General Notes

A. General Notes

1. Principles for the preparation of the Consolidated Financial Statements

The Consolidated Financial Statements of CEWE COLOR Holding AG for the fiscal year from January 1 to December 31, 2006 were prepared according to IFRS/IAS as these are to be applied in the EU, and also according to the provisions of Section 315a (1) of the Handelsgesetzbuch (HGB – German Commercial Code) as are to be applied as a supplement. The income statement is prepared using the total cost (type of expenditure) method. All figures are in thousands of euros if not otherwise specified.

2. Key differences between IFRS/IAS and HGB

The group does not prepare Financial Statements according to the accounting, valuation and carrying methods set out in the German Commercial Code (HGB). It is thus not possible to show differences between the total assets and net income compared to HGB figures. There are the following key differences:

• The formation of deferred taxes liabilities based on the balance sheet liability method and the capitalization of deferred tax assets from tax losses carried forward (IAS 12)
  
  
  • Modification of the useful lives of property, plant and equipment, the uniform application of straight line amortization/depreciation and the consideration of the residual value of property, plant and equipment (IAS 16)
    
    
    • Valuation of provisions for pensions according to the projected unit credit method taking into account future salary trends and the corridor rule (IAS 19)
      
      
      • Valuation of provisions at the amount of the best estimate of the present obligation according to the amount at which this is most likely to be taken up, with noncurrent provisions being discounted (IAS 37).
        
        
        • Individual valuation of receivables (IAS 32; removal of lump-sum write-downs)
          
          
          • Waiver of the formation of provisions for expenses
            
            
            • Capitalization of internally generated intangible non-current assets at cost (IAS 38)
            
            
            • Valuation and disclosure of treasury shares according to IAS 32.33
            
            
            • Comprehensive allocation and valuation requirements for company acquisitions and mergers and the capitalization requirement for goodwill in this regard (IFRS 3, IAS 36 and 38)
              
              
            • Fair value measurement of hedge transactions (IAS 39)
              
              
            • Valuation of Stock Option Plans with indirect consideration of the lower of cost or market for the equity instruments selected (IFRS 2)
            
            
            
            

3. Group of consolidated companies

The group of consolidated companies includes CEWE COLOR Holding AG as the parent company, 4 German and 17 foreign companies. For the individual companies in which a majority of voting rights is held – directly or indirectly – by CEWE COLOR Holding AG, please see the list of shareholdings (see this page).There have been the following changes to the company since the Financial Statements on December 31, 2005:

• OneWebPhoto Verwaltungs GmbH, Oldenburg as the limited partner of OneWebPhoto GmbH & Co. KG, Oldenburg, was merged with CEWE COLOR AG & Co. OHG, Oldenburg with effect from January 1, 2006. This means that the latter company also holds the limited partners’ shares of OneWebPhoto GmbH & Co. KG, Oldenburg (Germany).
  
  
  • Zweite CEWE COLOR Beteiligungsgesellschaft AG, Dübendorf (Switzerland), was formed with effect from March 14, 2006.
    
    
    • Fotolab a.s., Prague (Czech Republic), changed its name to CEWE COLOR a.s., Prague (Czech Republic).
      
      
      • The former company Fotolab Slovakia a.s., Bratislava (Republic of Slovakia), also changed its name to CEWE COLOR a.s., Bratislava (Republic of Slovakia).
      
      
      • A.R. Bott & Sons Limited, Warwick (United Kingdom), changed its name to CEWE COLOR Limited, Warwick (United Kingdom).
      
      
      • The company Fotolux CEWE COLOR Ltd., Dnipropetrovsk (Ukraine), formed jointly in the spring of 2005 with OOO “Investâ€?, Dnipropetrovsk (Ukraine), was terminated and liquidated as of September 21, 2006, the equity-accounted investment was deconsolidated. The CEWE COLOR Group did not suffer any economic damage as a result of its withdrawal from the joint venture, as the joint venture company had not yet conducted any activities.
      
      
      • The bearers of subscription right commitment certificates exercised their subscription rights in December 2006 by converting their atypical silent partnership in CEWE COLOR AG & Co. OHG, Oldenburg for a total of 1,980,000 shares with a nominal value of 5,148 thousand euros in CEWE COLOR Holding AG. The conversion was effective as of December 31, 2006. For further information please see the section on Contingent Capital (on this page). As of December 31, 2006, CEWE COLOR Holding AG, Oldenburg, thus holds an interest of 99.75 % in CEWE COLOR AG & Co. OHG, Oldenburg.
        
      
      
      

With effect from February 1, 2007, i.e., without impacting the group of consolidated companies for these Consolidated Financial Statements, CEWE COLOR a.s., Prague (Czech Republic) acquired a 100% interest in Foto Star s.r.o., Teplice (Czech Republic). The purchase price totaled 2.861 million euros (81.500 million CZK). Together with this company, the company also acquired Bohemia Foto, spol. s.r.o., Teplice (Czech Republic) and FotoStar Slovakia spol. S.r.o., Trnawa (Republic of Slovakia). Foto Star s.r.o., Teplice (Czech Republic) holds a 100% interest in both of these companies.

