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III. Individual notes on the balance sheet

Current assets

1. Cash and cash equivalents

The bank inventories amounting to € 109,103k (previous year: € 103,288k) mainly comprise credit in current accounts. Interest is paid on funds held in money market accounts on the basis of EONIA or EURIBOR.

A part of the cash and cash equivalents amounting to € 26.6 million (previous year € 24.2 million) is drawn from earmarked funds which were passed on to the ABCP programs and the bond in January 2008, as well as from security deposits under administration, trustee accounts and transfer obligations from portfolio management.

As of December 31, 2007, the Group held unused credit lines (mainly overdraft facilities) amounting to € 38,725k (previous year € 61,319k); all conditions for the use of these were already fulfilled. These disclosures do not include credit lines in the Credit segment, as these are used to refinance the leasing and factoring business and are therefore earmarked.

2. Interest-bearing leasing and hire-purchase receivables

The subsidiaries Universal Leasing GmbH, Universal Leasing Benelux B.V., Universal Lease Iberia S.A., Proceed Securitization Services GmbH and ADA Financial Services GmbH & Co. KG have the option of selling interest-bearing leasing and hire-purchase receivables via ABCP conduits to four ABCP programs with a total limit of € 900 million. As of the balance sheet date, the limits were spread among the various programs as follows: WestLB AG (Compass € 350 million), ABN AMRO Bank N.V. (Tulip € 150 million), the Royal Bank of Scotland plc (Acorn € 250 million) and State Street Global Market LLC (Galleon € 150 million). During the reporting period, the Tulip program limit was raised by € 75 million to € 150 million. For the inclusion of Universal Lease Iberia S.A. in the Compass Commercial Paper program, the limit was raised from € 100 million to € 350 million. € 250 million of this is earmarked for the securitization of leasing and hire-purchase receivables and € 100 million for the securitization of open residual values.

The ABS bond FAST 2005 Limited emitted during the business year 2005 with an initial volume of € 450 million entered the amortization phase in April 2007. As of the balance sheet date, the outstanding securitized receivables volume amounted to € 297 million (previous year € 450 million). The nominal value of the leasing, hire-purchase and loan receivables sold as of December 31, 2007 adds up to € 1,097 million (previous year € 983 million). On this date, the cash value of these unaccounted receivables added up to € 963,328k (previous year € 895,916k). In the consolidated balance sheet of December 31, 2007, a disposal of leasing and hire-purchase receivables is matched by the capitalization of a security deposit amounting to € 55.2 million (previous year € 45.4 million). € 38,664k (previous year € 32,041k) of this amount is booked under “Other non-current receivables” and € 16,562k (previous year € 13,321k) under “Other current operating receivables”.

Development of non-current and current interest-bearing leasing and hire-purchase receivables

In the year-to-year comparison, the net leasing receivables rose from € 273.9 million to € 373 million as of December 31, 2007. This increase is due to the additions of leasing receivables not yet securitized in December and the growth of GFKL on the British market. The disposals as of December 31, 2007 included the leasing and hire-purchase receivables sold into the Compass, Tulip, Acorn and Galleon ABCP programs. As of December 31, 2007, leasing, hire-purchase and loan receivables with a total cash value of € 963.3 million (previous year € 895.9 million) were sold to the purchasing companies of the ABCP programs and the bond. As of December 31, 2007, receivables with a cash value of € 297 million (previous year € 450 million) were sold to the ABS bond, € 147 million (previous year € 50.1 million) to the Compass ABCP program, € 119 million (previous year € 50.7 million) to the Tulip program, € 250 million (previous year € 204.5 million) to the Acorn program and € 150 million (previous year 140.7 million) into the Galleon program. Further hire-purchase agreements with a cash value of € 9,086k (previous year € 3,410k) were sold to the refinancing institutes by forfeiting.

Composition of sold receivables not entered in the balance sheet

Total portfolio volume

Non-current and current leasing and hire-purchase receivables are booked net of unearned, contracted interest flowing to the Group with the clients' annuity installments.

The leasing receivables, divided according to the residual term and the transition to gross leasing receivables, are represented as follows:

Current leasing and hire-purchase receivables are divided as follows:

Composition of net leasing receivables

As of December 31, 2007, the nominal value of the non-guaranteed residual values amounted to € 583k (previous year € 363k).

