Balance Sheet Disclosures

[ 21 ] EQUITY

The subscribed capital of Volkswagen AG is denominated in euros. The shares are no–par value bearer shares. Each share has a notional value of €2.56. As well as ordinary shares, there are preferred shares that entitle the bearer to a €0.06 higher dividend than ordinary shares, but do not carry voting rights.

The subscribed capital is composed of 286,980,067 no-par value ordinary shares and 105,238,280 preferred shares, and amounts to €1,004 million (previous year: €1,093 million). Volkswagen AG retired 41,719,353 treasury shares (€106,801,543.68) in fiscal year 2006. 6,769,620 (€17,330,227.20) new ordinary shares were issued from the exercise of convertible bonds under the stock option plan.

CHANGE IN ORDINARY SHARES AND SUBCRIBED CAPITAL

Based on the resolution by the Annual General Meeting on April 22, 2004, authorized capital of up to €400 million, expiring on April 21, 2009, was approved for the issue of new ordinary bearer shares. In addition, based on the resolution by the Annual General Meeting on May 3, 2006, authorized capital of up to €90 million, expiring on May 2, 2011, was approved for the issue of new ordinary bearer shares. There is also contingent capital of €100 million for the issue of up to 39,062,500 ordinary and/or preferred shares. This contingent capital increase will be implemented only to the extent that the holders of convertible bonds issued before June 1, 2004 exercise their conversion rights.

The capital reserves comprise the share premium of a total of €4,616 million from the capital increases, the share premium of €219 million from the issue of bonds with warrants and an amount of €107 million appropriated on the basis of the simplified capital reduction. The capital increases in fiscal year 2006 resulted from the premium from the capital increase due to the exercise of conversion rights under the stock option plan. No amounts were withdrawn from the capital reserves.

STOCK OPTION PLAN
The Board of Management, with the consent of the Supervisory Board, exercised the authorization by the Annual General Meeting on June 19, 1997 to implement a stock option plan. Contingent capital of €4.1 million is available for this purpose. Additional contingent capital of €24.5 million has been created for the issue of ordinary shares based on the authorization by the Annual General Meeting on April 16, 2002. The contingent capital increase will be implemented only to the extent that the holders of the convertible bonds issued on the basis of the authorization by the Annual General Meeting to implement a stock option plan exercise their conversion rights.

The stock option plan entitles the beneficiaries – the Board of Management, Group senior executives and management, as well as employees of Volkswagen AG for whom remuneration is collectively agreed – to purchase options on shares of Volkswagen AG by subscribing for convertible bonds at a price of €2.56 each. Each bond is convertible into ten ordinary shares.

The convertible bonds are measured at fair value at the date of grant to the employees. The convertible bonds measured at fair value are recognized in personnel expenses and in equity.

With the consent of the Supervisory Board, the Board of Management implemented the eighth tranche of the stock option plan in fiscal year 2006. The initial conversion price of the eighth tranche, reflecting the price of Volkswagen shares at the time the resolution was adopted in 2006, was set at €58.18 per Volkswagen ordinary share. It will increase in each of the following years by five percentage points. After a 24-month vesting period, the conversion rights can be exercised between July 8, 2008 and June 30, 2011. The conversion price will be €64.00 for the first conversion period starting on July 8, 2008.

The conversion prices and periods following the expiration of the first two tranches are shown in the following table: The information on the third tranche is presented as data for fiscal year 2006, although this tranche has now also expired.

CONVERSION PRICES AND PERIODS FOR EACH TRANCHES OF THE STOCK OPTION PLAN

The total value at December 31, 2006 of the convertible bonds issued at €2.56 per convertible bond was €2,109,539.84 (= 824,039 bonds), conveying the right to purchase 8,240,390 ordinary shares. The liabilities from convertible bonds are recognized under other liabilities. In fiscal year 2006, 667,085 convertible bonds with a value of €1,707,737.60 were returned after expiration of the third tranche and by employees who have since left the Company.

676,962 conversion rights from the fourth, fifth and sixth tranches with a nominal value of €1,733,022.72 have been exercised. 6,769,620 shares with a notional value of €17,330,227.20 were thus issued.

Changes in the rights to stock options granted (third to eighth tranches) are shown in the following table:

MEASUREMENT OF CONVERTIBLE BONDS IN THE FIFTH TO EIGHT TRANCHES
Those convertible bonds granted after publication of the draft IFRS 2 on November 7, 2002 were measured in accordance with the transitional provisions of IFRS 2.

The fair value of the convertible bonds is estimated using a binomial option pricing model based on the issuance and conversion conditions described above. In terms of the optionees' conversion behavior, it was assumed that they will convert when the share price is 50% higher than the conversion price. Historical and implied volatilities based on the expected remaining term of the conversion rights were used to estimate the fair value of the convertible bonds. The assumptions used and the fair value estimated are presented in the following table:

The fair value of the convertible bonds is recognized ratably as a personnel expense over the two-year vesting period. This produced expenses of €15 million in 2006.

Changes in the number of convertible bonds in issue and their exercise prices are shown in the following table:

For 775,072 convertible bonds, the average conversion price increased by €40.60 in 2006.

428,524 convertible bonds were converted in fiscal year 2006 at a weighted average share price on exercise of €664.21.

DIVIDEND PROPOSAL
In accordance with section 58(2) of the German Stock Corporation Act (AktG), the dividend payment by Volkswagen AG is based on the net retained profits reported in the annual financial statements of Volkswagen AG. Based on the annual financial statements of Volkswagen AG, net retained profits of €506 million are eligible for distribution. The Board of Management and Supervisory Board of Volkswagen AG will propose to the Annual General Meeting that a dividend of €1.25 per ordinary share and €1.31 per preferred share be paid, for a total of €497 million, and that the remaining amount of €9 million be carried forward to new account.

MINORITY INTERESTS
The minority interests in equity are attributable primarily to shareholders of AUDI AG.

[ 22 ] NONCURRENT AND CURRENT FINANCIAL LIABILITIES

The details of noncurrent and current financial liabilities are presented in the following table:

Of the liabilities reported in the consolidated balance sheet, a total of €389 million is secured, for the most part by real estate liens.

The amounts payable to affiliated companies, joint ventures and associates are subject to market interest rates of up to 7.4%.

Asset-backed securities transactions amounting to €12,216 million (previous year: €12.782 million) entered into to refinance the financial services business are included in bonds, commercial paper and notes, and liabilities from loans. Receivables of €13,867 million (previous year: €14,731 million) from the customer financing and leasing businesses are pledged as collateral.

The terms of the bonds, commercial paper and notes, liabilities to banks and loans, together with their carrying amounts and fair values, are shown in the following table: