(1) Sales
Sales mainly involve revenues in the DIY store and builders’ merchant segments. Revenues amounting to € 3,639k (2007/2008: € 3,208k) from the letting of real estate have also been reported under sales.

The sales of the Group broken down into business fields and regions have been depicted in the segment report.

(2) Cost of goods sold
The cost of goods sold represents the expenses required for the generation of sales and is structured as follows:

(3) Selling and store expenses
Selling and store expenses include those costs incurred in connection with the operation of DIY megastores with garden centers and of builders’ merchant centers. These mainly involve personnel expenses, costs of premises and advertising expenses, as well as depreciation and amortization. Moreover, this item also includes general operating expenses, such as administration expenses, transport costs, maintenance and upkeep and rental expenses for plant and equipment.

(4) Pre-opening expenses
Pre-opening expenses mainly relate to those expenses arising at or close to the time of the construction up to the opening of new DIY megastores with garden centers. Pre-opening expenses mainly consist of personnel expenses, administration expenses, costs of premises, miscellaneous personnel expenses and depreciation and amortization.

(5) General and administration expenses
General and administration expenses include all other costs incurred in connection with the operation or construction of DIY stores with garden centers and of builders’ merchants centers which cannot be directly allocated to such. They mainly consist of personnel expenses, legal and advisory expenses, depreciation and amortization, costs of premises and miscellaneous administration expenses, such as IT, travel and vehicle expenses.

(6) Other income and expenses
Other income and expenses are structured as follows:

Until the 2007/2008 financial year, foreign currency gains and losses and the income and expenses from the measurement of primary receivables and liabilities in foreign currencies were reported under other income and expenses, while the measurement of derivative foreign currency hedging instruments was included in net financial expenses. As these earnings items are linked in economic terms, starting in the 2008/2009 financial year all gains and losses from foreign currency exchange have been reported under net financial expenses (please see Note 7). The previous year’s figures have been adjusted accordingly. Other income of € 38,372k and other expenses of € 27,600k were reported in the 2007/2008 annual report. These figures included income of € 5,794k and expenses of € 9,415k from exchange differences, which have now been reported in the other financial result.

Miscellaneous other income from operating activities principally relates to income from damages payments, other income from personnel grants, and income from the writing back of receivables.

The non-operating income reported for the 2008/2009 financial year chiefly results from the disposal of three DIY store properties and of land and buildings not required for operations. These were executed in some cases as disposals of real estate companies and in some cases as disposals of assets. The DIY store properties have been leased back on a long-term basis within the framework of operating leases. There are rental extension options following the non-terminable basic rental period. The previous year’s figure related to the disposal of unused reserve land.

Miscellaneous other operating expenses include losses incurred on damages, write-downs of receivables, defaults on receivables, and expenses for services charged on. The corresponding income is reported under miscellaneous other income.

(7) Net financial expenses

Gains and losses from foreign currency exchange have been reported under net financial expenses for the first time in the 2008/2009 financial year. Previously, income and expenses from exchange differences were presented under other income and expenses (please see Note 6). In this respect, the presentation of net financial expenses has been adjusted. This has resulted in net interest expenses and the other financial result being presented as subtotals within net financial expenses. Gains and losses from the fair value measurement of derivative financial instruments and gains and losses from foreign currency exchange have been reported on a net basis for reasons of materiality. The previous year’s figures have been adjusted accordingly.

In line with IAS 17 “Leases”, financial leasing contracts are reported under property, plant and equipment and the interest component of the leasing installment amounting to € 143k (2007/2008: € 153k) under interest and similar expenses. Net interest expenses do not include interest incurred for financing the construction stage of real estate development measures. This interest amounted to € 5,752k (2007/2008: € 5,471k) in the year under report and has been capitalized as an integral component of the costs of the property, plant and equipment concerned. As in the previous year, the average financing cost rate used to determine the level of debt costs to be capitalized amounted to 5.9 %.

(Deferred) interest payments on interest swaps included as a hedging instrument within cash flow hedges pursuant to IAS 39 are netted for each swap contract and recognized on the basis of their net amount either as interest income or interest expenses.

Gains and losses from the fair value measurement of derivative financial instruments include an amount of € -303k (2007/2008: € 482k) in connection with the fair value measurement of derivative foreign currency instruments, and an amount of € -648k (2007/2008: € -648k) for the ineffective portion of the change in value of an interest swap used as a hedge within a hedging relationship pursuant to IAS 39.

Gains and losses from foreign currency exchange chiefly consist of realized exchange rate gains of € 10,348k (2007/2008: € 8,202k) and realized exchange rate losses of € 10,251k (2007/2008: € 9,239k). Furthermore, gains and losses from foreign currency exchange also include net expenses of € 902k (2007/2008: € 2,584k) from the measurement of foreign currency receivables and liabilities.

(8) Taxes on income
The taxes on income reported include the taxes on income paid or payable in the individual countries, as well as deferred tax accruals.

As in the previous year, the German companies included in the HORNBACH HOLDING AG Group are subject to an average trade tax rate of approximately 14 % of their trading income. The corporate income tax rate continues to amount to 15 %, plus 5.5 % solidarity surcharge.

All domestic deferred tax items have been valued at an unchanged average tax rate of 30 %. The calculation of foreign income taxes is based on the relevant laws and regulations in force in the individual countries. The income tax rates applied to foreign companies range from 16 % to 31 % (2007/2008: 16 % to 30 %).

The actual income tax charge of € 31,458k (2007/2008: € 9,347k) is € 11,835k lower (2007/2008: € 10,939k) than the expected tax charge of € 43,293k (2007/2008: € 20,286k), which would have been payable by applying the average tax rate of 30 % (2007/2008: 30 %) to the pre-tax earnings of the Group.

Deferred tax assets have been stated for as yet unutilized losses carried forward amounting to € 34,187k (2007/2008: € 42,574k). HORNBACH HOLDING AG expects it to be possible to offset the tax losses carried forward, which in some cases are attributable to start-up losses in individual countries, against future earnings in full. No deferred tax assets have been reported in the case of losses carried forward amounting to € 20,625k (2007/2008: € 10,930k) in view of the fact that a future realization of the resultant benefit is not to be expected.

At its meeting on July 6, 2007, the German Federal Council adopted the 2008 Corporate Taxation Reform Act. This has resulted in the tax rate in Germany being amended from its previous level of around 38 % to around 30 %. The adjustment of deferred tax assets and liabilities previously stated to the lower tax rate resulted in deferred tax income amounting to € 13.3 million in the previous year.

Breakdown of the tax charge:

Deferred taxes amounting to € 1,713k (2007/2008: € -395k) have been recognized directly in equity.

The transition from the anticipated to the actual income tax charge is as follows:

(9) Earnings per share
The basic earnings per share are calculated in line with IAS 33 (Earnings per Share) by dividing the consolidated net income allocable to the shareholders of HORNBACH HOLDING AG by the weighted average number of shares in circulation during the financial year.

(10) Other disclosures on the income statement

Personnel expenses

Wages and salaries also include expenses relating to temporary personnel. The social security contributions include pension expenses amounting to € 2,608k (2007/2008: € 3,387k). Personnel expenses include expenses of € 23,260k (2007/2008: € 22,801k) in connection with the employer’s share of the statutory pension scheme.

Depreciation and amortization
Amortization of intangible assets, depreciation of property, plant and equipment and investment property:

As in the previous year, the impairment losses recognized in the 2008/2009 financial year relate to land and to advance payments made on land and buildings. They mainly result from a write-down to expected net sale value. Reference is also made to Note 12 in this respect.