3. Defaulting loans and receivables acquired for settlement

The “Defaulting loans and receivables acquired for settlement” consist of unsecured receivables with payment irregularities, enforceable receivables due from private borrowers and to a small extent from commercial borrowers, loan receivables with payment irregularities, mortgaged receivables, and guaranteed collection services where payouts have been made to German property insurers. The companies in the Collection segment have core competences in the processing of receivables from each category. Proceed Collection Services GmbH (formerly Hansen & Schucht Debitorenmanagement GmbH), for example, concentrates mainly on handling unsecured receivables from terminated loan agreements. Sirius Inkasso GmbH offers German property insurers guaranteed and disbursed collection services for cancelled insurance premiums. Proceed Portfolio Services GmbH is the specialist in receivables secured on real estate belonging to banks and savings banks. Entries in this item, which are classified as “Financial assets at fair value through profit and loss”, are assessed at market value. As there is no active market available for the determination of fair value pursuant to IFRS, this is ascertained using an investment model projected on the basis of the parameters determined on acquisition.

In this context, the incoming payments estimated on acquisition of the receivables on the basis of payment experience gained with similar portfolios is reduced by the expected processing and collection expenses and compared with the incoming payments realized. Resulting changes in value are booked affecting the result. For further information, please refer to section II.6, “Important estimates and assumptions made during balancing”.

The inventory of non-current and current defaulting loans and receivables acquired for settlement is shown in the following table:

Divided according to residual periods, the defaulting loans and receivables acquired for settlement are represented as follows:

The development of defaulting loans and receivables acquired for settlement is represented as follows:

4. Factoring receivables

The item “Factoring receivables“ discloses receivables acquired in the company’s own name and on its own account amounting to € 38,137k (previous year € 1,482k). This increase was largely due to the initial consolidation of the Spanish factoring company Corfisa Financial Services S.A. as part of the acquisition of the Multigestión Group, and to the commencement of business operations by Universal Factoring GmbH.

5. Trade receivables

In the Credit segment, trade receivables largely refer to receivables due from third parties from the sale of returned leasing objects and securities, receivables from overdue installments from leasing and hire-purchase agreements, and indemnity claims. Value adjustments are made on a systematic basis using historical evaluations of payment flows, taking into account the age of the receivable as well as the status of the agreement. In the Collection segment, trade receivables refer to receivables due from clients for portfolio management services existing as of the accounting date. Acquired loans and receivables with payment irregularities are described in section III.3 “Defaulting loans and receivables acquired for settlement”. In the Systems segment, trade receivables comprise outstanding invoices from the sales and servicing of IT components relevant as of the accounting date.

All trade receivables are limited to less than one year. For explanatory notes on provisions for bad debts, please refer to section IV.7 “Other operating expenses”.

Value adjustment accounts relate solely to the balance sheet item “Trade payables” (IAS 39 category: loans and receivables). Expenses and income from changes to individual value adjustments are largely allotted to the Credit segment. Value adjustments are booked via value adjustment accounts; irrecoverable debts are written off in full, taking into account any value adjustments already made. Moreover, two incident-related value adjustment accounts exist in the “Other current operating receivables”. Please refer to the explanatory notes on these balance sheet items (III.8).

Individual value adjustments are determined in the Credit segment with the aid of a standardized system. In this context, the receivables are divided into seven categories as of the assessment date. The receivables in the various categories are measured while taking factors into account including securities assessed at market value (e.g. security deposits or pledges on rights) and payment history. In cases where the agreements pertaining to the receivables have not yet been finally settled, the object values are determined using a standardized object development curve as part of a simulated loss adjustment. In addition, an assessment of the value adjustment made in each individual case is carried out for larger outstanding receivables. The value adjustment developed as follows:

6. Unfinished services

Unfinished services largely refer to collection services rendered by Zyklop Inkasso GmbH which have not yet been finally invoiced. These are assessed on the basis of the payments already made by the debtor. Unfinished services also refer to software developments made by ABIT AG and GENEVA-ID GmbH. ADA – Das SystemHaus GmbH no longer discloses unfinished services, as all client projects were completed during 2007.

