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Purchased intangible assets such as patents, trademarks, and software are measured at cost and amortized on a straight-line basis over their useful lives. Intangible assets are generally amortized over a period of five years. Additional write-downs are made for permanent impairment. If the reasons for impairment no longer apply, write-downs are reversed accordingly.

Goodwill arising upon consolidation and acquired goodwill reported in the single-entity financial statements of Group companies are capitalized and amortized on a straight-line basis over a useful life of five to a maximum of 20 years. Goodwill is regularly tested for impairment and is written down as required.

Goodwill from capital consolidation arising prior to January 1, 1995, is not capitalized, but instead is charged directly to equity.

15 | Property, Plant, and Equipment

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Property, plant, and equipment is carried at cost and reduced by straight-line depreciation over the assets’ expected useful lives. Production costs of internally manufactured items of property, plant, and equipment are calculated as the direct costs plus an appropriate share of attributable overheads. Interest on borrowings is recognized as current expense in accordance with IAS 23 (Borrowing Costs). Repair and maintenance costs for property, plant, and equipment are expensed as incurred. They are capitalized in exceptional cases where the measures result in the extension of, or a significant improvement to, the asset concerned. Thirdparty grants and subsidies reduce the historical cost. Property, plant, and equipment is depreciated on a straightline basis. The following useful lives are generally applied:

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Investments in unconsolidated affiliated companies and other investments are carried at cost in line with the principle of individual valuation. Write-downs are charged where there is evidence of permanent impairment. If the reasons for impairment no longer apply, write-downs are reversed accordingly. Interest-free or low-interest loans are carried at their present value; other securities and loans are carried at their fair value. Changes in fair value are recognized directly in a separate component of equity after deduction of deferred taxes. As a company valued at equity, our interest in BSN medical GmbH & Co. KG has been carried at our proportionate interest in its equity since the beginning of 2004.

17 | Inventories

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Inventories are carried at the lower of cost or net realizable value in accordance with IAS 2 (Inventories). They are measured using the first-in, first-out (FIFO) or weighted average cost methods. The cost of inventories is calculated as the direct costs plus an appropriate allocation of materials and production overheads, including production-related depreciation of assets. They also include the proportionate costs of company pension arrangements and voluntary social benefits, as well as production-related administrative expenses.

18 | Receivables and Other Assets

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Receivables and other assets are carried at their nominal value. Bills receivable and interest-free or low-interest loans are carried at their present value. Appropriate allowances have been made for identifiable individual risks, and the overall risk is provided for by an allowance for doubtful accounts.

19 | Cash and Cash Equivalents

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Marketable securities largely comprise short-term investments. Cash balances comprise bank balances, cash-on-hand and checks.

20 | Deferred Taxes

Deferred taxes result primarily from temporary differences between the carrying amounts in the IFRS financial accounts and in the tax accounts of the individual Group companies, and from consolidation adjustments. Further information can be found under note 10, Taxes on income.

21 | Prepaid Expenses

A large portion of the prepaid expenses is expected to be utilized in 2005.

22 | Share Capital

The share capital amounts to €215,040,000 and is composed of 84,000,000 no-par value bearer shares.

Since the settlement of the share buyback program on February 3, 2004, the Company has held 8,393,672 no-par value bearer shares (totaling 9.99 % of the Company’s share capital).

23 | Authorized Capital

The Annual General Meeting on June 20, 2000, authorized the Executive Board, with the approval of the Supervisory Board, to increase the share capital in the period until June 19, 2005 by up to a total of €87 million (Authorized Capital I: €45 million; Authorized Capital II: €21 million; Authorized Capital III: €21 million) by issuing new bearer shares on one or several occasions. For this purpose, the dividend rights for new shares may be determined differently to the provisions of § 60 (2) Aktiengesetz (German Stock Corporation Act).