Depreciation and amortization is included in the following items in the income statement:

Notes on the Consolidated Balance Sheet

(11) Intangible assets
The development of intangible assets during the 2007/2008 and 2008/2009 financial years was as follows:

Additions to franchises, industrial property rights and similar rights and values and licenses to such rights and values mainly relate to the acquisition of software licenses for various IT projects and to the customer base of a builders’ merchant business acquired in the year under report.
In the previous year, additions mainly involved license fees for SAP software in order to extend the existing SAP systems, as well as expenses incurred to adapt the software for its intended utilization.

The disposals of € 1,370k in the previous year mainly related to the disposal of software and of the utilization rights for a piece of land acquired in the 2007/2008 financial year.

As in the previous year, there are no major restrictions on ownership and disposition rights.

(12) Property, plant and equipment, as well as investment property
The development of property, plant and equipment during the 2007/2008 and 2008/2009 financial years was as follows:

The additions resulting from changes in the scope of consolidation in the 2008/2009 financial year, amounting to € 7,313k, relate to the acquisition of the real estate company InterCora – invest a.s. Plzen.

Impairment losses of € 4,199k were recognized in the financial year under report (2007/2008: € 3,602k). Of this total, € 1,275k related to land (2007/2008: € 0k), € 1,296k to advance payments for land (2007/2008: € 0k), € 1,628k to buildings (2007/2008: € 150k), € 0k to buildings under construction (2007/2008: € 1,124k) in the real estate segment, and € 0k to other property, plant and equipment (2007/2008: € 2,328k). Of the impairment losses, an amount of € 2,902k relates to investment property (2007/2008: € 150k).

Impairment losses relate to assets not used for operations and to advance payments made for planned DIY store locations. They result from the valuation of assets whose carrying amounts are in excess of their respective net sale values. The net sale values of the assets were in most cases determined on the basis of fair value surveys and purchase offers.

The write-ups of € 1,294k in the 2008/2009 financial year relate to the appreciation in value of land for which impairment losses were recognized in previous years. Of this total, € 643k relates to properties let to third parties and € 651k to land used for operations. The write-ups have been based on current fair value surveys and have been recognized under other non-operating income and expenses for the real estate segment.

Reference is made to Note 7 with regard to capitalized financing costs.

The real estate assets are predominantly owned by HORNBACH-Baumarkt-AG, HORNBACH Immobilien AG and real estate companies established for this purpose.

Other equipment, plant and office equipment mainly relate to HORNBACH-Baumarkt-AG, Union Bauzentrum Hornbach GmbH, Ruhland Kallenborn & Co. GmbH, and Robert Röhlinger GmbH in the case of German consolidated companies and to Hornbach Baumarkt GmbH, HORNBACH Baumarkt Luxemburg SARL, HORNBACH Baumarkt CS spol s.r.o., HORNBACH-Baumarkt SK spol s.r.o., Hornbach Bouwmarkt (Nederland) B.V., Hornbach Baumarkt (Schweiz) AG, Hornbach Byggmarknad AB and HORNBACH Centrala SRL in the case of foreign consolidated companies.

Investment property relates to retail properties at various locations in Germany and abroad. The respective rental contracts have basic rental periods of 1 to 15 years and in some cases provide extension options for the lessee. The properties leased to third parties are stated at cost less scheduled straight-line depreciation. A useful life of 33 years has been assumed. The fair value of investment property amounts to approximately € 54,290k (2007/2008: € 34,229k). The fair values have been determined by independent experts in the overwhelming majority of cases. The valuations are based on the capitalized earnings power of the individual pieces of real estate on the open market. In some cases, the fair values have been based on purchase offers received.

The real estate acts as security for bank loans in the form of registered land charges amounting to € 517,641k (2007/2008: € 517,261k).

Non-current assets available to the Group within the framework of a financial leasing contract have been reported in the balance sheet as property, plant and equipment amounting to € 1,496k (2007/2008: € 1,662k). They relate to one rented building. The financial leasing contract has been concluded for a basic rental period of 20 years. At the end of the basic rental period, there is an option to extend the contract at least once for a period of 5 years. The leased asset acts as security for the leasing obligation.

In addition to the financial leasing contract, the HORNBACH HOLDING AG Group has rental and leasing contracts for DIY store real estate which qualify as operating leasing contracts, as the assets leased are attributable in economic terms to the lessor. The leasing contracts have non-terminable basic rental periods of 15 to 20 years and generally have rental extension or purchase options.

The rental expenses, excluding ancillary expenses, resulting from operating lease contracts were reported at € 79,712k in the 2008/2009 financial year and at € 77,980k in the 2007/2008 financial year.

In the previous year, investment subsidies amounting to € 43k were claimed at HORNBACH HOLDING AG. These investment subsidies were granted for the Vilshofen location. Of this sum, € 1k related to outdoor facilities and € 42k to plant and office equipment.

(13) Financial assets
The development of financial assets during the 2007/2008 and 2008/2009 financial years was as follows:

The non-consolidated associated companies have been stated in Note 36. The additions of € 3,668k to advance payments for financial assets in the 2008/2009 financial year are due to an advance payment for shares in the real estate company Development OVA South a.s., Opava/Czech Republic. The additions in the previous year (€ 540k) related to the share in associated companies held in Saar-Lor-Immobilière S.C.L. (60 % share) (€ 386k), the investment held in the limited partner’s capital of Interbaustoff GmbH & Co. KG (€ 6k), and advance payments for the share in Vasakronan Lagerbolag 21AB Sundbyberg (€ 148k).

The disposals from financial assets in the 2008/2009 financial year relate to the derecognition of the advance payment made in previous years for the share in the Swedish real estate company Vasakronan Lagerbolag 21AB Sundbyberg. The disposal of investments (€ 12,350k) and other loans (€ 1,794k) in the previous year related to the liquidation of Decor Inc. USA.

There were no disposals due to changes in the scope of consolidation in the 2008/2009 financial year. The disposals of € 156k in the previous year resulted from the initial consolidation of the shares held in HIAG Botkyrka AB.

All financial assets have been stated at cost, as their fair values cannot be reliably determined.

(14) Other non-current receivables and assets
Other non-current receivables and assets chiefly consist of remaining purchase price receivables totaling € 15,626k in connection with a sale and leaseback transaction and the sale of land not used for operations by disposing of three real estate companies. Furthermore, this item also includes deposits of € 3,627k (2007/2008: € 3,340k) paid as security for possible subsequent claims to purchase price reductions on the part of buyers. The deposits have maximum terms of 14 years. Moreover, the item also includes guarantees of € 2,621k (2007/2008: € 337k) for part-time early retirement time account reinsurance in the event of insolvency and the net balance of the fair value of plan assets and the present value of the pension obligation for the statutory pension obligation in Switzerland, which amounts to € 836k (2007/2008: € 2,009k). Further details about this item and its development can be found in Note 23.

(15) Deferred taxes
Deferred taxes relate to the following items:

(16) Inventories

(17) Receivables and other assets
The receivables and other assets of the Group are structured as follows:

Other receivables and assets include the short-term portion of the remaining purchase price receivable of € 6,731k due in connection with the sale of land not required for operations by disposing of three Austrian real estate companies. The long-term portion, amounting to € 9,038k, has been reported under other noncurrent assets. Furthermore, other receivables and assets also include receivables in connection with product reimbursements, receivables from credit card companies and deferred charges and prepaid expenses.

As in the previous year, there are no major restrictions on ownership or disposition rights in respect of the other receivables and assets reported in the balance sheet.

The following tables provide an analysis of the financial assets included under receivables and other assets. Only those receivables for which specific allowances have been taken have been portrayed as having been written down. The HORNBACH HOLDING AG Group also accounts for credit risk by stating portfolio-based allowances calculated on the basis of historic default rates and empirical values.

Allowances for trade receivables and for other receivables and assets developed as follows:

The complete cancellation of receivables resulted in expenses of € 512k (2007/2008: € 294k). The receipt of receivables already cancelled from the books resulted in income of € 149k (2007/2008: € 167k).

(18) Cash and cash equivalents

(19) Non-current assets held for sale and disposal groups
This item includes assets and liabilities which are highly likely to be sold in the coming financial year. The item includes two DIY store properties and the company aircraft. Of these assets, € 49,707k have been allocated to the real estate segment and € 1,307k to the consolidation/other segment (head office). Write-ups of € 0k were undertaken on the assets in the 2008/2009 financial year (2007/2008: € 120k). Due to an adjustment in the sale price in the current financial year, impairment losses of € 479k have been recognized for one property not used for operations which was sold in the 2008/2009 financial year. In the previous year, eight pieces of land and properties not used for operations, one DIY store property and the assets and liabilities of six real estate companies were reported, all of which in the real estate segment.

(20) Shareholders’ equity
The development in the shareholders’ equity of the HORNBACH HOLDING AG Group is shown in the statement of changes in group equity for the 2008/2009 and 2007/2008 financial years.

Share capital
The share capital continues to amount to € 24,000,000.00. Each share has a nominal value of € 3.00. The shares are divided as follows:

Each ordinary share entitles its holder to one vote. Non-voting preference shares receive a preferential dividend amounting to 4 % of their portion of the share capital from the net profit for the year. If the net profit is not sufficient in one or several financial years to distribute a preferential dividend of at least 4 % on the preference shares, the arrears are payable without interest from the net profit of the following years in such a way that the older arrears are settled before the more recent arrears and that the preferential payments to be made from the profit of a given financial year are only to be made once all arrears have been settled. This right to subsequent payment constitutes an integral part of the dividend for the financial year in which the subsequent payment on the preference shares is made from the net profit of the year.

Following the subsequent payment of any arrears of dividends on preference shares in connection with previous years and the distribution of a preferential dividend, a dividend is then paid on the ordinary shares from the remaining net profit up to 4 % of their proportion of the share capital. After the distribution of a dividend of 4 % on the ordinary shares, the preference and ordinary shares participate in a further dividend distribution in the ratio of their respective proportions of the share capital in such a way that the preference shares receive a further dividend of 2 % in addition to the dividend payable on ordinary shares.

If the preferential amount is not paid or is not paid in full in a year and if the arrears are not paid in the following year in addition to the full preferential amount for that year, preference shareholders shall be granted voting rights until the arrears have been settled.

HORNBACH HOLDING AG published the following notification in the Stock Exchange Gazette (Börsenzeitung) on April 20, 2002 pursuant to Section 41 (3) of the German Securities Trading Act (WpHG): Kingfisher plc, London/UK, has notified us pursuant to Section 41 (2) Sentence 1 WpHG that it held 25 % plus one share of the voting rights (1,000,001 ordinary shares) in HORNBACH HOLDING AG on April 1, 2002. These relate exclusively to its own voting rights.

HORNBACH Familien-Treuhandgesellschaft mbH, Annweiler am Trifels, has notified us pursuant to Sections 21 (1) and 22 (1) No. 6 WpHG that its share of the voting rights in HORNBACH HOLDING AG, Neustadt an der Weinstrasse, exceeded the 5 % threshold on August 6, 2002 and now amounts to 75 % less one share (2,999,999 ordinary shares). Approximately 22.62 % of the voting rights (904,763 ordinary shares) are now attributable to it pursuant to Section 22 (1) No. 6 WpHG.

HORNBACH HOLDING AG published the following notification in the Stock Exchange Gazette (Börsenzeitung) on September 7, 2004 pursuant to Section 25 (1) WpHG: Albert Hornbach, Bornheim/Pfalz, has notified us pursuant to Section 21 (1) WpHG that his share of the voting rights in HORNBACH HOLDING AG, Neustadt an der Weinstrasse, fell below the 10 % threshold on August 18, 2004 and now amounts to 5.494 % of the voting capital in the company (219,763 ordinary shares). These relate exclusively to his own voting rights. Gertraud Hornbach, Bornheim/Pfalz, has notified us pursuant to Section 21 (1) WpHG that her share of the voting rights in HORNBACH HOLDING AG, Neustadt an der Weinstrasse, exceeded the 5 % threshold on August 18, 2004 and now amounts to 5.25 % of the voting rights (210,000 ordinary shares). These relate exclusively to her own voting rights.

HORNBACH HOLDING AG published the following voting rights notification electronically with the aim of circulation across Europe on June 15, 2007 pursuant to Section 26 (1) WpHG:

Kingfisher Holdings BV, Amsterdam/Netherlands notified us on June 15, 2007 pursuant to Section 21 (1) WpHG that the share of voting rights in HORNBACH HOLDING AG (ISIN DE0006083405) held by Kingfisher Holdings BV exceeded the 3 %, 5 %, 10 %, 15 %, 20 % and 25 % thresholds on June 12, 2007 and on that date amounted to 25 % plus one vote (1,000,001 voting rights) in terms of all voting rights and in terms of all ordinary shares in HORNBACH HOLDING AG with voting entitlement.

Kingfisher SAS, Lille/France, notified us on June 15, 2007 pursuant to Section 21 (1) WpHG that its share of voting rights in HORNBACH HOLDING AG (ISIN DE0006083405) exceeded the 3 %, 5 %, 10 %, 15 %, 20 % and 25 % thresholds on June 12, 2007 and on that date amounted to 25 % plus one vote (1,000,001 voting rights) in terms of all voting rights and in terms of all ordinary shares in HORNBACH HOLDING AG with voting entitlement.

These voting rights are attributable to Kingfisher SAS pursuant to Section 22 (1) Sentence 1 No. 1 WpHG.

The voting rights attributable to Kingfisher SAS are held via the following company controlled by Kingfisher SAS whose share of voting rights in HORNBACH HOLDING AG amounts to 3 % or more:

– Kingfisher Holdings BV

Castorama Dubois Investissements SCA, Lille/France, notified us on June 15, 2007 pursuant to Section 21 (1) WpHG that its share of voting rights in HORNBACH HOLDING AG (ISIN DE0006083405) exceeded the 3 %, 5 %, 10 %, 15 %, 20 % and 25 % thresholds on June 12, 2007 and on that date amounted to 25 % plus one vote (1,000,001 voting rights) in terms of all voting rights and in terms of all ordinary shares in HORNBACH HOLDING AG with voting entitlement.

These voting rights are attributable to Castorama Dubois Investissements SCA pursuant to Section 22 (1) Sentence 1 No. 1 WpHG.

The voting rights attributable to Castorama Dubois Investissements SCA are held via the following companies controlled by Castorama Dubois Investissements SCA whose share of voting rights in HORNBACH HOLDING AG amounts to 3 % or more:

– Kingfisher Holdings BV
– Kingfisher SAS

Kingfisher France Limited, London/UK, notified us on June 15, 2007 pursuant to Section 21 (1) WpHG that its share of voting rights in HORNBACH HOLDING AG (ISIN DE0006083405) exceeded the 3 %, 5 %, 10 %, 15 %, 20 % and 25 % thresholds on June 12, 2007 and on that date amounted to 25 % plus one vote (1,000,001 voting rights) in terms of all voting rights and in terms of all ordinary shares in HORNBACH HOLDING AG with voting entitlement.

These voting rights are attributable to Kingfisher France Limited pursuant to Section 22 (1) Sentence 1 No 1 WpHG.

The voting rights attributable to Kingfisher France Limited are held via the following companies controlled by Kingfisher France Limited whose share of voting rights in HORNBACH HOLDING AG amounts to 3 % or more:

– Kingfisher Holdings BV
– Kingfisher SAS
– Castorama Dubois Investissements SCA

Sheldon Holdings Limited, London/UK, notified us on June 15, 2007 pursuant to Section 21 (1) WpHG that its share of voting rights in HORNBACH HOLDING AG (ISIN DE0006083405) exceeded the 3 %, 5 %, 10 %, 15 %, 20 % and 25 % thresholds on June 12, 2007 and on that date amounted to 25 % plus one vote (1,000,001 voting rights) in terms of all voting rights and in terms of all ordinary shares in HORNBACH HOLDING AG with voting entitlement.

