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Other Disclosures

39. Transactions with Related Parties

Remuneration of the Executive Board and the Supervisory Board
The remuneration of the corporation's key management personnel that must be disclosed in accordance with IAS 24 comprises the remuneration of the active members of the Executive Board and the Supervisory Board.

The remuneration of the active members of the Executive Board was as follows:

in € thousands 2011 2010
Short-term benefits 9,758 9,811
Service cost relating to post-employment benefits 2,939 2,738
Payments on termination of employment contract 3,000 —
Share-based payment 5,110 6,206
Total 20,807 18,755
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The basic elements of the Executive Board remuneration system and the amounts granted to the Executive Board and the Supervisory Board in the year under review are explained in the Remuneration Report in the Corporate Governance Report, to which the Management Report refers.

The total remuneration granted to the Executive Board of Continental AG in 2011 amounted to €15.5 million (PY: €15.1 million). That total remuneration also includes the long-term components of variable remuneration totaling €5.7 million (PY: €5.3 million), which are converted into virtual shares of the company. In 2011, this resulted in the long-term components for 2010 being converted into 86,484 (PY: 25,167) virtual shares.

In 2011, as in 2010, no advances or loans were granted to members of Continental AG's Executive Board or Supervisory Board.

Former members of the Executive Board and their surviving dependents received payments totaling €8.2 million in the year under review (PY: €5.4 million). Provisions for pension obligations for former members of the Executive Board and their surviving dependents amounted to €86.6 million (PY: €86.1 million).

In the previous year, a former member of the Executive Board who left in 2008 received compensation for the duration of a non-competition period of €0.5 million.

Remuneration paid to the members of Continental AG's Supervisory Board, including meeting fees, totaled €2.4 million (PY: €1.4 million) and relate to shortterm benefits.

No remuneration was paid to Supervisory Board members for any personally rendered services, except for the remuneration of the employee representatives arising from their employment contract.

Moreover, none of the members of the Executive Board or Supervisory Board entered into any reportable transactions with other management personnel holding key positions, or with companies in whose management or supervisory bodies these individuals are represented. This also applies to close relatives of such individuals.

Transactions with related parties other than subsidiaries:

in € millions 2011 2010
Income 110.0 81.7
Expenses 90.6 117.3
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Income, mainly from sales, and expenses, mainly from product and material procurement, resulting from transactions between subsidiaries and related parties are attributable solely to the ordinary business activities of the respective company and were conducted on an arm's length basis. The corresponding receivables from and liabilities to these companies are reported in the balance sheet.

Please refer to Note 25 regarding transactions with Continental Pension Trust e.V. in the year under review.

The transactions with the Schaeffler Group in the reporting year are attributable to ordinary business activities and were concluded on an arm's length basis. The income in the reporting year amounted to €23.9 million and expenses to €74.6 million, both of which are included in the transactions with related parties.

Investment agreement
On August 20, 2008, Continental AG entered into a far-reaching investment agreement with Schaeffler KG, Mrs. Maria-Elisabeth Schaeffler and Mr. Georg F. W. Schaeffler. The open-ended agreement, which cannot be terminated by the parties before spring 2014, contains comprehensive provisions to safeguard the interests of Continental AG, its shareholders, employ ees and customers. Former German Chancellor Dr. Gerhard Schröder is the guarantor for the Schaeffler Group's compliance with its obligations in the interest of all Continental AG stakeholders. The legal successor of Schaeffler KG (now "Schaeffler Holding GmbH & Co. KG") is Schaeffler AG, which was Schaeffler GmbH until October 13, 2011. Economically effective retroactively to January 1, 2010, Schaeffler Holding transferred its holding in Continental AG to what is now Schaeffler AG through Schaeffler Verwaltungs GmbH by way of spin-off in accordance with Section 123 (3) No. 1 of the German Transformation Act (Umwandlungsgesetz – UmwG).

