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Notes to the Consolidated Balance Sheets

20. Trade Accounts Receivable

 

in € millions Dec. 31, 2011 Dec. 31, 2010
Trade accounts receivable 5,445.0 4,570.9
Allowances for doubtful accounts -103.5 -116.9
Trade accounts receivable 5,341.5 4,454.0
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The carrying amounts of trade accounts receivable, net of allowances for doubtful accounts, are their fair values.

The risk provision is calculated on the basis of corporation-wide standards. Customer relationships are analyzed at regular intervals. Individual valuation allowances are distinguished from general portfolio allowances for trade accounts receivable measured at amortized cost. Trade accounts receivable for which individual valuation allowances must be recognized are not taken into account in calculating the general portfolio allowance.

The allowance for doubtful accounts essentially includes estimates and assessments of individual receivables based on the creditworthiness of the respective customer, current economic developments and the analysis of historical losses on receivables. The creditworthiness of a customer is assessed on the basis of its payment history and its ability to make repayments.

Individual allowances are recognized if the customer displays significant financial difficulties or there is a high probability of insolvency. Corresponding expenses are recognized in the allowances for doubtful accounts. The same applies to derecognitions and impairment reversals.

Accordingly, the individual valuation allowances and general portfolio allowances for trade accounts receivable developed as follows in the year under review:

 

in € millions 2011 2010
At January 1 116.9 141.3
Addition 37.5 36.4
Utilization -28.1 -33.6
Reversals -22.1 -31.1
Amounts disposed of through disposal of subsidiaries — -0.1
Foreign currency translation -0.7 4.0
At December 31 103.5 116.9
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Several factoring programs are used in the Continental Corporation. When the risks and rewards of receivables – in particular credit and default risk – have not been completely transferred, the receivables are still recognized in the assets of the balance sheet. The trade receivables have a remaining term of less than one year.

Coface Finanz GmbH, Mainz, Germany, left the factoring agreement concluded in November 2010 between Continental AG, Norddeutsche Landesbank Luxembourg S.A., Luxembourg, and Coface Finanz GmbH which matured in September 2011. As a result, Norddeutsche Landesbank Luxembourg S.A. is now the sole partner in this contract. The term of the prolonged program ends on September 28, 2012. The net financing volume of €230.0 million and the gross volume of €287.5 million remained unchanged. An additional volume of €57.5 million was transferred in the amount of the difference. As of December 31, 2011, receivables of €287.5 million (PY: €280.0 million) were sold under this program which were offset by liabilities of €230.0 million (PY: €224.0 million). €122.1 million (PY: €115.1 million) of the receivables sold were already settled by way of payment by the end of the year. The cash deposited to cover any claims on the part of the lending banks not covered amounted to €17.3 million (PY: €16.8 million).

In December 2010, Continental AG concluded a factoring agreement with Landesbank Hessen-Thüringen Girozentrale, Frankfurt/Main, Germany, with a financing volume of €150.0 million. Receivables can be sold by the corporation companies Continental Benelux BVBA, Herstal, Belgium; Continental Automotive Benelux BVBA, Mechelen, Belgium; Continental France SNC, Sarreguemines, France; Continental Automotive France SAS, Toulouse, France; and Continental Automotive Rambouillet France SAS, Rambouillet, France. As of December 31, 2011, the volume of the receivables sold was €256.3 million (PY: €144.9 million). The liabilities associated with the receivables sold amounted to €150.0 million (PY: €82.8 million). €97.7 million (PY: €39.8 million) of the receivables sold were already settled by way of payment by the end of the year.

In September 2011, the factoring program in the United States with Wells Fargo Bank N.A., Atlanta, U.S.A., and The Bank of Nova Scotia, Houston, U.S.A., was extended to include Partner Bank of America N.A., Charlotte, U.S.A., and, in this context, its financing volume was increased from $150.0 million to $400.0 million. The agreement runs until September 30, 2012, with the option of prolongation by a further year. The program can be utilized by Continental Tire The Americas LLC, Charlotte, U.S.A, Continental Automotive Systems, Inc., Auburn Hills, U.S.A., and, since September 2011, by Continental Automotive Systems US, Inc., Auburn Hills, U.S.A., as well. As of December 31, 2011, the volume of the receivables sold was €169.5 million (PY: €74.7 million). The liabilities associated with the receivables sold amounted to €169.5 million (PY: €74.7 million). Further receivables in the amount of €656.9 million (PY: €294.9 million) were also deposited as collateral.

The trade accounts receivable for which specific valuation allowances have not been recognized are broken down into the following maturity periods:

      overdue in the following maturity periods
in € millions
Dec. 31, 2011		 Carrying
amount		 thereof not overdue less than 15 days 15–29
days		 30–59
days		 60–89
days		 90–119
days		 more than 120 days
Trade accounts receivable1 4,612.8 4,240.4 207.6 57.8 38.7 20.4 13.2 34.7
                 
Dec. 31, 2010                
Trade accounts receivable1 3,698.1 3,342.4 177.8 53.1 49.7 17.9 12.6 44.6
1) The difference of €832.2 million (PY: €872.8 million) versus the first table in this Note results from receivables amounting to €832.2 million (PY: €879.5 million) for which individual valuation allowances are recognized, as well as from notes payable amounting to €6.7 million in the previous year.
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Based on the customers' payment history and analysis of their creditworthiness, the Continental Corporation expects that the overdue receivables not written down will be settled in full and no valuation allowance will be required.

As of December 31, 2011, four companies of the Continental Corporation assigned trade receivables with a total amount of €312.4 million (PY: €397.7 million) as collateral for a loan for Continental AG from the European Investment Bank. The need to collateralize the loan arose from the deterioration of the Continental Corporation's rating in 2009. Furthermore, a corporation company in the U.S.A. transferred receivables of €4.8 million as collateral for a line of credit.

As of December 31, 2011, the receivables do not include any amounts (PY: €0.1 million) from the percentage-of-completion method. Advance payments from customers are included in the amount of €0.5 million (PY: —). In 2011, the cumulative costs and profits on construction contracts in progress at the end of the reporting period amounted to €0.0 million (PY: €3.5 million). Sales from construction contracts were recognized in the amount of €0.4 million (PY: €3.5 million) in the period under review.

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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.