Exhibit 99.1
Audited consolidated financial statements of VAC Holding GmbH (in Euros) as of and for the years ended December 31, 2010 and 2009 prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
Independent Auditors’ Report
The Board of Directors
OMG Germany Holding GmbH:
We have audited the accompanying consolidated balance sheets of VAC Holding GmbH and subsidiaries as of December 31, 2010 and 2009 and the related consolidated income statements, statements of comprehensive income, changes in equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of VAC Holding GmbH and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ KPMG AG Wirtschaftsprüfungsgesellschaft
Frankfurt am Main, Germany
October 12, 2011
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Consolidated Financial Statements
for the year ended 31 December 2010
Consolidated balance sheet
As of 31 December 2010
In EUR thousands | Note | 31 Dec. 10 | 31 Dec. 09 | |||||||
Assets | ||||||||||
Plant, equipment, land and buildings | 10 | 177,422 | 183,143 | |||||||
Intangible assets | 11 | 37,676 | 42,668 | |||||||
Goodwill | 3, 12 | 65,850 | 65,850 | |||||||
Shares in joint ventures | 13 | 4,604 | 4,604 | |||||||
Interest-bearing loans due from related parties | 19, 24, 27 | 2,439 | 1,042 | |||||||
Deferred tax assets | 14 | 11,763 | 12,789 | |||||||
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Subtotal non-current assets | 299,754 | 310,096 | ||||||||
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Inventories | 15 | 99,246 | 70,868 | |||||||
Trade and other receivables | 16, 24 | 49,167 | 36,825 | |||||||
Current tax receivables | 9 | 228 | 126 | |||||||
Cash and cash equivalents | 17, 24 | 13,568 | 14,271 | |||||||
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Subtotal current assets | 162,209 | 122,090 | ||||||||
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Total assets | 461,963 | 432,186 | ||||||||
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Equity and liabilities | ||||||||||
Share capital | 18 | 25 | 25 | |||||||
Capital reserve | 18 | 65,614 | 61,920 | |||||||
Hybrid capital | 18 | 146,789 | 67,039 | |||||||
Deferred dividend to shareholder | 18 | 4,733 | 0 | |||||||
Other equity components | 18 | -628 | -1,053 | |||||||
Retained earnings | 18 | -123,733 | -131,904 | |||||||
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Subtotal equity | 92,800 | -3,973 | ||||||||
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Interest-bearing loans due to third parties1 | 19, 24 | 150,084 | 751 | |||||||
Interest-bearing notes held by related parties1 | 19, 24 | 128 | 0 | |||||||
Long-term employee benefit provisions | 20 | 105,262 | 102,972 | |||||||
Interest-bearing finance lease liabilities | 19, 23 | 799 | 904 | |||||||
Other liabilities | 22 | 3,822 | 3,693 | |||||||
Deferred tax liabilities | 14 | 42,258 | 45,263 | |||||||
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Subtotal non-current liabilities | 302,353 | 153,583 | ||||||||
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Interest-bearing loans due to third parties1 | 19, 24 | 7,368 | 162,568 | |||||||
Interest-bearing notes held by related parties1 | 19, 24 | 0 | 78,942 | |||||||
Interest-bearing finance lease liabilities | 19, 23 | 105 | 98 | |||||||
Trade payables and other liabilities | 22, 24 | 53,195 | 35,089 | |||||||
Provisions | 21 | 813 | 1,303 | |||||||
Current tax liabilities | 9 | 5,329 | 4,576 | |||||||
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Subtotal current liabilities | 66,810 | 282,576 | ||||||||
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Total liabilities | 369,163 | 436,159 | ||||||||
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Total equity and liabilities | 461,963 | 432,186 | ||||||||
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1) | The reclassification of senior loans and senior secured notes in the amount of EUR 234,140 thousand as short-term as of 31 December 2009 reflected the provisions of IAS 1. Upon effectiveness of the amended financing agreements as of 21 May 2010 such loans and notes were reclassified again as long-term in the amount of EUR 234,140 thousand. |
The accompanying notes no 1 to 30 are an integral part of the consolidated financial statements
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Consolidated income statement
For the year ended 31 December 2010
In EUR thousands | Note | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09- 31 Dec. 09 | |||||||
Sales | 2 | 346,354 | 234,821 | |||||||
Change in unfinished and finished goods | 19,178 | -22,654 | ||||||||
Other operating income | 4 | 24,463 | 15,453 | |||||||
Cost of materials | -115,176 | -53,988 | ||||||||
Personnel expenses | 6 | -125,447 | -93,653 | |||||||
Other operating expenses | 5 | -84,852 | -63,182 | |||||||
Depreciation and amortisation of intangible assets, plant, equipment and buildings | 10, 11 | -24,098 | -24,442 | |||||||
Impairment on goodwill | 12 | 0 | -66,858 | |||||||
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Earnings before interest and taxes (EBIT) | 40,422 | -74,503 | ||||||||
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Financial income | 7 | 596 | 669 | |||||||
Financial expenses | 7 | -23,747 | -28,858 | |||||||
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Financial result | -23,151 | -28,189 | ||||||||
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Earnings before taxes | 17,271 | -102,692 | ||||||||
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Taxes | 8 | -2,658 | 7,369 | |||||||
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Consolidated profit / loss for the period | 14,613 | -95,323 | ||||||||
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The total consolidated profit (previous year: loss) for the period is attributable to the owner of the company. Thereof EUR 4,733 thousand (previous year: EUR 0 thousand) are allocated to “Deferred dividend to shareholder” as they relate to interest due on hybrid capital and will remain unpaid for an undetermined period of time. The remaining amount of EUR 9,880 thousand (previous year: EUR -95,323 thousand) is allocated to “Retained earnings”.
Consolidated statement of comprehensive income
For the year ended 31 December 2010
In EUR thousands | Note | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09 - 31 Dec. 09 | |||||||
Consolidated profit / loss for the period | 14,613 | -95,323 | ||||||||
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Defined benefit plan actuarial losses, net of tax | 8, 20 | -1,709 | -398 | |||||||
Results from changes in fair values of cash flow hedges, net of tax | 8, 24 | 425 | -811 | |||||||
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Total other comprehensive income | -1,284 | -1,209 | ||||||||
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Total comprehensive income / loss for the period | 13,329 | -96,532 | ||||||||
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The accompanying notes no 1 to 30 are an integral part of the consolidated financial statements
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the financial year ended 31 December 2010
Consolidated statement of changes in equity
As of 31 December 2010
In EUR thousands | Share capital | Capital reserve | Hybrid capital | Deferred dividend to shareholder | Other equity components | Retained earnings | Total | |||||||||||||||||||||
Balance as of 1 January 2009 | 25 | 43,225 | 0 | 0 | -242 | -36,183 | 6,825 | |||||||||||||||||||||
Total comprehensive income, therein: | 0 | 0 | 0 | 0 | -811 | -95,721 | -96,532 | |||||||||||||||||||||
Consolidated loss for the period | 0 | 0 | 0 | 0 | 0 | -95,323 | -95,323 | |||||||||||||||||||||
Total other comprehensive income | 0 | 0 | 0 | 0 | -811 | -398 | -1,209 | |||||||||||||||||||||
Contributions by the owner of the company recognised directly in equity, therein: | 0 | 18,695 | 67,039 | 0 | 0 | 0 | 85,734 | |||||||||||||||||||||
Cash contribution into capital reserves | 0 | 3,695 | 0 | 0 | 0 | 0 | 3,695 | |||||||||||||||||||||
Partial conversion of shareholder loan into capital reserves | 0 | 15,000 | 0 | 0 | 0 | 0 | 15,000 | |||||||||||||||||||||
Partial conversion of shareholder loan into hybrid capital | 0 | 0 | 67,039 | 0 | 0 | 0 | 67,039 | |||||||||||||||||||||
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Balance as of 31 December 2009 | 25 | 61,920 | 67,039 | 0 | -1,053 | -131,904 | -3,973 | |||||||||||||||||||||
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Balance as of 1 January 2010 | 25 | 61,920 | 67,039 | 0 | -1,053 | -131,904 | -3,973 | |||||||||||||||||||||
Total comprehensive income, therein: | 0 | 0 | 0 | 4,733 | 425 | 8,171 | 13,329 | |||||||||||||||||||||
Consolidated profit for the period | 0 | 0 | 0 | 4,733 | 0 | 9,880 | 14,613 | |||||||||||||||||||||
Total other comprehensive income | 0 | 0 | 0 | 0 | 425 | -1,709 | -1,284 | |||||||||||||||||||||
Contributions by the owner of the company recognised directly in equity, therein: | 0 | 3,694 | 79,750 | 0 | 0 | 0 | 83,444 | |||||||||||||||||||||
Cash contribution into capital reserves | 0 | 3,694 | 0 | 0 | 0 | 0 | 3,694 | |||||||||||||||||||||
Conversion of shareholder’s High Yield Bond into hybrid capital | 0 | 0 | 79,750 | 0 | 0 | 0 | 79,750 | |||||||||||||||||||||
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Balance as of 31 December 2010 | 25 | 65,614 | 146,789 | 4,733 | -628 | -123,733 | 92,800 | |||||||||||||||||||||
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The total equity is attributable to the owner of the company.
For further information please refer to note 18 of the consolidated financial statements.
The accompanying notes no 1 to 30 are an integral part of the consolidated financial statements
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Consolidated statement of cash flows
For the financial year ending 31 December 2010
In EUR thousands | Note | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09 - 31 Dec. 09 | |||||||
Cash flows from operating activities | ||||||||||
Earnings before taxes | 17,271 | -102,692 | ||||||||
Depreciation and amortisation of intangible assets, plant, equipment and buildings | 10, 11 | 24,098 | 24,442 | |||||||
Impairment on goodwill | 12 | 0 | 66,858 | |||||||
Loss on sale of plant and equipment | 46 | 66 | ||||||||
Financial result | 7 | 23,151 | 28,189 | |||||||
Income tax paid and received | -3,565 | -3,694 | ||||||||
Increase / Decrease in inventories | -28,378 | 25,556 | ||||||||
Increase / Decrease in trade and other receivables | -12,807 | 3,015 | ||||||||
Increase / Decrease in trade payables, other liabilities and interest-bearing finance lease liabilities | 20,954 | -7,379 | ||||||||
Decrease in provisions, without pension reserve IAS 19 | -6,038 | -8,132 | ||||||||
Adjustment for non-cash effects from exchange rates | -150 | -16 | ||||||||
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Net cash from operating activities | 34,582 | 26,213 | ||||||||
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Cash flows from investing activities | ||||||||||
Proceeds from sale of plant and equipment | 9 | 19 | ||||||||
Acquisition of plant, equipment, land and buildings | 10 | -11,654 | -8,449 | |||||||
Acquisition of intangible assets | 11 | -1,786 | -1,231 | |||||||
Payment of loan to shareholder | 19 | -1,270 | -140 | |||||||
Acquisition of shares in Neorem Magnets Oy | 3 | 0 | -331 | |||||||
Dividends received from joint venture SANVAC | 13 | 0 | 459 | |||||||
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Net cash from investing activities | -14,701 | -9,673 | ||||||||
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Cash flows from financing activities | ||||||||||
Interest received including interest hedging contracts | 370 | 198 | ||||||||
Interest paid | -17,399 | -21,191 | ||||||||
Repayment of senior bank loans | 19 | -7,000 | -7,100 | |||||||
Repayment of other loans by Neorem Magnets Oy | 19 | -399 | -482 | |||||||
Contribution into capital reserve by the shareholder | 18 | 3,694 | 3,695 | |||||||
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Net cash from financing activities | -20,734 | -24,880 | ||||||||
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Net decrease in cash and cash equivalents | -853 | -8,340 | ||||||||
Total cash and cash equivalents as of 1 January | 14,271 | 22,595 | ||||||||
Changes to cash and cash equivalents due to exchange rate effects | 150 | 16 | ||||||||
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Total cash and cash equivalents as of 31 December | 17 | 13,568 | 14,271 | |||||||
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The accompanying notes no 1 to 30 are an integral part of the consolidated financial statements
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Table of contents of the notes to the Consolidated Financial Statements
Page | ||||||
1. | General explanations and terms | 2 | ||||
2. | Segment reporting | 12 | ||||
3. | Acquisition of subsidiaries | 15 | ||||
4. | Other operating income | 16 | ||||
5. | Other operating expenses | 17 | ||||
6. | Personnel expenses | 18 | ||||
7. | Financial result | 18 | ||||
8. | Taxes | 19 | ||||
9. | Current tax assets and liabilities | 20 | ||||
10. | Plant, equipment, land and buildings | 21 | ||||
11. | Intangible assets | 22 | ||||
12. | Goodwill | 23 | ||||
13. | Shares in joint ventures | 24 | ||||
14. | Deferred tax assets and liabilities | 25 | ||||
15. | Inventories | 26 | ||||
16. | Trade receivables and other receivables | 26 | ||||
17. | Cash and cash equivalents | 27 | ||||
18. | Equity | 28 | ||||
19. | Interest-bearing loans and liabilities | 30 | ||||
20. | Long-term employee benefit obligations | 36 | ||||
21. | Provisions | 39 | ||||
22. | Trade payables and other liabilities | 40 | ||||
23. | Further information on financial instruments | 41 | ||||
24. | Information on risk management | 45 | ||||
25. | Operating leases | 54 | ||||
26. | Contingent assets and other financial obligations | 54 | ||||
27. | Related parties | 55 | ||||
28. | Group companies | 57 | ||||
29. | Subsequent events | 58 | ||||
30. | Approval for publication | 59 |
1
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the financial year ended 31 December 2010
Notes to the Consolidated Financial Statements
1. | General explanations and terms |
(A) | Reporting entity |
VAC Holding GmbH (“VAC Holding” or “Company”) is a company with registered offices at Grüner Weg 37, 63450 Hanau, Germany. The consolidated financial statements of the Company for the period from 1 January 2010 to 31 December 2010 and for the financial year ended 31 December 2010 comprise the Company and its subsidiaries (together referred to as “VAC Holding Group” or “Group” or “VAC”).
VAC Holding Group is one of the leading global manufacturers of industrially used magnetic products. VAC Holding Group designs, produces, markets and sells some of the most technologically advanced cores and components, materials, parts and permanent magnets currently available in the world. These products are sold to industrial customers in Europe, the Americas and the Asia-Pacific region.
As of 2 August 2011 the new sole shareholder of VAC Holding is OMG Germany Holding GmbH (“OMG Germany”) with registered offices at Grüner Weg 37, 63450 Hanau, Germany. The parent company of OMG Germany and ultimate parent of the respective Group is OM Group, Inc. (“OM Group”), a company organised under the laws of Delaware and having its business address at 127 Public Square, 1500 Key Tower, Cleveland, Ohio, USA. The OM Group is listed at the New York Stock Exchange and VAC Holding Group will be included in the consolidated financial statements of OM Group from 2 August 2011 onwards.
The change in ownership was based on a Sale and Purchase Agreement which was signed on 3 July 2011 and executed on the Closing Date 2 August 2011. Through this transaction the Purchaser OMG Germany acquired 100% of the shares in VAC Holding from the Seller, the former sole shareholder VAC Luxembourg S.à r.l.
Up to the Closing Date the sole shareholder of VAC Holding was VAC Luxembourg S.à r.l. (“VAC LuxCo” or “Shareholder”), which has registered offices in Luxembourg. The ultimate parent of VAC LuxCo was JPMorgan Chase, New York, USA. The consolidated financial statements of VAC Holding Group for the year 2010 were not part of the consolidated financial statements of JPMorgan Chase for the year 2010.
These consolidated financial statements are prepared by the Company for the special purpose of being issued in connection with the reporting requirements of the new shareholding Group under the rules and regulations of the US Securities and Exchange Commission (“SEC”). These consolidated financial statements were authorised for issue by the management of VAC Holding Group on 12 October 2011. Subsequent to 31 December 2010 there were no events that would have had material influence on the Group’s consolidated financial statements as of the reporting date.
(B) | Basis of preparation |
(a) | Statement of compliance |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB and the related interpretations.
(b) | Going concern |
These consolidated financial statements are prepared on a going concern basis, based on a business plan for the years up to and including 2015 and the amended financing contracts as described below.
In the notes to previous year’s consolidated financial statements the Group had to report the fact that the going concern was at risk. Owing to the impacts of the macroeconomic crisis in the course of the global economic meltdown on the Group’s business performance in FY 2009 the Group was not able to comply with the financial key figures (“covenants”) set for FY 2009 by the existing loan agreements. Thus the Group and the syndicate of lenders still negotiated amendments to the Senior Facilities Agreement (“SFA”) at the balance sheet date 2009 based on a significantly lowered business plan for the year 2010 and onwards.
2
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
According to the provisions of IAS 1 the senior bank loans and the senior secured notes (as further described in note 19 to these consolidated financial statements) had therefore to be reclassified from long-term to short-term liabilities in the amount of EUR 234,140 thousand as of 31 December 2009.
Finally on 6 May 2010 the consortium of lenders and the Group signed the Seventh Amendment to the SFA setting revised financing conditions for financial year 2010 and onwards and waiving all listed defaults which occurred so far. The amended financing contracts include a set of revised/new covenants as well as higher margins, additional fees and other commitments to be borne by the borrowers. The Seventh Amendment to the SFA became effective on 21 May 2010 when the agent of the bank syndicate notified VAC and the lenders that all conditions precedent documents were received satisfactory in form and substance.
Upon the effectiveness of the Seventh Amendment to the Senior Facilities Agreement the loans were reclassified from short-term to long-term liabilities in the amount of EUR 234,140 thousand. For further details regarding the bank loans please refer to the notes 19 and 24 of these consolidated financial statements.
In FY 2010 the Group’s recovery in the course of the global economic upturn was much better than forecasted. At financial year end VAC could even exceed the total sales figure of FY 2007 (EUR 341.9 million), the year before the financial and macroeconomic crisis started. As a consequence the business plan was revised again now showing substantially better figures for the year 2011 and onwards up to and including 2015.
(c) | Presentation currency |
The consolidated financial statements are presented in Euros, rounded to the nearest thousand. Certain numerical figures included in this report have been subject to rounding adjustments; accordingly, numerical figures shown as totals in tables may not be an exact aggregation of the figures that precede them.
(d) | Basis of measurement |
The figures in the consolidated financial statements are prepared on the historical cost basis except for derivative financial instruments, receivables and other non-current assets, cash and cash equivalents, specific payables and other current liabilities which are stated at fair value.
(e) | Use of estimate and judgements |
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of valuation principles and accounting policies, thus influencing the results of operations, financial position and net assets of the Group. Primarily the following balance sheet items may be subject to estimates and assumptions: inventory value adjustments, provisions, goodwill, valuation allowances on receivables and current and deferred taxes. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Further information about the balance sheet positions listed above to be affected by judgements, estimates and assumptions are included in the following notes to these consolidated financial statements:
• | Note 8, note 9 and note 14 – Taxes |
• | Note 12 – Goodwill |
• | Note 15 – Inventories |
• | Note 16 – Receivables |
• | Note 21 – Provisions |
3
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the financial year ended 31 December 2010
Notes to the Consolidated Financial Statements
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
(f) | Application of changes to IFRSs |
The Group thoroughly examines all amendments to the existing IFRSs and interpretations as well as every new IFRS standard issued by the IASB or newly issued interpretation to determine whether or not these are relevant for the consolidated financial statements of VAC Holding Group.
The new standards and amendments to existing standards and its interpretations which have to be applied for the financial year ending December 31, 2010 have been reviewed as follows:
• | Revised IFRS 3 Business Combinations (effective for financial year beginning on or after 1 July 2009) |
• | Amended IAS 27 Consolidated and Separate Financial Statements (effective for financial year beginning on or after 1 July 2009) |
• | Amendment to IAS 39 Financial instruments: Recognition and measurement – Designation of items as hedged items (effective for financial year beginning on or after 1 July 2009) |
• | IFRIC 17 Distributions of Non-cash Assets to Owners (effective for financial year beginning on or after 1 November 2009) |
• | IFRIC 18 Transfers of assets from customers (effective for financial year beginning on or after 1 November 2009) |
• | Amendment to IFRS 2 Share-based Payment – Intra-group cash-settled share-based payment transaction (effective for financial year beginning on or after 1 January 2010) |
• | Amendment to IAS 32 Financial Instruments: Presentation – Classification of rights issues (effective for financial year beginning on or after 1 February 2010) |
• | IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for financial year beginning on or after 1 July 2010) |
The foregoing had no effect on the Group’s consolidated financial statements.
