Notes to the balance sheet

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Bernadette Lloyd
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1 The theoretical tax rate for corporations is composed of corporation tax and a solidarity surcharge (15.83 percent) as well as municipal trade tax. The tax rate for Deutsche Beteiligungs AG is percent, since Deutsche Beteiligungs AG is recognised as an investment company and is exempt from municipal trade tax. Notes to the balance sheet 15. Intangible assets/property, plant and equipment Acquisition cost 1 Nov Additions Disposals 2008 Intangible assets Property, plant, equipment 2,116 7, ,539 2,473 7, ,923 Depreciation/amortisation 1 Nov Additions Disposals 2008 Carrying amount Intangible assets Property, plant, equipment 1, ,406 8, , ,751 8,172 1,028 Through the consolidation of DBG Ypsilon GmbH, acquisition costs for property, plant and equipment rose by T 7,198 and depreciation by T 21. The addition to acquisition cost relates to the property purchased by DBG Ypsilon GmbH in the Westend of the city of Frankfurt. According to IAS 16, the acquisition cost of property, plant and equipment qualifying as an asset is allocated to the object s significant parts and each part is depreciated separately in accordance with its specific useful life. Before being used by DBAG, the purchased property requires extensive refurbishing so that significant parts of the building will be replaced or completely remodelled. Allocating the acquisition cost to separate parts of the property and separately depreciating each part, as required by IAS 16, is therefore not very meaningful before the remodelling has been completed. After completion of the rebuilding work, the final acquisition and production costs will be allocated to their significant parts and each part depreciated separately according to its specific useful life. 97

2 16. Financial assets Status at beginning of financial year 209, ,546 Additions 19,963 40,666 Disposals 33,303 44,824 Changes in value (57,878) 92,163 Status at end of financial year 138, ,551 Financial assets are exclusively measured at fair value. Changes in value are recorded under the caption Net result of valuation and disposal of financial assets and loans and receivables on the income statement (see Note 7). 17. Loans and receivables Status at beginning of financial year Disposals Status at end of financial year Loans and receivables relate to claims arising from loan agreements with portfolio companies. The fair value of loans and receivables corresponds to the carrying amount, since loans and receivables carry interest at market rates. 18. Other non-current assets Pensions and similar obligations/plan assets Please refer to our commentary in Note

3 19. Receivables Receivables from associated companies Receivables from portfolio companies 3,687 8,777 3,705 8,819 Receivables from associated companies pertain to non-consolidated subsidiaries of Deutsche Beteiligungs AG. Receivables from portfolio companies largely relate to the clearing account with one portfolio company and loan arrangements with portfolio companies. 20. Securities Bonds 69, ,164 0 Bonds relate to short-dated bonds guaranteed by German federal states that were acquired as an investment for cash resources not required in the near term. 21. Other financial instruments Short-term equity shares Short-term equity shares in companies relate to shares that are to be sold to the management of a portfolio company within a year. 99

4 22. Tax assets, tax provisions and deferred taxes Income tax credits 6,564 13,263 Deferred tax liabilities Tax provisions 4,123 3,522 Deferred tax assets and liabilities are offset in conformity with IAS Income tax credits contain imputable taxes, corporation tax capitalised by Deutsche Beteili - gungs AG at net present value and tax prepayments. Tax provisions reflect the anticipated tax expense, without accounting for imputable taxes and tax prepayments. Tax loss carryforwards have been recognised as follows in deferred taxes: Tax loss carryforward, corporation tax 38,860 35,750 thereof, usable 0 3,827 deferred tax assets recognised Tax loss carryforward, trade tax 10,886 20,685 thereof, useable 0 0 Tax loss carryforwards for which no deferred tax assets were recognised relate to Group companies not expected to generate future taxable income. At 31 October 2008, it is assumed that loss carryforwards capitalised at 31 October 2007 will no longer be recoverable. Deferred tax assets (+) and liabilities (-) are attributable to the following items: Financial assets (82) (1,317) Loss carryforwards Pension provisions Other provisions 0 14 (82) (366) 100

