978-0470424650 Annual Report Henkel Henkel Case Part 6

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Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Book value

in million euros Dec. 31, 2008 Dec. 31, 2009

Cash-generating units

Trademark rights

and other rights with

indefinite useful lives

Goodwill Trademark rights

and other rights with

indefinite useful lives

Goodwill

Detergents

338 661 336 637

Household cleaners

240 732 224 717

Total Laundry & Home Care 578 1,393 560 1,354

Retail products

466 1,006 450 982

Hair salon products 13 48 13 49

Total Cosmetics/Toiletries 479 1,054 463 1,031

Adhesives for Craftsmen,

Consumers and Building

44 389 44 390

Packaging, Consumer Goods and

Construction Adhesives

1,726 39 1,745

Transport, Metal, General Industry and Electronics

43 1,660 41 1,617

Total Adhesive Technologies 140 3,775

1) 124 3,752

Adjusted following finalization of purchase price allocation relating to the acquisition of the National Starch businesses

2) The cash-generating units Building Adhesives and Adhesives for Craftsmen and Consumers were combined in 2009 to facilitate more effective business management

The assessment for goodwill impairment according to

the fair-value-less-cost-to-sell approach is based on future

estimated cash flows which are obtained from corporate

budgets with a three-year financial forecasting horizon.

For the period after that, a growth rate in a bandwidth

between 1 and 2 percent in the cash flows is assumed for

the purpose of impairment testing. The US dollar to euro

exchange rate applied is 1.33. Taking into account specific

tax effects, the cash flows in all cash-generating units are

discounted at different rates for the cost of capital (WACC)

in each business sector: 7 percent after tax for Laundry &

Home Care and Cosmetics/Toiletries, and 8 percent after

tax for Adhesive Technologies.

In the Laundry & Home Care business sector, we have as–

sumed an average annual increase in sales during the three-

year forecasting horizon of approximately 4 percent with a

slight increase in share of world market.

Sales growth in the Cosmetics/Toiletries business sector over

the three-year forecasting horizon is budgeted at around

2 percent per year. With the cosmetics market relevant to

Henkel expected to grow at an annual rate of less than 1 per–

cent, this would mean an increase in market share.

The anticipated average sales growth during the three-

year forecasting horizon in the Adhesive Technologies business

sector is approximately 5 percent.

In all the business sectors, we have assumed that a future

increase in the price of raw materials can be largely offset

by economies in purchasing. In conjunction with further

measures to improve efficiency and pro-active management

of the portfolio, we anticipate achieving higher gross mar–

gins in all the business sectors.

We have not recognized any goodwill impairment losses

as a result of the impairment test.

Goodwill impairment losses of 35 million euros were

recorded in conjunction with the reclassification of assets to

the category “Assets held for sale.” Likewise, the discontinu–

ation of product lines led to impairment losses of 11 million

euros. Goodwill impairment losses totaling 46 million euros

are reported under other operating charges (see Note 7,

page 92).

The trademark rights and other rights with an indefinite

useful life are established in their markets and will continue

to be intensively promoted in the future.

In the annual impairment tests for trademark rights

and other rights with indefinite useful lives valued at

1,147 million euros, an impairment loss of 5 million euros

was identified.

Impairment charges on trademark rights and other rights

with definite useful lives relate primarily to assets acquired

in previous years attributable to the Adhesive Technologies

business sector.

98 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

(12) Property, plant and equipment

Cost

in million euros

Land, land rights

and buildings

Plant and

machinery

Factory and

office equipment

Payments on

account and

assets in course

of construction

Total

At January 1, 2008 1,624 2,653 885 175 5,337

Changes in the Group /Acquisitions 161 157 12 12

342

Additions 64 123 85 201

473

Disposals1) – 40 – 233 –105 –11

– 389

Reclassifications 134 72 23 – 235

– 6

Translation differences – 5 – 20 –13 – 6

– 44

At December 31, 2008 /January 1, 2009 1,938 2,752 887 136 5,713

Changes in the Group /Acquisitions – 2 1 –

Additions 60 134 62 88

344

1) of which assets held for sale 2008 – 31 –147 – 8 – 2

–188

Accumulated depreciation

in million euros

Land, land rights

and buildings

Plant and

machinery

Factory and

office equipment

Payments on

account and

assets in course

of construction

Total

At January 1, 2008 762 1,876 622 – 3,260

Changes in the Group /Acquisitions –1 – 2 –1 –

– 4

Write-ups – – – –

–

Scheduled depreciation 50 160 88 –

298

Impairment losses 32 110 6 1

149

Disposals1) – 25 – 223 – 82 –

– 330

Reclassifications – – – –

–

Translation differences 4 – 22 – 3 –

– 21

At December 31, 2008 /January 1, 2009 822 1,899 630 1 3,352

Impairment losses 19 46 3 1

Disposals1) – 67 – 217 – 63 –

– 347

Reclassifications 3 – 4 1 –

–

Translation differences – 5 –7 –1 –1

–14

At December 31, 2009 828 1,873 664 – 3,365

1) of which assets held for sale 2009 –16 –14 – 2 –

– 32

1) of which assets held for sale 2008 –18 –144 –7 –

–169

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Net book value

in million euros

Land, land rights

and buildings

Plant and

machinery

Factory and

office equipment

Payments on

account and

assets in course

of construction

Total

Additions are stated at purchase or manufacturing cost.

The latter includes direct costs and appropriate propor–

tions of overheads. Interest charges on borrowings are not

included, as Henkel does not currently have at its disposal

any qualifying assets in accordance with IAS 23 “Borrowing

Costs.” An asset is deemed to qualify where it necessarily

takes a substantial period of time to be made ready for its

intended use or sale. Cost figures are shown net of invest–

ment grants and allowances. There were liabilities secured

by mortgages at December 31, 2009 of 21 million euros

(2008: 25 million euros). The periods over which the assets

are depreciated are based on their estimated useful lives as

set out on page 95. Scheduled depreciation and impair–

ment losses recognized are disclosed in the consolidated

statement of income accord ing to the functions in which

the assets are used.