The IASB and the IFRIC, respectively, published the following new or revised standards and interpretations which the Group has not yet finally examined whether or not these are relevant for the consolidated financial statements of VAC Holding Group.
• | Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement (effective for financial year beginning on or after 1 January 2011) |
• | Revised IAS 24 Related Party Disclosures (effective for financial year beginning on or after 1 January 2011) |
• | IFRS 9 Financial Instruments (effective for financial year beginning on or after 1 January 2015) |
• | Amendments to IFRS 7 Financial Instruments: Disclosures (effective for financial year beginning on or after 1 July 2011) |
• | Amendments to IAS 12 - Deferred Tax: Recovery of Underlying Asset (effective for financial year beginning on or after 1 January 2012) |
(C) | Significant accounting policies |
The accounting policies are the specific principles, bases, conventions, rules and practices that the Group applies in preparing and presenting its consolidated financial statements. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated, and have been applied consistently by all Group companies.
4
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
(a) | Basis of consolidation |
(i) | Subsidiaries |
Subsidiaries are entities controlled by VAC Holding. Control exists when VAC Holding has the power, directly or indirectly, to govern the financial and operating policies of an entity in order to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Details regarding significant subsidiaries included in these consolidated financial statements are listed in section 28 of these notes. All subsidiaries have a financial year ending on 31 December.
(ii) | Transactions eliminated on consolidation |
Intra-group balances and any unrealised gains and losses or income and expenses arising from intercompany transactions are eliminated when preparing the consolidated financial statements.
(b) | Foreign currency transactions |
Transactions in foreign currencies are translated at the foreign exchange rate in effect at the date of the transaction. Income and expenses are translated by using an average exchange rate. Differences from the conversion of foreign currencies on assets, liabilities and equity of subsidiaries whose functional currency is not Euro are recognised in the income statement due to the structure of VAC Holding Group.
The currency translation is performed as follows: Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Euros at the foreign exchange rate in effect at that date. Non-monetary assets and liabilities denominated in foreign currencies that are recognised at historical cost are converted using the historical exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Euros at foreign exchange rates in effect at the dates the fair values were determined.
(c) | Financial instruments |
(i) | Non-derivative financial assets and liabilities |
Financial assets and liabilities are presented applying IAS 39 “Financial Instruments: Recognition and Measurement”. The Group initially recognises loans, receivables and deposits on the day that they are originated. All other regular way contracts are recognised using trade day accounting irrespective of the category to which the transaction belongs. Financial assets and liabilities are reported at their respective gross amounts. Only when the Group has the legal right to offset the amounts, financial assets and liabilities are offset and presented at the net amounts.
Financial assets are recognised initially at fair value. Regularly the fair values presented in the consolidated financial statements will correspond to the market values of the financial assets. If a quoted price on an active market is not available for a financial asset, the Group uses standard valuation techniques based on instrument-specific market parameters.
Financial liabilities are recognised initially at fair value. Transaction costs which are directly attributable to the acquisition of a financial liability are also recognised and are amortised over the maturity of the liability using the effective interest rate method. According to IAS 39 the Group’s financial instruments are recognised in categories as follows:
• | Loans and receivables (“LaR”) and financial liabilities measured at amortised cost (“Flac”). |
Financial liabilities are as an exception classified as equity instruments (hybrid capital) if the following features are noticed according to the provisions in the standard IAS 32: the instrument has no fixed maturity date, the holder of the instrument has no right to withdraw the funds, the instrument is subordinate to all other classes of instruments and the issuer has the sole right to redeem the instrument for cash at his own discretion.
5
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the financial year ended 31 December 2010
Notes to the Consolidated Financial Statements
For more information related to financial instruments please refer to note 23 of these consolidated financial statements.
(ii) | Derivative financial instruments |
The Group holds only derivative financial instruments to hedge its foreign currency and interest rate risk exposures which are designated in a hedge relationship that qualifies for hedge accounting. On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship between the hedging instrument and the hedged item. The Group makes assessments at the inception of the hedge relationship as well as on an ongoing basis of whether the hedging instrument is expected to be highly effective in offsetting the changes in the fair value of cash flows of the respective hedged item attributable to the hedged risk. A hedging transaction is regarded to be highly effective if the actual results of the hedge are proved to be within a range of 80% to 125%. For a cash flow hedge of a forecast transaction this transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit and loss.
Derivative financial instruments are recognised initially at fair value and are subsequently measured at fair value. If a quoted price on an active market is not available for a financial instrument the Group uses a discounted cash flow analysis or an option pricing model. Basic parameters for these valuation models are relevant comparable prices from any observable market transactions or feasible risk-return factors available from a reliable source.
At the date of the closing of a hedging contract VAC Holding Group classifies such a transaction either as a cash flow hedge instrument (if it hedges a highly probable forecast transaction) or as a fair value hedge instrument (if it hedges the fair value of a recognised asset or liability).
Gains and losses from the change in the fair value of a derivative hedging instrument classified as an effective cash flow hedge instrument are recognised directly in other comprehensive income and presented in “Other equity components”. Such cumulated gains and losses recognised in other comprehensive income will be released to the consolidated income statement at the same date as the hedged forecast transaction is realised and its effects are recognised in the consolidated income statement.
Gains and losses from the change in the fair value of a derivative hedging instrument classified as an effective fair value hedge instrument are recorded in the income statement together with the changes in the fair value of the hedged asset or liability.
(d) | Plant, equipment, land and buildings |
(i) | Purchased and self-constructed assets |
Items of purchased plant, equipment, land and buildings are stated at initial plus subsequent cost less accumulated depreciation and impairment losses plus reversals of impairment losses. The costs of self-constructed assets include the cost of materials, direct labour and an appropriate portion of production overheads. Purchased software that is integral to the functionality of the related item of plant and equipment is capitalised as part of that item.
Borrowing costs are not capitalised due to the extensive debt financing of the Group related to its foundation. As a result, borrowing costs are not directly attributable to the acquisition or construction of qualifying assets. Another reason for not capitalising borrowing interest is the specification in the financing contracts to the effect that VAC must generate the funds for investing activities from the cash flow of the financial year.
As far as significant parts of an item of plant, equipment, land and buildings have different useful lives, they are accounted for as separate items of plant, equipment, land and buildings.
The gain or loss on disposal of an item of plant, equipment, land and buildings is determined by comparing the proceeds from disposal with the carrying amount of the respective item of plant, equipment, land and buildings and is recognised net within other income or other expenses in the consolidated income statement.
6
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
(ii) | Leased assets |
Leasing contracts where VAC Holding Group assumes substantially all the risks and rewards of ownership are classified as finance leases. The asset acquired by way of finance lease is recognised at an amount equal to the lower of its fair value and the present value of the minimum lease payments at the inception date of the leasing contract less accumulated depreciation and impairment losses.
(iii) | Subsequent costs |
VAC Holding Group recognises in the carrying amount of an item of plant, equipment, land and buildings the cost of replacing parts of such an item when that cost is incurred only if it is probable that the future economic benefits embodied with the item will accrue to VAC Holding Group and that the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense.
(iv) | Depreciation |
Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of each part of an item of plant, equipment and buildings. Land is not depreciated. The estimated useful lives are as follows:
• Buildings | 5 - 50 years | |
• Plant and equipment | 5 - 20 years | |
• Fixtures and fittings | 5 - 10 years |
Depreciation methods, useful lives and residual values are reviewed annually and adjusted if appropriate.
(e) | Intangible assets |
(i) | Goodwill |
All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the purchase of shares in subsidiaries and the fair value of the identifiable net assets acquired.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised regularly but is tested annually for impairment.
(ii) | Research and development |
As VAC Holding Group is a technology leader in its main markets it invests significant resources into the research and development of new and innovative alloy systems, technologies and products. These activities are considered to be predominantly pure research activities. Further activities relate either to development or to improvements of products based on specific needs or requirements of customers.
VAC Holding Group identified some presumably long-term development projects and has established procedures to reliably capture and analyse project related cost within the total expenses of the research and development departments of the segments.
The segment-related research and development committees of VAC Holding Group constantly analyse new projects to determine if these qualify as development projects. They also continuously examine the identified development projects to determine their progress and the likelihood that the individual project will be completed and that the finalised project will generate future economic benefits.
For financial year 2010, the total expenses incurred for research and development prior to capitalisation were EUR 14.4 million (previous year: EUR 10.9 million). Lower cost in previous year were due to reduced external cost from phasing out contracts and less headcount aligned to the decline in sales.
7
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the financial year ended 31 December 2010
Notes to the Consolidated Financial Statements
(iii) | Other intangible assets |
Other intangible assets consisting of “Software and other licenses” are acquired by VAC Holding Group and are stated at cost less accumulated amortisation (see below) and impairment losses. VAC Holding Group has intangible assets with finite useful lives only.
(iv) | Subsequent expenditure |
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred.
(v) | Amortisation |
Amortisation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of intangible assets. Goodwill is not depreciated but rather tested systematically for impairment on an annual basis. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
• Patents and licences | 4 – 20 years | |
• Software and other licences | 3 – 10 years | |
• Development costs | 5 years | |
• Customer base | 10 years |
Amortisation methods, useful lives and residual values are reviewed annually and adjusted if appropriate.
(f) | Interests in joint ventures |
Accounting for and reporting of interests in joint ventures is generally done applying IAS 31.30 (proportionate consolidation) or IAS 31.38 (equity method), unless the the terms and conditions of the investment, although contractually named joint venture, does not meet all of the definitions as determined in IAS 31.3., e.g. the definition of joint control. Such investments are then regarded as investments in associates and are accounted for in accordance with IAS 28.
(g) | Trade receivables and other receivables |
Receivables are initially recognised at fair value. Subsequently receivables are measured at amortised cost using the effective interest method. If necessary, respective allowances are determined on the basis of individual risk assessment and past experience of losses and are recognised to a separate allowances account then deducted from (gross) receivables.
(h) | Inventories |
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The cost of raw material, supplies and metals are assigned by using the weighted average cost formula and include all expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of work in progress and finished goods cost also include, in addition to the directly attributable unit costs, an appropriate share of overheads based on normal operating capacity. Borrowing costs are not capitalised.
Allowances on inventory items are generally realised in case quantities at hand exceed usage calculated for the next 12 months based on average usage of the last twelve months. However, the following exceptions are made:
• | for products at the start of their life cycle and for inventory items as far as existing orders exceed the calculative surplus. In such case the calculated allowance amount is reduced respectively. |
• | for finished goods at the end of their life cycle. In such case the regularly calculated allowance amount is increased accordingly. |
8
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
(i) | Cash and cash equivalents |
This item comprises cash on hand, bank deposits and cash at banks.
(j) | Impairment |
The carrying amounts of VAC Holding Group’s non-current and current assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
Specific criteria are used to verify the indication of impairment. For example, if the fair value of an asset has permanently declined below its amortised cost or that an active market for a financial asset has ceased to exist, if the debtor of a financial asset discloses severe financial problems, if concessions are made towards a borrower in the light of financial problems, or if a debtor is likely to become insolvent.
An impairment loss is recognised whenever the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. Impairment losses concerning tangible or intangible assets are recognised in the consolidated income statement in the line “Depreciation and amortisation of intangible assets, plant, equipment and buildings”. Impairment losses related to goodwill are recognised in the consolidated income statement in the line “Impairment on goodwill”.
Impairment losses on receivables regarding credit risks are recognised mainly through separate allowances for domestic and foreign customers that are deducted from the gross value of the receivables. The movement of such allowances is included in the consolidated income statement in the line “Other operating expenses”, therein “Individual debtor allowances”. Impairment losses on receivables regarding accrued contractual bonus reimbursements to customers are recognised on the balance sheet as described before and in the consolidated income statement in the line “Sales” as reduction of revenues.
Impairment losses recognised in respect of a cash-generating unit are allocated first to reduce the amount of goodwill allocated to this unit and subsequently to the remaining assets of the cash-generating unit proportionally to their carrying amounts.
(i) | Calculation of recoverable amount |
VAC Holding Group calculates the recoverable amount of one of its receivables carried at amortised cost as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of those financial assets or the interest rate at the date of acquisition).
Current receivables with maturities of less than one year are not discounted.
The recoverable amount of other assets is the greater of their net selling price and their value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that generates largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
(ii) | Reversals of impairment |
An impairment loss in respect of goodwill is not reversed.
An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
9
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the financial year ended 31 December 2010
Notes to the Consolidated Financial Statements
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(k) | Interest-bearing loans |
Interest-bearing loans are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated income statement over the maturity of the loans on an effective interest rate basis.
(l) | Employee benefits |
(i) | Defined benefit plans |
VAC Holding Group’s net obligations in respect of a defined benefit plan are calculated by estimating the amounts of future benefits that employees have earned in return for their service rendered in the current and prior periods; each benefit is individually discounted to determine its present value. The discount rate is the yield at the balance sheet date on first class corporate bonds that have maturity dates approximating the terms of the Group’s pension obligations. The calculation is performed by a qualified actuary using the projected unit credit method.
When the benefits of a plan are improved, the portion of the increased benefits relating to past services of the employees is recognised as an expense in the consolidated income statement on a straight-line basis over the average period until the benefits become non-lapsable. To the extent that the benefits are immediately non-lapsable, the related past service cost is directly recognised in the consolidated income statement.
When the benefits of a plan are downgraded, the differences between the previous and the actual estimated benefits are recognised as a negative expense in the consolidated income statement for those periods for which the employees are not yet entitled for pension benefits.
The Group recognises all actuarial gains and losses arising from the defined benefit pension plans as a result of changes in actuarial assumptions for the valuation of pension scheme obligations directly in other comprehensive income, net of deferred taxes. The cumulative amount of these actuarial gains and losses is presented in equity as part of “Other equity components”.
(ii) | Other long-term service benefits |
VAC Holding Group’s net obligations in respect of long-term service benefits other than pension plans are calculated by estimating the amounts of future benefits that employees have earned in return for their service in the current and prior periods.
These obligations consist of the anniversary payments provision and the provision for old-age part time. The provisions are calculated using the projected unit credit method. The discount rate is the yield at the balance sheet date on first class corporate bonds that have maturity dates approximating the terms of the Group’s obligations. The effects due to changes in actuarial assumptions for the valuation of anniversary benefits and old-age part time provisions are recognised directly in the consolidated income statement. The fair value of any related financial asset is deducted. For further details please refer to note 20 of these consolidated financial statements.
(m) | Provisions |
A provision is recognised in the balance sheet when VAC Holding Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects market assessments of the time value of money and, where appropriate, the risks specific to the liability.
10
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Warranty provisions recognised in the balance sheet are determined on an individual basis.
(n) | Trade payables and other liabilities |
Trade payables and other liabilities are initially recognised at fair value or at estimated redemption amounts. Subsequently trade payables and other liabilities are measured at amortised cost using the effective interest rate method. Non-current liabilities are disclosed at discounted present value.
(o) | Sales to third parties |
Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer and when it is probable that the economic benefits associated with the transaction will accrue to VAC Holding Group.
(p) | Expenses |
(i) | Operating lease payments |
Payments made under operating lease agreements are recognised in the consolidated income statement on a straight-line basis over the terms of the lease agreements. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.
(ii) | Finance lease payments |
Minimum lease payments are split into finance charges and the amounts for reduction of the outstanding liability. The finance charges are allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(iii) | Net financing costs |
Interest income is recognised in the consolidated income statement as it accrues. Interest income includes interest on bank balances, on interest hedging transactions and on taxes.
Interest expenses contain interest payable on temporary bank overdrafts during the year, interest on loans and on finance leases, interest on the obligations according to IAS 19 and interest on taxes. Capitalised deferred financing costs are recognised in the consolidated income statement using the effective interest method.
Interest income and expenses derived from effective interest hedging transactions are recognised together with the interest expenses resulting from the secured loan agreements.
(q) | Income taxes |
Income taxes include current and deferred taxes. Income taxes are recognised in the consolidated income statement, except to the extent that they relate to events recognised directly in other comprehensive income, in which case they are also recognised there by being offset directly to the respective item. The amount net of tax is then presented in “Other equity components”.
Current taxes are the expected income taxes payable on the taxable income for the year, calculated using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to taxes paid or payable in respect of previous years.
Deferred taxes are provided for temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the respective amounts used for taxation purposes and are also calculated on tax losses carried forward, using tax rates that are valid for future periods. VAC Holding Group does not recognise deferred tax liabilities on goodwill. The amount of deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted for the Group at the balance sheet date and valid for future periods.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred taxes are only offset within the individual Group companies insofar as it can be assumed that future tax refund entitlements can be eliminated against
11
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the financial year ended 31 December 2010
Notes to the Consolidated Financial Statements
existing tax liabilities with respect to the same tax authorities.
(r) | Segment reporting |
A segment is a distinguishable component of VAC Holding Group, the operating results of which are examined regularly by the management of VAC Holding GmbH with regard to decisions on the allocation of resources to this segment and the evaluation of its earnings power, and for which appropriate financial information is available.
2. | Segment reporting |
Segment information is presented based on VAC Holding Group’s internal reporting structure to the upper and extended management.
Inter-segment pricing is determined on an arm’s length basis.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise tax income and tax expenses, interest-bearing loans and notes, financial result, long-term employee benefit provision according to IAS 19, tax assets, tax liabilities, cash and cash equivalents and equity.
Segment capital expenditure is the total cost incurred during the period to acquire and construct assets of plant, equipment, land and buildings as well as intangible assets and development costs that are expected to be used for more than one period.
Business segments
The internal structure of VAC Holding Group comprises three divisions (business segments), each of them with its own management. The heads of division management report to the management of VAC Holding Group. Each segment contributes more than 10% to the consolidated external sales, consolidated earnings and consolidated assets. The total of segment sales to third parties is equal to total Group sales. There are no further segments identifiable within VAC Holding Group. Consequently no segments are aggregated to any one reporting segment.
VAC Holding Group has the following business segments:
• | Material & Parts: Research, development, production and delivery of different customised materials and parts. Some of these materials are further incorporated into products of the Cores and Components and Permanent Magnets segments. |
• | Cores & Components: This segment principally produces cores, which are round metallic items exhibiting certain magnetic properties, and components, which are combined with purchased parts to form complete subassemblies. |
• | Permanent Magnets: Development and production of permanent magnets and magnet systems used in different end markets. |
Geographical areas
The segments are managed on a worldwide basis, but operate in different geographical areas. In presenting information on the basis of geographical areas, segment sales are based on the geographical location of its customers. Segment assets are based on the geographical location of assets.
