Notes to the Consolidated Profit and Loss Account
C. Notes to the Consolidated Profit and Loss Account
10. Revenues
Revenue is carried after all sales allowances have been deducted. Other income is carried under other operating income.
11. Other operating income
Income from the sale of silver stems from selling recovered and purified silver as well as income from silver hedges. A total of 32.6 tons were sold during the fiscal year (previous year: 34.0 tons); the average price received totaled 244.98 euros per kg (previous year: 186.04 euros per kg).
The income from the reversal of provisions mostly stems from the return of deferrals for revenue-related expenses and operating personnel costs.
A key item in insurance compensation in 2005 was the compensation payment for the fire damage at the plant in Lille (France) in the amount of 13,936 million euros (IAS 16.74d).
Income from the reduction of write-downs for receivables relate to Germany in particular.
Currency gains mostly include gains from exchange rate changes between the time the transaction arises and the date of payment and valuation on the Balance Sheet date. These also include income from translation for consolidation purposes. Currency losses from these translations are carried under other operating expenses (see this page).
Other operating income includes, in particular, income from vehicle use, income from the consolidation of income and expense and income from oncharging disposal costs. As in the previous year, the company did not receive any government grants in fiscal year 2006.
12. Cost of materials
The costs of raw materials, consumables and supplies and for purchased goods in the photofinishing segment include, in particular, the purchase of photographic paper, photo pouches, chemicals and other packaging, and the purchase of merchandise in the retail segment. Expenses for purchased services include third-party work in the photofinishing segment.
Wages for blue-collar employees totaled 30.148 million euros (previous year: 37.542 million euros), salaries for white-collar employees totaled 43.997 million euros (previous year: 46.166 million euros).
Expenses for pension plans and benefits mostly relate to additions to provisions for pensions: 243 thousand euros (previous year: 57 thousand euros) were added for members of the executive bodies of CEWE COLOR Holding AG, Oldenburg; the difference compared to the previous year is due to staffing changes in the Managing Board at the holding company and the foundation’s Managing Board and management. Please also see the comments on noncurrent provisions for pensions (see this page).
The initial measurement upon recognition of the current Stock Option Plan (IFRS 2.10 et seq.) gives a present value of 3.674 million euros, which is taken into account on a pro-rata basis totaling 1.834 million euros (previous year: 459 thousand euros) as other personnel expenses. The offsetting entry is made in equity under other revenue reserves. The structure of the current stock option plan is detailed in the comments on equity (see page 80 et seq.). A Monte Carlo simulation was used for valuation. During this process, the log-normally distributed process for the price of shares of CEWE COLOR is simulated in order to map the performance target in the form of an increase in the average closing price of at least 15 % compared to the underlying price on ten successive trading days.
The possibility of advance exercise is also taken into account in the simulation using a modified version of the method proposed by Hull and White, taking into account the exercise window and the so-called advance exercise behavior of the participants. In the simulation, 2.79% of the stock options were exercised immediately after the lock-up period if this is possible as a result of holders exiting the company. The risk-free interest rate for the term was assumed as being 2.71 % as of September 30, 2005. Discrete dividends were included in the calculation, with publicly available estimates being used as the basis for calculation. Finally, the historical volatility was included, and estimated at 36.52 % as of September 30, 2005. There were no direct payments for benefits.
Figures are based on annual averages. As of December 31, 2006, the group had a total of 3,049 employees (December 31, 2005: 3,512 employees).
14. Amortization of intangible assets and depreciation of property, plant and equipment
The breakdown of amortization/depreciation can be seen in the statement of changes in noncurrent assets. There was no non-scheduled amortization of goodwill in fiscal year 2006 (previous year: 4.823 million euros for CEWE COLOR S.A.S., Paris, France). In addition to the scheduled amortization/depreciation, there was additional amortization of 610 thousand euros as a result of the shorter remaining periods for software developed in-house that is soon to be replaced and the ERP software used by the group. The extraordinary depreciation for property, plant and equipment totaled 2.096 million euros (previous year: 1.494 million euros). This mostly relates to machinery and equipment that is used in the production of analog photofinishing orders, or assets that stem from a plant closure or which only have a significantly lower market value than the carrying amount.
