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Notes to the Consolidated Balance Sheets

28. Indebtedness

 

in € millions December 31, 2011 December 31, 2010
  Maturity Maturity
  Total up to 1 year over 1 year Total up to 1 year over 1 year
Bonds 2,996.2 — 2,996.2 2,988.5 — 2,988.5
Bank loans and overdrafts1 4,492.6 1,551.2 2,941.4 5,144.9 729.6 4,415.3
Derivative financial instruments 163.0 161.2 1.8 234.0 19.4 214.6
Financial lease liabilities 122.9 15.7 107.2 149.0 18.8 130.2
Liabilities from factoring/asset-backed securitization programs 549.5 549.5 — 381.5 381.5 —
Other indebtedness2 238.2 236.8 1.4 92.6 88.8 3.8
Indebtedness 8,562.4 2,514.4 6,048.0 8,990.5 1,238.1 7,752.4
1) Thereof €5.5 million (PY: €7.9 million) secured by land charges, mortgages and similar securities.
2) In 2011, other indebtedness includes €216.6 million (PY: €86.5 million) drawn down from the commercial paper program and €1.4 million (PY: €0.9 million) in liabilities on bills drawn and issued.
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Continental bond issues
Issuer/type CGF euro bond CGF euro bond CGF euro bond CGF euro bond Continental Tire Andina S.A. US dollar bond Continental Tire Andina S.A. US dollar bond Total
Amount of issue in € millions 750.0 625.0 1,000.0 625.0 1.2 5.6 3,006.8
Carrying amount Dec. 31, 2011 735.5 620.9 1,003.6 629.4 1.2 5.6 2,996.2
Stock market value Dec. 31, 2011 806.9 635.8 1,016.7 628.5 1.2 5.6 3,094.7
Carrying amount Dec. 31, 2010 732.3 619.7 1,003.9 629.7 2.9 — 2,988.5
Stock market value Dec. 31, 2010 814.4 636.8 1,040.2 638.6 2.8 — 3,132.8
Coupon p. a. 8.500% 6.500% 7.500% 7.125% Floating 7.750%  
Issue/maturity and fixed interest until 2010/ 07.2015 2010/ 01.2016 2010/ 09.2017 2010/ 10.2018 2008/  09.2012 2011/ 11.2016 1  
Issue price 99.005% 98.861% 99.330% 99.246% 97.299%2 100.000%  
1) Semi-annual redemption payments.
2) Quarterly redemption payments of the outstanding U.S. dollar bond. In the previous year, the average issue price of the two outstanding U.S. dollar bonds amounted to 97.61%.
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The carrying amount of bonds rose slightly from €2,988.5 million at the end of 2010 to €2,996.2 million as of the end of fiscal 2011. The increase is essentially due to the marketing of a bond with a nominal volume of $8.0 million and an interest rate of 7.75% p.a. launched by the company Continental Tire Andina S.A., Cuenca, Ecuador, in the fourth quarter of 2011. By the end of 2011, a nominal amount of $7.2 million of this bond was placed with investors. The remaining $0.8 million were issued in January 2012. Semi-annual redemption payments have been agreed for this bond.

The euro bonds issued in the third quarter of the previous year by Conti-Gummi Finance B.V., Maastricht, Netherlands, with a total volume of €3.0 billion continue to participate as before in the extensive collateral package granted to the lending banks in line with the renegotiations of the syndicated loan in 2009. The option of early repayment of the bonds granted to the issuer under the issue conditions of all four bonds was measured, as in the previous year, as an embedded derivative in line with IAS 39 (please also see Note 29).

Breakdown of credit lines and available financing from banks
€ millions Dec. 31, 2011 Dec. 31, 2010  
Company Type1 Amount of issue Book value Fair value Amount of issue Book value Fair value Interest Maturity
CAG, Conti Automotive, CRoA, CGF, Conti Benelux, Conti Autom. Benelux, Conti Autom. Holding Netherlands3 SL
SL		 5,375.0 1,003.2
2,856.8 		1,027.6
2,823.1		 6,484.9 296.8
4,000.2		 303.3
4,158.3		 Euribor / USD-Libor + margin 20122
20144
Conti Automotive LBL
LBL		 - -
-		 -
-		 55.0 40.0
15.0		 40.2
15.2		 3.90%
3.76%		 2011
2011
CGF PL