12
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
2. | Segment reporting (continued) |
Business segments
Material & Parts | Cores & Components | Permanent Magnets | Other unallocated amounts | Consolidated | ||||||||||||||||||||||||||||||||||||
(MP) | (CC) | (PM) | ||||||||||||||||||||||||||||||||||||||
In EUR thousands | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||||||||||
Sales to third parties | 116,821 | 81,980 | 138,452 | 86,656 | 91,081 | 66,185 | 0 | 0 | 346,354 | 234,821 | ||||||||||||||||||||||||||||||
Inter-segment sales | 23,446 | 14,534 | 0 | 0 | 0 | 0 | 0 | 0 | 23,446 | 14,534 | ||||||||||||||||||||||||||||||
Inter-segment purchases | 0 | 0 | -23,361 | -14,303 | -85 | -231 | 0 | 0 | -23,446 | -14,534 | ||||||||||||||||||||||||||||||
Depreciation and amortisation | -8,265 | -8,322 | -6,590 | -6,889 | -9,243 | -9,231 | 0 | 0 | -24,098 | -24,442 | ||||||||||||||||||||||||||||||
Impairment on goodwill | 0 | -20,127 | 0 | -18,409 | 0 | -28,322 | 0 | 0 | 0 | -66,858 | ||||||||||||||||||||||||||||||
Earnings before interest and taxes (EBIT) | 20,636 | -20,365 | 16,515 | -19,463 | 3,271 | -34,675 | 0 | 0 | 40,422 | -74,503 | ||||||||||||||||||||||||||||||
Financial result | 0 | 0 | 0 | 0 | -1,788 | -1,305 | -21,363 | -26,884 | -23,151 | -28,189 | ||||||||||||||||||||||||||||||
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Earnings before tax | 17,271 | -102,692 | ||||||||||||||||||||||||||||||||||||||
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Taxes | -2,658 | 7,369 | ||||||||||||||||||||||||||||||||||||||
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Consolidated profit / loss for the period | 14,613 | -95,323 | ||||||||||||||||||||||||||||||||||||||
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2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||
Segment assets excluding shares in joint ventures | 176,261 | 164,970 | 148,481 | 134,782 | 110,855 | 105,395 | 21,762 | 22,435 | 457,359 | 427,582 | ||||||||||||||||||||||||||||||
Shares in joint ventures | 0 | 0 | 0 | 0 | 4,604 | 4,604 | 0 | 0 | 4,604 | 4,604 | ||||||||||||||||||||||||||||||
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Segment assets | 176,261 | 164,970 | 148,481 | 134,782 | 115,459 | 109,999 | 21,762 | 22,435 | 461,963 | 432,186 | ||||||||||||||||||||||||||||||
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Segment liabilities | 11,781 | 7,871 | 18,934 | 12,364 | 11,344 | 8,789 | 327,104 | 407,135 | 369,163 | 436,159 | ||||||||||||||||||||||||||||||
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Capital expenditure | 3,844 | 2,587 | 5,642 | 2,222 | 3,954 | 4,871 | 0 | 0 | 13,440 | 9,680 |
As of year ending 31 December 2010, 83.68 % (previous year: 85.75 %) of the assets of VAC Holding Group were allocated to VACUUMSCHMELZE GmbH & Co. KG in Hanau, Germany.
13
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
The financial result allocated to Permanent Magnets refers to the interest on those bank loans that exclusively relate to the acquisition of the subsidiaries in Finland in 2007. All other items of financial income and expenses as disclosed in note 7 are incurred by the entire Group and cannot be allocated to the business units.
The other unallocated amounts of assets comprise the interest bearing loans from related parties, the deferred tax assets, the current tax receivables and those amounts of cash which cannot be allocated to the segments reasonably. The allocated amounts of segment assets are identified by their related cost centres or profit centres as well as the countries in which these assets are used, e.g. all assets located in Malaysia are allocated to the segment Cores & Components.
The allocated segment liabilities only comprise those trade payables that may be identified as segment liabilities through the purchased goods or the names of the respective suppliers. The main portion of liabilities are incurred by the entire Group and cannot be allocated to the business units, mainly comprising the interest-bearing loans and notes, the deferred tax liabilities, the long-term employee benefit provisions, the remainder of trade payables, the other liabilities and the current tax provisions.
Sales by geographical areas
In EUR thousands | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09- 31 Dec. 09 | ||||||
Germany | 116,270 | 70,174 | ||||||
Europe, without Germany | 119,102 | 86,576 | ||||||
America | 45,699 | 33,034 | ||||||
Asia | 64,696 | 44,538 | ||||||
Other regions | 587 | 499 | ||||||
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Total sales | 346,354 | 234,821 | ||||||
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VAC Holding Group recognised sales to one customer group in financial year 2010 in the amount of EUR 34.4 million (previous year: EUR 26.4 million). These are 9.9% (previous year: 11.2%) of total sales. All business segments sold products to this customer group.
Non-current assets by geographical areas
Non-current assets other than investments in shares, deferred tax assets and goodwill are described as follows:
Land and buildings, plant and equipment | Intangible assets | |||||||||||||||
In EUR thousands | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Europe | 170,970 | 176,523 | 36,010 | 40,663 | ||||||||||||
Asia/America | 6,452 | 6,620 | 1,666 | 2,005 | ||||||||||||
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Total non-current assets | 177,422 | 183,143 | 37,676 | 42,668 | ||||||||||||
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Capital expenditure by geographical areas
In EUR thousands | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09- 31 Dec. 09 | ||||||
Europe | 12,501 | 9,508 | ||||||
Asia/America | 939 | 172 | ||||||
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Total capital expenditure | 13,440 | 9,680 | ||||||
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14
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
3. | Acquisition of subsidiaries |
Follow-up from the sale and purchase agreement for the acquisition of VAC Magnetics Group
When acquiring the companies of VAC Magnetics Group on 8 December 2005, it was contractually agreed with the seller – the Morgan Crucible Group, Windsor, UK (hereinafter “Morgan Crucible”) – that the former owner would be obliged to indemnify the purchaser for all tax payments relating to the time before the acquisition (FY 2001 up to and including FY2005) and made by the former Morgan Crucible companies now belonging to VAC Holding Group. Based on this agreement Morgan Crucible indemnified the Group in the year 2010 for tax payments made regarding tax assessments for the years 2001 up to 2005. This indemnity in the amount of EUR 3,393 thousand was recognised as other income in the consolidated income statement as a one time item.
There are some tax cases and some tax audits still pending regarding the tax periods 2001 up to 2005 and those companies for which Morgan Crucible will still be obliged to compensate for all related tax payments eventually to be made in future periods. The Group assumes that nearly all of these potential claims are to be reimbursed by Morgan Crucible. However, currently there are no further liabilities and no related claims to be recognised in the consolidated financial statements.
Further acquisition of shares in Neorem Magnets Ningbo Co. Ltd.
Effective 2 October 2007, VAC Holding Group acquired Neorem Magnets Oy in Ulvila, Finland. The acquired entity holds 58.9% of the shares of Neorem Magnets Ningbo Co. Ltd. in Ningbo, China (together “Neorem Group”).
41.1% of the shares in Neorem Magnets Ningbo Co. Ltd. are held by the Finnish Fund for Industrial Corporation (hereinafter “Finnfund”), which is not part of VAC Holding Group. Based on the contractual agreement, Neorem Magnets Oy has the obligation and/or right to acquire these shares from Finnfund (put/call option). Accordingly, the future acquisition of the minority interests was presumed to be completed at the date of the acquisition of the Neorem Group and a liability due to Finnfund was recognised in the amount of the probable total future purchase price. Accordingly VAC Holding does not report the shares held by Finnfund as minority interest.
In accordance with the terms of the agreement, Neorem Magnets Oy paid the fourth and the fifth instalment of total EUR 187 thousand to Finnfund in January and July 2010; in return, the contractual partner released the corresponding amount of shares (8.218%). In total 20.55 % of the shares are purchased. This transaction has not yet been registered in China due to extensive documentation required and lengthy procedures including governmental approvals and official registries. The Group plans to start these proceedings in spring 2013 after the tenth instalment has been paid. Due to the outstanding formal registration the number of shares in Neorem Magnets Ningbo Co. Ltd. indicated in note 28 still remains at the previous year’s level.
Sale of shares in Neorem Magnets Oy
As part of the efforts to forge closer bonds with the management team of Neorem Magnets Oy, VAC Magnetic Finland Oy in 2008 sold approx. 3.34% of shares in Neorem Magnets Oy to ten members of the subsidiary’s management team (management shareholders). The shares of the Neorem management team have also been pledged as collateral for the banking consortium.
The shareholder agreement concluded as the basis for the investment states that, if specific targets regarding EBITDA and cash flow are adhered to between 2008 and 2011, the members of the management team will be entitled to acquire a limited number of share options in Neorem Magnets Oy at a specified preferential price. No share options will be issued for fiscal years 2008, 2009 and 2010.
15
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
The shares can only be sold by the management shareholders with the approval of the majority shareholder VAC Magnetic Finland Oy after a specified period of time and under certain conditions. However, under specified conditions the management shareholders will have the right to sell their shares to VAC Magnetic Finland Oy (put option). If these shares are repurchased by the majority shareholder a defined purchase price will apply, which has to be determined based on specific criteria.
Based on the agreements outlined above, VAC Holding Group does not report the shares held by the management team as minority interest but rather assumes that the future acquisition of the minority interest is inevitable and has already been completed. Accordingly, in 2009 two management team members left the company for retirement and VAC Magnetic Finland Oy purchased their shares of around 1.35% according to the agreement for the amount of EUR 331 thousand. No management team members left Neorem Magnets OY in FY 2010. The anticipated purchase price for the 1.99% shares of Neorem Magnets Oy still remaining with the management team is recognised in the amount of EUR 426 thousand as a liability on the balance sheet at year end 2010 (previous year: EUR 382 thousand). The difference of EUR 44 thousand was recognised in the income statement in the line “Personnel expenses”.
4. | Other operating income |
In EUR thousands | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09- 31 Dec. 09 | ||||||
Capitalised internal cost for self-constructed assets | 1,962 | 1,423 | ||||||
Income from recharge of expenses | 1,743 | 1,156 | ||||||
Realised discounts and supplier rebates | 836 | 417 | ||||||
Reversal of provisions | 804 | 0 | ||||||
Income from canteen | 622 | 525 | ||||||
Derecognition of liabilities | 1,986 | 4,879 | ||||||
Rental income | 439 | 439 | ||||||
Licenses | 10 | 50 | ||||||
Reversal of debtor allowances | 116 | 396 | ||||||
Foreign exchange gains | 10,518 | 4,734 | ||||||
Tax indemnity payment from Morgan Crucible for prior years | 3,393 | 0 | ||||||
Income from refunds received for old age part time cost | 607 | 481 | ||||||
Sundry | 1,427 | 953 | ||||||
|
|
|
| |||||
Total | 24,463 | 15,453 | ||||||
|
|
|
|
The capitalised internal cost for self-constructed assets in the amount of EUR 1,962 thousand (previous year: EUR 1,423 thousand) include the capitalisation of development cost in the amount of EUR 1,685 thousand (previous year: EUR 1,214 thousand).
The item derecognition of liabilities for 2010 mainly contains the reversal of accrued liabilities in the amount of EUR 1.9 million for customer complaints, for employers mutual insurance association and for other personnel liabilities. The item derecognition of liabilities for 2009 mainly contained the reversal of an accrued liability for personnel expenses (bonus payments) in the amount of EUR 3.6 million. According to the Group’s German bonus scheme the 2008 performance bonus was planned for payout to management and staff in April 2009. Instead Group management decided first to curtail and postpone the payments from April to July and in a second step to cancel the 2008 bonus payment in consideration of the difficult economic situation of the Group at that stage and in accordance with other efforts to compensate for the heavily decreasing sales figures by any possible cost savings.
Foreign exchange gains contain gains of EUR 2,158 thousand (previous year: EUR 586 thousand in foreign exchange losses) from the currency conversion of assets and liabilities at foreign subsidiaries.
16
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
5. | Other operating expenses |
In EUR thousands | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09- 31 Dec. 09 | ||||||
Indirect material cost | -10,212 | -6,629 | ||||||
Energy cost | -9,452 | -7,417 | ||||||
Maintenance expenses | -14,203 | -8,918 | ||||||
Freight cost | -10,781 | -6,872 | ||||||
Licence fees | -3,120 | -1,968 | ||||||
Data processing / telecommunication expenses | -4,438 | -4,489 | ||||||
Commissions | -1,466 | -1,108 | ||||||
Fees for purchased services | -6,697 | -6,412 | ||||||
External cost for research and development | -322 | -397 | ||||||
Travel and entertainment cost | -2,296 | -1,443 | ||||||
Expenses for advertising and fairs | -629 | -349 | ||||||
Cleaning and waste disposal cost | -1,177 | -996 | ||||||
Rework cost | -89 | -57 | ||||||
Individual debtor allowances | -88 | -92 | ||||||
Insurance fees | -1,258 | -1,360 | ||||||
Rental fees | -2,566 | -2,106 | ||||||
Protective clothing cost | -715 | -469 | ||||||
Loss on sale of plant and equipment | -46 | -66 | ||||||
Expenses for canteen | -575 | -461 | ||||||
Audit fees | -447 | -451 | ||||||
Bank charges | -121 | -94 | ||||||
Expenses for office supplies and newspapers | -590 | -487 | ||||||
Foreign exchange losses | -9,377 | -6,100 | ||||||
Expensed VAT | -258 | -1,497 | ||||||
Provisions recognised / used | -314 | -123 | ||||||
Sundry | -3,615 | -2,821 | ||||||
|
|
|
| |||||
Total | -84,852 | -63,182 | ||||||
|
|
|
|
The considerable increase in other operating expenses is mainly due to the huge increase in production and sales. All cost items which directly or indirectly relate to the manufacturing of goods, e.g. indirect (production) material, energy cost, maintenance expenses etc., as well as those cost items which relate to the delivery and sale of goods, e.g. freight cost, license fees etc., stepped up significantly in the year under review.
“Fees for purchased services” comprises all kinds of consulting and service cost, such as for commercial, legal and tax advisors.
17
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
6. | Personnel expenses |
In EUR thousands | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09- 31 Dec. 09 | ||||||
Remuneration | -105,123 | -76,821 | ||||||
Social security contributions | -19,848 | -15,280 | ||||||
Current service cost of employee benefit obligations | -476 | -1,552 | ||||||
|
|
|
| |||||
Total | -125,447 | -93,653 | ||||||
|
|
|
|
The significant increase in personnel expenses in the reporting year is due to the significant increase in sales and related step-up in production capacity utilisation in the Group’s workshops at all sites compared to previous year. In Germany some of the cost saving measures agreed upon in the collective wage bargaining agreement signed in November 2008 were cancelled in the course of 2010, e.g. the reduction of personnel working hours and the additional short-time work scheme. At the foreign sites the number of employees increased reflecting the increase of production according to the rapidly increasing customer demands.
7. | Financial result |
In EUR thousands | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09 - 31 Dec. 09 | ||||||
Interest and similar income from banks | 126 | 137 | ||||||
Interest on reimbursements from Morgan Crucible | 206 | 0 | ||||||
Interest on taxes | 137 | 0 | ||||||
Interest income from shareholder loans | 127 | 73 | ||||||
Dividends received from joint venture SANVAC | 0 | 459 | ||||||
|
|
|
| |||||
Financial income | 596 | 669 | ||||||
|
| �� |
|
| ||||
Interest for bank loans and bank guarantees | -12,492 | -18,114 | ||||||
Change in fair value of interest cash flow hedges transferred from equity | -1,420 | -829 | ||||||
Amendment fees and other financing expenses | -1,672 | -1,823 | ||||||
Expenses from amortised financing cost | -2,438 | -996 | ||||||
Interest and similar expenses | -94 | -253 | ||||||
Interest on finance lease liabilities | -64 | -69 | ||||||
Interest on taxes | -169 | -1,175 | ||||||
Interest on long-term employee benefit obligations | -5,398 | -5,599 | ||||||
|
|
|
| |||||
Financial expenses | -23,747 | -28,858 | ||||||
|
|
|
| |||||
Financial result | -23,151 | -28,189 | ||||||
|
|
|
|
For details regarding income and expenses from financial instruments according to IFRS 7 please refer to note 23 of these consolidated financial statements.
18
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
8. | Taxes |
In EUR thousands | 1 Jan. 10- 31 Dec. 10 | 1 Jan. 09 - 31 Dec. 09 | ||||||
Income tax expense (previous year: income) | -3,483 | 7,369 | ||||||
Other non-income related tax income | 825 | 0 | ||||||
|
|
|
| |||||
Total tax in income statement | -2,658 | 7,369 | ||||||
|
|
|
| |||||
Income tax | ||||||||
Tax expense for current year | -5,554 | -1,692 | ||||||
Tax adjustments for previous periods | 646 | 102 | ||||||
Deferred tax adjustments for previous periods | 104 | -358 | ||||||
Deferred tax income | 1,321 | 9,317 | ||||||
|
|
|
| |||||
Total income tax in income statement | -3,483 | 7,369 | ||||||
|
|
|
|
The increase in current tax expense in FY 2010 compared to FY 2009 corresponds to the increase in taxable income in 2010 especially for the operating sites in Germany and Slovakia.
The deferred tax income in 2010 is mainly due to the decrease of related IFRS values based on the respective amortisation of the assets capitalised in the course of the purchase price allocations regarding the acquisition of the VAC Magnetics Group in 2005 and the acquisition of the Neorem Group in 2007. For further information on the acquisition of Group companies please refer to note 3 of these consolidated financial statements.
Other non-income related tax income in 2010 is a late consequence of the acquisition of the VAC Magnetics Group in FY 2005. In the course of this deal real estate transfer tax in Germany became payable. As the respective tax returns were not ready to be filed at the end of 2005 the Group accrued for this future payable in the amount of EUR 1,250 thousand. The case was pending up to the end of FY 2010 when the Group was asked by the tax authorities to submit additional documents and files. In December 2010 the case was finally settled at an amount of EUR 425 thousand so that the remaining amount of EUR 825 thousand could be reversed.
Income tax recognised in other comprehensive income
2010 | 2009 | |||||||||||||||||||||||
In EUR thousands | Gross amount | Tax impact | Net of tax | Gross amount | Tax impact | Net of tax | ||||||||||||||||||
Defined benefit plan actuarial losses | -2,445 | 736 | -1,709 | -568 | 170 | -398 | ||||||||||||||||||
Results from changes in fair value of cash flow hedges | 606 | -181 | 425 | -1,159 | 348 | -811 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
-1,839 | 555 | -1,284 | -1,727 | 518 | -1,209 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
19
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Reconciliation of effective tax rate
In EUR thousands | 2010 | 2009 | ||||||||||||||
Profit / Loss before taxes | 17,271 | -102,692 | ||||||||||||||
Non-income related taxes | 825 | 0 | ||||||||||||||
|
|
|
| |||||||||||||
Profit / Loss before income tax | 18,096 | -102,692 | ||||||||||||||
|
|
|
| |||||||||||||
Expected income tax | -5,429 | 30,808 | ||||||||||||||
Effective income tax | -3,483 | 7,369 | ||||||||||||||
|
|
|
| |||||||||||||
Difference to be explained | 1,946 | -23,439 | ||||||||||||||
|
|
|
| |||||||||||||
Non-deductible expenses | -2,306 | -2,696 | ||||||||||||||
Impairment on goodwill | 0 | -20,057 | ||||||||||||||
Differences in tax rate at foreign plants | 421 | -391 | ||||||||||||||
Current tax adjustments for previous periods | 646 | 102 | ||||||||||||||
Deferred tax adjustments for previous periods | 104 | -358 | ||||||||||||||
Use of unused tax losses from previous years | 2,004 | 105 | ||||||||||||||
Losses not recognised as deferred tax assets | -31 | -47 | ||||||||||||||
Non deductible temporary differences | 1,008 | -32 | ||||||||||||||
Others | 100 | -65 | ||||||||||||||
|
|
|
| |||||||||||||
Difference explained | 1,946 | -23,439 | ||||||||||||||
|
|
|
|
The applicable tax rate of the Group is set to 30% as the total of the corporate tax rate applicable for Germany and the trade tax rate applicable for the City of Hanau. Compared to 2009 there was no reason to change this tax rate. The average effective tax rate for the Group in 2010 is at 19.25% (previous year: 7.18%). Main reasons for the significant change in the effective tax rate are (i) the higher taxable profits in 2010 compared to 2009 based on the recovery in business in combination with the effects of the German rules for the usage of tax losses carried forward and (ii) the huge impact in 2009 related to the non tax deductible goodwill impairment in the amount of EUR 66,858 thousand. Without this last mentioned item the effective tax rate in 2009 would have been at 20.56%. In 2010 the tax rate would have been higher at around 30% without the additional deduction of the interest expenses carried forward as described below.
The non-deductible expenses arise mainly from interest expenses, which are not tax-deductible in Germany on the level of the holding companies above the operating company VAC KG and which follow the “interest barrier” regulation introduced in Germany as of 2008. Based on the actual situation of the holding companies the Group does not expect that these interest expenses carried forward will be tax-deductible in future years. Therefore no deferred tax assets are recognised.
On the contrary VAC KG completely used those non-deductible interest expenses carried forward from FY 2008 and FY 2009 in the amount of EUR 6,656 thousand, based on the high taxable income earned in FY 2010. During the closing of 2009, based on the forecasts available at that stage, the Group did not expect that these interest expenses carried forward would be tax-deductible in future years. Therefore no deferred tax assets were recognised for carrying forward these amounts to 2010.
