Quarterly Report • Nov 3, 2011
Quarterly Report
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Financial Report as of September 30, 2011
The positive development of the Continental share price that had prevailed since the beginning of the year halted in the third quarter of 2011 in mid July. Prior to this, the Continental share price had reached a new multi-year high of €76.28 on July 7, its highest price since May 30, 2008. The downward trend after July 7, 2011, was triggered by the start of the reporting season in the automotive sector regarding the development of company results in the first half of 2011. While the performance in the second quarter was convincing, many companies had to admit that, partly due to the higher prior-year basis from the second half of 2010, the development in the second half of 2011 would at best be as good as that in the first half of 2011. Due to the strong performance of automotive manufacturers' and suppliers' shares to date, there was already initial profit-taking in the sector at this point. Our half-year figures reported on July 29, 2011, received a positive response and the Continental share significantly outperformed the automotive and automotive supplier sector as a whole for a short period, not least as a result of the increase in the sales and earnings targets for 2011.
The cause of the plunge in share prices on the European stock exchanges is difficult to identify even in retrospect. The fact is that the DAX slumped by a total of 24% over eleven consecutive trading days in the period from July 26 to August 10, 2011. The main events during this period were firstly the struggle of the political parties in the U.S.A. to resolve an increase in the U.S. debt ceiling that had become necessary after the limit of \$14.3 trillion was reached and that was not formally agreed until August 3 after long negotiations. In addition, on August 6 the U.S.A. lost the highest credit rating from rating agency Standard & Poor's, which lowered its rating from AAA to AA+, partly due to the sluggish development of the U.S. economy.
In Europe, meanwhile, the tug-of-war over an agreement on a comprehensive solution to the debt crisis continued, especially after increasing indications that, despite all austerity efforts, Greece would not be able to achieve the targets set by the troika (EU, European Central Bank/ECB and International Monetary Fund/IMF) for 2011. There was also growing speculation that, in addition to a further downgrade of Italy's credit rating, France could also potentially lose its top credit rating, as some French banks would suffer particularly from a possible default by Greece. Just this risk and the potential consequences of the recently resolved but not yet ratified expansion of the EFSF (European Financial Stability Facility) and the ESM (European Stability Mechanism) were enough to further destabilize the already very nervous situation on the markets. In addition to the bank shares, the cyclically sensitive shares from the automotive sector also suffered particularly in this phase, losing almost 100 index points and thus falling by 27% to 265 index points by
| Sept. 30, 2011 | vs. Dec. 31, 2010 | |
|---|---|---|
| Continental | 43.64 | -26% |
| DJ EURO STOXX 50 | 2,179.66 | -22% |
| DAX | 5,502.02 | -20% |
| MDAX | 8,341.08 | -18% |
| DJ EURO STOXX Automobiles & Parts | 240.00 | -28% |
August 10, 2011. Continental's shares were also unable to escape this trend, since companies with comparatively higher leverage (ratio of net debt to equity) were particularly hard hit by the downturn on the market. Continental shares decreased in value by 28% by August 10 and, like the DAX and the DJ EURO STOXX Automobiles & Parts, marked a temporary low for the year of €45.17 on August 22, 2011.
Not until the announcement by the U.S. central bank (Federal Reserve/Fed) that it did not expect to raise the interest rate within the next 24 months, together with hopes of interest cuts by the ECB, did the market stabilize at the new level at least until early September with a cautious movement in the opposite direction. Over the rest of the third quarter, the DAX fluctuated within a range of more than 550 index points. This unusually high volatility was due firstly to economic data that contrasted with the negative market development and secondly to continuous new negative surprises in combating the European debt crisis. For instance, in the course of the debate concerning a solution to the debt situation in Greece, it became increasingly clear that a sustainable solution would not be possible without greater participation by private creditors than had previously been envisaged. Very specific signs of a possible default by Greece pushed the DAX down to a temporary low for the year of 5,072 points on September 12, 2011. The Continental shares, at €40.97, as well as the index for the automotive and automotive supplier sector fell to their temporary low for the year on September 12, losing 46% and 38% respectively at this point as compared to their highest values.
The uniform positive image that automotive manufacturers and suppliers presented at the IAA International Motor Show, together with progress in combating the debt crisis in Europe, contributed to a rise of roughly 16% in Continental's share price in the following week, before the downgrade of Italy's credit rating and statements by the Chairman of the Board of Governors of the U.S. Fed on the state of the U.S. economy ("There are significant downside risks to the economic outlook") destabilized the markets again. Reports that the EFSF could possibly be structured along the lines of the U.S. TARP funds (Troubled Asset Relief Program) and progress in the EU ratification process for the EFSF and the ESM also resulted only in "interim rallies" on the market.
Continental's shares finally closed the third quarter of 2011 at €43.64, down by 40% as against June 30, while the automotive sector performed around 6 percentage points better with a decline of 34%. In the same period, the value of the DAX fell by more than 25%.
With regard to the first nine months, the performance of Continental's shares amounted to -26%. As such, at the reporting date September 30, 2011, it was approximately 2 percentage points better than the sector index, which had lost around 28%. The DAX declined by 20% in the same period.
In October, Continental's share stabilized above the 50-euro mark again, after the management had already placed the focus in capital market communication on explaining the debt situation and the consequences of a possible economic downturn for Continental in 2012 at the end of August. In the first two weeks of October, Continental's share price outperformed the automotive sector by more than 7 percentage points. The DAX also moved back towards the 6,000-point mark. This was encouraged by an increasingly uniform policy of all member states in combating the debt crisis in Europe, for instance the successful ratification of the expansion of the EFSF and the ESM by all 17 member states, as well as some better-than-expected economic data.
| December 31, 2010 | Rating | Outlook |
|---|---|---|
| Standard & Poor's | B | stable |
| Moody's | B1 | stable |
| September 30, 2011 | Rating | Outlook |
| Standard & Poor's | B+ | positive |
Like the shares, the four bonds issued by Continental also suffered considerably from the very nervous market development in the third quarter of 2011, falling by 8 percentage points on average with three of the four bonds trading at significantly below their issue price. Only the bond with the shortest term (July 2015) maintained a price above the issue price. Conversely, the insurance premium for a possible default by Continental, expressed in the credit default swap (CDS), increased to almost 600 basis points. These levels had not been seen since September 2009. If the value of the CDS is translated into a probability of default, then during the third quarter the market assessment put this probability at more than 30%, which – in light of Continental's comfortable financing situation until 2014 – must be read as a clear signal of the massive loss of confidence in the European banking system. Only with the stabilization on the equity and credit markets observed since October did the Continental bonds recover in value significantly. On October 24, 2011, three of the four bonds (those with terms until 2015, 2016 and 2017) were quoting at above their issue price again and the other one was less than 1 percentage point below it.
| in € millions | January 1 to September 30 | Third Quarter | ||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Sales | 22,592.6 | 19,144.2 | 7,714.4 | 6,489.8 |
| EBITDA | 3,109.8 | 2,611.2 | 1,037.1 | 786.9 |
| in % of sales | 13.8 | 13.6 | 13.4 | 12.1 |
| EBIT | 1,916.7 | 1,376.2 | 635.7 | 365.1 |
| in % of sales | 8.5 | 7.2 | 8.2 | 5.6 |
| Net income attributable to the shareholders of the parent | 893.7 | 363.0 | 210.7 | 14.1 |
| Earnings per share (in €) | 4.47 | 1.82 | 1.05 | 0.07 |
| Adjusted sales1 | 22,412.4 | 19,140.3 | 7,606.6 | 6,489.8 |
| Adjusted operating result (adjusted EBIT)2 | 2,227.0 | 1,794.2 | 743.7 | 484.9 |
| in % of adjusted sales | 9.9 | 9.4 | 9.8 | 7.5 |
| Free cash flow | -54.0 | -169.8 | -90.9 | -125.9 |
| Net indebtedness at September 30 | 7,297.4 | 8,092.1 | ||
| Gearing ratio in % | 103.3 | 137.9 | ||
| Number of employees at September 303 | 164,078 | 146,190 |
1 Before changes in the scope of consolidation.
Before amortization of intangible assets from the purchase price allocation (PPA),
changes in the scope of consolidation, and special effects.
3 Excluding trainees.
2
| Automotive Group in € millions | January 1 to September 30 | Third Quarter | ||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Sales | 13,676.2 | 11,780.2 | 4,605.4 | 3,921.3 |
| EBITDA | 1,655.4 | 1,295.1 | 572.5 | 344.8 |
| in % of sales | 12.1 | 11.0 | 12.4 | 8.8 |
| EBIT | 781.1 | 393.4 | 278.1 | 32.7 |
| in % of sales | 5.7 | 3.3 | 6.0 | 0.8 |
| Depreciation and amortization1 | 874.3 | 901.7 | 294.4 | 312.1 |
| – thereof impairment2 | 0.9 | 18.9 | 0.4 | 18.5 |
| Capital expenditure3 | 588.7 | 430.4 | 213.4 | 192.4 |
| in % of sales | 4.3 | 3.7 | 4.6 | 4.9 |
| Operating assets at September 30 | 11,425.7 | 11,456.3 | ||
| Number of employees at September 304 | 95,205 | 85,368 | ||
| Adjusted sales5 | 13,560.2 | 11,780.2 | 4,538.4 | 3,921.3 |
| Adjusted operating result (adjusted EBIT)6 | 1,096.0 | 765.8 | 366.6 | 158.9 |
| in % of adjusted sales | 8.1 | 6.5 | 8.1 | 4.1 |
| Rubber Group in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sales | 8,936.0 | 7,380.8 | 3,115.6 | 2,574.2 | |
| EBITDA | 1,490.8 | 1,355.5 | 483.1 | 442.6 | |
| in % of sales | 16.7 | 18.4 | 15.5 | 17.2 | |
| EBIT | 1,173.1 | 1,024.3 | 376.4 | 333.6 | |
| in % of sales | 13.1 | 13.9 | 12.1 | 13.0 | |
| Depreciation and amortization1 | 317.7 | 331.2 | 106.7 | 109.0 | |
| – thereof impairment2 | -3.2 | 16.5 | -2.6 | 2.2 | |
| Capital expenditure3 | 439.9 | 351.3 | 190.0 | 159.6 | |
| in % of sales | 4.9 | 4.8 | 6.1 | 6.2 | |
| Operating assets at September 30 | 4,891.3 | 4,311.6 | |||
| Number of employees at September 304 | 68,607 | 60,588 | |||
| Adjusted sales5 | 8,871.8 | 7,376.9 | 3,074.8 | 2,574.2 | |
| Adjusted operating result (adjusted EBIT)6 | 1,193.5 | 1,081.0 | 398.2 | 345.5 | |
| in % of adjusted sales | 13.5 | 14.7 | 13.0 | 13.4 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
On September 29, 2011, the Supervisory Board appointed Elke Strathmann as an ordinary member of the Executive Board. The mathematician and human resources professional will take up her duties in the first quarter of 2012 and will be responsible for the HR function as well as acting as director of labor relations. Her contract will initially have a term of three years. The current Executive Board member for HR, Heinz-Gerhard Wente, will concentrate on his duties as head of the ContiTech division and also take on responsibility for Corporate Purchasing in the Executive Board. At the same time, the contracts of four Executive Board members were extended: those of Dr. Ralf Cramer (Chassis & Safety division), Helmut Matschi (Interior division), and Nikolai Setzer (Tires division) by five years to August 12, 2017, and that of Heinz-Gerd Wente (ContiTech division) by two years to April 30, 2014.
On October 8, 1871, nine bankers and industrialists founded Continental in Hanover as a joint stock company under the name "Continental-Caoutchouc & Gutta-Percha Compagnie". The share capital at the time – around 300,000 thalers – corresponds to a present-day purchasing power of approximately €6.3 million. At the parent plant in Hanover, a workforce of around 200 employees manufactured, among other things, soft rubber products such as hot water bottles, toy dolls and rubberized fabrics, as well as solid tires for carriages and bicycles. Sales in the 1880s amounted to roughly 3.3 million marks, corresponding to a present-day purchasing power of around €21.5 million. In 2010, the Continental Corporation reported worldwide sales of €26 billion.
The ContiWinterContact TS 800 and the Conti-WinterContact TS 830 came top in the segments of both sub-compact and compact and medium-sized vehicles in winter tire tests by the automobile clubs ADAC (Germany), ÖAMTC (Austria) and TCS (Switzerland) and by the consumer organization Stiftung Warentest. A total of 30 tire models from European, American and Asian manufacturers were tested.
At the International Motor Show (IAA) in Frankfurt, Renault presented two electric series production vehicles – the Kangoo Z.E. and Fluence Z.E. models – equipped with drive motors, power electronics und electric vehicle controllers from Continental. Renault is using Continental motors of up to 70 kW and 226 Nm. In comparison to a conventional combustion engine, which weighs roughly 80 kg (engine capacity of 1.2 liter) to 150 kg (engine capacity of 2 liter) excluding transmission, Continental's electric motor is far lighter with a mass of 77 kg.
In the new MK C1 brake, the brake actuation, brake booster and control system (ABS, ESC) functions are combined in a compact and lightweight brake module. The electrohydraulic MK C1 can build up braking pressure considerably faster than conventional hydraulic systems and therefore fulfils the increased pressure dynamics requirements for new driver assistance systems for avoiding accidents and protecting pedestrians.
