situation by means of commented income statements, balance sheets,
key ratios and analyses of any deviations.
The Board of Directors is, moreover, involved in the company’s planning cycle.
The existing strategy is subjected to a thorough review by the Board every
spring. On the basis of this review, the existing strategy is revised and the strategic planning adjusted accordingly. The revised strategy is quantified in thethree-year medium-term plan, which is approved at mid-year by the Board.
Based on the medium-term plan, the Board of Directors sets the budget
objectives for the coming business year. These budget objectives are the basis
for the detailed budget, which is approved and adopted by the Board of
Directors in the fourth quarter.

Forbo Annual Report 2006

Information and .
control instrument .

43

The current business year is assessed in an initial estimate at the end of April
and in a second estimate at the end of September. On completion of thebusiness year, the extent to which the budget has been reached is assessed anddeviations are analyzed. This analysis is used to derive appropriate measures
which are then implemented in the next planning cycle.
The internal auditing function is subordinate to the President and CEO and isfunctionally independent. It acts autonomously and reports directly to the AFC.
The audits are conducted in accordance with an annual plan approved by
the AFC. A distinction is drawn between the following types of audit: full scope
audits, limited reviews, follow-up reviews, post acquisition audits, compliance
audits and special engagements.
The risks and weaknesses identified in these audits are, where necessary,
minimized by measures adopted by management or eliminated and constantly
monitored.
In the first half of the year, Ernst & Young AG, Basel, was still solely responsible
for the audits. As of mid-2006, the Group built up its own internal audit department, which now consists of two auditors. Since the Group’s own audit
department was set up, the audits are conducted mainly by this unit. In 2006,
a total of seven full scope audits, one follow-up review, five compliance tests,
one post acquisition audit and one special engagement were conducted. Eachdivision was audited at least once in this process.
The supervisory and control instruments with regard to the external auditors
are outlined on page 49 of the Annual Report.
The measures taken in the area of risk management are explained at the end of
the Corporate Governance report (page 51).

Forbo Annual Report 2006

Executive Board

44

Members of the .
Executive Board, .
activities and vested .
interests .

The members of the Executive Board, their nationality, function, training andprofessional career as well as other activities and vested interests are set out on
page 33 of this Annual Report.

Management .
contracts .

Forbo Holding AG has concluded no management contracts with third parties.

Compensations, shareholdings and loans
Content and method .
of determining .
the compensation .
and the shareholding .
programs .

The amount of compensation paid to the Board of Directors is drawn up by the
HRC and submitted to the plenary Board of Directors for approval.
The compensations, option programs and target agreements of the Executive
Board are as a rule set by the HRC at the last meeting before the end of the year
for the following year. When the accounts are produced in March, the performance is reviewed in light of the stipulated target agreements and in consideration of the prevailing market conditions, after which bonus payments are
decided on.

Compensation .
system for the Board .
of Directors .

The members of the Board of Directors receive a fixed compensation, theamount of which is gradated for the Chairman and the members. 40 % of theconsideration is distributed to Board members as Forbo stock. These shares
have a vesting period of three years. The shares are valued by taking the average
price of the ten stock market days after distribution of a dividend or repayment of par value. If no dividend is distributed, the average price during theten stock market days after June 1 of the business year applies.

Compensation .
system for the .
Executive Board .

The compensation of the members of the Executive Board consists of a fixedbase salary plus a performance-dependent bonus, which is determined after theend of the business year.
With effect from March 15, 2006, the Board of Directors approved the introduction of the Management Investment Plan (MIP), for the bonus paid forthe 2005 financial year. The Stock Option Plan (SOP) valid until that date wasabrogated on the introduction of the MIP. Within the framework of the MIP,
members of the Executive Board receive at least 50 % of their annual bonus in
the form of shares and options. All shares and options are issued at the average
market value of the first 14 trading days in January of the year in question
and are subject to a vesting period of three years. The term of the options is five
years.
The President and CEO does not participate in the Management Investment
Plan (MIP). His compensation is described in detail in the next point ‘Compensations for acting members of governing bodies’.
The total compensation for all non-executive members of the Board of Directors in the Forbo Group came to CHF 357,108 in 2006.

Forbo Annual Report 2006

Compensations .
for acting members .
of governing bodies .

45

In fall 2005, it was agreed with the President and CEO that part of his compensation for 2005 and the compensation for the five following years (2006 up
to and including 2010) would be paid to a large extent in stock. In lieu of salary
payments, for the contractual period of employment until December 31,
2010, he was allocated 47,395 shares at the market value on conclusion of theagreement, i.e. CHF 270 each, for the entire five-year term of the agreement.
These shares are time-vested until December 31, 2010 and freely available only
as of January 1, 2011. Should he leave the company before this date, the sharesmust be returned on a pro rata basis.
In addition to the share package, the President and CEO draws an annual sum of
CHF 150,000, which is used for settlement of employee contributions to thepension fund and for social insurance payments. The share package and the
cash remuneration satisfy all compensations such as bonuses, inflation, adjustments, options, etc. The corresponding personnel expenditure is charged
to the income statement over the entire contractual period on a pro rata basis.
On valuation of the shares at market value, the elements listed above result ina total compensation in the year under review of CHF 2,903,392, including theprivate part of the company car use and all contributions to the pension fund.
With a five-year vesting period for the shares, the compensation model is geared
to long-term and sustainable development of the company and is thus fully
consistent with the interests of the company and its shareholders. By adopting
this salary model, the President and CEO assumes the full entrepreneurial risk.
The remuneration paid to six members of the Executive Board amounted to
CHF 3,799,756 in 2006. This sum contains compensations such as base salary,bonuses, private part of the company car use and all contributions to the pension fund. It also includes the cash remuneration of the President and CEO but
not the above-mentioned shares. The compensation is determined on the basisof the personnel expenditure as recorded.
Compensations .
for former members .
of governing bodies .

In the year under review, a former member of the Executive Board, who left thecompany in August 2003, received a fee of CHF 324,496 for consulting services.

Share allocation in .
the year under review .

In the year under review, the members of the Executive Board received a totalof 1,636 shares and 6,294 options in the framework of the MIP as part of theirbonus. 673 shares were allocated to the members of the Board of Directors aspart of their fees. No shares were allocated to closely linked parties (natural persons or legal entities).

Forbo Annual Report 2006

47,395 shares were allocated to the President and CEO for the contractuallyagreed period of employment of five years in lieu of salary. For further details,
please refer to the section ‘Compensations for acting members of governing
bodies’.

46

Share ownership .

The number of shares held by the non-executive members of the Board of Directors as per December 31, 2006 was 832,375. The Executive Board held 143,436
shares at the balance-sheet date. These figures include any shares held by closely
linked parties (natural persons or legal entities).

Options .

As per the balance-sheet date December 31, 2006, the Board of Directors andthe Executive Board held the following options:Year allocatedNumberTerm

Vested until

Subscription

Exercise price
CHF

Board of Directors
0Executive Board

Total

Additional fees .
and remunerations .

2002

160 07. 05. 2002– 07. 05. 2007

06. 05. 2005

1:2

330

2003

800 31. 07. 2003– 30. 07. 2008

30. 07. 2006

1:2

251

2004

2 400 01. 08. 2004– 31. 07. 2009

31. 07. 2007

1:2

212

2005

5 250 15. 06. 2005– 14. 06. 2010

14. 06. 2008

1:1

235

2006

6 294 19. 04. 2006– 19.04. 2011

20. 04. 2009

1:1

370

14 904

All transactions with closely linked companies and persons are based on customary agreements at market conditions.
In the year under review, no notifiable consulting fees or other remunerations
were paid to members of the Board of Directors or the Executive Board or toclosely linked parties.

Loans granted to .
governing bodies .

As of December 31, 2006, Forbo Holding AG had not awarded any securities,
loans, credits or advances to any members of the Board of Directors or
Executive Board or to any closely linked parties.

Highest total .
compensation .

The President and CEO received a total compensation of CHF 2 903 392 in theyear under review. This amount includes all the remunerations as describedabove in detail under ‘Compensations for acting members of governing bodies’.
Shareholder participation

The registration of shares with voting rights in the share register requires theconsent of the Board of Directors. Such consent may be withheld if the acquiring party does not expressly declare that he has acquired and is holding theshares in his own name and for his own account. Resolutions on the amendment or abrogation of the clause on the registration of registered shares requires a majority of two thirds of the votes represented at the Annual General
Meeting and the absolute majority of the par value of shares represented.

Forbo Annual Report 2006

Voting right .
restriction and .
representation .

47

Contrary to Article 689, paragraph 2, Swiss Code of Obligations, shareholders
who are unable to attend the Annual General Meeting in person may not be
represented by any third party. They may only be represented by a member ofa corporate body of the company, the independent proxy or another shareholder who is registered in the share register.
Statutory quorums .

Pursuant to § 11 of the Articles of Association, resolutions on the amendment
or abrogation of the provisions regarding the moving of the company’s domicile,conversion of registered shares into bearer shares, registration of registeredshares, representation of shares at the Annual General Meeting, and the dissolution of the company or a merger require the approval of two thirds of thevotes represented at the Annual General Meeting and the absolute majority ofthe par value of shares represented.

Convocation .
of the Annual General .
Meeting .

The Annual General Meeting is convened in accordance with the statutory
provisions.

Agenda .

Shareholders representing shares with a par value of a minimum of CHF 400,000
may request that an item be added to the agenda. The application must be
submitted in writing and within a period of time published by the company andmust specify the shareholder’s proposal.

Registration in the .
share register .

Pursuant to the Articles of Association, shareholders’ rights of participation andrepresentation at the Annual General Meeting are determined by the status ofshare register on the 20th day before the Annual General Meeting. In order to accommodate (new) shareholders and enable them to attend the Annual General
Meeting, Forbo Holding AG deviates from this principle in practice if shares areregistered, wherever possible, up to approximately four days prior to the meeting date.

Forbo Annual Report 2006

Changes in control and defense measures

48

Duty to make .
an offer .

The Articles of Association of Forbo Holding AG contain neither an opting-up
clause nor an opting-out clause pursuant to Article 22 SESTA. However, theArticles of Association modify the determination of the minimum price stipulated in Article 32, paragraph 4 SESTA in that, in the event of a compulsory
offer, the offer price must at least correspond to the share price and may not belower than the highest price which the bidder paid in the last twelve months
for shares of the company.

Clauses in changes .
of control .

As per year-end 2006, one member of the Executive Board is entitled to claim
a severance payment in the event that certain, clearly defined conditions
arise due to a change in the controlling shareholder. This severance payment
corresponds to one annual salary at most.

PricewaterhouseCoopers has been the Forbo Group’s auditors since 1987. The
predecessor company of PricewaterhouseCoopers had been Forbo’s auditorssince 1928. The current head auditor, Stefan Räbsamen, has been in office since
2002. The auditors are elected every year by the Annual General Meeting.

Auditing fees .

The auditing fees levied by the Group’s auditors for auditing the consolidated
financial statements, including the statutory audit of the individual financial
statements of the holding company and the consolidated subsidiaries, amounted to CHF 1.6 million in the year under review.

Additional fees .

Total additional consultancy fees (e.g. for tax and legal advice, advice in connection with acquisitions, mergers and divestments), as invoiced by the auditing
company, amount to CHF 1.0 million for 2006.

Supervisory and .
control instruments .
pertaining to .
the audit .

The Audit and Finance Committee (AFC) of Forbo Holding AG is responsible
for supervising and monitoring the work of the external auditors. Ultimate
responsibility, however, lies with the full Board of Directors. At the AFC’s invitation, representatives of the external auditors attend the AFC meetings inan advisory capacity. For the purposes of assessing the external audit, the Chairman of the Board of Directors holds discussions on a yearly basis with thehead auditor, dealing with critical aspects of the auditing activity.

Forbo Annual Report 2006

Auditors
Duration of the .
mandate and .
term of office of .
the head auditor .

49

Information policy
Investors must be .
able to have a clear .
idea of the company .

Forbo provides comprehensive and objective communication with shareholders,the capital market, the media and the public by reporting in timely fashion on
business trends and activities relevant for the company. The Chairman of theBoard of Directors and the CEO can be contacted directly for such information.
Shareholders receive summary reports on the business year as well as half-year
reports. The Annual Report, like all other published documents, is available
in printed form and in the Internet at www.forbo.com. The Annual General
Meeting is an additional source of information. Regular publication of media
releases and the annual media and analysts’ conference are further information
instruments for the capital market and the media.

Ad hoc .
communication .

The push and pull links for the dissemination of ad hoc releases in accordancewith the guideline on ad hoc publicity are available at the following addresses:
www.forbo.com/framework/DesktopDefault.aspx?menu_id=352&old_menu_id=352&ssm=1
www.forbo.com/framework/DesktopDefault.aspx?menu_id=56&old_menu_id=56&ssm=1

Communications to registered shareholders are sent by ordinary mail to theaddresses stated in the share register. The company’s official publication is the
Swiss Commercial Gazette.
A financial calendar with the key dates and further information on the Forboshare can be found on page 54 in this Annual Report.
Publications may be ordered by e-mail, fax or telephone.
E-mail: communications@forbo.com
Phone: +41 58 787 25 25
Fax: +41 58 787 20 25
The contact address for Investor Relations is:

Forbo Annual Report 2006

Forbo International SA
Jörg Riboni, CFO
Lindenstrasse 8
Postfach 1041
CH-6341 Baar
Phone: +41 58 787 25 25

50

Risk management

The ongoing and systematic evaluation of current and future risks invariably
involves identifying and capitalizing on opportunities. Forbo regards risk
management as a managerial and working tool designed to safeguard the tangible and intangible assets of the company.
Forbo has a risk-based insurance coverage in line with industry practice andhas insured in particular operational risks such as property damage, businessinterruption, and product liability. The risks specifically in the areas of property
damage, business interruption and liability are examined in the context of
periodic risk engineering reports by external experts. For this purpose, production companies are visited at regular intervals, and comprehensive surveys
are worked through with local management. Action plans are devised and implemented based on the risks identified. Forbo has been preparing such riskengineering reports since 1990.
As regards business risks, Forbo addresses both strategic risks and market
and financial risks. In the area of market risks, interest and currency risks aremonitored centrally and hedged in certain cases (see pages 92 and 93 in thisAnnual Report). The liquidity and financing of subsidiaries are also monitoredcentrally. In order to avoid losses on receivables, credit insurance policies weretaken out in isolated instances.

Forbo Annual Report 2006

Important managerial .
and working tool .

51

The Forbo Share
Confident about .
the turnaround .

Investors’ general confidence that Forbo’s turnaround may succeed was reflectedin the price movements of the Forbo share in 2006.
Driven by positive market sentiment, the stock was trading at around CHF 310 –9% above the year-end 2005 price – only a few days after the start of the year.
During the rest of the first half, the Forbo share largely tracked the trend on
the market index (SPI). Until mid-May, the share was trading in the range of
CHF 310 – 335. In the correction that then swept the entire market, the pricedropped to around CHF 300 and then climbed back again to CHF 330 at the
beginning of the second half.

Steep increase .
in the second half .

Spurred on by positive results from companies in related industries, the Forboshare price rose steadily in the runup to the half-year report. Following the
publication of the first-half figures and the announcement of brighter prospects
for the entire 2006 business year, the Forbo share price rose steeply. This positive
trend continued until the end of the year, with the Forbo share closing 2006 at
CHF 486, about 70% above the 2005 year-end price. At the end of September, thecompany reached a milestone when the market capitalization crossed the
CHF 1 billion threshold, the highest level since 2002. At the end of the year 2006,
the market capitalization was at CHF 1.253 billion.

The Forbo Share in comparison to the SPI
CHF

SPI

7,000

700
650

6,750
600
6,500

550
500

6,250
450
6,000

400
350

5,750
300
5,500

250
200

5,250
150
5,000

100
31.12. 2002

31. 12. 2003

SPI, adjusted

Forbo Annual Report 2006

Forbo registered share52

31. 12. 2004

31. 12. 2005

31. 12. 2006

2006

2005

2004

2003

2002

NumberNumberNumberNumberNumber2,713,152

2,713,152

2,713,152

1,356,576

1,356,576

Share capital
Issued registered shares

1)

Thereof:2,577,198

2,634,849

2,633,897

1,314,986

1,305,207

Treasury shares

114,535

56,884

57,836

20,171

25,489Reserve shares (without dividend right)

21,41921,41921,41921,41925,880

CHF

CHF

CHF

CHF

CHF

Shares outstanding

Issued nominal capital

54,263,040 54,263,040 54,263,040 37,984,128 67,828,800

Thereof:
Shares outstanding

51,543,960 52,696,980 52,677,940 36,819,608 65,260,350

Treasury shares

2,290,700

1,137,680

1,156,720

564,7881,274,450

428,380

428,380

428,380599,732

1,294,000

Reserve shares (without dividend right)

Data per share
Shareholders’ equity Group 2)

CHF

CHF

CHF

CHF

CHF

246

212

206

435

453
33

Earnings3)

24

–6

–107

12

Gross dividend and cash distribution

High

64)

0

0

8

22

Gross dividend yield (in %)

Low

1.25)

0.0

0.0

1.8 5)

3.8 5)

2.15)

0.0

0.0

2.4 5)

6.3 5)

25

0

0

65

67

6)

Payout ratio (in %)Stock market statistics
Share prices 7)

Market capitalization (CHF m) 8)

CHF

CHF

CHF

CHF

CHF

High

490

285

301

326

437

Low

291

233

155

250

261

Year-end

486

285

248

264

307

1,263

751

794

575

764

750

614

408

441

457

1,253

751

653

465

538

High
Low
Year-end

1)

Nominal value per share 2004 –2006: CHF 20, 2003: CHF 28, 2002: CHF 50.
Adjustment from 2004 according to IAS 19 for actuarial losses.
3)
See also the Financial Report, Notes to the Consolidated Financial Statements,
page 76, ‘Earnings per share’.
4)
Proposal of the Board of Directors to the Annual General Meeting.
5)
Calculated on the basis of a cash distribution by reducing the nominal value.
6)
Gross cash distribution as a percentage of Group profit.
7)
Adjusted by the capital increase in 2004.
8)
Based on shares outstanding.

Forbo Annual Report 2006

2)53

Forbo Annual Report 2006

Financial calendar .

54

Ordinary Annual General Meeting:Letter to shareholders:Media release on the results in the first half of 2007:

April 27, 2007
August 21, 2007
August 21, 2007

Forbo Group
Financial ReportConsolidated Income Statement

CHF m

Net sales

2005

1,879.5

1,702.0–1,273.4–1,151.8

Notes

1

Cost of goods sold
Gross profit
Development costs

2006

2

606.1

550.2

–31.3

–32.4

–300.6–286.9Administrative costs

3–131.9–143.5

Other operating expenses

4

–32.7

–63.5

109.6

23.9

Marketing and distribution costs

Operating profit
Financial income

6

7.0

9.5

Financial expenses

7

–20.4

–28.3

96.2

5.1

–35.0

–21.6

61.2

–16.5

Group profit before taxes
Income taxes

8

Group profit/loss for the year

Earnings per share in CHF (basic)

9

23.60

–6.26

Earnings per share in CHF (diluted)

9

23.57

–6.26

Forbo Financial Report 2006

CHF

57

Consolidated Balance Sheet
31.12.2006

31.12.2005

593.4

597.3

Assets
CHF m

Notes

Non-current assets
Tangible assets

10

421.5

422.4

Intangible assets

11

149.2

144.6

Deferred taxes

8

20.5

28.1

Investments in associates and other long-term assets

12

Current assets

2.2

2.2

905.2

993.7

Inventories

13

266.7

257.0

Trade receivables

14

292.4

273.8

26.4

22.8

Other receivables
Prepaid expenses and deferred charges

25.6

35.5

Cash and cash equivalents

294.1

404.6

1,498.6

1,591.0

558.1

Total assets

Shareholders’ equity and liabilities
Shareholders’ equity

18

638.6

Share capital

18

54.3

54.3

Treasury shares

18

–3.5

–1.6

Reserves and retained earnings 1)

587.8

505.4

Non-current liabilities

304.4

512.9

Non-current financial debt

19

209.1

358.4

Employee benefit obligations 1)

20

45.8

101.1

Non-current provisions

21

41.7

40.7

Deferred taxes

8

Current liabilities
22

131.5

131.8

Current provisions and accrued expenses

23

169.3

136.5 1)

Current financial debt

24

128.3

155.5

Current tax liabilities

21.8

10.6

Other current liabilities

104.7

85.6 1)860.0

1,032.9

1,498.6

1,591.0

Total shareholders’ equity and liabilities

Forbo Financial Report 2006

58

12.7
520.0

Trade payables

Total liabilities

1)

7.8
555.6

The fair values of the derivative financial
instruments has been disclosed as‘other current liabilities’ for the first time inthe year under review. The prior years
have been changed acccordingly.

Consolidated Cash Flow Statement
2006

2005

Group profit/loss for the year

61.2

–16.5

Depreciation and impairment of tangible assets

65.7

78.5

Amortization and impairment of intangible assets

7.0

6.9

Net financial expenses

13.4

18.8

Cash flow from operating activities
CHF m

Tax expense

34.7

21.6

Taxes paid

–21.5

–18.9

4.1

0.6

Increase (+)/decrease (–) in provisions and employee benefit obligations

–15.5

13.7

Increase (+)/decrease (–) in current liabilities (excl. short-term debt)

22.8

30.9

Increase (–)/decrease (+) in current assets 1)

–14.6

–0.7

Total cash flow from operating activities

157.3

134.9

Acquisitions

–3.6

–8.8

Purchases of non-current assets

–64.6

–43.6

Share-based payments

Cash flow from investing activities

Proceeds from sale of non-current assets

1.2

6.0

Total cash flow from investing activities

–67.0

–46.4

Increase (+)/decrease (–) in current financial debt

154.2

–13.2

Interest paid 2)

–25.5

–27.7

7.5

4.5

Cash flow from financing activities

Interest received 2)
Change in treasury shares

–32.6

0.0

Total cash flow from financing activities–204.8–36.4–114.5

52.1

4.0

5.7

Change in cash and cash equivalents
Increase/decrease in cash and cash equivalents
Translation differences

2)

404.6

346.8

Cash and cash equivalents at year end 2)

294.1

404.6

Excluding cash and marketable securities.
A large portion of the cash position is invested in
the money market.

Forbo Financial Report 2006

1)

Cash and cash equivalents at beginning of year

59Consolidated Statement of
Recognized Income and Expenses

CHF m

Fair value adjustments of financial instruments
20

Translation differences
Total income and expenses recognized in shareholders’ equity

Forbo Financial Report 2006

Consolidated statement of changes in equity, see note 18 on page 82.

60

2005

61.2

–16.5

Notes

Group profit/loss for the year
Actuarial profits/losses from defined benefit plans, net

2006

1.8

–3.1

42.4

10.8

3.1

22.3

108.5

13.5

Group Accounting Policies
Summary of the general Group Accounting Policies
General information

The consolidated financial statements of Forbo Holding AG were prepared inaccordance with the International Financial Reporting Standards (IFRS) andin compliance with Swiss law. They were prepared on the basis of the audited
financial statements of the Forbo corporate subsidiaries for the year ended
December 31, prepared according to uniform corporate accounting policies.
The balance sheet date for all subsidiaries is December 31. These financial
statements were approved and released for publication by the Board of Directors on March 13, 2007.
The consolidated statements have been prepared in accordance with the principle of historical and manufacturing costs with the exception of securities,
non-consolidated investments in associates and derivative financial instruments,
which are valued at fair value. The preparation of the consolidated financial
statements requires management to make estimates and assumptions that
can affect reported revenues, expenses, assets, liabilities and the disclosure ofcontingent assets and liabilities at the date of the consolidated financial statements. If the estimates and assumptions made by management at the date of theconsolidated financial statements to the best of their knowledge differ fromthe actual circumstances, the original estimates and assumptions will be adjusted
in the reporting year in which the circumstances have changed. Changes in
the presentation of comparable data from the consolidated financial statementsof the previous year were, where necessary, restated and supplemented.
Scope and principles of consolidation

The scope of consolidation includes Forbo Holding AG and all domestic andforeign companies in which the parent company holds, directly or indirectly,
controls either by holding more than 50 % of voting rights or by having thepower to govern their operation and financial policies. These companies are
fully consolidated. Assets and liabilities, as well as revenues and expenses,
are fully consolidated, while intra-group balances and transactions (receivables
and payables, revenues and expenses) are eliminated upon consolidation.
Minority interest in the equity and net income of consolidated companies isreported separately but as part of Group equity capital and profit/loss. Intercompany profits on intra-group transactions and balances are eliminated in full.
Capital consolidation is based on the purchase method. The acquisition costof an acquired company is offset against the fair value of net assets acquired,assessed at the time of acquisition on the basis of uniform Group principles.
Companies acquired are consolidated from the date on which control is obtained, while companies disposed of in the course of the year are excluded fromthe scope of consolidation as of the date on which control is relinquished,with any gain or loss recognized in income. The subsidiaries included in thescope of consolidation are listed under ‘Group Companies’.

Forbo Financial Report 2006

Joint ventures in which Forbo Holding AG holds, directly or indirectly, a participation of 50 %, or in which the Forbo Group exercised joint control, areincluded in the consolidated financial statements using the proportionate consolidation method.