The non deductible temporary differences in FY 2010 relate mainly to the tax indemnity payments received from the former Group owner Morgan Crucible (please refer to note 3 “acquisition of subsidiaries”) which lead to different recognition for tax and IFRS purposes regarding the value of investments in subsidiaries.
9. | Current tax assets and liabilities |
The current tax receivables are originated by various companies in their countries and relate to income taxes of 2010 where the prepayments made exceed the tax expenses finally calculated for the period.
The current tax liabilities in the amount of EUR 5,329 thousand (previous year: EUR 4,576 thousand) represent the amount of tax payables that exceed payments.
20
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
10. | Plant, equipment, land and buildings |
In EUR thousands | Land and buildings | Plant and equipment | Total | |||||||||
Cost | ||||||||||||
Balance as of 1 January 2009 | 115,525 | 123,452 | 238,977 | |||||||||
Additions | 539 | 7,910 | 8,449 | |||||||||
Reclassification | 325 | -325 | 0 | |||||||||
Disposals | -7 | -513 | -520 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2009 | 116,382 | 130,524 | 246,906 | |||||||||
|
|
|
|
|
| |||||||
Balance as of 1 January 2010 | 116,382 | 130,524 | 246,906 | |||||||||
Additions | 308 | 11,346 | 11,654 | |||||||||
Reclassification | 1,176 | -1,176 | 0 | |||||||||
Disposals | -131 | -2,029 | -2,160 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2010 | 117,735 | 138,665 | 256,400 | |||||||||
|
|
|
|
|
| |||||||
Depreciation and impairment losses | ||||||||||||
Balance as of 1 January 2009 | 10,771 | 36,180 | 46,951 | |||||||||
Depreciation charge for the year | 3,726 | 13,521 | 17,247 | |||||||||
Disposals | 0 | -435 | -435 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2009 | 14,497 | 49,266 | 63,763 | |||||||||
|
|
|
|
|
| |||||||
Balance as of 1 January 2010 | 14,497 | 49,266 | 63,763 | |||||||||
Depreciation charge for the year | 3,692 | 13,669 | 17,361 | |||||||||
Reversal of Impairment | 0 | -41 | -41 | |||||||||
Disposals | -131 | -1,974 | -2,105 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2010 | 18,058 | 60,920 | 78,978 | |||||||||
|
|
|
|
|
| |||||||
Carrying amounts | ||||||||||||
As of 31 December 2009 | 101,885 | 81,258 | 183,143 | |||||||||
|
|
|
|
|
| |||||||
As of 31 December 2010 | 99,677 | 77,745 | 177,422 | |||||||||
|
|
|
|
|
|
Plant and equipment
Plant and equipment includes plant and machinery, other machines and equipment, tools, office equipment and assets under construction.
The depreciation charge for the year is recognised in the consolidated income statement in “Depreciation and amortisation of intangible assets, plant, equipment and buildings”. The balance of the carrying amounts of asset disposals versus the proceeds from the sale of fixed assets is in each case separately booked to the consolidated income statement either to “Other operating income” or to “Other operating expenses”.
Impairment losses and subsequent reversals
Plant, equipment, land and buildings are permanently evaluated. Impairment losses and reversals of losses are determined on an individual basis and recognised in the consolidated income statement as impairment losses in the category “Depreciation and amortisation of intangible assets, plant, equipment and buildings”. Impairment losses were not recognised, neither for 2010 nor for 2009. Each reversal of impairment losses is recognised in the category “Other operating income”. Such items when incurred are disclosed in the table above. One minor reversal was recognised in FY 2010 and no such item in the previous year.
21
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Leased plant, equipment, land and buildings
a) Leased land and buildings
The only leasing property is a building unit in Ulvila, Finland, with an area for the production of permanent magnets and an administration area. The carrying amount at the reporting date was EUR 1,014 thousand (previous year: EUR 1,077 thousand). The contract is scheduled to run until 31 January 2017. It is planned to take over the building at the contractually agreed residual value of EUR 144 thousand in February 2017.
b) Leased plant and equipment
At present VAC Holding Group is not leasing any technical equipment or machinery under finance lease agreements.
Security
On 31 December 2010, all plant, equipment, land and buildings and all future additions thereon are pledged as collateral for bank loans. However, VAC Holding Group has unlimited access to these assets as part of its regular operating activities.
11. | Intangible assets |
In EUR thousands | Customer base value | Internal Develop- ment costs | Patents and licences | Software and other licences | Total | |||||||||||||||
Cost | ||||||||||||||||||||
Balance as of 1 January 2009 | 8,733 | 2,519 | 48,127 | 9,028 | 68,407 | |||||||||||||||
Additions | 0 | 1,214 | 0 | 17 | 1,231 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at 31 December 2009 | 8,733 | 3,733 | 48,127 | 9,045 | 69,638 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as of 1 January 2010 | 8,733 | 3,733 | 48,127 | 9,045 | 69,638 | |||||||||||||||
Additions | 0 | 1,687 | 0 | 99 | 1,786 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at 31 December 2010 | 8,733 | 5,420 | 48,127 | 9,144 | 71,424 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Amortisation | ||||||||||||||||||||
Balance as of 1 January 2009 | 1,091 | 80 | 13,604 | 5,000 | 19,775 | |||||||||||||||
Additions | 873 | 285 | 4,402 | 1,635 | 7,195 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at 31 December 2009 | 1,964 | 365 | 18,006 | 6,635 | 26,970 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as of 1 January 2010 | 1,964 | 365 | 18,006 | 6,635 | 26,970 | |||||||||||||||
Additions | 873 | 258 | 4,278 | 1,369 | 6,778 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at 31 December 2010 | 2,837 | 623 | 22,284 | 8,004 | 33,748 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Carrying amounts | ||||||||||||||||||||
As of 31 December 2009 | 6,769 | 3,368 | 30,121 | 2,410 | 42,668 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As of 31 December 2010 | 5,896 | 4,797 | 25,843 | 1,140 | 37,676 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
As in the previous year, capitalised development costs are the key items in “additions”. The impact of this capitalisation on earnings is presented as “Capitalised internal costs for self-constructed assets” being part of “Other operating income” as explained in note 4 to the consolidated financial statements.
22
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
In financial year 2010, development cost of EUR 1.7 million (previous year: EUR 1.3 million) were capitalised. Of this figure, approx. 2% were attributable to completed projects (previous year: 3%) and approx. 98% to ongoing projects (previous year: 97%). In the past financial year, ten projects begun in previous years were completed (previous year: 6 projects) and were classified as completed projects in the amount of EUR 1.3 million (previous year: EUR 0.5 million).
The additions to “Amortisation” are recognised in the income statement in “Depreciation and amortisation of intangible assets, plant, equipment and buildings”.
12. | Goodwill |
In EUR thousands | Goodwill “Neorem- Group” | Goodwill “Magnetics- Group” | Goodwill Malaysia | Total | ||||||||||||
Cost | ||||||||||||||||
Balance as of 1 January 2009 | 2,283 | 157,375 | 511 | 160,169 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at 31 December 2009 | 2,283 | 157,375 | 511 | 160,169 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 1 January 2010 | 2,283 | 157,375 | 511 | 160,169 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at 31 December 2010 | 2,283 | 157,375 | 511 | 160,169 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Impairment losses | ||||||||||||||||
Balance as of 1 January 2009 | 0 | 27,461 | 0 | 27,461 | ||||||||||||
Additions | 0 | 66,858 | 0 | 66,858 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at 31 December 2009 | 0 | 94,319 | 0 | 94,319 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 1 January 2010 | 0 | 94,319 | 0 | 94,319 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at 31 December 2010 | 0 | 94,319 | 0 | 94,319 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Carrying amounts | ||||||||||||||||
As of 31 December 2009 | 2,283 | 63,056 | 511 | 65,850 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of 31 December 2010 | 2,283 | 63,056 | 511 | 65,850 | ||||||||||||
|
|
|
|
|
|
|
|
Impairment test for cash-generating units with related goodwill
The goodwill of VAC Magnetics Group, Neorem Group and Malaysia is tested annually for impairment and additionally when there are indications of potential impairment.
For the purposes of testing the goodwill of VAC Magnetics Group for impairment, the asset has been allocated to cash generating units according to the three business segments Material & Parts, Cores and Components as well as Permanent Magnets, being the level at which this goodwill is monitored at VAC Holding Group.
IAS 36.18 defines that the recoverable amount of a cash-generating unit is the higher of the fair value less cost to sell or the value in use. VAC determined the value in use with the result that the value in use exceeded the fair value less cost to sell.
Value in use is determined based on the discounted future payments assuming unchanged continuation of operating activities. To this end, VAC Holding Group uses a detailed five-year plan. A constant growth rate of 1.7% (previous year 1.4%) is used for cash flows in all business segments that extend beyond this planning period. This assumed growth rate does not exceed the long-term average growth rates of the business segments.
23
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
The discount rate after tax of 9.22 % (previous year: 8.8%) used for the calculation is based on the weighted average cost of capital (WACC) with reference to the debt capital structure and compared with key competitors in the business segments.
The detailed five-year plan 2011 up to and including 2015 regarding “VAC Magnetics-Group” was substantially enhanced in 2010 as a result of the sustainable strong recovery in sales and earnings figures since 2010. As a consequence no further impairment loss (previous year: EUR 66,858 thousand) has to be recognised in 2010.
A hypothetical increase of 100 base points in the underlying market interest rate for the WACC would also not lead to a further impairment loss on goodwill.
Based on the impairment tests, there was no requirement to write down the goodwill of Neorem Group and Malaysia.
13. | Shares in joint ventures |
VAC Holding Group accounts for the following shares:
In EUR thousands | ||||||||
2010 | 2009 | |||||||
SANVAC (Beijing) Magnetics Co., Ltd., China | ||||||||
Percentage of interest | 49 | % | 49 | % | ||||
|
|
|
| |||||
Development of acquisition cost | ||||||||
Balance as of 1 January | 4,604 | 4,604 | ||||||
|
|
|
| |||||
Carrying amount as of 31 December | 4,604 | 4,604 | ||||||
|
|
|
|
The shares in this Chinese company were acquired by the subsidiary VAC KG in May 2005. The reason for the acquisition was the production of low-cost permanent magnets in China as well as the expansion of the sales activities in the Asia-Pacific region.
At the date of preparation of these consolidated financial statements, SANVAC had not presented financial statements for financial year 2010 prepared in accordance with IFRS. Also, despite of the percentage of interest and all contractual rights, the Company had to experience that it does not have neither effective control nor significant influence over this joint venture. So these shares are classified as unquoted equity instruments and are recognised at cost in accordance with IAS 28.13 (c), IAS 39 46 (c) and IAS 39.A81.
In FY 2009 SANVAC distributed and paid a first time dividend to VAC KG in the amount of CNY 4,302 thousand for cumulated distributable profits of the years 2005 up to 2007. The payment in the amount of EUR 459 thousand was received mid of May 2009. For the distributed profits of the years 2005 to 2007 no Chinese withholding tax had to be deducted.
24
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
14. | Deferred tax assets and liabilities |
In EUR thousands | Assets 31 Dec. 10 | Assets 31 Dec. 09 | Liabilities 31 Dec. 10 | Liabilities 31 Dec. 09 | Net 31 Dec. 10 | Net 31 Dec. 09 | ||||||||||||||||||
Plant, equipment, land and buildings | 61 | 0 | -27,938 | -29,119 | -27,877 | -29,119 | ||||||||||||||||||
Intangible assets | 680 | 673 | -12,385 | -13,253 | -11,705 | -12,580 | ||||||||||||||||||
Inventories | 85 | 91 | -378 | -1,339 | -293 | -1,248 | ||||||||||||||||||
Receivables and other assets | 137 | 260 | -820 | -1,552 | -683 | -1,292 | ||||||||||||||||||
Long-term employee benefit provisions | 4,663 | 3,995 | 0 | 0 | 4,663 | 3,995 | ||||||||||||||||||
Provisions | 1,193 | 1,032 | -737 | 0 | 456 | 1,032 | ||||||||||||||||||
Interest-bearing loans and other liabilities | 574 | 1,128 | 0 | 0 | 574 | 1,128 | ||||||||||||||||||
Tax loss carry-forwards | 4,370 | 5,610 | 0 | 0 | 4,370 | 5,610 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Tax assets / (liabilities) | 11,763 | 12,789 | -42,258 | -45,263 | -30,495 | -32,474 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets not recognised
Potential tax assets relating to unused tax losses which are not expected be set off against future taxable profits are not recognised by the Group. The amount of such unrecognised tax assets is approximately EUR 10.9 million (previous year: EUR 10.9 million).
Changes in deferred taxes during the financial year
In EUR thousands | Balance as of 1 Jan. 09 | Additions / Divestitures during the year | Recognised in income statement | Recognised in equity | Balance as of 31 Dec. 09 | |||||||||||||||
Plant, equipment, land and buildings | -30,056 | 937 | 937 | 0 | -29,119 | |||||||||||||||
Intangible assets | -13,761 | 1,181 | 1,181 | 0 | -12,580 | |||||||||||||||
Inventories | -5,714 | 4,466 | 4,466 | 0 | -1,248 | |||||||||||||||
Receivables and other assets | -1,362 | 70 | -279 | 349 | -1,292 | |||||||||||||||
Long-term employee benefit provisions | 5,397 | -1,402 | -1,572 | 170 | 3,995 | |||||||||||||||
Provisions | -2,264 | 3,296 | 3,296 | 0 | 1,032 | |||||||||||||||
Interest-bearing loans and other liabilities | 611 | 517 | 517 | 0 | 1,128 | |||||||||||||||
Tax loss carry-forwards | 5,197 | 413 | 413 | 0 | 5,610 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | -41,952 | 9,478 | 8,959 | 519 | -32,474 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
In EUR thousands | Balance as of 1 Jan. 10 | Additions / Divestitures during the year | Recognised in income statement | Recognised in equity | Balance as of 31 Dec. 10 | |||||||||||||||
Plant, equipment, land and buildings | -29,119 | 1,242 | 1,242 | 0 | -27,877 | |||||||||||||||
Intangible assets | -12,580 | 875 | 875 | 0 | -11,705 | |||||||||||||||
Inventories | -1,248 | 955 | 955 | 0 | -293 | |||||||||||||||
Receivables and other assets | -1,292 | 609 | 790 | -181 | -683 | |||||||||||||||
Long-term employee benefit provisions | 3,995 | 668 | -67 | 735 | 4,663 | |||||||||||||||
Provisions | 1,032 | -576 | -576 | 0 | 456 | |||||||||||||||
Interest-bearing loans and other liabilities | 1,128 | -554 | -554 | 0 | 574 | |||||||||||||||
Tax loss carry-forwards | 5,610 | -1,240 | -1,240 | 0 | 4,370 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | -32,474 | 1,979 | 1,425 | 554 | -30,495 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
25
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
15. | Inventories |
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Raw materials and consumables | 27,720 | 19,894 | ||||||
Work in progress | 55,250 | 42,914 | ||||||
Finished goods | 22,117 | 15,635 | ||||||
Inventory provisions | -5,841 | -7,575 | ||||||
|
|
|
| |||||
Total inventories | 99,246 | 70,868 | ||||||
|
|
|
| |||||
Inventories stated at cost | 97,114 | 68,448 | ||||||
Inventories stated at fair value less costs to sell | 2,132 | 2,420 | ||||||
|
|
|
| |||||
Total inventories | 99,246 | 70,868 | ||||||
|
|
|
| |||||
Opening balance of inventory allowances | -7,575 | -4,477 | ||||||
Inventory allowances made for the period | -2,445 | -5,117 | ||||||
Inventory allowances used for the period | 4,179 | 2,019 | ||||||
|
|
|
| |||||
Final balance of inventory allowances | -5,841 | -7,575 | ||||||
|
|
|
|
In FY 2010 inventories increased by 40% (EUR 28,378 thousand) compared to previous year. The inventory volume level was mainly aligned to the step-up in sales volume and the ongoing increase in customer demands. The recognised increase of inventories was even higher than the decrease in 2009 (EUR 25,556 thousand) that the Group had to perform as a reaction to the sharp downturn in sales volume and the ongoing decrease in customer demands caused by the macroeconomic crisis in the previous year. Due to the increasing demand for several products and the respective higher figures of consumption, inventory allowances decreased by EUR 1,734 thousand.
Within the income statement, allowances used or made for the period on raw materials and consumables are recognised in the line “Cost of materials”, allowances used or made for the period on unfinished or finished goods are recognised in the line “Change in unfinished and finished goods”.
Inventories are pledged as security for the senior facilities first ranking and for the high-yield bond second ranking.
16. | Trade receivables and other receivables |
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Trade receivables | 43,290 | 32,023 | ||||||
Prepayments | -965 | -704 | ||||||
Other receivables | 90 | 54 | ||||||
Other non-financial receivables | 6,508 | 5,252 | ||||||
Derivative financial assets | 244 | 200 | ||||||
|
|
|
| |||||
Total 3rd party | 49,167 | 36,825 | ||||||
|
|
|
| |||||
Impairment losses | ||||||||
Allowances (included above) | 1,112 | 674 | ||||||
|
|
|
|
IFRS 7 requires a split of other receivables into other financial receivables and other non-financial receivables. The non-financial receivables mainly include prepaid items and receivables from value added tax due from tax authorities.
26
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Changes in allowances for impairment losses on receivables
In EUR thousands | Allowances used for the period | Allowances reversed for the period | Allowances recognised for the period | Total | ||||||||||||
Balance as of 1 January 2009 | 978 | |||||||||||||||
Movements for the period | -87 | -396 | 179 | -304 | ||||||||||||
|
| |||||||||||||||
Balance as of 31 December 2009 | 674 | |||||||||||||||
|
| |||||||||||||||
Balance as of 1 January 2010 | 674 | |||||||||||||||
Movements for the period | 0 | -116 | 554 | 438 | ||||||||||||
|
| |||||||||||||||
Balance as of 31 December 2010 | 1,112 | |||||||||||||||
|
|
Allowances used and recognised for the period are included in line item “Other operating expenses”, therein “Individual debtor allowances”, amounting to EUR 88 thousand (previous year: EUR 92 thousand). Allowances recognised concerning accrued customer bonuses amount to EUR 466 thousand (previous year: EUR 0) in line item “Sales”. The reversal of allowances for impairment losses on receivables is recognised under line item “Other operating income”, therein “Reversal of debtor allowances” in the amount of EUR 116 thousand (previous year: EUR 396 thousand).
17. | Cash and cash equivalents |
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Bank balances | 13,419 | 13,782 | ||||||
Bank deposits | 137 | 478 | ||||||
Cash | 12 | 11 | ||||||
|
|
|
| |||||
Total cash and cash equivalents | 13,568 | 14,271 | ||||||
|
|
|
|
The bank deposits are security deposits for bank guarantees issued in favour of the fully consolidated subsidiaries Neorem Magnets Oy, VACUUMSCHMELZE Malaysia Sdn. Bhd. (only 2009), VAC Beteiligungs-GmbH and VACUUMSCHMELZE s.r.o. No other restricted cash positions exist.
27
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
18. | Equity |
Share capital
The share capital of EUR 25 thousand is the legal minimum capital based on German law and was received in FY 2005 on foundation of the Company. The shares are divided into one share of EUR 24,750 and one share of EUR 250 and are all held by the sole shareholder VAC LuxCo. There has been no change in the shares or the shareholder compared to 2009.
Capital reserve
The starting capital reserve of EUR 43,225 thousand was established by way of a cash contribution in December 2005 by the Shareholder VAC LuxCo. This was a condition to be fulfilled in connection with the raising of funds for financing the purchase price for the VAC Magnetics Group. The capital reserve funds may not be withdrawn during the term of the loan agreements.
In March 2009 the shareholder converted EUR 15.0 million of his shareholder loans into the capital reserve of VAC Holding.
From August up to October 2009 two OEP holding companies above the Shareholder acquired High-Yield-Bonds, issued by the Group member VAC Finanzierung GmbH, in the nominal value of approximately EUR 80 million. On request of the Group’s financing banks the bond interest of EUR 3,695 thousand received by the OEP holdings as regular bond interest payment on 15 October 2009 had to be reimbursed through VAC LuxCo to the Group by way of contributing the funds into the capital reserve of VAC Holding.
OEP means One Equity Partners, a group of direct and indirect subsidiaries of the ultimate shareholder JPMorgan Chase, New York, USA.