Shareholders shall be granted pre-emptive rights. However, the Executive Board is authorized, with the approval of the Supervisory Board, to disapply shareholders’ pre-emptive rights in the following cases:

1.		to eliminate fractions created as a result of capital increases against cash contributions (Authorized Capital I, II, III);
2.		to the extent necessary to grant the holders/creditors of convertible bonds or bonds with warrants issued by Beiersdorf AG, or companies in which it holds a direct or indirect majority interest, pre-emptive rights to new shares in the amount to which they would be entitled after exercising their conversion or option rights, or after fulfilling their conversion obligation (Authorized Capital I, II, III);
3.		to issue new shares at an issue price that is not materially lower than the quoted market price of existing listed shares at the time when the issue price is finalized, which should be as near as possible to the time the shares are placed (Authorized Capital II);
4.		in the case of capital increases against non-cash contributions, for the purpose of acquiring enterprises or equity interests in enterprises (Authorized Capital III).

The Executive Board was also authorized, with the approval of the Supervisory Board, to determine the further details of the capital increase and its implementation.

24 | Contingent Capital

The Annual General Meeting on June 20, 2000, also resolved to contingently increase the share capital by up to a total of €40 million. In accordance with the resolution by the Annual General Meeting, the contingent capital increase will be implemented only if:

1.		the holders or creditors of conversion rights and/or options attached to convertible bonds and/or bonds with warrants issued in the period until June 19, 2005, by Beiersdorf AG, or companies in which it holds a direct or indirect majority interest, choose to exercise their conversion or option rights, or
2.		the holders or creditors of convertible bonds giving rise to a conversion obligation issued in the period until June 19, 2005, by Beiersdorf AG, or companies in which it holds a direct or indirect majority interest, comply with such obligation.

The new shares carry dividend rights from the beginning of the fiscal year in which they are created via the exercise of conversion or option rights, or as a result of compliance with conversion obligations.

	Our supply chain management features optimally coordinated workflows.

Additional paid-in capital comprises the premium arising from the issue of shares by
Beiersdorf AG.

26 | Retained Earnings

Retained earnings contain the undistributed profits generated in prior periods by companies included in the consolidated financial statements.

The amount for the share buyback of €955 million has been deducted from retained earnings on the face of the balance sheet.

27 | Changes Recognized Directly in Equity

This position comprises the exchange differences arising from the translation of the annual financial statements of Group companies into euros, as well as changes in the valuation of financial derivatives and other changes in derivatives recorded directly in equity. Changes in the value of financial derivatives amounted to -€2 million (previous year: -€4 million).

28 | Minority Interests

Minority interests include adjustments for the interests of non-Group shareholders in the equity of fully-consolidated affiliates. This primarily relates to Nivea-Kao Co., Ltd., Japan, PT. Beiersdorf Indonesia, Beiersdorf India Limited, and Bode Chemie GmbH & Co., Hamburg.

29 | Provisions for Pensions and Other Employee Benefits

The Group provides for post-employment benefits for entitled employees either directly or through payments to legally independent pension and welfare funds (at Beiersdorf AG, this refers to TROMA Alters- und Hinterbliebenenstiftung, Hamburg). The benefits vary depending on the legal, economic, and tax situation in the country in question, and are generally based on length of service, salary, and the position held within the Company. The direct and indirect obligations comprise obligations arising from existing pensions, as well as future pension and retirement obligations.

The pension obligations covered by the legally independent foundation TROMA Alters- und Hinterbliebenenstiftung, Hamburg, include the assets of this foundation. These assets include
3 % of the shares of Beiersdorf AG. Group companies provide retirement benefits under defined contribution and defined benefit plans. The related expenses are included in the costs of the respective functions. Interest expense on obligations acquired in previous years, the return on plan assets, and the amortization of unrealized actuarial gains and losses are reported in the income statement under interest income/expense.

In accordance with IAS 19 (Employee Benefits), pension obligations under defined benefit plans are calculated using the projected unit credit method. The expected benefits are spread over the entire length of service of the employees. There was no extraordinary income or expense from the termination of pension plans or the curtailment and transfer of pension benefits in the year under review.

Pension obligations are calculated on the basis of market rates of interest and projected wage/salary and pension growth, and fluctuations. The following assumptions were applied in measuring pension obligations for the German Group companies:

Actuarial assumptions

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These parameters also apply to each following year when calculating the costs of the obligations acquired and the expected return on plan assets.

For non-German Group companies, these rates vary depending on specific local conditions.

	The new NIVEA shops present the brand’s entire range of products.

The total expense for commitments under defined benefit plans can be broken down as follows:

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According to the corridor method actuarial gains and losses are recognized only to the extent that they exceed the greater of 10 % of the present value of the obligations or of the fair value of plan assets. Gains and losses beyond this corridor are amortized over the average remaining working lives of the employees, beginning the following year.