Impairment losses amounting to 21 million euros were in-

curred in relation to the integration of the National Starch

businesses.

(13) Financial assets

Shares in affiliated companies and other investments dis–

closed in financial assets are measured initially at cost

and subsequently at their fair values. Shares in affiliated

companies and other investments for which the fair value

cannot be reliably determined are measured subsequently

at amortized cost.

The shares in associated companies are accounted for

using the at-equity method at the appropriate proportion

of their net assets.

Cost

in million euros Affiliated

companies

Investments in

associates

Other

investments

Total

At January 1, 2008 19 495 32 546

Changes in the Group /Acquisitions 2 1 –

Translation differences – 78 –

At December 31, 2008 /Januar 1, 2009 21 1 9 31

Changes in the Group /Acquisitions – 4 – –

– 4

At December 31, 2009 17 1 8 26

1) of which assets held for sale 2008 – – –12 –12

100 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Accumulated write-downs

in million euros Affiliated

companies

Investments in

associates

Other

investments

Total

At January 1, 2008 2 – 16 18

Reclassifications – – –

–

Translation differences – – –

–

At December 31, 2008/January 1, 2009 3 – 4 7

Changes in the Group/Acquisitions –1 – –

–1

Write-ups – – –

–

Write-downs – – –

–

Disposals – – –

–

Reclassifications – – –

–

Net book value

in million euros Affiliated

companies

Investments in

associates

Other

investments

Total

(14) Other non-current financial assets

Other non-current financial assets

in million euros Dec. 31, 2008 Dec. 31, 2009

Financial receivables from

Total 172 340

With the exception of derivatives, other financial assets

are stated at amortized cost. As soon as risks are identified,

valuation allowances are set up. All derivative financial in-

struments are measured initially at cost and subsequently

at their fair values on the balance sheet date.

Miscellaneous financial assets include receivables from

a trustee arising from deferred compensation of 70 million

euros (2008: 50 million euros) together with receivables

from employees and from insurance policies.

(15) Other non-current assets

Other non-current assets comprise miscellaneous tax re–

ceivables and, in particular, sundry prepaid expenses and

deferred charges.

of an asset or liability and its tax base

» Unused tax losses which are expected to be utilized

» Consolidation procedures at Group level

The allocation of deferred tax assets to the various bal-

ance sheet headings is shown in Note 9 (Taxes on income,

pages 92 to 94).

101

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

(17) Inventories

Inventories are stated at purchase or manufacturing cost.

Inventories are measured using the FIFO (“first in, first

out”) method or the weighted average cost formula as

appropriate.

other costs prior to the finished products store), as well as

production-related administrative expenses and pension

costs for employees engaged in the production process, and

production-related depreciation charges. Interest charges

incurred during the period of manufacture are, however,

not included.

Inventories are written down to their net realizable value

if, on the basis of the lower of quoted or market prices,

this is lower than cost at the balance sheet date. The write-

down, based on the gross value, was 113 million euros (2008:

87 million euros).

Analysis of inventories

in million euros Dec. 31, 2008 Dec. 31, 2009

Raw materials and supplies

472 368

Work in process

65 50

Total 1,482 1,218

(18) Trade accounts receivable

Trade accounts receivable are due within one year. Valua–

tion allowances are recognized in respect of specific risks as

appropriate. Total valuation allowances of 32 million euros

(2008: 36 million euros) have been recognized. As in 2008,

there are no trade accounts receivable relating to goods and

services which have been sold to a factoring company but are

still included as assets in the balance sheet because the risk

of default has not been fully transferred to the factor.

(19) Other current financial assets

Other current financial assets

in million euros Dec. 31, 2008 Dec. 31, 2009

Amounts receivable from non-

consolidated affiliated companies

3–

third parties

166 38

Derivatives with positive fair values

241 70

Miscellaneous current

financial assets

156 104

Total 575 214

With the exception of derivatives, other current financial

assets are stated at amortized cost approximating to their

fair values. Valuation allowances are recognized if any risks

associated with them are identified. All derivative financial

instruments are measured initially at cost and subsequently

at their fair values on the balance sheet date.

Miscellaneous current financial assets include the

following:

» Amounts due from employees of 10 million euros (2008:

8 million euros)

27 million euros (2008: 20 million euros)

(20) Other current assets

Other current assets comprise other tax receivables of

157 million euros (2008: 165 million euros), payments on

account of 18 million euros (2008: 18 million euros) and

various prepaid expenses and deferred charges.

(21) Liquid funds/Marketable securities

Liquid funds/Marketable securities

Total 338 1,110

102 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Marketable securities are stated at their fair values at the

balance sheet date. Value changes are recognized in equity

(explained in Note 42 on pages 112 to 118).

(22) Assets held for sale

The remeasurement of the assets held for sale at the lower

of their carrying amount and fair value less costs to sell

resulted in an impairment charge of 37 million euros. This

relates chiefly to assets of the Adhesive Technologies busi-

ness sector that are no longer part of the company’s core

business.

(23) Subscribed capital

Subscribed capital

in million euros Dec. 31, 2008 Dec. 31, 2009

Ordinary bearer shares

260 260

Preferred bearer shares

178 178

Capital stock 438 438

Comprising 259,795,875 ordinary shares and 178,162,875 non-voting

preferred shares

According to Art. 6 (5) of the Articles of Association, the

personally liable partner is authorized – subject to the ap-

proval of the Shareholders’ Committee and of the Supervi-

sory Board – to increase the capital of the corporation in

one or more installments at any time up to April 9, 2011, up

to a total of 25.6 million euros by issuing new non-voting

preferred shares to be paid up in cash (authorized capital).

