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Annual Report

41 Related party disclosures in accordance with IAS 24

Related parties as defined by IAS 24 are natural persons and entities that Volkswagen AG has the ability to control or on which it can exercise significant influence, or natural persons and entities that have the ability to control or exercise significant influence on Volkswagen AG, or that are influenced by another related party of Volkswagen AG.

At the beginning of fiscal year 2009, the interest held by Porsche Automobil Holding SE, Stuttgart, in Volkswagen AG’s ordinary shares exceeded the 50% threshold. From this date, Porsche Automobil Holding SE held the majority of the voting rights (50.76%). Its share of voting rights has since declined to 50.74% as a result of the exercise of conversion rights under the stock option plan.

The creation of rights of appointment for the State of Lower Saxony was resolved at the Extraordinary General Meeting of Volkswagen AG on December 3, 2009. As a result, Porsche Automobil Holding SE can no longer appoint the majority of the members of Volkswagen AG’s Supervisory Board for as long as the State of Lower Saxony holds at least 15% of Volkswagen AG’s ordinary shares. However, Porsche Automobil Holding SE continues to have the power to participate in the operating policy decisions of the Volkswagen Group. Prior to this, the Supervisory Board of Volkswagen approved the Comprehensive Agreement between Volkswagen AG, Porsche Automobil Holding SE, Porsche Holding Gesellschaft m.b.H., Salzburg, and Porsche GmbH, Salzburg, Porsche Zwischenholding GmbH, Stuttgart, the ordinary shareholders of Porsche Automobil Holding SE and the employee representatives of Volkswagen AG, Porsche Automobil Holding SE and Dr. Ing. h.c. F. Porsche AG, Stuttgart, to create an integrated automotive group led by Volkswagen.

Moreover, in the course of the performance of these agreements, Volkswagen AG reached the following key arrangements with Porsche Automobil Holding SE and companies belonging to the Porsche Zwischenholding GmbH Group:

Volkswagen AG shall be indemnified by Porsche Autombil Holding SE against obligations arising from certain legal disputes, tax claims (plus interest) and from certain substantial losses.

Porsche Automobil Holding SE has also granted a number of guarantees to Volkswagen AG in respect of Porsche Zwischenholding GmbH and Dr. Ing. h.c. F. Porsche AG. Among other things, these relate to the proper issuance of and full payment for the shares of Dr. Ing. h.c. F. Porsche AG, to the ownership of the shares in Porsche Zwischenholding GmbH and Porsche AG, and to the existence of the material approvals, permissions and industrial property rights required to operate the business activities of Porsche AG.

Volkswagen AG will indemnify Porsche Automobil Holding SE against certain financial guarantees issued by Porsche Automobil Holding SE to creditors of the companies belonging to the Porsche Zwischenholding GmbH Group up to the amount of its share in the capital of Porsche Zwischenholding GmbH.

Volkswagen AG has guaranteed loans made by Porsche Automobil Holding SE to Porsche Zwischenholding GmbH or Porsche AG in the case that these loans fall due and cannot be recovered because of the insolvency of Porsche Zwischenholding GmbH or Porsche AG, to the extent that these obligations could have been settled if the companies had not been insolvent on the due date by offsetting them against counterclaims of Porsche Automobil Holding SE.

Volkswagen AG has indemnified Porsche Automobil Holding SE internally against claims by the Einlagensicherungsfonds (German deposit protection fund) after Porsche Automobil Holding SE submitted an indemnification agreement required by the Bundesverband Deutscher Banken (Association of German Banks) to the Einlagensicherungsfonds in August 2009. Volkswagen AG has also undertaken to indemnify the Einlagensicherungsfonds against any losses caused by measures taken by the latter in favor of a bank in which Volkswagen AG holds a majority interest.

Furthermore, in the event that the merger of Porsche Automobil Holding SE with Volkswagen AG that is planned under the Comprehensive Agreement does not take place, Volkswagen AG and Porsche Automobil Holding SE have agreed mutually exercisable call and put options in respect of the remaining 50.1% interest in Porsche Zwischenholding GmbH. The put option is exercisable from November 15, 2012 to January 14, 2013 inclusive and again from December 1, 2014 to January 31, 2015 inclusive; the call option may be exercised from March 1, 2013 to April 30, 2013 inclusive and again from August 1, 2014 to September 30, 2014 inclusive.

The strike price for the two options amounts to €3,883 million and is subject to minor adjustments. Both Volkswagen AG (if it exercises its call option) and Porsche Automobil Holding SE (if it exercises its put option) have undertaken to bear the tax burden resulting from the exercise of the options and any subsequent activities in relation to the equity investment in Porsche Zwischenholding GmbH (e.g. from recapture taxation on the spin-off in 2007 and/or 2009). To secure any potential remaining claims by Volkswagen AG under the agreement between Porsche Automobil Holding SE and Volkswagen AG on the acquisition by Volkswagen AG of an interest in Porsche Zwischenholding GmbH, a purchase price retention mechanism was agreed in favor of Volkswagen AG for the case that the put or call options are exercised.

If tax benefits accrue to Volkswagen AG, Porsche Zwischenholding GmbH, Dr. Ing. h.c. F. Porsche AG, or their respective subsidiaries as a result of recapture taxation on the spin-off in 2007 and/or 2009, the purchase price to be paid by Volkswagen AG for the transfer of the outstanding 50.1% equity investment in Porsche Zwischenholding GmbH will be increased by the present value of the tax benefit if the put option is exercised by Porsche Automobil Holding SE.

In addition, Volkswagen granted a put option to Porsche Holding Gesellschaft m.b.H., a company owned by the Porsche and Piëch families, relating to the operating sales business of the company. In return, Volkswagen was granted rights of involvement in the management of the company during the term of the option. The option was exercised on November 10, 2010. The trading company is expected to be transferred for a fixed price of €3.3 billion in the course of the first half of 2011, and at the latest by September 30, 2011.

All transactions with Porsche Automobil Holding SE, Porsche Zwischenholding GmbH, and Porsche Holding Gesellschaft m.b.H., as well as with all companies affiliated with these, are conducted on an arm’s length basis.

According to a notification dated December 20, 2010, the State of Lower Saxony and Hannoversche Beteiligungsgesellschaft mbH, Hanover, held 20.00% of the voting rights of Volkswagen AG on December 31, 2010. As mentioned above, the General Meeting of Volkswagen AG on December 3, 2009 also resolved that the State of Lower Saxony may appoint two members of the Supervisory Board (right of appointment). Transactions with the State of Lower Saxony itself and companies owned by the State of Lower Saxony are conducted on an arm’s length basis.

All transactions with unconsolidated subsidiaries, joint ventures, associates and other related parties are conducted on an arm’s length basis.

Members of the Board of Management and Supervisory Board of Volkswagen AG are members of supervisory and management boards or shareholders of other companies with which Volkswagen AG has relations in the normal course of business. All transactions with these companies are conducted on an arm’s length basis.

The amounts of the supplies and services transacted, as well as outstanding receivables and liabilities, between consolidated companies of the Volkswagen Group and related parties (unconsolidated subsidiaries, joint ventures, associates, Porsche Automobile Holding SE, Stuttgart, Porsche Zwischenholding GmbH, Stuttgart, Porsche Holding Gesellschaft m.b.H., Salzburg/Austria and their affiliated companies as well as other related parties) are presented in the following tables.

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RELATED PARTIES

 

 

 

 

Supplies and services rendered

 

Supplies and services received

€ million

 

2010

 

2009

 

2010

 

2009

1

Including Porsche Zwischenholding GmbH, Stuttgart, and its subsidiaries from December 7, 2009.

2

Includes in particular Porsche Holding Gesellschaft m.b.H., Salzburg, Austria, and its subsidiaries as well as Porsche Zwischenholding GmbH, Stuttgart, and its subsidiaries up to December 6, 2009.