The new emergency brake assist based on costeffective sensor technology is already reaching medium-sized and sub-compact cars. Many new models were presented at the IAA with this system, which, in dangerous situations, fully applies the brakes automatically at city driving speeds of under 30 km/h.
With optimized injection systems, manufacturers of future high-performance diesel engines want to achieve better fuel distribution in the cylinder. This is accompanied by consumption and emission levels that are substantially lower than in today's engines. The prerequisites for this are considerably higher operating pressures and temperatures in the whole fuel system. Now for the first time ContiTech has brought to production readiness fuel lines that can withstand future system pressures of significantly over 2,000 bar in diesel injection systems and supply pressures of up to 75 bar.
Car drivers will in future be able to open and start their vehicles using their cell phones. For this purpose, we are developing a digital car key. The key in the cell phone allows for simple individualization, as the personal settings for the vehicle are saved in the cell phone. In addition, mobility concepts such as rental cars and carsharing systems can be realized easily with the digital cell phone key, as the key can be transferred digitally and no longer needs to be deposited at high expense.
The situation in Europe and the U.S.A. intensified in the third quarter. Europe began to show more indications of a slowdown in economic activity. Spain and Italy as well as France and Germany reported a virtually 0% increase in gross domestic product (GDP) for the second quarter versus the first quarter of 2011, confirming fears that the economic slowdown in the EU would occur earlier than originally expected.
Whilst in Europe the search for a solution for the debt crisis continued, the credit rating downgrade by Moody's rating agency in particular showed that to date all efforts by the U.S.A. to stimulate the economy have hardly had the desired effect. In particular, the situation on the labor market that is so important to the U.S.A. (roughly three quarters of U.S. economic output depends on consumption by its own citizens) must be considered unsatisfactory. The unemployment rate is still above 9%. Although the media are focusing on these two regions, which are extremely important to the global economy, the fact remains that the situation in the Middle East is also far from being stable. In addition, there are increasing signs that economic growth in emerging and developing economies is also slowing considerably in some cases. The development in Brazil in particular failed to impress the markets recently and led the Brazilian government to lower interest rates by 50 basis points in early September 2011. But there are also increasing signs now in China as well that the measures undertaken by the Chinese government to cool the economy are having a positive effect. The target here is annual GDP growth in the high single-digit range. Given the weakening of economic growth in Europe and the U.S.A., there were however isolated fears that in view of China's high dependency on exports, GDP growth there could decline faster than intended by the government. During the third quarter, the markets sent a very clear message on the state of the global economy: In Europe in particular, the price quotations and therefore the valuations – especially for cyclical companies (those highly dependent on economic development) – were close to the values last observed during the economic crisis in 2009. In this context, the IMF lowered its growth forecasts for the global economy for the current year and 2012 by 30 and 50 basis points respectively to the current level of 4% for each year in its most recent update from September 2011. The adjustments for the U.S.A. were the most significant. Here, the IMF reduced its growth forecast even for the current year by a full percentage point to 1.5%. For 2012, the IMF now expects only a moderate rise in GDP of 1.8%. The IMF also lowered its estimates for the euro zone by 40 and 60 basis points respectively and now anticipates growth of 1.6% in the current year and 1.1% in 2012. The substantial revision of the 2012 growth rates is partly due to the reduction in the forecast for Germany, which the IMF lowered by 70 basis points to growth of 1.3% in 2012. However, this is still significantly higher than the rate published in the economic research institutes' fall assessment in early October, where the estimate for growth in the German economy in 2012 ranged between 0.8% and 1.2%.
According to the IMF, Japan is the only advanced economy with positive differences for 2011, although this is chiefly due to a faster recovery of the Japanese economy after the natural disaster in March 2011. Here, too, the IMF has lowered its growth forecast for 2012 by 60 basis points to 2.3%. Overall, this results in growth of just 1.6% in 2011 and 1.9% in 2012 for the advanced economies, with Japan seen as the main driver of the recovery.
Among the emerging and developing economies, the IMF reports adjustments ranging between -0.1% and -0.5% for the BRIC countries (Brazil, Russia, India and China) for 2011. For 2012, the difference for the BRIC countries was 0.0% to -0.5% as of the last forecast. Whereas the most substantial revision for 2011 was recorded for Russia (down 50 basis points to economic output representing growth of only 4.3% in comparison to 2010), in 2012 this relates to China (down 50 basis points to economic growth of 9.0%). Overall, the revision for the emerging and developing economies amounts to 20 basis points to economic growth of 6.4% in 2011 and 30 basis points to economic output of 6.1% in 2012.
The IMF's lowered forecasts for the development of the global economy in 2012 were recently followed by even lower figures. For example, a U.S. investment bank already anticipates global economic growth of only 3.5% for 2012, with the euro zone expected to grow by just 0.1%. For the U.S.A., the investment bank also forecasts growth of just 0.5%. According to these figures, the U.S.A. and Europe would be in recession in the fourth quarter of 2011 and the first quarter of 2012.
| Jan. 1 to Sept. 30, 2011 |
Jan. 1 to Sept. 30, 2010 |
Change | Q3 2011 | Q3 2010 | Change | |
|---|---|---|---|---|---|---|
| Europe (E27+EFTA) | 10.5 | 10.6 | -1% | 3.1 | 3.1 | 1% |
| Russia | 1.9 | 1.3 | 45% | 0.7 | 0.5 | 29% |
| USA | 9.5 | 8.6 | 10% | 3.2 | 3.0 | 6% |
| Japan | 2.6 | 3.5 | -25% | 1.0 | 1.2 | -18% |
| Brazil | 2.5 | 2.4 | 7% | 0.9 | 0.9 | 2% |
| India | 1.9 | 1.8 | 9% | 0.6 | 0.6 | -5% |
| China | 8.7 | 8.1 | 8% | 2.8 | 2.7 | 4% |
| Worldwide | 55.5 | 52.7 | 5% | 18.0 | 17.3 | 4% |
Source: VDA and Renault
Based on preliminary data, new passenger car registrations increased by 5% year-on-year to 55.5 million units worldwide in the first nine months of 2011. Compared to the first half of the year, in which new registrations were up by 6%, this represents a slowdown in growth of one percentage point. This is due in particular to the development of sales volumes on the Indian and Brazilian vehicle markets, where new registrations fell by 5% and increased by 2% respectively in the third quarter, not only as a result of the high prior-year basis. As in the first half of the year, the growth drivers in the third quarter were still the vehicle markets in the U.S.A., China and Russia. In the U.S.A., despite sales volumes flattening out temporarily in the summer months of July and August, 6% more vehicles were sold in the third quarter than in the same quarter of the previous year. In China, sales volumes were up 4% year-on-year in the third quarter. Russia recorded growth of 29% in the same period, due not least to the continuing sales promotion measures. The rise in new registrations on the Russian vehicle market therefore amounts to 45% after the first nine months of 2011 compared with the same period of the previous year. In Europe, third-quarter new registrations remained at the strong level of the previous year despite the persistent debt problems in the "PIIGS" countries (Portugal, Italy, Ireland, Greece and Spain). In the first nine months, Europe saw only a slight decrease in new registrations of 1% to 10.5 million units. In Japan, the situation is also beginning to normalize following the natural disaster in March 2011. New registrations in the third quarter were only 18% lower than in the same quarter of the previous year, whereas in the second quarter there had been a year-on-year decline of 34%. In September 2011, 392,000 new vehicles were registered in Japan – already almost as many as in the previous year (September 2010: 400,663 units). However, the floods in large parts of Thailand are again threatening the supply situation in Japan which had only recently stabilized. According to preliminary figures, 18.0 million vehicles were newly registered worldwide in the third quarter of 2011.
In the third quarter of 2011, production of light vehicles (passenger cars and light commercial vehicles) also rose by 5% to approximately 18.2 million units according to preliminary figures. This meant that, for the first time in two quarters, production was again higher than the number of new registrations. The worldwide accumulation of stock in the third quarter therefore amounted to around 212,000 units. For the first nine months, however, new registrations were still in excess of production by almost 1.1 million units. The main reason for this stock reduction remains the loss of production by Japanese manufacturers following the natural disaster in Japan. However, at 2.2 million units, third-quarter production in Japan was already back at more than 90% of the level from the same period of the previous year. In Europe, production increased by roughly 5% to 4.4 million units in the third quarter. NAFTA also generated growth on a similar scale. For the two regions together, there was an output of 7.6 million units, corresponding to a growth rate of 4.9%. Compared to the second quarter of 2011, this represents a decline of roughly 800,000 units, attributable primarily to seasonal effects. Continental generated approximately 75% of its 2010 automotive sales in these regions (Europe and NAFTA). The development in the first nine months of 2011 largely confirms our expectations for the development of global production volumes. In Europe, if the momentum is maintained in the fourth quarter, production may even be slightly higher than the forecast volume of 19.5 million units. Worldwide, we continue to anticipate a production volume of 74 to 75 million units for 2011 as a whole.
Production of heavy vehicles (commercial vehicles) in NAFTA grew by 54% in the first nine months of 2011. Compared to the first half of the year (up 51% on the first half of 2010), this again represents a slight increase in the pace of growth, which can nonetheless still be considered extremely solid in light of the recent weak economic data for the U.S.A. Our forecast prepared at the beginning of the year, which we revised upwards in our report on the first half of 2011, again proved to be too conservative. We are now anticipating growth of 48% to 375,000 units for NAFTA. In Europe, the pace of growth in the commercial vehicle OE business slowed further in the third quarter of 2011. After a 69% increase as of the end of the first quarter and growth of 49% after six months, the increase after nine months is only 45%. For the year as a whole, we anticipate production of 540,000 units, which is equivalent to growth of 37%.
Demand for replacement passenger and light truck tires in Europe continued to develop positively in the third quarter of 2011. Despite the price increases that were necessary due to the massive leap in rubber prices, growth in our most important tire market amounted to 6% after nine months. With enormous growth rates of over 20% in the third quarter, the strong winter tire business in particular more than compensated for the slowdown in summer tire business. For the year as a whole, we are maintaining our forecast of 4% growth in replacement tire business in Europe.
The NAFTA market, however, developed differently. Accelerated growth early in the year resulted in a drop in demand from the retail trade over the course of the year due to the effects of stockpiling. Nonetheless, August and September just compensated for the weak demand in July, resulting in a slight overall decrease of 1% for the North American replacement tire market in the first nine months of 2011. In light of this, our forecast prepared at the beginning of the year, which assumed growth in demand of 3% for 2011, seems overly optimistic. We now anticipate stabilization at the previous year's level of 255 million tires.
Demand for replacement commercial vehicle tires in Europe and NAFTA has leveled out considerably in recent months. After an increase of 14% for the European market and 16% for NAFTA in the first six months of 2011, growth fell to a total of 5% for the European replacement business and 11% for the replacement business in NAFTA after the first nine months. Certain indicators of transport volumes have fallen in the past months. For example, the index for the distance traveled by trucks on German roads calculated by the German Federal Office for Goods Transport declined from 6.8% at the end of the first quarter to 4.8% at the end of July. The freight tonnage index calculated by the American Truckers Association also decreased most recently in August 2011 to 114 points, putting it 160 basis points below the level recorded in the first quarter of 2011. We are therefore lowering our forecast for the replacement tire business in Europe from 8% to 3% for 2011 as a whole. However, for NAFTA we continue to expect growth of at least 9% in 2011.
Consolidated sales for the first nine months of 2011 jumped 18.0% year-on-year to €22,592.6 million (PY: €19,144.2 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 17.9%.
Adjusted EBIT for the corporation was up in the first nine months of 2011 compared with the same period of 2010 by €432.8 million, or 24.1%, to €2,227.0 million (PY: €1,794.2 million), equivalent to 9.9% (PY: 9.4%) of adjusted sales.
In the first nine months of 2011, consolidated EBIT was up €540.5 million on the previous year to €1,916.7 million (PY: €1,376.2 million), an increase of 39.3%. The return on sales increased to 8.5% (PY: 7.2%).
The economic situation of the Fuel Supply business unit in the Powertrain division in Europe is characterized by insufficient and constantly decreasing profitability. For this reason, the location in Dortmund, Germany, is being restructured. Parts of production and assembly are being relocated, and the location is being expanded into a competence center for fuel supply units. This has led to restructuring expenses in the amount of €35.8 million.
As part of an asset deal, preliminary income from the negative difference in the amount of €0.9 million arose in the Chassis & Safety division.
Smaller impairment losses totaling €2.0 million not relating to restructuring measures were recognized on property, plant and equipment in the divisions in the first nine months of 2011.
The antitrust proceedings initiated in 2007 against Dunlop Oil & Marine Ltd., UK, a subsidiary of Conti-Tech AG, in the area of offshore hoses, resulted in further expenses of €2.4 million in the first nine months of 2011.
On July 7, 2011, Continental Industrias del Caucho S.A., Madrid, Spain, announced that it had reached an agreement with the employee representatives to close its site in Coslada, Spain, by the end of 2011. The plant, which assembles air conditioning lines, started reporting losses after a major contract was lost at the end of 2009. Negotiations concerning the conditions for the closure have been completed, and the official redundancy plan has been approved by the Spanish authorities. This resulted in restructuring expenses of €16.1 million.