Notices in Accordance with the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)
By way of letter dated April 1, 2011, we received notification that:

  • the share of voting rights in Continental AG held by M.M.Warburg & CO KGaA, Hamburg, Germany, fell below the thresholds of 15% and 10% of voting rights on March 30, 2011, and amounted to 5.19% (10,389,543 voting rights) on this date.
  • the share of voting rights in Continental AG held by M.M.Warburg & CO Gruppe (GmbH & Co.) KGaA, Hamburg, Germany, fell below the thresholds of 15% and 10% of voting rights on March 30, 2011, and amounted to 5.19% (10,389,543 voting rights) on this date. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.

On April 1, 2011, B. Metzler seel. Sohn & Co. KGaA, Frankfurt/Main, Germany, notified us that its share of voting rights in Continental AG fell below the thresholds of 15% and 10% on March 30, 2011, and amounted to 5.19% (10,389,543 voting rights) on this date.

On April 4, 2011, B. Metzler seel. Sohn & Co. Holding AG, Frankfurt/Main, Germany, notified us that its share of voting rights in Continental AG fell below the thresholds of 15% and 10% on March 30, 2011, and amounted to 5.19% (10,389,543 voting rights) on this date. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG through B. Metzler seel. Sohn & Co. KGaA, Frankfurt/Main, Germany.

On July 27, 2011, we received notification that:

  • the share of voting rights in Continental AG held by BlackRock, Inc., New York, U.S.A., exceeded the thresholds of 3% and 5% of voting rights on July 15, 2011, and amounted to 5.02% (10,046,639 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Holdco 2, Inc., Wilmington, Delaware, U.S.A., exceeded the threshold of 3% of voting rights on July 15, 2011, and amounted to 4.93% (9,852,902 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Financial Management, Inc., New York, U.S.A., exceeded the threshold of 3% of voting rights on July 15, 2011, and amounted to 4.93% (9,852,902 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Advisors Holdings, Inc., New York, U.S.A., exceeded the threshold of 3% of voting rights on July 15, 2011, and amounted to 3.72% (7,436,493 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock International Holdings Inc., New York, U.S.A., exceeded the threshold of 3% of voting rights on July 15, 2011, and amounted to 3.51% (7,029,897 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BR Jersey International Holdings L.P., St. Helier, Jersey, U.K., exceeded the threshold of 3% of voting rights on July 15, 2011, and amounted to 3.51% (7,029,897 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Group Limited, London, U.K., exceeded the threshold of 3% of voting rights on July 15, 2011, and amounted to 3.33% (6,660,928 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.

On August 9, 2011, we received notification that:

  • the share of voting rights in Continental AG held by BlackRock, Inc., New York, U.S.A., fell below the threshold of 5% of voting rights on August 3, 2011, and amounted to 4.996% (9,992,301 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG. On September 15, 2011, we received notification that:
  • the share of voting rights in Continental AG held by BlackRock, Inc., New York, U.S.A., fell below the threshold of 3% of voting rights on September 9, 2011, and amounted to 2.82% (5,639,055 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Holdco 2, Inc., Wilmington, Delaware, U.S.A., fell below the threshold of 3% of voting rights on September 9, 2011, and amounted to 2.75% (5,505,114 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Financial Management, Inc., New York, U.S.A., fell below the threshold of 3% of voting rights on September 9, 2011, and amounted to 2.75% (5,505,114 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Advisors Holdings, Inc., New York, U.S.A., fell below the threshold of 3% of voting rights on September 9, 2011, and amounted to 1.94% (3,873,092 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock International Holdings Inc., New York, U.S.A., fell below the threshold of 3% of voting rights on September 9, 2011, and amounted to 1.78% (3,564,867 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BR Jersey International Holdings L.P., St. Helier, Jersey, U.K., fell below the threshold of 3% of voting rights on September 9, 2011, and amounted to 1.78% (3,564,867 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.
  • the share of voting rights in Continental AG held by BlackRock Group Limited, London, U.K., fell below the threshold of 3% of voting rights on September 9, 2011, and amounted to 1.62% (3,235,322 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 6 in conjunction with Sentence 2 WpHG.