With effect as of February 12, 2007, CEWE COLOR sp.z.o.o, Kedzierzyn-Kozle (Poland) acquired a 100 % interest in FOTO CLASSIC, Tarnobrzeg (Poland). The purchase price totaled 800 thousand euros.

The group of consolidated companies does not include Dipinto Limited, Warwick (United Kingdom) and INet Distribution Limited, Warwick (United Kingdom) as a result of their non-material economic importance. As of December 31, 2006, the assets of both companies totaled 207 thousand euros, liabilities totaled 5 thousand euros. The earnings for the period and income both totaled 0 thousand euros.

4. Principles of consolidation

The consolidated financial statements were prepared based on the audited single-entity Financial Statements of the companies included.

The Balance Sheet date for the single-entity Financial Statements for all of the companies included in the Consolidated Financial Statements is the same as the Balance Sheet date for the Consolidated Financial Statements – December 31, 2006.

To the extent that goodwill resulted during first-time consolidation as part of the back calculation to March 30, 2004, this is carried as goodwill according to IAS 22.41 – which applied at that time – to the extent that this was not amortized over other identifiable assets and/or liabilities. Goodwill which had not been fully amortized by December 31, 2004 is no longer subject to scheduled amortization as a result of the changes to IAS 38. These items are now amortized via unscheduled write-downs resulting from an impairment test in line with IAS 36.

The impairment tests to be conducted annually for goodwill are conducted according to the discounted cash flow method. In so doing, the cash flows to be anticipated in future from the latest management forecasts are extrapolated using long-term sales growth rates and assumptions on growth for margins and earnings, and discounted using the costs of capital for the company unit. The tests are conducted at a cash generating unit level (IAS 36). In addition, an impairment test is conducted during the year if events mean that it can be assumed that the asset has been permanently impaired.

Badwill from initial consolidation was either recognized in income directly according to IAS 22.62 up to March 30, 2004 or was deducted from the goodwill resulting from initial consolidation according to IAS 22.64.

First-time consolidations after March 31, 2004 use the purchase method set out in IFRS 3.14. In so doing, the assets and liabilities acquired are revalued according to the principles of IFRS. The remaining undistributed positive goodwill is carried as goodwill within the meaning of IFRS 3.51 et seq.

If badwill results from initial consolidation, this has been recognized in income immediately in line with IFRS 3.56.

In the case of additions of interests in companies already included as part of full consolidation, these additions are carried under equity according to ED IAS 27 (draft to amend IAS 27). The carrying amounts of the assets, liabilities and goodwill of the companies already consolidated are not changed.

Revenues, expenses and income as well as loans, receivables and liabilities within the group between the consolidated companies are eliminated. Inter-company profits from group deliveries are consolidated to the extent that these are material for the presentation of the financial position and results of operations. Inter-group deliveries and performance are calculated based on market prices and also in line with the principle of dealings at arm’s length. To the extent required, deferred taxes were formed for consolidation which affected income.

Effects from the fair value measurement (IFRS 2) of equity instruments issued (Stock Option Plans) for future work are distributed as expenses over their term, carried under personnel expenses, and booked against equity (other revenue reserves). To the extent that the option conditions are not fulfilled, the item is to be reversed directly in equity.

Associated companies over which a significant influence is held but for which there are no opportunities for influence and control, are consolidated at equity (IAS 28.6). These are valued on their date of acquisition using the acquisition cost method, with proportionate hidden reserves and liabilities taken into account. In subsequent valuations, the carrying amount is continued including scheduled amortization/depreciation of hidden reserves, the increase or reduction by the proportion of the annual earnings, the dividends received and any proportionate capital increases or decreases that had been performed.

Companies that are no longer to be classified as being consolidated companies were excluded from consolidation. The date was determined by the date on which the company exited the group, i.e., the date on which control was lost or, in the case of companies consolidated at equity, the date on which the significant influence was lost. Income and expenses resulting from the consolidated company were included in the Consolidated Income Statement until the date it exited the group. All of the assets and liabilities representing the company or, in the case of companies consolidated at equity, all of the effects which increase and decrease equity directly prior to the company exiting the consolidated group, were regarded as the disposal value. The impact on income from final consolidation results from comparing the sale or liquidation income with the disposal value.

The consolidation methods applied are unchanged year-on-year.

5. Currency translation

The financial statements of the foreign group companies are translated to euros using the functional currency concept (IAS 21). The functional currency of the subsidiaries is the respective national currency. As our subsidiaries operate their business independently in financial, economic and organizational terms, as a rule the functional currency is identical with the company’s respective national currency. The group’s reporting and functional currency is the euro.

Assets and liabilities of the companies to be included are translated at the mean rate of exchange on the balance sheet date, income and expenses are translated at the annual average of the respective mean rate of exchange.

Goodwill which results for foreign subsidiaries from capital consolidation is carried at historical acquisition costs. Equity is also translated at historical exchange rates. The resulting currency translation differences are not carried in the income statement, but under a separate equity item. Currency differences from the translation of long-term loans to group companies are also carried directly under equity in line with IAS 21.32.

Currency translation is based on the following key exchange rates: