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Annual Report

24 Equity

The subscribed capital of Volkswagen AG is denominated in euros. The shares are no-par value bearer shares. Each share has a notional value of €2.56. As well as ordinary shares, there are preferred shares that entitle the bearer to a €0.06 higher dividend than ordinary shares, but do not carry voting rights.

Based on the resolution by the Annual General Meeting on May 3, 2006, authorized capital of up to €90 million, expiring on May 2, 2011, was approved for the issue of new ordinary bearer shares.

There is also contingent capital of €7 million (originally €40 million) resulting from the resolution by the Annual General Meeting on April 16, 2002. This contingent capital increase will be implemented only to the extent that the holders of convertible bonds issued before April 15, 2007 exercise their conversion rights.

Based on the resolution by the Extraordinary General Meeting on December 3, 2009, there is authorized capital of up to €179.4 million (originally €345.6 million), expiring on December 2, 2014, for the issue of new preferred bearer shares.

Based on the resolution by the Annual General Meeting on April 22, 2010, there is contingent capital of up to €102.4 million, expiring on April 21, 2015, from the issue of up to €5 billion in bonds with warrants and/or convertible bonds.

Volkswagen AG issued 64,904,498 new preferred shares (with a notional value of €166 million) as part of a capital increase in the reporting period. Volkswagen AG recorded a cash inflow of approximately €4.1 billion from the capital increase. In addition, Volkswagen AG issued 40,170 new ordinary shares (with a notional value of €102,835) as a result of the exercise of convertible bonds from the seventh and eighth tranches of the stock option plan.

The subscribed capital is thus composed of 295,045,567 no-par value ordinary shares and 170,142,778 preferred shares, and amounts to €1,191 million (previous year: €1,025 million).

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CHANGE IN ORDINARY AND PREFERRED SHARES AND SUBSCRIBED CAPITAL

 

 

 

 

Shares

 

 

 

2010

 

2009

 

2010

 

2009

Balance at January 1

 

400,243,677

 

400,158,487

 

1,024,623,813

 

1,024,405,726

Capital increase

 

64,904,498

 

 

166,155,515

 

Stock option plan

 

40,170

 

85,190

 

102,835

 

218,086

Balance at December 31

 

465,188,345

 

400,243,677

 

1,190,882,163

 

1,024,623,813

The capital reserves comprise the share premium of a total of €9,084 million (previous year: €5,030 million) from the capital increases, the share premium of €219 million from the issue of bonds with warrants and an amount of €107 million appropriated on the basis of the capital reduction implemented in 2006. Capital reserves rose by €4,055 million in fiscal year 2010 (previous year: €4 million) as a result of the share premium from the capital increase due to the issue of new preferred shares and the exercise of convertible bonds under the stock option plan. The costs of the capital increase in fiscal year 2010 reduced the capital reserves by €84 million, net of deferred taxes. No amounts were withdrawn from the capital reserves.

STOCK OPTION PLAN

The stock option plan entitles the optionees – the Board of Management, Group senior executives and management, as well as employees of Volkswagen AG covered by collective pay agreements – to purchase options on shares of Volkswagen AG by subscribing for convertible bonds at a price of €2.56 each. Each bond is convertible into ten ordinary shares.

The convertible bonds are measured at fair value at the date of grant to the employees. The convertible bonds measured at fair value are recognized in personnel expenses and in equity.

The conversion prices and periods following the expiration of the first six tranches are shown in the following table. The information on the seventh tranche is presented as data for the reporting period, although this tranche has now also expired.

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CONVERSION PRICES AND PERIODS FOR EACH TRANCHE OF THE STOCK OPTION PLAN

 

7th tranche

 

8th tranche

*

The conversion prices were adjusted as of April 14, 2010 due to the implementation of the capital increase.

Base conversion price per share

 

37.99

 

58.18

Conversion price

 

 

 

 

as from July 9, 2007

 

41.79

 

 

as from publication of interim report
for Jan. – Sept. 2007

 

43.69

 

 

as from July 8, 2008

 

 

 

64.00

as from publication of interim report
for Jan. – Sept. 2008

 

45.59

 

66.91

as from publication of interim report
for Jan. – Sept. 2009

 

47.49

 

69.82

on completion of the capital increase on April 14, 2010

 

46.82*

 

69.15*

as from publication of interim report
for Jan. – Sept. 2010

 

 

 

72.06*

Beginning of conversion period

 

July 9, 2007

 

July 8, 2008

End of conversion period

 

July 1, 2010

 

June 30, 2011

Changes in the rights to stock options granted are shown in the following table:

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Nominal value of convertible bonds

 

Number of conversion rights

 

Number of potential ordinary shares

 

 

 

Rights

 

Shares

Balance at Jan. 1, 2009

 

43,540.48

 

17,008

 

170,080

In fiscal year

 

 

 

 

 

 

exercised

 

21,808.64

 

8,519

 