61

Companies in which the Forbo Group holds at least 20 % of voting rights but
less than 50 %, or in which it exercises significant influence in some other way,
are treated according to the equity method. Investments with a voting powerof less than 20 % are stated at fair value and carried on the balance sheet under‘Other investments’; with the non-realized profits and losses recognized in‘Reserves and retained earnings’. In the event of divestment or impairment, therelated cumulative profit or loss is transferred to the income statement.
In the year under review, the scope of consolidation was increased to accountfor the acquisition of Victa Technology Holdings Limited in China.
Foreign currency translation

The individual companies generally prepare their financial statements in local
currency. The local currency (functional currency) as a rule corresponds tothe currency of the primary economic environment in which the company operates. Transactions in foreign currencies are translated at the current rate at
the time of the transaction. Exchange gains and losses from transactions in foreign currencies and from the adjustment of foreign currency balances on thebalance sheet date are taken to the income statement.
The consolidated financial statements are prepared and presented in Swiss francs.
The annual statements of foreign Group companies stated in foreign currencies
are translated into Swiss francs as follows: balance sheet at year-end exchange
rates, income statement and cash flow statement at average exchange rates forthe year under review. Currency translation differences arising from the different translation of balance sheets and income statements and from equity capitaltransactions are offset against the consolidated shareholders’ equity and taken
to the income statement in the event the company is divested. Foreign exchange
gains on certain equity-like loans, which form part of net investment in a company, are likewise taken to shareholders’ equity provided no repayment of theseloans is planned or intended in the foreseeable future.
The following exchange rates have been applied for the most important currencies concerned:
2006

2005

2006

2005

Currency
Income statement(Average exchange rates)

Forbo Financial Report 2006

CHF

62

Balance sheet(Year-end exchange rates)

Euro countries

EUR 1

1.57

1.55

1.61

1.56

Sweden

SEK 100

17.00

16.66

17.77

16.53

United Kingdom GBP 1

2.31

2.27

2.39

2.27

USA

USD 1

1.25

1.25

1.22

1.31

Canada

CAD 1

1.10

1.03

1.05

1.13

Japan

JPY

1.08

1.13

1.03

1.12

100

Maturities

Assets are designated current assets if they are realized or consumed in theGroup’s ordinary business cycle within one year or are held for trading purposes. All other assets are assigned to non-current assets.
All obligations which the Group intends to settle within the ordinary businesscycle using operating cash flows or which are due within one year of the balance
sheet date are assigned to current liabilities. All other obligations are assigned
to non-current liabilities.
Net sales and revenue recognition

Invoices for goods and services are booked as net sales when the service isprovided or when the essential risks and benefits incidental to ownership aretransferred. Net sales are reported without any sales or valued-added tax andafter deduction of any credits and discounts. Appropriate provisions are madefor expected warranty claims.
Research and development

All research costs are charged directly to the income statement in the period
in which they are incurred. Development costs have to be capitalized if all
the recognition criteria have been met, the research phase can be clearly distinguished from the development phase and costs can be clearly allocated toindividual project phases without any overlap. Given the numerous interdependencies within development projects and in view of the uncertainty as towhich products will ultimately reach the market, all development expenditures
are currently charged to the income statement.
Income tax

Income tax payable on profits is recognized as an expense based on the applicable tax laws in each jurisdiction in the period in which profits arise.

Forbo Financial Report 2006

Deferred tax liabilities are recognized for temporary differences between the
carrying amounts of assets and liabilities in the balance sheet and their amounts
as measured for tax purposes, which will result in taxable amounts in future
periods. Deferred tax assets are recognized for temporary differences that will
result in deductible amounts in future periods and for tax effects from losses
which are deductible in determining taxable profit of future periods, but only tothe extent it is probable that sufficient taxable profits will be available against
which these differences can be utilized. Deferred taxes are not recognized when
the temporary differences result from the recognition of goodwill or arise fromthe initial recognition of other assets or liabilities which relate to events notaffecting taxable income or the profit of the year.

63Deferred tax assets and liabilities are measured at the tax rates that are expected
to apply in the period in which the asset will be realized or the liability will besettled based on enacted rates. Current as well as deferred tax assets and liabilities are offset when they arise from the same tax reporting group, relate to thesame tax authority, the legal right to offset exists, and they are intended to besettled net or realized simultaneously.
Current and deferred taxes are recognized as income tax benefit or expense in
the income statement except for net gains or losses directly recognized in equity.
Property, plant and equipment

Property is stated at cost, the other tangible assets at cost less accumulated depreciation and impairment. Borrowing costs are not capitalized. Assets acquired
under financial lease contracts are carried on the balance sheet at the lower ofthe present value of the minimum lease payments and the fair value. Assets are
depreciated on a straight-line basis over the shorter of their estimated useful
lives or the lease terms. The estimated useful life is usually 33 years for buildings
used in operations and five to ten years for plant and equipment. Other operational assets are depreciated over three to ten years. Where components of larger
assets have different useful lives, they are depreciated as separate items. Useful
lives and residual values are reviewed annually at the balance sheet date, and any
adjustments are brought to the income statement. Any gains or losses from thedisposal of items of plant, property and equipment are included in the income
statement.
Properties that are mainly rented out are carried on the balance sheet as investment property at cost less accumulated depreciation and less impairment. The
market value is reported separately.
Maintenance costs are capitalized if this prolongs the useful life or increases
production capacity. Maintenance and repair costs that do not increase value arecharged directly to the income statement.
Intangible assets and goodwill

The goodwill resulting from consolidation represents the excess of the cost of an
acquisition over the fair value of the Group’s share of net identifiable assets of
the acquired subsidiary/associate at the date of acquisition. Goodwill and otherintangible assets such as acquired trademarks and similar rights are initially
carried on the balance sheet at historical cost. Goodwill and intangible assets
with an indefinite useful life are not subject to amortization and are tested for
impairment at least annually. An impairment loss is immediately recognized as
expense in the income statement and goodwill is not recovered in subsequent
periods. Intangible assets having a definite useful life are amortized on a straightline basis. The following useful lives are used: 20 years for trademark rights
and three years for software.

Forbo Financial Report 2006

Gains and losses on the disposal of a subsidiary/associate include the carrying
amount of goodwill relating to the entity sold.

64

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost includes
direct material and other direct costs and related production overheads to theextent that they are incurred in bringing the inventories to their present location and condition, if applicable. The cost of inventories is assigned by using an
average cost formula. Net realizable value is the estimated selling price, lessapplicable cost including marketing, sales and distribution. Inventories with anunsatisfying turnover and unsalable inventory are partially or fully adjusted
in value.
Trade receivables

Current trade receivables are stated at amortized cost, which generally corresponds to nominal value. Allowances for doubtful risks are established based on
maturity structure and identifiable solvency risks. In addition to individual
allowances for specific identifiable risks, additional allowances are made on thebasis of statistically determined credit risks.
Cash and cash equivalents

Cash and cash equivalents are stated at nominal value. They include cash on
hand, postal and bank accounts and fixed-term deposits with an original maturity of up to 90 days.
Treasury shares

Treasury shares are deducted at their par value from share capital. Acquisition
costs in excess of par value arising on the acquisition of treasury shares are
deducted from general / free reserves. Gains or losses from the sale of treasury
shares are credited to or deducted from general / free reserves.
Share-based compensation

The market value of the shares and the fair value of the respective options,which members of the Board of Directors (until 2004) and of the Executive
Board received as part of their compensation, are booked as expenses. Forbocalculates the fair value of the options based on the Black-Scholes model. Sharebased compensation is measured at fair value at the grant date. Equity-settled
options are booked to the income statement over the vesting period. The expenditure for share-based compensation is reported under personnel expenses.
As set out in the transitional provisions of IFRS 2, before November 7, 2002,
claims granted from equity-settled options were not recognized in the income
statement.
The treasury shares acquired for this purpose are carried at cost independentlyof the stock option plan and set off against equity (see treasury shares).
Trade payables

Forbo Financial Report 2006

Trade payables are non-interest bearing and are disclosed at nominal value.

65

Financial debt

Non-current and current financial debt consist mainly of private placements,
bonds, leasing debt and bank loans. They are stated at amortized cost (lesstransaction costs). Borrowing costs are recognized in the income statement,using the effective interest method.
Financial debt is classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after
the balance sheet date.
Pension plans

Forbo maintains various pension plans designed as defined contribution anddefined benefit plans. These pension plans are established in accordancewith the local conditions in each country. The plans are funded either by contributions to legally autonomous pension funds/insurances or by recognitionof the pension plan liabilities in the financial statements of the respective companies.
For defined contribution plans, the costs incurred in the relevant period correspond to the agreed employer contributions.
For defined benefit plans, the pension liabilities are assessed annually by independent actuaries according to the ‘projected unit credit method’. They correspond to the present value of the expected future cash flows. The plan assets arestated at market value. Current service costs, less employee contributions, arerecognized in the income statement as personnel costs. Past service costs resulting from changes in pension plans are recognized in the income statement
on a straight-line basis over the period until the benefit gets vested, or they are
immediately charged to the income statement in case the employee has
already retired. Profits resulting from pension plan reductions or compensations
are immediately taken to the income statement.
Actuarial gains and losses are recognized in equity with no effect on the income
statement but under consideration of deferred taxes.
Provisions

Provisions are recognized when the Group has a legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be
required to settle the obligation, and a reliable estimate of the amount can be
made. No provisions are made for future operating losses.
Where necessary, provisions are valued at the present value of the expected
expenditures to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the
obligation. Increases in provisions resulting purely from interest accrual arestated in the income statement as interest expense.
Derivative financial instruments

Forbo Financial Report 2006

Derivative financial instruments, which the company uses to manage its financial risks, are carried at fair value on the balance sheet. The recognition of respective profits or losses depends on the type of the hedged position. In connection with the hedging of the periodic interest rate payments and the repayment66

of the nominal amount of the US private placement, part of the derivatives employed was designated as cash flow hedges. The changes in the fair value ofthe derivatives are recognized in equity provided the hedge relationship is considered highly effective. The changes in fair value accumulated in equity arebrought to the income statement at the time in which future liabilities affect net
income. Furthermore, the company hedges certain net investments in foreignsubsidiaries by receiving loans in foreign currencies. All profits and losses fromcurrency translation of these loans are carried in equity and reported in theaccumulated translation differences.
Changes in accounting policies

The International Accounting Standards Board (IASB) and International
Financial Reporting Interpretations Committee (IFRIC) adopted the following
new and revised standards and interpretations, which came into force on
January 1, 2006:– revision to IAS 19 – actuarial gains and losses, group plans and disclosure– revisions to IAS 21 – net investment in a foreign operation– revision to IAS 39 – accounting for cash flow hedges of forecast intragrouptransactions– revision to IAS 39 – fair value option– revision to IAS 39 and IFRS 4 – financial guarantee contracts– introduction of IFRS 6 – exploration for and evaluation of mineral resources– IFRIC 4 – determining whether an arrangement contains a lease– IFRIC 5 – rights to interests arising from decommissioning, restoration andenvironmental rehabilitation funds and– IFRIC 6 – liabilities arising from participation in a specific market –waste electrical and electronic equipment.
The most important effects are described below:
IAS 19 – actuarial gains and losses, group plans and disclosure: in December
2004, the IASB adopted a revision to IAS 19, according to which it was permissible in IAS 19 to immediately recognize actuarial gains and losses in the

period in which they occur, outside profit or loss, in a ‘statement of recognizedincome and expense’. Forbo has early adopted the revised standard in thefinancial year 2005 and has offset actuarial profit from defined benefit pension
plans against equity since January 1, 2005.

Forbo Financial Report 2006

The other new and revised standards and interpretations had no significant
impact on equity, profit / loss or cash flow.

67

Critical management assumptions and estimates
Critical accounting estimates and assumptions

The accounting principles require estimates and assumptions to be made which
may materially affect the financial statements of Forbo, especially in the areas
described below.
Impairment of non-financial assets

Along with the regular periodic review of goodwill the carrying amounts offixed and intangible assets are also always reviewed if their carrying amount canno longer be realized due to changed circumstances or events. If such a situation occurs, the recoverable amount is determined based on expected future
revenues. This corresponds to either the expected discounted future cash flow
or expected net sales price. If these values are less than the current carrying
amount, the value is impaired to the newly calculated figure. This impairment
is recognized as expenses in the income statement. If the individual asset
does not generate independent cash flow the impairment test is performed fora cash-generating unit. The Group usually defines cash-generating units based on the geographically cohesive market, i.e. the country as a rule. Important
assumptions in these calculations include growth rates, margins, and discountrates. The actual cash flows may deviate strongly from the estimated discounted
future values. Likewise, the useful lives may be shortened or investment assets
impaired in the event of a change in the use of buildings, machinery and facilities, change or abandonment of locations or lower than expected revenues
over the medium term. The carrying amounts of the respective tangible andintangible assets are shown in notes 10 and 11.
Employee pension plans

Various employee pension plans and schemes exist for employees at Forbo. Inorder to measure liabilities and costs, it is first of all necessary to assess whether
the plans are defined contribution or defined benefit plans by applying theprinciple of substance over form. If they are defined benefit plans, actuarial
assumptions are made to estimate future developments. These include assumptions and estimates relating to discount rates, the expected return on plan assets
in individual countries and future wage trends. In their actuarial calculations
for determining employee benefit obligations, the actuaries also use statisticalinformation such as mortality tables and staff turnover rates. If these parameters change due to a change in the economic or market conditions, the subsequent
results can deviate considerably from the actuarial reports and calculations.
These deviations may have a significant medium-term effect on expenses andrevenues from the employee pension plans and on equity. The carrying amountsof the plan assets and liabilities carried in the balance sheet are set out in note 20.
Provisions

Forbo Financial Report 2006

In the conduct of their ordinary business activities a liability of uncertain timing and amount may arise. Provisions are determined using available information based on reasonably expected cash outflows. Depending on the outcome
claims against the Group may arise that may not be covered, or covered onlyin part, by provisions or insurance benefits. The carrying amount of such provisions are shown in note 21.