The personally liable partner is authorized – subject to the

approval of the Shareholders’ Committee and of the Super–

visory Board – to exclude the statutory pre-emptive rights

of existing shareholders. Pre-emptive rights may only be ex–

cluded, however, for fractional entitlements or on condition

that the issue price for the new shares is not significantly

less than the quoted market price of shares of the same

category at the time the issue price is finally fixed.

At the Annual General Meeting of Henkel AG & Co. KGaA

on April 20, 2009, the personally liable partner was, with

the simultaneous withdrawal of the authorization granted

in the previous year, authorized to purchase at any time

up to October 19, 2010, ordinary or preferred shares in the

corporation not exceeding 10 percent of the capital stock.

The personally liable partner was authorized – subject

to the approval of the Shareholders’ Committee and of the

Supervisory Board – to dispose of treasury shares acquired,

without first offering them to existing shareholders, by:

» selling them to third parties or transferring them in other

ways for the purpose of acquiring businesses, parts of busi–

nesses or investments in businesses or forming business

combinations, or

» selling them for cash in a way other than on the stock

market or via an offer addressed to all the shareholders,

provided that the selling price of the shares is not signifi–

cantly lower than the quoted market price at the time of

the sale; in this case, the number of shares sold, together

with the new shares issued out of authorized capital, to

the exclusion of the pre-emptive rights of existing share-

holders, must not exceed 10 percent of the existing capital

stock when the shares are issued or sold.

The personally liable partner was also authorized – subject

to the approval of the Shareholders’ Committee and of the

Supervisory Board – to cancel treasury stock without further

resolution in General Meeting being required.

Treasury stock held by the corporation on December 31,

2009 amounted to 4,541,870 preferred shares. This represents

1.04 percent of the capital stock and a proportional nominal

value of 4.5 million euros. Originally, 992,680 shares were

purchased in the year 2000, an amount of 808,120 shares was

purchased in 2001 and 694,900 shares were purchased in

2002. This corresponds to a total of 2,495,700 shares or, fol–

lowing the share split implemented in 2007 (at a ratio of 1:3),

7,487,100 shares. Options were exercised for the first time

under the Stock Incentive Plan in 2004. Since 2004, taking

the share split into account, the exercise of options has led

to a reduction of 2,945,230 in treasury stock held, with a pro–

portional nominal value of 2.9 million euros (0.67 percent

of the capital stock). In 2009, the exercise of options led to

103

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

a reduction of 292,900 shares from treasury stock held. The

proportional nominal value of the capital stock amounted

to 0.3 million euros (0.07 percent). The selling prices were

based on the stock market prices prevailing at the time of

disposal. Total proceeds on disposal were 9.9 million euros

and this was recognized directly in equity.

(24) Capital reserve

The capital reserve comprises the amounts received in previ–

ous years in excess of the nominal value of preferred shares

and convertible warrant bonds issued by Henkel AG & Co.

KGaA.

(25) Retained earnings

Included in retained earnings are the following:

» Amounts allocated in the financial statements of Henkel

AG & Co. KGaA in previous financial years

» Amounts allocated from consolidated net earnings less

minority interests

» Buy-back of treasury stock by Henkel AG & Co. KGaA at

cost and the gain on their disposal

» The recognition in equity of actuarial gains and losses

(26) Gains and losses recognized in equity

The items under this heading represent the differences on

translation of the financial statements of foreign subsidiary

companies and the effects of the revaluation of derivative

financial instruments and available-for-sale financial assets

recognized in equity. The derivative financial instruments

take the form of either cash flow hedges or hedges of a net

investment in a foreign entity.

Mainly as a result of the decrease in the value of the US

dollar against the euro, the negative translation difference

at December 31, 2009 was increased by 104 million euros

compared to December 31, 2008 (2008: negative translation

difference decreased by 103 million euros).

(27) Minority interests

The minority interests comprise the shares of third parties

in the equity of a number of companies included in the

consolidation.

(28) Pensions and similar obligations

Employees in companies included in the consolidated finan–

cial statements have entitlements under company pension

plans which are either defined contribution or defined

benefit plans. These take different forms depending on the

legal, financial and tax regime in each country. The level of

benefits provided is based, as a rule, on the length of service

and earnings of the person entitled.

The defined contribution plans are structured in such

a way that the corporation pays contributions to public or

private sector institutions on the basis of statutory or con-

tractual terms or on a voluntary basis and has no further

obligations regarding the payment of benefits to employees.

The contributions for defined contribution plans for the

year under review amounted to 111 million euros (2008:

98 million euros). In 2009, payments to public sector institu–

tions totaled 57 million euros (2008: 58 million euros) and

payments to private sector institutions totaled 54 million

euros (2008: 40 million euros).

In defined benefit plans, the liability for pensions and

other post-employment benefits is calculated at the pres–

ent value of the future obligations (projected unit credit

method). This actuarial method of calculation takes fu–

ture trends in wages, salaries and retirement benefits into

account.

To provide protection under civil law of the pension

entitlements of future and current pensioners against in–

solvency, we have allocated the proceeds of the bond issued

in 2005 and certain other assets to Henkel Trust e.V. The

trustee invests the cash with which it has been entrusted in

the capital market in accordance with investment policies

laid down in the trust agreement.