These voting rights are attributable to Sheldon Holdings Limited pursuant to Section 22 (1) Sentence 1 No. 1 WpHG.

The voting rights attributable to Sheldon Holdings Limited are held via the following companies controlled by Sheldon Holdings Limited whose share of voting rights in HORNBACH HOLDING AG amounts to 3 % or more:

– Kingfisher Holdings BV
– Kingfisher SAS
– Castorama Dubois Investissements SCA
– Kingfisher France Limited

Revenue reserves
Revenue reserves include “other revenue reserves”, as well as accumulated earnings attributable to shareholders.

Revenue reserves also include foreign currency translation differences amounting to € 3,279k (2007/2008: € 7,073k).

Disclosures concerning capital management
The capital management practiced by HORNBACH HOLDING AG pursues the aim of maintaining a suitable equity base in the long term. The equity ratio is viewed as representing an important key figure for investors, analysts, banks and rating agencies. The company aims on the one hand to achieve the growth targets it has set itself while maintaining healthy financing structures and a stable dividend policy, and on the other hand to achieve long-term improvements in its key rating figures. The capital management instruments deployed include active debt capital management.

The company has entered into covenants towards some providers of debt capital which require it to maintain an equity ratio of at least 25 %. The equity ratio, interest cover, debt/equity ratio and company liquidity (cash and cash equivalents plus unutilized committed credit lines) are monitored on a monthly basis as part of the company’s risk management. Further key figures are calculated on a quarterly basis. In the event of the values falling short of certain target levels, then suitable countermeasures are initiated at an early stage. The covenants were complied with at all times during the 2008/2009 financial year. The equity ratio amounted to 39.1 % as of February 28, 2009 (2007/2008: 36.1 %).

There were no changes in the company’s equity management approach during the financial year under report.

(21) Distributable earnings and dividends
The distributable amounts involve the unappropriated net profit reported in the balance sheet of HORNBACH HOLDING AG prepared in accordance with German commercial law.

Following the withdrawal of € 3,267,253.95 from other revenue reserves, net profit amounts to € 8,880,000.00. The profit carried forward from the previous year thereby included in this net profit amounts to € 6,942.00. The Board of Management and Supervisory Board propose that the net profit be appropriated as follows:

(22) Financial debt
Total current and non-current financial debt is structured as follows:

HORNBACH-Baumarkt-AG placed a paper with a volume of € 250.0 million, a term of ten years and an interest coupon of 6.125 % on the European capital market for corporate bonds in November 2004. The expenses arising in connection with the corporate bond, amounting to € 10,714k in total, have been distributed over the term of ten years using the effective interest method. The bond is linked to compliance with covenants customary to banks, such as the ratio of EBITDA to interest expenses. Non-compliance with the respective ratios or other obligations set out in the bond agreement may result in a premature repayment obligation. Compliance with the covenants is monitored on a monthly basis as part of the company’s internal risk management. In the event of the values falling short of certain target levels, then countermeasures are initiated at an early stage. The company has so far complied with all such covenants.

The Group had current financial debt (< 1 year) of € 153.3 million at the reporting date on February 28, 2009. This relates to short-term financing facilities at the subgroups HORNBACH-Baumarkt-AG (€ 7.0 million), HORNBACH Immobilien AG (€ 46.0 million) and HORNBACH Baustoff Union GmbH (€ 40.2 million), liabilities in connection with bills of exchange (€ 0.6 million), interest provisions (€ 8.3 million), the portion of longterm financing facilities maturing in the short term (€ 45.8 million), and the measurement of derivative financial instruments (€ 5.4 million).

Land charges amounting to € 517,641k had been provided as security for existing mortgage loans as of the reporting date (2007/2008: € 517,261k). No contractual obligations were breached during the period under report.

Various bilateral credit lines at the HORNBACH-Baumarkt-AG Group were pooled into a syndicated credit line of € 200.0 million at HORNBACH-Baumarkt-AG in the 2006/2007 financial year. This has a term of 5 years and can be extended on two occasions, in each case by a further year. Following the unanimous approval already provided for the first extension option in the 2007/2008 financial year, the second extension possibility was also exercised by all banks involved in the 2008/2009 financial year. The current final maturity date for the credit line is 6.26.2013. The covenants to be complied with, such as EBITDA to interest expenses, are basically equivalent to the obligations governing the bond issued in 2004 and have been complied with at all times.

The HORNBACH HOLDING AG Group had credit lines amounting to € 523.0 million on February 28, 2009 (2007/2008: € 533.3 million). Unutilized credit lines amounted to € 429.1 million (2007/2008: € 466.0 million). Furthermore, HORNBACH-Baumarkt-AG has credit lines for import credits amounting to USD 20.0 million (2007/2008: USD 15.0 million). These had been drawn down in full at the reporting date (2007/2008: USD 4.4 million).

In addition to existing current account liabilities at normal market conditions and the bond issued in the 2004/2005 financial year, the Group also has medium and long-term liabilities to banks. These are mostly fixed-interest loans and consist of the following items:

The variable interest rates of swapped mortgage loans charge interest at the 3 month Eurolibor, the 3 month Euribor and the 6 month Euribor. The swap margins range from 0.45 to 1.5 basis points (2007/2008: 0.45 to 1.5 basis points).

Transition of future leasing payments to the liabilities from financial leasing contracts:

(23) Pensions and similar obligations
As a result of legal requirements in individual countries, the HORNBACH HOLDING AG Group has obligations relating to defined benefit and defined contribution pension plans.

Pension commitments in the Netherlands have been accounted for as defined contribution plans, given that the information required to account for these plans as defined benefit plans was not available.

Apart from the contributions, the defined contribution plans do not involve any further obligations on the part of the HORNBACH HOLDING AG Group. The total of all defined contribution pension expenses amounted to € 33,002k in the 2008/2009 financial year (2007/2008: € 32,114k).

In the case of defined benefit plans, a distinction is made between pension plans financed by provisions and those financed by funds. The HORNBACH HOLDING AG Group only has one fund-financed pension plan which is financed via an external pension provider. This pension plan is due to legal requirements in Switzerland, and grants old-age, invalidity and fatality pensions and payments. The employee covers 35 % of the premiums to be paid for the savings balances, as well as further clearly defined costs. The remaining expenses are covered by the employer. Risk and cost premiums are calculated by the insurance company on an individual basis and reassessed each year.

The plan assets were structured as follows at the reporting date:

Change in pension obligation

Change in plan assets

The amounts recognized through profit or loss are included in the personnel expenses allocated to the following items in the income statement:

Payments of contributions amounting to € 1.0 million are expected for the 2009/2010 financial year.

Actuarial gains and losses may arise on account of changes in the parameters underlying the calculation of the fair value of the pension obligation and the fair value of the plan assets. These changes are recognized directly in equity, together with the share of deferred taxes allocable to such changes.

The actuarial gains and losses recognized in equity (before deferred taxes) have developed as follows:

The calculation has been based on the following actuarial assumptions:

The historic development is as follows:

(24) Other non-current liabilities
Other non-current liabilities mainly involve non-current provisions. These include personnel provisions, provisions for contractually assumed structural maintenance obligations, and a provision required by law for the storage of business documents.