68Income taxes

The measurement of current tax liabilities is subject to the interpretation of tax
regulations in place in the relevant countries. The adequateness of this interpretation is assessed by the tax authorities in the course of the final assessment
or tax audits. This may result in material changes to tax expense. Furthermore,in order to determine whether tax losses carried forward can be capitalized
requires a critical estimate of the probability that they can be offset against future
profits. This assessment depends on a variety of influencing factors and developments. An analysis of the income taxes is set out in note 8.

Standards approved but not yet applied

The following new and revised standards and interpretations had been
approved by the time the consolidated financial statements were authorized by
the Board of Directors:– IFRS 7 – financial instruments – disclosures– IFRS 8 – operating segments– IAS 1 – disclosures about capital– IFRIC 7 – applying the restatement approach under IAS 29– IFRIC 8 – scope of IFRS 2– IFRIC 9 – reassessment of embedded derivatives– IFRIC 10 – interim financial reporting and impairment– IFRIC 11 – group and treasury shares under IFRS 2 and– IFRIC 12 – service concession arrangements.
These revisions come into force in financial year 2007 and were not applied in
the consolidated financial statements presented here.

Forbo Financial Report 2006

The objective of IFRS 7 is to provide information on the extent, timing andprobability of future cash flows arising from financial instruments. Their effects
on the consolidated financial statements were systematically analyzed. Significant changes are expected in the additional disclosure of sensitivity to market
risks and capital management in adoption of IFRS 7.

69

NotesSegment information1

Forbo is a global producer of Flooring Systems, Bonding Systems and Movement Systems. Flooring Systems develops, produces and sells linoleum, vinyl
and other floor coverings as well as the various accessory products required forlaying, processing, cleaning, and care. Bonding Systems develops, manufacturesand sells adhesives for industrial applications as well as floor and wall adhesives.
Movement Systems develops, produces and sells high quality belts of modern
synthetics for use in power transmission or as conveyor and process belts.
‘Corporate’ includes the costs of the Group headquarters and certain items ofincome and expenses which are not directly attributable to a specific business.

The segment results for the financial years 2006 and 2005 are as follows:

2006
CHF m

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Net sales to third parties

794.2

731.1

354.2

0.0

1,879.5

0.2

22.2

0.1

–22.5

0.0

Total net sales

794.4

753.3

354.3

–22.5

1,879.5

Operating profit (EBIT)

64.6

44.9

13.1

–13.0

109.6

Inter-segment sales

Financial income

7.0

Financial expense–20.4

Group profit before taxes

96.2

Income taxes–35.0Group profit for the year

61.2

2005
CHF m

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Net sales to third parties

747.0

628.5

326.5

0.0

1,702.0

0.1

21.4

0.0

–21.5

0.0

Total net sales

747.1

649.9

326.5

–21.5

1,702.0

Operating profit (EBIT)

50.1

31.4

0.6

–17.4

64.7

Operating profit (EBIT) 1)

28.0

16.6

–3.3

–17.4

23.9

Inter-segment sales

Financial income

9.5

Financial expense–28.3

Group profit before taxes

Forbo Financial Report 2006

1)

70

5.1

Income taxes–21.6

Group loss for the year

–16.5

Including special charges
and impairment.

Additional segment information from the income statement is as follows:

Depreciation/impairment and special charges
2006

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Depreciation/amortization

27.4

13.5

15.0

3.4

59.3

Impairment

4.2

4.1

5.1

0.0

13.4

Special charges

0.0

0.0

0.0

0.0

0.0

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

36.1

15.0

16.2

3.1

70.4

Impairment

4.6

10.4

0.0

0.0

15.0

Special charges

17.5

4.4

3.9

0.0

25.8

CHF m

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Operating assets

400.8

494.2

254.8

32.1

1,181.9

Operating liabilities

161.0

138.2

64.4

151.2

514.8

Investments

17.6

31.0

12.7

3.3

64.6

CHF m

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Operating assets

425.2

447.6

261.2

22.1

1,156.1

Operating liabilities

153.8

121.9

63.4

156.2

495.3

Investments

14.9

19.1

13.7

1.6

49.3

CHF m

2005
CHF m

Depreciation/amortization

2006

2005

Forbo Financial Report 2006

Assets/liabilities and investments

71

Geographic regions
2006
Europe(euro zone)

Switzerland

Rest ofEuropeAmerica

Asia/
AfricaTotal

Net sales

794.5

49.0

349.2

502.5

184.3

1,879.5

Operating assets

558.7

105.9

212.1

230.7

74.5

1,181.9

Investments

22.5

5.3

12.8

21.7

2.3

64.6

Number of employees (31.12.)

2,831

284

1,052

962

671

5,800

Europe(euro zone)

Switzerland

Rest ofEuropeAmerica

Asia/
AfricaTotal

Net sales

741.9

51.7

323.9

444.5

140.0

1,702.0

Operating assets

554.9

102.5

170.0

252.8

75.9

1,156.1

Investments

18.2

4.5

10.4

14.9

1.3

49.3

Number of employees (31.12.)

2,828

297

1,003

960

450

5,538

CHF m

2005
CHF m

2

Development and production overhead costs

Development costs, which include product development as well as sampling
activities, amounted to CHF 31.3 million (2005: CHF 32.4 million).
Production overhead costs totaled CHF 145.9 million (2005: CHF 150.3 million) and are included in ‘Cost of goods sold’.

3

Administrative costs

This item consists of the usual expenses related to administrative activities.
The Group has no significant costs for license fees or royalties.

4

Other operating expenses

2006

2005

Impairment

13.4

15.0

Restructuring

0.0

25.8

Other expenses

37.3

33.5

Other revenue

–18.0

–10.8

Total other operating expenses

32.7

63.5

CHF m

Impairment relates to tangible assets (CHF 8.5 million) and goodwill(CHF 4.9 million) and is explained in notes 10 and 11.

Forbo Financial Report 2006

Other expenses (such as extraordinary maintenance costs, warranty costs, consultancy and auditing costs, and insurance costs) and other income (such as
license fees) include costs and income that can not be attributed clearly to theother categories.

72

5

Personnel expenses

2006

2005

Salaries and wages

366.8

355.8

Employer’s social security contributions

93.7

98.0

Total personnel expenses

460.5

453.8

CHF m

The Group’s headcount at December 31, 2006 was 5,800 (2005: 5,538). The
average headcount over the year was 5,839 (2005: 5,536). Salaries and wages
include share-based payments worth CHF 4.1 million (note 28).
About 120 managers participate in a bonus plan, which is linked to the achievement of financial targets by the Group as well as individually determined
objectives.

6

Financial income

2006

2005

Interest income

7.0

6.8

Foreign exchange gains, net

0.0

2.7

Total financial income

7.0

9.5

Financial expenses

2006

2005

Interest expense

18.7

27.2

Amortization of issuance costs of bonds and private placements

0.7

0.9

Amortization of costs of syndicated bank facility

0.3

0.2

Foreign exchange losses, net

0.7

0.0

Total financial expenses

20.4

28.3

CHF m

CHF m

The average interest rate on interest-bearing debt (bonds, private placements,
long- and short-term bank loans) in 2006 was 5.6 % (2005: 5.1 %).

Forbo Financial Report 2006

7

73

8

Income taxes

2006

2005

32.3

19.5

CHF m

Current taxes
Deferred taxes

2.7

2.1

Total income taxes

35.0

21.6

2006

2005

Group profit before taxes

96.2

5.1

Tax income/expense at the expected tax rate

–30.5

1.3

–2.2

–14.6

no deferred tax assets have been recognized

–6.2

–11.5

Write-off of deferred tax assets

–0.1

–2.0

Recognition/utilization of tax losses not capitalized in prior years

3.8

6.8

Changes of applicable deferred tax rates

0.1

0.1

Prior-year adjustments

–0.2

–1.0

Other items

0.3

–0.7

–35.0

–21.6

Analysis of tax expense

The following elements explain the difference between the expected and theactual tax expense.

CHF m

Tax effects of:
Non tax-deductible expenses and tax-exempt income
Tax losses and temporary differences for which

Total income taxes

Forbo Financial Report 2006

Since the Group operates across the world, it is subject to income taxes inmany different tax jurisdictions. Consequently, the expected and the actual tax
expense will vary from year to year according to the origin of earnings or losses
by country. The expected tax income/tax expense is the sum of the expected,
individual tax incomes/tax expenses of all foreign subsidiaries. The expected,
individual tax income/tax expense in a single country results from the multiplication of the individual profit/loss by the tax rate applicable in the country
concerned. The expected tax rate in the period under review amounted to 32 %(2005: –26 %).

74

The gross value of unused tax loss carry forwards which have, or have not, been
capitalized as deferred tax assets, with their maturities is as follows:
2006
CHF m

Not capitalized

Capitalized

Total

One year

0.8

0.0

0.8

Two years

3.6

0.0

3.6

Three years

4.6

0.0

4.6

Four years

4.1

0.0

4.1

Five years

160.5

0.0

160.5

More than five years

211.7

25.4

237.1

Total

385.3

25.4

410.7

Not capitalized

Capitalized

Total

4.0

0.0

4.0

Two years

3.2

0.0

3.2

Three years

14.1

0.0

14.1

Four years

27.2

0.0

27.2

Five years

29.2

0.0

29.2

More than five years

410.1

19.6

429.7

Total

487.8

19.6

507.4

Expiry after:

2005
CHF m

Expiry after:
One yearIn 2006, CHF 1.0 million (2005: CHF 3.4 million) of unused operating tax loss
carry forwards expired.

Deferred income tax assets and liabilities are offset when they relate to the same
fiscal authority, the legal right to offset exists, and they are intended to be settled
net or realised simultaneously. The following amounts are shown in the balance
sheet:
31.12.2006

31.12.2005

Deferred tax assets

20.5

28.1

Deferred tax liabilities

–7.8

–12.7

Deferred tax assets, net

12.7

15.4

Forbo Financial Report 2006

CHF m

75

Deferred tax assets and liabilities and deferred tax charges and credits are
attributed to the following items:
Deferred tax assets
CHF m

Property, plant
Inventories and equipment

Provisions

Loss carryforwards

Other

Total

12.9

8.3

16.7

7.3

20.9

66.1

income statement

0.3

–0.6

7.3

1.7

–15.2

–6.5

At 31.12.2006

13.2

7.7

24.0

9.0

5.7

59.6

Property, plant
Inventories and equipment

Provisions

Loss carryforwards

Other

Total

–1.4

0.0

–28.2

–50.7

At 31.12.2005
Credited (+), charged (–) to theDeferred tax liabilities
CHF m

At 31.12.2005

–7.6

–13.5

Credited (+), charged (–) to theincome statement

4.9

–0.6

–9.8

0.0

9.3

3.8

At 31.12.2006

–2.7

–14.1

–11.2

0.0

–18.9

–46.9

5.3

–5.2

15.3

7.3

–7.3

15.4

10.5

–6.4

12.8

9.0

–13.2

12.7

Deferred tax assets/liabilities, net
at 31.12.2005
Deferred tax assets/liabilities, net
at 31.12.2006

Earnings per share

9

Basic earnings per share is calculated by dividing net profit or loss for theyear attributable to ordinary shareholders by the weighted average number ofordinary shares outstanding during the period, less the average number oftreasury shares held.
Diluted earnings per share in addition takes into account the potential dilution effects which would result if all share options were exercised.

Group profit/loss for the year (CHF m)
Weighted average number of outstanding shares

Forbo Financial Report 2006

61.2

–16.5

2,592,336 2,634,049
23.60

–6.26

Adjustment for stock option plans

4,221

– 1)

2,596,557

– 1)

23.57

–6.26

Diluted earnings per share (CHF )

76

2005

Undiluted earnings per share (CHF)
Weighted average number of outstanding shares used
to calculate the diluted profit/loss

1)

2006

Due to the negative result thedilutive effect would not lead toa reduction of the earnings
per share. Therefore, this effectwas not calculated.

Property, plant and equipment
Cost
CHF m

Land andMachinerybuildings and equipment

At 31.12.2004

468.5

852.9

Other Assets underTotaltangible assets construction tangible assets

171.7

21.4

1,514.5

Additions

6.4

24.5

5.8

12.6

49.3

Disposals

–10.2

–7.1

–8.3

–0.4

–26.0

Transfers

3.9

18.4

–1.3

–21.0

0.0

Translation differences

13.3

23.7

4.0

–0.7

40.3

At 31.12.2005

481.9

912.4

171.9

11.9

1,578.1

Additions

0.1

15.6

6.0

42.5

64.2

Disposals

–0.7

–16.1

–7.6

–0.7

–25.1

Change in scope of consolidation

1.1

1.3

0.3

0.0

2.7

Transfers

0.6

11.2

–5.2

–13.8

–7.2

Translation differences

5.0

19.6

3.0

–1.2

26.4

488.0

944.0

168.4

38.7

1,639.1

At 31.12.2006

Accumulated depreciation
CHF mLand andMachinerybuildings and equipment

At 31.12.2004

233.6

706.5

130.4

0.5

1,071.0

Depreciation

13.1

39.0

17.4

0.0

69.5

Impairment

4.4

4.6

0.0

0.0

9.0

Disposals

–5.2

–7.2

–7.6

0.0

–20.0

Translation differences

Other Assets underTotaltangible assets construction tangible assets

5.7

17.4

3.1

0.0

26.2

At 31.12.2005

251.6

760.3

143.3

0.5

1,155.7

Depreciation

12.2

35.5

9.5

0.0

57.2

Impairment

4.3

2.1

2.1

0.0

8.5

Disposals

–0.2

–13.8

–7.2

0.0

–21.2

Change in scope of consolidation

0.0

0.0

0.0

0.0

0.0

Transfers

0.0

0.0

–5.1

0.0

–5.1

Translation differences

3.5

16.3

2.7

0.0

22.5

271.4

800.4

145.3

0.5

1,217.6

At 31.12.2005

230.3

152.1

28.6

11.4

422.4

At 31.12.2006

216.6

143.6

23.1

38.2

421.5

At 31.12.2006
Net book value

Property, plant and equipment also include leased assets with a net book valueof CHF 1.3 million (2005: CHF 1.7 million) as well as non-operating investment
property with a net book value of CHF 2.6 million (2005: CHF 3.4 million).
The carrying amount of the non-operating investment property represents
approximately the current market value.
The fire insurance value of buildings, machinery and factory equipment of
CHF 2,194 million (2005: CHF 2,109 million) covers the replacement cost. The
business interruption risk arising from fire and the production and productliability risks are covered by a group-wide policy.

Forbo Financial Report 2006

1077

Maintenance and repair cost amounted to CHF 29.6 million (2005: CHF 31.8
million). The depreciation expense is included in the items ‘Cost of goods sold’,‘Development costs’, ‘Marketing and distribution costs’ and ‘Administrative
costs’.
Impairment tests have resulted in impairments on buildings, equipment andother assets. The impairment charge of CHF 8.5 million is included in ‘otheroperating expenses’.

11

Intangible assets
Cost
CHF m

Goodwill

Trademarks/
patents

Other intangible
assetsTotal

At 1.1.2005

118.2

54.2

6.1

178.5

Additions

0.0

0.0

0.0

0.0

Disposals

0.0

0.0

–0.2

–0.2

Translation differences

8.6

0.4

–0.2

8.8
187.1

126.8

54.6

5.7

Additions

0.2

0.0

0.2

0.4

Disposals

–0.5

0.0

–0.5

–1.0

Change in scope of consolidation

9.8

0.0

1.5

11.3

Transfers

0.0

0.0

7.2

7.2

At 31.12.2005

Translation differences

–2.2

0.0

0.4

–1.8

At 31.12.2006

134.1

54.6

14.5

203.2

Goodwill

Trademarks/
patents

Other intangible
assetsTotal

At 1.1.2005

0.0

32.0

3.5

35.5

Amortization

0.0

0.0

0.9

0.9

Impairment

6.0

0.0

0.0

6.0

Disposals

0.0

0.0

–0.2

–0.2

Translation differences

0.0

0.3

0.0

0.3

At 31.12.2005

6.0

32.3

4.2

42.5

Amortization

0.0

0.7

1.4

2.1

Impairment

4.9

0.0

0.0

4.9

Disposals

–0.5

0.0

–0.4

–0.9

Change in scope of consolidation

0.0

0.0

0.0

0.0

Transfers

0.1

0.0

5.0

5.1

Accumulated amortizationand impairment
CHF mTranslation differences

0.0

0.0

0.3

0.3

At 31.12.2006

10.5

33.0

10.5

54.0

At 31.12.2005

120.8

22.3

1.5

144.6

At 31.12.2006

123.6

21.6

4.0

149.2

Forbo Financial Report 2006

Net book value

78

The intangible assets with an indefinite useful life are subject to an impairment
test every year on the basis of the cash-generating unit. The test is carried out
using a standardized method with discounted cash flow for calculating the value
in use. The sales figures are estimated by management for the first five years;
sales growth for the remaining useful life is between 0 % and 3 %. The discounting rate corresponds to the weighted cost of capital before taxes plus an extra
risk charge estimated by the Management, which is between 8 % and 12 %.
The impairment of CHF 4.9 million in the period under review relates to
Bonding Systems (see note 26). With 95 %, the acquisition of Swift in 2002 is
the main goodwill item; it was classified as recoverable.

12

Investments in associates and other non-current assets

31.12.2006

31.12.2005

Other investments

1.8

1.6

Other non-current assets

0.4

0.6

Total investments in associates and other non-current assets

2.2

2.2

31.12.2006

31.12.2005

71.6

65.4

CHF m

13

Inventories
CHF m

Raw materials and supplies
Work in progress

85.3

80.5

Finished goods

138.4

137.3

Allowance for product risks

–28.6

–26.2

Total inventories

266.7

257.0

The inventory allowance amounts to CHF –28.6 million (2005: CHF –26.2 million).
Write-downs totaling CHF 2.4 million are recognized in ‘Cost of goods sold’ in theincome statement.

Trade receivables

31.12.2006

31.12.2005

Accounts receivable

278.2

263.7

Notes receivable

28.7

28.2

Allowance for doubtful receivables

–14.5

–18.1

Total trade receivables

292.4

273.8

CHF m

Forbo Financial Report 2006

14

79

15

Pledged or assigned assets

Of the total assets, CHF 8.3 million (2005: CHF 4.9 million) are pledged orassigned, relating to assigned book account.

16

Share capital

The share capital of Forbo Holding AG was unchanged at December 31, 2006,
amounting to CHF 54,263,040. It is divided into 2,713,152 registered shares witha par value of CHF 20 each. Of these, 21,419 registered shares without voting
and dividend rights are at the disposal of the Board of Directors. Consequently,
2,691,733 registered shares were eligible for dividends in the 2006 financial
year. The changes in outstanding shares were as follows:
1.1.2006

Change31.12.2006

NumberNumberNumberChanges in outstanding shares
Total number of shares

2,713,152

0 2,713,152

Treasury shares
Shares with dividend rights

57,651

114,535

Shares with no dividend rights

21,419021,419Total number of treasury shares

78,30357,651

135,954

Total number of outstanding shares

17

56,884

2,634,849

57,651 2,577,198

Stock Option Plan

Members of the Board of Directors (until 2004) and of management were granted
options as part of the Groups Stock Option Plan (SOP). The stock options are inrecognition of past performance and are intended as a stimulus for future performance. The grant or strike price relevant for the allocation of the stock options
is determined by the closing price on the fifth trading day after payment of thedividend. The options issued usually have a term of five years and a vesting periodof three years.

Forbo Financial Report 2006

On March 15, 2006, the Board of Directors approved the introduction of theManagement Investment Plan (MIP). With the introduction of the MIP, the SOP iscanceled. As part of the MIP, members of management receive at least 50% of
their annual performance bonus in the form of shares and options. All shares andoptions were issued at the average market price of the first 14 trading days in
January of the current year and are subject to a vesting period of three years. The
term of the options is five years. The shares and options issued within the framework of the MIP are equity-settled.

80

Options

The change in the number of outstanding equity-settled options and theirweighted average strike price are as follows:
2006
Weighted
averagestrike price

Options outstanding on 1.1.
Granted2005
Number ofoptions

Weighted
averagestrike price

Number ofoptions

263

13,486

288

8,796

370

7,194

235

5,250

Forfeited264–3,200–0

Exercised

331

–356

–

0

Expired442–1,320407–560

Options outstanding on 31.12.

295

15,804263

13,486Of the 15,804 options outstanding (2005: 13,486), 960 were exercisable (2005:
2,936) as per December 31, 2006. The exercise of 356 options (2005: 0) resulted
in the issue of 712 Forbo Holding shares at an issue price of CHF 331. The
share price at exercise date was CHF 377. The expense for equity-settled options
charged to the income statement in application of IFRS 2 amounted to CHF 0.6
million (2005: CHF 0.4 million).

The following table summarizes information about the options outstanding at
December 31, 2006.

SeriesStrike price(CHF )

No. ofoutstanding
options

Averageremaining
term(years)No. ofexercisable
options

2002

330

160

0.4

160

2003

251

800

1.6

800

2004

212

2,400

2.6

0

2005

235

5,250

3.5

0

2006

370

7,194

4.4

0

15,804

3.6

960

Total

Forbo Financial Report 2006

In the year under review a total of 7,194 (2005: 5,250) equity-settled options
were granted under the MIP. The fair value of these options amounted to
CHF 45.80 (2005: CHF 51.90). The options were valued in accordance with theBlack-Scholes model using the following input factors: Share price at issue
date CHF 320 (2005: CHF 234), strike price CHF 370 (2005: CHF 235), volatility
24.3 % (2005: 34.6 %), expected life of the financial instrument 4.0 years (2005:
4.1 years), dividend yield 1.5 % (2005: 3.0 %), and risk-free interest rate 2.5 %(2005: 1.6 %). The expected volatility is based on historical market data referring to an expected life of the options over a comparable period. The expected
useful life applied in the calculation model has been adapted to the best possible
estimate of limitations of exercise rights and behavior assessment.

81

Shares

The number of shares of Forbo Holding AG issued as part of the MIP was 1,870(2005: 0). The share price at measurement date was CHF 320.
The Delegate of the Board of Directors and CEO is remunerated primarily withshares. Based on a work contract signed in the year 2005 the amount of 47,395
shares have been issued in the year 2006 at a market price of CHF 270 eachfor the total contract term of over five years (2006 until 2010). These shares areblocked until December 31, 2010. The respective personnel expenditure ischarged to the income statement over the vesting period.
In the year under review the amount charged to the income statement underapplication of IFRS 2 for issued shares amounted to CHF 3.1 million (2005: CHF 0).

18

Consolidated statement of changes in equity
2006
CHF m

Share
capitalTreasurysharesReserves

Actuarial
gain/(loss)

Translationdifferences

Total

At 1.1.2006

54.3

–1.6

673.4

–25.6

–142.4

558.1

61.2

Profit for the year

61.2

Total income and expenses
recognized in equity

1.8

Share-based payments

4.1

4.1

–1.9

–30.7

–32.6

54.3

–3.5

710.3

16.8

–139.3

CHF m

Share
capitalTreasurysharesReserves

Actuarial
gain/(loss)

Translationdifferences

Total

At 1.1.2005

54.3

–1.6

692.1

–36.4

–164.7543.7

Treasury shares

2005

3.1

–0.5

Other
At 31.12.2006

42.4

Loss for the year

47.3

0.5

–16.5

638.6

–16.5

Total income and expenses
recognized in equity–3.1

Share-based payments

0.6

Other

0.3

Forbo Financial Report 2006

At 31.12.2005

82

54.3

–1.6

673.4

10.8

22.3

30.0
0.6
0.3

–25.6

–142.4558.1

Non-current financial debt

31.12.2006

31.12.2005

0.0

150.0

Outstanding private placements

335.7

360.3

Unamortized issuance cost

–1.4

–2.3

Total outstanding bonds and private placements

334.3

508.0

Unamortized cost syndicated bank facility

0.0

–0.3

Lease obligations

1.1

1.3

–126.3–150.6

209.1

358.4

31.12.2006

31.12.2005

After 1 year

0.3

135.3

After 2 years

149.2

0.3

After 3 years

0.0

159.8

After 4 years

0.0

0.1

After 5 and more years

61.0

65.5

CHF m

Outstanding bonds

Less current portion
Total non-current financial debt

Maturities of non-current financial debt
CHF m

Unamortized cost

–1.4

–2.6

Total

209.1

358.4

The costs of private placements are amortized over the respective terms. Derivatives established in connection with non-current financing amount to CHF 68.9
million and are included in ‘other current liabilities’.

Total outstanding bonds and private placements at 31.12.2006
Currencym

Term

Interest rate

Forbo NL Holding B.V. (guaranteed by Forbo Holding AG)

USD

103.0

2002–2007

5.120 %

Forbo NL Holding B.V. (guaranteed by Forbo Holding AG)

USD

122.0

2002–2009

5.790 %

Forbo NL Holding B.V. (guaranteed by Forbo Holding AG)

USD

50.0

2002–2012

6.290 %

Company

Forbo Financial Report 2006

1983

Covenants related to non-current financial debt

The private placements (USD 275.0 million) contain general covenants customary for such facilities. The private placements also contain financial covenants,
i.e. defined maximum debt coverage (the ratio of consolidated net debt to consolidated EBITDA may not be greater than 3 to 1), a defined maximum interest
coverage (the ratio of consolidated EBITDA to consolidated net interest payable
may not be less than 4 to 1) and a consolidated net worth test (shareholders’equity on the consolidated balance sheet may not fall below CHF 535.5 million).
The private placements include events of default customary for such facilities.
All three facilities are unsecured (with the exception of guarantees provided by
Forbo Holding AG for obligations of its subsidiaries).