Pension plan assets and obligations are measured at regular intervals, and at least every three years. Actuarial valuations are performed annually for all major pension plans.

The provision for pensions is calculated as follows:

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Obligations of individual Group companies, particularly in the USA, to provide post-employment medical benefits for employees are also disclosed in provisions for pensions, as they are similar in character to pension obligations.

Similar obligations also include obligations for severance pay and early retirement benefits. These are calculated in accordance with actuarial principles on the basis of the standard local rates of interest.

30 | Other Provisions

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Other provisions include all identifiable future payment obligations, risks, and uncertain obligations of the Group. They are carried at the likely amount of the liability incurred, and mostly have a residual maturity of less than one year.

Provisions for personnel expenses relate primarily to expenses for part-time schemes for employees approaching retirement, annual bonuses, vacation pay, severance agreements, and anniversary payments.

Miscellaneous provisions relate to litigation risks and other risks.

31 | Liabilities

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Liabilities are carried at the higher of their nominal value or redemption amount. Financial liabilities in the amount of €10 million (previous year: €7 million) are due after more than five years.

Financial liabilities include all of the Beiersdorf Group’s interest-bearing liabilities. These relate primarily to liabilities to banks. A credit line from a syndicated loan amounts to more than €500 million and has a term of five years. €110 million of this was utilized as of the balance sheet date. No bonds were issued.

Trade payables include liabilities on bills accepted and drawn in the amount of €1 million (previous year: €1 million).

32 | Contingent Liabilities and Other Financial Obligations

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Beiersdorf has potential obligations arising from legal actions and from claims brought against the Company in the course of its normal business activities. Estimates of possible future expenses are subject to a large number of uncertainties. Beiersdorf does not expect any such expenses to have a material adverse effect on the Beiersdorf Group’s economic and financial situation.

	A classic: the blue NIVEA tin.

Derivative financial instruments are employed in the Beiersdorf Group to help manage current and future currency and interest rate risks. The instruments are used to hedge the Group’s underlying operating business and essential financial transactions. The Group is not exposed to any additional risks as a result. The transactions are performed exclusively using standard market instruments (e.g. forward transactions, swaps, options).

Currency hedges relate primarily to intragroup deliveries and services. In general, 75 % of the planned net cash flows are hedged using currency forwards around two to four months before the start of the year; deviations from forecasts in the course of the year lead to hedging adjustments at regular intervals in the form of additional forward contracts. As a matter of principle, cross-border intragroup financing does not entail any currency risk for affiliates. Here, too, currency forwards are concluded on a regular basis. All these transactions are centrally recorded, measured and managed in the treasury management system. The use of interest rate derivatives is limited to interest rate hedges relating to long-term financing and short-term interest rate optimization through options on a case-by-case basis.

The nominal values represent the total of all purchase and selling amounts for derivatives. The nominal values shown are not offset.

The fair values shown are calculated by valuing the outstanding items at market rates at the balance sheet date, ignoring any offsetting change in the fair value of the hedged items. Changes in fair value are recognized in the balance sheet under other receivables and other assets, or in other provisions. In the case of cash flow hedges, any gains and losses are accrued directly in equity after deduction of deferred taxes.

The positive fair values of derivatives include the default risk relating to the nonfulfillment of contractual obligations by counterparties. Beiersdorf’s counterparties are prime-rated banks; the default risk is therefore considered to be extremely low.

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Segment reporting in the Beiersdorf Group is based primarily on the products manufactured and sold by the business segments. The breakdown of the Group into the Consumer and tesa business segments also reflects the internal organizational structure. The classification by region shows the global breakdown of business activities in the Beiersdorf Group.

The business segments, as well as business developments in the business segments and the regions, are presented in the management report.

The net sales shown for the regions are based on the domiciles of the respective companies.

EBITDA represents the operating result (EBIT) before depreciation and amortization.

The EBIT return on capital employed is the ratio of the operating result (EBIT) to capital employed.

Gross cash flow is the excess of operating income over operating expenses before any further appropriation of funds.

Capital employed consists of gross operating capital less operating liabilities. The following tables show the reconciliation of capital employed to the balance sheet items:

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