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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of May, 2006
E.ON AG
(Translation of Registrants Name Into English)
E.ON AG
E.ON-Platz 1
D-40479 Düsseldorf
Germany
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F
þ Form 40-F o
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
o No þ
If Yes is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
January 1 March 31, 2006
Interim Report I/2006
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Adjusted EBIT up 6 percent |
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EU approval for acquisition of Spains Endesa |
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Continue to expect slight increase in adjusted EBIT for full year 2006 |
Interim Report I/2006
E.ON Group Financial Highlights
Non-GAAP financial measures: This report contains certain non-GAAP financial measures. Management
believes that the non-GAAP financial measures used by E.ON, when considered in conjunction with
(but not in lieu of) other measures that are computed in U.S. GAAP, enhance an understanding of
E.ONs results of operations. A number of these non-GAAP financial measures are also commonly used
by securities analysts, credit rating agencies, and investors to evaluate and compare the periodic
and future operating performance and value of E.ON and other companies with which E.ON competes.
Additional information with respect to each of the non-GAAP financial measures used in this report
is included together with the reconciliations described below.
E.ON prepares its financial statements in accordance with generally accepted accounting principles
in the United States (U.S. GAAP). As noted above, this report contains certain consolidated
financial measures (adjusted EBIT, adjusted EBITDA, net financial position, net interest expense,
and free cash flow) that are not calculated in accordance with U.S. GAAP and are therefore
considered non-GAAP financial measures within the meaning of the U.S. federal securities laws. In
accordance with applicable rules and regulations, E.ON has presented in this report a
reconciliation of each non-GAAP financial measure to the most directly comparable U.S. GAAP measure
for historical measures and an equivalent U.S. GAAP target for forward-looking measures. The
footnotes presented with the relevant historical non-GAAP financial measures indicate the page of
this report on which the relevant reconciliation appears. The non-GAAP financial measures used in
this report should not be considered in isolation as a measure of E.ONs profitability or liquidity
and should be considered in addition to, rather than as a substitute for, net income, cash provided
by operating activities, and the other income or cash flow data prepared in accordance with U.S.
GAAP presented in this report and the relevant reconciliations. The non-GAAP financial measures
used by E.ON may differ from, and not be comparable to, similarly titled measures used by other
companies.
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Interim Report I/2006
Contents
3
Interim Report I/2006
Dear Shareholders,
In the first quarter of 2006, E.ON again performed solidly. We grew sales by 37 percent,
from 15.8 billion in the first quarter of 2005 to 21.5 billion this year. Our adjusted
EBIT was up 6 percent, from 2.4 billion to 2.5 billion. Our Central Europe and
Pan-European Gas market units were the main contributors to the increase, whereas U.K.
posted a significant decline in adjusted EBIT due to sharply higher natural gas procurement costs. We continue to expect our adjusted EBIT for 2006 to
slightly surpass the high prior-year level.
Net income (after income taxes and minority interests) exceeded the high prior-year figure,
advancing by 18 percent, from 1.5 billion to 1.7 billion. For the year as a whole,
however, we do not expect to repeat the extraordinarily high net income figure posted in
2005, which included the substantial book gains on our successful Viterra and Ruhrgas
Industries disposals. In the current year, we will record book gains primarily on the sale
of Degussa stock to RAG. We expect this transaction to close on schedule by the middle of
the year. It will mark the completion of the process of focusing on our core power and gas
business.
Were committed to achieving value-enhancing growth in our core business. We further
strengthened our position in the dynamic energy markets of Central and Eastern Europe by
completing, in late March 2006, the acquisition of the natural gas trading and storage
business of Hungarys MOL. The transaction had a total value of 1 billion. In line with our
intention to tap new markets in Southern Europe and South America, in February 2006 we made
an all-cash offer of 29.1 billion for 100 percent of the stock of Endesa, a Spanish energy
utility. Since then, weve been working diligently to bring this transaction to a successful
conclusion. The Spanish government favors a competing offer made by Gas Natural, a Spanish
utility. A few days after the announcement of our offer, the Spanish government issued an
emergency order requiring an additional approval process conducted by the CNE, Spains
energy regulatory agency. There is ample reason to believe that this order violates EU law.
Consequently, the European Commission initiated an infringement proceeding against Spain.
Because the proceeding would have no direct legal consequences for us, we continue to pursue
the filing we made to the CNE, which includes comprehensive documentation in support of our
offer. Were firmly convinced that we meet all reasonable requirements the CNE could have
for our acquisition of Endesa. On April 25, the EU Commission issued an unconditional
antitrust approval for the transaction. This is one of the reasons we expect that the CNE
will also approve our offer. We believe that E.ON and Endesa, their employees, and their
power and gas customers will all benefit from the transaction, which would create a company
with a strong presence in all key European countries.
Despite the considerable exertions this transaction requires, were not losing sight of our
other strategic objectives. We continue to negotiate with Gazprom about acquiring a stake
in Yushno Russkoye, a natural gas field in western Siberia, in order to enlarge our
position in natural gas production for the long term. We continue to move forward
systematically with our investments in power generation and power and gas network
infrastructure. In sum, were working hard to achieve our growth objectives and further
enhance the value of your company.
Sincerely yours,
Dr. Wulf H. Bernotat
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Interim Report I/2006
E.ON Stock
E.ON stock continued to move higher in the first
three months of 2006, finishing the quarter up 4
percent. E.ON underperformed other European blue
chips as measured by the EURO STOXX 50, which advanced
by 8 percent over the same period, and its peer index,
the STOXX Utilities, which rose by 12 percent.
The trading volume of E.ON stock climbed by nearly 65
percent year-on-year to 21.2 billion, making E.ON the
sixth most-traded stock in the DAX index of Germanys
top 30 blue chips. As of March 31, 2006, E.ON was the
second-largest DAX issue in terms of market
capitalization.
E.ON stock is listed on the New York Stock Exchange
as American Depositary Receipts (ADRs). Effective
March 29, 2005, the conversion ratio between E.ON
ADRs and E.ON stock is three to one. The value of
three E.ON ADRs is effectively that of one share of
E.ON stock.
For the latest information about E.ON
stock, visit www.eon.com.
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Interim Report I/2006
Results of Operations
Energy Price Developments
In the first three months of 2006, power and
natural gas markets in Europe were influenced by
high and volatile international oil, coal, and CO2 prices together with security of supply concerns in the U.K. and U.S. natural gas markets.
Tight supply fundamentals and political risks in major
oil producing countries like Nigeria, Iran, and Iraq
led to volatile crude oil prices with high risk
premiums. High U.S. stockpiles early in the year
provided only temporary relief. The price of Brent
crude oil, which rose above $66 per barrel during
March, returned to the high levels of last autumn.
Coal prices rose again following an increase in
November 2005. The latest upward movement was due to
limited South African exports, higher demand in
Europe, and greater buying interest in coal
derivatives.