Judicial review proceedings on the appropriateness of compensation and settlement under the domination and profit and loss transfer agreement of Phoenix AG with ContiTech AG and on the conversion ratio established in the merger agreement between these two companies were decided by the Hamburg district court in favor of the former outside shareholders of Phoenix AG. The rulings stipulate an obligation for ContiTech AG to make additional payments. Continental remains convinced that the 2004 valuation of Phoenix AG and ContiTech AG was appropriate and that the compensation and settlement under the domination and profit and loss transfer agreement as well as the conversion ratio in the merger agreement were established correctly. We have therefore lodged an appeal against the rulings. However, we have set aside provisions amounting to €5.0 million for this.
In addition, there were positive effects totaling €49.9 million in the divisions (Chassis & Safety €4.3 million, Powertrain €6.3 million, Interior €32.2 million, Passenger and Light Truck Tires €2.3 million, Commercial Vehicle Tires €4.8 million). These chiefly resulted from the reversal of restructuring provisions that were no longer required and from lower health care obligations in connection with restructuring.
Owing to the anticipated higher cash outflow for the VDO loan resulting from rising interest margins, the carrying amount was adjusted as expense in 2009 and 2010. However, a decrease in the margins for the VDO loan became apparent as of June 30, 2011. The associated expectation of a lower cash outflow for this loan then led to an adjustment of the carrying amount as income in the amount of €9.1 million. These deferrals will be amortized over the term of the loan and reduce or increase expenses accordingly. The amortization of
the carrying amount adjustments resulted in a positive effect of €12.6 million in the first nine months of 2011. Due to a partial repayment of the VDO loan, the adjustments attributable on a pro-rated basis to the amounts repaid were reversed in early April 2011. This resulted in a gain of €3.4 million. In total, income of €25.1 million resulted from all the previously mentioned effects by September 30, 2011.
Total consolidated net income from special effects in the first nine months of 2011 amounted to €14.6 million.
In the first nine months of 2010, impairment losses totaling €13.4 million were incurred which were not in connection with restructuring measures.
The Interior division incurred expenses of €5.2 million for further winding-up activities relating to the disposal of a business unit. Due to the processing activities for the disposal of an associated company, income of €2.1 million was generated in the Interior division while a tax expense for the corporation was incurred in the same amount.
Owing to the withdrawal of a customer order for the development and production of diesel injection systems at the plant in Blythewood, U.S.A., restructuring measures had to be introduced in 2009, leading to further restructuring expenses of €7.0 million in the Powertrain division in the first nine months of 2010. This primarily related to impairments on production plants that were partially offset by provisions for supplier claims that were no longer needed.
In the Passenger and Light Truck Tires division, there were further restructuring expenses of €9.2 million for the closure of tire production in Clairoix, France, and of €3.3 million for the closure of the compounding and rubberization activities in Traiskirchen, Austria.
A still available production cell in Hanover-Stöcken, Germany, was finally closed down, leading to further restructuring expenses totaling €32.0 million in the Commercial Vehicle Tires division in the first nine months of 2010.
There were also expenses amounting to €20.8 million, primarily from restructuring measures and severance payments (Chassis & Safety €1.4 million, Powertrain €7.4 million, Interior €5.3 million, Passenger and Light Truck Tires €3.7 million, Commercial Vehicle Tires €1.5 million, ContiTech €0.9 million, Holding €0.6 million).
The sale of our North American OTR activities to the Titan Tire Corporation in 2006 led to a gain of €3.3 million in the Commercial Vehicle Tires division.
The antitrust proceedings initiated in 2007 against Dunlop Oil & Marine Ltd., UK, a subsidiary of Conti-Tech AG, in the area of offshore hoses, resulted in further expenses of €3.1 million.
Due to the anticipated higher cash outflow for the VDO loan resulting from higher interest margins, the carrying amount was adjusted as expense in 2009, as well as in June 2010. This led to an expense of €27.4 million in the first nine months of 2010 for the carrying amount adjustment. These deferrals will be amortized over the term of the loan and reduce expenses accordingly. There was a positive effect from this amortization totaling €30.5 million in the first nine months of 2010. Partial repayment of the VDO loan using the nominal amount totaling €1,250.0 million from the net proceeds of the bonds placed at the end of September 2010 led to reversal of the carrying amount adjustments allocated proportionately to the open amount payable. This special effect resulted in a gain of €8.7 million.
Total consolidated net expense from special effects in the first nine months of 2010 amounted to €76.8 million.
In the first nine months of 2011, research and development expenses climbed by 7.2% year-on-year to €1,225.7 million (PY: €1,143.5 million), corresponding to 5.4% of sales (PY: 6.0%). Of that sum, €1,046.7 million (PY: €974.5 million) was attributable to the Automotive Group, corresponding to 7.7% (PY: 8.3%) of sales, and €179.0 million (PY: €169.0 million) to the Rubber Group, corresponding to 2.0% (PY: 2.3%) of sales.
At €561.0 million, net interest expense rose by €29.6 million in the first nine months of 2011 compared with the same period of last year (PY: €531.4 million).
However, interest expenses – which chiefly resulted from the utilization of the VDO loan and the bonds issued in the third quarter of 2010 by Conti-Gummi Finance B.V., Amsterdam, Netherlands – decreased by €65.3 million as against the figure for the previous year to €502.2 million (PY: €567.5 million). This year-onyear decline is due in particular to the margins for the VDO loan falling below the previous year's level, which significantly more than compensated for the negative impact from the higher market interest rates on average in 2011 and from the four bonds issued in the third quarter of 2010 by Conti-Gummi Finance B.V., Amsterdam, Netherlands. The margin reduction and its linking to the Continental Corporation's leverage ratio (net debt/EBITDA, according to the definition in the VDO loan agreement) were agreed as part of the renegotiations successfully completed in late March 2011 for the VDO loan originally due in August 2012. In the third quarter of 2011, a further margin reduction was already achieved for the VDO loan as a result of the improved leverage ratio as of June 30, 2011. Interest expenses for the VDO loan amounted to €265.4 million as of September 30, 2011 (PY: €486.3 million). The bonds issued in the third quarter of 2010, with higher nominal interest rates due particularly to the longer terms, resulted in total interest expenses of €170.5 million (PY: €18.0 million).
At €20.6 million, interest income in the first nine months of 2011 was €3.5 million higher than the previous year's level (PY: €17.1 million). The negative development in exchange rate effects on net interest in 2011 is the result of recent developments on the foreign exchange markets. Special mention must be given to the strong devaluation of the Mexican peso against the U.S. dollar, while the depreciation of the Romanian leu and the Hungarian forint against the euro also negatively impacted net interest among other factors.
Income tax expense in the first nine months of 2011 amounted to €409.5 million (PY: €431.7 million). The tax rate in the reporting period was 30.2% after 51.1% for the same period of the previous year.
In addition to the different national breakdown of earnings before income taxes, the income tax expense for the reporting period was largely influenced by tax income of €68.2 million for previous years. In the first quarter of 2011, Continental successfully implemented a pending prior-year tax position out of court by way of a reassessment. As was already reported in the first half of 2011, the resulting tax income was recognized in profit and loss in full.
The tax expenses for the reporting period were also influenced by impairment on deferred tax assets of €29.0 million relating to increases in the year under review regarding the interest carryforwards in Germany.
Tax expense in the prior-year period was influenced primarily by the €133.3 million valuation allowance of deferred tax assets resulting from the interest carryforward in 2009 and the increases in the tax assets for the interest carryforward in Germany in the previous year.
Since 2008, a limit on the deductible interest that can be carried forward has applied in Germany; the amount deductible under the tax law is limited to 30% of the taxable income before depreciation and amortization and before interest.
| in € millions | January 1 to September 30 | Third Quarter | ||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Sales | 22,592.6 | 19,144.2 | 7,714.4 | 6,489.8 |
| EBITDA | 3,109.8 | 2,611.2 | 1,037.1 | 786.9 |
| in % of sales | 13.8 | 13.6 | 13.4 | 12.1 |
| EBIT | 1,916.7 | 1,376.2 | 635.7 | 365.1 |
| in % of sales | 8.5 | 7.2 | 8.2 | 5.6 |
| Net income attributable to the shareholders of the parent | 893.7 | 363.0 | 210.7 | 14.1 |
| Earnings per share (in €) | 4.47 | 1.82 | 1.05 | 0.07 |
| Research and development expenses | 1,225.7 | 1,143.5 | 401.8 | 389.1 |
| Depreciation and amortization1 | 1,193.1 | 1,235.0 | 401.4 | 421.8 |
| – thereof impairment2 | -2.3 | 35.4 | -2.2 | 20.7 |
| Capital expenditure3 | 1,023.1 | 782.3 | 404.0 | 352.2 |
| in % of sales | 4.5 | 4.1 | 5.2 | 5.4 |
| Operating assets at September 30 | 16,240.0 | 15,698.9 | ||
| Number of employees at September 304 | 164,078 | 146,190 | ||
| Adjusted sales5 | 22,412.4 | 19,140.3 | 7,606.6 | 6,489.8 |
| Adjusted operating result (adjusted EBIT)6 | 2,227.0 | 1,794.2 | 743.7 | 484.9 |
| in % of adjusted sales | 9.9 | 9.4 | 9.8 | 7.5 |
| Net indebtedness at September 30 | 7,297.4 | 8,092.1 | ||
| Gearing ratio in % | 103.3 | 137.9 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
5 Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
Net income attributable to the shareholders of the parent rose by 146.2% to €893.7 million (PY: €363.0 million) and earnings per share increased to €4.47 (PY: €1.82).
At €1,046.2 million as of September 30, 2011, net cash flow from operating activities was €471.5 million higher than the figure for the previous year of €574.7 million.
The free cash flow for the first three quarters of 2011 improved by €115.8 million year-on-year to -€54.0 million (PY: -€169.8 million).
EBIT increased by €540.5 million as against the first nine months of 2010 to €1,916.7 million (PY: €1,376.2 million).
Interest payments resulting in particular from the purchase price financing for the acquisition of Siemens VDO amounted to €610.8 million (PY: €597.6 million), up only slightly on the first three quarters of 2010. Despite the improved sales volume situation, the outflow from the increase in operating working capital in the first nine months of 2011 was reduced by €34.4 million as against the prior-year period to €1,218.7 million (PY: €1,253.1 million).
In the first three quarters of 2011, total cash outflows amounting to €1,100.2 million (PY: €744.5 million) resulted from investment activities.
Before financial leasing and the capitalization of borrowing costs, capital expenditure on property, plant and equipment and software was up €300.3 million to €1,028.9 million in the same period (PY: €728.6 million).
As of September 30, 2011, the corporation's net debt was down €794.7 million year-on-year from €8,092.1 million to €7,297.4 million. Compared with the end of 2010, this is equivalent to a decrease of €19.6 million. The gearing ratio improved to 103.3% as of the end of the third quarter of 2011 (PY: 137.9%).
With the renegotiation in late March 2011 of the VDO loan originally due in August 2012, Continental successfully completed the final step in the refinancing package to improve its financial and capital structure that was agreed in December 2009. The result of this renegotiation mainly provides for extended terms and improved conditions. A first tranche of €625.0 million is thus to be repaid in August 2012, and the term for the other two tranches, including a revolving credit line of €2.5 billion, has been extended to April 2014. As a result of an early partial repayment amounting to €484.9 million in April 2011, the committed volume of this loan decreased to €6.0 billion (PY: €7,809.0 million).
In addition, the credit margins were lowered and have since been based on the Continental Corporation's leverage ratio (net debt/EBITDA, according to the definition in the VDO loan agreement) rather than its rating. The leverage ratio had already improved as of June 30, 2011, meaning that Continental could benefit from a further margin reduction for the VDO loan in the third quarter of 2011. The associated expectation of a lower cash outflow for this loan led to an adjustment of the carrying amount as income in the amount of €9.1 million as of June 30, 2011. Together with the adjustments of the carrying amount as expense that were required in 2009 and 2010 due to increasing margins and the associated anticipated higher cash outflow for the VDO loan, the negative value of the carrying amount adjustments totaled €19.6 million as of the end of September 2011. These deferrals will be amortized over the term of the loan and increase or reduce expenses accordingly.
The VDO loan was utilized as of September 30, 2011, by Continental AG and Continental Rubber of America, Corp. (CRoA), Wilmington, U.S.A., in a nominal amount of €4,297.4 million (PY: €5,905.7 million). As of the end of September 2011, interest rate hedges of €3,125.0 million (PY: €3,125.0 million) remained unchanged for the tranche with a nominal value of €625.0 million (PY: €625.0 million) due in August 2012 and for the partial amount of €2.5 billion (PY: €2.5 billion) of the €2,875.0 million tranche due in April 2014. The average fixed interest rate to be paid resulting from the hedges with a term until August 2012 is still 4.19% p.a. plus margin.