104 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Trends in wages, salaries and retirement benefits

in percent Germany USA Rest of world

2008 2009 2008 2009 2008 2009

Discount factor

5.9 4.95 6.4 5.25 5.6 5.1

1) Weighted average

Present value of pensions and

similar obligations at December 31, 2008

in million euros Germany USA Rest of world Total

At January 1, 2008 1,937 685 496 3,118

Changes in the Group 7 178 163 348

Translation differences – 47 – 37 10

Actuarial gains/losses –130 – 50 – 67 – 247

Current service cost 36 28 26

of which funded obligations 1,706 641 484

2,831

Fair value of plan assets at December 31, 2008

in million euros Germany USA Rest of world Total

At January 1, 2008 1,613 463 385 2,461

Changes in the Group – 95 144

239

Translation differences – 27 – 38

–11

Employer’s contributions to pension funds 15 79 63

157

Employees’ contributions to pension funds 2 – 1

105

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Net pension cost in 2008

in million euros Germany USA Rest of world Total

Current service cost 36 28 26

Expected return on plan assets –102 – 35 – 29

–166

Net pension cost 34 16 28 78

Present value of pensions and

similar obligations at December 31, 2009

in million euros Germany USA Rest of world Total

At January 1, 2009 1,826 857 565 3,248

Changes in the Group

– – 1 1

Translation differences

– – 30 10 – 20

Actuarial gains/losses

216 95 97 408

Current service cost 53 17 24

Gains/losses arising from the termination and curtailment of plans – –4 –1

– 5

Interest expense 107 52 33

192

Retirement benefits paid out of plan assets – 5 – 42 – 30

– 77

Employer’s payments for pensions and similar obligations –127 – 21 –11

–159

Past service cost

– – 2 2

At December 31, 2009 2,070 924 690 3,684

of which unfunded obligations 113 223 86

422

of which funded obligations 1,957 701 604

3,262

Fair value of plan assets at December 31, 2009

in million euros Germany USA Rest of world Total

At January 1, 2009 1,511 490 444 2,445

Changes in the Group – – –

–

Translation differences – – 20 13

– 7

106 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Net pension cost in 2009

in million euros Germany USA Rest of world Total

Current service cost 53 17 24

Amortization of past service costs – 1 –1

–

Reconciliation of overfunding/underfunding and reported provisions

for pensions and similar obligations as of December 31, 2009

in million euros Germany USA Rest of world Total

Overfunding/underfunding of obligations – 340 – 357 –147

– 844

Plan assets reported as net assets – – –7

–7

Amount not recognized due to asset ceiling – – –12

–12

Actuarial gains and losses are recognized in the year in

which they arise as part of the pension provision and in–

cluded in the statement of comprehensive income in accor–

dance with IAS 19.93B “Employee Benefits.” As of December

31, 2009, accumulated actuarial losses of 1,159 million euros

(2008: 820 million euros) had been offset against retained

earnings.

We have derived the expected return on total plan as–

sets from the weighted expected long-term return on the

various categories of assets.

Of the amounts added to the provision in 2009, an amount

of 94 million euros (2008: 90 million euros) is included

in operating profit (pension costs as part of payroll costs,

page 119) and an expense of –45 million euros (2008: ex-

pense of –13 million euros) in financial result ( page 92).

The expenses shown in operating profit and all the releases

from provisions are allocated by function, depending on the

sphere of activity of the employees. The employer’s contribu–

tions in respect of state pension provisions are included as

“Social security contributions and staff welfare costs” under

Note 43. In 2009, payments into the plan assets amounted

to 278 million euros (2008: 157 million euros).

Analysis of plan assets

in million euros Dec. 31, 2008 Dec. 31, 2009

Fair value in % Fair value in %

Investment funds

Invested in shares

441 18.1 508 17.9

Invested in bonds

939 38.4 1,256 44.2

Invested in investment funds

125 5.1 521 18.4

Invested in cash

616 25.2 262 9.2

107

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

At December 31, 2009, other assets making up the plan assets

included the present value of a non-current receivable of

43 million euros (2008: 43 million euros) relating to claims

pertaining to a hereditary building lease assigned by Henkel

AG & Co. KGaA to Henkel Trust e.V. Also shown here is a

claim of 102 million euros (2008: 107 million euros) against

Cognis for indemnification of pension obligations.

In 2009, Henkel AG & Co. KGaA waived indemnification

out of the assets held by Henkel Trust e.V. with respect to

payments made to pensioners. If the amounts had been

indemnified, a total of around 111 million euros would have

been paid out of the assets held by Henkel Trust e.V. (2008:

105 million euros). This waiver had a positive effect on the

funding ratio with respect to pension obligations.

Effects of a trend change in medical costs

in million euros Dec. 31, 2008 Dec. 31, 2009

Service cost Interest

expense

Present value of

obligations

Service cost Interest

expense

Present value of

obligations

Increase in medical costs

Additional information

in million euros 2005 2006 2007 2008 2009

Present value of obligations 3,354 3,352 3,118

1) 3,248

3,684

1) Of which obligations with respect to post-retirement health care: 189 million euros

2) Of which plan assets funding obligations with respect to post-retirement health care: 4 million euros

3) Of which obligations with respect to post-retirement health care: 212 million euros

4) Of which plan assets funding obligations with respect to post-retirement health care: 8 million euros

5) Of which obligations with respect to post-retirement health care: 199 million euros

6) Of which plan assets funding obligations with respect to post-retirement health care: 7 million euros

(29) Long-term provisions

Changes in 2008

in million euros

Balance

Jan. 1,

2008

Other

changes

Utilized

Released

Added

Balance

Dec. 31, 2008

Income tax provisions 100 3 53 – 127

177

Sundry long-term provisions 119 25 53 7 43

127

“Global Excellence” – – – – 161

161

Combination of the Adhesive Technologies businesses – – – – 48

Total 219 28 106 7 379 513

Changes in 2009

in million euros

Balance

Jan. 1,

2009

Other

changes

Utilized

Released

Added

Balance

Dec. 31, 2009

Income tax provisions 177 – 22 – 4 1

152

Sundry long-term provisions 127 –13 3 4 73

180

“Global Excellence” 161 –106 17 – –

Combination of the Adhesive Technologies businesses 48 –16 8 6 5

Total 513 –157 28 14 79 393

108 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

The amounts recognized as long-term provisions are the

best estimates of the expenditures required to settle the

present obligations at the balance sheet date. Provisions

which include significant interest elements are discounted

to the balance sheet date.

