Corporate governance is the responsible management and supervision of the Company with the aim of long-term value creation. The Management Board of MEDION, on its own behalf and on behalf of the Supervisory Board, reports on corporate governance pursuant to No. 3.10 of the German Corporate Governance Code as follows: At MEDION, good corporate governance is a standard we extend to all areas of the Company. Enhancing corporate governance and compliance at MEDION serves to justify the trust that our shareholders, business partners, employees, and the public have placed in us. We have therefore taken all organizational measures needed to not only comply with the legal requirements but also to ensure a responsible and transparent corporate management that is committed to sustained growth.
Declaration of Compliance The amendments to the Code adopted by the German Governments Commission on the German Corporate Governance Code on June 18, 2009 were announced by the Federal Ministry of Justice in the electronic Federal Gazette on August 5, 2009 and thereby became binding. Of significance were the changed recommendations with regard to Management Board and Supervisory Board compensation. Due to the revision of the management board agreements in August 2008 and the existing compensation policy for the Supervisory Board, these recommendations of the German Corporate Governance Code were not implemented at MEDION. After the deliberations of the Management Board and the Supervisory Board in their joint meeting on December 10, 2009, these points were noted in the amended declaration of compliance. The exception that no committees can be formed due to the size of the Supervisory Board is not changed from the previous years. However, all suggestions of the Code continue to be taken into account. Pursuant to Section 161 of the German Stock Corporation Act, the Management Board and Supervisory Board of MEDION AG made the amended declaration of compliance accessible to the public on the Companys website on December 10, 2009.

On behalf of the Supervisory Board
On behalf of the Management Board
Dr. Rudolf Sttzle (Chairman)
Gerd Brachmann (Chairman)

4 Design and Marketing

4.1 4.2

Design Marketing

MEDION makes use of creative centers that are steeped in tradition, yet look to the future. We maintain design studios in the heart of the European Capital of Culture RUHR.2010 as well as in the host city of the EXPO 2010, Shanghai. The numerous awards that our products have gained worldwide bear testimony to our designers creativity.

4.1 Design

Design Successes
MEDION remains first-class all over the world A total of 37 national and international awards and nominations in 2009 underscore the superb design quality of MEDION products. This even beats our design successes achieved in the record year 2008, and serves to document that MEDION maintains a leading position in product design world-wide. MEDION appeared in the winners circle 11 times at the Good Design Awards presented by the Chicago Athenaeum in December. Only two other companies from this elite field took home more prizes. The Plus X Award, the worlds largest technology competition, cited eight products in all. Among them was MEDION THE TOUCH, MEDIONs all-in-one PC, which won two awards, one for innovation and one for ease of operation. As in previous years, we are happy to report that MEDION was able to garner recognition in every product segment, including household electronics in 2009. Rounding out the 2009 roster of prizes that included numerous red dot awards, iF awards, and nominations for the Design Prize of the Federal Republic of Germany, was a Focus in Silver presented by the Design Center of Stuttgart.
An eye for trends has been the key to success ever since mobile phones took to the market. Intelligent planning on the part of MEDION product managers, paired with the timeless elegance contributed by our designers, has shown that thoughtful concepts can sway consumers and set trends even in conventional land-line telephones.
DECT Matrix Design Telephones MEDION LIFE S63003/MEDION LIFE S63007 The cordless telephones of the MEDION LIFE series were designed for users who value ease of operation and maximum readability. Extra-large, extra sensitive keys plus the easily readable graphics and crisp display information meet the highest standards of ergonomics. A low-radiation ECO function, built-in answering machine and a 100-entry telephone directory make these DECT telephones ideal for everyday use. The attractive handset joins with the base station to form a whole that leaves nothing to be desired both visually and acoustically. Recipient of the Good Design Award and the Plus X Award for Ergonomics Nominated for the Design Prize of the Federal Republic of Germany (S63003) Recipient of the iF award, the Focus in Silver, the Good Design Award, the Plus X Award for Design, nominated for the Design Prize of the Federal Republic of Germany (S63007)

Logistics Management

MEDION manages the entire logistics chain from manufacturers to retail companies. Delivery is on a just-in-time basis, using appropriate modes of transportation.

Logistics

forwarding agents, shipping companies
Distribution to the End-User
international retail chains

After-Sales Support

MEDION offers comprehensive after-sales service. Expert support is available 365 days a year from the hotline at MEDIONs own call center, ready to handle questions related to applications, warranty processing, and followup orders. MEDION performs any necessary repairs. For specific products within Germany, MEDION contracts a local service, which then contacts the end-user and performs the repairs on site. * We rely on the assistance of well-known partners and service providers when handling our projects. The services outlined here are provided by third parties.
Structure of the MEDION Group
MEDIONs foreign subsidiaries are predominantly companies that provide sales and after-sales services for MEDION AG in their respective countries. As a rule, the actual project management and logistics are controlled centrally by the MEDION organization in Germany. Within the German organization, call center activities are consolidated in Allgemeine Multimedia Service GmbH, and repair and logistics services for after-sales and e-commerce business are consolidated in MEDION Service GmbH.
subsidiaries of medion ag
Allgemeine Multimedia Service GmbH, Essen, Germany MEDION Service GmbH, Essen, Germany MEDION FRANCE S.A.R.L., Villaines sous Malicorne, France MEDION ELECTRONICS LIMITED, Swindon, United Kingdom MEDION NORDIC A/S, Glostrup, Denmark MEDION AUSTRIA GmbH, Wels, Austria MEDION B.V., Panningen, Netherlands MEDION IBERIA, S.L., Madrid, Spain MEDION SCHWEIZ ELECTRONICS AG, Wettingen, Switzerland MEDION USA Inc., Delaware, USA MEDION AUSTRALIA PTY LTD., Sydney, Australia MEDION Elektronika d.o.o., Ljubljana, Slovenia MEDION International (Far East) Ltd., Hongkong, China* LIFETEC International Ltd., Hongkong, China* MEDION Asia Pacific Ltd., Hongkong, China*

*no operating business

Financial Report
Business Performance 2009 - Overview of Financial Performance

million 2009

million 2008

million +/-

During the year under review, MEDION AG successfully continued the Companys health promotion plan introduced in 2007. A significant component of this plan is providing financial support for all employees of the Group who are interested in undergoing medically accepted smoking cessation programs. The compensation systems have been adjusted to the changing requirements. The uniform salary model introduced in one area of the Company in 2005, in which employees are grouped into specific salary groups based upon their skill level and receive further systematic training in communication and management development, has proved to be extraordinarily effective and successful during the period under review, resulting in a qualitative improvement of services. Across-the-board compensation systems have been introduced for senior management. The systems consist of a fixed portion and a variable portion based upon individually agreed performance targets. The individual performance targets are established based upon Company objectives and personal objectives. As part of the Companys career development plan, quality improvement measures were introduced during the year under review. Many employees participated in an assessment center conducted for this purpose. Moreover, the assessment center was used not only for the purpose of career development, but also for the recruitment of new employees. Other external training courses were also offered to employees, as were IT-related training sessions for SAP R/3 conducted by an SAP In-house Competence Center, and training in Microsoft Office conducted by an external training provider. Furthermore, 75 employees participated in a program to learn English based on the WSI Learning Method. As part of the compliance principles implemented in the Company regarding non-public information in the corporate environment, all employees, who are listed as insiders in the insider directory pursuant to the BaFin (Federal Financial Supervisory Authority) guideline, were briefed in a training session during the year under review regarding the most recent relevant legal provisions. In addition, employees who are involved in purchasing, product development and management, or sales tasks as part of their job responsibilities, or who otherwise confirm orders to third parties or are involved in a broader sense with price and contractual negotiations or their implementation were required to comply with the corresponding statutory provisions by signing supplemental agreements. This ensured that all necessary measures were taken on both the employee and management side to counteract and/or prevent corruption and acceptance of benefits.
Human Resources / Research and Development
MEDION actively supports Company training programs for young people. During 2009, a total of 52 (2008: 45) trainees were employed at MEDION AG, reflecting a training ratio of 5.8%. The trainees are broken down into the following programs: 17 in commercial, 13 in technical and 23 in dialogue marketing. As MEDION performs training only for its own needs, we can generally offer all trainees a position.

