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Notes to the Consolidated Balance Sheets

23. Total Equity

 

Number of shares outstanding 2011 2010
At January 1 200,005,983 169,005,983
Capital increase against cash contributions — 31,000,000
At December 31 200,005,983 200,005,983
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The subscribed capital of Continental AG was unchanged year-on-year. At the end of the reporting period it amounted to €512,015,316.48 and was composed of 200,005,983 no-par-value shares with a notional value of €2.56 per share.

By way of resolution of the Annual Shareholders' Meeting of April 24, 2007, the Executive Board is authorized, with the approval of the Supervisory Board, to increase the share capital of the company by up to €187.5 million through the issuance of new shares against cash and/or contributions in kind up to April 23, 2012. Following the capital increases in the fiscal years 2007 and 2010, the company still has authorized capital of €70.6 million on the basis of this authorization (Article 4 (3) of the Articles of Incorporation).

On the basis of the resolution of the Annual Shareholders' Meeting on April 23, 2009 (Article 4 (2) of the Articles of Incorporation), the company has additional authorized capital of €66.0 million for the issuance of new shares against cash and/or contributions in kind up to April 22, 2014.

The share capital has been conditionally increased by up to €3.8 million in accordance with Article 4 (5) of the Articles of Incorporation. The conditional capital increase is intended to be able to grant the bearers of rights under the 2004 stock option plan new shares when their rights are exercised. The Annual Shareholders' Meeting on May 14, 2004, approved the 2004 stock option plan for members of the Executive Board and senior executives. The 2004 stock option plan authorized the Executive Board to grant, in line with the plan's more detailed specifications, a total of 3,936,000 subscription rights until May 13, 2009, each of which entitles the option holder to subscribe for one share. As in the previous year, no subscription rights were exercised in 2011. 31,400 (PY: 34,700) subscription rights expired in 2011, as a result of which 36,400 subscription rights were still outstanding as of the end of the reporting period.

The share capital has been conditionally increased by up to €20.0 million in accordance with Article 4 (7) of the Articles of Incorporation. The conditional capital increase is intended to be able to grant the bearers of rights under the 2008 stock option plan new shares when their rights are exercised. The 2008 stock option plan adopted at the Annual Shareholders' Meeting on April 25, 2008, authorizes the issuance of up to 7,800,000 subscription rights to the Executive Board and senior executives until April 24, 2013. As in the previous year, no subscription rights were issued in 2011, while 8,300 expired (PY: 9,900). Thus, 47,900 subscription rights are still outstanding as of the end of the reporting period.

The share capital has been conditionally increased by up to €111.5 million in accordance with Article 4 (4) of the Articles of Incorporation. By way of resolution by the Annual Shareholders' Meeting on May 5, 2006 and the resolution amending this by the Annual Shareholders' Meeting on April 25, 2008, the Executive Board is authorized, with the approval of the Supervisory Board, to issue warrant-linked bonds and/or convertible bonds up to May 4, 2011. The term of this authorization expired without being utilized as of the end of the reporting period.

The share capital has been conditionally increased by up to €37.5 million in accordance with Article 4 (6) of the Articles of Incorporation (Conditional Capital II). Conditional Capital II is intended to grant new shares to the bearers of convertible bonds and/or warrantlinked bonds, participation rights and/or income bonds, if they are issued up to May 4, 2011, on the basis of the authorization granted by the Annual Shareholders' Meeting on April 25, 2008. The term of this authorization expired without being utilized as of the end of the reporting period.

Conditional Capital III of €43.5 million as resolved by the Annual Shareholders' Meeting on April 23, 2009 in accordance with Article 4 (8) of the Articles of Incorporation serves to grant new shares to the holders of convertible bonds and/or warrant-linked bonds, participation rights and/or income bonds, if they are issued up to April 22, 2014, on the basis of the authorization granted by the Annual Shareholders' Meeting on April 23, 2009. This authorization has not yet been utilized.

The change in conditional capital is shown in the table below:

in € thousands 2011 2010
Conditional capital at January 1 209,280 209,394
Expiration of subscription rights granted -101 -114
Conditional capital at December 31 209,179 209,280
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Under the German Stock Corporation Act (Aktiengesetz), the dividends distributable to the shareholders are based solely on Continental AG's retained earnings as of December 31, 2011, of €508.5 million (PY: €61.1 million), as reported in the annual financial statements prepared in accordance with the German Commercial Code. The Supervisory Board and the Executive Board will propose to the Annual Shareholders' Meeting the distribution of a dividend of €1.50 per share. With 200,005,983 shares entitled to dividends, the total distribution will therefore amount to €300,008,974.50. The remaining amount is to be carried forward to new account.