“Global Excellence” is the name given to our worldwide

efficiency enhancement program. This initiative involves

implementation of a number of individual measures affect–

ing all our business sectors, regions and functions aimed at

achieving a sustainable improvement in our profitability

and enhancing our long-term competitiveness.

The provisions allocated for the combination of the Adhe–

sive Technologies businesses relate to restructuring charges

incurred during the process of integrating the acquired Na–

tional Starch businesses within the Henkel organization.

Other changes include changes in the Group/acquisi–

tions, movements in exchange rates, and adjustments to

reflect changes in maturity as time passes.

The income tax provisions comprise accrued tax liabili–

ties and amounts set aside for the outcome of external tax

audits.

The sundry long-term provisions include identifiable

obligations toward third parties, which are costed in full.

Analysis of sundry long-term provisions by function

in million euros Dec. 31, 2008 Dec. 31, 2009

Sales

10 8

Analysis

in million euros Residual term

More than

5 years

Between 1

and 5 years

Dec. 31, 2008

Total

Bonds

(of which amounts secured)

1,3

,024

2,363

(1)

Bank loans and overdrafts

(of which amounts secured)

6 27 33

(29)

Other financial liabilities

(of which amounts secured)

–

6 6

(6)

Total 1,345 1,057 2,402

1) Obligations with variable rates of interest or interest rates pegged for less than one year

Composition of bonds as of December 31, 2008:

Bonds

in million euros

Issued by Type Nominal Book value Market1) Interest rate

2) Interest fixed

Henkel AG & Co. KGaA

Interest rate swap

(3-month Euribor +0.405 %)

Bond

Receiver swap

1,000

1,024

1,007

4.2500

3.8931

until 2013

3 months

1) Market value of the bonds derived from the stock market price at December 30, 2008

2) Interest rate on December 31, 2008

3) Fixed-rate interest of bond coupon: 4.25 percent, converted using interest rate swaps into a floating interest rate, interest rate to be fixed next on March 10, 2009

(fair value hedge)

4) Fixed-rate interest of bond coupon: 5.375 percent, converted using interest rate swaps into a floating interest rate, interest rate to be fixed next on February 25, 2009

(fair value hedge)

(30) Long-term borrowings

Age analysis as of December 31, 2008:

109

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

The ten-year bond issued by Henkel AG & Co. KGaA for 1 bil–

lion euros in 2003 with a coupon of 4.25 percent matures

in June 2013.

The five-year bond issued by Henkel AG & Co. KGaA for

1 billion euros in 2009 with a coupon of 4.625 percent ma-

tures in March 2014.

The 1.3 billion euro subordinated hybrid bond issued

by Henkel AG & Co. KGaA in November 2005 to finance a

large part of the pension obligations in Germany matures

after 99 years in 2104. Under the terms of the bond, the

coupon for the first ten years is 5.375 percent. The earliest

bond redemption date is November 25, 2015. If it is not

redeemed, the bond interest will be based on the 3-month

Euribor interest rate plus a premium of 2.85 percent. The

bond terms also stipulate that if there is a “cash flow event,”

Age analysis as of December 31, 2009:

Analysis

in million euros Residual term

More than

5 years

Between 1

and 5 years

Dec. 31, 2009

Total

Bonds

1,368 2,040 3,408

Composition of bonds as of December 31, 2009:

Bonds

in million euros

Issued by Type Nominal Book value Market1) Interest rate

2) Interest fixed

Henkel AG & Co. KGaA

Interest rate swap

(3-month Euribor +0.405 %)

Bond

Receiver swap

1,000

1,045

1,052

4.2500

1.1211

until 2013

3 months

Henkel AG & Co. KGaA

Interest rate swap

Bond

1,000

994

1,066

4.6250

until 2014

2) Interest rate on December 31, 2009

3) Fixed-rate interest of bond coupon: 4.25 percent, converted using interest rate swaps into a floating interest rate, interest rate to be fixed next on March 10, 2010

(fair value hedge)

Fixed-rate interest of bond coupon: 4.625 percent, converted using interest rate swaps into a floating interest rate, interest rate to be fixed next on March 19, 2010

(fair value hedge)

5) Fixed-rate interest of bond coupon: 5.375 percent, converted using interest rate swaps into a floating interest rate, interest rate to be fixed next on February 25, 2010

(fair value hedge)

Henkel AG & Co. KGaA has the option or the obligation to

defer the interest payments. A cash flow event is deemed

to have occurred if the adjusted cash flow from operating

activities is below a certain percentage of the net liabilities

(20 percent for optional interest deferral, 15 percent for

mandatory interest deferral); see Clause 3 (4) of the bond

terms and conditions for definitions. On the basis of the

cash flow calculated at December 31, 2009, the percentage

was 43.06 percent (2008: 22.54 percent).

The US dollar liabilities of Henkel of America, Inc. are

set off against sureties of Henkel AG & Co. KGaA, as the

deposit and the loan are with the same lender and of the

same maturity. Bank loans and overdrafts amounted to

1,388 million euros.

110 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

(31) Non-current financial liabilities

Non-current financial liabilities comprise amounts due to

employees of 54 million euros (2008: 77 million euros) and

derivatives at fair values of 19 million euros (2008: 0 mil–

lion euros).

(32) Other non-current liabilities

Other non-current liabilities comprise in particular various

deferrals and accruals.

The amounts recognized as short-term provisions are the

best estimates of the expenditures required to settle the

present obligations at the balance sheet date.