MEDION AG has not entered into any agreements that are subject to a change in control in the event of a takeover bid.
Similarly, no compensation agreements have been made with members of the Management Board or the employees in the event of a takeover bid.
Corporate Declaration in accordance with Sec. 289a of the German Commercial Code
The management of MEDION, a listed German corporation, is primarily determined by the German Stock Corporation Act (AktG) and also by the rules set forth in the latest version of the German Corporate Governance Code. At MEDION, good corporate governance is a standard we extend to all areas of the Company. Enhancing corporate governance and compliance at MEDION serves to justify the trust that our shareholders, business partners, employees, and the public have placed in us. We have therefore taken all organizational measures needed to not only comply with the legal requirements but also to ensure a responsible and transparent corporate management that is committed to sustained growth. In line with statutory regulations, MEDION is subject to what is termed the dual governance system, which is characterized by a strict separation of the Management Board as a managing body and the Supervisory Board as a monitoring body. The Management Board and the Supervisory Board work closely together in the interests of the Company. The Management Board manages the Company, aiming to create lasting added value, for which it assumes responsibility. In this regard, the principle of overall responsibility applies, i.e. the members of the Management Board share the overall responsibility for managing the Company. They develop the corporate strategy and coordinate efforts with the Supervisory Board to see that it is implemented. The principles of the MEDION Management Boards cooperation have been summarized in the rules of procedure for the Management Board. In particular, they establish the areas for which the individual Management Board members are responsible, the matters reserved for the consent of the Supervisory Board, the required majorities for passing resolutions, and the rights and duties of the Chairman of the Management Board. The Management Board of MEDION consists of two members. The Management Board regularly, promptly and comprehensively informs the Supervisory Board concerning all issues related to business performance that are material to the MEDION Group, major transactions as well as the current earnings situation along with the Companys risk position and risk management. Deviations in the business trend from preceding forecasts and targets are commented and reasoned in detail. Furthermore, the Management Board regularly reports on compliance, i.e. actions taken to adhere to statutory regulations and internal Company policies, an issue for which the Management Board is also responsible. The Supervisory Board advises the Management Board in managing the Company and monitors its activity. It appoints and dismisses the members of the Management Board, determines the compensation system for Management Board members, and establishes the total compensation for each of them. It is involved in all decisions that are of fundamental importance to MEDION. The Supervisory Board of MEDION consists of three members. The principles of the MEDION Supervisory Boards cooperation have been summarized in the rules of procedure for the Supervisory Board.

7 Consolidated Financial Statements
7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8
Key Figures (not considered part of the consolidated financial statements) Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Cash Flow Statement Consolidated Balance Sheet Consolidated Fixed Assets Schedule Consolidated Statement of Changes in Equity Segment Report
Consolidated Financial Statements
Key Figures (not considered part of the consolidated financial statements)

Jan. 1 - Dec. 31, 2009

Jan. 1 - Dec. 31, 2008
Sales -inside Germany -outside Germany Sales by segment - thereof project business - thereof direct business EBIT Net income Total assets Equity-to-assets ratio Average number of employees Personnel expenses

1,716 51.3% 1,015 47

1,700 50.7% 1,072 47
MEDION stock Subscribed capital Authorized capital

48,418,400 24,000,000

Earnings per share (in )
Consolidated Income Statement

in thousand

1. Sales 2. Other operating income 3. Cost of materials 4. Personnel expenses 5. Depreciation/amortization 6. Other operating expenses 7. Operating earnings (EBIT) 8. Other interest and similar income 9. Interest and similar expenses 10. Earnings before taxes (EBT) 11. Taxes on income 12. Other taxes 13. Net income

(1) (2) (3) (4)

1,408,075 4,690 -1,250,923 -47,316 -4,486
1,603,673 4,903 -1,420,003 -46,641 -5,331 -102,198 34,403 7,736 -3,238 38,901 -12,120 -405 26,376

-91,256 18,784

(6) (6)

4,757 -1,716 21,825

-7,394 -276 14,155
Earnings per share in (basic) Average number of shares outstanding (basic) Earnings per share in (diluted) Average number of shares outstanding (diluted)
0.32 44,495,714 0.32 44,495,714
0.57 45,952,956 0.57 45,952,956
Consolidated Statement of Comprehensive Income
2009 in thousand Note Jan. 1 - Dec. 31
1. Net income 2. Other income after tax +/- Changes in currency translation differences +/- Gain/loss from cash flow hedges = Other income after tax 3. Total comprehensive income (20) (7)

14,155

26,376

19 9,037 9,056 23,211

20 -6,857 -6,837 19,539
Consolidated Cash Flow Statement

1. 2. 3.

Operating earnings (EBIT) +/- Depreciation/amortization/write-ups of non-current assets +/- Increase/decrease in pension provisions Gross cash flow
18,784 4,23,860 3,333 1,023
34,403 5,331 -524 39,210 9,621 0

-6,682 -4,23,211 367,774

Segment Report

Project business 01.01.31.12.2009 01.01.31.12.2008
Direct business 01.01.31.12.2009 01.01.31.12.2008
Group reconciliation 01.01.31.12.2009 01.01.31.12.2008
Group 01.01.31.12.2009 01.01.31.12.2008
Total sales EBIT Depreciation/amortization on non-current assets Other non-cash expenses and income (+/-) Gross cash flow Segment assets Segment liabilities Capital expenditure

1,025,070 13,743

1,263,914 28,886

383,278 6,298

339,581 7,687

-273 -1,257

178 -2,170

1,408,075 18,784

1,603,673 34,403
430 16,398 544,357 301,758 2,015
-413 30,723 557,795 304,686 1,148
160 8,690 150,303 40,027 1,113
-111 9,736 112,668 27,643 1,891

0 -1,228 1,489 4,894 17

0 -1,249 3,233 7,257 241
590 23,860 696,149 346,679 3,145
-524 39,210 673,696 339,586 3,280
8 Notes to the Consolidated Financial Statements

8.1

General 8.1.1 8.1.2 8.1.3 8.1.4 8.1.5 8.1.6 8.1.7 Basis of Presentation Scope of Consolidation Principles of Consolidation Currency Translation Principles Accounting Policies Use of Assumptions and Estimates Changes in Estimates
Notes to the Consolidated Income Statement and the Consolidated Balance Sheet 8.2.1 8.2.2 Notes to the Income Statement Notes to the Balance Sheet 151

8.3

Other Disclosures 8.3.1 8.3.2 8.3.3 8.3.4 8.3.5 8.3.6 8.3.7 8.3.8 8.3.9 Notes to the Cash Flow Statement Segment Reporting Earnings per Share Other Financial Obligations Risk Management and Financial Derivatives Events after the Balance Sheet Date Related Party Disclosures Management Board Supervisory Board Section 161 of the German Stock Corporation Act (AktG) Retained Earnings
8.3.10 Corporate Governance Disclosures pursuant to 8.3.11 Proposal for the Appropriation of Unappropriated
Declaration pursuant to Section 297 (2) Sentence 4 and Section 315 (1) Sentence 6 of the German Commercial Code 191
Notes to the Consolidated Financial Statements