5 23. Other current assets Receivables from co-investment funds 4,092 1,579 Interest receivable from securities 2,228 0 Loans 1,935 1,591 Expenses advanced Other ,582 4,583 Receivables from co-investment funds largely comprise reimbursable expenses. At 31 October 2008, this item also contained a performance fee for a co-investment fund. Interest receivable from securities relates to short-dated securities guaranteed by German federal states (see Note 20). The loans were chiefly extended to managers of portfolio companies to finance the acquisition of interests. Expenses advanced pertain to portfolio companies. 24. Equity Subscribed capital/number of shares outstanding All shares in Deutsche Beteiligungs AG are no-par value bearer shares (ordinary shares). Each share is entitled to one vote. The shares are admitted for trading on the Frankfurt Stock Exchange (Prime Standard) and on the Düsseldorf Stock Exchange. Shares of the Company are also traded in the Open Market of the Berlin-Bremen, Hamburg, Hanover, Munich and Stuttgart Stock Exchanges. Changes in the number of shares outstanding were as follows: Number of shares Number of shares Status at beginning of financial year 14,090,497 15,153,864 Shares repurchased and cancelled (414,138) (750,000) Own shares purchased 0 (313,367) Status at end of financial year 13,676,359 14,090,

6 On 16 August 2007, the Board of Management announced its intention to repurchase up to 727,505 shares in Deutsche Beteiligungs AG via the stock exchange and commissioned a bank as the independent dealer managers for the buyback. The Board of Management specified that the maximum purchase price would be euros per share. Up to the balance sheet date of the previous year, a total of 313,367 shares had been repurchased for the sum of 7.6 million euros; thereafter, in the reporting year, the remaining 414,138 were repurchased for the sum of 9.4 million euros. All shares repurchased were then retired and cancelled without reducing the share capital. The number of shares therefore decreased from 14,403,864 to 13,676,359. Arithmetically, the capital attributable to each share now equals approximately 3.55 euros per share, following 3.37 euros per share previously. Sale of own shares to employees and retirees The Board of Management offers employees and retirees of Deutsche Beteiligungs AG and of a subsidiary an employee share purchase plan at preferential terms which are orientated around tax legislation and limits. This has resulted in the following transactions involving own shares in financial year 2007/2008: Purchase/sales price per share Share of subscribed capital Number of shares T Status 1 Nov Date of purchase 8 Aug , Date of sale/transfer 15 Aug (1,972) (7.0) 0.1 Status Authorised capital The Board of Management is, with the consent of the Supervisory Board, authorised to raise the capital stock of the Company by up to a total of 24,266, euros through one or more issues of new shares in exchange for cash or non-cash contributions (authorised capital). The authorisation is valid until 16 March Contingent capital There is contingent capital of up to 19,413, euros to grant holders or creditors of warrants and/or convertible bonds issued until 16 March 2010 option rights or conversion rights for up to 5,470,543 new shares in the Company, representing a proportionate share of the subscribed capital, in conformity with the specific terms of the warrants or convertible bonds. There is also contingent capital of up to 1,820, euros available to enable the issuance of shares to members of the Company s management team who contribute to the performance of the Company s stock. The terms of the stock option programme are discussed in Note

7 Capital reserve The capital reserve comprises amounts achieved from the issuance of shares in excess of the par value. Additionally, it contains those tranches of the stock option programme required to be recognised in the accounts. Status at beginning of financial year 141, ,281 Additions Disposals (407) (696) Status at end of financial year 141, ,791 Additions account for stock options still outstanding within the scope of the stock option programme. Disposals relate to stock options exercised in the reporting year. The capital reserve declined by the amounts allocated to the capital reserve in previous periods up to the date of exercise of the stock options. Please refer to Note 6 for further information on the accounting treatment of the stock option programme. Retained earnings Retained earnings comprise: the legal reserve, as stipulated by German stock corporation law, first-time adopter effects from the IFRS opening balance at 1 November 2003, other retained earnings, which also contain reconciliation amounts from capital consolidation in conformity with the German Commercial Code. Within the scope of the annual closing of Deutsche Beteiligungs AG, the Board of Management drew a partial amount of 10,000,000 euros from other retained earnings. Consolidated retained profit At the Annual Meeting on 14 March 2008, shareholders voted to pay a dividend of 1.00 euros per share (13,676, euros) plus an extraordinary surplus dividend of 2.50 euros per share (34,190, euros) for financial year 2006/2007. Dividends paid 13,676, ,576, Surplus dividends paid 34,190, ,884, Total distribution 47,867, ,461,