7. Finished goods and merchandise

The item “Finished goods and merchandise” refers to IT objects in the Systems segment as well as leasing and hire-purchase objects where the final invoice to the lessee or hire-purchaser was still open as of the balance sheet date, and other objects from reversed leasing and hire-purchase agreements intended for sale.

The item “IT repository” largely refers to merchandise customary in the IT sector, most of which was purchased with reference to specific orders, and to service inventories maintained for existing service agreements.

The new objects from leasing agreements are balanced at acquisition cost, the other objects at valuated amounts. The expected income from realization was written down at the end of the year as necessary. For more information, please refer to the item “Amortization/depreciation on current assets” in the income statement. With the exception of down-payments made, which are assessed at acquisition cost, finished goods and merchandise are assessed at acquisition/manufacturing cost or at sales value less expected sales expenses, whichever is lower. Changes in value were booked under the item “Other operating expenses”.

8. Other current operating receivables

The claim for compensation from Resba GmbH is based on a profit and loss transfer agreement with SBL Mobilien GmbH and is due from the latter’s former shareholder or its legal successors. For further information, please refer to section II.7 “Important estimates and assumptions made during balancing”. Risks arising from uncertainties relating to the interest calculation method were compensated for the first time through the formation of a separate value adjustment amounting to € 2 million.

The item “Security reserves” comprises the current proportion of receivables due from the ABCP programs and the ABS bond. These refer to the current security reserves amounting to € 16,562k (previous year € 13,321k) created in connection with the ABCP programs, comprising 6% or 4.5% of the sold leasing, hire-purchase and loan receivables; these amount to € 38,117 k (previous year € 27,202k). Moreover, this item includes the current part of the security reserve (default reserve, commingling reserve, indemnity reserve) created in connection with the ABS bond (FAST 2005 Ltd.). The remaining part of the security reserve, amounting to € 38,664k (previous year € 32,041k) is balanced under the item “Other non-current receivables”.

The item “Other” includes such items as creditors with debit balances, salary settlements, and current deposits.

9. Assets held for sale

As of December 31, 2007, this item referred in particular to the non-current assets held for sale from among Universal Lease Iberia S.A.’s leasing assets. These comprise assets with a total value of € 10,531k (previous year € 11,334k) which are no longer intended for leasing. The previous year’s figure also includes an item of real estate in the possession of ADA – Das SystemHaus GmbH, which was sold in 2007 (€ 5,827k). The transfer of title was effected in 2007 on payment of the purchase price. In accordance with IFRS 5, this asset is booked separately and assessed at book value or fair value less realization costs, whichever is lower.

10. Securities

As of December 31, 2007, Domnowski Inkasso GmbH held a small quantity of securities amounting to € 13k (previous year € 13k).

Non-current assets

11. Other equipment, furniture and fixtures

For explanatory notes on the development of the other equipment, furniture and fixtures, please refer to the separate overview "Statement of Changes in Non-Current Assets", which is attached as an annex to these notes.

12. Operating lease assets

The operate leasing assets comprise objects procured for operate lease agreements. For these agreements, the cash value of the non-guaranteed residual values is greater than 10% of the net investment value of the leasing agreements, or the term of the agreements is clearly shorter than the objects’ economic period of use (cf. IAS 17.8 et seq.). The majority of the inventory of operate leasing assets comprises the vehicle leasing portfolio of Universal Lease Iberia S.A. As of December 31, 2007, the following receivables existed on future minimum leasing payments (excluding non-guaranteed residual values) due to operate lease agreements which could not be terminated.

13. Land and buildings

The land and buildings amounting to € 892k (previous year € 62k) largely refer to land in the immediate vicinity of Seville acquired during the business year 2007. Plans are in place to construct an administrative building and a sales site for Universal Lease Iberia S.A. on this land, along with workshops and warehouses for the company’s suppliers.

14. Software

The software disclosed largely comprises GENEVA-ID GmbH software consisting of the product lines Software Classic, Software PoS (Point of Service) and Software Advanced Family, ABIT AG software consisting of the product lines ABIT phinAMV, ABIT phinAVV and OptiMahn as well as the products ABIT Recht.net and ABIT Kredit.net, which are valuated in accordance with IAS 38.33 et seq., and the software LEASE1 produced in-house. The currently used software LEASE1 has already been fully amortized according to schedule.