General

Basis of Presentation
MEDION AG as parent company of the MEDION Group is a listed stock corporation under German law with registered offices in Essen, Germany. Its address is: MEDION AG, Am Zehnthof 77, 45307 Essen. The Company is registered in Commercial Register B of the Local Court of Essen (HRB 13274). MEDION AG stock is listed on the Regulated Market (Prime Standard) of the Frankfurt Stock Exchange. The purpose of the Company is the provision and brokering of services together with the distribution of products in the fields of multimedia, hardware/software, entertainment electronics, and complementary services. The Company also distributes additional non-food articles of all kinds. The consolidated financial statements of MEDION AG and its subsidiaries were prepared in accordance with International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB) and the additional provisions required under German commercial law as set forth in Section 315a (1) of the German Commercial Code (HGB). We have applied all standards and interpretations issued by the IASB that are mandatory for fiscal year 2009 and have been adopted by the European Union. In 2009, MEDION AG applied the new IFRS 8 Operating Segments and the revised IAS 1 Presentation of Financial Statements for the first time. These standards and their effect on the consolidated financial statements are described in the following. The other standards first required to be applied in 2009 are not of relevance to MEDION AG and have therefore not been listed or described. The revised IAS 1 Presentation of Financial Statements, which sets out the basic requirements for the preparation of financial statements, was published in September 2007. Application of IAS 1 is mandatory for fiscal year 2009. The revised IAS 1 introduces a statement of comprehensive income, which includes profit or loss for the period along with unrealized gains and losses that were previously recognized in equity. In the future, the statement of changes in equity will only include profit or loss for the period and transactions with owners. The revised IAS 1 requires entities to present a statement of comprehensive income that includes both net income and other comprehensive income. MEDION will take advantage of the option of presenting both an income statement and a statement of comprehensive income. Total comprehensive income for the period will be derived from net income as reported in the income statement. The new IFRS 8 was published in November 2006. Application of IFRS 8 is mandatory for fiscal year 2009. Under IFRS 8, what is known as the management approach must be used in reporting on the financial performance of business segments. According to the new Standard, those segments must be reported that are classified as operating segments i.e. which represent components of an entity for which discrete financial information is available and whose operating results are reviewed regularly by the entitys chief operating decision maker based on internal reporting.

In November 2009, the IASB issued IFRS 9 Financial Instruments: Classification and Measurement. IFRS 9 represents the completion of the first part of a three-part project to replace IAS 39. In this first step, the new IFRS 9 amends the previous regulations for classifying and measuring financial instruments, with financial assets being initially addressed. Application of the new IFRS 9 is mandatory starting in fiscal 2013. The EU has not yet adopted the amendments. In addition, IFRIC 1719 have been published. With the exception of IFRIC 19, the amendments have been adopted by the EU. At present, application of the standards and interpretations specified are not expected to have a material effect on the consolidated financial statements of MEDION AG. The fiscal year of MEDION AG corresponds to the calendar year. The IFRS accounting policies applicable to the Group have been applied uniformly to the assets and liabilities of the consolidated companies. Deferred taxes have been recognized to account for any measurement differences in comparison with the tax base. The consolidated financial statements as of December 31, 2009, were prepared in euros. Unless otherwise indicated, all amounts are stated in thousand. The income statement was prepared under the nature of expense method. Assets and liabilities in the balance sheet have been divided into current and non-current items with details on the maturity of some individual items provided in these Notes. Current assets and liabilities are due within one year and non-current assets and liabilities are due in more than one year. Change in presentation As opposed to the previous year, in accordance with IAS 1.70 we have classified all deferred tax assets as non-current assets. Moreover, we have added a new balance sheet item income tax assets under current assets pursuant to IAS 1.68 (m). As a result, the prioryear figures of other current and non-current assets have changed. The prior-year presentation has been adjusted accordingly.

Scope of Consolidation

The consolidated financial statements as of December 31, 2009, include the parent company, MEDION AG, Essen, and the following subsidiaries that have been fully consolidated under the purchase method:

Own shares are measured at cost of acquisition and deducted from equity in accordance with IAS 32.33. Own shares do not represent financial assets in accordance with IAS 32.11. Sales are recognized in profit or loss at the time the risk is transferred to the customer. Sales are recognized after deducting product returns and rebates as well as sales-related trade discounts and other sales deductions. Taxes on income include both taxes on income due immediately and deferred taxes. Deferred taxes are recognized using the balance sheet liability method. Under this method, deferred tax assets and liabilities are recognized to account for any temporary differences resulting from differences in the carrying amounts of the IFRS consolidated balance sheet and the tax accounts. Deferred taxes on losses carried forward are recognized provided it is expected that future taxable income will be sufficient to allow such losses to be used in future periods. Deferred taxes are measured at the tax rates applicable on the date of realization in accordance with tax legislation in the individual countries that applies as of the balance sheet date. Pursuant to the provisions of IAS 12, deferred tax assets and liabilities are not discounted. Current taxes and deferred taxes are calculated on the basis of assessments and estimates made by the Company. Actual events may differ from these estimates, which could have both positive and negative effects on the financial position and performance of the Company.
Use of Assumptions and Estimates
In preparing the consolidated financial statements, assumptions and estimates were made that have impacted the recognition and measurement of the assets, liabilities, income, expenses, and contingent liabilities reported. These assumptions and estimates relate mainly to the establishment of uniform useful economic lives throughout the Group, the measurement of provisions, the probability of collecting trade receivables, and the probability of realizing future tax benefits. Actual values may vary in specific cases from the assumptions and estimates made. Changes in assumptions or estimates are recognized in profit or loss once new information becomes available.
Changes in Estimates Within the scope of the measurement of pension provisions as of December 31, 2009, the discount rate decreased from 6.0% in the previous year to 5.25% due to the expected long-term market trend. The resulting effect was recognized in profit or loss as an actuarial loss in the amount of 341 thousand.
Notes to the Consolidated Income Statement and the Consolidated Balance Sheet
Notes to the Income Statement
Sales by region are as follows:
Germany Europe Other foreign

than 10%. If the purchase takes place by means of a public purchase offer addressed to all shareholders or a public request to submit a bid, the purchase price offered or the limits of the purchase price range per share (excluding transaction costs) may not exceed or fall below the average stock exchange price of the Companys shares in closing trading on the Xetra electronic trading system (or an equivalent successor system) on the Frankfurt Stock Exchange over the five trading days preceding the date of the public announcement of the offer or the public request to submit a bid by more than 10%. If, after issuing a public offer or a public request to submit a bid, the prevailing price proves to be substantially different, the offer or the request to submit a bid may be adjusted. In such case, the average stock exchange price of the Company shares in closing trading in the Xetra electronic trading system (or an equivalent successor system) on the Frankfurt stock exchange over the last five trading days prior to the public announcement of any adjustment will be taken as a basis. Should the public offer be oversubscribed or, in case of a request to submit a bid, not all of several equivalent offers can be accepted, acceptance may proceed based on quotas. A preferential acceptance of smaller quantities of up to 100 offered shares per shareholder may be provided for. Any further pre-emptive tender right on the part of the shareholders is excluded to such extent. The public offer or the request to submit a bid may entail additional conditions. If shareholders are granted tender rights for the purpose of purchasing shares, such tender rights will be allocated to the shareholders in proportion to their shareholdings in accordance with the relation of the volume of shares bought back by the Company to the share capital. Fractions of tender rights need not be allocated; in such case any partial tender rights are excluded. The price and the limits of the purchase price range offered (excluding transaction costs in each case) at which the shares may be sold upon exercise of the tender rights are determined subject to the regulations on the request to submit a purchase offer and, if necessary, adjusted. The Management Board is authorized, with the consent of the Supervisory Board, to sell the shares repurchased on the basis of this or any previous authorization by means other than via the stock exchange or an offer to all shareholders and to the exclusion of shareholder subscription rights, provided the cash sales price of the shares is not significantly less than the stock exchange price. Not significantly less is taken to mean in this context that the selling price is no more than 5% below the average stock exchange price for the Companys shares in closing trading on the electronic trading system Xetra (or an equivalent successor system) on the Frankfurt stock exchange during the five trading days preceding the sale of the shares. The Management Board is furthermore authorized, with the consent of the Supervisory Board, to transfer the shares repurchased on the basis of the above authorization as a consideration to third parties as part of an acquisition or company merger or in acquiring equity interests in companies, subject to the exclusion of shareholder subscription rights.