Sales and marketing costs are the key item, including expenses for courier services in the photofinishing branch business. The adjustments to the value of the current assets mostly relate to individual write-downs for receivables (2006: 1.185 million euros, 2005: 1.734 million euros), which result from estimating defaults for future returns.
Fees for the auditors of the Consolidated Financial Statements total 301 thousand euros (previous year: 420 thousand euros) and are carried under administrative expenses. The following individual amounts were invoiced for the individual consulting services (Section 314 (1) no. 9 of the HGB):
The audit fees include fees for the audit of the Consolidated Financial Statements as well as the audit of the Financial Statements of CEWE COLOR Holding AG, Oldenburg, as well as its German subsidiaries. Other consulting and valuation services include the auditor’s review of interim reports. Tax advice services include the preparation of tax returns, the review of tax notices, if necessary submitting objections, support during external tax audits and other tax issues.
The other, irregular other and non-period operating expenses in the year under review include additions to provisions for exchange rate losses (986 thousand euros), losses from the disposal of noncurrent assets (1.395 million euros), warranty expenses (19 thousand euros), canteen costs (137 thousand euros), personnel recruitment costs (140 thousand euros), part of the research and development costs (296 thousand euros) and incidental costs of monetary transactions (1.020 million euros).
Currency losses mostly include currency losses from exchange rate changes between the time the transaction arises and the date of payment and valuation on the Balance Sheet date. These also include expenses from translation for consolidation purposes. Currency gains from these transactions are carried under other operating expenses (see this page).
Non-capitalized research and development expenses for intangible and other assets were incurred in the amount of 7.577 million euros (previous year: 5.447 million euros). This mostly comprises other operating expenses and personnel expenses.
16. Restructuring expenses
Ongoing personnel and material expenses were incurred during fiscal year 2006 as in 2005 as part of the modification to and restructuring of the group. These relate to the partial closure (Paris, France) and closure (Berlin, Germany) of facilities. In 2006, these closures depressed income in the amount of 6.2 million euros (previous year: 12.8 million euros), of which 5.2 million euros (previous year: 7.7 million euros) are still carried as a liability under provisions for restructuring. The expenses mostly relate to social plans for compensation payments. A total of around 339 employees were affected by the closures (previous year: 310 employees), with 215 of these employees already included in the previous year’s figure.
17. Financial results
The amortization of financial assets does not include any effects to be recognized in income from the valuation at fair value that result from the portion that is identifi ed as being ineffective of a currency swap hedge for a net investment in an economically independent foreign subsidiary of 304 thousand euros (previous year: 66 thousand euros). There were also no hedge forward transactions to hedge income from the sale of silver, for which the fair value measurement could impact expenses (previous year: expenses 1.001 million euros). The reversal of the silver hedge transactions, which had a negative impact given the significant increase in silver prices, led to expenses of 3.413 million euros.
Income taxes in Germany include corporation tax including the solidarity surcharge as well as trade tax; in the rest of the world the corresponding comparable taxes for the subsidiaries are included.
There were no key changes to the tax expenses resulting from changes to the respective national tax rates. The introduction of new national taxes also did not have a major impact. No tax expenses were incurred in connection with extraordinary expenses and the closure of business segments.
The disclosed income tax expense is broken down as follows (based on anticipated income tax expenses):
A theoretical tax rate of 39.0 % (previous year: 39.0 %) is used to calculate the anticipated income tax expense. This comprises 25.0 % for corporation tax (previous year: 25.0 %), 5.5 % for the solidarity surcharge on corporation tax liabilities (previous year: 5.5 %) and 17.0 % for trade tax (previous year: 17.0 %).
