24 Equity

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Sub-scribed capital

 

Capital reserves

 

Retained earnings

 

Equity attribut-able to share-holders of
VW AG

 

Minority interests

 

Total  equity

€ million

     

Accumu-lated  profit

 

Currency trans-lation reserve

 

Reserve  for actu-arial  gains and losses

 

Cash  flow hedge reserve

 

Fair value reserve for securities

 

Equity-accounted invest-ments

     

Balance at
Jan. 1, 2007

 

1,004

 

4,942

 

23,532

 

–1,272

 

–1,640

 

502

 

242

 

–406

 

26,904

 

55

 

26,959

Capital increase

 

11

 

200

 

 

 

 

 

 

 

211

 

 

211

Dividend payment

 

 

 

497

 

 

 

 

 

 

497

 

0

 

497

Recognized income and expense

 

 

 

4,120

 

–228

 

1,427

 

995

 

–375

 

47

 

5,986

 

2

 

5,988

Deferred taxes

 

 

 

 

 

–610

 

–233

 

103

 

 

–740

 

 

–740

Other changes

 

 

 

11

 

 

 

 

 

 

11

 

6

 

17

Balance at
Dec. 31, 2007

 

1,015

 

5,142

 

27,166

 

–1,500

 

–823

 

1,264

 

–30

 

–359

 

31,875

 

63

 

31,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
Jan. 1, 2008

 

1,015

 

5,142

 

27,166

 

–1,500

 

–823

 

1,264

 

–30

 

–359

 

31,875

 

63

 

31,938

Capital increase

 

9

 

209

 

 

 

 

 

 

 

218

 

 

218

Dividend payment

 

 

 

720

 

 

 

 

 

 

720

 

2

 

722

Recognized income and expense

 

 

 

4,753

 

–1,113

 

214

 

–227

 

–230

 

–188

 

3,209

 

–567

 

2,642

Deferred taxes

 

 

 

 

 

–63

 

96

 

68

 

 

101

 

44

 

145

Other changes

 

 

 

323

 

–108

 

0

 

5

 

 

108

 

328

 

2,839

 

3,167

Balance at
Dec. 31, 2008

 

1,024

 

5,351

 

31,522

 

–2,721

 

–672

 

1,138

 

–192

 

–439

 

35,011

 

2,377

 

37,388

The other changes in fiscal year 2008 are largely attributable to the initial consolidation of Scania.

The subscribed capital of Volkswagen AG is denominated in euros. The shares are no-par value bearer shares. Each share has a notional value of €2.56. As well as ordinary shares, there are preferred shares that entitle the bearer to a €0.06 higher dividend than ordinary shares, but do not carry voting rights.

The subscribed capital is composed of 294,920,207 no-par value ordinary shares and 105,238,280 preferred shares, and amounts to €1,024 million (previous year: €1,015 million).

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CHANGE IN ORDINARY AND PREFERRED SHARES AND SUBSCRIBED CAPITAL

 

 

 

 

Shares

 

 

 

2008

 

2007

 

2008

 

2007

Balance at January 1

 

396,575,547

 

392,218,347

 

1,015,233,400

 

1,004,078,968

Issued shares
(stock option plan)

 

3,582,940

 

4,357,200

 

9,172,326

 

11,154,432

Balance at December 31

 

400,158,487

 

396,575,547

 

1,024,405,726

 

1,015,233,400

Based on the resolution by the Annual General Meeting on May 3, 2006, authorized capital of up to €90 million, expiring on May 2, 2011, was approved for the issue of new ordinary bearer shares. Additional authorized capital of up to €400 million was adopted by a resolution by the Annual General Meeting on April 22, 2004, expiring on April 21, 2009.

There is also contingent capital of €7 million (originally €40 million) resulting from the resolution by the Annual General Meting on April 16, 2002. This contingent capital increase will be implemented only to the extent that the holders of convertible bonds issued before April 15, 2007 exercise their conversion rights.

There is also contingent capital of €100 million for the issue of up to 39,062,500 ordinary and/or preferred shares. This contingent capital increase will be implemented only to the extent that the holders of convertible bonds to be issued before April 21, 2009 exercise their conversion rights.

The capital reserves comprise the share premium of a total of €5,025 million from the capital increases, the share premium of €219 million from the issue of bonds with warrants and an amount of €107 million appropriated on the basis of the capital reduction implemented in 2006. Capital reserves rose by €209 million in fiscal year 2008 as a result of the share premium from the capital increase due to the exercise of convertible bonds under the stock option plan. No amounts were withdrawn from the capital reserves.

Stock option plan

The stock option plan entitles the optionees – the Board of Management, Group senior executives and management, as well as employees of Volkswagen AG covered by collective pay agreements – to purchase options on shares of Volkswagen AG by subscribing for convertible bonds at a price of €2.56 each. Each bond is convertible into ten ordinary shares.

The convertible bonds are measured at fair value at the date of grant to the employees. The convertible bonds measured at fair value are recognized in personnel expenses and in equity.

The conversion prices and periods following the expiration of the first four tranches are shown in the following table. The information on the fifth tranche is presented as data for the reporting period, although this tranche has now also expired.