20

Employee benefit obligations

The Group has established several pension plans on the basis of the specificrequirements of the countries in which it operates. The Group has both defined contribution and defined benefit plans. The obligations and assets under
all the material defined benefit plans are assessed annually by independentactuaries in accordance with the ‘projected unit credit method’.
Details of the pension cost related to the major defined benefit plans are as
follows:
2006

2005

16.8

16.5

CHF m

Current service cost, net
Interest costs on employment benefit obligations

34.1

34.4

Expected return on plan assets

–38.9

–33.6

Curtailment loss

0.0

–0.6

Net periodic pension cost

12.0

16.7

Forbo Financial Report 2006

The actual return on plan assets was CHF 45.5 million (2005: CHF 88.8 million).

84

The movements in the obligation related to the defined benefit plans are as
follows:
2006

2005

At 1.1.

789.6

706.0

Total pension costs, gross

22.1

21.2

Interest costs on employment benefit obligations

34.1

34.4

Benefits paid

–36.7

–29.6

Actuarial gains/losses

–35.8

44.5

CHF m

Inclusion of new pension plans

4.1

0.0

Translation differences

29.8

13.1

At 31.12.

807.2

789.6

2006

2005

At 1.1.

688.5

593.9

Expected return on plan assets

38.9

33.6

Employer contributions

26.5

18.5

Employee contributions

5.3

4.8

The movements of plan assets at fair value are as follows:

CHF mActuarial profits

6.6

55.3

Benefits paid

–36.7

–29.6

Inclusion of new pension plans

3.8

0.0

Translation differences

28.5

12.0

At 31.12.

761.4

688.5

31.12.2006

31.12.2005

Present value of defined benefit obligation

807.2

789.6

Fair value of plan assets–761.4–688.5

45.8

101.1

2006

2005

The present value of pension obligations and fair value of plan assets was asfollows at the end of the year:

CHF m

Net liabilities recognized in the balance sheet

CHF m

Experience adjustment arising on the plan obligation
Actuarial gains/losses

15.5

26.2

Percentage of plan obligation

2.0 %

3.7 %

Actuarial gains/losses
Percentage of plan assets

6.6

55.3

1.0 %

9.3 %

Forbo Financial Report 2006

Experience adjustment arising on the plan assets85

In 2005, actuarial gains and losses and adjustments due to past experience,
which are used for valuing assets and liabilities, were initially recognized in thebalance sheet under pension obligations and directly charged to shareholders’equity.
Most of the pension plans are financed in whole or in part via a fund. Pension
obligations worth CHF 32.3 million (of a total of CHF 807.2 million) are notfinanced via a fund.
The movements in the net liability recognized in the balance sheet are as
follows:
2006

2005

101.1

112.1

CHF m

Net liability at 1.1.
Total pension expenses include in personnel expenses

12.0

16.7

Employer contributions

–26.5

–18.5

Actuarial (gains)/losses

–42.4

–10.8

Inclusion of new pension plans

0.3

0.0

Translation differences

1.3

1.6

Net liability at 31.12.

45.8

101.1

2006

2005

Actuarial losses at 1.1.

–25.6

–36.4

Actuarial gains/(losses) in the current period

42.2

10.8

Translation differences

–1.2

0.0

Total actuarial losses at 31.12.

15.6

–25.6

The gains and losses charged to shareholders’ equity are as follows :CHF mAccumulated gains and losses recognized

Forbo Financial Report 2006

The actuarial gain in 2006 includes a profit of CHF 22.1 million resulting
from adjustments made due to past experience and a profit of CHF 20.3 million
resulting from a change in assumptions.

86

The principal actuarial assumptions used were as follows (expressed as weighted
averages):
2006

2005

Discount rate

4.6

4.3

Expected return on plan assets

5.6

5.7

Future salary increases

3.2

2.8

%

The expected return on plan assets is derived from long-term government bondsin the respective currency zones.
The weighted average distribution of the plan assets for 2006 and 2005 is shown
below by investment category:
2006

2005

Shares46

47

Fixed-interest bonds

48

44

Real estate

1

2

Cash and other investments

5

7

100

100

%

Total

The pension plans do not hold any Forbo shares.
Future contributions to defined benefit plans are estimated in the following year
on the basis of the period under review.
The expense for the contributions to defined contribution plans included inpersonnel expenses amounted to CHF 6.5 million in 2006 (2005: CHF 5.2 million).

Non-current provisions

CHF m

Warranty Environmental
provisions
provisions

Provisions forlegal claims

Personnel
provisions

Other
provisions

Total
provisions

At 31.12.2005

5.9

9.1

10.4

4.0

11.3

40.7

Additions

0.4

0.3

2.9

0.9

1.6

6.1

Disbursements/release

–0.3

–0.6

0.0

–0.2

–1.6

–2.7

Transfers to current provisions

0.0

–3.0

0.0

0.0

0.0

–3.0

Translation differences

0.2

0.2

0.1

0.1

0.0

0.6

At 31.12.2006

6.2

6.0

13.4

4.8

11.3

41.7

Forbo Financial Report 2006

21

87

Warranty provisions are made in connection with the sale of products and are
based on past experience. Experience shows that cash outflows are spread
evenly over the warranty period of five to ten years. The environmental provisions cover the anticipated remediation costs related to operations in previous
years. The provisions for legal claims relate to product liability claims inwhich the Group is involved in the course of its normal conduct of business.
The personnel provisions reflect long-term obligations to employees. The
environmental, legal, personnel and other provisions are expected to result ina cash outflow in the medium term.

22

Trade payables

31.12.2006

31.12.2005

126.1

121.3

CHF m

Accounts payable

5.4

10.5

131.5

131.8

31.12.2006

31.12.2005

Provisions for restructuring

8.6

15.9

Accrued expenses for compensation and benefits to employees

63.2

59.9

Notes payable
Total trade payables

23

Current provisions and accrued expenses
CHF m

Other accrued expenses

97.5

60.7

Total current provisions and accrued expenses

169.3

136.5

Provisions for restructuring changed as follows in the year under review:

CHF m

At 31.12.2005

15.9

Credited to the income statement–1.2

Utilized during the year

–6.1

At 31.12.2006

8.6

Accrued expenses for compensation and benefits to employees mainly include
holidays and overtime accruals as well as bonus provisions.

Forbo Financial Report 2006

Other accrued expenses include accrued volume rebates, commissions, premiums,
interest and accrued warranty costs, and similar items.

88

24

Current financial debt

31.12.2006

31.12.2005

2.0

4.9

CHF m

Current bank loans and overdrafts

25

Current portion of non-current debt

126.3

150.6

Total current financial debt

128.3

155.5

31.12.2006

31.12.2005

0.7

0.8

Commitments and contingent liabilities
CHF mCommitments and contingent liabilities

Contingent liabilities relate to sureties and guarantees in favor of third parties.

Acquisition of subsidiaries

On January 8, 2006, the Forbo Group acquired 100 % of the issued capital of theChinese adhesives company Victa Technology Holdings Limited, Hong Kong.
Victa Technology Holdings Limited is the parent company of Victa (Guangzhou)
Chemicals Co., Ltd in Guangzhou. This transaction was accounted for according
to the acquisition method. In the year under review, the acquired companies
contributed a total of around CHF 34.3 million to net sales and earnings of
CHF 2.7 million to the Group result. In addition, net assets of a Belgium dealer
amounting to CHF 0.9 million were acquired in 2006 by Movement Systems.
In the previous year, the Forbo Group acquired the US company Industrial
Adhesives Inc. in order to strengthen its position in the packaging sector. Thistransaction gave rise to badwill of CHF 0.4 million.
2006

2005

Part of purchase price paid in cash

3.6

6.0

Earn-out component

9.3

0.0

Directly allocable acquisition costs

0.0

0.7

Total purchase price

12.9

6.7

Fair value of the acquired net assets

–3.1

–7.2

Goodwill/(Badwill)

9.8

–0.5

CHF m

Forbo Financial Report 2006

26

89

The purchase price to be paid for Victa Technology Holdings Limited consistsof a cash payment made at the time of purchase in the amount of CHF 1.1 million
plus a purchase price component (earn-out), which is owed on the basis of the2006 operating profit and is due for settlement in 2007. Based on the provisional
consolidated operating result of Victa Technology Holdings Limited, the earnout component amounts to CHF 9.3 million.
Through this acquisition, the Group gained entry to the Chinese adhesives market,
acquired the customer lists and the customer relationships. The fair value ofthese intangible assets comes to CHF 1.5 million. The acquired goodwill of CHF 8.2
million was impaired by CHF 4.0 million in the year under review, based oninternal planning.
The acquired net assets are as follows:
31.12.2006

CHF m

Adjustments to the
Fair value
Book value

31.12.2005

Fair value

Adjustments to the
Fair value
Book value

Fair value

Tangible assets

2.5

–

2.5

5.5

–1.0

4.5

Intangible assets

–

1.5

1.5

–

–

–

Inventories

2.2

–

2.2

2.5

–1.0

1.5

Payables

0.3

–

0.3

1.6

–0.4

1.2

Cash

0.0

–

0.0

–

–

–

accrued expenses

–3.4

–

–3.4

–

–

–

Fair value of the net assets

1.6

1.5

3.1

9.6

–2.4

7.2

Short-term provisions andPurchase price paid in cash

3.6

Cash acquired

–0.0

–

Net cash outflow for payment

3.6

6.7

Forbo Financial Report 2006

The initial accounting for the business combinations was performed on a provisional basis.

90

6.7

27

Leasing
Operational leasing
CHF m

2006

2005

Leasing obligation up to 1 year

9.3

8.6

Leasing obligation 2–5 years

18.1

21.1

Leasing obligations of more than 5 years

0.9

2.1

Total

28.3

31.8

The expense for operational leasing charged to the income statement in 2006
amounted to CHF 23.3 million (2005: CHF 22.8 million). The Group has
no significant operational leasing contracts. The liability for financial leasing
amounted to CHF 1.1 million at year end.

Related party transactions
Non-executive membersof the Board of Directors
2006
2005

CHF m

2006

Executive
Board
2005

Payments due in the short term

3.8

4.8

0.4

Payments due in the long term

0.0

0.2

of employment

0.0

Share-based compensations

3.9

Total

7.7

Total
2006

Total
2005

0.6

4.2

5.4

0.0

0.0

0.0

0.2

1.7

0.0

0.0

0.0

1.7

0.4

0.2

0.2

4.1

0.6

7.1

0.6

0.8

8.3

7.9

Payments upon termination

The compensation paid to the Executive Board, as shown above, relates to six
members including the Delegate of the Board of Directors.
Payments to all non-executive directors within Forbo Holding AG amounted to
CHF 0.6 million in 2006 and include benefits for directors who retired in the year
under review.
The share-based compensation include Forbo shares with a fair market value of
CHF 0.2 million (CHF 0.1 million in 2005) allotted to the Board of Directors in
2006, including the portion of Forbo shares allotted to the Delegate of the Boardof Directors worth CHF 2.6 million (2005: CHF 0) in the year under review, andthe fair market value of the issued share options (see note 17).
The Group has a 33% interest in Enia Carpet Group. In 2006, the Forbo Groupbought products from Enia Carpet Group worth CHF 4.8 million (2005:
CHF 4.7 million), while Enia Carpet Group bought products from the ForboGroup worth CHF 2.5 million (2005: CHF 3.8 million).

Forbo Financial Report 2006

28

91

29

Financial risk management

In its financial operations, the Forbo Group uses derivative financial instruments
in order to control the risks and opportunities arising from fluctuations in
exchange rates and interest rates. The various risks involved in existing assets andliabilities as well as planned and anticipated transactions are monitored andmanaged centrally – with due regard to the Group’s consolidated risk exposure.
In adherence to the Group’s financial risk management policy (established on
the basis of written guidelines and policies), Corporate Treasury continuously
monitors both the risk exposure and the effectiveness of the hedging instruments and issues recommendations with regard to partial or complete hedging
of existing risks. The Group’s financial risk management policy does not permit
the use of derivative financial instruments for trading purposes or speculation.
Derivative financial transactions are concluded only with first-class banking
institutions in order to manage the counterparty risk. The creditworthiness ofthese institutions is assessed on the basis of evaluations by leading rating agencies.
At Forbo, ‘derivative instruments’ are related to management either of currency
risks or of interest rate risks (or a combination of both).
Management of currency risks

Risks arising from short-term currency exposure created by purchases and salesof goods and services (transaction risks) are identified, and selective hedging
strategies are implemented in the line of an ongoing assessment of exchange rate
movements. The Group only uses foreign exchange forward and option contracts with maturities of up to twelve months.
Numberof contracts

Gross value
hedgedCHF mUnrealized
profit/loss
CHF m

Forward contracts at 31.12.2005

12

9.8

–0.2

Forward contracts at 31.12.2006

12

7.9

1.1

Financial derivatives

The above instruments are recognized in the balance sheet at fair value inaccordance with IAS 39. The net fair value (total of all positive and negative
market values) at December 31, 2006 was CHF 1.1 million (at December 31,
2005: CHF –0,2 million).

