Annual Report 2006

• Consolidated Income Statement
• Consolidated Balance Sheet
• Consolidated Cash Flow Statement
• Income and Expense
• Notes to Finacial Statements
  • Consolidation Principles
  • Accounting Policies
  • Scope of Consolidation
  • Notes to Consolidated Income Statement
  • Notes to Consolidated Balance Sheet
  • Proposed Appropriation of Profits
  • Segment Reporting
  • Pro Forma Statements (IFRS-3)
  • Supervisory Board
  • Management Board
  • Declaration Corporate Governance
• Shareholdings of the GfK Group
• Auditors' Report

Notes to the consolidated income statement

The income statement was prepared according to the cost of sales method. Expenses are shown by operations.

Sales

Sales are broken down according to type as shown in the table below.

 

The breakdown of sales according to division and region is shown under 25. Segment reporting.

Cost of sales

The cost of sales amounting to EUR 752,342 thousand (2005: EUR 638,321 thousand) include research and development costs totaling EUR 5,993 thousand (2005: EUR 5,545 thousand).

Other operating income

Other operating income of EUR 15,628 thousand (2005: EUR 10,296 thousand) mainly contains exchange gains of EUR 11,509 thousand (2005: EUR 8,184 thousand).

The remaining other operating income essentially comprises the reversal of impairment at GfK Eurisko S.r.l., Milan, Italy (eur 1,036 thousand).

Other operating expenses

Other operating expenses includes the items shown in the table below.

 

Non-operating depreciation/amortization primarily includes impairments on additional assets identified on acquisitions.

Personnel expenses

The expense items in the income statement include the personnel expenses listed in the table below.

 

Adjusted operating income

Adjusted operating income is the internal management indicator for the GfK Group and is explained in detail in the management report. It is derived from the operating income whereby the following items are excluded.

 

Integration costs in connection with acquisitions

Integration costs mainly comprise expenses which are connected both materially and time-wise with the acquisition of NOP World. These include primarily settlements and bonuses as well as auditing, advisory and restructuring costs.

The integration costs are split across the items in the income statement as shown in the table below.

 

Amortization and impairment of additional assets identified on acquisitions

Amortization on disclosed hidden reserves from purchase price allocation breaks down into scheduled amortization of EUR 17,560 thousand, which is included in the cost of sales, and impairments totaling EUR 5,632 thousand, which are included under other operating expenses. Further details are given in Note 10 under Other intangible assets.

Personnel expenses for share-based payments and long-term incentives

Personnel expenses shown here include tranches 5, 6 and 7 of the stock option program for GfK Group managers (eur 2,287 thousand; 2005: EUR 2,597 thousand). The total value of each tranche is notified two years to the day after the options are issued, which corresponds to the period between issue and the initial right to exercise options.
The item also includes expenses for the Long-Term Incentive Plan for GfK Group employees and managers of EUR 656 thousand for the first time. This is the amount allocated to the relevant provisions in addition to the premium waiver of the employees included, which is based on calculations by an expert.

Details are provided in the section entitled Accounting policies.

Remaining other operating expenses

The derivation of remaining other operating expenses from other operating expenses is shown in the table below.

 

Financial expenses

Financial expenses break down as shown in the table below.

 

The rise in interest payments to banks is mainly linked to borrowing to acquire nop World. In the prior year, interest expenses for seven months only were included, because the acquisition took place on June 1, 2005.

Tax on income from ongoing business activity

main elements of the Group’s tax on income are shown in the table below.

 

The current tax advantage from the utilization of tax loss carryforwards during financial year 2006 amounted to EUR 2,149 thousand (2005: EUR 2,760 thousand). The balance sheet for 2006 recorded a deferred tax claim due to non-utilized tax losses totaling EUR 12,793 thousand (2005: EUR 13,707 thousand). In addition, there was a deferred tax claim from deductible tax credit amounting to EUR 11,263 thousand (2005: EUR 9,635 thousand).

The rate used to calculate deferred taxes for the German companies with registered offices in Nuremberg comprise corporation tax of 25% plus the solidarity surcharge of 5.5% on the corporation tax debt paid as well as the effective trade tax rate of 13.449%. As in the prior year, this results in a tax rate of 39.824% as of December 31, 2006.

The deferred taxes of the remaining German companies are calculated according to the relevant municipal factor of the trade tax rate. The deferred taxes of the companies outside Germany are calculated according to the respective country-specific tax rates.

The table below contains a reconciliation of the anticipated income tax expense and the income tax expense stated in financial year 2006. To calculate the anticipated tax expense, the tax rate of the parent company, GfK AG, valid during the financial year and which corresponds to that used for the calculation of deferred tax for the German companies with registered offices in Nuremberg, is multiplied by the pre-tax result.

 

The deferred taxes result from the balance sheet items listed in the following table.

 

Deferred taxes are reported in the balance sheet as shown in the following table:

 

Taxes on items posted directly to equity amounted to EUR 3,436 thousand (2005: EUR 967 thousand).

As of December 31, 2006, the Group had domestic tax loss carry-forwards amounting to EUR 4,026 thousand (2005: EUR 0 thousand), which can be utilized exclusively for the purposes of corporation tax. The tax loss carryforwards that can be utilized exclusively for the purposes of trade tax amounted to EUR 9,173 thousand (2005: EUR 2,448 thousand). Additional tax loss carryforwards of EUR 292 thousand (2005: EUR 2,111 thousand) can be used for corporation tax and trade tax purposes. In addition, there are foreign tax loss carryforwards totaling EUR 37,669 thousand (2005: EUR 43,975 thousand). The domestic loss carryforwards can be carried forward without restriction in terms of time and amount. Of the foreign loss carryforwards, the amount of EUR 14,865 thousand may be carried forward without limit or for a period of more than 15 years, and the amount of EUR 15,330 thousand is available for carryforward until 2016. EUR 7,474 thousand can be carried forward until 2011.

The estimate of their future realizability governs the recognition and valuation of deferred tax assets. This is dependent on the generation of future taxable profits during accounting periods in which tax valuation differences are reversed and tax loss carryforwards can be applied.

In view of expected future performance, it is assumed probable that the relevant benefits of the recognized deferred tax assets will be realized according to the provisions of IFRS. Deferred tax assets are also stated for companies which have been or are in a loss-making situation, if there is sufficient assumption of future profits.

The items for which no deferred tax assets have been stated are shown in the table below.

 

Of these tax losses not classified as losses which can be used in the future, an amount of EUR 4,194 thousand lapses within the next five years. The remaining EUR 2,262 thousand has no time limit on its use.

The GfK Group reports deferred taxes on retained profits from foreign subsidiaries where these profits are distributable and are not to remain permanently invested in the subsidiaries.

Earnings per share

Earnings per share are shown in the table below:

 

The average number of shares is diluted by 559,732 shares from options issued, not yet exercised and options under tranches 3 to 6 exercised in 2006, which are in the money as at the reporting date. This results in a dilution effect of EUR 0.03 per share.

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GfK Annual Report 2006

GfK 2006 Financial Statements