Report of the supervisory board
During the past year, the supervisory board has performed the duties mandated by law, the company’s articles of association, and its internal rules of procedure and has provided advice to the executive board and supervised its activities. The supervisory board was directly involved on a timely basis in all decisions that were of fundamental importance to the company. During the year, the executive board fully and regularly informed the supervisory board in written and oral reports about all budgeting matters relevant to the company, about the company’s strategy, and about significant transactions of the company and the group as well as the related risks and opportunities. The supervisory board was continually updated in detail about revenue and earnings trends of the group and the divisions as well as about the financial position of the company.
In addition, the supervisory board monitored the activities of the executive board, scrutinized all significant transactions, and provided advice to the executive board on all material decisions. All members of the supervisory board were also available between meetings for consultations [--break--] with the executive board. The chairman of the supervisory board in particular kept in contact [--break--] regularly with the executive board and the chief executive officer in particular, and obtained information about current issues and developments at the company on an ongoing basis.
The supervisory board consists of ten shareholder representatives and ten employee representatives. The employee representatives had been appointed by the court on August 18, 2010. All employee representatives, except for Juergen Stolz, were elected to the supervisory board on March 28, 2011. Tobias Rienth was elected to replace Juergen Stolz. The supervisory board would like to thank Mr. Stolz for his commitment and his excellent work.
The company was converted from a limited liability company (“Gesellschaft mit beschraenkter Haftung”) to a stock corporation (“Aktiengesellschaft”) on October 13, 2011. The conversion [--break--] did not affect the positions of the supervisory board members. There were no conflicts of [--break--] interest of members of the supervisory board. The supervisory board is of the opinion that it [--break--] had a sufficient number of independent members at all times.
When the conversion became effective, the term of office of the members of the executive management board of the limited liability company came to an end. Dr Juergen M. Geissinger, [--break--] Wolfgang Dangel, Professor Dr Peter Gutzmer, Kurt Mirlach, Klaus Rosenfeld and Robert Schullan were appointed to the statutory board of directors of the stock corporation. Together with Rainer Hundsdoerfer, Norbert Indlekofer, Oliver Jung, Professor Dr Peter Pleus und Dr Gerhard Schuff, who are also part of the company’s management, they make up the “executive board”.
The supervisory board held four regularly scheduled meetings and two telephone conferences which were attended, with a few exceptions, by all members of the supervisory board.
In its meeting on March 25, 2011, the supervisory board dealt with the separate financial statements and the consolidated financial statements 2010. In addition, proposals on rearranging the Schaeffler Group’s financing were presented. These proposals were approved in a teleconference of the supervisory board on March 27, 2011.
The supervisory board discussed the company’s earnings and financial position and the development of business at its meeting on May 27, 2011. In addition, company management provided information about product technologies for mechatronics, electric mobility, and renewable energy.
The supervisory board held another meeting on September 23, 2011, dealing primarily with the conversion of the company to a stock corporation. The supervisory board had prepared for this meeting in a teleconference on August 16, 2011. The members of the statutory board of directors were appointed at this meeting. Dr Juergen M. Geissinger was appointed chairperson of the statutory board of directors, and Kurt Mirlach was appointed labor relations officer. The supervisory board also established the details of the total remuneration of each member of the statutory board of directors. In addition, the supervisory board approved its revised internal rules of procedures.
In its meeting on December 16, 2011, the supervisory board approved the annual budget for 2012 including the capital expenditure budget. It also gave its final approval to a refinancing concept calling for the issue of high-yield bonds, among other things, which was discussed extensively by the committees beforehand.
In addition, the supervisory board passed resolutions by written consent on exercising voting [--break--] rights at the annual general meeting of Continental AG, Hanover, on electing employee representatives to committees, and on approving the appointment of managing directors for INA Beteiligungsgesellschaft mit beschraenkter Haftung in accordance with section 8.4 of the internal rules of procedure of the supervisory board.
The supervisory board has established an executive committee, an audit committee, and a committee in accordance with section 27 (3) of the German Co-Determination Act (“Mitbestimmungsgesetz” – MitbestG) to assist it in its work.