Software is amortized over its prospective or remaining period of use, which varies from 3 to 10 years.

Advanced Family is a process and product-driven inventory management system for insurance companies. Software Classic is a compact system for insurers and insurance brokers who issue their own insurance policies. Point of Service is a web-based sales process solution with a multi-channel approach. At the same time, the technical framework lays the foundation for the bundling and homogeneous presentation of information and the handling of advanced processes from a wide variety of systems.

The product line ABIT phinAMV is a practical solution which provides comprehensive support for the company’s receivables management. ABIT phinAVV is a software solution for communal receivables management. This application organizes the entire process of public enforcement and private collection. ABIT Recht.net is network-centered receivables management software. It supports the entire receivables handling process in the credit services sector while taking statutory regulations into consideration; it also supplies all information pertaining to risk potential in the client structure. ABIT Kredit.net is a software solution which deals with the entire credit application and credit processing procedure for all commitment levels and institution groups.

The software development is described in the separate overview, “Statement of Changes in Non-Current Assets”.

15. Customer relationships

The customer relationships of Multigestión and Corfisa capitalized as part of the purchase price allocation are amortized linearly over a period of 5 or 12 years depending on the sales expected. The customer relationships identified for has program service are also amortized over a period or 5 or 10 years.

16. Investments in associates

The investments in associates largely refer to holdings of 48% each in HFI Finanz- und Investitions-Beratungsgesellschaft Hamm mbH and VR Inkasso Leasing & Consulting GmbH. The most recently approved financial statement of these companies is the annual financial statement of December 31, 2006. During the business year 2006, the companies generated earnings amounting to € 186k (HFI) and € –2k (VRI). Moreover, three holdings in the possession of Universal Lease Iberia S.A. ranging from 20% to 33% and a holding in the possession of GENEVA-ID GmbH amounting to 28% are disclosed under this item.

1 Qualified estimates

The previous year’s figures for the associates were as follows:

17. Goodwill

This balance sheet item comprises goodwill from fourteen or twelve respectively cash-generating units (CGU). The goodwill booked in the Group amounting to € 95.5 million (previous year € 68.9 million) is presented below:

Cash-generating unit

Goodwill from Universal Leasing Ltd. and Domnowski Inkasso GmbH has increased due to company acquisitions made at the levels of these cash-generating units during 2007.

Goodwill was not allocated to groups of CGUs.

The assessment and purchase price allocation carried out in accordance with IFRS 3 did not reveal any intangible assets with unlimited periods of use.

As no active market exists for a large part of the cash-generating units (CGU), the recoverable amount was ascertained by carrying out a discounted cash flow analysis to determine the value in use. Cash flows from the GFKL Group’s IFRS-based five-year finance planning were used to calculate the values-in-use. For the leasing companies, the planning data is largely derived from the new business expected in the future and the wind-up of the leasing portfolios generated to date; for the collection companies, it is derived from the performance of the serviced and/or balanced portfolios and portfolios planned for the future. In the Software and Systems segments, the data in the five-year finance planning is largely derived from the income expected from services and income from the sale of merchandise. The discount rate for the detailed planning period was determined using the “weighted average cost of capital” method (WACC), and for most of the cash-generating units amounted to 9.25%; for the CGU Domusvenda, which is active in Portugal, an interest rate of 10% was presupposed. The WACC is a composite interest rate taking into account the weighted equity and loan capital costs, which reflect the average capital costs of a company depending on its financing structure. A standard growth discount of 1% was used to determine the discount rate for further periods. The book value of the CGUs and goodwill for the GFKL Group, which adds up to € 228.3 million (previous year € 147.9 million), is offset by a recoverable amount amounting to € 444.8 million (previous year € 437.6 million).

In accordance with IFRS 3, the scheduled amortization of goodwill was replaced as of January 1, 2005 by impairment tests to be carried out at least once a year. On December 31, 2007, impairment tests were carried out on all cash-generating units carrying goodwill. ADA was the only CGU for which goodwill had to be amortized in accordance with IFRS 3.65 due to the utilization of the losses carried forward which were not booked in the opening balance sheet. This constitutes a marked decrease amounting to € 630k (previous year € 1,200k). During the business year, there were no indications of a decrease in the value of the cash-generating units on which the goodwill of the other companies is based.