PL		 - -

-		 -

-		 110.0 60.0

50.0		 61.4

50.0		 6.21%
Euribor +
margin		 2011

2011
Conti Temic Electronics (Phils.) LBL
LBL		 11.6
-		 11.6
-		 11.7
-		 33.6 11.2
22.4		 11.4
22.7		 USD-
Libor +
margin
4.54%11 		2012
2011
Conti Mabor LBL
LBL		 -
8.2		 -
7.4		 -
6.2		 5.7
9.7		 5.7
8.7		 5.6
8.7		 Euribor + margin
0%6		 20115
20167
CRoA LBL - - - 37.4 37.4 38.6 5.53% 2011
Conti Automotive LBL 20.0 20.0 20.1 20.0 20.0 20.4 4.38% 2012
Conti Autom. Hungary Kft. LBL 10.8 10.8 11.0 20.9 20.9 21.9 5.34% 20127
Conti Tire do Brasil LBL 3.4 3.4 3.3 14.4 14.4 13.6 8.22%8 20129
CAG LBL 300.0 299.9 305.9 300.0 299.7 319.0 6.39% 2012
Conti Tire do Brasil LBL
LBL		 15.3 7.6
7.7		 7.5
7.8		 22.6 11.4
11.2		 11.3
11.6		 3.51%8
4.78%		 20137
20137
CT Fluid Autom. Hungária Kft. LBL 13.9 13.9 14.1 22.4 22.4 23.1 4.35% 20137
Conti Tire China Production LBL 11.8 11.8 11.0 12.1 12.1 12.2 EUR-
Libor +
margin
 2015
CAS Changshu LBL 12.3 12.3 11.7 11.3 11.3 10.1 5.18 % 2014
Conti Matador Rubber Prod. LBL 20.0 20.0 18.7   - - Euribor + margin
 2014
Various bank lines 935.1 206.2 206.2 765.6 174.1 174.1 mainly variable mainly < 1 year
Credit lines and available financing from banks 6,737.4     7,925.6        
Liabilities to banks   4,492.6 4,485.9   5,144.9 5,332.7    

1) SL: syndicated loan; LBL: long-term bank loan; PL: promissory loan.
2) The credit line permits an extension of any drawdown until April 2014 (PY: August 2012).
3) Following completion of the renegotiations at the end of March 2011, Conti Autom. Benelux and Conti Autom. Holding Netherlands are also entitled to draw upon the syndicated loan.
4) Prolongation of term until 2014 (PY: 2012).
5) Annual redemption payments.
6) Interest-free development loan.
7) Semi-annual redemption payments.
8) Average interest rate (matures in 2012 PY: 8.24%; matures in 2013 PY: 3.44%).
9) Monthly redemption payments.
10) Interest rate at December 31, 2010: 6.64%.
11) Average interest rate.
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The amounts for the prior year are presented comparably.

Abbreviations

  • CAG, Continental Aktiengesellschaft, Hanover, Germany
  • CAS Changshu, Continental Automotive Systems Changshu, Co. Ltd., Changshu, China
  • CGF, Conti-Gummi Finance B.V., Maastricht, Netherlands
  • Conti Autom. Holding Netherlands, Continental Automotive Holding Netherlands B.V., Maastricht, Netherlands
  • Conti Automotive, Continental Automotive GmbH, Hanover, Germany
  • Conti Benelux, Continental Benelux BVBA, Herstal, Belgium
  • Conti Autom. Benelux, Continental Automotive Benelux BVBA, Mechelen, Belgium
  • Conti Tire do Brasil, Continental do Brasil Produtos Automotivos Lda., Camaçari, Brazil
  • Conti Mabor, Continental Mabor Indústria de Pneus S.A., Lousado, Portugal
  • Conti Matador Rubber Prod., Continental Matador Rubber s.r.o., Púchov, Slovakia
  • Conti Temic Electronics (Phils.), Continental Temic Electronics (Phils.), Inc., Calamba-City, Philippines
  • Conti Tire China Production, Continental Tires (Hefei) Co. Ltd., Hefei, China
  • CRoA, Continental Rubber of America, Corp., Wilmington, Delaware, U.S.A.
  • Conti Autom. Hungary Kft., Continental Automotive Hungary Kft., Veszprém, Hungary
  • CT Fluid Autom. Hungária Kft., ContiTech Fluid Automotive Hungária Kft., Mako, Hungary

On December 31, 2011, credit lines and available financing from banks amounted to €6,737.4 million (PY: €7,925.6 million). Of these, a nominal amount of €2,189.5 million was not drawn down as of the reporting date (PY: €2,774.2 million). The share of long-term credit lines in this amount was €1,473.6 million (PY: €2,196.7 million). In the year under review, the Continental Corporation utilized its commercial paper program, its factoring programs, and its various bank lines to meet short-term credit requirements.