Germanys natural gas import prices are contractually
indexed to oil prices, which they track with a time
lag. The average price of Germanys natural gas
imports in February 2006 was about 40 percent higher
than the average price of the prior-year period. Due
to a tight supply and demand situation, U.K. gas
prices remained high and volatile. In mid-March 2006,
colder-than-normal weather coupled with supply
problems led National Grid Transco, the U.K. gas
transport system operator, to issue its first-ever gas
balancing alert, indicating that there was a high risk
of supply interruptions. U.K. gas prices rose sharply
in response. In the United States, high storage levels
led to a slight decrease in natural gas prices.
However, high oil prices along with supply
uncertainties regarding the upcoming hurricane season
moderated this effect, with natural gas prices
stabilizing at high levels.
CO2 prices increased during January 2006 to more than 28 per metric ton. The economics of coal-fired
versus gas-fired power generation in the United
Kingdom along with cold and dry winter weather in
Europe caused the market to expect increased demand
for emission allowances, resulting in higher CO2 prices. In late April, however, CO2 prices fell by more than half. The publication of the first
emission data for 2005 by some EU member states caused the market to expect some companies to sell unneeded CO2 certificates,
thereby increasing supply.
Wholesale power prices in Germany rose during the first
quarter of 2006 due to higher fuel and CO2 prices and lower
hydroelectric production across Central Europe.
U.K. power prices remained volatile and were mainly
driven by U.K. natural gas prices. Reduced hydropower
availability and high CO2 prices pushed up power prices in Northern Europe. In late April, European wholesale power prices
fell by as much as 12 per MWh within just a few days
due to the sharp decline in CO2 prices. U.S. power prices declined in the first quarter of 2006, but remained higher than a
year ago in response to higher natural gas
prices.
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Interim Report I/2006
Power and Gas Sales Higher
We sold 1 percent more electricity in the first
quarter of 2006 than in the prior-year quarter due to
the inclusion of newly consolidated regional
electricity distributors in Bulgaria, Romania, and the
Netherlands. We sold 18 percent more natural gas
thanks primarily to colder winter weather,
Pan-European Gass continuing volume growth outside
Germany, and the inclusion of newly consolidated
subsidiaries in Hungary, the Netherlands, and Germany.
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Interim Report I/2006
Results of Operations
Sales up Substantially
All market units contributed to the substantial
37 percent increase in sales, which was mainly due to
the following factors: the global increase in raw
materials and energy prices which led to higher
average power and gas prices, the inclusion of newly
consolidated regional utilities particularly in
Bulgaria, Hungary, and Romania, and weather-driven
volume increases, particularly in the natural gas
business.
Adjusted EBIT up 6 Percent
The
improvement in adjusted EBIT at our Central
Europe, Pan-European Gas, and Nordic market units is
also attributable to power and gas price movements,
the inclusion of newly consolidated companies in
Central Europe East and the United Kingdom, and
higher power and gas sales volumes. Natural gas
supply issues in the United Kingdom led to
substantially higher procurement prices, which
adversely affected the U.K. market units adjusted
EBIT performance. The costs associated with
participation in the new MISO market, introduced on
April 1, 2005, constituted the main factor in the
decline in U.S. Midwests adjusted EBIT.
Net Income Significantly above High Prior-Year Level
Net income (after income taxes and minority
interests) exceeded the high prior-year level.
Earnings per share of 2.61 were up 18 percent
year-on-year.
Adjusted interest income (net) was 328 million
(prior year: 297 million). The higher interest
expense results from provisions for waste management
at the Central Europe market unit.
Net book gains in the first quarter of 2006 were
significantly above the prior-year figure and resulted
from the sale of securities (143 million) and of
Degussa stock to RAG (376 million; see commentary on
page 27). In the prior-year period net book gains
resulted from the sale of securities.
We did not record restructuring expenses in the first
quarter of 2006.
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Interim Report I/2006
Other nonoperating earnings primarily reflect
effects from the marking to market of derivatives
(186 million). In addition, Pan-European Gas and
U.K. took impairment charges totaling 70 million on
intangible assets and property, plant, and equipment.
The prior-year figure mainly includes positive effects
from the marking to market of derivatives. These
effects were partially counteracted by the costs
relating to the severe storm in Sweden in early 2005.
Our continuing operations recorded a tax expense of
527 million in the first quarter of 2006. The decline
in our tax expense primarily reflects a higher share
of tax-free income.
Minority interests share of net income increased due
to higher earnings contributions at the companies in
question and consolidation effects.
Income/Loss () from discontinued operations, net,
includes the results of Western Kentucky Energy and
E.ON Finland which are held for sale in 2006.
Pursuant to U.S. GAAP, their results are reported
separately in the Consolidated Statements of Income
(see commentary on pages 2627). In the prior-year
period, this item contained the results of Viterra
and Ruhrgas Industries, which were sold in 2005.
Investments Significantly Higher
In the period under review, the E.ON Group
invested 1.3 billion, a 125 percent increase
year-on-year. We invested 622 million (prior year:
410 million) in intangible assets and property,
plant, and equipment. Investments in financial assets
totaled 676 million versus 168 million in the prior
year.
Central Europe invested 425 million, 44 percent more
than in the prior-year period. Investments in
intangible assets and property, plant, and equipment
totaled 283 million (prior year: 211 million) and
were aimed predominantly at electric generation and
distribution assets. Investments in financial assets
increased significantly to 142 million (prior year:
84 million), primarily due to capital increases at
subsidiaries and the acquisition of an interest in a
small regional distribution company in eastern
Germany.
Pan-European Gas invested 511 million, of which 57
million (prior year: 25 million) went towards
intangible assets and property, plant, and equipment.
Investments in financial assets of 454 million (prior
year: 32 million) mainly reflect
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Interim Report I/2006
Results of Operations
the acquisition of certain natural gas
businesses of Hungarys MOL. This transaction closed
in late March 2005. The purchase price was
approximately 450 million.
U.K. invested 130 million, primarily on capital
expenditure for additions to property, plant, and
equipment. The increase results from additional
capital expenditure allowances within the regulated
sector due to the five-year regulation review and from
higher expenditure on the generation portfolio.
Nordic invested 93 million (prior year: 63 million)
in intangible assets and property, plant, and
equipment in order to maintain existing production
plants and to upgrade and extend its distribution
network. As a consequence of the severe storm in
January 2005, investments in Nordics electric
distribution network have increased significantly.
Investments in financial assets totaled 65 million
compared with 49 million in the year-earlier period.
U.S. Midwests investments of 66 million were 128
percent above the prior-year figure, primarily due to
increased spending for SO2 emissions equipment, higher spending in generation and distribution, and currency translation effects.
Financial Condition
Managements analysis of E.ONs financial
condition uses, among other financial measures, cash
provided by operating activities, free cash flow, and
net financial position. Free cash flow is defined as
cash provided by operating activities less investments
in intangible assets and property, plant, and
equipment. We use free cash flow primarily to make
growth-creating investments, pay out cash dividends,
repay debts, and make short-term financial
investments. Net financial position equals the
difference between our total financial assets and
total financial liabilities. Management believes that
these financial measures enhance the understanding of
the E.ON Groups financial condition and, in
particular, its liquidity.
The E.ON Groups cash provided by operating activities
in the first quarter of 2006 was significantly above
the prior-year level.
The slight decline in Central Europes cash provided
by operating activities is mainly attributable to an
increase in working capital and in contributions to
VKE, a German energy industry pension fund. The main
positive factors were the significant increase in
gross profit on sales, the inclusion of newly
consolidated subsidiaries, and lower payments for
nuclear fuel reprocessing compared with the prior-year
period.
Pan-European Gass cash provided by operating
activities improved significantly, chiefly due to
the positive development of the upstream and
midstream business.
Cash provided by operating activities at U.K. declined
significantly year-on-year. This was mainly due to an
increase in gas input costs which was only partly
offset by higher retail prices.
Nordics cash provided by operating activities
increased significantly because the prior-year figure
was negatively affected by a number of nonrecurring
items including high cash outflows relating to the
severe storm in January 2005 and higher tax payments
compared with the current year. Improved electricity
margins in the first quarter of 2006 constituted
another positive factor.
Cash provided by operating activities at U.S. Midwest
was higher year-on-year due to a decrease in gas
purchases compared with the prior year, increased
collections of accounts receivable which resulted from
higher natural gas prices in the fourth quarter of
2005, and a favorable dollar-euro exchange rate. Cash
increases were partly offset by pension contributions.
The main factor in the decline in the Corporate
Centers cash provided by operating activities was the
absence of income recorded in the prior year on the
unwinding of currency swaps. This was partially
counteracted by positive tax effects.
In general, surplus cash provided by operating
activities at Central Europe, U.K., and U.S. Midwest
is lower in the first quarter of the year (despite
the high sales volume typical of this season) due to
the nature of their billing cycles, which in the
first quarter are characterized by an increase in
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Interim Report I/2006
receivables combined with cash outflows for goods and
services. During the remainder of the year,
particularly in the second and third quarters, there
is typically a corresponding reduction in working
capital, resulting in significant surplus cash
provided by operating activities, although sales
volumes in these quarters (with the exception of U.S.
Midwest) are actually lower. The fourth quarter is
characterized by an increase in working capital. At
Pan-European Gas, by contrast, cash provided by
operating activities is recorded principally in the
first quarter, whereas there are cash outflows for
intake at gas storage facilities in the second and
third quarters and for gas tax prepayments in the
fourth quarter. A major portion of the market units
capital expenditures for intangible assets and
property, plant, and equipment is paid in the fourth
quarter.
Despite the increase in investments in intangible
assets and property, plant, and equipment, free cash
flow was 6 percent above the prior-year number.
Net financial position, a non-GAAP financial
measure, is derived from a number of figures which
are reconciled to the most directly comparable U.S.
GAAP measure in the table below.
Our net financial position of 1,707 million was
2,156 million below the figure reported as of
December 31, 2005 (3,863 million). This is mainly
attributable to the 2.6 billion payment under our
contractual trust arrangement, the acquisition of
natural gas businesses from Hungarys MOL, and
financial outlays for investments in property, plant,
and equipment. Our net financial position was
positively affected by strong cash provided by
operating activities.
Net interest expense mainly results from the
interest income of those items that are also part of
the net financial position. Net interest expense was
nearly unchanged from the figure recorded at year end
2005. The positive development of net interest expense
was counteracted primarily by a higher interest
expense on financial liabilities with a variable
interest rate and a higher tax-related interest
expense.
On February 21, 2006, Standard & Poors put its
AA- long-term rating for E.ON bonds and its A-1+
short-term on a credit watch with negative
implications following the announcement of our offer
for 100 percent of the stock of Endesa. On February
22, 2006, Moodys announced that it was reviewing its
Aa3 long-term rating for E.ON bonds for a possible
downgrade. Following the closing of the Endesa
transaction, E.ON aims to have a single-A flat
long-term rating (A/A2). Commercial paper issued by
E.ON has a short-term rating of A-1+ and P-1 by
Standard & Poors and Moodys, respectively.
On February 21, 2006, E.ON made a 29.1 billion
offer to acquire 100 percent of the stock of
Endesa. In connection with this offer E.ON obtained
a 32 billion credit line.
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Interim Report I/2006
Results of Operations
Employees
On March 31, 2006, the E.ON Group had 79,783
employees worldwide, as well as 2,039 apprentices and
229 board members and managing directors. The size of
our workforce was thus essentially unchanged from year
end 2005.
At the end of the current period, 45,268 employees,
or 56.7 percent of all staff, were working outside
Germany, also essentially unchanged from year end
2005.
The number of employees at Pan European Gas
declined by about 3 percent to 12,975 relative to
year end 2005, mainly due to efficiency enhancement
measures at E.ON Gaz Romania.
At the end of the first quarter of 2006, U.K. had
13,381 employees, roughly 4 percent more than at
year end 2005. The increase is chiefly attributable
to the further additions in customer service staff
and increased hiring of technical personnel at the
electric distribution and metering businesses.
During the reporting period, wages and salaries
including social security contributions totaled 1.2
billion, compared with 1.1 billion a year ago.
Risk Situation
In the normal course of business, we are
subject to a number of risks that are inseparably
linked to the operation of our businesses.
Technologically complex facilities are involved in the
production and distribution of energy. Operational
failures or extended production stoppages of
facilities or components of facilities could adversely
impact our earnings situation. We seek to minimize
these risks through ongoing employee training and
qualification programs and regular maintenance and
enhancement of our facilities.
During the normal course of business, E.ON is
exposed to interest rate, currency, commodity
price, and counterparty risks which we address
through the use of instruments suited to this
purpose.
Our market units operate in an international market
environment characterized by general risks related to
the business cycle and by increasingly intense
competition. We use a comprehensive sales management
system and derivative financial instruments to limit
the price and sales risks faced by our power and gas
business on liberalized markets.
The political, legal, and regulatory environment in
which the E.ON Group does business is a source of
additional external risks. Changes to this environment
can make planning uncertain. Our goal is to play an
active and informed role in shaping our business
environment. We pursue this goal by engaging in a
systematic and constructive dialog with political
leaders and representatives of government agencies.