On 15 April 2010 the Group member VAC Finanzierung GmbH again had to pay bond interest of EUR 3,694 thousand indirectly through the bond paying agent to VAC LuxCo, the final holder of the bonds acquired in 2009. On renewed request of the Group’s financing banks the bond interest had to be reimbursed on receipt by VAC LuxCo to the Group by way of contributing the funds into the capital reserve of VAC Holding.
Hybrid capital
On 23 December 2009 the Shareholder converted the residual shareholder loan in the amount of EUR 67 million into a hybrid equity instrument (hybrid loan) with the features and conditions as defined in the International Financial Reporting Standard IAS 32 “Financial instruments: presentation”. The hybrid loan has no fixed maturity date, the holder of the instrument has no right to redraw the funds, the instrument is subordinated to all other classes of instruments and the issuer has the sole right to redeem the instrument for cash at his own discretion.
As one of the conditions to the effectiveness of the Seventh Amendment to the financing contracts (please refer to note 19 for more information on the financing situation) on 14 May 2010 VAC LuxCo converted a portion of EUR 79.75 million of the high-yield bonds issued by VAC Finanzierung GmbH into another hybrid equity instrument (hybrid bond) based on a bilateral Exchange Agreement. In exchange for the high-yield bond notes VAC LuxCo received from VAC Finanzierung GmbH a Global Note in the amount of EUR 79.75 million. The Global Note has the features and conditions as defined in the International Financial Reporting Standard IAS 32 “Financial instruments: presentation”. The hybrid bond note has no fixed maturity date, the holder of the instrument has no right to redraw the funds, the instrument is subordinated to all other classes of instruments and the issuer has the sole right to redeem the instrument for cash at his own discretion.
Other equity components
The other equity components relate to changes in the fair values of effective cash flow hedge instruments which, in accordance with the relevant standard IAS 39, may not be recognised through the income statement, but which are allocated in the amount of EUR 425 thousand (previous year: EUR -811 thousand) to this equity position through other comprehensive income, net of tax.
28
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Deferred dividend to shareholder
As item of the equity the hybrid bond note may not bear interest to be presented in the consolidated income statement. But as the terms and conditions of the Exchange Agreement dated 14 May 2010 between VAC LuxCo and VAC Finanzierung GmbH set the same interest percentage of 9.25% for the hybrid bond note as for the cancelled high-yield notes, the consolidated profit of the year is first determined without hybrid interest. In a second step the so determined consolidated profit of the period is allocated to retained earnings in the amount of EUR 9,880 thousand (previous year: loss of EUR -95,323 thousand) and to “Deferred dividend to shareholder” with regard to the amount of interest to the Global Note (EUR 4,733 thousand (previous year: EUR 0 thousand) which is not available for distribution at the discretion of the shareholder. This is to ensure that the deferred payment obligations of the Group to the Shareholder are presented fairly and understandable.
Retained earnings
This item includes all consolidated losses (and profits) recognised in previous periods as well as the consolidated profit / loss for the period as far as this amount does not relate to interest calculated on the hybrid capital components which is allocated to the equity item “Deferred dividend to shareholder”. The amount of such consolidated profit recognised for FY 2010 was at EUR 9,880 thousand (previous year: consolidated loss of EUR 95,323 thousand).
According to IAS 19 VAC Holding Group opted to recognise the complete actuarial gains and losses of the year from the valuation of defined benefit pension scheme obligations to this equity position through the other comprehensive income, net of tax. The amount recognised for FY 2010 was at EUR -1,709 thousand (previous year: EUR -398 thousand).
29
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
19. | Interest-bearing loans and liabilities |
This note provides information on the contractual terms of VAC Holding Group’s interest-bearing loans. More information on the maturities of such assets and debt as well as VAC Holding Group’s exposure to interest rate risks and foreign currency risks is contained in note 24 of these consolidated financial statements.
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Interest-bearing loans due from related parties | ||||||||
Loan to the Shareholder including accumulated interest | 2,439 | 1,042 | ||||||
|
|
|
| |||||
Long-term interest-bearing loans and liabilities | ||||||||
Finance lease liabilities | 799 | 904 | ||||||
Senior bank loans and other loans | 95,378 | 751 | ||||||
Senior secured notes (High-Yield-Bond) held by third parties1 | 54,578 | 0 | ||||||
Senior secured notes (High-Yield-Bond) held by related parties1 | 128 | 0 | ||||||
|
|
|
| |||||
Total long-term interest-bearing loans and liabilities | 150,883 | 1,655 | ||||||
|
|
|
| |||||
Short-term interest-bearing loans and liabilities | ||||||||
Short-term interest-bearing loans | ||||||||
Finance lease liabilities | 105 | 98 | ||||||
Senior bank loans and other loans | 7,368 | 108,094 | ||||||
Senior secured notes (High-Yield-Bond) held by third parties1 | 0 | 54,474 | ||||||
Senior secured notes (High-Yield-Bond) held by related parties1 | 0 | 78,942 | ||||||
|
|
|
| |||||
Total short-term interest-bearing loans and liabilities | 7,473 | 241,608 | ||||||
|
|
|
|
1) | The reclassification of senior loans and senior secured notes as short-term reflected the provisions of IAS 1 as of 31 December 2009. Upon effectiveness of the amended financing agreements as of 21 May 2010 such loans and notes were reclassified again as long-term in the amount of EUR 234,140 thousand. |
During FY 2010 VAC Holding Group paid EUR 7,000 thousand by way of a regular repayment on an external bank loan
In addition to the regular payment during FY 2009 (EUR 7,000 thousand) the Group made a special repayment of EUR 100 thousand on an external bank loan. This was triggered by the obligation under the loan agreement to utilise the previous year’s cash flow surpluses (“Excess Cash Flow”) – determined in accordance with a defined calculation procedure - for repayments in the next financial year.
All assets (except for cash and cash equivalents) of the subsidiary VAC KG, Hanau, are pledged to the syndicate of banks to secure the external bank loans in first priority. The real estate for the business premises in Hanau and of the subsidiary in Slovakia are therefore encumbered with mortgage. While conducting its ordinary business activities VAC Holding Group has unlimited access to all of the assets pledged.
The issued subordinated senior secured notes (High-Yield-Bond) are also secured by assets of the subsidiaries VAC KG and Vacuumschmelze s.r.o. in second priority.
30
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Finance lease liabilities
Finance lease liabilities are due and payable as follows:
Minimum lease payments | Interests | Principal | Minimum lease payments | Interests | Principal | |||||||||||||||||||
In EUR thousands | 31 Dec. 10 | 31 Dec. 10 | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 09 | 31 Dec. 09 | ||||||||||||||||||
Less than one year | 162 | 57 | 105 | 162 | 64 | 98 | ||||||||||||||||||
Between one and five years | 647 | 150 | 497 | 647 | 182 | 465 | ||||||||||||||||||
More than five years | 319 | 17 | 302 | 481 | 42 | 439 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 1,128 | 224 | 904 | 1,290 | 288 | 1,002 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For further information regarding remaining contractual terms please refer to note 24.
As of the end of financial year 2010, VAC Holding Group leased a building for the Permanent Magnets business unit in Finland. Under the terms of the lease agreement no contingent rents are payable. For further information to the lease agreement please refer to note 10 of these consolidated financial statements.
Loan from the Shareholder
In financial year 2005 VAC LuxCo granted a loan of originally EUR 64,780 thousand to VAC Holding at a fixed annual interest rate of 8% for the financing of the acquisition. The loan was agreed to fall due in 2017. Interest thereon was not paid, but retained with the loan and interest was calculated thereon. In addition to the principal amount, on 1 January 2009 the balance sheet amount of EUR 82,039 thousand included the accrued interest of financial year 2005 (EUR 346 thousand), financial year 2006 (EUR 5,209 thousand), financial year 2007 (EUR 5,627 thousand) and financial year 2008 (EUR 6,077 thousand).
In a first step to support the Group’s efforts for economic recovery the Shareholder suspended in November 2008, as part of the conclusion of a collective wage bargaining agreement for financial years 2009 and 2010, the calculation of interest on the shareholder loan for the term of the agreement. This was to compensate for the fact that the employees of the subsidiary VAC KG had agreed to waive, to a large extent and for these two years, the salary increases under the collective wage agreement, as well as half of certain special payments such as vacation and Christmas bonus. In addition, they had agreed to measures regarding flexibility of working hours.
In a second step at the end of March 2009 the Shareholder converted EUR 15.0 million of the shareholder loan into capital reserves of VAC Holding, thus reducing the loan to a remaining amount of EUR 67.0 million. In a third step on 23 December 2009 the Shareholder converted the residual shareholder loan into a hybrid equity instrument. Therefore no shareholder loan and no interest expenses thereon will be presented in the Group’s financial statements as of 31 December 2009 and afterwards.
As the above mentioned collective wage bargaining agreement for financial years 2009 and 2010 phased out on 31 December 2010 the calculation of interest will be resumed starting on 1 January 2011. For IFRS reporting purposes the shareholder loan interest recognised for local GAAP and tax purposes will then be presented as deferred dividend to the Shareholder corresponding to the handling of the hybrid bond interest.
31
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Loan to the Shareholder
In financial year 2006 the Company granted a loan to VAC LuxCo in the amount of EUR 150 thousand mainly on the same terms and conditions as the loan originally received from the Shareholder in 2005 (fixed interest rate of 8%, interest not to be paid but to be accrued, the accrued total of principal and interest not due before end of FY 2015). This loan was granted to cover the current administration expenses of the Shareholder. In financial year 2007 the Company granted another loan in the amount of EUR 300 thousand, in financial year 2008 two further loans totalling EUR 300 thousand, in financial year 2009 EUR 140 thousand and in the reporting year further loans of total EUR 1,270 thousand, all on the same terms and conditions as described above. The balance sheet amount of EUR 2,439 thousand includes besides the loan in the amount of EUR 2,160 thousand (previous year: EUR 890 thousand) the accrued interest of financial year 2006 (EUR 2 thousand), financial year 2007 (EUR 33 thousand), financial year 2008 (EUR 44 thousand), financial year 2009 (EUR 72 thousand) and financial year 2010 (EUR 127 thousand). All amounts are recognised at the respective nominal value.
Senior bank loans and senior secured notes
The senior bank loans for the financing of the purchase price of the VAC Magnetics Group and Neorem as well as the senior secured notes consist of four different components with different contractual terms.
Nominal value | Nominal value | |||||||
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Less than one year1 | 7,000 | 245,980 | ||||||
Between one and five years1 | 96,980 | 0 | ||||||
More than five years1 | 55,250 | 0 | ||||||
|
|
|
| |||||
Total | 159,230 | 245,980 | ||||||
|
|
|
|
1) | The reclassification of senior bank loans and senior secured notes as short-term reflected the provisions of IAS 1 as of 31 December 2009. Upon effectiveness of the amended financing agreements as of 21 May 2010 such loans and notes were reclassified again as long-term in the amount of EUR 234,140 thousand, thereof due between one and five years EUR 103,980, thereof due in more than five years EUR 135,000. |
The differences between the nominal values (repayable amounts) of the loans and the bond and the carrying amounts on the balance sheet arise from the direct capitalisation of financing costs for the loans and the bond. These are amortised on a pro-rata temporis basis through profit and loss and by increasing the balance sheet amounts over the loan or bond term.
Senior bank loans
The “Senior A” and “Senior B” bank loans were borrowed by VAC KG and are structured as follows:
• | “Senior A” loan for EUR 40 million, raised on 8 December 2005 and repayable within 7 years in various tranches, due each year on 30 June and 31 December. The amount repayable as of 31 December 2010 was EUR 12.5 million (previous year: EUR 19.5 million). |
• | “Senior B” loan for EUR 70 million, raised on 8 December 2005 and repayable in a lump sum at the end of the term of 8.5 years on June 7, 2014. Based on the relevant contractual terms VAC KG made a non-scheduled repayment in FY 2008 in the amount of EUR 1.4 million and another non-scheduled payment during 2009 amounting to EUR 0.1 million. The remaining amount repayable as of 31 December 2010 was EUR 68.5 million (previous year: EUR 68.5 million). |
The “Senior C” loan was borrowed by VAC Magnetic Finland Oy and is structured as follows:
• | “Senior C” loan for EUR 23 million, raised on 31 August 2007 and repayable in a lump sum at the end of the term (as with “Senior B”) on 7 June 2014. No non-scheduled payment was made as of the reporting date. |
32
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
For the reasons already described in note 1. (B) “Basis of preparation” (b) “Going concern” the banking syndicate and Group management signed an amendment to the underlying loan agreements on 6 May 2010 (Seventh Amendment to the Senior Facilities Agreement) setting revised financing conditions for financial year 2010 and onwards and waiving the existing defaults on and from the effective day of the amendment. The Seventh Amendment to the Senior Facilities Agreement became effective on 21 May 2010 after the agent of the bank syndicate notified VAC and the lenders that all conditions precedent documents were received satisfactory in form and substance.
A basic condition of the aforementioned loans and consequently the senior secured notes is the compliance with predetermined financial key figures (covenants), e.g. earnings before interest, taxes, depreciation and amortisation (EBITDA) and the ratio between the cash flow generated and debt service (payments on interest and repayments of principals). The calculations are prepared on a quarterly basis and submitted to the banking syndicate. Due to the effectiveness of the Seventh Amendment to the Senior Facilities Agreement the Group is actually not in default and does not forecast any possible event of default.
The financing contracts revised by the Seventh Amendment to the Senior Facilities Agreement include a set of revised/new covenants as well as higher margins, additional fees and other commitments to be borne by the borrowers. The revised covenants were set lower than before including additional headroom of 20%, based on the downsized business plan of the Group for the years 2010 up to 2013. In the light of the strong recovery of the Group in 2010 the actual covenants seem to be quite comfortable.
From the first signing of the Senior Facilities Agreement in December 2005 up to the Sixth Amendment to the Senior Facilities Agreement the Senior loans A - C bore interest at EURIBOR rates plus the margins for each loan, 2.25% for “Senior A” and 2.5% for “Senior B” and “Senior C” (this from 2007 onwards). Up to the Seventh Amendment to the Senior Facilities Agreement the Senior loans A - C bore interest at EURIBOR rates plus the margins for each loan, 3.25% for “Senior A” and 3.5% for “Senior B” and “Senior C”. Starting with the signing of the Seventh Amendment to the Senior Facilities Agreement the Senior loans A - C have to bear interest at EURIBOR rates plus the margins for each loan, 4.00% for “Senior A” and 4.25% for “Senior B” and “Senior C”. Thus the achievement of these two amendments nearly doubled the interest margins as consideration for the curtailment of the financial covenants and the waiver of defaults.
The Group paid an acceptance fee to the lenders for the Seventh Amendment in the amount of EUR 0.7 million in May 2010 and will have to pay another finalisation fee (“Exit Fee”) regarding the Seventh Amendment in the amount of EUR 0.7 million if any kind of exit will happen before the first anniversary of the Effective Date 21 May 2010. If any kind of exit (even the normal termination of the financing contracts after the final repayment date on 7 June 2014) will happen after the first anniversary of the Effective Date 21 May 2010 the Group will have to pay the Exit fee to the lenders in to the amount of EUR 1.4 million. As of 31 December 2010 the payment of the EUR 0.7 million exit fee is inevitable and therefore the Group accrued for the first part of this fee.
In addition to the financial commitments as described above the Group had to agree to arrange for some structural changes. The Group in 2010 to replaced the general partner of Vacuumschmelze GmbH & Co. KG (“VAC KG”), VAC Finanzierung GmbH, by another member of the Group, VAC Verwaltungs-GmbH, which up to that point was one of the two limited partners of VAC KG. VAC Finanzierung currently is the second limited partner for VAC KG. Main objective was to minimise the risk of an eventual change of control, directly affecting VAC KG, the main operating company of the Group, by implementing a non Group-related management.
The second organisational measure is to establish VAC KG as the main shareholder of VAC China Magnetics Shenyang. Currently the sole shareholder of this company is VAC Beteiligungs-GmbH. By way of sale/purchase of existing shares in China VAC KG has to become the majority shareholder. Main objective is to minimise the risk of an eventual change of control, indirectly affecting VAC KG by cutting of the control over this important production site.
33
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
In preparation of this share deal the Group has managed for drafting of the necessary documents by Chinese lawyers. Those documents are currently counterchecked by the Chinese authorities responsible for the approval and registration of the change of control. In a next step the authorities will negotiate with the Group on the determination of the appropriate purchase price for the shares to be sold and thus of the taxable profit arising for the actual shareholder VAC Beteiligungs-GmbH. The Group estimates the potential tax burden to be paid in China for that transaction to be around EUR 0.5 million.
Senior secured notes
The high-yield bond was issued by VAC Finanzierung GmbH and is structured as follows:
• | Bond amounting to EUR 135 million, issued on 12 April 2006, afterwards listed at the Euro MTF-market of the Luxembourg stock exchange, with 15 April 2016 as final maturity date and bearing interest at the rate of 9.25% p.a. Coupon payments take place twice a year on each 15 April and 15 October. The remaining amount repayable as of 31 December 2010 was EUR 55.25 million. |
According to the issuing terms of the bond in the nominal amount of EUR 135 million, this bond can already be redeemed in parts or in total before final maturity by paying a prepayment penalty. In case of certain changes in the shareholding structure (“Change of Control”) the issuing company must offer to the bondholders premature redemption pursuant to the terms and conditions at the date of issue.
From August up to October 2009 two OEP holdings above the Shareholder acquired shares in this bond in the nominal value of EUR 79.879 million. In the year 2010, meeting the conditions agreed in the Seventh Amendment to the financing agreements with the syndicate of banks effective as of 21 May 2010, almost the total amount of the high-yield bond acquired by those two related parties was transferred to the Shareholder and was then converted into a hybrid equity instrument (hybrid bond) based on the respective Exchange Agreement. By this measure the equity of the Group was strengthened in the amount of EUR 79.750 million and the bond obligations at the Luxembourg stock exchange were redeemed to a remainder of EUR 55.250 million. Thereof a marginal nominal amount of EUR 129 thousand is still held by the Shareholder.
As item of the equity the hybrid bond note may not bear interest to be presented in the consolidated income statement. But as the terms and conditions of the Exchange Agreement dated 14 May 2010 between VAC LuxCo and VAC Finanzierung GmbH set the same interest percentage of 9.25% for the hybrid bond note as for the cancelled high-yield notes, the consolidated profit of the year is first determined without hybrid interest. In a second step the so determined consolidated profit of the period is allocated into a free part of retained profit and a restricted part in the amount of the interest to the Global Note.
Other loans
Other loans raised by Neorem Magnets Oy are repayable in the amount of EUR 0.8 million in total. This sum comprises several smaller loans each having different terms of maturity; the last of the loans must be repaid on 31 December 2013.
Further information
The contractually agreed (undiscounted) interest payments and loan repayments of the original financial liabilities are stated in note 24 under “remaining contractual terms”.
As part of the blanket assignment by VAC Holding GmbH, financial assets in the aggregate amount of EUR 40,614 thousand are provided as pledged securities as of 31 December 2010. These assets may be sold or pledged by the secured parties.
The security in this respect comprises trade receivables relating to the fully consolidated subsidiary VAC KG. The security was provided for purposes of securing the existing used and unused bank loans.
34
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
In addition to the loans remaining as of 31 December 2010 VAC Holding Group has access to a further credit line in form of a revolving credit facility (RCF) for raising cash up to an amount of EUR 21.4 million (previous year: EUR 0 thousand) and for non-cash transactions of EUR 8.6 million (previous year: EUR 0 thousand). As of 31 December 2010 the credit line of non-cash transactions already was used for guarantees and interest, currency and commodity hedging instruments.
Pursuant to the contractual agreement with the banking syndicate, the Company will refrain from assuming any further material financial obligations.
