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3. Derivative financial instruments 4. Costs of rasing capital 5. Stock options 6. Foreign currency translation 7. Accounting for and amortization of goodwill There is no binding approach under HGB to accounting for and the valuation of derivative financial instruments, so that they are valued taking into account the historical cost, realization and prudence principles. US-GAAP, on the other hand, requires all original and derivative financial instruments to be measured at fair value. Under certain restrictive conditions, US-GAAP requires that hedging be recognized in the balance sheet, with the consequence that fluctuations in the fair value of financial instruments used for hedging purposes are not recognized directly as expense or income, but are deferred temporarily under equity. The criteria for recognition of hedging in the balance sheet depend on the nature of the hedged item and the hedging instrument. If the criteria for recognition of hedging in the balance sheet are not fulfilled, fluctuations in the fair value of derivatives must be recognized as expense or income in the period in which they occur. Under German law, costs of raising capital must be recognized as expense and may not be offset against the proceeds of increases in capital. Under US-GAAP, costs of raising equity, such as issuing costs incurred in conjunction with an initial public offering, less the related income tax effects, are deducted from the gross proceeds of the funds raised, thus reducing the additional paid-in capital. No prevailing opinion has developed to date in Germany on the treatment of the issuance of stock options to employees. Under US-GAAP, stock options are mainly dealt with in APB 25 and SFAS 123. Under APB 25, stock options are valued in accordance with their intrinsic value and under SFAS 123 in accordance with their fair value. The Company applies APB 25 for accounting for stock options, in accordance with which the intrinsic value is based on the difference between the exercise price and the higher current market price. Whereas under HGB, non-hedged foreign currency receivables and liabilities are valued at the exchange rate on the transaction date or the less favorable rate in each case as of the balance sheet date, US-GAAP requires in accordance with SFAS 52 (Foreign Currency Translation) that all foreign currency receivables and liabilities are valued at the closing rate as of the balance sheet date, with the consequence that unrealized exchange gains are also recognized as income. Under German commercial law, goodwill acquired for a consideration must be capitalized and amortized over its expected useful life. If the goodwill results from first-time consolidation, it is offset in full against equity in the year in which it arises. Goodwill must be written down, for instance, if the future earnings situation is not expected to be positive. An impairment loss is regarded as justified under the aspect of the prudence principle. 112
8. Discontinued operations Under US-GAAP, goodwill is similarly capitalized, but systematic amortization is no longer permitted. Instead, SFAS 142 requires an impairment test to be carried out at least once a year. Section 246 (2) HGB (German Commercial Code) prohibits the offsetting of expenses and income and assets and liabilities. This has the consequence that discontinued operations may not be reported separately in the financial statements. Under US-GAAP on the other hand, SFAS 144 (Accounting for the Impairment or Disposal of Long- Lived Assets) requires items in the statement of income and the balance sheet to be adjusted for the effect of discontinued operations. The adjusted figures must be reported in separate items as income or loss from discontinued operations in the statement of income and as assets and liabilities from discontinued operations in the balance sheet. XIII. Development of Group Fixed Assets The development of the Group fixed assets can be seen from the analysis enclosed with these notes. Neumarkt, February 22, 2005 Hans H. Overdiek Dr Jürgen Koch Michael Ernst 113 FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
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Annual Report 2004 Core Businesses
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Group Figures Jan. 1 - Jan. 1 - Cha
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Pfleiderer AG is focusing on its tw
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3 35 Pfleiderer Engineered Wood fur
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In closing down the Rheda-Wiedenbr
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Dr Jürgen Koch Member of the Board
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Committees Formed by the Supervisor
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CORPORATE GOVERNANCE 1. Introductio
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4. Supervisory Board The Board of M
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Declaration of Compliance 2004 Unde
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Stock Option Program 2004 (Continua
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PFLEIDERER GROUP AND PFLEIDERER AG
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Company Report Corporate portfolio
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In fiscal 2004, the Pfleiderer Grou
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Net indebtedness of the Pfleiderer
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GERMANY GDP in Germany increased by
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y expanding foreign and export rati
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Production Pfleiderer Engineered Wo
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Aside from its leading market prese
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Due to its very low construction he
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Procurement In order to take advant
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Research & Development New “Multi
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In September 2004, Pfleiderer appro
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Personnel As of December 31, 2004,
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Pfleiderer Corporate Guidelines for
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Economic and Political Risks and In
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No liquidity risk exists at present
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wodego® is the latest brand in Pfl
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Key Figures 2004 2003 No. of shares
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Investor Relations Activities Indiv
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While the prices paid for paraffin
Page 67 and 68: TURKEY The Turkish economy reported
Page 69 and 70: Liabilities and Shareholders’ Equ
Page 71 and 72: Pfleiderer Consolidated Statement o
Page 73 and 74: Comprehensive income 69 Other compr
Page 75 and 76: Infrastructure Technology Consolida
Page 77 and 78: Scope of Consolidation The consolid
Page 79 and 80: The activities of the Poles & Tower
Page 81 and 82: Sales of receivables are treated wi
Page 83 and 84: Property, Plant and Equipment Prope
Page 85 and 86: Accruals for Pensions and Similar O
Page 87 and 88: 1. Liquid funds 2. Securities class
Page 89 and 90: 7. Intangible assets As in the prev
Page 91 and 92: 11. Financial liabilities 12. Other
Page 93 and 94: 16. Long-term deferred income 17. D
Page 95 and 96: 18. Stockholders’ equity The foll
Page 97 and 98: Stock Appreciation Rights 2000 Unde
Page 99 and 100: 20. Derivative financial instrument
Page 101 and 102: Derivative financial instruments ar
Page 103 and 104: The following table reconciles the
Page 105 and 106: 22. Pensions and similar obligation
Page 107 and 108: The following table explains the ch
Page 109 and 110: 1. Contingent liabilities VII. Othe
Page 111 and 112: 3. Pending litigation and claims 4.
Page 113 and 114: Geographical Information Sales Reve
Page 115: 1. Leases 2. Valuation of inventori
Page 119 and 120: Accumulated amortization/depreciati
Page 121 and 122: Pfleiderer track systems B.V. Deven
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Page 125 and 126: Pfleiderer AG Statement of Income 2
Page 127 and 128: Accumulated amortization/depreciati
Page 129 and 130: Hanno C. Fiedler Chairman of the ma
Page 131 and 132: Economic Glossary Asset deal Descri
Page 133 and 134: P Particleboard 30, 32, 34, 43, 54
Page 135 and 136: Income ratios Sales revenues 900,97
Page 137 and 138: Financial Calendar 2005 April 7, 20
Page 139 and 140: July Pfleiderer track systems wins
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