Currently, the following issues are of particular
relevance:
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The regulation of electricity and natural gas
networks codified in Germanys Energy Law of
2005 requires that network charges be approved
in advance. This poses a risk to our earnings
situation, since it is becoming apparent that
the Federal Network Agency is interpreting the
applicable regulations in a one-sided manner
prejudicial to network operators. |
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Interim Report I/2006
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Germanys Federal Cartel Office issued an order
prohibiting E.ON Ruhrgas from implementing
existing long-term gas supply contracts. E.ON
Ruhrgas filed an emergency petition with the
State Superior Court in Düsseldorf to prevent the
order from taking immediate effect. Oral
arguments in the case took place on April 26,
2006. After a preliminary examination of the
case, the court is leaning towards rejecting E.ON
Ruhrgass petition. The court announced that it
will issue a ruling in early June 2006. The
German Federal Appeals Court has final appellate
jurisdiction of the petition. At the present
time, we are unable to predict the effect the
order could have on E.ON Ruhrgas, since it
involves competitive processes whose outcome is
by their nature uncertain. This issue could pose
a risk to our earnings situation. |
The operational and strategic management of the E.ON
Group relies heavily on highly complex information
technology. Our IT systems are maintained and
optimized by qualified E.ON Group experts, outside
experts, and a wide range of technical security
measures.
In the period under review the E.ON Groups risk
situation did not change substantially from year
end 2005.
Outlook
We continue to expect our adjusted EBIT for 2006
to slightly surpass the high prior-year level.
However, we will not repeat the extraordinarily high
net income figure posted in 2005, which resulted in
particular from the book gains on our successful
Viterra and Ruhrgas Industries disposals.
The earnings forecast by market unit is as follows:
For 2006, we expect Central Europes adjusted EBIT to
be slightly above the prior-year level. We expect to
offset the adverse affects of regulatory measures
affecting the operations of our energy transmission
and distribution systems by achieving operating
improvements in other areas.
We expect Pan-European Gass adjusted EBIT to exceed
the figure for 2005. The Up-/Midstream business will
benefit from the integration of E.ON Ruhrgas UK North
Sea Limited (formerly Caledonia Oil and Gas Limited)
and the temperature-driven volume increases recorded
in the first quarter. Moreover, oil price developments
were a significant negative factor in the prior year.
However, the rate of increase achieved in the first
quarter will flatten distinctly in the remainder of
the year. The acquisition of the natural gas storage
and trading operations of Hungarys MOL will adversely
affect the development of the downstream business.
Despite underperforming in the first quarter, U.K.s
adjusted EBIT is still expected to be significantly
higher than the 2005 level. Significant features
include the impact of increased retail prices,
increased value from U.K.s generation fleet, and
profit and cost initiatives, partially offset by
future commodity cost increases.
We anticipate that Nordics adjusted EBIT for 2006
will be below the figure posted in 2005. Earnings
development will be affected by significantly higher
nuclear and hydro taxes and by the absence of earnings
streams from hydroelectric plants divested last year.
These effects will be partially counteracted by higher
average electricity prices.
We expect U.S. Midwests adjusted EBIT for 2006 to
be on par with 2005.
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Interim Report I/2006
Market Units
Central Europe
Market Development
Wholesale electricity prices continued to
trend higher in Europe in the first quarter of
2006. Driven by high and volatile fuel and CO2 certificate prices, baseload electricity for 2007 delivery traded above 57 per MWh on
Germanys energy exchange, a more than 10 percent
increase from the start of the year.
Electricity prices paid by industrial customers in
Germany who concluded new supply agreements rose at a
similar rate during the first quarter, while
electricity prices in the residential segment
increased by about 4.3 percent on average at the start of the year. The regulatory agencies responsible for
approving residential price increases issued widely
divergent rulings, resulting in significant regional
variance in this segment.
Power and Gas Sales
The Central Europe market unit sold 3.4 billion
kWh more electricity than in the prior-year period.
Two thirds of the increase is attributable to the
inclusion of newly consolidated regional electricity
distributors in Bulgaria, Romania, and the
Netherlands. The remainder resulted from an increase
in trading volumes. These positive effects were
partially counteracted by the loss of some business to
competitors.
Central Europes regional distribution companies sold
about 15 billion kWh more natural gas than in the
prior-year period. Just under three fourths of the
increase resulted from consolidation effects. In the
first quarter of the previous year, our Hungarian
natural gas utilities, NRE in the Netherlands, and
Gasversorgung Thüringen (GVT), which was subsequently
merged with E.ON Thüringer Energie, were not yet
consolidated E.ON companies. The remainder of the
increase is primarily attributable to harsh winter
weather.
Power Procurement
Central Europe utilized its flexible mix of
generation assets to meet about 47 percent (prior
year: 48 percent) of its electricity requirements. It
procured around 2.7 billion kWh more electricity from
outside sources than in the year-earlier period. This
increase results mainly from the inclusion of newly
consolidated subsidiaries in Bulgaria and Romania.
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Interim Report I/2006
Sales and Adjusted EBIT
Central Europe grew sales by 1,614 million
relative to the prior-year period, mainly due to the
following factors: the global increase in raw
materials and energy prices which led to successive
increases in our power and gas prices, the
consolidation effects mentioned above (primarily in
Central Europe East), and weather-driven volume
increases, particularly of natural gas.
Adjusted EBIT rose by 132 million year-on-year, with
Central Europes business units developing as follows.
Adjusted EBIT at Central Europe West Power was
slightly above the prior-year figure. The positive
effect of the passthrough of higher wholesale
electricity prices to end customers was moderated by
significantly higher conventional fuel costs, higher
power procurement costs, and higher burdens resulting from expenses for additional CO2 certificates. Adjusted EBIT was also negatively
impacted by effects relating to earlier reporting
periods.
Adjusted EBIT at Central Europe West Gas was 51
million above the prior-year figure, mainly due to
the inclusion of GVT, which was not a consolidated
E.ON company in the prior-year period, and to
volume increases resulting from cold weather.
Central Europe Easts adjusted EBIT rose by 15
million year-on-year. The increase primarily reflects
the inclusion of companies in Bulgaria, Hungary, and
Romania acquired in 2005. It was moderated by the
absence of the gain on the disposal of minority stakes
in the Czech Republic recorded in the prior-year
period.
Adjusted EBIT recorded under Other/Consolidation
increased by 48 million, mainly due to higher
financial earnings.
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Interim Report I/2006
Market Units
Pan-European Gas
Market Development
Germany consumed about 13 percent more natural
gas than in the prior-year quarter, mainly due to
considerably colder weather, particularly in January
and March.
Gas Sales
Pan-European Gass midstream business sold 266
billion kWh of natural gas in the first quarter of
2006, about 18 percent more than in the prior-year
period. The increase resulted from colder temperatures
in Germany compared with the previous year and further
volume growth outside Germany. The average temperature
in E.ON Ruhrgass sales territory in Germany was 1° C,
which is 2° C below the prior-year figure.
