Subscribed Capital

Demag Cranes AG’s subscribed capital amounts to EUR 21,172,993 and is divided into 21,172,993 no-par-value bearer shares.

Management Board Authorisation

The Management Board is authorised subject to Supervisory Board approval to increase the Company’s subscribed capital by issuing new no-par-value bearer shares for cash and/or non-cash consideration in one or more issues up to a total of EUR 10,586,496 by or before 18 May 2011 (Authorised Capital).

By resolution of the Annual General Meeting of 3 March 2009 in accordance with Section 71 (1) 8, AktG, the Management Board is authorised until 2 September 2010 subject to Supervisory Board approval to purchase the Company’s own shares up to a maximum of ten percent of the share capital at the time of the resolution. No shares in the Company were purchased in the financial year.

Detailed information on the Management Board authorisations is provided under Disclosures under Section 315 (4) of the German Commercial Code in the Management Report.

Additional Paid-In Capital

Additional paid-in capital mostly contains amounts credited under the share option scheme (Matching Stock Program).

Share-Based Payment (Matching Stock Program)

To promote the attainment of its business goals, Demag Cranes AG operates a Matching Stock Program (MSP). The MSP is a form of long-term compensation with an incentive component and entitles executives and managerial employees to subscribe for phantom shares. At the time of subscribing, MSP participants must be executives or employees of Demag Cranes AG or a Demag Cranes Group company whose contract is not pending termination. Participants must also present proof of acquiring Demag Cranes shares (MSP shares). For each MSP share acquired in the MSP, participants receive five tranches of six phantom shares. The allocated phantom shares are subject to a two-year lock-up period from allocation of each tranche and are exercised automatically thereafter at the base price if a specific performance threshold is attained.

The base price of phantom shares in the first tranche is 110 percent of the issue price. The base price of the second to fifth tranche is the average closing price of Demag Cranes AG shares on the Frankfurt Stock Exchange XETRA trading platform in the last 60 trading days before allocation of the phantom shares, plus a ten percent mark-up. The base price is EUR 24.20 for the first tranche, EUR 52.73 for the second, EUR 37.98 for the third and EUR 17.70 for the fourth.

The performance threshold is attained if the exercise price of the allocated phantom shares, being the average unweighted closing price on the XETRA trading platform in the last 60 trading days before exercise of the phantom shares, is above the base price.

On attainment of the performance threshold, for each phantom share, an amount equal to the difference between the base price and the exercise price, less payroll tax and social insurance contributions, is disbursed in shares in Demag Cranes AG, which can be freely disposed of after a two-year lock-up period. If the gain to all participants, computed as the difference between the base price and the exercise price when all phantom shares in a tranche of the MSP are exercised, exceeds EUR 4,000,000, the gain to all participants is subjected to a pro rata MSP cap such that the gross MSP gain to all participants after application of the cap does not exceed EUR 4,000,000.

Phantom shares expire if they are not exercised within seven years of the MSP’s inception. MSP participants who leave the Group before the end of the MSP forfeit all entitlements to phantom shares not yet allocated. Phantom shares that have already been allocated but not yet exercised are then charged at an appropriate price.

Changes in outstanding phantom shares:

The performance threshold for the first tranche of the Matching Stock Program (base price EUR 24.20; exercise price EUR 34.53) was attained on 23 June 2008. A total of 240,810 phantom shares worth EUR 1,318,000 were exercised by participants. Participants can freely dispose of these shares after two years. The average share price at the time of the purchase was EUR 32.84.

The performance threshold for the second tranche of the Matching Stock Program was not attained in financial year 2008/2009.

At 30 September 2009, MSP participants have subscribed for 49,385 (2008: 58,755) MSP shares entitling them to exercise up to 888,930 phantom shares (30 September 2008: 1,375,350 phantom shares) by the end of the MSP.

Parameters used in measuring phantom shares:

The phantom shares in the five tranches per MSP share were measured using Monte Carlo simulation at the grant date taking into account the absolute target of the MSP, the setting of future base prices and the MSP cap. The average fair value at the grant date estimated using Monte Carlo simulation is EUR 56.15 for the first tranche, EUR 75.80 for the second and EUR 39.84 for the third. As there was no change in the number of MSP participants in the past financial year, parameters have not been determined for the fourth tranche.

The volatility of Demag Cranes shares was estimated based on the historical trend in the share prices of two listed companies – PALFINGER AG and KCI Konecranes Plc – over the term of the various MSP tranches. The Group recognised an expense and credited to additional paid-in capital an amount of EUR 261,000 for the MSP in 2008/2009 (2007/2008: EUR 8,000).

Other Reserves

Retained earnings consist of accumulated profits carried forward less dividends paid.

Exchange rate effects from translating the financial statements of foreign entities whose functional currency is not the same as the Group reporting currency are reported in differences arising from currency translation.

The net income recognised directly in equity sub-item comprises three items: cash flow hedges, available-for-sale financial assets and actuarial gains and losses as well as deferred taxes on these items.

The cash flow hedges reserve item contains the accumulated net gain or loss on the fair value of derivatives that are determined to be effective cash flow hedges for transactions that are not yet settled or for forecast transactions.

The available-for-sale financial assets item contains the accumulated net gain or loss on available-for-sale financial assets.

The Group makes use of the third option provided for in IAS 19.93A, recognising differences between the expected and actual benefit obligation and the actual and expected return on plan assets directly in equity under actuarial gains and losses. Actuarial gains and losses recognised in the reporting period are presented separately in the Statement of Recognised Income and Expense.

Paid and Proposed Dividends

In view of the restructuring in financial year 2008/2009 and its considerable impact on Group earnings and shareholders’ equity, the Management Board and Supervisory Board of Demag Cranes AG will not be proposing a dividend for financial year 2008/2009 at the Annual General Meeting on 2 March 2010.

At the proposal of the Management Board and Supervisory Board, the Annual General Meeting resolved on 3 March 2009 to use the net income for financial year 2007/2008 to pay out to shareholders a dividend of EUR 1.40 per share (a total of EUR 29,642,000). The dividend was paid out on 4 March 2009.

The composition of the net income recognised directly in equity sub-item is shown in the chapter Statement of Recognised Income and Expense

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