Other non-current personnel provisions mainly relate to part-time early retirement and to the statutory reserve required in Austria to cover potential claims on the part of employees in the event of their leaving the company. The provisions for part-time early retirement mainly involve the part-time early retirement agreements concluded by HORNBACH-Baumarkt-AG in the 2005/2006 and 2006/2007 financial years. The work undertaken by part-time early retirees is performed within the framework of the so-called block model. Provisions amounting to € 8,106k (2007/2008: € 7,789k) have been taken to cover the performance backlog up to the reporting date and for top-up payments. The provisions have been calculated by an independent expert on the basis of the 2005 G mortality tables published by Heubeck-Richttafeln-GmbH and using a discount rate of 5.6 % p.a. (2007/2008: 5.5 % p.a.). Moreover, provisions of € 67k (2007/2008: € 52k) were taken to cover part-time early retirement obligations in Austria.

(25) Trade payables and other liabilities

As in the previous year, all trade payables and other liabilities have outstanding terms of less than one year.

Trade payables are secured by reservations of title to the customary extent.

Other taxation liabilities include amounts for which the individual group companies are liable. Liabilities for social security contributions mainly include contributions yet to be remitted to the social security funds. In addition to the aforementioned items, other liabilities mainly include deposits and pledged funds, merchandise credits not yet redeemed, liabilities relating to salary payments to employees, and amounts due for outstanding invoices.

(26) Income tax receivables and liabilities
The receivables and provisions relating to taxes on income involve current tax liabilities / receivables, taxes resulting from an external tax audit performed in the 2007/2008 financial year, and taxes relating to previous financial years. Current income tax provisions are offset against corresponding income tax refund receivables, provided that they relate to the same tax authority and are identical as far as their type and their due date are concerned. Tax provisions for current income taxes mainly relate to corporate income tax (including the solidarity surcharge) and to trade tax.

No provisions have been stated for potential back payments of tax amounting to € 1,801k (2007/2008: € 1,931k) in connection with the completed tax audit, as the company will initiate legal proceedings if necessary.

The “German act on fiscal measures accompanying the introduction of the European Company and amending further tax legislation (SEStEG)” came into force on December 12, 2006. Among other aspects, this act provides for allowing the refunds of corporate income tax credits resulting from the retention of profit in accordance with previous corporation tax law requirements no longer to be linked to the distribution of profits. This corporate income tax credit was calculated for the last time as of December 31, 2006 and is subsequently being paid out in 10 equal annual amounts on September 30 of each year starting in 2008. At the final calculation date, the HORNBACH HOLDING AG Group had corporate income tax refund receivables pursuant to Section 37 of the German Corporate Income Tax Act (KStG) originally totaling € 24.8 million, of which € 19.8 million still pertain. These have been capitalized as current and non-current tax receivables at their present value of € 16.9 million (2007/2008: € 20.4 million).

Reference is made to Note 15 with regard to the deferred taxes capitalized under a separate item.

(27) Other provisions and accrued liabilities
Development in provisions and accrued liabilities in the 2008/2009 financial year:

Miscellaneous other current provisions mainly relate to provisions for onerous contracts and litigation risks. Reference is made to Note 24 with regard to details of non-current provisions.

Other taxes largely involve the deferral of land and payroll taxes.

The accrued liabilities for personnel obligations primarily relate to outstanding holiday entitlements, overtime, holiday pay, Christmas bonuses, employee bonuses and the disabled persons levy.

Miscellaneous accrued liabilities relate in particular to the costs of gas, water, and electricity, as well as to year-end expenses and legal advisory expenses.

Other Disclosures

(28) Contingent liabilities
As in the previous year, there were no contingent liabilities as of February 28, 2009.

(29) Other financial obligations

The obligations resulting from rental, hiring, leasehold and leasing contracts relate exclusively to those rental contracts in which the companies of the HORNBACH HOLDING AG Group do not constitute the economic owners of the rented assets pursuant to IFRS regulations (Operating Lease). Rental agreements mainly relate to DIY stores in Germany and at foreign locations. The terms of the rental agreements range from 15 to 20 years, and there are subsequent rental prolongation options. The respective agreements include rent adjustment clauses.

The Group has a refund claim of around € 5.6 million, including interest, in connection with impairment losses and receivables defaults at a foreign shareholding which have not yet been recognized for tax purposes. HORNBACH HOLDING AG assumes that it will be possible to realize this claim.

Furthermore, the Group also has recourse claims of approximately € 3.0 million in connection with renovation obligations for a DIY megastore with a garden center let in the context of a sale and leaseback transaction. These claims are likely to prove enforceable.

(30) Future income from rental and leasing contracts
Future income from rental and leasing contracts is structured as follows:

The rental income mainly results from the letting of retail real estate and office space. In most cases, the rental contracts have terms of between 5 and 15 years.

Rental income has only been reported for up to one year in the case of rental contracts with indeterminate contractual terms.

Expenses of € 2,160k (2007/2008: € 1,944k) were incurred in connection with the letting of properties to third parties during the year under report.

(31) Legal disputes
HORNBACH HOLDING AG does not anticipate that it or any of its group companies will be involved in current or foreseeable court or arbitration proceedings which could have a material effect on the economic situation of the Group. Moreover, appropriate provisions have been taken or adequate insurance benefits are anticipated for any financial charges in connection with other legal or arbitration proceedings involving the group companies. Such charges are therefore not expected to have any significant impact on the financial position of the Group.

A lawsuit filed on March 25, 2009 has led to additional risks resulting from the assertion for the first time of claims in connection with a DIY megastore with a garden center built in the 2004/2005 financial year and since sold. The level of potential claim amounted to € 2.0 million at the reporting date. The possibility of the HORNBACH HOLDING AG Group being held liable is not deemed probable, but cannot be excluded entirely.

(32) Supplementary disclosures on financial instruments
The following tables show the carrying amounts of the financial instruments in each IAS 39 measurement category, and their fair values broken down by balance sheet category:

Cash and cash equivalents, assets, disposal groups and liabilities held for sale, other financial assets, accrued liabilities, accounts payable and other liabilities mature in the short term in the majority of cases. Their carrying amounts therefore approximate to their fair values as of the reporting date.

The fair value of the publicly listed bond corresponds to the nominal value multiplied by the market value at the reporting date.

The fair values of the liabilities to banks and the liabilities in connection with finance leases have been calculated as present values.

The present values of financial assets and liabilities have been calculated based on current money market interest rates, taking due account of their maturity structure and the respective loan margin.

The net results of the measurement category “financial instruments held for trading” involve the measurement of derivative financial instruments at fair value through profit or loss. The net results of the measurement categories “loans and receivables” and “financial liabilities measured at amortized cost” result from foreign currency translation items, the results of disposals and write-downs. The net results of the measurement category “available for sale financial assets” relate to dividend income on the shareholding held in a non-consolidated associated company.

(33) Risk management and financial derivatives

Risk management principles

The assets, liabilities and planned financial transactions of the HORNBACH HOLDING AG Group are subject in particular to risks resulting from changes in exchange rates and interest rates.

The aim of the company’s risk management is therefore to minimize these risks by means of suitable financial market-based hedging activities. To achieve this aim, derivative financial instruments are deployed to limit interest rate and foreign currency risks. In general, however, the company only hedges those risks which could impact materially on the financial result.

The necessary decisions may only be taken on the basis of the strategic requirements determined by the Chief Financial Officer. These requirements focus on hedging interest rate and foreign currency risks. Moreover, financial transactions undertaken for speculative trading purposes are prohibited. Over and above that, certain transactions require prior approval by the Supervisory Board.

The treasury department regularly reviews and monitors the current and future interest charge and the foreign exchange requirements of the overall Group. The Board of Management is informed of its findings on a regular basis.

Market risks
For the presentation of market risks, IFRS 7.40 “Financial Instruments: Disclosures” requires the hypothetical impact on profit and loss and equity which would have resulted if those changes in the relevant risk variables (e.g. market interest rates or exchange rates) which could reasonably be assumed to be possible at the reporting date had actually materialized to be presented on the basis of sensitivity analyses. The market risks faced by the HORNBACH HOLDING AG Group consist of foreign currency risks and interest rate risks. The company does not face any other price risks.