Changes in 2008

in million euros At Jan. 1,

2008

Other

changes

Utilized Released Added

1) At Dec. 31,

2008

Income tax provisions 152 48 86 1 230

343

Sundry current provisions 755 27 616 53 670

783

“Advanced Restructuring” 8 – 8 – –

–

Total 915 75 710 54 1,081 1,307

Adjusted following finalization of purchase price allocation relating to the acquisition of the National Starch businesses

Changes in 2009

in million euros At Jan. 1,

2009

Other

changes

Utilized Released Added At Dec. 31,

2009

Income tax provisions 343 29 269 26 147

224

Sundry current provisions 783 21 519 39 559

805

“Global Excellence” 129 106 141 – –

Combination of the

Adhesive Technologies businesses 52 15 42 – 14

Total 1,307 171 971 65 720 1,162

Adjusted following finalization of purchase price allocation relating to the acquisition of the National Starch businesses

(33) Deferred taxes

The provisions for deferred taxes relate to differences be–

tween the carrying amount in the consolidated balance

sheet and the tax base used by the individual companies

included in the consolidation to calculate their taxable

profits (Note 9).

Analysis of sundry current provisions by function

in million euros Dec. 31, 2008

1) Dec. 31, 2009

Sales

212 177

Personnel

323 324

Production and engineering

2 56

Various other obligations

246 248

Total 783 805

Adjusted following finalization of purchase price allocation relating to the

acquisition of the National Starch businesses

(34) Short-term provisions

111

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

(35) Short-term borrowings

Analysis

in million euros Dec. 31, 2008

Total

Dec. 31, 2009

Total

Liabilities from bonds

31 300

Commercial papers

(of which secured)

175

(175)

(35)

Bank loans and overdrafts

(of which secured)

1,099

(617)

288

(125)

Other financial liabilities

512 1

Total 1,817 660

1) From the euro and US dollar commercial paper program

(total amount 2.1 billion euros)

The increase in current liabilities from bonds is due to the

issuance of a floating rate note.

The market value of short-term borrowings is the same

as their book value, due to their short-term nature.

(36) Trade accounts payable

Trade accounts payable include purchase invoices and accru–

als for invoices outstanding in respect of goods and services

received.

(37) Current financial liabilities

Analysis

in million euros Dec. 31, 2008

Total

Dec. 31, 2009

Total

Amounts due to non-consolidated

affiliated companies

20 15

Derivatives with negative fair values

186 60

Sundry current financial liabilities

(of which secured)

(–)

Total 272 145

Sundry current financial liabilities include the following:

» Amounts due to customers of 23 million euros (2008:

16 million euros)

» Commission payable of 3 million euros (2008: 3 million

euros)

» Amounts due to employees of 26 million euros (2008:

36 million euros)

(38) Other current liabilities

Other current liabilities include sundry deferred income

and the following:

» Liabilities in respect of social security of 22 million euros

(2008: 26 million euros)

» Advance payments received of 4 million euros (2008: 4 mil–

lion euros)

» Liabilities relating to employees’ deductions of 41 million

euros (2008: 41 million euros)

» Other tax liabilities of 130 million euros (2008: 117 mil–

lion euros)

(39) Contingent liabilities

Analysis

in million euros Dec. 31, 2008 Dec. 31, 2009

Liabilities under guarantee

and warranty agreements

10 11

(40) Other financial commitments

Payment obligations under rent, leasehold and lease agree–

ments are shown at the total amounts payable up to the

earliest date when they can be terminated. The amounts

shown are the nominal values. At December 31, 2009, they

were due for payment as follows:

Rent, leasehold and lease commitments

in million euros Dec. 31, 2008 Dec. 31, 2009

Due in the following year

49 44

Due within 1 to 5 years

88 89

Due after 5 years

16 37

Total 153 170

In the course of the 2009 financial year, 51 million euros

became due for payment under operating leases (2008:

37 million euros).

The order commitments for property, plant and equip-

ment amounted to 23 million euros at the end of 2009 (2008:

51 million euros) and the purchase commitments from

toll manufacturing contracts amounted to 0 million euros

(2008: 3 million euros).

Payment commitments under the terms of agreements

for capital increases and share purchases signed prior to

December 31, 2009 amounted to 18 million euros (2008:

19 million euros).

112 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

(41) Capital management

The aims of capital management are derived from the finan–

cial strategy of the Group. These include ensuring liquidity

and access to the capital market at all times.

To achieve the capital management targets, the Group

seeks to optimize its capital structure, manage its dividend

policy, take equity measures, make acquisitions and divest–

ments, and reduce debt.

In the past financial year, the dividend for ordinary and

preferred shares was unchanged compared with the previ-

ous year. The cash flow not required for investment and

dividend payments was used to reduce net debt. Short-term

financing requirements were met by commercial papers and

bank loans. The bonds outstanding serve to cover long-term

financing requirements.

Our financial management is based on the key perfor-

mance indicators set out in our financial strategy. In 2009

the interest coverage factor was 8.7 (2008: 4.8), while oper-

ating debt coverage was 41.8 percent (2008: 45.1 percent).

The equity ratio was 41.4 percent (2008: 40.3 percent). For

further details, see the financial ratios section in the Group

management report ( page 48).

Due to the international nature of its business, the Group

is required to comply with different legal and regulatory

provisions in different regions. The status of these regula-

tions and any developments are monitored at the local level

as well as centrally, with changes being taken into account

for the purpose of capital management.

(42) Derivatives and other financial instruments

Treasury guidelines and systems

The Corporate Treasury department manages currency

exposure and interest rates centrally for the Group and

is therefore responsible for all transactions with financial

derivatives and other financial instruments. Trading, trea-

sury control and settlement (front, middle and back offices)

are separated both physically and in terms of organization.