If treasury stock is purchased using equity derivatives in compliance with the above provisions, all further shareholder rights to enter into such option contracts or other equity derivative contracts with the Company and all pre-emptive shareholder rights are excluded. The conditions set forth in letter b of agenda item 5 containing the provisions of the proposed resolution apply accordingly to the use of treasury stock purchased using equity derivatives. The right of shareholders to subscribe to Company shares is excluded to the extent that such shares are used pursuant to the authorization conferred by the resolution proposed under agenda item 5. The share buyback will be conducted by a major German bank. It has been agreed that the bank will decide on the timing of the purchase of the shares on the stock exchange, independent from, and not influenced by, MEDION AG. The Company will provide progress updates regarding the share buyback program on its Internet site on a regular basis.
Comprehensive income The other retained earnings/unappropriated retained earnings include retained profits from previous years as well as effects from the first-time application of IFRS 2 in 2005 in an unchanged amount of -3,341 thousand. In the year under review, a dividend of 6,682 thousand was paid on the date of the Annual Shareholders Meeting (May 15, 2009) based on a dividend of 0.15 per qualifying share. Furthermore, foreign exchange differences reduced equity by 1,016 thousand (previous year: 1,035 thousand). The differences arose on currency translation from subsidiaries in the US and the UK. Please see page 136 of this annual report for the statement of changes in equity.

Other Disclosures

Notes to the Cash Flow Statement
In accordance with IAS 7, the cash flow statement shows the changes in cash and cash equivalents in the Group during the course of the reporting period in the form of cash inflows and cash outflows. The cash flow statement distinguishes between cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities is determined using the indirect method. Cash and cash equivalents as presented in the cash flow statement include all cash and cash equivalents recognized in the balance sheet in the form of checks, cash on hand, and bank balances as well as highly liquid money market funds.

In our opinion, and based upon the findings of our audit, the consolidated financial statements, with the qualification detailed above, are in compliance with the IFRS, as adopted by the EU, and additional requirements stated in Section 315a (1) of the German Commercial Code and the supplementary provisions of the Companys Articles of Incorporation and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The combined Group management report and management report is in accordance with the consolidated financial statements and provides on the whole a suitable understanding of the Groups position and suitably presents the opportunities and risks for future development.
MRKISCHE REVISION GMBH WIRTSCHAFTSPRFUNGSGESELLSCHAFT
Hans-Henning Schfer Wirtschaftsprfer
(German certified public auditor)
ppa. Peter Bonk Wirtschaftsprfer
10 Separate Financial Statements of MEDION AG
10.1 10.2 Income Statement Balance Sheet 195 196
Separate Financial Statements of MEDION AG

Income Statement

1, 2. 3.
Sales Other operating income Cost of materials a) Cost of goods purchased b) Cost of services purchased

1,402,614 8,678

1,599,891 5,146
1,231,450 15,938 1,247,388
1,405,413 12,926 1,418,339
Personnel expenses a) Wages and salaries b) Social security contributions and pension expenses 23,499 3,452 26,951 21,104 3,357 24,461
Depreciation/amortization on intangible assets and property, plant and equipment Other operating expenses Income from equity investments Other interest and similar income Impairment losses on financial assets and securities held as current assets
4,262 111,381 3,985 4,1,622 28,380
4,796 126,7,669 24,015 3,259 11,699

6. 7. 8. 9.

10. Interest and similar expenses 11. Profit from ordinary activities
12. Taxes on income 13. Other taxes 14. Net income

3,25,125

4,6,775
15. Transfer from retained earnings 16. Unappropriated retained earnings

0 25,125

23,950 30,725

Balance Sheet

in thousand Dec. 31, 2009 Dec. 31, 2008
A. Fixed assets I. Intangible assets 1. Industrial rights 2. Software 3. Payments on account

762 2,3,036

657 2,3,352 26,126 5,31,636 3,4,305 39,293

II. Tangible assets 1. Land and buildings 2. Other equipment, operating and office equipment 3. Payments on account

25,319 4,29,777

III. Financial assets 1. Shares in affiliated companies 2. Equity investments

3,4,305 37,118

B. Current assets I. Inventories Goods and merchandise II. Receivables and other assets 1. Trade accounts receivable 2. Receivables from affiliated companies 3. Other assets

188,868

158,298

218,57,829 276,914

242,864 1,199 44,499 288,562
III. Securities 1. Own shares 2. Other securities

27,075 25,035 52,110

19,078 5,001 24,079 172,946 643,885 3,686,928
IV. Cash on hand, bank balances and cheques

166,442 684,334

C. Prepaid expenses D. Deferred taxes

1,723,018

Shareholdersequity
A. Shareholders equity I. Subscribed capital - thereof common shares: 48,418 thousand - authorized capital: 24,000 thousand (prior year: 24,000 thousand) II. Capital reserves III. Retained earnings 1. Reserve for own shares 2. Other revenue reserves 48,418 48,418

138,324

27,075 138,215 165,290
19,078 122,169 141,247 30,725
IV. Unappropriated retained earnings

25,125

377,157 B. Provisions 1. Pension provisions 2. Tax provisions 3. Other provisions 1,980 1,075 188,738 191,793 C. Liabilities 1. Trade accounts payable 2. Liabilities to affiliated companies 3. Other liabilities 124,798 4,161 5,703 152,662 D. Deferred income 1,406

358,714

1,762 5,159 184,827 191,748
124,442 4,371 4,317 133,130 3,336

723,018

686,928

11 Financial Calendar

May 12, 2010 May 26, 2010 August 11, 2010 November 12, 2010 March 2011 March 2011 May 18, 2011
Interim Report as of March 31, 2010 Annual Shareholders Meeting, Essen Interim Report as of June 30, 2010 Interim Report as of September 30, 2010 Annual Report 2010 Analysts Conference Annual Shareholders Meeting, Essen

Publication Credits

Product names mentioned in this report may refer to registered trademarks. MEDION AG Investor Relations Am Zehnthof 77 D-45307 Essen Phone +49(0)201-6500 Fax +49(0)201-6510 e-mail aktie@medion.com Website www.medion.de / www.medion.com Photo credits: MEDION AG Layout/typography: Horst Mller, Bro fr Gestaltung Printing: Druckpartner GmbH D-45307 Essen D-44793 Bochum