85,190

returned

 

12.80

 

5

 

50

Balance at Dec. 31, 2009

 

21,719.04

 

8,484

 

84,840

 

 

 

 

 

 

 

Balance at Jan. 1, 2010

 

21,719.04

 

8,484

 

84,840

In fiscal year

 

 

 

 

 

 

exercised

 

10,283.52

 

4,017

 

40,170

returned

 

94.72

 

37

 

370

Balance at Dec. 31, 2010

 

11,340.80

 

4,430

 

44,300

MEASUREMENT OF CONVERTIBLE BONDS IN THE SEVENTH AND EIGHTH TRANCHES

Those convertible bonds granted after publication of the draft IFRS 2 on November 7, 2002 were measured in accordance with the transitional provisions of IFRS 2.

The fair value of the convertible bonds is estimated using a binomial option pricing model based on the issuance and conversion conditions described above. In terms of the optionees’ conversion behavior, it was assumed that they will convert when the share price is 50% higher than the conversion price. Historical and implied volatilities based on the expected remaining term of the conversion rights were used to estimate the fair value of the convertible bonds. The assumptions used and the fair value estimated are presented in the following table:

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7th tranche

 

8th tranche

Volatility (%)

 

27.50

 

27.50

Risk-free rate (%)

 

2.57

 

3.77

Dividends (%)

 

3.20

 

3.20

Fair value per convertible bond (€)

 

48.71

 

63.49

The fair value of the convertible bonds is recognized ratably as a personnel expense over the two-year vesting period. No personnel expense was recognized in fiscal years 2009 and 2010 as the vesting period for the eighth tranche expired in 2008.

Changes in the number of convertible bonds in issue and their exercise prices are shown in the following table:

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Average exercise price per convertible bond*

 

Convertible bonds

 

 

 

Quantity

*

Conversion price per ten shares.

Balance at Jan. 1, 2009

 

556.27

 

17,008

In fiscal year

 

 

 

 

granted

 

 

returned

 

669.10

 

5

exercised

 

521.41

 

8,519

Balance at Dec. 31, 2009

 

618.53

 

8,484

of which available for exercise

 

618.53

 

8,484

 

 

 

 

 

Balance at Jan. 1, 2010

 

618.53

 

8,484

In fiscal year

 

 

 

 

granted

 

 

returned

 

698.20

 

37

exercised

 

533.69

 

4,017

Balance at Dec. 31, 2010

 

720.60

 

4,430

of which available for exercise

 

720.60

 

4,430

For 5,103 convertible bonds, the average conversion price increased by €224.00 in 2010.

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Exercise price per convertible bond*

 

Convertible bonds

2010

 

 

Quantity

*

Conversion price per ten shares.

7th tranche

 

468.20

 

8th tranche

 

720.60

 

4,430

 

 

 

 

4,430

CHANGES IN ACCUMULATED COMPREHENSIVE INCOME

The following table shows the changes in accumulated comprehensive income:

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Attribut-
able to share-
holders of VW AG

 

Non-
controlling interests

 

Total

 

Attribut-
able to share-
holders of VW AG

 

Non-
controlling interests

 

Total

€ million

 

 

 

 

 

2010

 

 

 

 

 

2009

Currency translation reserve

 

1,716

 

261

 

1,978

 

839

 

135

 

975

Reserve for actuarial gains/losses

 

–1,311

 

–33

 

–1,344

 

–851

 

–9

 

–860

of which deferred taxes

 

384

 

9

 

393

 

247

 

2

 

249

Cash flow hedge reserve

 

–1,130

 

–5

 

–1,136

 

–361

 

136

 

–225

of which deferred taxes

 

332

 

1

 

333

 

83

 

–37

 

46

Fair value reserve for securities

 

–34

 

 

–34

 

271

 

 

271

of which deferred taxes

 

10

 

 

10

 

–80

 

 

–80

Equity-accounted investments, net of tax

 

516

 

 

516

 

30

 

 

30

DIVIDEND PROPOSAL

In accordance with section 58(2) of the Aktiengesetz (AktG – German Stock Corporation Act), the dividend payment by Volkswagen AG is based on the net retained profits reported in the annual financial statements of Volkswagen AG. Based on the annual financial statements of Volkswagen AG, net retained profits of €1,039 million are eligible for distribution. The Board of Management and Supervisory Board will propose to the Annual General Meeting that a total dividend of €1,034 million, i.e. €2.20 per ordinary share and €2.26 per preferred share, be paid from the net retained profits. Shareholders are not entitled to a dividend payment until it has been resolved by the Annual General Meeting.

A dividend of €1.60 per ordinary share and €1.66 per preferred share were distributed in fiscal year 2010.

NONCONTROLLING INTERESTS

The noncontrolling interests in equity are attributable primarily to shareholders of Scania AB. 13.35% of the share capital of Scania is held by MAN SE, which itself is an associate of the Volkswagen Group.

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