Forbo Financial Report 2006

Furthermore, risks associated with the translation of assets and liabilities denominated in foreign currencies (translation risks) are managed by establishing
an appropriate financing policy.

92

Management of interest rate risks

The market value of interest-bearing assets and liabilities are subject to fluctuations in interest rates. The Group makes use of financial derivatives in order tomanage potential risks and benefits arising from interest rate movements andthe duration of the fixed interest rates. The Group uses the interest rate swaps
and cross-currency interest rate swaps shown below, with terms of up to sevenyears:
Financial derivatives

Number ofcontracts

Gross value
hedgedCHF mUnrealized
gain/loss
CHF m

6

256.8

–52.5

6

239.3

–68.9

Interest rate swaps and cross-currencyinterest rate swaps at 31. 12. 2005
Interest rate swaps and cross-currencyinterest rate swaps at 31. 12. 2006

The above instruments are recognized in the balance sheet at fair value inaccordance with IAS 39. The net fair value (total of all positive and negative market
values) at December 31, 2006 was CHF –68.9 million (December 31, 2005:
CHF –52.5 million).
Management of liquidity risksGroup companies need sufficient cash in order to meet their obligations. Within
the guidelines of the Group, the individual companies are responsible for the
management of their own cash surpluses and the raising of funds to cover theirliquidity needs. In certain cases, approval must be obtained from Corporate
Treasury. The Group maintains sufficient cash reserves and unused credit lines
to meet its liquidity requirements at all times.
Management of credit risks

Credit risks arise from the possibility that customers may not be able to meettheir agreed obligations. To manage this risk, the financial creditworthiness ofvarious customers is constantly assessed. Credit risks are restricted by the company’s broadly diversified customer base in various business segments andgeographic regions. Counterparty risk from financial instruments is spread overan appropriate number of major financial institutions. Given the excellent
credit ratings of these counterparties, the Group does not expect any of them tofail to meet their obligations.

Events after the balance sheet date

The Board of Directors and Executive Board are not aware of any significant
events which have occurred since the year end on December 31, 2006 that would
impact the information presented in the financial statements approved by the
Board of Directors on March 13, 2007.

Forbo Financial Report 2006

30

93

AUD

1,400,000

100 %

S

Wetherill Park, NSW

AUD

3,000,000

100 %Forbo-Contel Handelsgesellschaft m.b.H.

ViennaEUR

73,000100 %Siegling-Austria Ges.m.b.H.

ViennaEUR

330,000

100 %Forbo-Balco BVBA

DendermondeEUR

61,000100 %N.V. Forbo Linoleum S.A.

Dilbeek

EUR

250,000

100 %S

Forbo Pisos Ltda.

São Paulo

BRL

10,000100 %S

Siegling Brasil Elementos deTransmissao e de Transporte Ltda.

São Paulo

BRL

7,168,000

50 %Currency

Share capital

Holding/Services

Wetherill Park, NSW

Siegling Australia PTY. Ltd.

Registered office

Movement Systems

Flooring Systems

Forbo Floorcoverings PTY. Ltd.

Company

Bonding Systems

Equity interest

Group Companies(December 31, 2006)
Australia
D

S

Austria
S
S

BelgiumS

BrazilN

MS

CanadaForbo Adhesives (Canada) Ltd.

St. John

CAD

3,500,157

100 %Forbo Linoleum Inc.

TorontoCAD

500,000

100 %Siegling Canada Ltd.

TorontoCAD

501,000

100 %Prague

CZK

500,000

100 %S

Forbo Flooring A/S

Glostrup

DKK

500,000

100 %S

Siegling, Danmark A/S

Brøndby

DKK

1,000,000

100 %

Esbo

EUR

25,253

100 %

MS
S
S

Czech Republic
Forbo s.r.o.

DenmarkMS

FinlandOy Forbo Swift AbMS

Forbo Financial Report 2006

France94

Forbo Participations S.A.S.

Surbourg

EUR

11,524,800

100 %Forbo Sarlino S.A.S.

Reims

EUR

6,400,000

100 %Forbo Adhesives France S.A.S.

Surbourg

EUR

800,000

100 %Siegling France S.A.S.

Lomme

EUR

819,000

100 %Sté. de Production de Sols Textiles-P.S.T. S.N.C.

Reims

EUR

3,092,000

100 % M S

Sté. de Production de Sols Vinyls-P.S.V. S.N.C.

Reims

EUR

3,447,000

100 % M S

D

H
S
MS
S

Registered office

Currency

Share capital

Holding/Services

Movement Systems

Bonding Systems

Flooring Systems

Equity interest

Company

Germany
Forbo Beteiligungen GmbH

LörrachEUR

15,400,000

100 %Forbo Erfurt GmbH

ErfurtEUR

2,050,000

100 %Forbo Flooring GmbH

Paderborn

EUR

500,000

100 %Forbo Adhesives Deutschland GmbH

Pirmasens

EUR

5,193,000

100 %Forbo-Novilon GmbH

LörrachEUR

1,030,000

100 %Paul Heinicke GmbH & Co KG

Pirmasens

EUR

1,023,000

100 %Realbelt GmbH

Velen

EUR

100,000

100 %S

Siegling GmbH

Hanover

EUR

10,230,000

100 %

MS

Kallithea (Athens)

EUR

895,000

100 %Hong Kong

HKD

1,000

100 %

Forbo Swift Adhesives Hungary Kft.

Budapest

HUF

3,000,000

100 %Siegling Hungária Kft.

Budapest

HUF

30,000,000

100 %Forbo Ireland Ltd.

DublinEUR125,000

100 %Siegling Ireland Ltd.

DublinEUR25,400100 %Waller & Wickham Ltd.

Dublin

EUR

2,540

100 %

Forbo Adhesives Italia SPA

Pianezze (Vicenza)

EUR

416,000

100 %Forbo Resilienti SRL

Segrate (Milan)

EUR

60,000100 %Siegling Italia SPA

Paderno Dugnano (Milan)

EUR

104,000

100 %

S

Tokyo

JPY

330,000,000

100 %

MS

GBP

25,000100 %Johor Bahru

MYR

2,500,000

100 %Tlalnepantla

MXP

19,335,000

100 %

D

D

H
MS
S
MS
S
H

GreeceForbo Swift Adhesives Greece S.A.I.C.

MS

Hong Kong
Victa Technology Holdings (Hong Kong) Ltd.

H

HungaryS
S

Ireland
S
S
S

Italy
MS
S

Japan
Siegling (Japan) Ltd.

Jersey, C.I.
Forbo Invest Ltd.

St. Helier

D

H

Malaysia
Siegling Malaysia SDN. BHD.

S

MexicoSMS

Forbo Financial Report 2006

Siegling Mexico S.A. de C.V.

95

Registered office

Currency

Eurocol B.V.

ZaanstadEUR454,000

Forbo Linoleum B.V.

Krommenie

EUR

11,350,000

100 % M S

Forbo NL Holding B.V.

Krommenie

EUR

13,500,000

100 %Forbo-Novilon B.V.

Coevorden

EUR

3,630,000

100 % M S

Forbo Swift Adhesives Nederland B.V.

Genderen

EUR

27,000100 %Siegling Nederland B.V.

Driebergen

EUR

113,000

100 %S

Auckland

NZD

650,000

100 %

S

NOK

1,000,000

100 %Holding/Services

Movement Systems

Bonding Systems

Flooring Systems

Equity interest

Company

Share capital

Netherlands
100 %

MS

H

MS

New ZealandSiegling New Zealand Ltd.

NorwayForbo Flooring AS

Asker

D

S

People’s Republic of China
Forbo Siegling (Shenyang) Belting Co., Ltd.

Shenyang

CNY146,391,000

100 %Forbo Adhesives (Guangzhou) Co., Ltd.

Guangzhou

CNY32,261100 %PVWarsaw

PLZ

50,000100 %S

Forbo-Revestimentos, S.A.

Leça da Palmeira (Porto)

EUR

75,000100 %Siegling (Portugal) Lda.

Gemunde (Porto)

EUR

500,000

100 %Forbo Helmitin Romania S.R.L.

OradeaROL

70,770,000

100 %Siegling Romania S.R.L.

Otopeni (Bucharest)

ROL

380,000,000

100 %

S

Siegling (ZAO)

St. Petersburg

RUB

411,000

100 %S

Forbo Stroitech (OOO)

Stary Oskol

RUB

181,000

100 %Malacky

SKK

200,000

100 %Forbo Adhesives Spain S.L.

Mos (Pontevedra)

EUR

15,006100 %Forbo Pavimentos S.A.

Barcelona

EUR

60,000100 %Siegling Iberica S.A.

Montcada i Reixac (Barcelona)EUR

1,533,000

100 %

MS

PolandForbo Swift Adhesives Poland Sp. z o.o.

Portugal
S
S

Romania
S

RussiaMS

Slovakia
Siegling, s.r.o.

S

Spain
MS
S
S

Forbo Financial Report 2006

Sweden96

Forbo Flooring AB

Gothenburg

Forbo Parquet AB

Tibro

Forbo Project Vinyl AB

Gothenburg

Forbo Swift Sweden AB

Gothenburg

Siegling Svenska AB

Mölndal

SEK

D

D

SEK

8,000,000

100 %

SEK

20,000,000

100 % M S

SEK50,000,000

100 % M S

SEK100,000

100 %

1,000,000

100 %

S

S
S

Registered office

Currency

Share capital

Holding/Services

Movement Systems

Bonding Systems

Flooring Systems

Equity interest

Company

Switzerland
Enia Carpet Group AG

EnnendaN

CHF

3,000,000

33 %H

FJK Carpet D GmbH

EnnendaN

CHF

20,00025 %H

Forbo Financial Services AG

Baar

CHF

100,000

100 %H

Forbo Finanz AG

Baar

D

CHF

10,000,000

100 %

H

Forbo-Giubiasco SA

Giubiasco

D

CHF

10,000,000

100 % M S

Forbo International SA

Baar

D

CHF

100,000

100 %

MS MS

Istanbul

YTL

725,000

100 %S

Forbo Nairn Ltd.

London

GBP

8,000,000

Forbo Swift Adhesives Ltd.

Chatteris

GBP

100

100 %

Forbo UK Ltd.

LondonGBP49,500,000

100 %Siegling (UK) Ltd.

LondonGBP

126,000

100 %Durham, NC

USD

100

100 %

USD

19,957,258

100 %

H

USD

50,000

100 %

H

H

TurkeyForbo Adhesives Ticaret Limited Şirketi

United Kingdom

D

100 % M S
MS
H
S

USA
Forbo Adhesives LLC
Forbo America Inc.

Wilmington, DE

Forbo America Services Inc.

Wilmington, DE

Forbo Finance Inc.

Wilmington, DE

USD

100,000

100 %Forbo Linoleum Inc.

Hazleton, PA

USD

3,517,000

100 %Siegling America LLC

Huntersville, NC

USD

15,455,100

100 %

D

MS

H
S
MS

Forbo Financial Report 2006

S Sales
MS Manufacturing and Sales
H Holding/Services
N Not included in the consolidation
D Direct participation of Forbo Holding AG

97

Report of the Group Auditors

Report of the Group Auditors
to the General Meeting of
Forbo Holding AG, Baar

As auditors of the group, we have audited the consolidated financial statements(consolidated income statement, consolidated balance sheet, consolidated
cash flow statement, consolidated statement of recognized income and expenseand notes to the consolidated financial statements – pages 57 to 97) of
Forbo Holding AG for the year ended December 31, 2006.
These consolidated financial statements are the responsibility of the board of
directors. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We confirm that we meet the legal
requirements concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards and with
the International Standards on Auditing, which require that an audit be plannedand performed to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. We have examined ona test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used,significant estimates made and the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements give a true and fair view ofthe financial position, the results of operations and the cash flows in accordancewith the International Financial Reporting Standards (IFRS) and comply with
Swiss law.
We recommend that the consolidated financial statements submitted to you be
approved.
PricewaterhouseCoopers AG

Stefan Räbsamen
Auditor in charge

Forbo Financial Report 2006

Zurich, March 16, 2007

98

Gerhard SiegristConsolidated Income Statements
2002–2006
2006

2005

2004

2003

2002

Net sales

1,879.5

1,702.0

1,622.3

1,598.9

1,531.1

Cost of goods sold–1,017.4–1,273.4–1,151.8–1,092.5–1,091.3

Gross profit

606.1

550.2

529.8

507.6

513.7

Development costs

–31.3

–32.4

–32.1

–28.9

–24.2

Marketing and distribution costs–300.6–286.9–285.1–287.5–277.2Administrative costs–131.9–143.5–143.6–122.2–119.6