Essen, March 2005

The Supervisory Board
Dr. Rudolf Sttzle Chairman
heres to successful work together
Only a few years ago, notebooks were the sole reserve of executives constantly on the go. Back then, notebooks were simply too expensive no matter how practical they might have been. This at least is what we at MEDION thought, which is why we set about doing something to change this. Today, if you are seeking quality at a good price, you have a wide range of MEDION notebooks to choose from. As well as having all your data at your fingertips you can also effortlessly access the Internet. In other words, with MEDION mobile PCs, you take your office with you wherever you go. And to top things off, a MEDION notebook gives you the privilege of being seen as someone who is particularly quality and price-conscious.

mobile computing

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corporate governance
Joint corporate governance report by the Management Board and Supervisory Board of MEDION AG
MEDION is committed to observing the principles of transparent, responsible corporate governance aimed at maximizing value. The Management Board, Supervisory Board and officers of MEDION identify with these principles. MEDION considers compliance with corporate governance principles to constitute an important means of instilling confidence on the part of present and future shareholders, creditors, employees, business partners and the public in national and international markets. MEDIONs corporate governance principles are based on the German Corporate Governance Code in the version dated May 21, 2003. The joint declaration of conformance issued by the Management Board and the Supervisory Board on December 7, 2004 is reproduced in the notes to this annual report. In addition, MEDIONs corporate governance principles as well as the declaration of conformance are published on its corporate website in German and English. On December 19, 2002, the Management Board and the Supervisory Board of MEDION AG issued their first declaration of conformance pursuant to Section 161 of the German Stock Corporation Act. The Company complies with the recommendations of the German Corporate Governance Code in the version dated November 7, 2002 save for one exception. The Management Board and the Supervisory Board declared that the Supervisory Board had not established any committees as it comprises only three members. The declaration of conformance issued on December 9, 2003, which is based on the recommendations set out in the German Corporate Governance Code in the version dated May 21, 2003, additionally mentioned two dif-
ferences: The disclosures concerning the compensation of the members of the Management Board as well as the compensation of the members of the Supervisory Board are not individualized in the consolidated financial statements as the reasonableness of the compensation can already be adequately assessed through the disclosure of the overall compensation broken down by fixed and variable components. These differences were retained in the declaration issued on December 7, 2004.

performance of the stock relative to the MDAX index since the issue of the bond. In some cases, the members of the Management Board additionally receive a profit-tied bonus calculated on the basis of the absolute amount of the Companys net income and the change in earnings relative to the previous year. Any losses carried forward from the previous year or retentions required by statute or the Companys bylaws are deducted from net income for this purpose. The Supervisory Board has defined an individual maximum amount of compensation for each member of the Management Board to allow for extraordinary, unforeseeable events. The chairman of the Supervisory Board reports on the basic elements of the compensation system and any changes to it at the annual general meeting. The compensation paid to the Management Board is disclosed in the notes to the consolidated financial statements and broken down by fixed component, performance-
tied components and components with a long-term incentive effect. In the year under review, there were no conflicts of interest which each member of the Management Board is required to report to the Supervisory Board without delay.
sation is payable after the annual financial statements have been approved and adopted. The compensation paid to the members of the Supervisory Board is disclosed in the notes to the consolidated financial statements. Any conflicts in interests, particularly those liable to arise from a position held in an advisory capacity or on the management board or supervisory board of any of the
Groups customers, suppliers, lenders and other business partners, must be disclosed to the Supervisory Board
MEDION AGs Supervisory Board comprises three people. The Supervisory Board regularly advises the Management Board and monitors its activities. It is involved in decisions of key importance for the MEDION Group. The Supervisory Board appoints and dismisses the members of the Management Board and consults with the Management Board on long-term executive personnel planning. The chairman of the Supervisory Board coordinates the work of the Supervisory Board and presides over its meetings. The Supervisory Board has adopted a code of conduct. With their individual career backgrounds, the members of the Supervisory Board possess the requisite knowledge, skills and experience. In a resolution passed on May 14, 2003, the shareholders amended the Companys bylaws to provide for compensation for the Supervisory Board to comprise a fixed component of 10,000 per member and a variable component of 0.0275 percent of the Companys distributable profit after deducting an amount of 4 percent of the capital contributions paid. The variable compensation component is twice this size for the chairman and one-and-a-half for the deputy chairman. Compen-

group management report 19

Performance in 2004

average prices as a result of eroding component prices in tandem with the weak US dollar. However, the
In spite of sustained growth in foreign markets, we were unable to increase total sales due to the unsatisfactory state of consumer spending in our main German market. Accordingly, sales in 2004 contracted by 10.3 percent from 2,924 million to 2,624 million. Sales in the PC/multimedia segment fell from 2,091 million to 1,919 million, accounting for 73.1 percent of total sales (previous year: 71.5 percent). Within the PC/multimedia segment, mobile applications such as notebooks and PDAs for the most part performed well. We were able to extend our share of the market for notebooks and, with an increase of 42 percent in units sold, outpace the market as a whole. We are now one of the Top Ten notebook sellers in Europe. Featuring an integrated digital TV module and Internet telephony software, the Everywhere Notebook was particularly successful. In the area of PDAs including car navigation, we defended our top position amongst the European producers in the consumer market. At 642 million, our entertainment and household electronics business contributed an aggregate 24.5 percent to total sales (previous year: 26.6 percent, 778 million). Products in the home cinema and digital photography areas were successful in 2004. This is an area to which we will be paying greater attention in 2005. At 63 million, communications technology accounted for 2.4 percent of total sales (previous year: 1.9 percent, 55 million). The main products in this segment are digital satellite equipment as well as mobile telecommunications technology. Generally speaking, sales were dragged down by lower
number of units sold actually increased in 2004.
Growth in non-German markets Foreign sales widened from 1,008 million in 2003 to 1,075 million in 2004, equivalent to year-on-year growth of 6.7 percent. Foreign business now accounts for 41.0 percent of consolidated sales (previous year: 34.5 percent).

Europe

Business in European markets was encouraging, with sales rising by 6.1 percent from 922 million to 978 million. In this respect, we primarily grew in tandem with our non-German multinational retail partners. Existing business relations were extended and supplemented with the addition of new products. We also benefited from our ability to organize large-scale sales campaigns simultaneously across several countries. Our strategy of opening up new markets with existing customers again proved successful last year. In addition, we were able to gain further new retail customers for the MEDION business model in 2004. Our largest European markets are Benelux, France, the United Kingdom and Scandinavia. Following the launch of a web shop in the United Kingdom, we were able to generate preliminary sales with final consumers in that market. Following the accession of Central and Eastern

Solid financial condition
2.7 million remitted to a trust account kept by a notary towards the acquisition of 24.9 percent of GERICOM AGs capital. Litigation against Oberlehner Deutschland Beteiligungsgesellschaft mbH, Munich concerning the relinquishment of this block of shares has been pending since June 2004.
In the wake of the lower net income for the year, gross cash flow also shrank from 185.8 million in 2003 to 97.4 million in 2004. However, at 65.0 million, cash flow from operating activities was a good deal closer to the previous years figure of 75.3 million on account of the reduction of 63.5 million in net working capital. Throughout virtually the entire year, the MEDION Group enjoys a substantial positive net cash

Subsidiaries

Human resources
On September 1, 2004, we spun off our repair services in Germany into a wholly owned subsidiary MEDION Service GmbH. This company additionally provides logistic services in the after-sales and e-commerce areas. This centralization marks a key step towards improving the management and quality of our service activities. Our European subsidiaries continued to perform well in 2004 again, with our subsidiaries in Denmark, the United Kingdom and France achieving particular sales successes. This bears out our principle of building up a local presence in key growth markets. With the establishment of MEDION Schweiz GmbH on February 1, 2004, we set up permanent operations in yet another European market. Following the roll-out of SAP at our subsidiaries in the United Kingdom and the Netherlands in the first half of 2004, we made further headway in integrating our business processes. In addition, we extended our presence in the Asian/ Pacific region with the incorporation of a subsidiary in South Korea on July 1, 2004. As expected, our subsidiary in the United States sustained a loss.
Last year, the MEDION Group employed a global average of 1,504 people (previous year: 1,092). Of these, 1,247 were based at MEDION AG and its domestic subsidiaries. The average headcount outside Germany rose by 59 percent from 162 in 2003 to 257 in 2004 due to the Group's ongoing international expansion.