In the previous year there were deferred tax refund claims totaling 6.036 million euros which result from retained earnings accrued in previous years and taxed at a higher rate of corporation tax. The figure fell by to 5.605 million euros compared to the previous year. This is a result of the subsequent impact of the external tax audit concluded during fiscal year 2006 for the years 2000 to 2005 including the resulting subsequent effects up to 2006; there was also a refund of 431 thousand euros as a result of the disbursement for 2005. As the refund claim as of December 31, 2006 is to be paid in equal annual installments from 2008 over a ten-year period as a result of the Gesetz über steuerliche Begleitmaßnahmen zur Einführung der Europäischen Gesellschaft und zur Änderung weiterer steuerlicher Vorschriften (SEStEG – act regarding fiscal measures intended to accompany the introduction of the European Company and the subsequent modification of other fiscal provisions), this is to be capitalized and reflected in income – however, as this does not bear interest over the refund period it is to be carried at its cash value. The claim which is discounted at a rate of 4.40 % totals 4.218 million euros and leads to a reduction in the income tax result in this amount. This will result in an annual reduction of 560 thousand euros for CEWE COLOR Holding AG, Oldenburg.
The deferred taxes can be allocated to the following items:
According to IAS 12, deferred tax assets and liabilities are netted to the extent that these are to the same tax authority and have the same term.
The total carry forward for tax losses not yet used totaled 23.921 million euros (previous year: 23.557 million euros) and mostly relates to our company in France. Of the loss carryforwards, 21.154 million euros (previous year: 20.084 million euros) can be carried forward without restriction. During the third quarter of 2006, CEWE COLOR AG & Co. OHG, Oldenburg, located in Central Europe, waived receivables totaling 14.5 million euros from the French CeWE Color S.A.S., Paris, France. This led to corresponding positive extraordinary effects in France and to negative extraordinary effects in the same amount for CEWE COLOR AG & Co. OHG, Oldenburg, which waived the receivables. The charges for the German company led to a corresponding significant reduction in profit before tax and thus to a reduction in the consolidated tax result of approx. 5.6 million euros. The remaining loss carryforwards can be carried forward at the longest until 2011. The ability to realize deferred taxes for loss carryforwards in future is material for their capitalization. This mostly depends on the future tax profits during the periods in which the tax losses carried forward can be asserted. For capitalization, we assume the profit forecasts that we regard as being more probable than improbable. As a result, no deferred taxes were formed for tax loss carryforwards totaling 21.394 million euros (previous year: 20.172 million euros).
In addition to the income taxes recognized in income, there is also the following total tax expense under equity:
19. Other taxes
Other taxes for the group include in particular land and vehicle tax as well as various foreign taxes. Of this total, 928 thousand euros (previous year: 1.213 million euros) is due to the “taxe professionnelle� in France.
20. Profit/loss attributable to minority interests
The profit/loss attributable to minority interests includes the share of other shareholders in the earnings of subsidiaries included in consolidation in proportion to the interests they hold. The bulk of this item is the portion of earnings for an atypical silent partnership in the group company CEWE COLOR AG & Co. OHG, Oldenburg. The shareholders’ share of profits is subject to individual income tax. The minority interests for this portion are disclosed for the last time in 2006, as the conversion right associated with the atypical silent partnership was exercised to subscribe for new shares with effect from December 31, 2006 (see this page). The converted new shares do not carry dividend rights for fiscal year 2006.
21. Earnings per share
The basic earnings per share are calculated as the consolidated earnings divided by the weighted average number of shares in circulation during the fiscal year; as the new 1,980,000 no-par value shares do not carry dividend rights, these are not to be included in this figure.
In calculating the diluted earnings per share, the new no-par value shares that were issued when the subscription rights were exercised at the end of the year from the subscription right commitment certificates are added to the weighted average number of shares in circulation as well as any for which the conversion right was not exercised (page 80). The consolidated earnings are adjusted accordingly for the portions of interest and earnings due to the participants, as well as for the resulting tax impact. Treasury shares are not included when calculating the diluted earnings per share (IAS 33.19). The subscription rights issued as part of the 2005 Stock Option Plan are also not considered, as the average stock market price of shares of CEWE COLOR has not passed the exercise price since the subscription rights were issued. The diluted result is disclosed as a corresponding effect occurred during the fiscal year. The previous year’s figure is shown although there was no dilutive effect in fiscal year 2005.