On October 6, 2011, we received notification that:

  • the share of voting rights in Continental AG held by Schaeffler Beteiligungsholding GmbH & Co. KG, Herzogenaurach, Germany, exceeded the thresholds of 3%, 5%, 10%, 15%, 20%, 25% and 30% of voting rights on September 30, 2011, and amounted to 36.14% (72,290,458 voting rights) at this time.
  • the share of voting rights in Continental AG held by Schaeffler Familienholding Drei GmbH & Co. KG, Herzogenaurach, Germany, exceeded the thresholds of 3%, 5%, 10%, 15%, 20%, 25% and 30% of voting rights on September 30, 2011, and amounted to 36.14% (72,290,458 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Schaeffler Familienholding Zwei GmbH, Herzogenaurach, Germany, exceeded the thresholds of 3%, 5%, 10%, 15%, 20%, 25% and 30% of voting rights on September 30, 2011, and amounted to 36.14% (72,290,458 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Schaeffler Familienholding Eins GmbH, Herzogenaurach, Germany, exceeded the thresholds of 3%, 5%, 10%, 15%, 20%, 25% and 30% of voting rights on September 30, 2011, and amounted to 36.14% (72,290,458 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Schaeffler GmbH, Herzogenaurach, Germany, remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 36.14% (72,290,458 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Schaeffler Verwaltungs GmbH, Herzogenaurach, Germany, remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 49.90% (99,802,986 voting rights) at this time. 36.14% of these shares (72,290,458 voting rights) are attributed to Schaeffler Verwaltungs GmbH in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Schaeffler Holding GmbH & Co. KG, Herzogenaurach, Germany, remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 49.90% (99,802,986 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Schaeffler Management GmbH, Herzogenaurach, Germany, remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 49.90% (99,802,986 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by INA-Holding Schaeffler GmbH & Co. KG, Herzogenaurach, Germany, remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 49.90% (99,802,986 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Schaeffler Holding LP, Dallas, Texas, U.S.A., remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 49.90% (99,802,986 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Mrs. Maria-Elisabeth Schaeffler, Germany, remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 49.90% (99,802,986 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.
  • the share of voting rights in Continental AG held by Mr. Georg F. W. Schaeffler, U.S.A., remained above the threshold of 30% of voting rights on September 30, 2011, and amounted to 49.90% (99,802,986 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG.

By way of letter dated October 18, 2011, we received notification that:

  • the share of voting rights in Continental AG held by Government of Singapore Investment Corporation Pte Ltd, Singapore, Singapore, exceeded the threshold of 3% on October 12, 2011, and amounted to 3.05% (6,095,163 voting rights) at this time.
  • the share of voting rights in Continental AG held by the Government of Singapore, acting by and through the Singapore Ministry of Finance, Singapore, exceeded the threshold of 3% on October 12, 2011, and amounted to 3.05% (6,095,163 voting rights) at this time. The shares are attributed to this shareholder in accordance with Section 22 (1) Sentence 1 No. 1 WpHG through Government of Singapore Investment Corporation Pte Ltd, Singapore, Singapore.
  • We also received notification that, of the aforesaid 3.05% (6,095,163 voting rights) of the voting rights in Continental AG, 2.22% (4,447,561 voting rights) are also attributed to the Government of Singapore pursuant to Section 22 (1) Sentence 1 No. 2 WpHG.

In 2011 and until February 6, 2012 inclusively, the members of the Executive Board held shares representing a total interest of less than 1% of the capital stock of the company. Shares representing 49.90% of the share capital of the company were attributable to two members of the Supervisory Board – Mrs. Maria-Elisabeth Schaeffler and Mr. Georg F. W. Schaeffler – held as specified in the notification of voting rights on October 6, 2011. In 2011 and until February 6, 2012 inclusively, the other members of the Supervisory Board held shares representing a total interest of less than 1% of the capital stock of the company. In accordance with Section 15a of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), members of the Executive Board and Supervisory Board of Continental AG and their related parties must disclose the acquisition and disposal of shares in the company and financial instruments based on them. In fiscal year 2011, one member of the Supervisory Board acquired a total of 216 shares and one member of the Executive Board 1,000 shares.

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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.