Research and development

MEDION works very closely with the leading manufacturers of components and products in the multimedia and entertainment electronics segments, something which ensures constant access to the latest results derived from research and development projects. In line with our business model, we therefore concentrate on readying innovative technologies swiftly for a broad-based consumer target group. Accordingly, we do not maintain R&D facilities engaged in work on basic technology.

group management report 25

III. Risk report

Corporate governance

1. Economic risks

MEDION is committed to observing the principles of transparent, responsible corporate governance aimed at maximizing value. The Management Board, Supervisory Board and officers of MEDION identify with these principles. MEDION considers compliance with corporate governance principles to constitute an important means of instilling confidence on the part of present and future shareholders, creditors, employees, business partners and the public in national and international markets. MEDIONs corporate governance principles are based on the German Corporate Governance Code in the version dated May 21, 2003. Contrary to the recommendations of the German Corporate Governance Code, MEDION AGs Supervisory Board has not formed any committees as it comprises only three members. In addition, the disclosures on the compensation for the members of the Management Board and the Supervisory Board set out in the notes to the consolidated financial statements are not individualized. The joint declaration of conformance issued by the Management Board and the Supervisory Board on December 7, 2004 is reproduced in the notes to this annual report. Moreover, MEDIONs corporate governance principles as well as the declaration of conformance are published on its corporate website in German and English and can also be requested directly from the Company.
Like any company that operates in the consumer goods segment, MEDIONs success hinges greatly on consumers purchasing power and inclination to buy. While purchasing power is influenced by general economic parameters such as the growth of the economy, inflation and unemployment, consumer inclination to buy is strongly shaped by soft factors such as the overall business mood and consumer confidence. As a seller of innovative products offering very good value for money we have in the past been able to shrug off the effects of even difficult economic conditions. However, consumer purchasing power and inclination to buy in our core market of Germany was muted in the year under review. Should consumer confidence in our key markets continue to deteriorate, we cannot rule out the possibility of this having repercussions for MEDIONs sales and earnings.

2. Operating risks

Product idea
customer and receive preferential treatment should capacity bottlenecks occur. In spite of this status, short-

group management report 27
The consumer goods segment in particular is subject to a general sales risk. By means of targeted market research, test campaigns for new products and carefully dosing increases in sales volume, we contain the selloff risk our retail partners face. MEDIONs customers number among the Top 20 in the international retail market, meaning that individual customers account for high project volumes and that the loss of a particular client could significantly dent sales. Given the comparative advantages we offer in terms of excellent value and quality, MEDION is an attractive partner and enjoys stable relationships with its customers. At present there is no evidence to suggest that any of the large retail partners has any plans to sever its links with MEDION. General economic conditions, specifically over the last two years, have led to a large number of bankruptcies. Typically, this has meant that suppliers of such companies have seen considerable defaults on their receivables. MEDION reduces the default risk by concentrating on sales to retail groups that are international players and have an A class credit rating. Customers that do not fall into this category are of only subordinate importance for MEDION and are supplied only if the order is backed by credit insurance or guarantees, or is subject to advance payment.

Financial risk

Project business necessitates the availability of considerable financial resources for short periods of time. The absence of financing options may retard Company growth. All those sections of the value chain requiring strong capital outlays such as R&D, production, logistics or POS sales are covered by our partner companies. We are able to make substantial use of trade terms thanks to long-standing business relations and our solid capital and financial structures. Given our ample equity of 456 million, our funding requirements are thus confined almost exclusively to obtaining short-term cover for financing peaks arising from large-scale projects. These requirements are covered by bank facilities. At the same time, the Company is not reliant upon individual banks. A key portion of the goods and services we purchase are invoiced in US dollars. To reduce potential exchange-rate risks, we hedge fixed orders in the form of currency forwards supplemented with swaps in some cases.

Legal risks

Risk management
At present, no litigation is pending in courts or before arbitration panels such as could have a substantive influence on MEDIONs consolidated earnings. As a producer and vendor of personal computers, MEDION is exposed to the risk of royalty backpayments for past deliveries of PCs, which it is required to collect. The type and number of PCs concerned and the amount of charges is still open. Provisions have been set aside on the balance sheet to cover this risk. MEDION will be affected by the EU regulation providing for vendors to take back old electronic goods. In this regard, we will closely coordinate any further steps we take with BITKOM, our industry association, which has already been very active in this regard.

the medion business model 39
our products _pc/multimedia

Market

According to market research institute IDC, global sales of desktop PCs came to 177.5 million units last year, spurred in particular by strong growth outside Europe. By contrast, just under 155 million units had been sold in the previous year, thus marking an increase of 14.7 percent. In Western Europe, sales of conventional desktop PCs rose by 9.9 percent from 23.2 million to 25.5 million units. In the German market, in which consumer confidence weakened substantially again over the previous year, PC sales climbed by 5.4 percent from just under 5 million to a good 5.2 million units. However, this growth was due wholly to corporate customers, while consumer demand remained flat at 2.4 million PCs. Mobile computers continued to gain importance last year, with sales surging by 31.3 percent from 11.6 million to just under 15.3 million units in Western Europe. As a result, their share in total European computer sales widened to 37.5 percent last year, up from 33.3 percent in 2003. In Germany, just under 3.3 million notebooks were sold in 2004, up from the year-ago figure of just under 2.6 million, equivalent to an increase of 27 percent. As a result, mobile computers accounted for 38.6 percent of total German computer sales in 2004, up from 33.8 percent in 2003. The trend in favour of mobile computers looks set to continue in 2005.
As in the year before, mobile applications as well as TFT monitors and innovative peripherals exhibited the greatest growth rates in 2004, with rising volumes accompanied by declining revenues in Europe in particular. Price pressure in the PC/multimedia segment continued to intensify last year, exacerbated by the weakness of the US dollar against the euro. This additionally fuelled average price erosion. Indeed, average retail prices in individual segments dropped by up to 25 percent within the space of a year.