8 The retained profit of Deutsche Beteiligungs AG amounts to 10,822, euros. The Board of Management and the Supervisory Board will decide on 23 January 2009 on the appropriation (including the dividend) of the retained profit. Since the introduction of the half-income system ( Halbeinkünfteverfahren ), 95 percent of dividends disbursed to shareholding corporations are exempt from corporation tax in Germany. If certain requirements are fulfilled, dividends are also exempt from municipal trade tax to the same extent. From 1 January 2009, dividends earned by natural persons are subject to a flat rate withholding tax ( Abgeltungsteuer ) of 25 percent plus a solidarity surcharge, which the dividend-paying company pays directly to the taxation authority. The retained profit contains imputable corporation tax credits that arose during the validity of the imputation system of taxation prior to the introduction of the half-income system. These were previously only realisable through a reduction in corporation tax in conjunction with dividend distributions. Based on a revised directive, corporation tax credits will now be reimbursed in ten equal annual amounts. Deutsche Beteiligungs AG has corporation tax credits of 1.9 million euros. The discounted reimbursements result in an amount totalling T 1,505 at 31 October Minority interest Status at beginning of financial year 16,168 2,458 Additions Disposals (2,632) (147) Profit share (4,351) 13,512 Status at end of financial year 9,297 16,168 Minority interest relates to DBG Advisors Kommanditaktionär GmbH & Co. KG, DBAG Fund V Konzern GmbH & Co. KG as well as DBG Managing Partner GmbH & Co. KG. For a commentary on minority interest, please refer to the information on co-investment funds in Note

9 Minority interest attributable to DBG Advisors Kommanditaktionär GmbH & Co. KG (co-investment fund DBAG Fund IV) developed as follows: Status at beginning of financial year 15,853 2,458 Additions Disposals (2,627) (101) Profit share (4,424) 13,391 Status at end of financial year 8,806 15,853 Minority interest attributable to DBAG Fund V Konzern GmbH & Co. KG (co-investment fund DBAG Fund V) developed as follows: Status at beginning of financial year Additions Disposals (3) (46) Profit share Status at end of financial year Minority interest attributable to DBG Managing Partner GmbH & Co. KG (co-investment fund DBAG Fund V) developed as follows: Status at beginning of financial year 23 0 Additions 0 22 Disposals (2) 0 Profit share (1) 1 Status at end of financial year

10 26. Other provisions 1 Nov Availment Writebacks Additions 2008 T Non-current other provisions Current other provisions 15,602 11, ,335 10,429 thereof, personnel-related commitments 11,921 9, ,927 6,440 thereof, financial assets 2, ,570 3,133 thereof, other ,153 11, ,103 11,343 Other provisions were made for contingent obligations, the occurrence of which is considered probable. The probability of an obligation occurring is estimated to be greater than the probability of its non-occurrence. Non-current other provisions In the reporting period, an impending loss provision was made in the amount of T 760. It is likely that Deutsche Beteiligungs AG will relocate its offices to its new domicile before the existing non-terminable rental contract expires in August 2011 and will not be able to sub-let the current premises for the period until the rental contract expires. The impending loss was discounted at the balance sheet date. Non-current other provisions also contain final payment obligations to a former member of the Board of Management. It is expected that the provision will result in a payment of T 155 within one year. The difference between the expected payment and the provision at 31 October 2008 in the amount of T 154 results from discounting expected future payments. During financial year 2007/2008, expenses of T 8 occurred from accrued interest. Non-current other provisions fall due in less than one year to a maximum of three years. 106

11 Current other provisions Provisions for financial assets contained in current other provisions are allocable to the investment business (e.g. guarantee commitments). Provisions for personnel-related commitments chiefly consist of performance-linked emoluments. Performance-linked emoluments relate to members of the Board of Management and staff of Deutsche Beteiligungs AG. The performance-linked compensation systems for staff largely correspond to those in which the members of the Board of Management participate. Please refer to the remuneration report in Management s report for information on the design of these compensation systems. Current other provisions are due within a year. 27. Provisions for pensions and similar obligations and plan assets The balance sheet disclosure has been determined as follows: T Present value of benefit entitlements 15,015 17,007 18,565 17,237 13,415 Fair value of plan assets (15,755) (16,727) (16,620) (14,309) 0 Actuarial losses/gains not offset 123 (893) (1,891) (2,554) 487 Other non-current assets Provisions for pensions and similar obligations ,902 In the past financial year, the present value of benefit entitlements developed as follows: Present value of benefit entitlements at beginning of financial year 17,007 18,565 Interest expense Service cost Benefits paid (751) (742) Actuarial gains (2,614) (1,987) Present value of benefit entitlements at end of financial year 15,015 17,

12 The present value of benefit entitlements was determined on the following premise: Discount rate % Salary trend rate (incl. career trend) % Benefit trend rate % Year of actuarial charts by Dr Klaus Heubeck 2005 G 2005 G The present value of benefit entitlements results from various defined benefit plans as well as from individual defined benefit commitments. Application of the plans depends on the date an employee joins the Company. Retirement benefits are based on employees salaries and years of service. Additionally, individual arrangements also exist. Plan assets have been funded through a bilateral contractual trust arrangement. The plan assets consist of unit holdings and are managed by a bank. The fair value of plan assets was netted against the present value of benefit entitlements. Expected returns on plan assets amount to 5.25 percent for financial year 2007/2008 (previous year: 4.25 percent). Plan assets developed as follows this past financial year: Fair value of plan assets at beginning of financial year 16,727 16,620 Expected returns Allocations to plan assets 530 1,255 Benefits paid (782) (857) Actuarial losses (1,598) (997) Fair value of plan assets at end of financial year 15,755 16,