The reduction in credit line and available financing from banks is due primarily to partial repayments of the syndicated loan. Furthermore, the promissory loans of Conti-Gummi Finance B.V., Maastricht, Netherlands, with a total value of €110.0 million maturing in August 2011, were repaid.

With the renegotiation in late March 2011 of the syndicated loan originally maturing in August 2012, Continental successfully completed the final step in the refinancing package to improve its financial and capital structure that was agreed in December 2009. The results of this renegotiation mainly provide for longer terms and improved conditions. Furthermore, an easing of the restriction on dividend payments provided for in the financing conditions and of the restriction on the annual investment volume was also agreed.

The repayment of the first tranche of the syndicated loan of €625.0 million originally agreed for August 2012 was implemented early at the end of December 2011 thanks to the positive business performance. The other two tranches, one of which is a revolving credit line of €2.5 billion, mature in April 2014. Following an early partial repayment of €484.9 million in April 2011, the committed volume of this loan was reduced to initially €6.0 billion and, after the further repayment described above in December 2011, to €5,375.0 million (PY: €6,484.9 million) as of December 31, 2011. As of the end of 2011, the syndicated loan had been utilized by Continental AG and Continental Rubber of America, Corp. (CRoA), Wilmington, U.S.A., and had a total value as of the end of the reporting period of €3,860.0 million (PY: €4,297.0 million).

As a further outcome of the renegotiation, the credit margins for the syndicated loan were lowered and have since been based on the Continental Corporation's leverage ratio (net debt/EBITDA, as defined by the syndicated loan agreement) rather than its rating. The leverage ratio had already improved as of June 30, 2011, which meant that Continental benefited from a further margin reduction for the syndicated loan in the third quarter of 2011. The associated expectation of a lower cash outflow for this loan led to an adjustment in profit or loss of its carrying amount of €9.1 million as of June 30, 2011. Together with the adjustments of the carrying amount in profit or loss that were required in 2009 and 2010 due to rising margins and the associated anticipated higher cash outflow for the syndicated loan, the negative value of the carrying amount adjustments totaled €15.7 million as of the end of December 2011. These deferrals will be amortized over the term of the loan and increase or reduce expenses accordingly.

As of the end of December 2011, there were still interest rate hedges of €3,125.0 million for the syndicated loan (PY: €3,125.0 million). The average fixed interest rate to be paid resulting from the hedges maturing in August 2012 is still 4.19% p.a. plus margin.

As of the end of July 2011, the cash flow hedge accounting for the partial amount of €2.5 billion of the tranche of the syndicated loan due in April 2014 was voluntarily terminated prematurely. In addition, hedge accounting for the partial amount of €625.0 million was terminated at the end of December 2011 on account of the early repayment of the tranche of the syndicated loan originally due in August 2012. There is still an economically effective hedge, also in the latter case, as the tranche repaid early at the end of December 2011 was refinanced in full by utilizing the revolving tranche of the syndicated loan, and the parameters of this utilization are still consistent with those of the interest hedge.

As in the previous year, the agreed financial covenants were complied with in 2011 as of the respective quarterly balance sheet date. Please see Note 29 about the structure of maturities of indebtedness.

Financial lease liabilities
The future payment obligations resulting from financial leases are shown in the following table:

Dec. 31, 2011
in € millions		 2012 2013 2014 2015 2016 from 2017 Total
Minimum lease payments 23.0 53.4 9.9 9.7 9.5 50.0 155.5
Interest component 7.3 5.5 3.5 3.0 2.5 10.8 32.6
Financial lease liabilities 15.7 47.9 6.4 6.7 7.0 39.2 122.9
             
Dec. 31, 2010
in € millions		 2011 2012 2013 2014 2015 from 2016 Total
Minimum lease payments 25.4 26.6 62.1 9.8 9.8 58.1 191.8
Interest component 6.6 5.9 8.5 4.1 3.8 13.9 42.8
Financial lease liabilities 18.8 20.7 53.6 5.7 6.0 44.2 149.0
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The fair value of the financial lease liabilities is €151.1 million (PY: €166.3 million). The effective interest rate of the main leasing contracts lies between 5.5% and 8.8% (PY: between 5.1% and 8.8%).

Minimum lease payments in 2013 result mainly from a purchase option for the passenger and light truck tire factory in Hefei, China.

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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.