In the first quarter of 2006, E.ON Ruhrgas AG
increased its sales volume outside Germany by roughly
34 percent to 52 billion kWh. Sales outside Germany
thus accounted for about one fifth of total sales
volume. The increase is in part attributable to
deliveries to E.ON Nordic, which began in October
2005, and to higher deliveries to E.ON Vendita in
Italy. Deliveries to new industrial customers in
France and the Netherlands also contributed to the
increase.
Sales volume in Germany rose by about 15 percent
year-on-year to 214 billion kWh. The disproportionate
volume growth outside Germany meant that domestic
customer segments accounted for a smaller share of total sales volume.
As in the past, regional gas companies constituted the
largest customer segment, although their share of
total sales volume declined from 49 percent in the
prior-year period to 47 percent in the current-year
period. Deliveries to municipal utilities, which accounted for roughly 25 percent of
total sales volume, were stable, as were deliveries
to industrial customers, which again accounted for 8
percent of total sales volume.
Sales and Adjusted EBIT
Pan-European Gas increased sales by 64
percent year-on-year to 8.8 billion.
The increase in sales is attributable to a number of
factors. Sales were higher in the midstream business
thanks to higher volumes and higher average sales
prices in the wake of oil price developments The
upstream business includes the first-quarter results
of E.ON Ruhrgas UK North Sea Limited. This company was
acquired in 2005 and did not begin contributing to
consolidated sales until November 2005. In September
2005, Pan-European Gas increased its stake in Njord
Field from 15 percent to 30 percent, which also had a
positive effect on sales in the current-year period.
At Downstream Shareholdings, Distrigaz Nord is
included from the beginning of the year, whereas in
the prior year its results were not consolidated until
the second half. Distrigaz Nord changed its name to
E.ON Gaz Romania on April 1, 2006.
Pan-European Gas recorded an adjusted EBIT of 733
million, 57 percent more than in the prior-year
period. All business units contributed to the advance.
16
Interim Report I/2006
The upstream business improved its adjusted EBIT
performance due to the inclusion of newly consolidated
E.ON Ruhr-gas UK North Sea Limited, the increase in
ownership in Njord Field, and high oil and natural gas
price levels. The midstream business benefited from
temperature-driven volume increases and sales growth
outside Germany. Adjusted EBIT in the first quarter of
2006 was again adversely affected by increases in
light heating oil prices, since procurement prices respond to changes in light heating oil prices
faster than sales prices. However, this effect was
less marked than in the prior-year period.
Consolidation effects, particularly the inclusion of
E.ON Gaz Romania, likewise served to increase
Downstream Shareholdings adjusted EBIT, which also
benefited from price and volume effects in its gas
business.
U.K.
Market Development
Market electricity and gas consumption at 99
billion kWh and 326 billion kWh, respectively, for the
first quarter of 2006 were broadly in line with the
prior-year quarter.
Gas price volatility has continued into 2006. On March
13, the first-ever gas balancing alert was called due
to significantly colder-than-normal weather, reduced
storage capacity as a result of a fire at the Rough
Storage Facility (which accounts for about 70 percent
of U.K. storage capacity), and low inflow from the gas
inter-connector. These factors pushed within-day gas
prices to a peak of 255 pence per therm.
Annual gas prices for year ahead delivery increased
from 36 pence per therm in the first quarter of 2005
to 61 pence per therm in the first quarter of 2006.
This represents an increase of roughly 70 percent
year-on-year.
Power prices in the United Kingdom continued to be driven by rising gas prices and increasingly by the influence of CO2 prices. Annual prices for year ahead delivery
increased from £31 per MWh in March 2005 to £53 per
MWh in the first quarter of 2006. This represents an
increase of roughly 70 percent year-on-year.
Power and Gas Sales
The decrease in Industrial and Commercial (I&C)
power and gas volumes reflected E.ON UKs focus on
margin rather than volume during 2006. Residential and
SME power and gas sales increased despite a marginal
reduction in customer numbers; the volume increase is
primarily weather related.
17
Interim Report I/2006
Market Units
Power Generation and Procurement
The increase in owned generation in the first
quarter of 2006 was driven mainly by higher coal
generation due to the improved economics versus gas
generation, the acquisition of Enfield power station,
and the return to service of Killing-holme module 2 in
April 2005 and module 1 in August 2005.
Purchases from outside sources declined due to higher
owned generation and lower retail I&C sales.
E.ON UKs attributable generation portfolio was
10,547 MW at March 31, 2006, an increase of 2,582 MW
from March 31, 2005. This is mainly due to the
return to service of Killing-holme power plant (900
MW), the acquisition of Enfield (392 MW), and the
return of two oil-fired units at Grain (1,300 MW)
for winter use.
During the first quarter of 2006, E.ON UK co-fired
biomass materials at the Kingsnorth, Ironbridge, and
Ratcliffe power plants, generating a total of 97 GWh.
Work has also commenced on the construction of a 44 MW
wood-burning plant in Lockerbie, in southwest
Scotland.
Sales and Adjusted EBIT
E.ON UK increased its sales in the first quarter
of 2006 compared with the prior year, primarily due to
price increases in the retail business and higher gas
and power prices in the wholesale market. E.ON UK
delivered an adjusted EBIT of 38 million in the first
quarter of 2006, of which 124 million was in the
regulated business and 65 million in the
non-regulated business.
Adjusted EBIT at the non-regulated business declined
by 213 million. Significant increases in gas input
costs during the winter caused by gas supply issues
and cold weather reduced business margins in the first
quarter. The residential price rise of 18.4 percent
for power and 24.4 percent for gas effective from
March 10, 2006, together with cost and profit
initiatives will restore business margins.
18
Interim Report I/2006
Nordic
Market Development
The hydrological situation in Norway and Sweden
deteriorated continually in the first quarter of 2006.
On April 1, water levels were about 25 billion kWh
lower than normal, or 30 billion kWh lower than a year
ago. Reservoir levels were slightly below normal, while snow and soil
moisture were well below normal. Despite these
factors, total hydroelectric production in Norway and
Sweden was higher year-on-year due to the cold winter
and high electricity prices in Continental Europe.
Together, Norway and Sweden generated 209 billion kWh
of hydroelectricity between April 1, 2005, and March
31, 2006.
Electricity exchanges between Northern Europe and
surrounding markets were in balance for the year
to date.
Electricity consumption in Finland was, on an
annualized basis, about 1 billion kWh higher at the
end of March 2006 than the level recorded in the
first quarter of 2005. Industrial consumption in
Norway was down slightly year-on-year. Adjusted for
weather effects, total electricity consumption in
Sweden and Norway was unchanged from the prior year.
Sale of E.ON Finland
On February 2, 2006, E.ON Nordic and Fortum
Power and Heat Oy (Fortum) signed an agreement under
which Fortum will acquire E.ON Nordics entire
interest in E.ON Finland. The transaction is subject
to the approval of the Finnish competition authority,
which will issue its final decision by June 5, 2006,
at the latest. The agreement with Fortum fulfills E.ON
Nordics obligations under a call option concluded in
2002 for all its shares in E.ON Finland. In
mid-January 2006, E.ON Finland was classified as a
discontinued operation. Prior-year figures were
adjusted accordingly.