At the end of July 2011, the cash flow hedge accounting for the partial amount of €2.5 billion of the tranche of the VDO loan due in April 2014 was voluntarily terminated prematurely. Changes in the fair value of these hedges are now recognized directly in the income statement. Income of €9.1 million has arisen since the dedesignation of the cash flow hedges. Changes in value recognized in equity as a difference arising from financial instruments for the hedges until the end of July 2011 are reversed over the remaining term of the hedges. As of September 30, 2011, an expense of €11.5 million was recognized in profit or loss.
As of September 30, 2011, Continental had liquidity reserves totaling €3,872.3 million (PY: €3,355.5 million), consisting of cash and cash equivalents of €1,532.4 million (PY: €1,046.5 million) and committed, unused credit lines totaling €2,339.9 million (PY: €2,309.0 million).
In the first three quarters of 2011, €1,023.1 million (PY: €782.3 million) was invested in property, plant and equipment and software, corresponding to a capital expenditure ratio after nine months of 4.5% (PY: 4.1%).
€588.7 million (PY: €430.4 million) of investments was attributable to the Automotive Group, corresponding to 4.3% (PY: 3.7%) of sales. The Automotive Group invested primarily in production equipment for the manufacture of new products and the implementation of new technologies such as engine management
| January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|
| in € millions | 2011 | 2010 | 2011 | 2010 |
| Cash provided by operating activities | 1,046.2 | 574.7 | 343.3 | 191.7 |
| Cash used for investing activities | -1,100.2 | -744.5 | -434.2 | -317.6 |
| Cash flow before financing activities (free cash flow) | - 54.0 | -169.8 | -90.9 | -125.9 |
| Dividends paid and repayment of capital to non controlling interests |
-32.7 | -36.3 | -12.4 | -14.2 |
| Proceeds from the issuance of shares | 0.0 | 1,056.0 | 0.0 | 0.0 |
| Non-cash changes | 164.9 | -31.3 | 9.2 | 22.9 |
| Other | -43.2 | -28.3 | -31.9 | -5.3 |
| Foreign exchange effects | -15.4 | 13.1 | -57.4 | 47.3 |
| Change in net indebtedness | 19.6 | 803.4 | -183.4 | -75.2 |
systems and fuel components, electronic brake and safety systems, engine and transmission control units, cockpit instruments, body and comfort control units. There was increased investment in manufacturing capacity at best-cost locations in Europe and in Mexico, Brazil and China.
The Rubber Group invested €439.9 million (PY: €351.3 million), which is equivalent to 4.9% (PY: 4.8%) of sales. Investments included expanding capacity for the production of passenger, light and heavy truck tires at the plants in Mount Vernon, U.S.A., and Camaçari, Brazil. Production capacity for passenger and light truck tires at best-cost European locations was also expanded and funds were invested for quality assurance and cost-cutting measures. ContiTech invested in rationalizing production processes and in expanding production plants for manufacturing new products. Production capacities were expanded primarily in China, Mexico, Hungary and Brazil.
At €26,004.9 million, total assets on September 30, 2011, were €1,892.6 million higher than on the same date in 2010 (€24,112.3 million). This was due primarily to the €1,222.6 million increase in inventories and trade accounts receivable to €8,653.9 million (PY: €7,431.3 million) as a result of further growth in business activities. In addition, property, plant and equipment rose by €376.6 million to €6,236.4 million (PY: €5,859.8 million). The strong cash flow led to a €485.9 million increase in cash and cash equivalents to €1,532.4 million (PY: €1,046.5 million). This was offset by the €349.3 million decline in other intangible assets to €1,446.2 million (PY: €1,795.5 million) owing primarily to amortization from purchase price allocation (PPA). Deferred tax assets fell by €81.7 million to €591.8 million (PY: €673.5 million), due in particular to the further improvement in earnings.
At €7,061.8 million, total equity including noncontrolling interests was up €1,194.1 million compared with September 30, 2010 (€5,867.7 million). This was due primarily to the positive net income attributable to the shareholders of the parent of €1,106.7 million. The reserves recognized directly in equity increased by €26.8 million to -€76.7 million (PY: -€103.5 million), primarily due to the change in the difference from financial instruments. The gearing ratio improved from 137.9% to 103.3%.
At €26,004.9 million, total assets were up €1,614.4 million compared with December 31, 2010 (€24,390.5 million). This resulted in particular from the following increases caused by seasonal factors and by further growth in business activities: inventories up €450.4 million to €3,088.2 million (PY: €2,637.8 million), trade accounts receivable up €1,111.7 million to €5,565.7 million (PY: €4,454.0 million), and property, plant and equipment up €137.7 million to €6,236.4 million (PY: €6,098.7 million). This was offset by the €277.1 million decline in other intangible assets to €1,446.2 million (PY: €1,723.3 million) owing primarily to amortization from PPA. Deferred tax assets fell by €88.9 million to €591.8 million (PY: €680.7 million), chiefly due to the further increases in earnings.
At €7,061.8 million, total equity including noncontrolling interests was up €858.9 million compared with the end of 2010 (€6,202.9 million). This was due primarily to the positive net income attributable to the shareholders of the parent of €893.7 million. This was offset by negative exchange rate effects of €117.6 million. The gearing ratio was down from 118.0% to 103.3%.
As of the end of the third quarter, the number of employees in the corporation amounted to 164,078, an increase of 15,850 as against the end of 2010 (148,228 employees). In the Automotive Group in particular, growth in sales volumes was the main reason for the headcount increase of 8,482 to 95,205 employees. In the Tires divisions, the number of employees rose by 5,524 to 40,956 employees as a result of expanded capacity and the first-time consolidation of Continental India Limited (increase of 2,231 employees). The workforce in the ContiTech division increased by 1,818 to 27,651 employees thanks to volume growth.
As against the reporting date for the previous year, the number of employees in the corporation rose by a total of 17,888.
| Chassis & Safety in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sales | 4,815.9 | 4,261.9 | 1,595.4 | 1,434.5 | |
| EBITDA | 741.3 | 674.4 | 243.3 | 205.1 | |
| in % of sales | 15.4 | 15.8 | 15.3 | 14.3 | |
| EBIT | 503.7 | 431.6 | 163.9 | 122.4 | |
| in % of sales | 10.5 | 10.1 | 10.3 | 8.5 | |
| Depreciation and amortization1 | 237.6 | 242.8 | 79.4 | 82.7 | |
| – thereof impairment2 | 0.4 | 3.0 | 0.4 | 3.2 | |
| Capital expenditure3 | 199.5 | 132.7 | 74.6 | 62.9 | |
| in % of sales | 4.1 | 3.1 | 4.7 | 4.4 | |
| Operating assets at September 30 | 4,009.5 | 3,978.7 | |||
| Number of employees at September 304 | 32,781 | 29,742 | |||
| Adjusted sales5 | 4,699.9 | 4,261.9 | 1,528.4 | 1,434.5 | |
| Adjusted operating result (adjusted EBIT)6 | 538.6 | 476.1 | 176.6 | 138.4 | |
| in % of adjusted sales | 11.5 | 11.2 | 11.6 | 9.6 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
5 Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
Sales volumes in the Electronic Brake Systems business unit rose year-on-year by 10.9% to 13.62 million units in the first nine months of 2011. In the Hydraulic Brake Systems business unit, sales of brake boosters were up 27.3% to 14.30 million units. Brake caliper sales jumped to 31.47 million units, equivalent to an increase of 30.1%. In the Passive Safety & Advanced Driver Assistance Systems business unit, sales of air bag control units increased by 13.9% to 10.55 million units. Sales of driver assistance systems rose to 1.24 million units, equivalent to an increase of 71.3%.
Sales of the Chassis & Safety division rose by 13.0% to €4,815.9 million in the first nine months of 2011 compared with the same period of the previous year (€4,261.9 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 10.8%.
The Chassis & Safety division's adjusted EBIT increased by €62.5 million or 13.1% year-on-year in the first nine months of 2011 to €538.6 million (PY: €476.1 million), equivalent to 11.5% (PY: 11.2%) of adjusted sales.
Compared with the same period of last year, the Chassis & Safety division reported a rise in EBIT of €72.1 million, or 16.7%, to €503.7 million (PY: €431.6 million) in the first nine months of 2011. The return on sales increased to 10.5% (PY: 10.1%).
For the Chassis & Safety division, the total net income from special effects from the reversal of restructuring provisions no longer required amounted to €4.3 million.
In the first nine months of 2011, there were impairment losses on property, plant and equipment totaling €0.4 million.
As part of an asset deal, preliminary income resulted from the negative difference in the amount of €0.9 million.
For the Chassis & Safety division, the total net income from special effects amounted to €4.8 million in the first nine months of 2011.
In the Chassis & Safety division, total net expense from special effects amounted to €4.1 million for the first nine months of 2010.
| Powertrain in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sales | 4,377.5 | 3,477.8 | 1,517.4 | 1,167.5 | |
| EBITDA | 354.4 | 199.9 | 140.1 | 23.7 | |
| in % of sales | 8.1 | 5.7 | 9.2 | 2.0 | |
| EBIT | 26.6 | -145.4 | 29.5 | -101.7 | |
| in % of sales | 0.6 | -4.2 | 1.9 | -8.7 | |
| Depreciation and amortization1 | 327.8 | 345.3 | 110.6 | 125.4 | |
| – thereof impairment2 | 0.0 | 21.8 | 0.0 | 15.7 | |
| Capital expenditure3 | 235.2 | 173.6 | 81.1 | 76.1 | |
| in % of sales | 5.4 | 5.0 | 5.3 | 6.5 | |
| Operating assets at September 30 | 3,038.1 | 3,087.5 | |||
| Number of employees at September 304 | 30,778 | 26,455 | |||
| Adjusted sales5 | 4,377.5 | 3,487.0 | 1,517.4 | 1,170.6 | |
| Adjusted operating result (adjusted EBIT)6 | 187.6 | 15.0 | 69.9 | -47.2 | |
| in % of adjusted sales | 4.3 | 0.4 | 4.6 | -4.0 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
5 Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
In the first three quarters of 2011, sales in the Powertrain division rose by 25.9% year-on-year. This positive development was realized consistently across all quarters. The highest growth rates were generated in the NAFTA and Europe regions, although a sales increase of more than 20% was also achieved in Asia. All business units in the division contributed to the growth, with particularly high increases achieved in transmission control units, injection systems and sensors in the area of emission control.
Sales of the Powertrain division rose by 25.9% to €4,377.5 million in the first nine months of 2011 compared with the same period of the previous year (€3,477.8 million). Before changes in the scope of consolidation and exchange rate effects, sales were up by 26.9%.
In the first nine months of 2011, the Powertrain division's adjusted EBIT was up by €172.6 million or 1,150.7% compared with the same period of the previous year to €187.6 million (PY: €15.0 million), equivalent to 4.3% (PY: 0.4%) of adjusted sales.
Compared with the same period of last year, the Powertrain division reported an increase in EBIT of €172.0 million, or 118.3%, to €26.6 million (PY: -€145.4 million) in the first nine months of 2011. The return on sales increased to 0.6% (PY: -4.2%).
The economic situation of the Fuel Supply business unit in the Powertrain division in Europe is characterized by insufficient and constantly decreasing profitability. For this reason, the location in Dortmund, Germany, is being restructured. Parts of production and assembly are being relocated, and the location is being expanded into a competence center for fuel supply units. This has led to restructuring expenses in the amount of €35.8 million.
In the first nine months of 2011, there was net income totaling €6.3 million in the Powertrain division due to special effects from the reversal of restructuring provisions that were no longer required and from lower healthcare obligations in connection with restructuring.
Impairment losses totaling €1.1 million not relating to restructuring measures were recognized on property, plant and equipment in the Powertrain division.
In the Powertrain division, total net expense from special effects amounted to €30.6 million for the first nine months of 2011.
Owing to the withdrawal of a customer order for the development and production of diesel injection systems at the plant in Blythewood, U.S.A., restructuring measures had to be introduced in 2009, leading to further restructuring expenses of €7.0 million in the Powertrain division in the first nine months of 2010. This primarily relates to impairments on production equipment that were partially offset by provisions for supplier claims that were no longer needed.
In the Powertrain division there were further restructuring-related expenses and severance payments totaling €7.4 million in the first nine months of 2010, €3.0 million of which was attributable to the closure of division's site in Asnière, France.
Impairment losses amounting to €8.5 million were recognized in the Powertrain division.