18. Long-term interest-bearing leasing and hire-purchase receivables

In the consolidated accounts, current interest-bearing leasing and hire-purchase receivables are listed parallel to non-current interest-bearing leasing and hire-purchase receivables. Please refer to the relevant notes.

19. Long-term defaulting loans and receivables acquired for settlement

This item comprises the non-current proportion of defaulting loans and receivables acquired for settlement. The terms are ascertained on the basis of the payment forecasts determined for each portfolio as part of the investment model. Please refer to the explanatory notes in section III.3 “Defaulting loans and receivables acquired for settlement”.

20. Other non-current receivables

Other non-current receivables largely consist of receivables due from FAST 2005 Limited, Compass, Tulip, Acorn and Galleon amounting to € 38,664k (previous year € 32,041k). These refer to the non-current security reserves from the sold leasing, hire-purchase and loan receivables which were created in connection with the ABS bond and the ABCP programs. The remaining proportion of the security reserve amounting to € 16,562k (previous year € 13,321k) is booked under the item “Other current operating receivables”.

21. Deferred tax assets

Deferred tax assets were set up to account for temporary differences between the tax valuation of assets and debts and the valuation according to IFRS. Deferred tax assets largely result from the assessment of accumulated losses carried forward which can be used for tax purposes. Here an assessment based on a tax result plan was used for deferred tax assets, the value of which was not recoverable through an equivalent amount of deferred tax liabilities. In all, losses carried forward were assessed and deferred tax assets for losses carried forward booked amounting to € 19.5 million (previous year € 28.1 million). € 11.8 million of this amount is allotted to the assessed trade and corporate tax losses carried forward by GFKL Financial Services AG. These are substantiated by a five-year tax plan. Losses carried forward amounting to approximately € 17.3 million (previous year € 17.1 million, each after assessment at the theoretical tax rate) were not booked. These largely ( € 10.5 million, previous year € 13.4 million) refer to the trade and corporate tax losses carried forward by ADA – Das SystemHaus GmbH. Due to the company’s loss history, no losses carried forward were booked pursuant to IAS 12.35. For further details, please refer to section IV.12 “Income taxes”.

22. Interest rate swap

Existing financial derivative instruments for hedging cash flow risks pursuant to IAS 39, which amounted to € 1,467k (previous year € 95k), relate to interest hedging on loans with variable interest rates held by the British subsidiary through existing warehouse financing lines. During the reporting period, GFKL Financial Services AG also concluded three interest rate swaps with a market value amounting to € -194k as of the balance sheet date. The changes in the market values of the swaps designated as cash flow hedges were booked in the valuation reserve for financial instruments without affecting the result. According to IAS 39, changes to the value of these financial instruments must be booked as equity without affecting the result insofar as they are deemed to be effective both prospectively and retrospectively.

The interest swap from the Bayerische Landesbank amounting to € 130.9 million (previous year € 50.7 million) is listed in British pounds, and secures interest payments (cash flows) in British pounds from various leasing refinancing agreements concluded by Universal Leasing Ltd. against risks of interest rate changes.

The designation of a number of cash flow hedges existing during the previous year for the purpose of hedging interest on bilateral loans and promissory note bonds held by GFKL Financial Services AG was reversed in November 2007. At the time of the reversal, the market values of the interest swaps booked in the valuation reserve amounted to € 2,303k. The corresponding revaluation reserve was dissolved over the period of the underlying hedged transactions. No financial derivative instruments for hedging fair value risks pursuant to IAS 39 existed as of the balance sheet date or during the previous year.

In order to hedge risks associated with interest-related changes in the market values of the NPL portfolios, GFKL Financial Services AG and various subsidiaries concluded seven new interest rate swaps with a nominal volume of € 137.2 million during the period under review. The market value of these interest rate swaps amounted to € 86k as of the balance sheet date. As there is no formal hedging relationship pursuant to IAS 39, the changes in the market values of the swaps are booked with a corresponding effect on income.

The market values of the financial derivative instruments concluded by foreign subsidiaries amounted to € 98k as of the balance sheet date. Here too, as there is no formal hedging relationship pursuant to IAS 39, the changes in the market values are booked with a corresponding effect on income.