Power Sales
E.ON Nordic sold 0.6 billion kWh less
electricity compared with the corresponding period of
2005 due to lower sales on the Nord Pool, Northern
Europes energy exchange. This was primarily a
consequence of the sale of hydropower assets to
Statkraft in late 2005, which reduced Nordics owned
generation capacity. Sales to residential and
commercial customers were on par with the previous
year.
Power Generation and Procurement
E.ON Nordic covered 75 percent of its
electricity sales with power from its own generation
assets. E.ON Nordics owned generation decreased by
0.4 billion kWh relative to the prior-year period.
Hydropower production decreased, primarily as a result
of the sale of hydro assets to Statkraft in October
2005. The decrease was partly compensated by higher
CHP production due to the relatively cold weather
conditions during the first quarter. Nuclear
generation was virtually unchanged year-on-year.
19
Interim Report I/2006
Market Units
Gas and Heat Sales
Heat sales increased as a consequence of colder
weather conditions and the acquisition of heat
operations in Denmark. Natural gas sales declined
despite the colder weather, primarily due to lower to
sales to distributors.
Sales and Adjusted EBIT
E.ON Nordics sales increased by 5 percent
compared with the first quarter 2005, primarily due
to higher average sales prices.
E.ON Nordic increased its adjusted EBIT by 13 million
year-on-year to 300 million. The improvement was
primarily a result of rising spot electricity prices
and successful hedging activities, which enabled
Nordic to secure higher effective sales value for its
production portfolio. Compared to the prior-year,
earnings for the first quarter were negatively
impacted by increased taxes on hydro and nuclear
production assets. In addition, the hydroelectric
plants sold to Statkraft in October 2005 contributed
to prior-year adjusted EBIT. Furthermore, the decline
in the Swedish krona negatively affected Nordics
adjusted EBIT in reporting currency.
U.S. Midwest
Market Development
In the first quarter of 2006, wholesale
electricity prices in the Midwest, driven by a
combination of higher natural gas prices but
warmer-than-normal weather in January, were comparable
to the same period in 2005. Wholesale electricity prices averaged $49 per MWh during the first quarter
of 2006 and $50 per MWh for the same period in 2005,
while natural gas prices averaged $7.67 per MMBtu and
$6.44 per MMBtu, respectively. Lingering production
shutdowns following fall 2005 hurricanes in the Gulf
of Mexico kept natural gas price levels elevated
through much of the first quarter.
E.ON U.S. received FERC approval to withdraw from
Midwest Independent Transmission System Operator
(MISO). E.ON U.S. is still awaiting a KPSC decision on
this matter for a planned MISO exit by the middle of
the year.
20
Interim Report I/2006
Power and Gas Sales
Regulated utility retail power sales volumes
were roughly the same in 2006 as in 2005. Higher
retail demand in February and March 2006 offset the
warm weather in January 2006. Off-system sales volumes
were lower compared with 2005 as a result of higher
outages and increased use of E.ON U.S.s generation
for native load to replace the lost volumes from a
purchase contract from Electric Energy Inc (EEI). EEI
is a 1,000 MW power station in which E.ON U.S. has a
20 percent stake. In the past, E.ON U.S. could buy its
share of the output at cost and utilize this to meet
native load. Since January 1, 2006, EEI sells its
power at market prices. E.ON U.S. can no longer
utilize this power to meet native load and now
supplies this power from its own generation. Retail
natural gas sales volumes declined due largely to
milder winter weather compared with 2005 and reduced
consumption due to higher prices. Off-system sales of
natural gas decreased due to high market prices and
correspondingly lower availability of excess gas for
sale.
Power Generation and Procurement
Coal-fired power plants accounted for 98
percent of U.S. Midwests electric generation in
2006, while gas-fired, hydro, and other generating
assets accounted for the remaining 2 percent.
Sales and adjusted EBIT
U.S. Midwests sales increased by 14 percent.
The main drivers were favorable exchange-rate
variances and higher gas prices recoverable from
retail customers.
U.S. Midwests adjusted EBIT decreased by 8 percent.
The main factors in the regulated business were the
costs associated with participation in the new MISO
market, introduced on April 1, 2005, and a lower
off-system sales contribution as a result of an
increase in outages. The loss from the off-system
sales contribution from the change in the EEI contract
is earnings neutral as E.ON U.S. now receives the
benefits from this contract through equity earnings
instead of through low-cost power as in the past.
21
Interim Report I/2006
Interim Financial Statements (Unaudited)
22
Interim Report I/2006
Interim Financial Statements (Unaudited)
24
Interim Report I/2006
Notes
Accounting Policies
The accounting policies used to prepare the
Interim Financial Statements for the three months
ended March 31, 2006, correspond to those used in the
Consolidated Financial Statements for the year ended
December 31, 2005, with the following exception.
Share-Based Payment
On January 1, 2006, E.ON adopted Statement of
Financial Accounting Standard (SFAS) 123 (revised 2004),
Share-Based Payment (SFAS 123R). SFAS 123R requires us
to account for our stock appreciation rights (SAR) on
the basis of their fair values and recognize the
corresponding expenses in our Statements of Income.
Prior to adopting SFAS 123R we accounted for SAR on
the basis of intrinsic values and recognized the
corresponding expenses in our Statements of Income, as
provided by SFAS 123 in conjunction with FASB
Interpretation 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans.
Pursuant to SFAS 123R, we use a Monte Carlo simulation
technique to calculate the fair value of SAR. The
cumulative effect of initially applying SFAS 123R by
using the modified version of prospective application
as the transition method had no material effect on our
results of operations. As a result, no further
disclosure is provided.
Variable Interest Entities
As of March 31, 2006, we consolidated the
following variable interest entities (VIEs): two real
estate leasing companies, two jointly managed electric
generation companies, and a company that manages
shareholdings.
As of March 31, 2006, we consolidated VIEs that had
total assets of approximately 924 million and
recorded earnings of 15 million prior to
consolidation. Fixed assets and other assets in the
amount of 149 million serve as collateral for
liabilities relating to financial leases and bank
loans.
With the exception of two VIEs, the creditors of our
consolidated VIEs have limited recourse to the primary
beneficiarys assets. In the case of these two VIEs,
the primary beneficiary is liable for 83 million.
In addition, since July 1, 2000, we have had a
contractual relationship with a VIE, a leasing company
operating in the energy sector, for which we are not
the primary beneficiary. This entity is currently
being liquidated pursuant to a decision made by its
owners. This entity had no significant assets and no
liabilities at year end 2005. We do not expect E.ON to
realize a loss from either its relations with this
entity or from the entitys liquidation.
Due to a lack of information, we continue to be
unable to compute, pursuant to FIN 46R, the financial
situation of another special-purpose entity, which
has existed since 2001 and whose activities were
expected to terminate in the fourth quarter of 2005.
The main transactions between this entity and the
E.ON Group were completed in the fourth quarter of
2005. However, this entity has not yet been
liquidated. Its activities consisted of liquidating
the assets of divested operations. Originally, its
total assets amounted to 127 million. We do not
expect E.ONs results of operations to be adversely
affected by this entity.
Acquisitions, Discontinued Operations, and Disposals
Acquisitions in 2006
Effective March 31, 2006, E.ON Ruhrgas acquired
100 percent of the natural gas trading and storage
operations of MOL, a Hungarian oil and gas company, by
acquiring ownership interests in Budapest-based MOL
Földgázellátó Rt. and Budapest-based MOL Földgáztároló
Rt. The purchase price was approximately 450 million.
It was further agreed that, depending on regulatory
developments, compensatory payments would be made
through the end of 2009 if this should become
necessary for a subsequent adjustment of the purchase
price. The two entities became consolidated E.ON
companies on March 31, 2006.
Discontinued Operations
Pursuant to SFAS 144, we have reported two
companies as discontinued operations in the first
quarter of 2006: E.ON Finland, Espoo, Finland, at our
Nordic market unit and the operations of Western
Kentucky Energy Corp. (WKE), Henderson, Kentucky,
USA, at our U.S. Midwest market unit.
On February 2, 2006, E.ON Nordic and Fortum Power and
Heat Oy (Fortum) signed an agreement under which
Fortum will acquire E.ON Nordics entire interest in
E.ON Finland. The transaction is subject to the
approval of the Finnish competition authority. E.ON
Finland was classified as a discontinued operation in
mid-January 2006.
26
Interim Report I/2006
Through WKE, E.ON U.S. operates the generating
facilities of a power generation cooperative in
western Kentucky and a coal-fired facility owned by
the city of Henderson, Kentucky, under a long-term
leasing arrangement. In November 2005, the parties
involved entered into a letter of intent to terminate
the lease and operational agreements between the
parties and other related matters. The closing of the
intended transaction is subject to review and approval
by various regulatory agencies and other interested
parties. At the end of December 2005, WKE was
classified as a discontinued operation.
Other Disposals
Continuing the implementation of its framework
agreement with RAG, on March 21, 2006, E.ON
transferred its stake in Degussa (42.9 percent) into
RAG Projektgesellschaft mbH, Essen. At the same time,
E.ON forward sold its share in RAG
Projektgesellschaft to RAG effective July 3, 2006.
The purchase price is approximately 2.8 billion. The
transfer at fair value initially resulted in a gain
of approximately 618 million. However, because E.ON
holds a 39.2 percent stake in RAG, the share of the
gain recorded in our Consolidated Statement of Income
was 376 million.
Pursuant to U.S. GAAP, the income and expenses of
discontinued operations are reported separately under Income/Loss () from discontinued operations, net.
The Consolidated Statements of Income and the
Consolidated Statements of Cash Flows, including the
notes relating to them, for the period ended March 31,
2006, and for the prior-year period have been adjusted
for these discontinued operations. The assets and
liabilities of these discontinued operations are shown
in the Consolidated Balance Sheets for the period
ended March 31, 2006, under Assets of disposal
groups and Liabilities of disposal groups. We did
not reclassify prior-year balance-sheet line items
attributable to discontinued operations because SFAS
144 does not permit such reclassification.
The following table shows the major line items of the
statements of income of the above-named operations.
The following table shows major line items of
the balance sheets of E.ON Finland and WKE, the two
companies classified as discontinued operations.
Acquisitions and discontinued operations sold
in 2005 are described in detail in our 2005 Annual
Report.
Research and Development
The E.ON Groups research and development
expense totaled 4 million in the first three
months of 2006 and in the prior-year period.
27
Interim Report I/2006
Notes
Earnings per Share
Earnings per share were computed as follows:
Financial Earnings
The table below provides details of financial
earnings for the periods indicated.
28
Interim Report I/2006
Goodwill and Intangible Assets
The table below shows the changes in the
carrying amount of goodwill in the first three months
of 2006 by segment.
Intangible Assets
As of March 31, 2006, and December 31, 2005,
E.ONs intangible assets, including advance payments
on intangible assets, consist of the following:
In the first three months of 2006, E.ON
recorded an amortization expense of 90 million
(prior year: 90 million) on intangible assets and
an impairment charge of 40 million (prior year: 0
million) on intangible assets. E.ON did not record
goodwill impairment charges in the first three
months of 2006 or in the prior-year period.
Based on the current amount of intangible assets
subject to amortization, the estimated amortization
expense for the rest of 2006 and each of the five
succeeding fiscal years is as follows: 2006 (remaining
nine months): 248 million, 2007: 283 million, 2008:
243 million, 2009: 196 million, 2010: 156 million,
and 2011: 149 million. As acquisitions and
dispositions occur in the future, actual amounts could
vary.
Treasury Shares Outstanding
The number of treasury shares as of March 31,
2006, did not change from the figure as of December
31, 2005. E.ON AG held 4,374,254 treasury shares.
E.ON subsidiaries held another 28,472,194 shares of
E.ON stock. E.ON thus holds 4.7 percent of its
capital stock as treasury shares.
Dividends Paid
On May 4, 2006, the Annual Shareholders Meeting
voted to distribute a dividend of 2.75 per share of
common stock, a 0.40 increase from the previous
dividend, plus a special dividend of 4.25 per share
of common stock for a total dividend payout of 4,614
million.
29
Interim Report I/2006
Notes
Provisions for Pensions
The changes in the projected benefit
obligation are shown below.
Contribution to Plan Assets
In 2005 E.ON formed E.ON Pension Trust e.V. and
Pensionsabwicklungstrust e.V. as part of a
contractual trust arrangement. The trusts purpose is
to improve the external financing of pension
obligations of group companies in Germany. In the
first quarter of 2006 we made the first contribution,
in the amount 2.6 billion, into the trust by
transferring money market investments with a term of
more than three months.
Asset Retirement Obligations
E.ONs asset retirement obligations at March 31,
2006, relate to the decommissioning of nuclear power
stations in Germany (8,416 million) and Sweden (403
million), environmental remediation at conventional
power station sites, including the removal of electric
transmission and distribution equipment (376
million), environmental remediation at gas storage
facilities (116 million) and opencast mining facilities (61 million), and the decommissioning of
oil and gas infrastructure (331 million). The fair
value of nuclear decommissioning obligations was
determined using third-party valuations.
An accretion expense pertaining to continued
provisions of 130 million for the current period is
included in financial earnings (prior year: 125
million).
Contingent Liabilities Arising from Guarantees
Financial Guarantees
Financial guarantees include both direct and
indirect obligations (indirect guarantees of
indebtedness of others). These require the guarantor
to make contingent payments to the guaranteed party
based on the occurrence of certain events and/or
changes in an underlying instrument that is related to
an asset, a liability, or an equity security of the
guaranteed party.