sales mobile pcs in 2004

million units

increase in percent

Western Europe 15.3

+31.3 %

Germany 3.3

+27.0 %

Trends
Value for money continues to play a decisive role for German consumers seeking to buy a PC, while the brand name and manufacturer of the equipment is of lesser importance. In consumers eyes, what counts is the components used and, more particularly, the multimedia capabilities. MEDIONs commitment to offering innovative technology at an affordable price is the perfect answer to this trend. Today, consumers expect to be able to link their PCs with other applications such as DVD, music, photo and video as multimedia computers are increasingly becoming a central part of modern life. The growing convergence of the PC and consumer electronics will continue to spur this trend in the future. As this equipment will normally be placed in a prominent position in the living room, more and more importance is additionally being attached to design and low noise levels. This is also a trend to which MEDION has been devoting a high degree of attention for quite some time. In terms of their design, MEDION products compare favourably with more expensive brand-name products, a fact which is demonstrated by the receipt of numerous design awards such as the Red Dot Award. The gradual introduction of digital

many. Of these, 79 percent were replacement buys, 16 percent additions to existing TVs and only 5 percent first-time purchases. Flat screens accounted for 560,000 or just under 10 percent of total TV sales, an increase of 170 percent over the previous year, in which 211,000 flat screen TV sets had been sold. In revenue terms, flat screens already accounted for 30 percent of the entire TV market last year, resulting in an 11 percent decline in sales of conventional cathode ray tube TVs2. Prices of flat screen TVs have since reached a level making them affordable to the average consumer. As a result, mass distribution channels have now also started to market them successfully. This trend will continue, meaning that as has been the case with computer monitors conventional cathode ray equipment will be increasingly displaced by modern digital flat screen technology. Accordingly, the next few years will see above-average growth rates for LCD and plasma-based TV sets as well as projectors. According to industry estimates, the global market share of these modern TV sets will widen from 3 percent in 2003 to 23 percent or 35.6 million of total sales units by 2007. Sales of the audio products required for optimum home cinema entertainment are also continuing to grow at healthy rates. These modern multichannel systems ensure perfect reproduction of the surround sound track of DVDs and appropriately produced TV programmes. At the same time, these audio modules can be assumed to constitute the modern successors to the classic hi-fi system, which they are replacing piece by piece.

2) Source: gfu

the medion business model 45
Naturally enough, consumers owning a state-of-theart home-cinema system also want to be able to make digital recordings for conveniently watching TV programmes when and as they want. One solution is the hard-disk recorder, which records TV programmes in digital quality and, for example, also allows time-shifted playbacks. As in the previous year, DVD players and recorders as well as MP3 players and recorders provided a further source of growth in the audio segment, with prices in both product groups coming under sustained strong pressure. The boom in digital cameras also continued. Sales in Germany surged to around 7 million units in 2004, up from just under 5 million in 2003, accounting for a good 83 percent of total camera sales. With prices deteriorating, however, revenues grew far less quickly than volumes. This year, a further increase to around 8 million units is expected3.

our partners _our customers
The economic situation in Europe remained difficult last year, causing competition in the retail sector to intensify. In our home market of Germany in particular, high unemployment, uncertainty caused by political reforms and future incomes as well as greater health and pension-insurance levies placed a damper on consumer confidence, resulting in even greater buying restraint than in the already weak previous years. Consequently, German retail sales contracted again in 2004. Muted consumer spending additionally fuelled pricebased competition, which had already intensified dramatically in earlier years. We do not expect to see any sustained improvement in this situation in 2005, either. The consolidation of the retail sector, which has been gaining momentum for some time, has accelerated still further in the wake of difficult market conditions and now spreads to larger retailers after being essentially confined to mid-size companies until now. We assume that this shake-out in the retail sector will continue and in fact intensify. At the end of the day, a substantial part of the market will be in the hands of large retail groups with international operations. These groups are growing quickly, have excellent credit ratings, generate large sales and engage in extensive marketing activities. Generally speaking, they operate in numerous countries and, in some cases, across several continents. With a share of around 75 percent, specialist retailers have remained the dominant sales channel for consumer electronics in Germany. However, other retailers such as discounters, coffee retailers, cash & carry markets and petrol stations are making growing inroads into this market. The large grocery chains in particular have realized that non-food campaigns can boost store fre-
quency rates and deliver attractive additional margins. As a result, non-specialist retailers now account for around 25 percent of consumer electronics sales in Germany. In other European markets, specialist retailers play an even greater role. The same thing applies to direct marketers particularly also in North America.
Those benefiting from the current situation are the major retail chains and associations as well as highly specialized retailers, which mostly operate in several countries or on more than one continent. These companies are also spearheading efforts to unfold new markets in Eastern Europe and Asia. Discount-oriented retail methods are continuing to gain market share, while independent retailers as well as companies with no particular selling points or concepts and active only on a national level run the risk of losing further business. Consolidation in the retail segment is also driving up the demands being made of suppliers. Here as well, a shake-up is occurring and is leaving only those companies unscathed which are able to supply their products internationally in high volumes in ever shorter turnaround times without sacrificing quality. In addition, requirements with respect to innovativeness, design and functionality are rising. At the same time, expectations of a broad-based after-sales structure available around the clock have increased over the last few years to such an extent that fewer and fewer suppliers are in a position to provide the necessary scope and quality.

the stock 65

Annual general meeting 2004
At the annual general meeting held on May 18, 2004, the shareholders authorized the Management Board to buy back up to 10 percent of the Companys own share capital. No use was made of this authorization in the 2004 financial year. In addition to other items on the agenda, a resolution was passed approving the distribution of a dividend of 0.70 per share for the 2003 financial year.

the world in your pocket

A telephone book, a diary, a city map and a note pad once you needed a briefcase to carry all these things. Today, they all fit in the pocket of your jacket thanks to PDAs, personal digital assistants. Whether you are on holiday, shopping in town or away on business, you can achieve more than you ever thought possible just a few years ago. Thus, the dream of a personal assistant has become reality for many people not least of all because MEDION has made PDAs affordable without, of course, sacrificing quality.

orientation

pna 150

ppc 150

pna 100 red dot award 2004
helping you wherever you go: small, light and multifunctional, pdas have become an essential part of life for many people.
group annual financial statements 69
group annual financial statements

group balance sheet

Assets
Note no. in the explanatory notes

Dec. 31, 2004 thousand

Dec. 31, 2003 thousand
Current assets Cash and cash equivalents Trade receivables Inventories Deferred taxes Other current assets and prepaid expenses Total current assets (1) (1, 2) (3) (10) 87,398 411,316 277,81,257 548,657 278,634 0

(1, 4)

40,274 817,630

35,680 944,228

Non-current assets Property, plant and equipment Intangible assets Goodwill Financial assets Loans Deferred taxes Other non-current assets and prepaid expenses Total non-current assets (5) (6) (7) (8) (9) (10) 30,879 11,2,3,477 23,597 8,4,479

157 49,299

330 37,817

Total assets

866,929

982,045

group annual financial statements 71

medion ag, essen

Liabilities
Current liabilities Short-term debt and current portion of long-term debt Trade payables Tax provisions Other provisions Other current liabilities Total current liabilities
(12) (12) (10, 13) (14) (12)
721 276,818 7,029 108,019 15,085 407,672
1,187 351,320 20,394 124,806 41,947 539,654
Non-current liabilities Bonds Long-term debt Pension provisions Total non-current liabilities (15) (16) (17) 1,1,462 3,219 1,1,220 3,279
Shareholders equity Subscribed capital

(18) 48,418 48,418

- contingent capital: 21,982 thousand (previous year: 21,982 thousand)
- authorized capital: 10,000 thousand (previous year: 10,000 thousand)
Share premium Retained earnings Group distributable profit Differences arising from currency translation Total shareholders equity

notes 89

Dec. 31, 2003 thousand Guarantees Outstanding invoices Personnel Other provisions 59,193 60,765 3,617 1,231 124,806
Utilization thousand 53,410 42,698 3,347 1,240 100,695

Reversal thousand 921

Addition thousand 45,495 33,329 4,713 1,526 85,063
Exchange-rate differences thousand 234
Dec. 31, 2004 thousand 51,186 50,409 4,976 1,448 108,019
nection with ongoing business operations, the parts of the provisions related to periods greater than 12 months can also be classified as short term. The provisions for outstanding invoices include, among other things, future royalties. Allowance has also been made for the possibility of similar charges being levied on PCs and notebooks. Personnel provisions include outstanding expenses for vacation leave, management bonus, anniversaries, bonus and dues for the vocational insurance association. Other provisions primarily entail the cost of auditing the financial statements, legal costs and the compensation payable to the Supervisory Board.

Non-current liabilities

(15) Bonds include four convertible bonds with a total value of 1,171,350.00 issued to management and executive staff under a staff compensation scheme. The bond issued in April 2000 with a total nominal value of 240,150.00 was valued at 185,650.00 on December 31, 2004. It is divided into evenly valued bearer debentures of 1.00 each. The bond is subject to interest at a rate of 4 percent per annum and, in the event that the conversion right is not exercised, repayable at its nominal value on March 31, 2005 at the latest. The convertible bond was established prior to the issue of the bonus shares arising from the capital increase financed by the Companys own funds and vests in staff the fundamentally irrevocable right to have each debenture with a nominal value of 1.00 converted into two shares. The right of conversion was subject to exercise no earlier than on the second bank working day after the publication of the report for the second quarter of 2002. It expires upon termination or the lapse of the employment contract, in which case the bond must be repaid prematurely. The conversion
price payable upon exercise of the right of conversion by staff is based on the price of MEDION stock at the beginning of the exercise period and its performance relative to the MDAX. In July 2001, a convertible bond with a total nominal value of 221,600.00 was issued to management and executive staff. The right to convert the debenture with a nominal value of 1.00 each into two shares was subject to exercise no earlier than on the second bank working day after the publication of the report for the third quarter of 2003. Otherwise, the conditions were identical to those applicable to the first convertible bond. The bond was valued at 182,100.00 on the balance sheet date. A further convertible bond with a total nominal value of 482,000.00 was issued in August 2002, providing for the conversion of one debenture at a nominal value of 1.00 into one share. The right of conversion was subject to exercise no earlier than on the second bank working day after the publication of the report for the second quarter of 2004. Otherwise, the conditions were identical to the previous two bonds. The bond was valued at 431,000.00 on the balance sheet date. A further convertible bond with a total nominal value of 387,600.00 was issued in September 2003, providing for the conversion of one debenture at a nominal value of 1.00 into one share. The right of conversion is subject to exercise no earlier than on the second

60,948 1,609,629 55,074 60,399 532,772 262,745 15,506
48,870 1,965,215 120,643 124,884 641,885 380,734 13,215
21,275 999,512 39,733 41,135 317,500 146,632 4,381
12,764 934,447 60,248 61,169 308,744 155,019 3,645
702 47,132 1,994 1,827 15,669 6,280 433
5,912 62,514 1,510 1,340 26,089 12,674 630
82,925 32,165 2,723 2,4,766 88
67,546 38,1,068 5,327 5,494 18
2,624,108 2,924,071 90,090 97,373 866,929 410,891 20,408 179,885 185,781 982,045 542,933 17,508

2. Earnings per share

4. Management of currency risk
Earnings per share are calculated by dividing the consolidated profit available for distribution to the shareholders by a weighted number of issued shares. A dilution effect arose in the previous year following the conversion of 40,000 shares.
MEDION AG uses currency forwards to reduce its exposure to exchange-rate fluctuations in connection with its purchasing operations, which are primarily invoiced in US dollars and partially also in pound sterling. To this end, it engages in hedges in the form of foreign-currency forwards on the date on which the
2004 Weighted number of shares issued Consolidated earnings ( thousand) Earnings per share (, basic) Earnings per share (, diluted)
purchasing contract is entered into. These essentially match the underlying delivery transactions in terms of
duration and amount. The foreign-currency forwards used by MEDION comply with the effectiveness re-

50,722

103,116
quirements pursuant to IAS 39.142 for the application of hedge-accounting principles. Accordingly, they are
recognized at their fair value on the day on which they are entered into the balance sheet pursuant to IAS 39.
For this purpose, the fair values of the forward currencies which from the viewpoint of December 31, 2004 are used to hedge future cash flows (cash flow hedges)
3. Other financial obligations
are recognized directly in equity in the form of a separate reserve. Foreign-currency forwards used to hedge
Other financial obligations break down as follows:
the exchange-rate exposure of items carried on the balance sheet (fair-value hedges) and any changes in
Obligation thousand Business and storage premises Operating leases
Remaining obligation as of as of thousand
the value of the hedged item are recognized in the income statement. As the financial instruments are used solely to hedge the exposure to exchange-rate risks in connection with purchasing, the gains and losses arising from currency translation and hedging operations in the form of foreign-currency forwards are recognized

1,2,080

1,1,501

1,2,569

1,1,343
as cost of materials. The foreign-currency forwards that had been concluded by December 31, 2004 had a nominal value of around US$ 200.4 million. As a supplementary mea-

2004 Headcount by group Office Technical Call centre 625 1,1,092 2003
There were no notable events up until February 21, 2005 (the date on which these annual financial statements were authorized for issue).

7. Related parties

Business relations with related parties are governed by contractual agreements and involve transactions characterized by arms length prices.
Name and domicile 1. Allgemeine Multimedia Service GmbH, Essen, Germany 2. MEDION Service GmbH, Mlheim an der Ruhr, Germany 3. MEDION FRANCE S.A.R.L., Villaines sous Malicorne, France 4. MEDION ELECTRONICS LIMITED, Swindon, United Kingdom 5. MEDION NORDIC A/S, Skovlunde, Denmark 6. MEDION AUSTRIA GmbH, Wels, Austria 7. MEDION B.V., Panningen, Netherlands 8. MEDION ITALIA S.r.l., Milan, Italy 9. MEDION IBERIA, S.L., Madrid, Spain 10. MEDION SCHWEIZ ELECTRONICS AG, Schlieren, Switzerland 11. MEDION USA, Inc., Delaware, United States 12. MEDION AUSTRALIA PTY LTD., Sydney, Australia 13. MEDION KOREA ELECTRONICS Yuhan Hoesa, Seoul, Korea 14. MEDION International (Far East) Ltd., Hong Kong, China 15. LIFETEC International Ltd., Hong Kong, China
Share capital on Dec. 31, 2004 25,000.00 25,000.00 150,000.00 200,000.00 DKK 500,000.00 50,000.00 650,000.00 30,000.00 5,000.00 CHF 100,000.00 US$ 10,100,000.00 AU$ 10,000.00 KRW 120,000,000.00 HK$ 10,000.00 HK$ 10,000.00
Percentage share 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
Net profit/loss for the year in thousand 1,1,5 Non-operative Non-operative

notes 101

8. Management Board
Total compensation paid to the members of the Management Board came to 1,808 thousand (previous
During the period under review, the Management Board comprised:
year: 1,337 thousand) in the year under review. The variable compensation paid in 2004 for the previous year was valued at 828 thousand (previous year:
Gerd Brachmann, Essen (Chairman of the Management Board), Christian Eigen, Essen (Deputy chairman of the Management Board), Dr. Knut Wolf, Mlheim an der Ruhr (Member of the Management Board).
684 thousand). The Management Board held 26,574,018 of the Companys shares (Gerd Brachmann 26,565,018 shares, Christian Eigen 9,000 shares, Dr. Knut Wolf 0 shares) as at December 31, 2004. As at December 31, 2003, the members of the Management Board had held 27,174,018 of the Companys shares, of which 27,165,018 had been held by Gerd Brachmann, 9,000 by Christian Eigen and none by Dr. Knut Wolf. A summary of the possibilities available to members of the Management Board for acquiring shares via convertible bonds can be found in Section (15) on page 91. Mr. Gerd Brachmann, Essen, holds a majority stake in MEDION AG as defined in Section 16 of the German Stock Corporations Act.