Porsche Automobil Holding SE

 

0

 

0

 

 

392

Supervisory Board members

 

2

 

0

 

0

 

0

Board of Management members

 

0

 

0

 

0

 

0

Unconsolidated subsidiaries

 

1,024

 

1,744

 

933

 

828

Joint ventures¹

 

6,263

 

3,612

 

1,110

 

464

Associates

 

175

 

1,368

 

186

 

191

Pension plans

 

2

 

1

 

0

 

1

Other related parties

 

1

 

1

 

36

 

31

Porsche²

 

4,218

 

4,165

 

168

 

250

State of Lower Saxony and majority interests

 

11

 

11

 

0

 

0

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Receivables from

 

Liabilities to

€ million

 

Dec. 31, 2010

 

Dec. 31, 2009

 

Dec. 31, 2010

 

Dec. 31, 2009

1

Of this figure, receivables in the amount of €49 million (previous year: €47 million) have been guaranteed by Porsche Holding Gesellschaft m.b.H., Salzburg, Austria.

Porsche Automobil Holding SE

 

0

 

 

 

Supervisory Board members

 

0

 

0

 

6

 

5

Board of Management members

 

0

 

0

 

29

 

14

Unconsolidated subsidiaries

 

388

 

653

 

335

 

303

Joint ventures

 

2,988

 

2,395

 

407

 

309

Associates

 

14

 

24

 

48

 

16

Pension plans

 

1

 

1

 

1

 

0

Other related parties

 

0

 

0

 

3

 

2

Porsche1

 

168

 

155

 

10

 

10

State of Lower Saxony and majority interests

 

0

 

1

 

0

 

0

The call option agreed in the Comprehensive Agreement with Porsche Automobil Holding SE on the outstanding shares of Porsche Zwischenholding GmbH had a positive fair value of €2,001 million (previous year: €48 million) as measured in accordance with financial valuation techniques, and the corresponding put option had a negative fair value of €233 million (previous year: €65 million). The change in the fair value of the options is attributable to updated assumptions underlying their valuation. The key parameters for the valuation of the options are the enterprise value of Porsche Zwischenholding GmbH and the assessment by the Board of Management as to the probability of a merger happening within the time frame laid down in the Comprehensive Agreement. From today’s perspective, no assurance can be given that the time frame can be adhered to. The legal and tax due diligence of the transaction required under the terms of the Comprehensive Agreement has not yet been completed. This is due to external factors; among other things, the tax framework for the merger has not yet been established. In addition, the effects on the merger of the actions for damages brought against Porsche Automobil Holding SE in the United States and the claims for damages asserted by a number of fund management companies in Germany cannot be conclusively assessed given the current status of the proceedings. The Board of Management of Volkswagen AG currently expects that it will be possible to resolve these uncertainties and that the merger will therefore take place, although possibly not within the ambitious time frame set out in the Comprehensive Agreement. The difference will be recognized in the other financial result item (see note 9).

In the previous year, Volkswagen AG made a cash contribution of €3.9 billion to acquire the interest in Porsche Zwischenholding GmbH. The Company also extended financing of €0.7 billion to Dr. Ing. h.c. F. Porsche AG and Porsche Financial Services Italia S.p.A., Padua, in fiscal year 2009 at arm’s length conditions and subject to collateral requirements; €0.2 billion (previous year: €0.2 billion) of this amount was still outstanding from the factoring of receivables of Porsche Financial Services Italia S.p.A., Padua, at the reporting date.

In fiscal year 2010, Porsche Corporate Finance GmbH, Salzburg, Zurich Branch, Austria, subscribed for seven commercial paper issues (previous year: three commercial paper issues) by Volkswagen International Finance N.V., Amsterdam, the Netherlands, with a total volume of €0.1 billion (previous year: €0.1 billion), which were guaranteed by Volkswagen AG. All the commercial paper issues had matured by the reporting date.

The Board of Management and Supervisory Board of the Volkswagen Group are related parties within the meaning of IAS 24. The following benefits and remuneration were recorded for these persons:

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2010

 

2009

Short-term benefits

 

42,059,737

 

22,588,862

Post-employment benefits

 

3,246,326

 

3,025,899

 

 

45,306,063

 

25,614,761

Outstanding balances for bonuses payable to Board of Management members existed in the amount of €28,792,500 at the end of the fiscal year (previous year: €13,100,000). The post-employment benefits relate to additions to pension provisions for current members of the Board of Management. The expenses shown above do not correspond to the definition of remuneration of members of the Board of Management and the Supervisory Board in accordance with the German Corporate Governance Code.

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