In the Powertrain division, total net expense from special effects amounted to €22.9 million for the first nine months of 2010.
| Interior in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sales | 4,567.5 | 4,124.1 | 1,523.7 | 1,347.3 | |
| EBITDA | 559.8 | 420.8 | 189.2 | 116.0 | |
| in % of sales | 12.3 | 10.2 | 12.4 | 8.6 | |
| EBIT | 250.8 | 107.2 | 84.7 | 12.0 | |
| in % of sales | 5.5 | 2.6 | 5.6 | 0.9 | |
| Depreciation and amortization1 | 309.0 | 313.6 | 104.5 | 104.0 | |
| – thereof impairment2 | 0.5 | -5.9 | – | -0.4 | |
| Capital expenditure3 | 154.0 | 124.1 | 57.6 | 53.4 | |
| in % of sales | 3.4 | 3.0 | 3.8 | 4.0 | |
| Operating assets at September 30 | 4,378.1 | 4,390.2 | |||
| Number of employees at September 304 | 31,646 | 29,171 | |||
| Adjusted sales5 | 4,567.5 | 4,114.9 | 1,523.7 | 1,344.2 | |
| Adjusted operating result (adjusted EBIT)6 | 369.8 | 274.7 | 120.1 | 67.7 | |
| in % of adjusted sales | 8.1 | 6.7 | 7.9 | 5.0 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
5 Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
Sales volumes in the Body & Security business unit were up for the majority of the product groups in the first nine months of 2011. There were particularly substantial increases in access control and starting systems, central body control units, convenience locking systems and seating comfort systems. In the Infotainment & Connectivity business unit, sales volumes of audio and connectivity components decreased in the first nine months of 2011. This development was primarily influenced by lower demand for audio products in the U.S. market as well as for audio and connectivity products at some European OEMs. Sales volumes of multimedia systems increased thanks to greater demand from China. Sales volumes in the Commercial Vehicles & Aftermarket business unit were up significantly on the previous year's figures. There were substantial increases in the OE business, while spare part and aftermarket activities continued at a high level. In the Instrumentation & Driver HMI business unit, sales volumes of instrument clusters increased significantly year-on-year in the first three quarters of 2011.
Sales of the Interior division rose by 10.8% to €4,567.5 million in the first nine months of 2011 compared with the same period of the previous year (€4,124.1 million). Before changes in the scope of consolidation and exchange rate effects, sales were up by 11.5%.
In the first nine months of 2011, the Interior division's adjusted EBIT was up by €95.1 million or 34.6% compared with the same period of the previous year to €369.8 million (PY: €274.7 million), equivalent to 8.1% (PY: 6.7%) of adjusted sales.
Compared with the same period of last year, the Interior division reported an increase in EBIT of €143.6 million, or 134.0%, to €250.8 million (PY: €107.2 million) in the first nine months of 2011. The return on sales increased to 5.5% (PY: 2.6%).
There was net income from special effects totaling €32.2 million for the Interior division, chiefly resulting from the reversal of restructuring provisions that were no longer required and from lower healthcare obligations in connection with restructuring.
In the first nine months of 2011, there were impairment losses on property, plant and equipment totaling €0.5 million.
In the Interior division, total net income from special effects amounted to €31.7 million in the first nine months of 2011.
In the Interior division, expenses of €5.2 million were recognized in the first nine months of 2010 for further winding-up activities relating to the disposal of a business unit. Winding-up activities for the disposal of an associated company led to a gain of €2.1 million and tax expenses for the corporation in the same amount.
In addition, there were further restructuring expenses and severance payments totaling €5.3 million.
In the Interior division, total net expense from special effects amounted to €8.4 million for the first nine months of 2010.
| Passenger and Light Truck Tires in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sales | 5,051.3 | 4,236.0 | 1,786.6 | 1,458.1 | |
| EBITDA | 972.9 | 897.2 | 316.5 | 275.8 | |
| in % of sales | 19.3 | 21.2 | 17.7 | 18.9 | |
| EBIT | 783.4 | 715.0 | 251.6 | 213.7 | |
| in % of sales | 15.5 | 16.9 | 14.1 | 14.7 | |
| Depreciation and amortization1 | 189.5 | 182.2 | 64.9 | 62.1 | |
| – thereof impairment2 | -1.0 | 0.5 | -0.4 | 0.0 | |
| Capital expenditure3 | 312.8 | 258.2 | 136.7 | 127.0 | |
| in % of sales | 6.2 | 6.1 | 7.7 | 8.7 | |
| Operating assets at September 30 | 2,989.0 | 2,600.5 | |||
| Number of employees at September 304 | 30,959 | 28,068 | |||
| Adjusted sales5 | 5,013.7 | 4,236.0 | 1,762.0 | 1,458.1 | |
| Adjusted operating result (adjusted EBIT)6 | 782.8 | 733.5 | 253.9 | 220.2 | |
| in % of adjusted sales | 15.6 | 17.3 | 14.4 | 15.1 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
5 Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
In the first nine months of 2011, the sales figures for the Passenger and Light Truck Tires division climbed by 8% year-on-year. The strongest growth was recorded by the OE business in all regions and the replacement business in The Americas business unit.
Sales of the Passenger and Light Truck Tires division rose by 19.2% to €5,051.3 million in the first nine months of 2011 compared with the same period of the previous year (€4,236.0 million). Before changes in the scope of consolidation and exchange rate effects, sales were up by 19.1%.
Adjusted EBIT of the Passenger and Light Truck Tires division increased by €49.3 million or 6.7% year-onyear in the first nine months of 2011 to €782.8 million (PY: €733.5 million), equivalent to 15.6% (PY: 17.3%) of adjusted sales. The year-on-year decline in the return on sales of 1.7 percentage points is due to rising raw material prices, which had a gross negative impact of €433 million on the division.
Compared with the same period of last year, the Passenger and Light Truck Tires division reported a rise in EBIT of €68.4 million, or 9.6%, to €783.4 million (PY: €715.0 million) in the first nine months of 2011. The return on sales fell to 15.5% (PY: 16.9%).
For the Passenger and Light Truck Tires division, the total net income from special effects amounted to €2.3 million in the first nine months of 2011.
In the Passenger and Light Truck Tires division, there were restructuring-related expenses and severance payments totaling €16.2 million in the first nine months of 2010, €9.2 million of which was attributable to the closure of tire production in Clairoix, France, and €3.3 million to the closure of the compounding and rubberization activities in Traiskirchen, Austria.
| Commercial Vehicle Tires in € millions | January 1 to September 30 | Third Quarter | ||
|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |
| Sales | 1,348.7 | 1,023.5 | 488.0 | 392.9 |
| EBITDA | 125.4 | 92.3 | 53.2 | 45.3 |
| in % of sales | 9.3 | 9.0 | 10.9 | 11.5 |
| EBIT | 69.4 | 17.6 | 35.6 | 25.1 |
| in % of sales | 5.1 | 1.7 | 7.3 | 6.4 |
| Depreciation and amortization1 | 56.0 | 74.7 | 17.6 | 20.2 |
| – thereof impairment2 | -2.4 | 13.8 | -2.4 | 0.0 |
| Capital expenditure3 | 57.0 | 28.1 | 27.7 | 9.3 |
| in % of sales | 4.2 | 2.7 | 5.7 | 2.4 |
| Operating assets at September 30 | 816.1 | 638.2 | ||
| Number of employees at September 304 | 9,997 | 7,062 | ||
| Adjusted sales5 | 1,338.3 | 1,023.5 | 477.6 | 392.9 |
| Adjusted operating result (adjusted EBIT)6 | 64.6 | 47.8 | 31.0 | 25.8 |
| in % of adjusted sales | 4.8 | 4.7 | 6.5 | 6.6 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
5 Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
Sales volumes
The first nine months of 2011 saw a substantial yearon-year revival on the markets, causing sales figures to be higher than those for the same period of the previous year. In Europe and in The Americas business unit there was double-digit growth, with the highest growth rates being generated in the OE business. In Asia, growth rates before changes in the scope of consolidation remained considerably lower than in the other regions.
Sales of the Commercial Vehicle Tires division rose by 31.8% to €1,348.7 million in the first nine months of 2011 compared with the same period of the previous year (€1,023.5 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 33.1%.
Adjusted EBIT of the Commercial Vehicle Tires division increased by €16.8 million or 35.1% year-on-year in the first nine months of 2011 to €64.6 million (PY: €47.8 million), equivalent to 4.8% (PY: 4.7%) of adjusted sales. Rising raw material prices – particularly for natural rubber – had a gross negative impact of €213 million on the division's earnings as compared to the previous year. Despite this, there was a slight increase in the return on sales.
Compared with the same period of last year, the Commercial Vehicle Tires division reported a rise in EBIT of €51.8 million, or 294.3%, to €69.4 million (PY: €17.6 million) in the first nine months of 2011. The return on sales increased to 5.1% (PY: 1.7%).
For the Commercial Vehicle Tires division, the total income from special effects from the reversal of restructuring provisions no longer required amounted to €4.8 million in the first nine months of 2011.
A still available production cell in Hanover-Stöcken, Germany, was finally closed down. This led to further restructuring expenses totaling €32.0 million in the first nine months of 2010.
The sale of our North American OTR activities to the Titan Tire Corporation in 2006 led to a gain of €3.3 million in the Commercial Vehicle Tires division.
The Commercial Vehicle Tires division incurred expenses for severance payments totaling €1.5 million.
In the Commercial Vehicle Tires division, total net expense from special effects amounted to €30.2 million in the first nine months of 2010.
| ContiTech in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sales | 2,703.1 | 2,261.4 | 901.0 | 783.7 | |
| EBITDA | 392.5 | 365.9 | 113.5 | 121.5 | |
| in % of sales | 14.5 | 16.2 | 12.6 | 15.5 | |
| EBIT | 320.3 | 291.7 | 89.3 | 94.8 | |
| in % of sales | 11.8 | 12.9 | 9.9 | 12.1 | |
| Depreciation and amortization1 | 72.2 | 74.2 | 24.2 | 26.7 | |
| – thereof impairment2 | 0.2 | 2.2 | 0.2 | 2.2 | |
| Capital expenditure3 | 70.1 | 65.0 | 25.6 | 23.2 | |
| in % of sales | 2.6 | 2.9 | 2.8 | 3.0 | |
| Operating assets at September 30 | 1,086.2 | 1,072.9 | |||
| Number of employees at September 304 | 27,651 | 25,458 | |||
| Adjusted sales5 | 2,686.9 | 2,257.5 | 895.2 | 783.7 | |
| Adjusted operating result (adjusted EBIT)6 | 346.1 | 299.8 | 113.4 | 99.6 | |
| in % of adjusted sales | 12.9 | 13.3 | 12.7 | 12.7 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
5 Before changes in the scope of consolidation.
6 Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
Sales up 19.5%
Sales of the ContiTech division rose by 19.5% yearon-year to €2,703.1 million (PY: €2,261.4 million) in the first nine months of 2011. Even before changes in the scope of consolidation and exchange rate effects, sales rose by 19.5%. Non-automotive business recorded the greatest year-on-year increase, climbing by roughly 21%. Sales in the automotive OE business were up by about 19%, while growth in the automotive aftermarket business amounted to around 14%.
In the first nine months of 2011, the ContiTech division's adjusted EBIT was up by €46.3 million or 15.4% compared with the same period of previous year to €346.1 million (PY: €299.8 million), equivalent to 12.9% (PY: 13.3%) of adjusted sales. The year-onyear decline in the return on sales is due to rising raw material prices, which had a gross negative impact of €120 million on the division.
Compared with the same period of last year, the ContiTech division reported an increase in EBIT of €28.6 million, or 9.8%, to €320.3 million (PY: €291.7 million) in the first nine months of 2011. The return on sales fell to 11.8% (PY: 12.9%).
The antitrust proceedings initiated in 2007 against Dunlop Oil & Marine Ltd., UK, a subsidiary of Conti-Tech AG, in the area of offshore hoses, resulted in further expenses of €2.4 million in the first nine months of 2011.
On July 7, 2011, Continental Industrias del Caucho S.A., Madrid, Spain, reached an agreement with the employee representatives to close its site in Coslada, Spain, by the end of 2011. The plant, which assembles air conditioning lines, started reporting losses after a major contract was lost at the end of 2009. Negotiations concerning the conditions for the closure have been completed, and the official redundancy plan has been approved by the Spanish authorities. This resulted in restructuring expenses of €16.1 million.
Judicial review proceedings on the appropriateness of compensation and settlement under the domination and profit and loss transfer agreement of Phoenix AG with ContiTech AG and on the conversion ratio established in the merger agreement between these two companies were decided by the Hamburg district court in favor of the former outside shareholders of Phoenix AG. The rulings stipulate an obligation for ContiTech AG to make additional payments. Continental remains convinced that the 2004 valuation of Phoenix AG and ContiTech AG was appropriate and that the compensation and settlement under the domination and profit and loss transfer agreement as well as the conversion ratio in the merger agreement were established correctly. We have therefore lodged an appeal against the rulings. Nevertheless, a provision of €5.0 million was recognized.
In the ContiTech division, total net expense from special effects amounted to €23.5 million for the first nine months of 2011.
The antitrust proceedings initiated in 2007 against Dunlop Oil & Marine Ltd., UK, a subsidiary of Conti-Tech AG, in the area of offshore hoses, resulted in further expenses of €3.1 million.
In the ContiTech division there were impairment losses on property, plant and equipment totaling €2.2 million.
The cost-cutting program initiated worldwide in response to the economic crisis led to expenses for severance payments totaling €0.8 million in the first nine months of 2010.
There were also special effects amounting to €0.1 million resulting from restructuring expenses and income from the sale of businesses.
The total net expense from special effects in the first nine months of 2010 was €6.2 million for the Conti-Tech division.