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CONVERSION PRICES AND PERIODS
FOR EACH TRANCHE OF THE STOCK OPTION PLAN

 

 

 

5th tranche

 

6th tranche

 

7th tranche

 

8th tranche

Base conversion price per share

 

36.54

 

38.68

 

37.99

 

58.18

Conversion price

 

 

 

 

 

 

 

 

as from July 12, 2005

 

40.19

 

 

 

 

 

 

as from publication of interim report
for Jan. – Sept. 2005

 

42.02

 

 

 

 

 

 

as from July 10, 2006

 

 

 

42.55

 

 

 

 

as from publication of interim report
for Jan. – Sept. 2006

 

43.85

 

44.48

 

 

 

 

as from July 09, 2007

 

 

 

 

 

41.79

 

 

as from publication of interim report
for Jan. – Sept. 2007

 

45.68

 

46.42

 

43.69

 

 

as from July 8, 2008

 

 

 

 

 

 

 

64.00

as from publication of interim report
for Jan. – Sept. 2008

 

 

 

48.35

 

45.59

 

66.91

as from publication of interim report
for Jan. – Sept. 2009

 

 

 

 

 

47.49

 

69.82

as from publication of interim report
for Jan. – Sept. 2010

 

 

 

 

 

 

 

72.73

Beginning of conversion period

 

July 12, 2005

 

July 10, 2006

 

July 9, 2007

 

July 8, 2008

End of conversion period

 

July 4, 2008

 

July 2, 2009

 

July 1, 2010

 

June 30, 2011


Changes in the rights to stock options granted are shown in the following table:

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Nominal value
of convertible bonds

 

Number of conversion
rights

 

Number of potential ordinary shares

 

 

 

Rights

 

Shares

Balance at Jan. 1, 2007

 

2,109,539.84

 

824,039

 

8,240,390

In fiscal year

 

 

 

 

 

 

exercised

 

1,115,443.20

 

435,720

 

4,357,200

returned

 

29,447.68

 

11,503

 

115,030

Balance at Dec. 31, 2007

 

964,648.96

 

376,816

 

3,768,160

 

 

 

 

 

 

 

Balance at Jan. 1, 2008

 

964,648.96

 

376,816

 

3,768,160

In fiscal year

 

 

 

 

 

 

exercised

 

917,232.64

 

358,294

 

3,582,940

returned

 

3,875.84

 

1,514

 

15,140

Balance at Dec. 31, 2008

 

43,540.48

 

17,008

 

170,080

MEASUREMENT OF CONVERTIBLE BONDS IN THE FIFTH TO EIGHT TRANCHES

Those convertible bonds granted after publication of the draft IFRS 2 on November 7, 2002 were measured in accordance with the transitional provisions of IFRS 2.

The fair value of the convertible bonds is estimated using a binomial option pricing model based on the issuance and conversion conditions described above. In terms of the optionees’ conversion behavior, it was assumed that they will convert when the share price is 50% higher than the conversion price. Historical and implied volatilities based on the expected remaining term of the conversion rights were used to estimate the fair value of the convertible bonds. The assumptions used and the fair value estimated are presented in the following table:

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5th tranche

 

6th tranche

 

7th tranche

 

8th tranche

Volatility (%)

 

27.50

 

27.50

 

27.50

 

27.50

Risk-free rate (%)

 

3.00

 

3.49

 

2.57

 

3.77

Dividends (%)

 

3.20

 

3.20

 

3.20

 

3.20

Fair value per convertible bond (€)

 

48.25

 

39.66

 

48.71

 

63.49

The fair value of the convertible bonds is recognized ratably as a personnel expense over the two-year vesting period. This produced expenses of €5 million (previous year: €15 million) in 2008.

Changes in the number of convertible bonds in issue and their exercise prices are shown in the following table.

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Average
exercise price per convertible bond*

 

Convertible
bonds

 

 

 

Quantity

*

Conversion price per ten shares.

Balance at Jan. 1, 2007

 

519.72

 

703,074

In fiscal year

 

 

 

 

granted

 

 

returned

 

553.30

 

11,418

exercised

 

423.99

 

314,840

Balance at Dec. 31, 2007

 

603.70

 

376,816

of which available for exercise

 

449.76

 

71,895

 

 

 

 

 

Balance at Jan. 1, 2008

 

603.70

 

376,816

In fiscal year

 

 

 

 

granted

 

 

returned

 

629.58

 

1,514

exercised

 

609.24

 

358,294

Balance at Dec. 12, 2008

 

556.27

 

17,008

of which available for exercise

 

556.27

 

17,008


For 50,357 convertible bonds, the average conversion price increased by €241.50 in 2008.

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Exercise price per convertible bond*

 

Convertible
bonds

2008

 

 

Quantity

*

Conversion price per ten shares.

5th tranche

 

456.80

 

6th tranche

 

483.50

 

6,127

7th tranche

 

455.90

 

3,667

8th tranche

 

669.10

 

7,214

 

 

 

 

17,008

Dividend proposal

In accordance with section 58(2) of the Aktiengesetz (AktG – German Stock Corporation Act), the dividend payment by Volkswagen AG is based on the net retained profits reported in the annual financial statements of Volkswagen AG. Based on the annual financial statements of Volkswagen AG, net retained profits of €781 million are eligible for distribution. The Board of Management and Supervisory Board of Volkswagen AG will propose to the Annual General Meeting that a dividend of €1.93 per ordinary share and €1.99 per preferred share be paid, for a total of €779 million, and that the remaining amount of €2 million be carried forward to new account.

A dividend of €1.80 per ordinary share and €1.86 per preferred share were distributed in fiscal year 2008.

Minority interests

The minority interests in equity are attributable primarily to shareholders of Scania AB.

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