The executive committee met five times during the year. These meetings were mainly held to prepare for the meetings of the supervisory board. The executive committee dealt primarily with the conversion of the company to a stock corporation and the related decisions about personnel as well as with the refinancing activities.
The audit committee held four regular meetings and two telephone conferences in 2011.
The executive board updated the audit committee continually and in detail about revenue and earnings trends of the group and the divisions and about the financial position of the company. Before the quarterly financial reports were published, the audit committee extensively discussed and scrutinized these reports and the development of earnings as well as the outlook [--break--] for the full year. The committee was closely involved with compliance and risk management and obtained information about the work of the internal auditors and the structure of the Schaeffler Group’s hedging transactions. The audit committee satisfied itself that the internal control system, the risk management system and internal audit are effective. The audit committee assigned the engagement for the audit to KPMG AG Wirtschaftspruefungsgesellschaft, Munich, (“KPMG”) in May 2011 and defined the focal points for the audit. During the meeting on August 25, 2011 and during a teleconference on September 8, 2011, the audit committee discussed the documents prepared for the conversion of the company to a stock corporation, and made a positive recommendation to the supervisory board.
The mediation committee established in accordance with section 27 (3) MitbestG did not meet [--break--] in 2011.
The adhoc financing committee was established during the supervisory board meeting in December 2011 and held its first meeting in January 2012. There are no other committees.
Separate and consolidated financial statements 2011
As proposed by the supervisory board, the shareholder meeting on March 28, 2011 appointed KPMG auditors of the separate financial statements of the company and of the consolidated financial statements. Prior to this, KPMG had confirmed to the supervisory board that there are no circumstances affecting their independence as auditors.
KPMG audited the separate financial statements as at December 31, 2011 prepared by the statutory board of directors in accordance with German commercial law, including the closing statement on the initial report on relations with affiliated companies in accordance with section 312 German Stock Companies Act (“Aktiengesetz”) (dependency report (“Abhaengigkeitsbericht”)) and the accounting records and the system of internal controls over financial reporting in accordance with the principles of the German Commercial Code (“Handelsgesetzbuch” (HGB)), and has issued an unqualified audit opinion thereon.
The consolidated financial statements 2011 of Schaeffler AG were prepared voluntarily in [--break--] accordance with International Financial Reporting Standards ( IFRS) as adopted by the European Union and the additional requirements of German commercial law pursuant to section 315a (1) HGB.
The auditors conducted the audit of the consolidated financial statements and the group management report in accordance with German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftspruefer (Institute of Public Auditors [--break--] in Germany – IDW), and have issued an unqualified audit opinion thereon.
The audit committee discussed the financial statement documents (including the dependency report) and the long-form audit reports with the executive board and the auditors on March 14, 2012. The audit committee scrutinized the development of earnings for 2011, the financial position and assets as at the reporting date and, particularly, provisions for risks. They were also dealt with in the supervisory board meeting convened to approve the financial statements on March 16, 2012. The required documents had been distributed to all members of the audit committee and the supervisory board in due time before these meetings to give the members sufficient opportunity to examine them. The auditor was present during the discussion. He reported on significant audit findings and was available to provide additional information to the audit committee and the supervisory board. Based on its own examinations of the separate financial [--break--] statements, the dependency report (including the closing statement of the statutory board of directors), and the consolidated financial statements together with the group management report, and based on recommendations made by the audit committee, the supervisory board has approved the separate financial statements and the consolidated financial statements. No objections were raised. The separate financial statements have thus been adopted.
The dynamic recovery experienced during the prior year continued in 2011. To realize this growth and to prepare for and stabilize the future development as a stock corporation on the basis of the level reached so far, the company had to adjust internal structures in many areas. This was [--break--] a significant challenge for the Schaeffler Group and all of its employees, who coped with it with extraordinary commitment and dedication. The supervisory board would like to express their sincere gratitude for this to the executive board and all employees.
On behalf of the supervisory board
Georg F. W. Schaeffler
Herzogenaurach, March 16, 2012