13 Actuarial gains/losses not offset developed as follows this past financial year: Actuarial gains/losses not offset at the beginning of financial year (893) (1,891) Actuarial gains on benefit entitlements 2,614 1,987 Actuarial losses on plan assets (1,598) (997) Actuarial gains recognised in financial year 0 8 Actuarial gains/losses not offset at end of financial year 123 (893) The following amounts were recognised in the income statement: Service cost Interest expense Amortisation of actuarial losses 0 8 Expected returns on plan assets (878) (706) The net sum of interest expense and expected returns on plan assets is disclosed in item Interest income (previous year: Interest expense ). 28. Other current liabilities Trade accounts payable 0 1 Liabilities to associated companies Liabilities to portfolio companies 9 9 Liabilities to co-investment funds Prepaid income 1,704 1,756 Other liabilities 882 2,108 thereof, taxes ,595 4,

14 Liabilities to associated companies relate to non-consolidated subsidiaries of Deutsche Beteiligungs AG. Prepaid income mainly comprises fee income from two co-investment funds paid in advance. 29. Other financial commitments, contingent liabilities and trusteeships Other financial commitments are detailed as follows: Call commitments 8,649 10,409 Permanent debt obligations 2,652 3,454 11,301 13,863 Possible call commitments relate to payments which may be drawn down by private equity funds, depending on the progress of investing activity. Permanent debt obligations largely pertain to office rental. The following provides an overview of the due dates of permanent debt obligations at 31 October 2008: < 1 year 1 to 5 years > 5 years Total Permanent debt obligations 969 1, ,652 thereof, rental contracts 968 1, ,651 thereof, leases The office rental contract runs until 31 August The final lease contract for motor vehicles expires in financial year 2008/2009. Since April 2005, motor vehicles have been purchased. Contingent liabilities amounted to T 9,408 at 31 October 2008 (previous year: T 9,408). Contingent liabilities almost exclusively relate to exposure to guarantee risks in conjunction with former portfolio companies. Discounting was not performed due to the uncertainty and the indefinite settlement date of future payments. Trust assets totalled T 10,807 at 31 October 2008 (previous year: T 10,497). They primarily concern three portfolio companies (T 8,877) held for a managed fund. Trust liabilities exist in an equivalent amount. 110

15 30. Notes to the cash flow statement Cash flow statements based on IAS 7 have the objective of reporting on and creating transparency in a company s relevant flows of cash. Cash flows are differentiated according to operating activities as well as investing and financing activities. For cash flows from operating activities, the indirect presentation method was applied. Proceeds and payments relating to financial assets and to loans and receivables have been presented in cash flows from investing activities instead of in cash flows from operating activities, since this classification gives a truer representation, from our point of view. There were no cash flows from acquisitions/sales concerning companies or other entities included in the group of consolidated companies. Cash funds at the beginning and end of the period existed in the form of cash in banks. Cash funds of the proportionately consolidated Q.P.O.N. Beteiligungs GmbH amount to T 23 (previous year: T 31). During financial year 2007/2008, a part of the cash in banks amounting to T 69,164 was regrouped to short-dated securities guaranteed by the German federal states to heighten the security of the investment. It is intended to hold the securities up to their maturity in January The securities serve, as do the cash deposits in banks, to meet the Group s payment obligations. According to IAS 7, these securities do not constitute cash or cash equivalents, since their maturity is more than three months from the date of acquisition. IAS 7 requires the purchase of these securities to be disclosed as cash flows from investing activities. Other information 31. Financial risk disclosures The DBAG Group is exposed to financial risks that rise from its investment activities in portfolio companies and from other financial instruments. The risk exposure attached to these financial instruments may lead to a reduction in asset value or to a reduction in profits. The following describes the financial risks arising from the financial instruments to which the DBAG Group is exposed in conformity with IFRS 7, which has been applied in these financial statements for the first time. The objectives and the methods used to manage these risks are also discussed. There has been no change compared with the previous year. 111

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 136 CONSOLIDATED NOTES TO THE CONSOLIDATED FOR FINANCIAL YEAR 2013/14 GENERAL INFORMATION 1. PRINCIPAL ACTIVITY Deutsche Beteiligungs AG (DBAG) raises closed-end private equity funds ( DBAG funds ) for