Current liabilities

23. Liabilities due to banks

The current liabilities due to banks amounting to € 79,891k (previous year € 57,086k) largely result from the prefinancing of new business in the Credit segment. The Group has prefinancing lines available at various banks for this purpose; interest is largely charged at a variable rate based on EURIBOR. The following table shows the prefinancing lines and other current liabilities due to banks:

The aggregate figures from the previous year are presented in the following table for purposes of comparison

The term to maturity of the current liabilities due to banks is less than one year. The CP prefinancing lines have either unlimited terms or terms of between one and two years. Securities exist for the prefinancing lines in the form of relinquishment of the respective prefinanced leasing receivables which were released at the time of securitization in the ABCP programs/ABS bond.

24. Interest-bearing leasing liabilities from refinancing

For refinancing purposes, the Group sells its receivables from existing leasing installments and/or agreed residual values to various refinancing institutions, either individually or in packages. Furthermore, the refinancing of the receivables is mapped via bank loans. As of December 31, 2007, receivables with a total value of € 55,689k (previous year € 24,438k) were sold to refinancing institutions and € 388,858k (previous year € 291,710k) were refinanced by means of bank loans. In accordance with IFRS, both refinancing methods are booked as leasing liabilities. The marked increase in leasing liabilities is due to the leasing business of Universal Lease Iberia S.A., which is largely refinanced by loans. The current leasing liabilities from refinancing, divided into installment payments and residual values sold as assets through real and unreal factorization, have developed as follows in the last two business years:

The proportion of leasing liabilities from refinancing with a residual term of more than one year is balanced under non-current leasing liabilities from refinancing.

As of December 31, 2007, the lion’s share of all newly generated (non-current and current) receivables from the leasing business was refinanced by means of forfeiting via the ABCP programs and until April 2007 via the ABS bond. The increase in leasing liabilities from refinancing is largely due to the consolidated foreign leasing companies. Universal Lease Iberia S.A.’s receivables were securitized for the first time in January 2008. Here too, the increased use and set-up of ABCP programs is envisioned for the medium term.

25. Trade payables

The trade payables are largely liabilities from the purchase of leasing and hire-purchase objects and the obligation to pass on payments received from the portfolio management:

26. Tax provisions

Tax provisions largely relate to trade tax expenses amounting to € 7.3 million (previous year € 3.9 million) and corporate tax/solidarity surcharge amounting to € 3.6 million (previous year € 3.7 million).

27. Other provisions

Further to costs expected to be incurred during legal disputes, the other provisions also refer to provisions for guarantees and servicing. Provisions are formed at an amount equivalent to the expected degree of utilization. They account for all recognizeable risks associated with obligations which have not yet been fixed. The provisions for legal costs relate to expenses expected to arise from legal disputes. The exact due dates of legal expenses cannot be determined. Servicing provisions largely relate to the full service provided by the Credit segment. Costs are expected to arise in the following business year. Guarantee provisions largely relate to the Systems segment. These guarantees refer to customized products manufactured in-house and repairs to be carried out in the servicing area. These costs will become due within the next four business years. The provisions for deposition costs were formed to cover the statutory obligation to preserve business documents. Business documents must be preserved for up to ten years. Anniversary provisions refer to obligations based on periods of employment. They cover service anniversaries of up to 45 years. The following table shows how other provisions have developed over the business years. The increase in the amount discounted over the reporting period as a result of the time lapse and the effects of changes to the discount rate did not exert any significant influence during the reporting period.

28. Other current operating liabilities

The payment transfer obligations from capital market refinancing (ABCP programs and ABS bond) largely refer to client payments passed on at the beginning of January.

Tax liabilities include wage and church tax as well as sales tax liabilities.

“Third-party monies payable” are payments received from debtors in the collection sector defined as of the balance sheet date. These were passed on at the beginning of January.

The item “Customers with credit balances” largely refers to early payments of installments and residual values in the leasing sector which were due after the balance sheet date, as well as customer payments made before the commencement of the agreement.

In all, the increase in other current operating liabilities is largely due to the companies initially consolidated during the business year.

Liabilities

The most important liabilities in the Group as of December 31, 2007 are presented in the following table according to their maturity: