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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

8. Personnel expenses

8. Personnel expenses Note 2008 2007 Wages and salaries 171,474 137,253 Contributions to defined contribution plans 2,827 3,439 Expenses related to defined benefit plans 26 9,731 9,177 Curtailment loss 26 822 445 Recognized actuarial gains in excess of pension corridor 26 (6,374) – Social security and other benefits 34,974 25,969 Share-based payment compensation 27 20,063 4,207 233,517 180,490 Included in the following lines of the consolidated income statement: Cost of sales 142,736 112,160 Selling, general and administrative costs 90,781 68,330 233,517 180,490 9. Finance income and expense Recognized in profit or loss 2008 2007 Interest income on bank deposits 5,563 6,340 Interest income on related party loans 552 614 Accretion on convertible loan 757 – Interest income on short term investments 260 – Other 651 – Finance income 7,783 6,954 Foreign exchange (loss) income (6,331) 3,591 Amortization of loan issuance costs (1,750) (1,730) Amortization of rate cap instrument (280) (60) Finance lease expense (28) (20) Accretion on convertible loan (446) (769) Interest expense on loans and borrowings (16,621) (25,444) Interest expense on interest rate swap (222) – Discount for provisions (543) – Guarantees (1,205) – Other (495) – Finance expense (21,590) (28,023) Loss on early repayment of debt – (34,668) Net finance income and expense (20,138) (52,146) 10. Income tax Significant components of income tax expense for the years ended: 2008 2007 Current tax expense Current period 27,719 14,177 Adjustment for prior periods (1,112) (3) Total current taxation charges for the year 26,607 14,174 Deferred tax expense Origination and reversal of temporary differences (5,044) (3,540) Changes in previously unrecognized tax losses, tax credits and unrecognized temporary differences 17,772 6,816 Changes in previously recognized tax losses, tax credits and recognized temporary differences for changes in enacted tax rates 790 3,354 Adjustment for prior periods 1,814 (96) Total deferred taxation for the year 15,332 6,534 Total income tax expense reported in the income statement 41,939 20,708 102 Notes to the Consolidated Financial Statements

Reconciliation of effective tax rate A reconciliation of income tax expense applicable to accounting profit before income tax at the weighted average statutory income tax rate of 38% to the Company’s effective income tax rate for the years ended is as follows: 2008 2007 Profit before income tax 44,497 28,810 Income tax using the Company’s weighted average tax rate 16,909 10,948 Foreign dividend repatriations – – Non-deductible expenses 2,374 391 Current year losses for which no deferred tax asset was recognized and changes in unrecognized temporary differences 18,270 16,483 Recognition of previously unrecognized tax losses, tax credits and temporary differences of a prior year (498) (9,667) Changes in previously recognized tax losses, tax credits and recognized temporary differences for changes in enacted tax rates 790 3,354 Under (over) provided in prior periods 703 (99) Other 3,391 (702) 41,939 20,708 Included in the following lines of the consolidated income statement: Income tax expense 41,939 19,322 Goodwill adjustment relating to deferred tax asset – 1,386 41,939 20,708 The weighted average statutory income tax rate is the average of the statutory income tax rates applicable in the countries in which the Company operates, weighted by the profit/(loss) before tax of the subsidiaries in the respective countries as included in the consolidated accounts. Some entities have losses for which no deferred tax assets have been recognized. During the year ended December 31, 2008 the income tax benefits related to current year losses of the newly acquired German business and the Canadian magnesium business have not been recognized. During the year ended 2007, the income tax benefits related to current year losses of certain U.S. subsidiaries and the Canadian magnesium business were not recognized. In total, $18,270 and $16,483 were not recognized in 2008 and 2007, respectively, as it is not probable the amounts will be realized. During the year ended December 31, 2008 certain income tax benefits related to previously unrecognized tax losses and temporary differences related to a German subsidiary, GfE were recognized. During the year ended 2007, certain income tax benefits related to previously unrecognized tax losses and temporary differences related to the Canadian solar silicon business and to the German subsidiary, GfE were recognized. In total, $498 and $9,667 were recognized in 2008 and 2007, respectively, through an increase to the net deferred tax asset of $498 in 2008 and $9,667 in 2007. The income tax benefits were recognized since it is probable the amounts will be realized. Also during the years ended December 31, 2008 and 2007, the net recognized deferred tax assets/(liabilities) were adjusted for changes in the enacted tax rates in Canada, Germany and the U.K. The impact of the tax rate changes was an increase to income tax expense of $790 and $3,354 for 2008 and 2007, respectively. There were no income tax consequences attaching to the payment of dividends in either 2008 or 2007 by AMG Advanced Metallurgical Group N.V. to its shareholders, as no dividend payments were made. The main factors considered in assessing the realizability of deferred tax benefits were improved profitability, higher forecast profitability and the indefinite carryforward period of the tax losses. After assessing these factors, the Company determined that it is probable that the deferred tax benefit of the tax losses and temporary differences will be realized. Deferred tax assets and liabilities Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as tax loss and tax credit carry-forwards. Deferred tax assets are recognized to the extent it is probable the temporary differences, unused tax losses and unused tax credits will be realized. The realization of deferred tax assets is reviewed each reporting period and includes the consideration of historical operating results, projected future taxable income exclusive of reversing temporary differences and carry-forwards, the scheduled reversal of deferred tax liabilities and potential tax planning strategies. Notes to the Consolidated Financial Statements 103

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