E_mg_GB_03_vorne-29_3_04

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134 14) Litigation During the period under review, mg technologies ag succeeded in settling its Customer Cases in the U.S. These actions by former customers of MG Refining & Marketing related to oil-futures contracts predating 1994. Defending these actions in the past incurred significant costs. The settlement reached by mg technologies ag did not adversely affect its earnings in 2003, as the Group had already made appropriate provision in its accounts. During the period under review, the Executive Board of mg technologies ag and Dr. Otto Happel ended all past legal disputes. In September 1998, an mg Group company won a contract from a young company to work as general contractor on the construction of industrial plant for the recycling of old carpets containing polyamide; it subcontracted a large part of the construction work to another mg Group company. Both Group companies acquired minority shareholdings in the customer at the insistence of the customer’s majority shareholder and the lead bank in the banking syndicate financing the deal. The plant was delivered to the customer on September 10, 2002. Subsequently, the customer’s financial position deteriorated rapidly. In February/March 2003, the shareholders and the banks financing the deal first accused the mg Group companies concerned of having failed to comply with the regulations on post-formation acquisitions stipulated in the German Joint Stock Corporation Act (AktG), as a result of which the contract to construct the plant was null and void. Precautionary attempts to remedy the possible invalidity of the contract for the construction of the plant failed because the majority shareholder and the lead bank refused to give their approval. Proceedings to declare the customer bankrupt were initiated on September 1, 2003. The insolvency administrator is demanding that several mg Group companies repay the fee paid by the customer – amounting to a164.6 million (including sales tax) – because the mg Group companies concerned had failed to comply with the regulations on post-formation acquisitions stipulated in the German Joint Stock Corporation Act (AktG), as a result of which the contract to construct the plant was null and void. The insolvency administrator’s application for legal aid was rejected by the regional court in Frankfurt am Main. Since the main creditor then evidently agreed to finance the legal action, this legal action has been filed (after the balance sheet date). In accordance with SFAS 5, no provision has been established owing to the complex nature of the case and a number of unresolved legal issues. In connection with the conclusion of the control and profit-transfer agreement between mg technologies ag and GEA AG, an appeal is pending regarding the appropriateness of the exchange offer made to shareholders of GEA AG. In addition, further litigation, official investigations, legal proceedings and other claims are either pending or might be instituted or enforced in the future against companies of the mg Group as a result of their ongoing business operations; it is not always possible to predict the outcome of such proceedings with any degree of certainty. Litigation is subject to many unknown factors, and it is not possible to predict the outcome of individual cases with any degree of certainty. mg cannot rule out the possibility that the final rulings on some of these cases may give rise to expenses that exceed the provisions and accruals set aside for such purposes; mg therefore cannot predict with any degree of accuracy either the amount or timing of such expenses. Appropriate provision for risks arising from litigation was made in accordance with SFAS 5.
MANAGEMENT SHARE STRATEGY SPECIAL SECTION MANAGEMENT REPORT FINANCIAL STATEMENTS FURTHER INFORMATION Consolidated Balance Sheets • Statements of Income • Statements of Cash Flows • Statements of Changes in shareholders’ Equity • Fixed Assets Schedule • Notes • Independent Auditors’ Report 15) Derivatives and Financial Instruments a) Use of Derivatives and Financial Instruments In its day-to-day financial management, the mg Group uses all customary forms of investments, such as fixed-term deposits, fixed-income securities and mutual funds. The Group funds its operations, among other things, through bank loans, factoring arrangements and ABS transactions. The mg Group uses derivatives to mitigate the risk of adverse movements in interest rates, share prices and other investments. Forward exchange deals and currency options are largely used to hedge assets, liabilities and firm buy or sell commitments in foreign currency and, to a lesser degree, to hedge forecasted transactions denominated in foreign currency. Hedges are used to mitigate the risk of adverse movements in the exchange rates of certain currencies, especially the U.S. dollar and pound sterling. Interest rate swaps and options are used to hedge the interest rate risk inherent in liabilities to banks. Commodity derivatives are used primarily in the discontinued chemicals trading business to mitigate the risk inherent in commodities prices. b) Fair Value of Financial Instruments The fair value of a financial instrument is the price at which a counterparty is willing to assume the rights and/or obligations arising from this financial instrument from another counterparty. Fair values have been computed on the basis of the market information available at the balance sheet date and the valuation methods outlined below, which are based on certain assumptions. Because of the varying factors influencing them, the fair values stated here may differ from the values that can be realized in the market at the present time. Original financial instruments Securities: Fair value is the market price. Cash and cash equivalents: Owing to their short maturity, the nominal values of cash and cash equivalents correspond to their fair value. Financial liabilities: The fair value of listed debt securities is their market price. The fair value of other long-term bonds corresponds to the present value of future anticipated cash flows. The discount rate used is the current market interest rate on bonds of the same maturity. Owing to their short maturity, it is assumed that the nominal value of bonds and loans under revolving credit facilities approximates to their fair value. It is generally assumed that the nominal value of floating-rate loans corresponds to their fair value. Receivable from direct capital lease: As the current market interest rate was used to calculate the present value of the receivable, the fair value and nominal value of the receivable are the same. 135
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“2003 was a year of transition fo
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Consolidated Key Figures 2003 RESUL
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Creating freedom for action CONTENT
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MANAGEMENT SHARE STRATEGY SPECIAL S
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zation As the world’s population
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The pharmaceutical industry will co
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Milk Last year, over 160 million co
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The MODUL tablet press produced by
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For a technology-driven organizatio
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mg's mission is to ensure sustainab
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E_mg_GB_03_vorne-29_3_04

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