Summary of the terms and conditions of the interest-bearing loans and liabilities
As of 31 December 2009 | ||||||||||||||||||||||||||
In EUR thousands | Effective interest rate | Total | 6 months or less | 6-12 months | 1-2 years | 2-5 years | > 5 years | |||||||||||||||||||
Senior loan A (non-hedged) | Euribor +3,25% | -9,750 | -1,750 | -1,750 | -3,500 | -2,750 | 0 | |||||||||||||||||||
Senior loan A (hedged) | 3,42%+3,25% | -9,750 | -1,750 | -1,750 | -3,500 | -2,750 | 0 | |||||||||||||||||||
Senior loan B (non-hedged) | Euribor +3,50% | -33,480 | 0 | 0 | 0 | -33,480 | 0 | |||||||||||||||||||
Senior loan B (hedged) | 3,45%+3,50% | -35,000 | 0 | 0 | 0 | -35,000 | 0 | |||||||||||||||||||
Senior loan C (non-hedged) | Euribor +3,50% | -11,000 | 0 | 0 | 0 | -11,000 | 0 | |||||||||||||||||||
Senior loan C (hedged) | 4,315% + 3,50% | -12,000 | 0 | 0 | 0 | -12,000 | 0 | |||||||||||||||||||
Senior secured notes | 9,25% | -135,000 | 0 | 0 | 0 | 0 | -135,000 | |||||||||||||||||||
Other loans | 3 % - 8% | -1,184 | -94 | -305 | -369 | -416 | 0 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | -247,164 | -3,594 | -3,805 | -7,369 | -97,396 | -135,000 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The table above refers to the respective contractual terms and does not take into account the short-term classification of senior bank loan and senior secured notes as of 31 December according to the provisions of IAS 1.
As of 31 December 2010 | ||||||||||||||||||||||||||
In EUR thousands | Effective interest rate | Total | 6 months or less | 6-12 months | 1-2 years | 2-5 years | > 5 years | |||||||||||||||||||
Senior loan A (hedged) | 1,78% + 4,00% | -6,250 | -1,750 | -1,750 | -2,750 | 0 | 0 | |||||||||||||||||||
Senior loan A (hedged) | 3,42% + 4,00% | -6,250 | -1,750 | -1,750 | -2,750 | 0 | 0 | |||||||||||||||||||
Senior loan B (hedged) | 1,78% + 4,25% | -68,480 | 0 | 0 | 0 | -68,480 | 0 | |||||||||||||||||||
Senior loan C (hedged) | 1,78%+ 4,25% | -11,000 | 0 | 0 | 0 | -11,000 | 0 | |||||||||||||||||||
Senior loan C (hedged) | 4,315% + 4,25% | -12,000 | 0 | 0 | 0 | -12,000 | 0 | |||||||||||||||||||
Senior secured notes | 9,25% | -55,250 | 0 | 0 | 0 | 0 | -55,250 | |||||||||||||||||||
Other loans (Neorem) | 3 % - 8 % | -785 | -94 | -275 | -416 | 0 | 0 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | -160,015 | -3,594 | -3,775 | -5,916 | -91,480 | -55,250 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
35
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
20. | Long-term employee benefit obligations |
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Present value of long-term employee benefit obligations (provisions) | 108,024 | 105,746 | ||||||
Other employee benefit obligation (provisions) | 106 | 82 | ||||||
|
|
|
| |||||
Total gross provisions for long-term employee benefit obligations | 108,130 | 105,828 | ||||||
|
|
|
| |||||
Financial assets covering old-age part-time obligations | -2,868 | -2,856 | ||||||
|
|
|
| |||||
Total net provisions for long-term employee benefit obligations | 105,262 | 102,972 | ||||||
|
|
|
| |||||
Liabilities from pensions | 3,683 | 3,279 | ||||||
|
|
|
| |||||
Total net long-term employee benefit obligations | 108,945 | 106,251 | ||||||
|
|
|
|
Long-term employee benefit obligations
The provisions for long-term employee benefit obligations mainly include the provisions for pensions, for long service award (anniversaries) benefits and the old-age part-time obligations (early retirement) of the subsidiary VAC KG. These obligations are mainly unfunded.
Unfunded obligations for defined benefit pension plans
The pension schemes provide for a life-long pension to each employee of VAC KG who complies with the requirements regarding the minimum period of employment within the Company and the minimum age.
There are two main pension schemes in place. The first set of plans is in the meantime only valid for non-active employees and was closed for new members as of 31 December 2001 (“the old plans”). Pension benefits were mainly related to the age and to the attained years of service of employees and were set at flat rate amounts independent from the individual salaries.
The actual scheme valid for active and non-active members was started as of 1 January 2002. Most of the active members of the old plans at the starting date were then transferred to the new pension scheme (“the new plans”), their individually accrued benefits from the old plans at the date of transfer calculated into initial credits to their individual basic benefit accounts within the new plans. From 2002 onwards all active employees are entitled to salary-related regular yearly contributions which are credited to their individual basic benefit accounts. In addition all employees are entitled to join a Deferred Compensation Cash Balance Plan where each employee may decide year on year on deferring cash payments of his salary against credits on his individual deferred compensation benefit account. At retirement both benefit accounts will be added up to the monthly or yearly pension payment as detailed below.
The pension obligations from the plans are completely unfunded. As of 31 December 2010 the total pension provision amounts to EUR 102.1 million (previous year: EUR 98.6 million). Thereof EUR 46.9 million are recognised for the new plans (previous year: EUR 42.1 million) and EUR 55.2 million are recognised for the old plans (previous year: EUR 56.5 million).
Other long-term employee benefit obligations
Anniversary benefits are granted to all employees of subsidiary VAC KG who have been in the Company’s employ for 25, 40 or 50 years. Actually old-age part-time contracts are signed with 83 employees for individual early retirement. The provision for anniversary payments amounts to EUR 0.7 million as of 31 December 2010 (previous year: EUR 0.7 million), the provision for old-age part-time obligations totals EUR 5.2 million as of 31 December 2010 (previous year: EUR 6.4 million). Thereof 2.9 million have to be refunded according to German law therefore VAC KG has a deposit containing low risk securities with a well-named trustee company.
36
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Other employee benefit obligations
In Slovakia it is obligatory to grant benefit payments to employees at the time of retirement in an amount corresponding to the number of years employed at the entity. For this obligation VAC Holding Group recognised a provision in the amount of EUR 36 thousand as of 31 December 2010 (previous year: EUR 28 thousand).
The subsidiary VAC Magnetic Japan K.K. recognised a pension provision in the amount of EUR 70 thousand (previous year: EUR 54 thousand).
Liabilities from pensions
The liabilities from pensions include pension obligations of the subsidiary VAC KG due to employees where the amounts and dates of payments have been agreed and fixed. The amount of EUR 3,683 thousand (previous year: EUR 3,279 thousand) is included under the item “other liabilities” in the consolidated balance sheet. For further details regarding these liabilities please refer to note 22 of these consolidated financial statements.
Reconciliation of the unfunded pension obligations
102,117 | 102,117 | |||||||
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Unfunded pension provision (VAC KG) as of 1 January | 98,602 | 97,530 | ||||||
Expenses recognised in the income statement (see below) | 6,636 | 7,076 | ||||||
Actuarial losses recognised in other comprehensive income (before tax) | 2,445 | 567 | ||||||
Actual benefit payments | -5,022 | -5,165 | ||||||
Transfer to other liabilities | -544 | -1,406 | ||||||
|
|
|
| |||||
Unfunded pension provision (VAC KG) as of 31 December | 102,117 | 98,602 | ||||||
|
|
|
| |||||
Other employee benefit obligations (other sites) | 106 | 82 | ||||||
|
|
|
| |||||
Total unfunded pension obligations as of 31 December | 102,223 | 98,684 | ||||||
|
|
|
|
Expenses recognised in the income statement (VAC KG for pensions)
102,117 | 102,117 | |||||||
In EUR thousands | 2010 | 2009 | ||||||
Current service cost | 1,629 | 1,800 | ||||||
Interest expenses | 5,007 | 5,276 | ||||||
|
|
|
| |||||
Total | 6,636 | 7,076 | ||||||
|
|
|
|
These expenses are recognised in the following items in the income statement
102,117 | 102,117 | |||||||
In EUR thousands | 2010 | 2009 | ||||||
Personnel expenses | 1,629 | 1,800 | ||||||
Interest expenses | 5,007 | 5,276 | ||||||
|
|
|
| |||||
Total | 6,636 | 7,076 | ||||||
|
|
|
|
Reconciliation of other long-term employee benefit obligations
102,117 | 102,117 | |||||||
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Gross other long-term employee benefit provisions as of 1 January | 7,144 | 7,441 | ||||||
Expenses recognised in the income statement (see below) | 1,636 | 2,896 | ||||||
Actual benefit payments | -2,873 | -3,193 | ||||||
|
|
|
| |||||
Gross other long-term employee benefit provisions as of 31 December | 5,907 | 7,144 | ||||||
|
|
|
| |||||
Financial assets covering old-age part-time obligations | -2,868 | -2,856 | ||||||
|
|
|
| |||||
Net employee benefit provisions (VAC KG) as of 31 December | 3,039 | 4,288 | ||||||
|
|
|
|
37
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Expenses recognised in the income statement (other long-term employee benefit obligations)
In EUR thousands | 2010 | 2009 | ||||||
Current service cost | 1,429 | 356 | ||||||
Actuarial gains or losses | -5 | 2,217 | ||||||
Interest expenses | 212 | 323 | ||||||
|
|
|
| |||||
Total | 1,636 | 2,896 | ||||||
|
|
|
|
These expenses are recognised in the following items in the income statement
In EUR thousands | 2010 | 2009 | ||||||
Personnel expenses | 1,424 | 2,573 | ||||||
Interest expenses | 212 | 323 | ||||||
|
|
|
| |||||
Total | 1,636 | 2,896 | ||||||
|
|
|
|
Main amounts for current reporting period 2010 and the four prior periods 2006 – 2009
In EUR thousands | 31 Dec. 2010 | 31 Dec. 2009 | 31 Dec. 2008 | 31 Dec. 2007 | 31 Dec. 2006 | |||||||||||||||
1) Present value of defined benefit obligations as of 31 December | ||||||||||||||||||||
a) Pensions | 102,117 | 98,602 | 97,530 | 98,525 | 101,580 | |||||||||||||||
b) Anniversaries | 734 | 733 | 768 | 782 | 779 | |||||||||||||||
c) Old-age part-time | 5,173 | 6,412 | 6,673 | 9,075 | 9,523 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 108,024 | 105,747 | 104,971 | 108,382 | 111,882 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
2) Experience-based adjustments as of 31 December | ||||||||||||||||||||
a) Pensions | 319 | -2,311 | 784 | 1,743 | -174 | |||||||||||||||
b) Anniversaries | -7 | -33 | -24 | 8 | -17 | |||||||||||||||
c) Old-age part-time | -56 | 2,005 | 298 | 1,443 | -304 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 256 | -339 | 1,058 | 3,194 | -495 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Assumptions for the calculation of defined benefit obligations
Principal actuarial assumptions at the balance sheet date (expressed as weighted averages)
31 Dec. 10 | 31 Dec. 09 | |||||||
Pensions | ||||||||
Discount rate at 31 December | 5.00 | % | 5.25 | % | ||||
Future salary increases | 2.00 | % | 2.00 | % | ||||
Future pension increases | 2.00 | % | 2.00 | % |
Assumptions for the calculation of other long-term employee benefits
Principal actuarial assumptions at the balance sheet date (expressed in weighted average)
31 Dec. 10 | 31 Dec. 09 | |||||||
Anniversaries | ||||||||
Discount rate at 31 December | 5.00 | % | 5.25 | % | ||||
Partial retirement benefits | ||||||||
Discount rate at 31 December | 3.00 | % | 3.50 | % | ||||
Future salary increases | 2.00 | % | 2.00 | % |
Assumptions regarding future mortality and withdrawals are based on public statistics and mortality tables (e.g. “Richttafeln Heubeck 2005 G”).
38
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
21. | Provisions |
In EUR thousands | Balance as of 1 Jan. 2009 | Provisions recognised for the period | Provisions used for the period | Provisions reversed for the period | Balance as of 31 Dec. 2009 | |||||||||||||||
Provision for: | ||||||||||||||||||||
Warranties | 498 | 0 | 0 | 0 | 498 | |||||||||||||||
Duty | 135 | 0 | 0 | 0 | 135 | |||||||||||||||
Others | 547 | 133 | -10 | 0 | 670 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 1,180 | 133 | -10 | 0 | 1,303 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
In EUR thousands | Balance as of 1 Jan. 2010 | Provisions recognised for the period | Provisions used for the period | Provisions reversed for the period | Balance as of 31 Dec. 2010 | |||||||||||||||
Provision for: | ||||||||||||||||||||
Warranties | 498 | 0 | 0 | -498 | 0 | |||||||||||||||
Duty | 135 | 0 | 0 | -135 | 0 | |||||||||||||||
Others | 670 | 532 | -218 | -171 | 813 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 1,303 | 532 | -218 | -804 | 813 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Provisions are recognised primarily for a short term and are assumed to be used mainly within the following year. Income from the reversal of provisions is recognised in the consolidated income statement in “Other operating income”. Provisions recognised (added) and used during the year are recognised in “Other operating expenses”, except for provisions related to “Personnel expenses”.
Warranties provision
The provision for warranties was calculated based on individual risks related to residual obligations from the project business of VAC KG’s business unit “Superconductors” which was sold in 2003. The Group was informed by the actual project manager that no further warranty claims are to be expected. So this provision was reversed at the end of FY 2010.
Duty provision
The long-lasting provision for customs risks covered the risk arising from the import declaration of construction components using a specific customs tariff number between 1998 and 2002. The components were shipped from Asia and declared to customs in Germany using a statistical article number which was assessed by customs to be incorrect from FY 2002 onwards. Legal proceedings have been initiated in relation to this matter and finally, as assumed by VAC Holding Group, the original tariff number was confirmed in the course of the proceedings and the provision could be reversed.
Other provisions
In previous years this position included amongst others some obligations from threats of contractual penalties for late deliveries of superconductors (also residual obligations from the project business of VAC KG’s business unit “Superconductors” which was sold in 2003). This other provision in the amount of EUR 160 thousand was also reversed as the Group was informed by the actual project manager that no further claims for penalties are to be expected.
Currently this position mainly includes a provision for a minor license claim against VAC KG as well as provisions with regard to claims of other customers and obligations to reverse leasehold improvements in leased buildings.
39
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
22. | Trade payables and other liabilities |
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Other non-current liabilities (discounted) | ||||||||
Other liabilities from pension obligations | 3,251 | 2,963 | ||||||
Liabilities to pension assurance association PSVaG | 571 | 730 | ||||||
|
|
|
| |||||
Total other non-current liabilities (discounted) | 3,822 | 3,693 | ||||||
|
|
|
| |||||
Current trade payables and other liabilities | ||||||||
Trade payables | 35,123 | 23,592 | ||||||
Derivatives | 1,143 | 1,705 | ||||||
Other liabilities | 15,751 | 5,799 | ||||||
Financial interest payables | 1,147 | 2,853 | ||||||
Non-financial interest payables | 31 | 1,140 | ||||||
|
|
|
| |||||
Total current trade payables and other liabilities | 53,195 | 35,089 | ||||||
|
|
|
|
Other liabilities from pension obligations
Other liabilities from pension obligations included in current and non-current other liabilities are recognised if an employee has fulfilled the conditions for retirement and employee applies for payment of pensions claims in a one-time payment (special case) or twelve annual instalments (normal case) instead of a life-long pension payment (normal case) and the management of VAC KG approves the option. Payment date for the one-time payment or yearly instalments is 31 January of the following year.
Pension liabilities which are paid in twelve annual instalments are compounded annually with an interest rate of 5.25% for pension liabilities from 1 January 2006 and 6.0% for pension liabilities until 31 December 2005. The following table states the total figure incl. compound interest to maturity and the maturities as at balance sheet date:
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Liabilities from pensions, thereof: | ||||||||
Within one year | 432 | 316 | ||||||
Between one and five years | 1,490 | 1,260 | ||||||
More than five years | 1,761 | 1,703 | ||||||
|
|
|
| |||||
Total | 3,683 | 3,279 | ||||||
|
|
|
|
Liabilities to pension insurance association PSVaG
Furthermore, other liabilities include a liability of subsidiary VAC KG due to the pension insurance association PSVaG (Pensions-Sicherungs-Verein, Versicherungsverein auf Gegenseitigkeit, Cologne, Germany). All German companies which provide pension plans to their employees are required by law to insure the pension obligations arising from these plans against insolvency by paying insurance premiums to PSVaG. Thus, the regulation constitutes a compulsory membership in this mutual insurance association. The legal requirement is to insure those parts of the pension obligations from which the employer cannot be released in any event (vested employees’ rights to pensions).
The figures reported as at the balance sheet date amount to a total of EUR 748 thousand (previous year: EUR 907 thousand) and relate to the relevant amount payable, discounted to maturity. The reported total consists of two items. First item is the remaining amount of EUR 393 thousand (previous year: EUR 420 thousand) and is based on changes in law at the end of financial year 2006. Each member of the pension insurance company PSVaG was committed to arrange for supplementary payments. This subsequent insurance premium is payable in fixed annual instalments until 31 March 2021.
40
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
The second item in the amount of EUR 355 thousand (previous year: EUR 487 thousand) is due to a consequence of the broad economic downturn in the course of the banking crisis. The PSVaG had to raise the insurance premium for FY 2009 from an expected average between 0.2 and 0.3 per cent to an all time high of 1.42 per cent. This was necessary to cover the current and future pension commitments the insurance association had to take over from those companies that had to file for insolvency in FY 2009.
To give some relief to the cash positions of the remaining premium payers the PSVaG thoroughly calculated its cash needs for 2010 and onwards and then postponed the payment of a part of the premium to future years. So finally 0.82 per cent had to be paid on 31 December 2009, the remaining 0.6 per cent are payable in four equal instalments at 31 December of the years 2010 up to 2013 in addition to the premiums that will be requested for the claims experienced within these four years.
So for the year under review the first of these four instalments was paid; the regular insurance premium for 2010 decreased significantly to 0.19 per cent which is slightly below the above mentioned expected average.
The following table states the total figure discounted to maturities and the maturities as at balance sheet date:
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Remaining insurance premiums, payable to PSVaG, thereof: | ||||||||
Within one year | 177 | 177 | ||||||
between one and five years | 443 | 575 | ||||||
more than five years | 128 | 155 | ||||||
|
|
|
| |||||
Total | 748 | 907 | ||||||
|
|
|
|
For further information about the remaining contractual term, please refer to note 24 of these consolidated financial statements.
23. | Further information on financial instruments |
Financial instruments in the scope of IFRS 7 are contracts which simultaneously create a financial asset for one party and a financial liability or an equity instrument for the other party.
Financial assets in this context include cash and cash equivalents, contractual rights to receive cash and cash equivalents or other financial assets (e.g. trade receivables, other financial receivables), contractual rights on the potentially profitable exchange of financial instruments (e.g. derivative financial instruments) and equity instruments held in other companies.
Financial liabilities comprise contractual commitments to release cash and cash equivalents or other financial assets, commitments as borrowings, issued bonds, short-term loans (revolving facilities), trade payables or other financial obligations (derivatives), and contractual obligations on the unprofitable exchange of cash and cash equivalents or other financial assets (e.g. derivative financial instruments).
In accordance with the requirements of IFRS 7, the following table presents the carrying amounts of each measurement category and also the fair values of each class of financial instrument. This overview facilitates a comparison between carrying amounts and fair values.
