Subscribed Capital

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

Management Board Authorisations

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

Conditional authority has been granted to increase the Company’s share capital by up to EUR 4,200,000 by issuing up to EUR 4,200,000 new no-par-value bearer shares each comprising one euro of share capital (Conditional Capital).

The new shares can be purchased by one or more banks selected by the Management Board provided that they are then offered to shareholders (indirect pre-emptive rights).

The Management Board is authorised subject to Supervisory Board approval to exclude shareholders’ pre-emptive rights in certain instances.

The Management Board is authorised subject to Supervisory Board approval to decide the remaining details of the share issue including the rights embodied in the shares and the terms of issue.

In accordance with Section 71 (1) 8 of the German Stock Corporations Act (AktG), the Management Board is authorised until 2 September 2010 subject to Supervisory Board approval to purchase the Company’s own shares up to a maximum of ten percent of the share capital at the time of the resolution. As in the previous year, no shares in the Company were purchased in the financial year.

Detailed information on the Management Board authorisations is provided on page 56 in the Combined Management Report, under Disclosures under Sections 315 (4) and 289 (4) of the German Commercial Code.

Additional Paid-In Capital

The change in additional paid-in capital during the financial year relates to amounts credited under the share option scheme (Matching Stock Program).

Share-Based Payment (Matching Stock Program)

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

The base price of phantom shares in the first tranche is 110 percent of the issue price. The base price of the second to fifth tranche is the average closing price of Demag Cranes AG shares on the Frankfurt Stock Exchange Xetra trading platform in the last 60 trading days before allocation of the phantom shares, plus a ten percent mark-up. The base price is EUR 24.20 for the first tranche, EUR 52.73 for the second, EUR 37.98 for the third, EUR 17.70 for the fourth and EUR 28.40 for the fifth.

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

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

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

Changes in outstanding phantom shares:

The performance threshold for the first (2006) tranche of the Matching Stock Program (base price EUR 24.20; exercise price EUR 34.53) was attained on 23 June 2008. A total of 240,810 phantom shares worth EUR 1,318,000 were exercised by participants. Participants can freely dispose of these shares after two years. The average share price at the time of the purchase was EUR 32.84.

The performance thresholds for the second (2007) and third (2008) tranche of the Matching Stock Program were not attained.

At 30 September 2010, MSP participants have subscribed for 47,667 (2009: 49,385) MSP shares entitling them to exercise up to 572,004 phantom shares (30 September 2009: 888,930 phantom shares) by the end of the MSP.

Parameters used in measuring phantom shares:

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

The volatility of Demag Cranes shares was estimated based on the historical trend in the share prices of two listed companies – PALFINGER AG and KCI Konecranes Plc – over the term of the various MSP tranches. Demag Cranes AG recognised an expense and credited to additional paid-in capital an amount of EUR 368,000 for the MSP in 2009/2010 (2008/2009: EUR 261,000).

Retained Earnings

Retained earnings consist of accumulated profits carried forward less dividends paid along with amounts from pension accounting.

Demag Cranes AG makes use of the third option in IAS 19, recognising differences between the expected and actual benefit obligation and the actual and expected return on plan assets directly in retained earnings.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income comprises three items: cash flow hedges, available-for-sale financial assets, and differences arising from currency translation.

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

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

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

The components of accumulated other comprehensive income presented in the Statement of Changes in Equity are stated after tax. In the Statement of Comprehensive Income, changes in the financial year are presented before tax along with the tax effect relating to net income recognised directly in equity. The table below reconciles the before-tax to the after-tax amounts.

Paid and Proposed Dividends

At the Annual General Meeting on 2 March 2011, the Management Board and Supervisory Board of Demag Cranes AG will be proposing a dividend of EUR 0.60 per share – a total distribution of EUR 12,704,000 for financial year 2009/2010 (2008/2009: EUR 0,000).