Foreign currency risk
Foreign currency risks, i.e. potential reductions in the value of a financial instrument or future cash flow due to changes in foreign exchange rates, particularly apply wherever monetary financial instruments, such as receivables or liabilities, exist in a currency other than the local currency of the company, or will exist in the scheduled course of business. The foreign currency risks of the HORNBACH HOLDING AG Group mainly result from financing measures and from the company’s business operations. Exchange rate differences arising from the translation of financial statements into the group currency do not constitute a foreign currency risk as defined by IFRS 7.

The group companies are largely financed by means of external financing measures denominated in the functional currency of the corresponding group company (natural hedging). Moreover, there are also intragroup loans denominated in euros, thus resulting in foreign currency risks at those group companies which have a functional currency other than the euro. These risks are basically not hedged.

The foreign currency risks faced by the HORNBACH HOLDING AG Group in its business operations mainly relate to the purchase of goods in the Far East using US dollars and from intragroup supplies and services, which are basically handled in euros. The US dollar currency risk is hedged using forward exchange transactions and fixed deposits denominated in US dollars.

Including hedging measures, the Group had the following main foreign currency items open as of the reporting date:

In the sensitivity analysis provided below for foreign currency risks, it has been assumed that the foreign currency holdings as of the reporting date are representative of the financial year as a whole.

If the euro had appreciated by 10 % compared with the Group’s other main currencies at the reporting date, consolidated earnings before taxes would have been € 7,656k lower (2007/2008: € 4,757k). Conversely, if the euro had depreciated by 10 % compared with the Group’s other main currencies at the reporting date, then consolidated earnings before taxes would have been € 7,656k higher (2007/2008: € 4,757k). The hypothetical impact on earnings of € +7,656k (2007/2008: € +4,757k) is the result of the following sensitivities: EUR/CHF € -4,135k (2007/2008: € 2,675k), EUR/SEK € -3,017k (2007/2008: € 1,876k), EUR/RON € -2,169k (2007/2008: € 1,024k), EUR/CZK € 1,022k (2007/2008: € -692k), EUR/USD € 643k (2007/2008: € 269k) and EUR/SKK € 0k (2007/2008: € -395k).

Interest rate risk
At the end of the year, the Group was principally financed by a euro bond with a nominal total of € 250,000k and by an unsecured borrowers’ note loan amounting to € 80,000k. Furthermore, the Group also has longterm fixed-interest euro loans amounting to € 250,564k (2007/2008: € 289,013k), long-term CZK loans amounting to € 48,984k (2007/2008: € 61,932k), long-term RON loans amounting to € 12,694k (2007/2008: € 14,994k) and long-term SEK loans amounting to € 29,072k (2007/2008: € 11,709k). The principal longterm financial liabilities with floating interest rates have been converted into fixed-interest financial liabilities using derivative financial instruments.

The sensitivity analysis provided below is based on the following assumptions:

In the case of fixed-interest primary financial instruments, changes in market interest rates only impact on profit and loss or equity when such instruments are measured at fair value. Primary financial instruments measured at amortized cost are therefore not subject to any interest rate risk as defined in IFRS 7. The same applies to financial liabilities which originally had floating interest rates, but which have been converted into fixed-interest financial liabilities by means of cash flow hedges.

Changes in the market interest rates of interest derivatives designated to hedge primary financial instruments with floating interest rates within the framework of a cash flow hedge impact on the hedging reserve within equity and have therefore been accounted for in the equity-related sensitivity analysis.

Changes in the market interest rates of primary financial instruments with floating interest rates impact on profit and loss and have therefore been accounted for in the sensitivity analysis.

In the sensitivity analysis for interest rate risks, it has been assumed that the volumes as of the reporting date are representative of the financial year as a whole. A parallel shift in the interest rate structure curve has been assumed.

If the market interest rate had been 100 basis points higher at the reporting date, then consolidated earnings before taxes would have been € 1,528k higher (2007/2008: € 1,107k) and equity would have been € 3,140k higher (2007/2008: € 4,020k). Conversely, if the market interest rate had been 100 basis points lower at the reporting date, then consolidated earnings before taxes would have been € 1,528k lower (2007/2008: € 1,107k) and equity would have been € 3,273k lower (2007/2008: € 4,253k).

Credit risk
Credit risk involves the risk that a contractual party is unable to comply in part or in full with the obligations entered into upon the conclusion of a financial instrument. The credit risk of the Group is strictly limited to the extent that financial assets and derivative financial instruments are concluded as far as possible with contractual parties of good credit standing. Moreover, transactions with individual contractual partners are subject to a maximum limit. The risk of receivables default in the operating business is already considerably reduced on account of the retail format (cash & carry). The maximum credit risk is equivalent to the carrying amounts of the financial assets.

Liquidity risk
The following tables show the contractually agreed (undiscounted) cash flows of the primary financial liabilities and derivative financial instruments.

All financial liabilities existing at the reporting date have been included. No account has been taken of budget figures for future new liabilities. Variable interest payments were calculated on the basis of interest rates valid at the reporting date. Liabilities denominated in foreign currencies were translated at the relevant reporting date rate.

Reference is made to Note 22 with regard to the management of liquidity risk.

Hedging measures
Hedging transactions serve to hedge the interest rate and foreign currency risks associated with an underlying transaction (hedged item).

Cash flow hedge – interest rate risk
Payer interest swaps are concluded for major long-term financial liabilities with floating interest rates. These enable the variable interest rates on the loans to be converted into fixed interest rates. Creditworthiness risks are not hedged.

At the end of the 2008/2009 financial year, the Group had interest swaps amounting to € 124,082k (2007/2008: € 131,896k), with which a transformation from floating interest commitments to fixed interest commitments was achieved. The fair value of the interest swaps amounted to € -5,170k as of February 28, 2009 (2007/2008: € 393k). Of this total, € 0k (2007/2008: € 1,998k) has been recognized under other assets and € 5,170k (2007/2008: € 1,605k) under other liabilities. The terms of the interest rate swaps are congruent with the terms of the loans. All interest rate swaps fulfilled the requirements of hedge accounting at February 28, 2009. Changes in the fair values are recognized in the hedging reserve within equity.

The following table presents the maturities contractually agreed for the payments, i.e. the time at which the hedged item is recognized through profit or loss:

The HORNBACH HOLDING AG Group meets the hedge accounting requirement set out in IAS 39 in that it documents the relationship between the derivative financial instrument deployed as a hedging instrument and the hedged item, as well as the hedging objective and strategy, at the beginning of any hedging measure. This also includes an assessment of the effectiveness of the hedging instruments thereby deployed. The effectiveness of the hedging relationship is assessed prospectively using the critical terms match method. Retrospective effectiveness is calculated at each reporting date using the dollar offset method. A hypothetical derivative is taken as the hedged item. A hedging relationship is termed effective when the changes in the value of the hedging instrument and the hypothetical derivative are compensated by between 80 % and 125 %. Hedging relationships are cancelled without delay upon becoming ineffective.

Other hedging measures – foreign currency risk
The HORNBACH HOLDING AG Group also deploys hedging measures which do not meet the hedge accounting requirements set out in IAS 39, but which nevertheless make an effective contribution towards hedging the Group’s financial risks in line its risk management principles. For example, the HORNBACH HOLDING AG Group hedges the foreign currency risks involved in select (planned) transactions, including the embedded foreign currency derivatives potentially resulting from the transactions, such as those involved in the purchase of merchandise in the Far East using US dollars, by working with macro hedges, such as forward exchange transactions or fixed deposit investments denominated in foreign currencies.