41
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Classes of financial instruments, assets
Measurement Measurement category | Carrying amount | Classes based on IAS 39 | Valuation based on IAS 39 | |||||||||||||||||||||
Amortised cost | Fair value | Fair value effect in P&L | Fair value | |||||||||||||||||||||
effect in other comprehensive income | ||||||||||||||||||||||||
In EUR thousands | ||||||||||||||||||||||||
As of 31 December 2009 | ||||||||||||||||||||||||
Trade receivables | 32,023 | LaR | 1 | 32,023 | 0 | 0 | 32,023 | |||||||||||||||||
Other financial assets | 54 | LaR | 1 | 54 | 0 | 0 | 54 | |||||||||||||||||
Interest-bearing loans to related parties | 1,042 | LaR | 1 | 1,042 | 0 | 0 | 1,042 | |||||||||||||||||
Derivatives being part of hedge accounting | 200 | — | 0 | 200 | 0 | 200 | ||||||||||||||||||
Cash and cash equivalents | 14,271 | — | 14,271 | 0 | 0 | 14,271 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 47,590 | 47,390 | 200 | 0 | 47,590 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial assets not in the scope of IAS 39 | 4,548 | 0 | 0 | 0 | 4,548 | |||||||||||||||||||
includes non financial receivables and prepayments - please refer to note 16 |
| |||||||||||||||||||||||
In EUR thousands | ||||||||||||||||||||||||
As of 31 December 2010 | ||||||||||||||||||||||||
Trade receivables | 43,290 | LaR | 1 | 43,290 | 0 | 0 | 43,290 | |||||||||||||||||
Other financial assets | 90 | LaR | 1 | 90 | 0 | 0 | 90 | |||||||||||||||||
Interest-bearing loans to related parties | 2,439 | LaR | 1 | 2,439 | 0 | 0 | 2,439 | |||||||||||||||||
Derivatives being part of hedge accounting | 244 | — | 0 | 244 | 0 | 244 | ||||||||||||||||||
Cash and cash equivalents | 13,568 | — | 13,568 | 0 | 0 | 13,568 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 59,631 | 59,387 | 244 | 0 | 59,631 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial assets not in the scope of IAS 39 | 5,543 | 0 | 0 | 0 | 5,543 | |||||||||||||||||||
includes non financial receivables and prepayments - please refer to note 16 |
|
1) | LaR= Loans and Receivables |
42
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Classes of financial instruments, liabilities
Measurement Measurement category | Carrying amount | Classes based on IAS 39 | Valuation based on IAS 39 | |||||||||||||||||||||
Amortised cost | Fair value | Fair value effect in P&L | Fair value | |||||||||||||||||||||
effect in other comprehensive income | ||||||||||||||||||||||||
In EUR thousands | ||||||||||||||||||||||||
As of 31 December 2009 | ||||||||||||||||||||||||
Interest-bearing loans non-current | 751 | Flac | 1 | 751 | 0 | 0 | 751 | |||||||||||||||||
Interest-bearing finance lease liabilities non-current | 904 | Flac | 1 | 904 | 0 | 0 | 966 | |||||||||||||||||
Interest-bearing loans current | 241,510 | Flac | 1 | 241,510 | 0 | 0 | 161,783 | |||||||||||||||||
Interest-bearing finance lease liabilities current | 98 | Flac | 1 | 98 | 0 | 0 | 98 | |||||||||||||||||
Trade payables | 23,592 | Flac | 1 | 23,592 | 0 | 0 | 23,592 | |||||||||||||||||
Derivatives hedge accounting IAS 39 | 1,705 | — | 0 | 1,705 | 0 | 1,705 | ||||||||||||||||||
Financial Interest payables | 2,853 | Flac | 1 | 2,853 | 0 | 0 | 2,853 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 271,413 | — | 269,708 | 1,705 | 0 | 191,748 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial liabilities not in the scope of IAS 39 | 10,632 | — | 0 | 0 | 0 | 10,632 | ||||||||||||||||||
(includes Interest payables, non financial and other liabilities (non-current and current) - please refer note 22 |
| |||||||||||||||||||||||
In EUR thousands | ||||||||||||||||||||||||
As of 31 December 2010 | ||||||||||||||||||||||||
Interest-bearing loans non-current | 150,212 | Flac | 1 | 150,212 | 0 | 0 | 143,030 | |||||||||||||||||
Interest-bearing finance lease liabilities non-current | 799 | Flac | 1 | 799 | 0 | 0 | 848 | |||||||||||||||||
Interest-bearing loans current | 7,368 | Flac | 1 | 7,368 | 0 | 0 | 7,368 | |||||||||||||||||
Interest-bearing finance lease liabilities current | 105 | Flac | 1 | 105 | 0 | 0 | 105 | |||||||||||||||||
Trade payables | 35,123 | Flac | 1 | 35,123 | 0 | 0 | 35,123 | |||||||||||||||||
Derivatives Hedge accounting IAS 39 | 1,143 | — | 0 | 1,143 | 0 | 1,143 | ||||||||||||||||||
Financial Interest payables | 1,147 | Flac | 1 | 1,147 | 0 | 0 | 1,147 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 195,897 | — | 194,754 | 1,143 | 0 | 188,764 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial liabilities not in the scope of IAS 39 | 19,604 | — | 0 | 0 | 0 | 19,604 | ||||||||||||||||||
(includes Interest payables, non financial and other liabilities (non-current and current) - please refer note 22 |
|
1) | Financial liabilities measured at amortised cost |
43
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Cash and cash equivalents, trade receivables and trade payables mainly have short residual terms. Therefore their carrying amounts will correspond to their fair values as at the balance sheet date.
The original financial instruments presented in the following table are financial liabilities for which fair values do not match to their carrying amounts:
In EUR thousands | Carrying amount 31 Dec. 10 | Fair value 31 Dec. 10 | Carrying amount 31 Dec. 09 | Fair value 31 Dec. 09 | ||||||||||||
Finance lease liability | 904 | 953 | 1,002 | 1,064 | ||||||||||||
Senior secured notes (High-Yield Bond) | 56,315 | 48,068 | 137,706 | 57,881 | ||||||||||||
Senior bank loans | 102,164 | 104,021 | 107,810 | 111,066 | ||||||||||||
Shareholder loan | 783 | 817 | 1,171 | 1,234 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 160,166 | 153,859 | 247,689 | 171,245 | ||||||||||||
|
|
|
|
|
|
|
|
The fair values of finance lease liabilities are estimated at the present value of future cash flows, discounted at market interest rates for comparable lease agreements. The estimated market values reflect changes in interest rates.
The interest rate used to determine the fair values of financial lease liabilities is 5%.
The carrying amount of the senior secured notes includes the nominal value of EUR 55,250 thousand and the cumulated interest payable for the period from 15 October 2010 to 31 December 2010 in the amount of EUR 1,065 thousand. Because the senior secured notes are listed and traded on the Luxembourg stock exchange for institutional investors the fair value could be determined at year end based on a quoted market price.
The fair values of the loans disclosed above are calculated based on the discounted expected future cash flows from principal and interest as at the reporting date. The respective carrying amounts include the book value of principals plus accrued interest up to 31 December of the year.
For further information regarding the loans and the bond please refer to note 19 of these consolidated financial statements.
Forward exchange contracts are either marked to market using listed market prices or by discounting the contractual forward price and deducting the current spot rate. Interest rate swaps are marked to market using listed market prices.
The net results from financial instruments – broken down by measurement category – arise from changes in fair values, from impairments, reversals of impairments and from adjustments. Furthermore there are interest income and interest expenses related to financial instruments not measured at fair value through profit and loss and other similar financial results recognised in interest and similar income. In the financial year EUR 1,672 thousand (previous year: EUR 1,823 thousand) of fees and commissions were recognised in the income statement that related to financial instruments not measured at fair value through profit and loss.
44
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Net results by measurement category
Subsequent valuation | Net results | |||||||||||||||||||
In EUR thousands | Currency translation | Impairment | Reversal of impairment | 2010 | 2009 | |||||||||||||||
Loans and receivables | -885 | -554 | 116 | -1,323 | -1,103 | |||||||||||||||
Financial liabilities measured at amortised cost | -133 | 0 | 0 | -133 | 163 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | -1,018 | -554 | 116 | -1,456 | -940 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Within the reporting period, interest receivables in the amount of EUR 459 thousand (previous year: EUR 210 thousand) and interest payables of EUR 18,201 thousand (previous year: EUR 21,886 thousand) occurred from financial instruments which were not measured at fair value through profit and loss. These amounts will be presented as net interest. During the reporting period and also within previous year no interest income from impaired financial assets was recognised.
24. | Information on risk management |
(a) | Principles of risk management |
VAC Holding Group is exposed to credit risks, liquidity risks and market risks (interest rate risks, currency risks and raw material price risks) in the normal course of business, which it counteracts through the existing treasury and risk management process. Derivative financial instruments are used to hedge the exposure to foreign exchange rate, interest rate and raw material purchase price risks. The risk management system is supported by a clear functional organisation of the risk control process.
The framework of the financial policy is defined by the management of VAC Holding Group and monitored by the responsible Group treasurer. Treasury is responsible for implementing financial policies and ongoing risk management. The use of derivative financial instruments is governed by the relevant principles. Derivatives may only be employed to hedge existing underlying transactions or forecast transactions which are highly probable to occur. Derivative transactions may only be entered into with financial institutions with excellent creditworthiness. The treasurer is responsible for monitoring and managing the market risks, as well as for cash and liquidity management. Credit management and the management of default risks are handled by the accounts receivable department and the segment controlling. No specific monitoring or management measures are performed on the basis of defined risk categories or concentrations.
(b) | Credit risk |
Credit or default risk refers to the risk that counterparties become unable to fulfil their contractual payment obligations, resulting in a loss for VAC Holding GmbH. Credit checks are performed in order to manage credit risk. As part of these credit checks, information is gathered from well-known and esteemed credit agencies (e.g. Dun & Bradstreet). Furthermore VAC Holding Group has contracted a commercial credit risk insurance with a specialised insurance company (Euler Hermes).
Credit risks exist for all categories of financial instruments, particularly for trade receivables. If apparent from any kind of sources mentioned above, respective allowances for doubtful debts are determined on the basis of individual risk assessment and past experience of losses (more than 90% of doubtful debts) and are recognised to a separate allowances account then deducted from (gross) receivables.
The Group is not exposed to any material credit risk from one specific counterparty. The Group limits its credit risk exposure from derivative financial instruments by entering into contracts solely with counterparties and financial institutions with excellent credit ratings.
45
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
As illustrated in the table below, the carrying amount of the recognised financial assets, less any impairments, represents the maximum default risk. The value of collateral received or any other arrangements having a mitigating effect on risk are not factored in.
During the reporting period the contractual payment terms for financial assets with a carrying amount of EUR 335 thousand were amended. Without these amendments, the receivables would have fallen past-due, resulting in the necessity to recognise specific impairments.
Maximum credit risk of financial assets in the scope of IFRS 7
Carrying amount as equivalent for the maximum credit risk:
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Trade receivables | 43,290 | 32,023 | ||||||
Other financial receivables | 90 | 54 | ||||||
Interest-bearing loans to related parties | 2,439 | 1,042 | ||||||
Derivatives | 244 | 200 | ||||||
Cash and cash equivalents | 13,568 | 14,271 |
The carrying amount of trade receivables before impairment was EUR 44,402 thousand, i.e., impairment losses in the amount of EUR 1,112 thousand were deducted. The carrying amount of other financial receivables before impairment was EUR 90 thousand, i.e. no impairment was recognised.
46
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Maturity structure of financial receivables
In EUR thousands | Carrying amounts | Thereof neither impaired nor | Thereof not impaired as at the balance sheet date but past-due for the following time bands | |||||||||||||||||||||||||
less than 30 days | 30 – 60 days | 61 – 90 days | 91 – 180 days | 181 – 360 days | ||||||||||||||||||||||||
31 Dec. 2009 | ||||||||||||||||||||||||||||
Trade receivables | 32,023 | 27,661 | 3,475 | 544 | 27 | 316 | 0 | |||||||||||||||||||||
Other receivables | 54 | 54 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 32,077 | 27,715 | 3,475 | 544 | 27 | 316 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
31 Dec. 2010 | ||||||||||||||||||||||||||||
Trade receivables | 43,290 | 37,393 | 5,215 | 502 | 118 | 62 | 0 | |||||||||||||||||||||
Other receivables | 90 | 90 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 43,380 | 37,483 | 5,215 | 502 | 118 | 62 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of the balance sheet date, there was no indication that any counterparties of trade receivables which are included in the balance sheet as of 31 December 2010 and which are neither delayed in payment nor impaired will not be able to fulfil their payment obligations in the future.
It is not common for VAC Holding Group to demand credit collateral or guarantees for trade receivables and other receivables. If there are indications that customers may potentially be unable to meet their payment obligations, VAC will not deliver its products, or will only deliver after advance payments have been received.
47
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
(c) | Liquidity risk |
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities which are to be settled by delivering cash or cash equivalents.
In order to ensure that VAC Holding Group will always have sufficient liquidity, the Group’s liquidity requirements are continually monitored and forecasted by the treasurer. His task is to ensure as far as possible that sufficient cash and cash equivalents are at hand on time in order to enable the Group to meet its obligations when due without incurring unacceptable losses or risking damage to the Group’s reputation. For the coming financial year 2011 the Group has access to approx. EUR 21.4 million in unused cash credit lines (reporting year: EUR 21.4 million), which can be drawn upon if ever needed.
The following table indicates the contractually agreed (undiscounted) interest payments and repayment amounts of the original financial liabilities as well as derivative financial instruments with negative fair value.
48
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Contractual residual terms of the financial liabilities
In EUR thousands | Carrying amount | Gross outflow | < 1 month | 1 – 3 months | 3 – 12 months | 1 – 5 years | > 5 years | |||||||||||||||||||||
As of 31 December 2009 | ||||||||||||||||||||||||||||
Financial liabilities1 | 246,116 | 248,552 | 246,087 | 27 | 480 | 1,477 | 481 | |||||||||||||||||||||
Trade payables | 23,592 | 23,592 | 11,442 | 10,956 | 1,194 | 0 | 0 | |||||||||||||||||||||
Derivatives | 1,705 | 2,055 | 0 | 0 | 1,411 | 644 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 271,413 | 274,199 | 257,529 | 10,983 | 3,085 | 2,121 | 481 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
As of 31 December 2010 | ||||||||||||||||||||||||||||
Financial liabilities | 159,631 | 209,413 | 126 | 124 | 19,329 | 132,775 | 57,059 | |||||||||||||||||||||
Trade payables | 35,123 | 35,123 | 19,106 | 15,535 | 482 | 0 | 0 | |||||||||||||||||||||
Derivatives | 1,143 | 1,175 | 0 | 0 | 879 | 296 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 195,897 | 245,711 | 19,232 | 15,659 | 20,690 | 133,071 | 57,059 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) | The reclassification of senior bank loans and senior secured notes as short-term reflected the provisions of IAS 1 as of 31 December 2009. Upon effectiveness of the amended financing agreements as of 21 May 2010 such loans and notes were reclassified again as long-term in the amount of EUR 234,140 thousand. Presuming that this amendment became effective before the balance sheet date 2009 the future payments to financial liabilities as of 31 December 2009 would have been structured as follows: |
In EUR thousands | Carrying amount | Gross outflow | < 1 month | 1 – 3 months | 3 – 12 months | 1 – 5 years | > 5 years | |||||||||||||||||||||
As of 31 December 2009 | ||||||||||||||||||||||||||||
Financial liabilities | 246,116 | 348,063 | 107 | 27 | 26,029 | 170,290 | 151,610 |
Included above are all financial instruments with contractual payment conditions agreed as at the balance sheet date. Budget figures for future payables are not factored in. Future obligations based on fluctuating interest rates are calculated on the last available fixed interest rates as of the balance sheet date. Financial liabilities that may be called at any time are assigned to the earliest time period. If the counterparty is entitled to select the date of repayment then also the earliest period is used.
A basic condition of the aforementioned loans and consequently the senior secured notes is the compliance with predetermined financial key figures (covenants), e.g. earnings before interest, taxes, depreciation and amortisation (EBITDA) and the ratio between the cash flow generated and debt service (payments on interest and repayments of principals). Due to the effectiveness of the Seventh Amendment to the Senior Facilities Agreement as of 21 May 2010 and the strong recovery of the Groups financial positions in FY 2010 the Group does not expect any breach of covenants.
49
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
(d) | Market risk |
Foreign currency risk (FX risk), interest rate risk and metal price risk (regarding Nickel, Cobalt and rare-earth metals) are relevant to VAC Holding Group. VAC Holding Group did not hold any financial instruments which are affected by other price risks as at balance sheet date.
Foreign currency risk
VAC Holding Group is exposed to foreign currency risks on sales and purchases that are denominated in a currency other than the Euro. The currency giving rise to this risk is primarily the US Dollar.
As of 31 December 2010, VAC Holding Group reported the following assets and liabilities denominated in foreign currencies:
31 Dec. 10 | 31 Dec. 09 | |||||||||||||||
In EUR thousands | Assets | Liabilities | Assets | Liabilities | ||||||||||||
USD | 7,810 | 5,433 | 9,147 | 2,379 | ||||||||||||
CNY | 929 | 2,284 | 1,152 | 2,064 | ||||||||||||
SGD | 22 | 258 | 19 | 238 | ||||||||||||
MYR | 179 | 1,618 | 126 | 229 | ||||||||||||
Other | 135 | 118 | 78 | 107 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 9,075 | 9,711 | 10,522 | 5,017 | ||||||||||||
|
|
|
|
|
|
|
|
Assets include trade receivables and other receivables. Liabilities contain trade payables and other liabilities.
For foreign currency risk a sensitivity analysis is performed for all currencies representing a significant risk for VAC Holding Group. The currencies concerned are USD, MYR, SGD and CNY.
The following table indicates the potential effects in the income statement and in equity of an upward or downward revaluation of about 10% compared to Euros for all balanced receivables and payables denominated in the main foreign currencies:
EUR / USD | EUR / SGD | EUR / MYR | EUR / CNY | |||||||||||||||||||||||||||||
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 10 | 31 Dec. 09 | ||||||||||||||||||||||||
Closing rate | 1.34 | 1.44 | 1.72 | 2.02 | 4.10 | 4.93 | 9.09 | 9.83 | ||||||||||||||||||||||||
Upward revaluation (Foreign currency to EUR) | ||||||||||||||||||||||||||||||||
Effect in income statement | 407 | 851 | -7 | -49 | 33 | -18 | -803 | -649 | ||||||||||||||||||||||||
Effect in equity | 33 | 19 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Downward revaluation (Foreign currency to EUR) | ||||||||||||||||||||||||||||||||
Effect in income statement | -407 | -851 | 7 | 49 | -33 | 18 | 803 | 649 | ||||||||||||||||||||||||
Effect in equity | -28 | -18 | 0 | 0 | 0 | 0 | 0 | 0 |
Interest rate risks
VAC Holding Group borrowed external bank loans with variable interest rates and is therefore exposed to interest rate risks. Given this, VAC Holding Group has entered into several interest rate hedging contracts (interest rate swaps). These interest rate hedges are in line with the internal risk management policy and with the requirements of the credit facility agreements.
As of 31 December 2010 all senior bank loans are completely hedged by interest rate payer swaps so therefore the Group does not see any material interest rate risk in terms of cashflow.
Interest rate risks are determined using sensitivity analyses, which measure the effects of a change in market rates of interest on interest income and expense, on trading gains and losses and on equity as at the balance sheet date. Interest risk may arise either as fair value risk (as at balance sheet date) or as cash flow risk.
50
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
The sensitivity analysis examines the effects that a parallel shift in the interest rate curve by +/- 100 base points (bp) regarding the currencies relevant for the Group would have on equity and earnings. The cash flow effects of the shift in the interest rate curve relate merely to interest expenses and income for the upcoming reporting period.
Based on the financial instruments held or issued by VAC Holding Group as at the balance sheet date, a hypothetical change in each relevant interest rate would have the following impacts:
EUR | USD | Other | ||||||||||||||||||||||
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 10 | 31 Dec. 09 | ||||||||||||||||||
+ 100 BP | ||||||||||||||||||||||||
Effect on net interest (income statement) | 61 | -448 | 0 | 19 | 0 | 5 | ||||||||||||||||||
Effect in equity | 949 | 392 | 0 | 0 | 0 | 0 | ||||||||||||||||||
- 100 BP | ||||||||||||||||||||||||
Effect on net interest (income statement) | -33 | 448 | 0 | -5 | 0 | 0 | ||||||||||||||||||
Effect in equity | -965 | -398 | 0 | 0 | 0 | 0 |
Nickel price risk
When selling nickel to customers at a fixed price, VAC Holding Group is exposed to changes in the market price when procuring this raw material. For this reason, the Group entered into commodity hedges for fixed price selling obligations in order to neutralise this risk.
The following table provides an overview of the effects of an increase or decrease in the carrying amounts of the hedges held as at the balance sheet date.