Other operating expenses

–32.7

–63.5

–113.5–8.6–4.3

Operating profit/loss

109.6

23.9

–44.5

60.4

88.4

Financial income

7.0

9.5

4.2

7.9

5.0

Financial expense

–20.4

–28.3

–49.8

–37.3

–29.2

0.0

0.0

–22.5

0.8

–0.7

Share of result of associated companies
Group profit/loss before taxes

96.2

5.1

–112.6

31.8

63.5

Income taxes

–35.0

–21.6

–44.8

–15.7

–20.9

Group profit/loss for the year

61.2

–16.5

–157.4

16.1

42.6

Forbo Financial Report 2006

CHF m

99

Consolidated Balance Sheets 2002–2006
31.12.2006

31.12.2005

31.12.2004

31.12.2003

31.12.2002

Non-current assets

593.4

597.3

612.2

812.9

875.1

Tangible assets

421.5

422.4

443.5

558.8

586.9

Intangible assets

149.2

144.6

143.0

163.9

178.6

Deferred taxes

20.5

28.1

23.5

61.5

65.6

Assets
CHF m

2.2

2.2

2.2

28.7

44.0

Current assets

905.2

993.7

904.4

750.9

725.5

Inventories

266.7

257.0

255.2

247.9

255.9

Trade receivables

292.4

273.8

242.9

251.6

254.8

Other receivables

26.4

22.8

28.7

34.9

27.0

Prepaid expenses and deferred charges

25.6

35.5

30.8

27.8

35.4

Marketable securities

0.0

0.0

0.0

18.9

23.9

Investments in associates and other long-term assets

294.1

404.6

346.8

169.8

128.5

1,498.6

1,591.0

1,516.6

1,563.8

1,600.6

31.12.2006

31.12.2005

31.12.2004

31.12.2003

31.12.2002

Shareholders’ equity

638.6

558.1

543.7

572.5

590.6

Share capital

54.3

54.3

54.3

38.0

67.8

Treasury shares

–3.5

–1.6

–1.6

–7.7

–11.7

Cash and cash equivalents
Total assets

Shareholders’ equity and liabilities
CHF m

Reserves and retained earnings

587.8

505.4

491.0

542.2

534.5

Non-current liabilities

304.4

512.9

604.7

670.7

638.6

Non-current financial debt

209.1

358.4

459.7

554.2

539.3

Employee benefit obligations

45.8

101.1

112.1

88.7

68.9

Non-current provisions

41.7

40.7

26.9

21.3

22.6

Deferred taxes

7.8

12.7

6.0

6.5

7.8

Current liabilities

555.6

520.0

368.2

320.6

371.4

Trade payables

131.5

131.8

108.8

114.9

107.3

Current provisions and accrued expenses

169.3

136.5

116.6

81.3

90.7

Current financial debt

128.3

155.5

18.1

13.8

98.5

Current tax liabilities

21.8

10.6

6.1

7.9

14.0

Other current liabilities

104.7

85.6

118.6

102.7

60.9

860.0

1,032.9

972.9

991.3

1,010.0

1,498.6

1,591.0

1,516.6

1,563.8

1,600.6

Total liabilities
Total shareholders’ equity and liabilities
1)

Adjustments to shareholders’ equity andemployee benefit obligations for the year 2004
in accordance with the 2005 accounting
principles. No adjustments were made for theyears 2001–2003.

Forbo Financial Report 2006

Adjustment 2006: The fair values of thefinancial instruments have been disclosed as‘other current liabilities’ for the first timein the year under review. The prior years havebeen changed accordingly.

100Forbo Financial Report 2006

Financial Statements of Forbo Holding AG

101

Income Statement of Forbo Holding AG
2006

2005

IncomeCHF

Notes

Financial income
from investments in and advances to Group companies

1

21,255,988

27,103,747

from securities and short-term investments

2

578,165

1,138,783

125,236

6,931

21,959,389

28,249,461

2006

2005

Income from services and other sources
Total income

Expenses
CHF

3

4,786,688

5,510,452

Financial expense

48,835,866

15,850,006

65,000183,000

Total expenses

13,687,554

21,543,458

Net profit for the year

8,271,835

6,706,003

Forbo Financial Report 2006

Taxes

102

Notes

Administrative expenses

Balance Sheet of Forbo Holding AG(before appropriation of available earnings)
31.12.2006

31.12.2005

532,640,737

502,915,191
309,013,375

AssetsCHF

Notes

Long-term assets
Investments in Group companies

5346,804,727

Advances to Group companies

6

185,836,010

193,901,816

Current assets

3,325,503

155,154,543

Other receivables from Group companies

1,112,756

6,022,903

120,924

77,966

Other receivables from third parties
Prepaid expenses and deferred charges
Cash and cash equivalents

7

Total assets

26,509513,420

2,065,314

148,540,254

535,966,240

658,069,734

31.12.2006

31.12.2005

407,052,075

398,780,241

54,263,040

54,263,040

15,600,000

15,600,000

Shareholders’ equity and liabilities
CHF

Notes

Shareholders’ equity
Share capital

8

Statutory reserves:
General reserves
Reserve for treasury shares

10

31,904,493

14,245,526

Other reserves

11289,748,724

307,407,692

Profit carried forward

7,263,983

557,980

Net profit/loss for the year

8,271,835

6,706,003

128,914,165

259,289,493

28,000,000

28,000,000

Liabilities
Long-term provisions

12

0.0

150,000,000

Advances from Group companies

64,280,000

32,697,000

Other liabilities to Group companies

36,157,500

38,546,970

Bond issues

Current liabilities to third parties

20,741

25,978

Accrued expenses

455,924

10,019,545

535,966,240

658,069,734

Total shareholders’ equity and liabilities

Forbo Financial Report 2006

Available earnings:

103

Notes to the Financial Statementsof Forbo Holding AG
1

Income from investments in and advances to Group companies

Income from investments in and advances to Group companies amounts to
CHF 21.3 million (previous year: CHF 27.1 million) and consists of interest,
dividend income, and exchange rate gains with foreign currency loans.
2

Income from securities and short-term investments

In the year under review, this item includes income from short-term investments of CHF 0.6 million (previous year: CHF 1.1 million) exclusively.
3

Administrative expenses

Administrative expenses amount to CHF 4.8 million. They have been reduced by
CHF 0.7 million compared to prior year.
4

Financial expenses

The financial expenses of CHF 8.8 million relate to the 4 1⁄ 8 % bond issue 2001–
2006 of CHF 150.0 million and the amortization of the capitalized issuance costs.
This item also includes interest expenses incurred by loans drawn in the context
of a syndicated bank facility and by a loan from a Group company. The prioryear includes costs in connection with the public offering by CVC Capital Partners for all shares of Forbo Holding AG.
5

Investments in Group companies

As of December 31, 2006 Forbo Holding AG held the following direct investments:
Company
Share capitalin 1,000

Equityinterest

AUD

1,400

100 %

EUR

11,525100 %Holding/Services

EUR

15,400100 %Services

EUR

1,023

72 %

Activity

Currency

Forbo Floorcoverings PTY. Ltd. AU-Wetherill Park, NSW

Sales

Forbo Participations SAS

FR-Surbourg

Holding/Services

Forbo Beteiligungen GmbH

DE-Lörrach

Paul Heinicke GmbH & Co KG

DE-Pirmasens

Forbo Invest Ltd.

CI -St. Helier

Services

GBP

25

50 %

Forbo Flooring A/SNO-Asker

Sales

NOK

1,000

100 %

Forbo Flooring AB

SE-Gothenburg

Sales

SEK

8,000

100 %

Forbo Project Vinyl AB

SE-Gothenburg

Manufacturing and Sales

SEK

50,000100 %Forbo Finanz AG

CH-BaarHolding/Services

CHF

10,000100 %Forbo-Giubiasco SA

CH-Giubiasco

Manufacturing and Sales

CHF

10,000100 %Forbo International SA

CH-BaarServices, Manufacturing

CHF

100

100 %

and Sales

Forbo UK Ltd.

GB-London

Holding/Services

GBP

49,500100 %Forbo America Inc.

US-Wilmington, DE

Holding/Services

USD

19,957100 %Forbo Financial Report 2006

The increase in investments in Group companies compared to the previous
year amounts to CHF 37.8 million and is attributable to a capital investment in
Forbo Beteiligungen GmbH.

104

6

Advances to Group companies

Advances to Group companies are denominated in Swiss Francs and foreign currencies. The net increase compared to the previous year was CHF 8.1 million.
7

CashThis item consists of cash and cash equivalents with original maturities of threemonths or less.
8

Share capitalAt the end of 2006 the company’s share capital was unchanged at CHF 54,263,040
and is divided into 2,713,152 registered shares with a par value of CHF 20 each.
21,419 shares without voting or dividend rights are at the disposal of the Boardof Directors. For the financial year 2006, therefore, 2,691,733 shares are eligiblefor dividends. The shares are listed on SWX Swiss Exchange with the security
number 354 151.
9

Conditional capital increase
CHF 8,500,000 of conditional capital reserved for the exercise of shareholder
options and warrants in connection with a bond issue was created by a resolution of the Annual General Meeting of Shareholders held on April 27, 1994.
Following the exercise of options and warrants in 1994, 1995 and 1997 andreductions in the par value of CHF 22 per share in 2003 and CHF 8 per sharein 2004, the conditional capital was unchanged at CHF 3,329,000 on December 31,
2006.

10

Reserve for treasury shares

The CHF 31,904,493 included at year-end under ‘Reserve for treasury shares’
relates to treasury shares held by Forbo Holding AG and its subsidiaries valued atcost. The treasury shares developed as follows over the period under review:

Treasury shares

Cost
CHF

No. of registeredshares par value
CHF 20Total at 1.1.2006

14,245,526

78,303

Additions

35,003,304

113,801

Disposals–17,344,337–56,150

Total at 31.12.2006

31,904,493

135,954*

11

Other reserves

Other reserves decreased by CHF 17.7 million. This decrease is due to the transfer
to the reserve for treasury shares.
Long-term provisions

The CHF 28.0 million stated under this heading serve as a precautionary provision against general risks.

Forbo Financial Report 2006

12

105

13

Contingent liabilities

Guarantees and letters of support to third parties in favor of Group companies
amount to CHF 499.7 million at year-end, of which CHF 384.9 million (previous
year: CHF 412.9 million) are utilized. Most of this relates to guarantees to investors in connection with funds raised by a Group company in the form of a US
private placement (CHF 335.8 million) and guarantees in connection withutilized swap facilities.
14

Significant shareholders

Forbo Financial Report 2006

From information made available to the Board of Directors, the following shareholders or groups of shareholders with restricted voting rights were major investors in the company pursuant to Art. 663c Swiss Code of Obligations as at thebalance sheet date: Michael Pieper, Hergiswil, and Artemis Beteiligungen I AG,
Hergiswil, with a total of 30.03 % or 814.842 shares, This E. Schneider, Wilen bei
Wollerau, with 5,08 % or 137,695 shares, Forbo Holding AG, Baar, through its
two subsidiaries Forbo International SA, Baar, and Forbo Finanz AG, Baar, with
5,01% or 135,954 shares and Tweedy Browne Company LLC, New York, withmore than 5 %.

106

Proposal for Appropriation of Available Earnings
Forbo Holding AG
The Board of Directors proposes to the Annual General Meetingthat the available earnings, consisting of:
2006

2005

Net profit for the year

8,271,835

6,706,003

Profit carried forward from the previous year

7,263,983

557,980

Total available earnings

15,535,818

7,263,983

2006

2005

CHF

be appropriated as follows:

CHF

Proposal by the Board of Directors:
Dividend payment

0

To be carried forward to the following year

15,535,818

7,263,983

Total available earnings

15,535,818

7,263,983

The Board of Directors is proposing to theGeneral Meeting, to be held on April 27, 2007,
a reduction in par value of CHF 6 to CHF 14
per registered share.

Forbo Financial Report 2006

1)

01)

107

Report of the Statutory Auditors

Report of the Statutory Auditors
to the General Meeting of
Forbo Holding AG, Baar

As statutory auditors, we have audited the accounting records and the financial
statements (income statement, balance sheet and notes – pages 102 to 107) of
Forbo Holding AG for the year ended December 31, 2006.
These financial statements are the responsibility of the board of directors. Our
responsibility is to express an opinion on these financial statements based on
our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards which
require that an audit be planned and performed to obtain reasonable assurance
about whether the financial statements are free from material misstatement. We
have examined on a test basis evidence supporting the amounts and disclosuresin the financial statements. We have also assessed the accounting principles
used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the company’s articles of incorporation.
We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG

Stefan Räbsamen
Auditor in charge

Forbo Financial Report 2006

Zurich, March 16, 2007

108

Reto Tognina

Our Annual Reportis published in German andin an English translation.
Typesetting, Litho and Printing:
Neidhart +Schön AG, Zurich

Photos:Markus Senn, Biel
Luxwerk, Zurich (page 14 two photos)

Concept and Design:
Gottschalk+Ash Int’l, Zurich

Publisher:
Forbo Holding AG, Baar

Imprint

March 2007

6
0
2

0

6
0
2

0

6
0
0
2

Bonding Systems

Movement Systems

Movement Systems

Forbo Holding AG
Lindenstrasse 8
CH-6340 Baar
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com
Forbo International SA
Lindenstrasse 8
CH-6340 Baar
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com

Forbo Annual Report

Bonding Systems

Forbo Annual Report

Flooring Systems

Forbo Annual Report

Flooring Systems