The fair value of forward exchange transactions, including the embedded forward exchange transactions, amounted to € 57k at February 28, 2009 (2007/2008: € 361k). Of this sum, € 254k (2007/2008: € 489k) has been recognized under other assets and € 197k (2007/2008: € 128k) under other liabilities.

No fair value hedges or net investment in a foreign operation hedges have been undertaken to date.

Derivatives
The following table provides an overview of the nominal and fair values of derivative financial instruments as of the reporting date.

The values of opposing transactions, such as foreign exchange purchases or sales, have been shown on a net basis. Nominal value totals are shown in the nominal value line without the offsetting of any opposing transactions.

(34) Share option plans

1999 share option plan
The annual general meeting of HORNBACH-Baumarkt-AG held on August 26, 1999 established a share option plan with the following principal features:

Subscription beneficiaries
A maximum of 1,500,000 subscription rights may be issued during the four-year term of the share option plan. Within this total, the following maximum allocations apply to the following groups:

Tranches and acquisition periods
Four annual tranches are issued during the respective term. These are issued within two months of the announcement of the company’s earnings for the third quarter of the financial year. The issue date for the tranches is thus the date of the corresponding resolution on the issue by the Board of Management and Supervisory Board.

Qualifying period and exercise period
The qualifying period amounts to two years following the issue of each tranche. After two years, a maximum of 20 % and an additional maximum of 20 % each year thereafter up to the end of the sixth year may be exercised. The exercise period ends seven years after the issue of the final tranche. These options may be exercised for the last time following the announcement of the earnings for third quarter of 2009/2010.

Subscription price
The subscription price is based on the average closing price of the share in floor trading on the Frankfurt Stock Exchange during the ten trading days prior to the issue date of the subscription right.

Exercise hurdle and exercise window
For the subscription rights to be exercised, the exercise hurdle has to be achieved within a period of six weeks prior to the exercise date. The exercise hurdle is achieved when the share price of HORNBACH-Baumarkt- AG exceeds the subscription price, which ranges from € 22.25 to € 29.86 depending on the tranche in question, by at least 30 % in floor trading.

Furthermore, subscription rights may only be exercised within one month following publication of the quarterly results or the preliminary sales and earnings figures for the previous financial year (“Exercise Window”), whereby restrictions based on legal regulations have to be observed, particularly those set out in the German Securities Trading Act (WpHG).

Non-transferability and employment relationship
The subscription rights are not transferable and may not be exercised by third parties, but may be inherited by the wife, husband or children of the subscription beneficiary. A non-terminated contract of employment is basically required in the exercise period in order to be able to exercise subscription rights. Permission may be granted to exercise subscription rights in the year after the termination or rescission of the employment relationship.

As in the previous year, no more subscription rights were issued during the 2008/2009 financial year on account of the acquisition period having expired.

The total number of subscription rights issued, including those converted during the 2008/2009 financial year and the subscriptions of employees who have left the company or which have changed hands, was as follows:

The share options were converted at a weighted average price of € 24.25 during the year under report (2007/2008: € 25.51).

The fourth tranche of the 1999 share option plan has been valued and accounted for in accordance with IFRS 2 “Share-based Payment”. The arithmetical value per share option for the fourth tranche of options issued during the 2002/2003 financial year amounts to € 3.89 per share option. This calculation is based on computing models for determining option prices for freely tradable European options (OTC options). The option price calculation includes an appropriate discount for the exercise hurdle and the exercise window. The exercise price of the share options amounts to € 22.25. Expenses of € 154k were accounted for in connection with the measurement of the share option plan in the 2008/2009 financial year (2007/2008: € 295k) and correspondingly recognized in equity. The volumes within this tranche developed as follows in the 2008/2009 financial year:

2003 phantom stock plan
On the basis of a resolution dated July 7, 2003, the Board of Management of HORNBACH-Baumarkt-AG adopted a phantom stock plan to avoid any disadvantaging of members of management tiers below the managing directors at domestic and foreign subsidiaries (Group 4 of the 1999 share option plan). The introduction of the 2003 phantom stock plan is intended to provide such employees with the opportunity of also participating in the final tranche of the 1999 share option plan in a comparable manner in terms of the economic outcome.

The value of the option rights is directly dependent on the performance of the share of HORNBACH-Baumarkt- AG, but is exclusively based on payment of a cash amount. The direct acquisition of shares, as provided for in the 1999 share option plan, is not possible (cash-settled share-based payment).

Subscription beneficiaries and issue date
A total of 108,400 option rights were issued in a single tranche on July 7, 2003 for members of management tiers below the managing directors at domestic and foreign subsidiaries.

Qualifying period and exercise period
The option rights may be exercised for the first time following the conclusion of a qualifying period beginning on the issue date and expiring on February 3, 2005. Following the conclusion of the qualifying period, a maximum of 20 % and an additional maximum of 20 % each year thereafter up to the end of the sixth year may be exercised. The exercise period ends on February 3, 2010.

Subscription price
The subscription price is based on the average closing price of the share in floor trading on the Frankfurt Stock Exchange during the ten trading days prior to the issue date of the subscription right and amounts to € 22.25.

Exercise hurdle and exercise window
For the subscription rights to be exercised, the exercise hurdle has to be achieved within a period of six weeks prior to the exercise date. The exercise hurdle is achieved when the share price of HORNBACH-Baumarkt-AG exceeds the subscription price by at least 30 % in floor trading.

Furthermore, subscription rights may only be exercised within one month following publication of the quarterly results or the preliminary sales and earnings figures for the previous financial year (“Exercise Window”), whereby restrictions based on legal regulations have to be observed, particularly those set out in the German Securities Trading Act (WpHG).

Non-transferability and employment relationship
The subscription rights are not transferable and may not be exercised by third parties, but may be inherited by the wife, husband or children of the subscription beneficiary. A non-terminated contract of employment is basically required in the exercise period in order to be able to exercise subscription rights. Permission may be granted to exercise subscription rights in the year after the termination or rescission of the employment relationship.

As in the previous year, no more subscription rights were issued during the 2008/2009 financial year on account of the acquisition period having expired.

The options showed the following developments:

At the reporting date on February 28, 2009, the option was valued at an amount of € 1.30 (2007/2008: € 18.55). This calculation is based on computing models for determining option prices for freely tradable European options (OTC options). The option price calculation includes an appropriate discount for the exercise hurdle and the exercise window. Income of € 689k was recognized in connection with the measurement of the share option plan in the 2008/2009 financial year (2007/2008: expenses of € 157k).

The average share price of HORNBACH-Baumarkt-AG amounted to € 32.95 in the 2008/2009 financial year (2007/2008: € 49.78).

Share option plan at HORNBACH HOLDING AG
The Board of Management of HORNBACH HOLDING AG decided on June 8, 2001 to establish a share option plan for the company in order to prevent any disadvantaging of former executives of HORNBACH-Baumarkt- AG who for overriding strategic reasons have now assumed duties and responsibilities at HORNBACH HOLDING AG or one of its subsidiaries. This share option plan is based on that introduced at HORNBACH-Baumarkt- AG in 1999. In particular, options are granted on the shares of that company. If appropriate, this will also be replaced by a share option plan for the acquisition of shares in HORNBACH HOLDING AG at a later date. The plan currently has the following principal features:

Subscription beneficiaries
During the term of the option plan, subscription rights may be issued to members of Board of Management of the company (Group 1), members of the boards of management of associate companies of HORNBACHBaumarkt- AG and to further management staff of the company and of such associate companies, as well as of their respective subsidiaries, if appropriate (Group 2).

The total number of subscription rights issued, including those converted during the 2008/2009 financial year and the subscription rights of employees who have left the company or which have changed hands, was as follows:

Tranches and acquisition periods
Four annual tranches are issued during the respective term. The option rights for the first two tranches were issued retrospectively as of January 21, 2000 and January 15, 2001, with the issue of the third taking place in January 2002 and the fourth in February 2003.