Sensitivity of raw materials hedges
Nickel price change
31 ‘Dec. 10 | 31 ‘Dec. 09 | |||||||||||||||
in EUR thousands | + 10% | -10% | + 10% | -10% | ||||||||||||
Effect on income statement | 0 | 0 | 0 | 0 | ||||||||||||
Effect on equity | 202 | -202 | 120 | -118 |
Hedging measures
VAC Holding Group uses derivative financial instruments to hedge its foreign currency risk and interest rate risk from operating activities. In addition, VAC Holding Group employs derivatives in order to secure fixed prices for the procurement of nickel for fulfilment of fixed price customer contracts. Consistent with its treasury policy VAC Holding Group does not use derivative financial instruments purely for trading.
VAC Holding Group primarily uses forward exchange contracts and forward rate swaps to hedge its foreign currency risk. All of the forward exchange contracts used as currency and raw materials hedges have maturities of less than one year after the balance sheet date.
In respect of other monetary assets and liabilities denominated in currencies other than the Euro, the Group ensures that the net exposure is maintained at an acceptable level by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. As of 31 December 2010 the company used derivative financial instruments to secure foreign currency risks in USD payables in the amount of USD 570 thousand. The Group classifies its forward exchange contracts hedging forecast transactions as effective cash flow hedges.
51
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
The positive fair value of forward exchange contracts for future transactions at 31 December 2010 was EUR 13 thousand. The negative fair value for such transactions was EUR 0 thousand.
As of 31 December 2010 and as of 31 December 2009 the Company held no open fair value derivatives.
To cover its interest rate risks VAC Holding Group has entered into interest rate swaps. The swaps have maturities of up to 2 years. The swap interest rates are 3.42% and 1.78% for Senior A loan facility, 1.78 % for Senior B loan facility as well as 4.315% and 1.78 % for Senior C loan facility. As of 31 December 2010 VAC Holding Group had hedged loan liabilities with a nominal amount of EUR 103,980 thousand. The swaps are classified as effective cash flow hedges.
The fair value of these swaps at 31 December 2010 was EUR -1,143 thousand, excluding liabilities. The previous year’s amount was EUR -1,705 thousand.
The fair value of raw materials swaps at 31 December 2010 was EUR 231 thousand, excluding assets. The previous year’s amount was EUR 191 thousand.
The following table gives an overview of the derivative financial instruments entered into at the balance sheet date:
Nominal value | Positive fair value | Negative fair value | ||||||||||||||||||||||
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 10 | 31 Dec. 09 | 31 Dec. 10 | 31 Dec. 09 | ||||||||||||||||||
Forward exchange contracts | 413 | 269 | 13 | 9 | 0 | 0 | ||||||||||||||||||
Raw materials forward contracts | 3,072 | 2,000 | 231 | 191 | 0 | 0 | ||||||||||||||||||
Interest rate swaps | 103,980 | 56,750 | 0 | 0 | 1,143 | 1,705 |
For purposes of cash flow hedge accounting, EUR 425 thousand (previous year: EUR -811 thousand) in changes to the fair value of derivatives were recognised directly in other comprehensive income and presented in “Other equity components”.
For cash flow hedges where the underlying transactions affected the consolidated income statement during the year under review, the gains and losses accumulated under equity were taken to the consolidated income statement for the relevant periods. A total of EUR 1,397 thousand reducing the net result (previous year: EUR 872 thousand, reducing the net result) were recognised under the following items on the income statement. Interest expenses EUR 1,420 thousand (previous year: EUR 829 thousand interest expense), decrease in other operating expenses EUR 23 thousand (previous year: EUR 43 thousand increasing in other operating expenses).
During both the year under review and in the previous year, VAC Holding Group held no derivative financial instruments which had to be classified as non effective cash flow hedges.
Under cash flow hedge accounting, interest rate swaps and forward exchange contracts are used to hedge both interest rate risk and foreign currency risk arising from variable-interest financial instruments and highly probable future transactions. The table below provides an overview of when cash flows from cash flow hedges are expected to occur, and when they are expected to affect the income statement.
52
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Cash inflows from cash flow hedges and their and effects on the income statement
In EUR thousands | Carrying amount | Expected cash flows | < 6 months | 6 – 12 months | 12 – 24 months | 2 – 5 years | > 5 years | |||||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||||||||||
Liabilities | -1,143 | -9,963 | -2,612 | -2,528 | -4,823 | 0 | 0 | |||||||||||||||||||||
Forward exchange contracts | ||||||||||||||||||||||||||||
Assets | 13 | -427 | -427 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Raw materials swaps | ||||||||||||||||||||||||||||
Assets | 231 | -3,332 | -2,665 | -555 | -112 | 0 | 0 |
Moreover, no gains/losses from fair-value hedges were recognised during the year under review and the previous year.
Fair value hierarchy of financial instruments according to IFRS 7
Financial instruments which are carried at fair value are analyzed by valuation method. The different levels have been defined as follows:
• | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities |
• | Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e. derived from prices) |
• | Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) |
The table below analyses financial instruments carried at fair value by valuation method.
In EUR thousands | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
As of 31 December 2009 | ||||||||||||||||
Derivative financial assets | 0 | 200 | 0 | 200 | ||||||||||||
Derivative financial liabilities | 0 | -1,705 | 0 | -1,705 | ||||||||||||
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Total | 0 | -1,505 | 0 | -1,505 | ||||||||||||
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In EUR thousands | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
As of 31 December 2010 | ||||||||||||||||
Derivative financial assets | 0 | 244 | 0 | 244 | ||||||||||||
Derivative financial liabilities | 0 | -1,143 | 0 | -1,143 | ||||||||||||
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Total | 0 | -899 | 0 | -899 | ||||||||||||
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Capital management
The objective of VAC Holding Group is to strengthen its equity base to increase the degree of reliance for lenders, investors and market participants and to reinforce its position for future business activities. Capital consists of share capital, capital reserve, hybrid capital, other equity components, deferred dividend to shareholder and consolidated results carried forward. Main target of VAC Holding Group is the reduction of debt to equity ratio.
During the effectiveness of the financing contracts as described in note 19 of these consolidated financial statements the Group has no permission to make any dividend payments or any repayments of any equity components to the Shareholder.
Within the reporting year the Group did not change its philosophy of capital management. Due to the strong economic recovery of the Group in FY 2010 the target could be achieved for the first time after some years of significant consolidated losses.
53
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
25. | Operating leases |
Leases as lessee
Obligations arising from non-cancellable operating leases are broken down as follows:
In EUR thousands | 31 Dec. 10 | 31 Dec. 09 | ||||||
Payable within one year | 1,594 | 1,490 | ||||||
Payable between one and five years | 1,323 | 1,551 | ||||||
Payable after five years | 0 | 0 | ||||||
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Total | 2,917 | 3,041 | ||||||
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In financial year 2010, VAC Holding Group recognised EUR 2,838 thousand (previous year: EUR 1,773 thousand) operating lease expenses in the income statement. The operating leases relate mainly to rented production areas. VAC Holding Group has the option to renew the leases on these rented premises valid between one and five years.
26. | Contingent assets and other financial obligations |
As described in note 3 of these consolidated financial statements based on the contract underlying the acquisition of VAC Magnetics Group on 8 December 2005 there are some tax cases and some tax audits still pending re the periods and companies where the former owner of the Group will be obliged to compensate for all related future tax payments. One of these cases is related to German VAT in the amount of EUR 1.3 million and a lawsuit was filed to the Court of Finance in Kassel, Germany, and the Group assumes that the affected VAT handling will be confirmed as acceptable under the circumstances.
However this VAT case may be settled in the future the Group is in the following position: Either the final ruling will be positive in the sense of the Group and VAC will be able to derecognise the respective liability of EUR 1.3 thousand (recognised in 2009) through the income statement on the date of the decision as profit. Or the final ruling will be negative in the sense of the Group and the former owner of the Group will be obliged to indemnify the Group against the payment of the accrued VAT amount including cumulated interest imposed thereon by the Court. Such indemnification will then also be recognised as profit through the consolidated income statement.
As of the balance sheet date it is not clear when and from which side the profit will flow to the Group this case is deemed to be a contingent asset and such no receivable was recognised so far.
In the year ended 31 December 2010 VAC Holding Group entered into agreements relating to the purchase and delivery of plant, equipment, land and buildings for EUR 4,525 thousand (previous year: EUR 1,356 thousand).
IT services and products required by the VAC Group are mainly provided by a third party service provider (Siemens IT Solutions and Services GmbH). The master services agreement governing the contractual relationship has a fixed term until 31 May 2013. The annual order volume amounts to EUR 4.5 million.
54
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
27. | Related parties |
Identity of related parties
VAC Holding Group has related party transactions with the active management personnel (managing directors and the directors of business segments and some major departments), the Shareholder and the joint venture SANVAC.
Transactions with management personnel
In addition to remuneration, VAC Holding Group also provides non-cash benefits to management personnel, and contributes to a defined benefit pension plan for this group. In accordance with the terms of the plan, management personnel are entitled to receive annual payments following their retirement.
Total remuneration included in personnel expenses amount to:
In EUR thousands | 2010 | 2009 | ||||||
Management personnel remuneration | 2,203 | 2,035 | ||||||
Increase in defined benefit obligations to management personnel | 252 | 139 | ||||||
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Total | 2,455 | 2,174 | ||||||
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Transactions with the Shareholder
In financial year 2005, VAC LuxCo lent EUR 64,780 thousand to VAC Holding with a fixed annual interest rate of 8%. The shareholder loan was agreed to fall due in December 2017. The interest on the loan is not paid, but instead compounded.
Through a multilateral contract, signed in November 2008 between the Shareholder, the management of VAC KG, the trade union and the workers council, the Shareholder agreed to waive the interest on the shareholder loan for the FYs 2009 and 2010. So no interest was recorded regarding the loan in 2009.
At the end of December 2009, in anticipation of the signing of the Seventh Amendment to the financing contracts with the bank syndicate which was signed on 6 May 2010, the Shareholder converted his entire shareholder loan, including all accrued interest, in the overall amount of EUR 67,039 thousand, into a hybrid equity instrument as already described in notes 18 and 19.
As of 31 December 2010 for IFRS reporting purposes the liability from the shareholder loan and the accrued interest is set to nil (previous year: EUR 0 thousand).
As the above mentioned collective wage bargaining agreement for financial years 2009 and 2010 phased out on 31 December the calculation of interest will be resumed starting on 1 January 2011. For IFRS reporting purposes the shareholder loan interest recognised for local GAAP and tax purposes will then be presented as deferred dividend to the Shareholder corresponding to the handling of the hybrid bond interest.
On 15 April 2010 the Group paid the interest due on the high-yield notes. Those interests in the amount of EUR 3.7 million related to the notes held by the Shareholder were paid out via the bond paying agent to the Shareholder. According to the agreements with the banking syndicate these funds were transferred after receipt from the Shareholder to the Group and contributed into the capital reserves of VAC Holding. On 15 October 2010 the shareholder received interest in the amount of EUR 6 thousand for the remaining part of the notes in the amount of EUR 129 thousand.
55
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
The loans granted by the Company to the shareholder VAC LuxCo with a fixed annual interest rate of 8% are not affected by the changes to the shareholder loan as described above. The loans paid out to the shareholder are intended to finance the current administrative expenses of the shareholding company. The principal amount before any accrued interest at the end of FY 2009 totalled to EUR 890 thousand, the Company granted in financial year 2010 additional EUR 1,270 thousand in several instalments at the same conditions as the loans in prior years.
As of 31 December 2010 the total intercompany loan receivables amount to EUR 2,439 thousand (previous year: EUR 1,042 thousand), comprising an overall principal amount including accrued interest of EUR 2,312 thousand (previous year: EUR 970 thousand) and interest receivables of EUR 127 thousand (previous year: EUR 72 thousand).
For further details please refer to notes 18 and 19 of the consolidated financial statements.
Transactions with the joint venture SANVAC
In FY 2010 the Permanent Magnets Business Unit of the Group purchased permanent magnets for EUR 2,507 thousand (previous year: EUR 2,443 thousand) manufactured by the SANVAC joint venture. In accordance with the joint venture agreement, the magnets were purchased indirectly via a trading company. This merchandise was then sold to various customers of our Permanent Magnets division.
Managing directors
During the year under review, there were no changes to the management of the Group, which consisted of Ms. Andrea Bauer, Dr. Kurt Baderschneider and Dr. Hartmut Eisele.
56
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
28. | Group companies |
Control of the Group
VAC Holding is a wholly owned subsidiary of VAC Luxembourg S.à r.l. with registered office in Luxembourg. The ultimate parent is JPMorgan Chase, New York, USA. The consolidated financial statements of VAC Holding Group are not part of the consolidated financial statements of JPMorgan Chase.
Subsidiaries
All foreign currency amounts in thousand units
Figures as of 31 December | Country | Ownership interest 2009 | Currency | Total equity 2009 | Profit/loss 2009 | |||||||||||||||
Vacuumschmelze (Singapore) Pte. Ltd. | Singapore | 100 | % | SGD | 657 | 97 | ||||||||||||||
VAC Beteiligungs-GmbH | Germany | 100 | % | EUR | 108,005 | 0 | ||||||||||||||
VAC Netherlands B.V | Netherlands | 100 | % | EUR | 40,735 | -154 | ||||||||||||||
VAC Germany GmbH | Germany | 100 | % | EUR | 101,780 | 0 | ||||||||||||||
VAC Finanzierung GmbH | Germany | 100 | % | EUR | 102,812 | 0 | ||||||||||||||
VAC Verwaltungs-GmbH | Germany | 100 | % | EUR | 11 | -7 | ||||||||||||||
VACUUMSCHMELZE GmbH & Co. KG | Germany | 100 | % | EUR | 9,203 | 0 | ||||||||||||||
Vacuumschmelze Malaysia Sdn. Bhd, | Malaysia | 100 | % | MYR | 30,180 | 369 | ||||||||||||||
Vacuumschmelze, s.r.o. | Slovakia | 100 | % | EUR | 17,061 | 145 | ||||||||||||||
Vacuumschmelze China Magnetics (Shenyang) Co., Ltd. | China | 100 | % | CNY | 116,504 | 21,447 | ||||||||||||||
VAC Sales USA LLC | USA | 100 | % | USD | 390 | 89 | ||||||||||||||
VAC Magnetic France S.a.r.l. | France | 100 | % | EUR | 60 | 13 | ||||||||||||||
VAC Magnetic Japan K.K. | Japan | 100 | % | JPY | 3,750 | 761 | ||||||||||||||
VAC Magnetic Korea YH | Korea | 100 | % | KRW | 68,113 | 8,481 | ||||||||||||||
VAC International Holding GmbH | Germany | 100 | % | EUR | 3,025 | 0 | ||||||||||||||
VAC Magnetic Finland Oy | Finland | 100 | % | EUR | 2,537 | -176 | ||||||||||||||
Neorem Magnets Oy | Finland | 98.0 | % | EUR | 8,687 | 865 | ||||||||||||||
Neorem Magnets Ningbo Co. Ltd. | China | 58.9 | % | CNY | 36,073 | 9,057 |
All foreign currency amounts in thousand units
Figures as of 31 December | Country | Ownership interest 2010 | Currency | Total equity 2010 | Profit/loss 2010 | |||||||||||||||
Vacuumschmelze (Singapore) Pte. Ltd. | Singapore | 100 | % | SGD | 763 | 106 | ||||||||||||||
VAC Beteiligungs-GmbH | Germany | 100 | % | EUR | 108,005 | 0 | ||||||||||||||
VAC Netherlands B.V | Netherlands | 100 | % | EUR | 40,629 | -106 | ||||||||||||||
VAC Germany GmbH | Germany | 100 | % | EUR | 101,780 | 0 | ||||||||||||||
VAC Finanzierung GmbH | Germany | 100 | % | EUR | 102,812 | 0 | ||||||||||||||
VAC Verwaltungs-GmbH | Germany | 100 | % | EUR | 31 | 1 | ||||||||||||||
VACUUMSCHMELZE GmbH & Co. KG | Germany | 100 | % | EUR | 9,203 | 0 | ||||||||||||||
Vacuumschmelze Malaysia Sdn. Bhd, | Malaysia | 100 | % | MYR | 31,111 | 932 | ||||||||||||||
Vacuumschmelze, s.r.o. | Slovakia | 100 | % | EUR | 18,501 | 1,578 | ||||||||||||||
Vacuumschmelze China Magnetics (Shenyang) Co., Ltd. | China | 100 | % | CNY | 131,014 | 13,448 | ||||||||||||||
VAC Sales USA LLC | USA | 100 | % | USD | 471 | 81 | ||||||||||||||
VAC Magnetic France S.a.r.l. | France | 100 | % | EUR | 82 | 22 | ||||||||||||||
VAC Magnetic Japan K.K. | Japan | 100 | % | JPY | 6,393 | 2,643 | ||||||||||||||
VAC Magnetic Korea YH | Korea | 100 | % | KRW | 74,428 | 6,315 | ||||||||||||||
VAC International Holding GmbH | Germany | 100 | % | EUR | 3,025 | 0 | ||||||||||||||
VAC Magnetic Finland Oy | Finland | 100 | % | EUR | 2,258 | -279 | ||||||||||||||
Neorem Magnets Oy | Finland | 98.0 | % | EUR | 9,580 | 892 | ||||||||||||||
Neorem Magnets Ningbo Co. Ltd. | China | 58.9 | % | CNY | 33,267 | 5,366 |
For detailed information regarding the acquisition and establishment of subsidiaries, please refer to note 3.
57
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
Employees
As of 31 December 2010 VAC Holding Group had 4,621 employees (previous year: 3,717). The average number of employees for financial year 2010 was 4,215 employees (previous year: 3,427). These headcount figures are calculated on a full-time equivalent basis.
One driver to the huge increase in the actual figures compared to the previous year figures is the fact that in Germany the contracts of the tariff-based employees were restored to their original full-time or part-time working hours and all reductions in working time in Germany were drawn back in order to align the working capacity to the necessary step-up in sales related production. So in Germany this alignment could be achieved rapidly because the well trained employees who could have been kept within the crisis through the numerous cost saving efforts then could immediately increase the production output.
Another driver is that at the foreign sites the Group companies had to employ new workforce. However in the first months the positive effects from this increase in headcount was partly offset by foreseeable losses in efficiency due to the lack of training and experience regarding the new workers.
Employees by function as of 31 December:
31 Dec. 10 | 31 Dec. 09 | |||||||
Production | 3,856 | 3,022 | ||||||
Administration | 537 | 482 | ||||||
Sales | 131 | 121 | ||||||
Research and development | 97 | 92 | ||||||
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Total | 4,621 | 3,717 | ||||||
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Average number of employees by function during the year:
2010 | 2009 | |||||||
Production | 3,488 | 2,748 | ||||||
Administration | 504 | 470 | ||||||
Sales | 127 | 121 | ||||||
Research and development | 96 | 88 | ||||||
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Total | 4,215 | 3,427 | ||||||
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29. | Subsequent events |
The Group in its entirety has been acquired on 2 August 2011 by the new sole shareholder OMG Germany as already described in note no. 1 (A) “Reporting entity”. This change in ownership subsequently causes some corporate restructuring steps in Germany. As one of these steps VAC Holding GmbH was merged into the new parent company OMG Germany Holding GmbH and ceased to legally exist on 23 September 2011 when the merger was recorded into the files of OMG Germany Holding GmbH at the Commercial Registry.
In the course of the execution of the Sale and Purchase Agreement during the flow of funds on 2 August 2011 the financing structure as described in note no. 19 “Interest-bearing loans and liabilities” is significantly changed. All senior bank loans and the senior secured notes due to third parties as detailed in the above mentioned note 19 were paid back to the lenders in accordance with the respective contractual terms and conditions of the financing contracts. These borrowings were then replaced by intercompany loans due by the former borrowers of the loans and the notes to the new owner of the Group.
58
VAC Holding GmbH, Hanau, Consolidated Financial Statements for the year ended 31 December 2010
Notes to the Consolidated Financial Statements
30. | Approval for publication |
These consolidated financial statements for 2010 were prepared according to IFRSs as published by the IASB for the special purpose of being published according to SEC requirements and were approved for publication by management on 12 October 2011.
Dr. Hartmut Eisele | Andrea Bauer | |
Managing director of | Managing director of | |
OMG Germany Holding GmbH | OMG Germany Holding GmbH | |
as legal successor of | as legal successor of | |
VAC Holding GmbH | VAC Holding GmbH |
59