The parties to the contracts are German and international

banks which Henkel monitors regularly, in accordance with

Corporate Treasury guidelines, for creditworthiness and the

quality of their quotations. Financial derivatives are used

to manage currency exposure and interest rate risks in con–

nection with operating activities and the resultant financ-

ing requirements, again in accordance with the Treasury

guidelines. Financial derivatives are entered into exclusively

for hedging purposes.

The currency and interest rate risk management of the

Group is supported by an integrated treasury system which is

used to identify, measure and analyze the Group’s currency

exposure and interest rate risks. In this context, “integrated”

means that the entire process from the initial recording of fi–

nancial transactions to their entry in the accounts is covered.

Much of the currency trading takes place on internet-based,

multi-bank dealing platforms. These foreign currency transac–

tions are automatically transferred into the treasury system.

The currency exposure and interest rate risks reported by

all subsidiaries under standardized reporting procedures

are integrated into the treasury system by data transfer. As

a result, it is possible to retrieve and measure at any time

all currency and interest rate risks across the Group and all

derivatives entered into to hedge the exposure to these risks.

The treasury system supports the use of various risk concepts

so that, for example, the risk positions and the success of the

risk management in each company, country and group of

countries can at any time be determined on a mark-to-market

basis and compared to a benchmark.

Recognition and measurement

of financial instruments

Financial instruments are measured initially at cost on

the trade day. Portfolios of marketable securities and other

investments quoted on the stock exchange which are man–

aged on a fair value basis are categorized and recognized

as at fair value through profit or loss in accordance with

IAS 39 “Financial Instruments.” Changes in fair value are

recognized in financial items in the consolidated state–

ment of income. Other marketable securities and other

investments held as non-current assets are classified as

available for sale and also recognized at fair value where

this can be reliably determined. Changes in fair value

are recognized directly in equity unless the asset is per–

manently impaired, in which case the impairment loss

is recognized in profit or loss. If the fair values of other

marketable securities and other investments cannot be

reliably determined, these instruments are subsequently

113

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

measured at amortized cost. Shares in affiliated companies

are measured at amortized cost as their fair value cannot be

reliably determined. We have no financial assets categorized

as held to maturity. Like all other financial assets, long-term

loans are accounted for in loans and receivables, and stated

at amortized cost.

Specific financial instruments by category

in million euros Dec. 31, 2008 Dec. 31, 2009

Marketable securities 19 22

– at fair value through profit

or loss

– –

– at fair value recognized

in equity

19 22

The fair values of marketable securities are based exclusively

on quoted market prices (level 1 of the fair value hierarchy).

No fair values are assigned to levels 2 and 3 of the fair value

hierarchy.

Financial liabilities with a fixed maturity are measured

at amortized cost using the effective interest method. Finan–

cial liabilities in respect of which a hedging transaction has

been entered into and which meet the conditions set out

in IAS 39 regarding a hedging relationship, are measured

under hedge accounting rules.

All derivative financial instruments entered into by the

Group are measured initially at cost and subsequently at

their fair values on the balance sheet date. The accounting

treatment of gains and losses on remeasurement to fair

value depends on whether the conditions set out in IAS 39

with respect to hedge accounting have been met.

Hedge accounting is not used for the majority of deriva–

tive financial instruments. The changes in the fair value of

those derivatives which, from an economic point of view,

represent effective hedges in line with the corporate stra–

tegy, are recognized in profit or loss. These are virtually

matched by changes in the fair value of the hedged under–

lying transactions.

Under hedge accounting, a derivative financial instru-

ment is identified as a hedge of the exposure to changes

in the fair value of an asset or a liability (fair value hedge),

a hedge of the exposure to variability in future cash flows

(cash flow hedge) or a hedge of a net investment in a foreign

entity.

Fair value hedges: The gain or loss from remeasuring

derivatives used to hedge the exposure to changes in fair

value is recognized in profit or loss together with the gain

or loss on the hedged item. The interest rate derivatives used

to hedge the exposure to interest rate risks arising from the

bonds issued by Henkel AG & Co. KGaA qualify as fair value

hedges. To determine the change in fair value of the bonds

(see Note 30 starting on page 108), only that portion of

the bond which relates to the hedged interest rate risk is

interest. The gain or loss on remeasuring the derivatives at

fair value based on market interest rate risk (2009: gain of

48 million euros, 2008: gain of 148 million euros) and the

gain or loss on the hedged bonds (2009: loss of –47 million

euros, 2008: loss of –142 million euros) have both been in-

cluded under financial result in the consolidated statement

of income.

Cash flow hedges: Changes in the fair value of deriva-

tives used to hedge the exposure to variability in cash flows

are recognized directly in equity. The portion of the gain or

loss on the derivative that is determined to be ineffec tive in

respect of the risk being hedged is reported directly through

profit or loss. If a firm commitment or an expected and

highly probable future transaction results in the recognition

of an asset or a liability, the accumulated gains or losses on

the hedging instrument that were recognized directly in

equity are included in the initial measurement of the asset

or liability. Otherwise, the amounts recognized directly in

equity are recycled through profit or loss in those report ing

periods in which the hedged transaction impacts the sta–

tement of income. In the past financial year, one cash flow

hedge was entered into; the appertaining changes in fair

value were recognized directly in equity after income tax.

There were no ineffective portions of hedges; no amounts

were transferred in the course of the year from equity to

the statement of income.

114 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

The hedge relates to interest rate hedging of the US dollar

liabilities of Henkel of America, Inc. The fair values of the

interest rate hedging instruments amount to –19 million

euros. The changes in fair value after income tax amount-

ing to –11 million euros were recognized in equity. The cash

flows from the transactions hedged at December 31, 2009

are expected in June 2013 and March 2014.

Hedges of net investments in foreign entities: These

relate to forward exchange contracts that are used to hedge

exposure to currency translation risks in foreign entities.

The accounting treatment is similar to that applied to cash

flow hedges.