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Continental Value Contribution (CVC). The CVC represents the absolute amount of additional value created, and the Delta CVC represents the change in absolute value creation over the prior year. This change in the absolute contribution measured by Delta CVC allows us to monitor the extent to which management units generate value-creating growth or resources must be employed more efficiently. The CVC is measured by subtracting the weighted average cost of capital (WACC) from the ROCE and multiplying this by the average operating assets for the fiscal year. The weighted average cost of capital calculated for the Continental Corporation corresponds to the required minimum return. The cost of capital is calculated as the weighted average ratio of the cost of equity and borrowing costs.

Currency swap. Swap of principal payable or receivable in one currency into similar terms in another currency. Often used when issuing loans denominated in a currency other than that of the lender.

Defined Benefit Obligation (DBO). DBO is defined as the present value of all vested and non-vested benefits calculated on the basis of estimated salary levels at retirement. The only actuarial method that may be used to calculate the DBO is the projected unit credit method. DBO corresponds to PBO (projected benefit obligation).

Derivative financial instruments. Transactions used to manage interest rate and/or currency risks.

Dividend payout ratio. The dividend payout ratio is the ratio between the dividend for the fiscal year and the earnings per share.

EBIT. Earnings Before Interest and Taxes. EBIT represents the results of operations. Since 2002, when the amortization of goodwill was discontinued, EBITDA has been equal to EBIT.

EBITA. EBIT before scheduled goodwill amortization.

EBITDA. Earnings before interest, taxes, depreciation and amortization.

Finance lease. Under a finance lease, the lessor transfers the investment risk to the lessee. This means that the lessor bears only the credit risk and any agreed services. The lessee is the beneficial owner of the leased asset. Finance leases are characterized by a fixed basic term during which the lease may not be terminated by the lessee.

Gearing ratio. The gearing ratio represents the net indebtedness divided by total equity, expressed as a percentage.

Hedging. Securing a transaction against risks, such as fluctuations in exchange rates, by entering into an offsetting hedge transaction, typically in the form of a forward contract.

IAS. International Accounting Standards.

IASB. International Accounting Standards Board. The authority that defines the International Financial Reporting Standards.

IFRIC. International Financial Reporting Interpretations Committee. Committee that reviews and determines appropriate treatment of accounting issues within the context of IFRS and IAS.

IFRS. International Financial Reporting Standards. The accounting standards issued by the IASB.

Interest rate cap. An interest rate cap sets an upper limit for a variable interest rate in relation to a notional debt amount. To the extent that the variable interest due on the underlying debt exceeds the cap amount, the holder of the cap receives income as compensation in the amount of the difference to the cap. An up-front premium is paid as consideration for the cap.

Interest rate swap. An interest rate swap is the exchange of interest payments between two parties. For example, this allows variable interest to be exchanged for fixed interest, or vice versa.

Net indebtedness. The net amount of interest-bearing liabilities as recognized in the balance sheet, cash and cash equivalents, the positive fair values of the derivative financial instruments as well as other interest-bearing investments.

Operating assets. Operating assets are the assets less liabilities as reported in the balance sheet, without recognizing the net indebtedness, discounted trade bills, deferred tax assets, income tax receivable and payable, as well as other financial assets and debts.

Operating lease. A form of lease that is largely similar to rental. Leased assets are recognized in the lessor's balance sheet and capitalized.

PPA. Purchase Price Allocation. PPA is the process of breaking down the purchase price and assigning the values to the identified assets, liabilities, and contingent liabilities following a business combination. Subsequent adjustments to the opening balance sheet – resulting from differences between the preliminary and final fair values at the date of initial consolidation – are recognized as "PPA adjustments".

Rating. Standardized indicator for the international finance markets that assesses and classifies the creditworthiness of a debtor. The classification is the result of an economic analysis of the debtor by specialist rating companies.

ROCE. Return On Capital Employed. We define ROCE as the ratio of EBIT to average operating assets for the fiscal year.

SIC. Standing Interpretations Committee (predecessor to the IFRIC).

US GAAP. United States Generally Accepted Accounting Principles. These principles are subdivided into binding and guiding principles.

Weighted Average Cost of Capital (WACC). The WACC represents the weighted average cost of the required return on equity and net interest-bearing liabilities.