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Notes to the Consolidated Balance Sheets

12. Property, Plant, and Equipment

 

in € millions Land, land rights and buildings1 Technical equipment and machinery Other equipment, factory and office equipment Advances to suppliers and assets under construction Total
At January 1, 2010          
Cost 2,768.3 8,984.5 1,315.6 619.7 13,688.1
Accumulated depreciation -1,013.9 -5,862.1 -1,002.7 -25.1 -7,903.8
Book value 1,754.4 3,122.4 312.9 594.6 5,784.3
thereof finance leases 53.6 35.1 0.2 — 88.9
Net change in 2010          
Book value 1,754.4 3,122.4 312.9 594.6 5,784.3
Foreign currency translation 67.2 142.8 16.9 28.8 255.7
Additions3 79.4 449.8 95.3 629.7 1,254.2
Additions from initial consolidation of subsidiaries 2.0 2.8 1.3 0.0 6.1
Amounts disposed of through disposal of subsidiaries -0.2 0.0 -0.2 -0.1 -0.5
Reclassification to/from assets held for sale2 -16.3 -0.3 0.2 -0.6 -17.0
Transfers 70.0 246.2 115.2 -433.5 -2.1
Disposals -6.8 -25.7 -2.4 -17.3 -52.2
Depreciation -108.1 -825.3 -142.1 0.0 -1,075.5
Impairments4 -10.8 -21.1 -1.9 -20.5 -54.3
Book value 1,830.8 3,091.6 395.2 781.1 6,098.7
At December 31, 2010          
Cost 2,962.7 9,654.2 1,557.7 826.7 15,001.3
Accumulated depreciation -1,131.9 -6,562.6 -1,162.5 -45.6 -8,902.6
Book value 1,830.8 3,091.6 395.2 781.1 6,098.7
thereof finance leases 50.9 16.6 0.1 — 67.6
Net change in 2011          
Book value 1,830.8 3,091.6 395.2 781.1 6,098.7
Foreign currency translation -14.5 -18.4 0.2 -11.0 -43.7
Additions3 72.3 629.1 106.7 867.7 1,675.8
Additions from initial consolidation of subsidiaries 35.6 36.3 2.5 0.1 74.5
Amounts disposed of through disposal of subsidiaries 0.0 0.0 0.0 — 0.0
Reclassification to/from assets held for sale2 -33.1 0.1 — — -33.0
Transfers 50.3 432.6 42.1 -525.3 -0.3
Disposals -5.2 -24.0 -4.5 -7.4 -41.1
Depreciation -113.1 -848.0 -140.9 — -1,102.0
Impairments4 -22.4 1.6 -0.4 0.8 -20.4
Book value 1,800.7 3,300.9 400.9 1,106.0 6,608.5
At December 31, 2011          
Cost 2,966.9 10,413.7 1,625.4 1,134.7 16,140.7
Accumulated depreciation -1,166.2 -7,112.8 -1,224.5 -28.7 -9,532.2
Book value 1,800.7 3,300.9 400.9 1,106.0 6,608.5
thereof finance leases 90.4 4.3 0.2 — 94.9

1) Investment property is presented separately under Note 13.
2) Reclassifications to assets held for sale amount to -€33.2 million (PY: -€17.5 million); reclassifications from assets held for sale amount to €0.2 million (PY: €0.5 million).
3) The additions include €0.3 million (PY: €1.5 million) of capitalized interest.
4) Impairments also include necessary reversals of impairment losses.
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In particular, additions to property, plant and equipment arising from changes in the scope of consolidated companies relate to the acquisition of Modi Tyres Company Limited, Modipuram, India, as part of a share deal and other acquisitions in the fiscal year. Please see Note 5.

Production capacity was systematically established and expanded for new products and production technologies in all business units of the Chassis & Safety segment. Major additions related to the creation of new production facilities for the next generation of electronic braking systems.

In the Engine Systems business unit in the Powertrain segment, production facilities for engine injection systems were increased in response to constant demand. Investments were made for the establishment of a new plant in Amata City, Thailand. The Transmission business unit expanded its production of transmission control units. In particular, production capacity was increased at the Cuautla location in Mexico.

Investments in the Interior segment focused primarily on expanding production capacity for the Body & Security and Instrumentation & Driver HMI business units. These investments relate to new manufacturing capacity at the German plants and in the U.S.A., Mexico, Brazil, Czech Republic, Romania and China.

Investments in the Passenger and Light Truck Tires segment focused on expanding capacity at European best-cost locations and in North and South America. The segment also invested in the construction of a new plant in Kaluga, Russia, and the expansion of the existing site in Hefei, China. Quality assurance and cost-reduction measures were also implemented.

Major additions were made in the Commercial Vehicle Tires segment in order to improve quality and increase production of truck tires. Investments focused on locations in Slovakia, Brazil and the U.S.A.

In addition to cost reduction and expansion investments in Germany, the ContiTech segment expanded production capacity at European locations in Romania and Hungary. The segment also invested in the expansion of production facilities at its locations in Brazil and Mexico. Production capacity was increased for the Asian market in China and South Korea.

Please see Note 6 for information on impairment losses and reversals of the same.

Government investment grants of €6.9 million (PY: €13.9 million) were deducted directly from cost.

In adopting IAS 23, €0.3 million (PY: €1.5 million) was capitalized as borrowing costs. The capitalization rate used for this was 2.2% (PY: 4.4%).

Reclassifications to assets held for sale essentially relate to properties at the Deer Park location owned by Continental Automotive Systems US, Inc., Auburn Hills, U.S.A.

Property, plant and equipment include buildings, technical equipment and other facilities assigned to the corporation as the beneficial owner on the basis of the lease agreement. These relate primarily to administration buildings and manufacturing systems. The leases have an average term of 20 years for buildings and five to ten years for technical equipment and are based on interest rates of between 5.5% and 8.8%.

With the exception of the lease agreement for the passenger and light truck tire factory in Hefei, China, which includes a purchase option that can be exercised in 2013, most of the other agreements do not include prolongation or purchase options.

There are amounts of €5.5 million (PY: €7.9 million) secured by property, plant and equipment for land charges, mortgages and similar securities.

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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.