Following the positive performance in the first nine months of 2011 and the strong start to the fourth quarter, we are maintaining our forecast of consolidated sales of at least €29.5 billion in 2011. Owing to the price increases implemented since the beginning of the year, sales growth in the fourth quarter is likely to be higher in the Rubber Group than in the Automotive Group. We are also confirming our target of an adjusted EBIT margin of approximately 10% for 2011 as a whole, a target which must now be considered ambitious in light of the higher-than-expected negative impact from raw material costs, but is nonetheless achievable. We are raising the forecast for the negative impact from raw material costs for the Rubber Group from €850 million to more than €900 million, as the prices for synthetic rubber in particular affected operating earnings earlier than expected. There is also a negative impact amounting to a maximum of €50 million from the recently soaring prices for rare earth metals, which will impact the Automotive Group in the fourth quarter. In the course of 2011, for instance, the price for dysprosium has soared nearly twentyfold from its low level in 2010, placing an extreme burden on our component suppliers.
After the first nine months, the net income from special effects amounts to approximately €15 million. For the year as a whole, we continue to anticipate net expense of €50 million. We still expect depreciation and amortization (not including amortization from purchase price allocation) to total roughly €1.3 billion in the current year. Amortization from purchase price allocation will amount to approximately €450 million. The target values for net interest and the tax rate also remain unchanged as against the half-year target values, at -€660 million and around 30% respectively. However, if the unfavorable development in the exchange rates, in particular the rate of the Mexican peso to the U.S. dollar, continues, it cannot be ruled out that the net interest in the income statement may differ from the desired target.
Capital expenditure will still amount to a maximum of €1.8 billion in 2011, and net debt will fall to significantly under €7 billion. The free cash flow target remains at more than €500 million. The exchange rate fluctuations affecting net interest will, for the most part, not have any impact on the cash flow target.
| in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Sales | 22,592.6 | 19,144.2 | 7,714.4 | 6,489.8 | |
| Cost of sales | -17,873.7 | -14,916.8 | -6,150.1 | -5,131.7 | |
| Gross margin on sales | 4,718.9 | 4,227.4 | 1,564.3 | 1,358.1 | |
| Research and development expenses | -1,225.7 | -1,143.5 | -401.8 | -389.1 | |
| Selling and logistics expenses | -1,047.1 | -965.5 | -352.6 | -324.9 | |
| Administrative expenses | -475.2 | -467.4 | -156.9 | -160.8 | |
| Other income and expenses | -114.2 | -332.8 | -36.1 | -135.8 | |
| At-equity share in earnings of associates | 60.3 | 54.8 | 17.7 | 18.3 | |
| Other income from investments | -0.3 | 3.2 | 1.1 | -0.7 | |
| Earnings before interest and taxes | 1,916.7 | 1,376.2 | 635.7 | 365.1 | |
| Interest income | 20.6 | 17.1 | 7.7 | 5.2 | |
| Interest expense1 | -581.6 | -548.5 | -249.9 | -214.7 | |
| Net interest expense | -561.0 | -531.4 | -242.2 | -209.5 | |
| Earnings before taxes | 1,355.7 | 844.8 | 393.5 | 155.6 | |
| Income tax expense | -409.5 | -431.7 | -165.1 | -128.5 | |
| Net income | 946.2 | 413.1 | 228.4 | 27.1 | |
| Non-controlling interests | -52.5 | -50.1 | -17.7 | -13.0 | |
| Net income attributable to the shareholders | |||||
| of the parent | 893.7 | 363.0 | 210.7 | 14.1 | |
| Basic earnings per share in € | 4.47 | 1.82 | 1.05 | 0.07 | |
| Diluted earnings per share in € | 4.47 | 1.82 | 1.05 | 0.07 |
1 Including gains and losses from foreign currency translation, from changes in the fair value of derivative instruments, as well as from available-for-sale assets.
| in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 20101 | 2011 | 20101 | ||
| Net income | 946.2 | 413.1 | 228.4 | 27.1 | |
| Difference from currency translation2 | -109.5 | 361.9 | 17.5 | -183.2 | |
| Difference from currency translation2 | -109.9 | 361.4 | 16.4 | -183.6 | |
| Reclassification adjustments to profit and loss | -0.7 | 0.1 | — | — | |
| Portion for at-equity accounted investees | 1.1 | 0.4 | 1.1 | 0.4 | |
| Available-for-sale financial assets | -1.0 | 3.1 | -1.6 | 1.6 | |
| Fair value adjustments | -1.0 | 3.1 | -1.6 | 1.6 | |
| Reclassification adjustments to profit and loss | — | — | — | — | |
| Cash flow hedges | 89.0 | 4.5 | 19.1 | 30.5 | |
| Fair value adjustments | 100.5 | 4.5 | 30.6 | 30.5 | |
| Reclassification adjustments to profit and loss | -11.5 | — | -11.5 | — | |
| Deferred taxes on other comprehensive income | -37.2 | -2.1 | -10.3 | -9.8 | |
| Other comprehensive income | -58.7 | 367.4 | 24.7 | -160.9 | |
| Total comprehensive income | 887.5 | 780.5 | 253.1 | -133.8 | |
| Non-controlling interests | 56.7 | 75.0 | 30.7 | 3.5 | |
| Total comprehensive income attributable to the shareholders of the parent |
830.8 | 705.5 | 222.4 | -137.3 |
1 The comparative figures as of September 30, 2010, have been adjusted in line with the new reporting structure.
2 Including non-controlling interests.
| Assets in € millions | Sept. 30, 2011 | Dec. 31, 2010 | Sept. 30, 2010 |
|---|---|---|---|
| Goodwill | 5,676.2 | 5,643.6 | 5,630.9 |
| Other intangible assets | 1,446.2 | 1,723.3 | 1,795.5 |
| Property, plant and equipment | 6,236.4 | 6,098.7 | 5,859.8 |
| Investment properties | 19.2 | 19.9 | 19.9 |
| Investments in associates | 468.9 | 440.4 | 418.7 |
| Other investments | 7.0 | 7.0 | 7.0 |
| Deferred tax assets | 591.8 | 680.7 | 673.5 |
| Deferred pension charges | 88.3 | 73.8 | 63.8 |
| Long-term derivative instruments and interest-bearing investments | 174.2 | 157.9 | 94.0 |
| Other long-term financial assets | 29.9 | 29.5 | 19.3 |
| Other assets | 14.6 | 13.1 | 12.7 |
| Non-current assets | 14,752.7 | 14,887.9 | 14,595.1 |
| Inventories | 3,088.2 | 2,637.8 | 2,632.3 |
| Trade accounts receivable | 5,565.7 | 4,454.0 | 4,799.0 |
| Other short-term financial assets | 266.9 | 213.3 | 213.0 |
| Other assets | 637.6 | 536.5 | 635.2 |
| Income tax receivable | 88.1 | 123.4 | 132.7 |
| Short-term derivative instruments and interest-bearing investments | 69.1 | 44.3 | 37.8 |
| Cash and cash equivalents | 1,532.4 | 1,471.3 | 1,046.5 |
| Assets held for sale | 4.2 | 22.0 | 20.7 |
| Current assets | 11,252.2 | 9,502.6 | 9,517.2 |
| Total assets | 26,004.9 | 24,390.5 | 24,112.3 |
| Total equity and liabilities in € millions | Sept. 30, 2011 | Dec. 31, 2010 | Sept. 30, 2010 |
|---|---|---|---|
| Common stock | 512.0 | 512.0 | 512.0 |
| Capital reserves | 4,155.6 | 4,149.0 | 4,146.0 |
| Retained earnings | 2,106.1 | 1,212.4 | 999.4 |
| Other comprehensive income | -76.7 | -13.8 | -103.5 |
| Equity attributable to the shareholders of the parent | 6,697.0 | 5,859.6 | 5,553.9 |
| Non-controlling interests | 364.8 | 343.3 | 313.8 |
| Total equity | 7,061.8 | 6,202.9 | 5,867.7 |
| Provisions for pension liabilities and other post-employment benefits | 1,416.0 | 1,404.5 | 1,399.4 |
| Deferred tax liabilities | 280.5 | 207.7 | 199.8 |
| Long-term provisions for other risks | 310.3 | 325.4 | 340.1 |
| Long-term portion of indebtedness | 6,324.5 | 7,752.4 | 6,645.7 |
| Other long-term financial liabilities | 8.0 | 0.8 | 0.8 |
| Other non-current liabilities | 39.5 | 39.4 | 37.9 |
| Non-current liabilities | 8,378.8 | 9,730.2 | 8,623.7 |
| Trade accounts payable | 3,881.2 | 3,510.5 | 3,138.3 |
| Income tax payable | 648.3 | 697.9 | 704.6 |
| Short-term provisions for other risks | 1,074.1 | 1,164.0 | 1,281.7 |
| Indebtedness | 2,748.6 | 1,238.1 | 2,624.7 |
| Other short-term financial liabilities | 1,318.4 | 1,203.4 | 1,050.5 |
| Other liabilities | 893.7 | 643.5 | 821.1 |
| Liabilities held for sale | — | 0.0 | 0.0 |
| Current liabilities | 10,564.3 | 8,457.4 | 9,620.9 |
| Total equity and liabilities | 26,004.9 | 24,390.5 | 24,112.3 |
| in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| EBIT | 1,916.7 | 1,376.2 | 635.7 | 365.1 | |
| Interest paid | -610.8 | -597.6 | -222.0 | -213.4 | |
| Interest received | 20.6 | 17.9 | 7.9 | 6.1 | |
| Income tax paid | -333.2 | -329.3 | -139.1 | -100.9 | |
| Dividends received | 29.1 | 46.4 | 9.7 | 9.3 | |
| Depreciation, amortization and impairments | 1,193.1 | 1,235.0 | 401.4 | 421.8 | |
| At-equity share in earnings of associates and accrued dividend income from other investments, incl. impairments |
-60.0 | -58.0 | -18.8 | -17.6 | |
| Gains from the disposal of assets, subsidiaries and business units |
-14.8 | -6.2 | -2.7 | -3.2 | |
| Other non-cash items | -25.1 | -11.8 | -2.3 | -18.7 | |
| Changes in | |||||
| inventories | -474.2 | -471.6 | -25.9 | -183.9 | |
| trade accounts receivable1 | -1,148.2 | -1,002.8 | -515.1 | -158.1 | |
| notes sold1 | -3.4 | -13.5 | -3.0 | -0.7 | |
| trade accounts payable | 403.7 | 221.3 | 44.3 | -39.1 | |
| pension and post-employment provisions | 2.1 | 49.4 | -20.1 | 22.5 | |
| other assets and liabilities | 150.6 | 119.3 | 193.3 | 102.5 | |
| Cash provided by operating activities | 1,046.2 | 574.7 | 343.3 | 191.7 | |
| Proceeds on disposal of property, plant and equipment, and intangible assets |
41.2 | 22.4 | 8.9 | 7.9 | |
| Capital expenditure on property, plant and equipment, and software |
-1,028.9 | -728.6 | -403.7 | -298.6 | |
| Capital expenditure on intangible assets from development projects and miscellaneous |
-69.1 | -47.3 | -21.5 | -15.5 | |
| Proceeds on disposal of subsidiaries and business units, including surrendered cash and cash equivalents |
10.4 | 30.6 | 10.4 | — | |
| Acquisition of subsidiaries and business units, incl. | |||||
| acquired cash and cash equivalents | -53.8 | -21.6 | -28.3 | -11.4 | |
| Cash used for investing activities | -1,100.2 | -744.5 | -434.2 | -317.6 | |
| Cash flow before financing activities | -54.0 | -169.8 | -90.9 | -125.9 | |
| Change in indebtedness | 166.9 | -1,563.0 | 47.7 | 4.8 | |
| Successive purchases | -0.4 | -25.8 | 0.0 | -4.7 | |
| Proceeds from the issuance of shares | — | 1,056.0 | — | — | |
| Dividends paid and repayment of capital to non controlling interests |
-32.7 | -36.3 | -12.4 | -14.2 | |
| Cash provided by/used for financing activities | 133.8 | -569.1 | 35.3 | -14.1 | |
| Change in cash and cash equivalents | 79.8 | -738.9 | -55.6 | -140.0 | |
| Cash and cash equivalents at the beginning of the reporting period |
1,471.3 | 1,712.8 | 1,566.0 | 1,239.4 | |
| Effect of exchange rate changes on cash and cash equivalents |
-18.7 | 72.6 | 22.0 | -52.9 | |
| Cash and cash equivalents at the end of the reporting period |
1,532.4 | 1,046.5 | 1,532.4 | 1,046.5 |
1 The comparative figures as of September 30, 2010, have been adjusted in line with the new reporting structure.
| Number | Common | Capital | Retained | Successive share |
Non-con trolling |
|||||
|---|---|---|---|---|---|---|---|---|---|---|
| of shares1 | stock | reserves | earnings | purchases2 | Difference from | Subtotal | interests | Total | ||
| in € millions | (thousands) | currency trans lation3 |
financial instru ments4 |
|||||||
| At Jan. 1, 2010 | 169,006 | 432.6 | 3,139.5 | 636.4 | -34.4 | -276.0 | -125.5 | 3,772.6 | 289.1 | 4,061.7 |
| Net income | — | — | — | 363.0 | — | — | 363.0 | 50.1 | 413.1 | |
| Comprehensive income |
— | — | — | — | — | 337.0 | 5.5 | 342.5 | 24.9 | 367.4 |
| Net profit for the period |
— | — | — | 363.0 | — | 337.0 | 5.5 | 705.5 | 75.0 | 780.5 |
| Dividends paid/declared |
— | — | — | — | — | — | — | — | -35.9 | -35.9 |
| Issuance of shares5 | 31,000 | 79.4 | 1,006.5 | — | — | — | — | 1,085.9 | — | 1,085.9 |
| Successive purchases |
— | — | — | — | -10.1 | — | — | -10.1 | -16.1 | -26.2 |
| Changes in non controlling interests6 |
— | — | — | — | — | — | — | — | 1.7 | 1.7 |
| At Sept. 30, 2010 | 200,006 | 512.0 | 4,146.0 | 999.4 | -44.5 | 61.0 | -120.0 | 5,553.9 | 313.8 | 5,867.7 |
| At Jan. 1, 2011 | 200,006 | 512.0 | 4,149.0 | 1,212.4 | -44.5 | 134.6 | -103.9 | 5,859.6 | 343.3 | 6,202.9 |
| Net income | — | — | — | 893.7 | — | — | — | 893.7 | 52.5 | 946.2 |
| Comprehensive income |
— | — | — | — | — | -117.6 | 54.7 | -62.9 | 4.2 | -58.7 |
| Net profit for the period |
— | — | — | 893.7 | — | -117.6 | 54.7 | 830.8 | 56.7 | 887.5 |
| Dividends paid/declared |
— | — | — | — | — | — | — | — | -32.7 | -32.7 |
| Issuance of shares5 | — | — | 6.6 | — | — | — | — | 6.6 | — | 6.6 |
| Successive purchases |
— | — | — | — | 0.0 | — | — | — | -3.2 | -3.2 |
| Changes in non controlling interests6 |
— | — | — | — | — | — | — | — | 0.7 | 0.7 |
| At Sept. 30, 2011 | 200,006 | 512.0 | 4,155.6 | 2,106.1 | -44.5 | 17.0 | -49.2 | 6,697.0 | 364.8 | 7,061.8 |