Our financial guarantees include
nuclear-energy-related items that are described in
detail in our 2005 Annual Report. Obligations also
include direct financial guarantees to creditors of
related parties and third parties. Direct financial
guarantees with specified terms extend as far as 2022.
Maximum potential undiscounted future payments amount
to 418 million (year end 2005: 427 million). Of this
amount, 298 million (year end 2005: 304 million)
consists of guarantees issued on behalf of related
parties.
Indirect guarantees primarily include additional
obligations in connection with cross-border leasing
transactions and obligations to provide financial
support, primarily to related parties. Indirect
guarantees with specified terms extend as far as 2023.
Maximum potential undiscounted future payments amount
to 426 million (year end 2005: 431 million). Of this
amount, 130 million (year end 2005: 67 million)
involves guarantees issued on behalf of related
parties. As of March 31, 2006, we recorded provisions
of 24 million (year end 2005: 25 million) with
respect to financial guarantees.
30
Interim Report I/2006
In addition, E.ON has commitments under which it
assumes joint and several liability arising from its
ownership interests in civil-law companies
(Gesellschaften bürgerlichen Rechts), noncorporate
commercial partnerships, and consortia in which it
participates.
Furthermore, certain E.ON Group companies have
obligations by virtue of their membership in VKE, a
German energy industry pension fund, in accordance
with VKEs articles of incorporation. We do not expect
these companies to have to perform on their
obligations.
Indemnification Agreements
Contracts in connection with the disposal of
shareholdings concluded by the E.ON Group companies
include indemnification agreements and other
guarantees with terms up to 2041 in accordance with
contractual agreements and local legal requirements, unless shorter terms were
contractually agreed to. Maximum undiscounted amounts
potentially payable pursuant to the circumstances
expressly stipulated in these agreements could total
up to 6,633 million (year end 2005: 6,623 million).
These mainly relate to customary representations and
warranties, potential environmental liabilities, and
potential claims for tax-related guarantees. In some
cases, the buyer is either required to share costs or
to cover certain costs before we are required to make any
payments. Some obligations are covered first by
insurance contracts or provisions of the divested
companies. As of March 31, 2006, we recorded
provisions of 294 million (year end 2005: 296
million) for indemnities and other guarantees included
in sales agreements. Guarantees issued by companies
that were later sold by E.ON AG (or by VEBA AG or VIAG
AG before their merger) are included in the final
sales contracts in the form of indemnities
(Freistellungserklärungen).
Other Guarantees
Other guarantees with an effective period
through 2020 mainly include market-value guarantees
and warranties (maximum potential undiscounted future
payments at March 31, 2006: 126 million; year end
2005: 130 million). Other guarantees no longer
include product warranties (or corresponding
provisions) due to the disposal of Viterra and
Ruhrgas Industries.
31
Interim Report I/2006
Business Segments
Our reportable segments are presented in line
with our internal organizational and reporting
structure. E.ONs business is subdivided into energy
and other activities. Our core energy business
consists of the following market units: Central
Europe, Pan-European Gas, U.K., Nordic, U.S. Midwest,
and Corporate Center.
Central Europe operates an integrated electricity
business and downstream gas business in Central
Europe.
Pan-European Gas focuses on the upstream and midstream
gas business in Europe.This market unit also holds a
number of mostly minority shareholdings in the
downstream gas business.
U.K. operates an integrated energy business in the
United Kingdom.
Nordic is principally engaged in the integrated
energy business in Northern Europe.
U.S. Midwest primarily operates a regulated utility
business in Kentucky, USA.
32
Interim Report I/2006
The Corporate Center consists of equity
interests managed directly by E.ON AG, E.ON AG itself, and consolidation
effects at the group level.
Under U.S. GAAP, E.ON is required to report under
discontinued operations those operations of a
reportable or operating segment, or of a component
thereof, that either have been disposed of or are
classified as held for sale.
In the first three months of 2006, this applies to WKE
and E.ON Finland which are held for sale. In the first
three months of 2005, this applied mainly Viterra and
Ruhrgas Industries, which were sold in 2005. For the
purposes of our business segment reporting, our
results for the period ended March 31, 2006, and for
the prior-year period do not include the results of
our discontinued operations (see the table on page 32 and
the commentary on pages 2627).
Adjusted EBIT, E.ONs key figure for purposes of
internal management control and as an indicator of a
businesss long-term earnings power, is derived from
income/loss () from continuing operations before
income taxes and interest income and adjusted to
exclude certain extraordinary items. The adjustments
include book gains and losses on disposals,
restructuring expenses, and other nonoperating income
and expenses of a nonrecurring or rare nature. In
addition, interest income is adjusted using economic
criteria. In particular, the interest portion of
additions to provisions for pensions resulting from
personnel expenses is allocated to interest income.
The interest portions of the allocations of
other long-term provisions are treated
analogously to the degree that, in accordance with
U.S. GAAP, they are reported on different lines of the
Consolidated Statements of Income.
Page 8 of this report contains a detailed
reconciliation of adjusted EBIT to net income.
Due to the adjustments made, our financial
information by business segment may differ from the
corresponding U.S. GAAP figures.
33
Interim Report I/2006
For more information about E.ON:
Corporate Communications
E.ON AG
E.ON-Platz 1
40479 Düsseldorf
Germany
T +49 (0) 211-4579-453
F +49 (0) 211-4579-566
info@eon.com
www.eon.com
Only the German version of this Interim Report is legally binding.
Information on results: This Interim Report contains certain forward-looking statements that are
subject to risk and uncertainties. For information identifying economic, currency, regulatory,
technological, competitive, and some other important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements, you should refer to
E.ONs filings to the Securities and Exchange Commission (Washington, DC), as updated from time to
time, in particular to the discussion included in the sections of the E.ON 2005 Annual Report on
Form 20-F entitled ,,Item 3. Key Information: Risk Factors, ,,Item 5. Operating and Financial Review
and Prospects, and ,,Item 11. Quantitative and Qualitative Disclosures about Market Risk.
34
Interim Report I/2006
Financial Calendar
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August 15, 2006
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Interim Report: January June 2006 |
November 8, 2006
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Interim Report: January September 2006 |
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March 7, 2007
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Release of 2006 Annual Report |
May 3, 2007
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2006 Annual Shareholders Meeting |
May 4, 2007
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Dividend Payout |
May 9, 2007
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Interim Report: January March 2007 |
August 15, 2007
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Interim Report: January June 2007 |
November 13, 2007
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Interim Report: January September 2007 |
35
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Current Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
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E.ON AG |
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Date:
May 11, 2006
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By: /s/ Michael C. Wilhelm |
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Michael C. Wilhelm
Senior Vice President
Accounting |