Fair values of derivative financial instruments

The fair values of forward exchange contracts are calculated

on the basis of current European Central Bank reference

prices, taking account of forward premiums and discounts.

Currency options are measured using market quotations or

recognized option pricing models. The fair values of interest

rate hedging instruments are determined on the basis of

discounted future expected cash flows, using the market

interest rates ruling over the remaining terms of the deriva–

tives. These are shown in the table below for the four most

important currencies. In each case, these are the interest

rates quoted on the inter-bank market at December 31.

In the past financial year, no hedges of a net investment in

a foreign entity were entered into. No amounts were trans-

ferred in the course of the year from equity to income and

no ineffective portions were included in the consolidated

statement of income.

The hedges relate to translation risks arising from net

investments in Swiss francs (CHF) and US dollars (USD).

At the balance sheet date there were no open forward ex–

change contracts relating to hedges of a net investment in

a foreign entity.

Hedges of a net investment in a foreign entity

(after tax)

in million euros At January 1 Additions

(taken to equity)

Disposals

(taken to profit or loss)

At December 31

2009 53 – – 53

2008 –17 70 – 53

Interest rates in percent per annum

At December 31 EUR USD JPY GBP

Maturities 2008 2009 2008 2009 2008 2009 2008 2009

Cash flow hedges

2008 – 95 –170 – – 265

115

Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Risks arising from financial instruments

Credit risk

In the course of its business activities with third parties,

the Henkel Group is exposed to global credit risk in various

lines of business. The risk arises if a contracting party fails to

meet its obligations. The maximum credit risk is represented

by the book value of the financial assets recognized in the

balance sheet. In principle, Henkel is confronted by progress-

ive concentration and consolidation on the customer side,

reflected in the receivables from individual customers.

A credit risk management system implemented on the

basis of a globally applied credit policy ensures that credit

risks are constantly monitored and bad debts minimized.

This policy, which applies to both new and existing custom–

ers, governs the allocation of credit limits and compliance

with those limits, individual analyses of customers’ credit-

worthiness employing both internal and external financial

information, risk classification and continuous monitoring

of the risk of bad debts at the local level. Our key customer

relationships are also monitored at the regional and global

level. In addition, hedging measures, for instance payment

default insurance policies, are implemented on a selective

basis for particular countries and customers.

In financial investments and derivatives trading activities in–

volving German and international banks, we only enter into

transactions with counterparties of the highest financial

standing. Financial investments are generally undertaken

for periods of less than one year. To minimize the credit risk,

netting arrangements are agreed with counterparties and

investment limits set. These limits are based on the credit

rating of the counterparty and are regularly monitored and

adjusted. Besides relevant ratings, certain other indicators

such as the pricing of credit default swaps (CDS) by the

banks are applied in determining the limits. We addition–

ally entered into collateral agreements with selected banks

in 2009. Reciprocal sureties are implemented to hedge the

fair values of the derivatives transacted.

Collateral and other safeguards include country-specific

and customer-specific protection afforded by credit insur–

ance, confirmed and unconfirmed letters of credit in the

export business, as well as warranties, guarantees and cover

notes.

As in 2008, the book value of receivables and loans which

were potentially overdue or impaired and for which new due

dates have been negotiated was less than 1 million euros.

In measuring derivative financial instruments, the credit

default risk of the counterparty is taken into account in the

form of a lump-sum adjustment to the fair values, deter–

mined on the basis of credit risk premiums. This resulted in

a charge to income in fiscal 2009 of 2.5 million euros.

Derivative financial instruments with a positive fair

value at the balance sheet date are included in other finan–

cial assets, and those with a negative fair value are included

in financial liabilities (current or non-current depending

on maturity).

Most of the forward exchange contracts and currency

options hedge risks arising from trade accounts receivable

and Group financing in US dollars.

The following positions were held at the balance sheet

date:

Derivative financial instruments

At December 31 Nominal value Positive fair value

3) Negative fair value

in million euros 2008 2009 2008 2009 2008 2009

Forward exchange contracts

5,457 2,450 240 70 –186 – 60

(of which for hedging

1) Maturity period < 1 year

2) Maturity period > 1 year

3) Fair values including accrued interest

116 Annual Report 2009

Notes to the consolidated financial statements » Notes to the consolidated balance sheet

Age analysis of non-impaired loans and receivables

Analysis

in million euros Less than 30 days 30 to 60 days 61 to 90 days 91 to 180 days Total

In 2009, we made specific allowances for bad debts of 36 mil–

lion euros (2008: 41 million euros) and general allowances

for bad debts of 7 million euros (2008: 6 million euros) in

respect of loans and receivables.

Liquidity risk

Because of the use of long-term financing instruments and

the availability of additional liquidity reserves, the liquid-

ity risk of the Henkel Group can be regarded as very low.

The Henkel Group has at its disposal pledged credit lines of

2.1 billion euros to ensure its liquidity and financial flex–

ibility at all times. These credit lines were opened to secure

the commercial paper program. The individual subsidiar–

ies of the Henkel Group additionally have at their disposal

committed bilateral loans of 0.5 billion euros.

Our credit rating is regularly assessed by independent

rating agencies.

Cash flows from financial liabilities

in million euros Residual term

Dec. 31, 2008

Book value

Up to

1 year

Between 1

and 5 years

More than

5 years

Dec. 31, 2008

Total

cash flow

Bonds1)

2,394

112 1,450 1,448

3,010

Commercial papers

175

175 – –

175

Total 6,246 4,936 1,532 1,492 7,960

1) The cash flows from the hybrid bond issued in 2005 are disclosed for the period until the first possible redemption date by Henkel on November 25, 2015

2) From the euro and US dollar commercial paper program (total amount: 2.1 billion euros)

3) Bank loans from the bridge loan facility are offset against liquid funds; cash flows are stated with no offset

4) Sundry financial instruments include amounts due from employees, and finance bills