Qualifying period and exercise period
The qualifying period amounts to two years following the issue of each tranche. After two years, a maximum of 20 % and an additional maximum of 20 % each year thereafter up to the end of the sixth year may be exercised. The exercise period ends seven years after the issue of the final tranche. These options may be exercised for the last time following the announcement of the earnings for third quarter of 2009/2010.

Subscription price
The subscription price is based on the average closing rate of the HORNBACH-Baumarkt-AG share in floor trading on the Frankfurt Stock Exchange during the ten trading days prior to the issue date of the subscription right.

Exercise hurdle and exercise window
For the subscription rights to be exercised, the exercise hurdle has to be achieved within a period of six weeks prior to the exercise date. The exercise hurdle is achieved when the share price of HORNBACH-Baumarkt-AG exceeds the subscription price, which ranges from € 22.25 to € 29.86 depending on the tranche in question, by at least 30 % in floor trading.

Furthermore, subscription rights may only be exercised within the month following publication of the quarterly results or the preliminary sales and earnings figures for the previous financial year at HORNBACH-Baumarkt- AG (“Exercise Window”), whereby restrictions based on legal regulations have to be observed, particularly those set out in the German Securities Trading Act (WpHG).

Non-transferability and employment relationship
The subscription rights are not transferable and may not be exercised by third parties, but may be inherited by the wife, husband or children of the subscription beneficiary. A non-terminated contract of employment is basically required in the exercise period in order to be able to exercise subscription rights. Permission may be granted to exercise subscription rights in the year after the termination or rescission of the employment relationship.

The shares in HORNBACH-Baumarkt-AG required to cover the option rights granted are, if necessary, to be acquired on the Stock Exchange by BHF-Bank AG and kept in safe custody in a share deposit account of HORNBACH HOLDING AG at the bank.

The terms and conditions of the share option as they relate to members of the Board of Management of HORNBACH HOLDING AG were specified in a separate resolution adopted by the Personnel Committee of the Supervisory Board on June 18, 2001.

As in the previous year, no more subscription rights were issued during the 2008/2009 financial year as a result of the acquisition period having expired.

Income of € 172k was recognized in connection with the measurement of the 4th tranche of the share option plan in the 2008/2009 financial year (2007/2008: expenses of € 28k).

(35) Sundry disclosures

Employees
The average number of employees was as follows:

In terms of geographical regions, 8,691 of the average workforce were employed in Germany during the 2008/2009 financial year (2007/2008: 8,782) and 4,706 in other European countries (2007/2008: 4,221).

Auditor’s fee
Following the merger of KPMG Europe LLP, since October 1, 2007 KPMG LLP (UK) and KPMG Schweiz have been associate companies of KPMG AG Wirtschaftsprüfungsgesellschaft pursuant to Section 271 (2) of the German Commercial Code, as have KPMG Spain and KPMG Belgium since October 1, 2008. The fees recognized as expenses in the 2008/2009 financial year for the auditor of the annual and consolidated financial statements of HORNBACH HOLDING AG, KPMG AG Wirtschaftsprüfungsgesellschaft, were structured as follows:

Information on the German Corporate Governance Code
The annual Declaration of Conformity with the German Corporate Governance Code required by Section 161 of the German Stock Corporation Act (AktG) was submitted by HORNBACH HOLDING AG on December 17, 2008 and by HORNBACH-Baumarkt-AG on December 16, 2008 and made available to shareholders on the respective company homepages.

Exemption option pursuant to Section 264 (3) HGB
The subsidiaries HORNBACH Baustoff Union GmbH and Union Bauzentrum HORNBACH GmbH have drawn on the exemption provisions set out in Section 264 (3) of the German Commercial Code (HGB), which allow companies to forego the disclosure of the annual financial statements, notes to the financial statements and management report.

(36) Related party disclosures
In addition to the subsidiaries included in the consolidated financial statements, HORNBACH HOLDING AG has direct or indirect relationships with associated companies in the course of its customary business activities.

The associated companies are:
HORNBACH Familien-Treuhandgesellschaft mbH, Annweiler am Trifels

Subsidiaries and second-tier subsidiaries (non-consolidated)
Etablissements Camille Holtz et Cie S.a., Phalsbourg
Saar-Lor Immobilière S.C.I., Phalsbourg

Otmar Hornbach, a member of the Supervisory Board, is additionally placing his extensive experience at the disposal of HORNBACH HOLDING AG within the framework of a consulting agreement. These advisory services are remunerated by means of symbolic amount of one euro each month.

The consulting agreement in place since March 1, 2006 with Albrecht Hornbach, a member of the Supervisory Board, in the field of information technology and technical procurement was terminated as of February 28, 2009. The services performed in connection with this advisory agreement were remunerated with an amount of one euro per month.

(37) Events after the balance sheet date
The Supervisory Board will pass resolution on the approval of the consolidated financial statements on May 20, 2009.

(38) Supervisory Board and Board of Management
The following persons were members of the Board of Management in the 2008/2009 financial year:

Eduard Zimmerle, Deputy Chairman of HORNBACH HOLDING AG, retired from the company’s Board of Management as of October 31, 2008. His responsibilities on the Board of Management of HORNBACH HOLDING AG have been assumed by Albrecht Hornbach.

The total compensation paid to the Board of Management of HORNBACH HOLDING AG for the performance of its duties for the Group in the 2008/2009 financial year amounted to € 2,353k (2007/2008: € 2,029k). Of this total, € 658k (2007/2008: € 728k) constituted fixed compensation and € 1,695k (2007/2008: € 1,301k) involved performance-related components. As of the reporting date on February 28, 2009, the members of the Board of Management held a combined total of 158,334 ordinary shares (2007/2008: 158,334) and 3,405 publicly listed preference shares (2007/2008: 3,405) in HORNBACH HOLDING AG. Former members of the Board of Management were granted compensation of € 2,090k in connection with the termination of their activities for the company in the 2008/2009 financial year (2007/2008: € 0k).

The following persons were members of the Supervisory Board in the 2008/2009 financial year:

The compensation of the Supervisory Board for the 2008/2009 financial year amounted to € 213k (2007/2008: € 182k). Of this total, € 134k (2007/2008: € 114k) constituted fixed compensation and € 79k (2007/2008: € 68k) involved performance-related components. As in the previous year, the members of the Supervisory Board did not hold any ordinary or preference shares at the reporting date. Former members of the Supervisory Board who retired from their positions during the 2008/2009 financial year did not hold any ordinary shares (2007/2008: 158,333) or any publicly listed preference shares (2007/2008: 0) in HORNBACH HOLDING AG at the reporting date.

As the term in office of the Supervisory Board expired upon the conclusion of the Annual General Meeting for 2007/2008, the members of the Supervisory Board had to be newly elected. The current term in office of all Supervisory Board members will expire upon the conclusion of the Annual General Meeting releasing them from responsibility for the 2012/2013 financial year.

Mandates in Supervisory Boards and other control bodies
(Disclosures pursuant to § 285 Sentence 1 No. 10 HGB)

Members of the Supervisory Board
a) Membership of statutory supervisory bodies
b) Membership of comparable control bodies

Neustadt an der Weinstrasse, May 20, 2009

HORNBACH HOLDING AG
The Board of Management

Albrecht Hornbach                    Roland Pelka

RESPONSIBILITY STATEMENT (BALANCE SHEET OATH)

We hereby affirm that, to the best of our knowledge, the consolidated financial statements give a true and fair picture of the assets, liabilities, financial position and results of operations of the Group in accordance with the applicable reporting principles, and the group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.

Neustadt an der Weinstrasse, May 20, 2009

HORNBACH HOLDING AG
The Board of Management

Albrecht Hornbach                    Roland Pelka