1 Shares outstanding.
2 Successive acquisitions of shares of fully consolidated companies.
3 Includes the shareholder's €1.1 million (PY: €0.4 million) portion of the foreign currency translation of companies consolidated according to the equity method.
4 The difference from financial instruments, including deferred taxes, is mainly due to changes in the market value of the cash flow hedges on interest and currency.
5 Includes the expenditure resulting from stock option plans and the compensation offer for granted and not yet exercised stock options. The net proceeds from the capital increase, net of tax effects, are also included in 2010. 6
Changes in non-controlling interests from consolidation changes or capital increases.
| Passenger and | ||||
|---|---|---|---|---|
| in € millions | Chassis & Safety | Powertrain | Interior | Light Truck Tires |
| External sales | 4,786.6 | 4,333.0 | 4,556.2 | 5,035.8 |
| Intercompany sales | 29.3 | 44.5 | 11.3 | 15.5 |
| Sales (total) | 4,815.9 | 4,377.5 | 4,567.5 | 5,051.3 |
| EBITDA | 741.3 | 354.4 | 559.8 | 972.9 |
| in % of sales | 15.4 | 8.1 | 12.3 | 19.3 |
| EBIT (segment result) | 503.7 | 26.6 | 250.8 | 783.4 |
| in % of sales | 10.5 | 0.6 | 5.5 | 15.5 |
| Depreciation and amortization1 | 237.6 | 327.8 | 309.0 | 189.5 |
| – thereof impairment2 | 0.4 | 0.0 | 0.5 | -1.0 |
| Capital expenditure3 | 199.5 | 235.2 | 154.0 | 312.8 |
| in % of sales | 4.1 | 5.4 | 3.4 | 6.2 |
| Operating assets at September 30 | 4,009.5 | 3,038.1 | 4,378.1 | 2,989.0 |
| Number of employees at September 304 | 32,781 | 30,778 | 31,646 | 30,959 |
| Commercial | Other/ | Continental | ||
|---|---|---|---|---|
| in € millions | Vehicle Tires | ContiTech | Consolidation | Corporation |
| External sales | 1,283.7 | 2,597.3 | — | 22,592.6 |
| Intercompany sales | 65.0 | 105.8 | -271.4 | — |
| Sales (total) | 1,348.7 | 2,703.1 | -271.4 | 22,592.6 |
| EBITDA | 125.4 | 392.5 | -36.5 | 3,109.8 |
| in % of sales | 9.3 | 14.5 | — | 13.8 |
| EBIT (segment result) | 69.4 | 320.3 | -37.5 | 1,916.7 |
| in % of sales | 5.1 | 11.8 | — | 8.5 |
| Depreciation and amortization1 | 56.0 | 72.2 | 1.0 | 1,193.1 |
| – thereof impairment2 | -2.4 | 0.2 | — | -2.3 |
| Capital expenditure3 | 57.0 | 70.1 | -5.5 | 1,023.1 |
| in % of sales | 4.2 | 2.6 | — | 4.5 |
| Operating assets at September 30 | 816.1 | 1,086.2 | -77.0 | 16,240.0 |
| Number of employees at September 304 | 9,997 | 27,651 | 266 | 164,078 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
| Segment report by division for the period from January 1 to September 30, 2010 | ||||
|---|---|---|---|---|
| Passenger and | ||||
|---|---|---|---|---|
| in € millions | Chassis & Safety | Powertrain | Interior | Light Truck Tires |
| External sales | 4,240.2 | 3,422.8 | 4,116.7 | 4,225.0 |
| Intercompany sales | 21.7 | 55.0 | 7.4 | 11.0 |
| Sales (total) | 4,261.9 | 3,477.8 | 4,124.1 | 4,236.0 |
| EBITDA | 674.4 | 199.9 | 420.8 | 897.2 |
| in % of sales | 15.8 | 5.7 | 10.2 | 21.2 |
| EBIT (segment result) | 431.6 | -145.4 | 107.2 | 715.0 |
| in % of sales | 10.1 | -4.2 | 2.6 | 16.9 |
| Depreciation and amortization1 | 242.8 | 345.3 | 313.6 | 182.2 |
| – thereof impairment2 | 3.0 | 21.8 | -5.9 | 0.5 |
| Capital expenditure3 | 132.7 | 173.6 | 124.1 | 258.2 |
| in % of sales | 3.1 | 5.0 | 3.0 | 6.1 |
| Operating assets at September 30 | 3,978.7 | 3,087.5 | 4,390.2 | 2,600.5 |
| Number of employees at September 304 | 29,742 | 26,455 | 29,171 | 28,068 |
| in € millions | Commercial Vehicle Tires |
ContiTech | Other/ Consolidation |
Continental Corporation |
|---|---|---|---|---|
| External sales | 967.8 | 2,171.7 | — | 19,144.2 |
| Intercompany sales | 55.7 | 89.7 | -240.5 | — |
| Sales (total) | 1,023.5 | 2,261.4 | -240.5 | 19,144.2 |
| EBITDA | 92.3 | 365.9 | -39.3 | 2,611.2 |
| in % of sales | 9.0 | 16.2 | — | 13.6 |
| EBIT (segment result) | 17.6 | 291.7 | -41.5 | 1,376.2 |
| in % of sales | 1.7 | 12.9 | — | 7.2 |
| Depreciation and amortization1 | 74.7 | 74.2 | 2.2 | 1,235.0 |
| – thereof impairment2 | 13.8 | 2.2 | — | 35.4 |
| Capital expenditure3 | 28.1 | 65.0 | 0.6 | 782.3 |
| in % of sales | 2.7 | 2.9 | — | 4.1 |
| Operating assets at September 30 | 638.2 | 1,072.9 | -69.1 | 15,698.9 |
| Number of employees at September 304 | 7,062 | 25,458 | 234 | 146,190 |
1 Excluding impairments on financial investments.
2 Impairment also includes necessary reversals of impairment losses.
3 Capital expenditure on property, plant and equipment, and software. 4
Excluding trainees.
| in € millions | January 1 to September 30 | Third Quarter | |||
|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||
| Chassis & Safety | 503.7 | 431.6 | 163.9 | 122.4 | |
| Powertrain | 26.6 | -145.4 | 29.5 | -101.7 | |
| Interior | 250.8 | 107.2 | 84.7 | 12.0 | |
| Passenger and Light Truck Tires | 783.4 | 715.0 | 251.6 | 213.7 | |
| Commercial Vehicle Tires | 69.4 | 17.6 | 35.6 | 25.1 | |
| ContiTech | 320.3 | 291.7 | 89.3 | 94.8 | |
| Other/consolidation | -37.5 | -41.5 | -18.9 | -1.2 | |
| EBIT | 1,916.7 | 1,376.2 | 635.7 | 365.1 | |
| Net interest expense | -561.0 | -531.4 | -242.2 | -209.5 | |
| Earnings before taxes | 1,355.7 | 844.8 | 393.5 | 155.6 | |
| Income tax expense | -409.5 | -431.7 | -165.1 | -128.5 | |
| Net income | 946.2 | 413.1 | 228.4 | 27.1 | |
| Non-controlling interests | -52.5 | -50.1 | -17.7 | -13.0 | |
| Net income attributable to the | |||||
| shareholders of the parent | 893.7 | 363.0 | 210.7 | 14.1 | |
| Basic earnings per share in € | 4.47 | 1.82 | 1.05 | 0.07 | |
| Diluted earnings per share in € | 4.47 | 1.82 | 1.05 | 0.07 |
This Interim Report has been prepared in accordance with the International Financial Reporting Standards (IFRS) applicable on the reporting date and endorsed by the European Union, as well as the interpretations of the International Financial Reporting Interpretation Committee (IFRIC). The Interim Report was drawn up in compliance with IAS 34, Interim Financial Reporting. The same accounting principles and basis of valuation are applied in the Interim Report as were used in the consolidated financial statements for 2010. These methods are disclosed in detail in the 2010 Annual Report. In addition, the IFRS amendments and new IFRS regulations mandated as of September 30, 2011 are applied in the Interim Report. These mandatory amendments and new regulations were disclosed in detail in the 2010 Annual Report. They have no material effect on the Continental Corporation.
Taxes are calculated based on the estimated, weighted-average annual tax rate expected for the year as a whole, taking into account the tax impact of specific significant items not expected to reoccur in the remainder of the year.
Although certain elements of the corporation's business are seasonal, the overall comparability of the interim consolidated financial statements is not compromised. All significant effects in the current period are shown in the summary of the Interim Report or in the accompanying explanations. Changes in the recognition or valuation of assets and liabilities within the scope of company acquisitions are presented retrospectively once the final purchase price allocation has been determined.
The consolidated financial statements have been prepared in euro. Unless otherwise stated, all amounts presented are in millions of euro. Please note that differences may arise as a result of the use of rounded amounts and percentages.
Consolidated net pension expenses of the Continental Corporation can be summarized as follows:
| in € millions | January 1 to Sept. 30, 2011 | January 1 to Sept. 30, 2010 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Ger many |
USA/ CAN |
UK | Others | Total | Ger many |
USA/ CAN |
UK | Others | Total | ||
| Current service cost | 46.4 | 0.5 | 2.1 | 12.7 | 61.7 | 37.9 | 6.8 | 2.2 | 8.2 | 55.1 | |
| Interest on defined benefit obligation |
66.1 | 38.5 | 8.5 | 8.1 | 121.2 | 65.6 | 41.5 | 8.3 | 7.4 | 122.8 | |
| Expected return on plan assets | -22.3 | -40.0 | -9.8 | -3.9 | -76.0 | -22.0 | -39.6 | -8.8 | -3.7 | -74.1 | |
| Amortization of actuarial gains and losses as well as other costs |
3.7 | 13.8 | 1.3 | 1.9 | 20.7 | 0.0 | 15.8 | 1.2 | 0.9 | 17.9 | |
| Effects of asset limitation and curtailments |
— | 0.3 | — | 0.1 | 0.4 | — | 2.6 | 0.0 | — | 2.6 | |
| Net periodic pension cost | 93.9 | 13.1 | 2.1 | 18.9 | 128.0 | 81.5 | 27.1 | 2.9 | 12.8 | 124.3 |
Consolidated net expenses for healthcare and life insurance obligations of the Continental Corporation in the U.S.A. and Canada are made up of the following:
| in € millions | January 1 to September 30 | ||
|---|---|---|---|
| 2011 | 2010 | ||
| Current service cost | 1.0 | 1.4 | |
| Interest cost on defined benefit obligation | 7.9 | 8.7 | |
| Amortization of actuarial losses as well as other costs | 1.3 | 0.0 | |
| Net cost of other post-employment benefits | 10.2 | 10.1 |
Pension funds exist solely for pension obligations, particularly in Germany, the U.S.A., Canada and the United Kingdom, and not for other benefit obligations. The companies of the Continental Corporation paid €54.9 million (PY: €41.0 million) into these pension funds for the period from January 1 to September 30, 2011.
In the period from January 1 to September 30, 2011, payments for retirement benefit obligations totaled €134.3 million (PY: €139.3 million). Payments for other post-employment benefits totaled €11.4 million (PY: €11.5 million).
In addition to the parent company, the consolidated financial statements include a total of 440 domestic and foreign companies in which Continental AG holds a direct or indirect interest of at least 20% of the voting rights. Of these companies, 310 are fully consolidated and 130 are carried at equity.
Since December 31, 2010, the total number of consolidated companies has increased by eleven. Five companies were acquired, six companies were established and one previously unconsolidated unit was consolidated. Ten units carried at equity were included in the scope of consolidation. Two companies were sold and two were liquidated. In addition, the number of companies consolidated was reduced by seven as a result of mergers.
Since September 30, 2010, the total number of consolidated companies has increased by 17. The additions to the consolidated companies chiefly relate to acquisitions and newly established companies in the Rubber Group and the effects from units carried at equity. The amounts for the prior year have been presented comparably.
On April 17, 2011, agreements were concluded for the acquisition of 100% of the shares in Modi Tyres Company Limited, Modipuram, India. The acquisition was completed on July 15, 2011. The purchase price totals €31.1 million including components that do not lead to cash outflow now or will lead to cash outflow later. The company was included in Continental's consolidated financial statements for the first time as of July 31, 2011. The company generated sales of around €100 million in 2010 with an average workforce of 1,650. In future, the company will operate under the name Continental India Limited and focus on local production and distribution of bias and radial tires for trucks and buses as well as radial tires for passenger vehicles and light trucks on the Indian market. The current, preliminary purchase price allocation results in acquired net assets of €12.2 million and goodwill of €18.9 million. There are no further material effects on the net assets, financial and earnings position of Continental as of September 30, 2011.
To strengthen the sales position on the French market, Continental Holding France SAS, Sarreguemines, France, acquired 49.9% of the shares in the tire and service sales group Alençon Pneus SAS, Alençon, France. The purchase agreement was concluded on February 19, 2011, and implemented on June 8, 2011. In addition, put and call rights were agreed between the parties for the outstanding remaining shares. The group was included in Continental's consolidated financial statements for the first time as of June 1, 2011. The group reported sales of €84.2 million in 2010, has a workforce of about 450 and is allocated to the Tire divisions. The current, preliminary purchase price allocation results in acquired intangible assets of €11.0 million and goodwill of €28.0 million. There are no further material effects on the net assets, financial and earnings position of Continental as of September 30, 2011.
To expand the business area of special-purpose conveyor belts, particularly to broaden the customer base and improve export conditions, acquisitions for €7.3 million were made in the ContiTech division. Intangible assets in the amount of €2.4 million were capitalized. As part of the preliminary purchase price allocations, positive differences arose, which were capitalized as goodwill in an amount of €1.1 million, as well as insignificant negative differences, which were realized as other operating income. The effects of the first-time inclusion of the acquired business in the consolidated financial statements of Continental, including the preliminary purchase price allocation, are not significant for the net assets, financial and earnings position as of September 30, 2011.
From other acquisitions, €1.8 million was capitalized as intangible assets and negative differences of €0.9 million were realized as other operating income. The effects of these transactions, including the corresponding preliminary purchase price allocations, have an insignificant effect on the net assets, financial and earnings position of Continental as of September 30, 2011.
As of June 30, 2011, Continental Matador Rubber s.r.o., Puchov, Slovakia, sold its equity investment in ZAO Matador Omskshina, Omsk, Russia.
The sale of a small business operation of the Passenger and Light Truck Tires division that had been held for sale also had no significant effect on the net assets, financial and earnings position of Continental as of September 30, 2011.
The corporation immediately reviews intangible assets and property, plant and equipment, investment property and goodwill as soon as there is an indication of impairment (triggering event). No significant impairment resulted from these impairment tests in the reporting period. However, reversals, mostly for the plant in Hanover-Stöcken, Germany, had a positive effect.
In the same period of the previous year, expenses totaling €35.4 million were incurred in this context. These included in particular expenses for the locations in Hanover-Stöcken, Germany, in Blythewood, U.S.A., and in Costa Rica. These expenses were partially offset by reversals for the location in Huntsville, U.S.A., in particular, which resulted mainly from further possibilities of utilizing machinery within the corporation.
As of December 31, 2010, Continental AG posted net retained earnings of €61.1 million (PY: retained losses of €993.7 million). Existing loan agreements would limit total possible distribution to €50.0 million, corresponding to €0.25 per share. In light of this, the Annual Shareholders' Meeting on April 28, 2011 resolved not to distribute a dividend for fiscal 2010. In 2010, distributing a dividend did not come into question due to the parent company's retained losses in 2009.
Basic earnings per share for the first nine months of 2011 amounted to €4.47 (PY: €1.82) and €1.05 for the period July 1 to September 30, 2011 (PY: €0.07), and corresponded to the diluted earnings per share.
Contingent liabilities and other financial obligations As of September 30, 2011, there were no material changes in the contingent liabilities and other financial obligations as described in the 2010 Annual Report.
In the period under review, there were no material changes in the nature of transactions with related parties compared with December 31, 2010. For further information, please refer to the comments in the 2010 Annual Report.
The annual declaration in accordance with Section 161 of the Aktiengesetz (German Stock Corporation Act) regarding the German Corporate Governance Code from the Executive Board and Supervisory Board of Continental AG is made permanently available to shareholders on Continental's website. Earlier declarations in accordance with Section 161 of the AktG also can be found on the website.
Comments on the development of Continental AG's six divisions are provided in the Corporate Management Report as of September 30, 2011.
At the end of March 2011, Continental successfully concluded renegotiation of the VDO loan originally maturing in August 2012, stipulating longer terms and improved conditions. The committed credit volume of this loan was reduced to €6.0 billion following an early repayment of €484.9 million in April 2011. A first tranche of €625.0 million is to be repaid in August 2012, and the term for the other two tranches, including a revolving credit line of €2.5 billion, has been extended to April 2014.
As of the end of September 2011, interest rate hedges of €3,125.0 million (PY: €3,125.0 million) remained unchanged for the tranche with a nominal value of €625.0 million (PY: €625.0 million) due in August 2012 and for the partial amount of €2.5 billion (PY: €2.5 billion) of the €2,875.0 million tranche due in April 2014. At the end of July 2011, the cash flow hedge accounting for the partial amount of €2.5 billion of the tranche of the VDO loan due in April 2014 was voluntarily terminated prematurely. Changes in the fair value of these hedges are now recognized directly in the income statement. Income of €9.1 million has arisen since the dedesignation of the cash flow hedges. Changes in value recognized in equity as a difference arising from financial instruments for the hedges until the end of July 2011 are reversed over the remaining term of the hedges. As of September 30, 2011, an expense of €11.5 million was recognized in profit or loss.
Comments on indebtedness and the net income from financial activities are also provided in the Corporate Management Report as of September 30, 2011.
In the third quarter of the previous year, the Continental Corporation placed several euro-denominated bonds with principal amounts totaling €3.0 billion and terms of up to eight years with investors in Germany and abroad. All bonds were issued by Conti-Gummi Finance B.V., Amsterdam, the Netherlands, with Continental AG and certain of its subsidiaries as guarantors. For further information, please see the notes in the financial report as of September 30, 2010 and the 2010 Annual Report.
Income tax expense in the first nine months of 2011 amounted to €409.5 million (PY: €431.7 million). The tax rate in the reporting period was 30.2% after 51.1% for the same period of the previous year.
In addition to the different national breakdown of earnings before income taxes, the income tax expense for the reporting period was largely influenced by tax income of €68.2 million for previous years. In the first quarter of 2011, Continental successfully implemented a pending prior-year tax position out of court by way of a reassessment. As was already reported in the first half of 2011, the resulting tax income was recognized in profit and loss in full.
The tax expenses for the reporting period were also influenced by an impairment on deferred tax assets of €29.0 million relating to increases in the year under review regarding the interest carryforwards in Germany.
Tax expense in the prior-year period was influenced primarily by the €133.3 million valuation allowance of deferred tax assets resulting from the interest carryforward in 2009 and the increases in the tax assets for the interest carryforward in Germany in the previous year.
Since 2008, a limit on the deductible interest that can be carried forward has applied in Germany; the amount deductible under the tax law is limited to 30% of the taxable income before depreciation and amortization and before interest.
Judicial review proceedings on the appropriateness of compensation and settlement under the domination and profit and loss transfer agreement of Phoenix AG with ContiTech AG and on the conversion ratio established in the merger agreement between these two companies were decided by the Hamburg district court in favor of the former outside shareholders of Phoenix AG. The rulings stipulate an obligation for ContiTech AG to make additional payments. Continental remains convinced that the 2004 valuation of Phoenix AG and ContiTech AG was appropriate and that the compensation and settlement under the domination and profit and loss transfer agreement as well as the conversion ratio in the merger agreement were established correctly. We have therefore lodged an appeal against the rulings. Nevertheless, a provision of €5.0 million was recognized.
Other than these, there were no significant new findings in the reporting period with regard to legal disputes and claims for compensation. For further information, please refer to the comments in the 2010 Annual Report.
On January 6, 2010, the Executive Board of Continental AG resolved – with Supervisory Board approval – an increase in the share capital of €432,655,316.48 by a nominal amount of €79,360,000.00 by issuing 31,000,000 new shares from authorized capital (Authorized Capital 2007).
The capital increase was implemented by way of a subscription rights offering to the shareholders of Continental AG. On January 26, 2010, Continental AG announced that more than 99% of the free float shareholders had made use of their subscription rights. Net proceeds totaled €1,056.0 million before tax effects. Equity was reduced by transaction costs of €57.8 million while deferred taxes of €17.3 million were also recognized. The capital increase served to repay Continental AG's liabilities from the VDO loan.
For further information, please see the comments in the 2010 financial and annual reports.
M.M.Warburg & CO KGaA, Hamburg, and B. Metzler seel. Sohn & Co. Holding AG, Frankfurt am Main, notified Continental AG that their respective shares of the voting rights in Continental AG fell below the thresholds of 15% and 10% on March 30, 2011, and amounted to 5.19% each as of that day.
BlackRock Investment Management (UK) Limited, London, United Kingdom, also informed Continental AG that the share of voting rights held by BlackRock, Inc., New York, U.S.A., in Continental AG fell below the threshold of 3% on September 9, 2011, and was 2.82% as of that day.
From this, and from the information made public by the Schaeffler Group, the shareholder structure, including rounding differences, with regard to the 200,005,983 outstanding Continental shares was as follows: 49.90% Schaeffler Group, 5.19% M.M.Warburg & CO KGaA, 5.19% B. Metzler seel. Sohn & Co. Holding AG. According to the definition of Deutsche Börse, Continental shares held by Black-Rock, Inc. are included in the free float, making the free float 39.71%.
The interim management report and the abbreviated interim financial statements have not been audited in accordance with Section 317 of the Handelsgesetzbuch (HGB – German Commercial Code) or reviewed by a qualified auditor.
On October 6, 2011, we received a voting rights notification of the Schaeffler Group according to which its share of voting rights in Continental AG as of September 30, 2011 remained 49.90%. According to the notification, the voting rights share of Schaeffler Beteiligungsholding GmbH & Co. KG, Herzogenaurach, in Continental AG exceeded the thresholds of 3%, 5%, 10%, 15%, 20%, 25% and 30% on September 30, 2011 and amounted to 36.14% (72,290,458 voting rights) on that day. Schaeffler Verwaltungs GmbH, Herzogenaurach, continues to have a direct stake of 13.76% (27,512,528 voting rights).
The new construction of a tire plant in Sumter, U.S.A., was announced on October 7, 2011. It is intended to cover the increasing demand for OEM and replacement passenger and light truck tires mainly in the U.S. In the first phase, production capacity of the plant will be almost 5 million passenger and light truck tires per year when it is running at full capacity in 2017. In the second phase of the project, plant capacity is intended to reach 8 million tires per year by 2021. Plans are to invest a total of more than \$500 million and to create over 1,600 jobs.
Hanover, October 24, 2011
Continental Aktiengesellschaft The Executive Board
On October 18, 2011 the Government of Singapore Investment Corporation Pte Ltd, Singapore, Singapore, informed us that its voting rights share in Continental AG exceeded the 3% threshold on October 12, 2011 and amounted to 3.05% (6,095,163 voting rights) as of that day.
The construction of a second plant for the production of automotive electronics components in Changchun, China, was announced on October 20, 2011. Investment will amount to 300 million renminbi (around €35 million) for this. The plant is scheduled to begin full production in September 2012. The manufacturing of components for the Chassis & Safety and Interior divisions will then take place at the new plant instead of at the existing facility for automotive electronics.
| 2011 | |
|---|---|
| Annual Financial Press Conference | March 3 |
| Analyst Telephone Conference | March 3 |
| Annual Shareholders' Meeting | April 28 |
| Financial Report as of March 31, 2011 | May 5 |
| Half-Year Financial Report as of June 30, 2011 | July 29 |
| Financial Report as of September 30, 2011 | November 3 |
| Annual Financial Press Conference | March 1 |
|---|---|
| Analyst Telephone Conference | March 1 |
| Annual Shareholders' Meeting | April 27 |
| Financial Report as of March 31, 2012 | May 3 |
| Half-Year Financial Report as of June 30, 2012 | August 2 |
| Financial Report as of September 30, 2012 | October 31 |
Continental Aktiengesellschaft, P.O. Box 169, 30001 Hanover, Germany Vahrenwalder Straße 9, 30165 Hanover, Germany Phone +49 511 938 - 01, Fax +49 511 938 - 8 17 70, [email protected], www.continental-corporation.com
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