In the segmental results of operations, the following terms with the following meanings are used with respect to each segment:
- Operating cost base: Noninterest expenses less provision for off-balance sheet positions (reclassified to provision for credit losses), policyholder benefits and claims, minority interest, restructuring activities and goodwill impairment/amortization.
- Underlying pre-tax profit: Income before income taxes less restructuring activities, goodwill impairment/amortization and specific revenue items as referred to in the table for such segment.
- Underlying cost/income ratio in %: Operating cost base as a percentage of total net revenues excluding specific revenue items, net of policyholder benefits and claims. Cost/income ratio in %, which is defined as total noninterest expenses as a percentage of total net revenues, is also provided.
- Average active equity: The portion of adjusted average total shareholders’ equity that has been allocated to a segment pursuant to the capital allocation framework. The overriding objective of this framework is to allocate adjusted average total shareholders’ equity based on the respective goodwill and other intangible assets with indefinite lifetimes as well as the economic risk position of each segment. In determining the total amount of average active equity to be allocated, average total shareholders’ equity is adjusted to exclude average unrealized net gains on securities available for sale , net of applicable tax and other, and average dividends.
- Underlying RoE in %: Underlying pre-tax profit (annualized) as a percentage of average active equity. RoE in %, which is defined as income before income taxes (annualized) as a percentage of average active equity, is also provided. These returns, which are based on average active equity, should not be compared to those of other companies without considering the differences in the calculation of such ratios.
- Net gains (losses) from businesses sold/held for sale: We exclude these gains or losses from our calculations of underlying revenues and underlying pre-tax profit because they do not represent results of our continuing businesses.
- Net gains (losses) from securities available for sale/industrial holdings (including hedging): Net gains or losses related to several financial holdings investments and to our portfolio of shareholdings in publicly-listed industrial companies, most of which we have held for over 20 years and which we are reducing over time. Because these investments do not relate to our customer-driven businesses, we exclude all revenues (positive and negative) related to these investments from our underlying results, except for dividend income from the investments, which we do not exclude as funding costs associated with the investments are also not excluded.
- Significant equity pick-ups/net gains and losses from investments: This item includes significant net gains/losses from equity method investments and other significant investments. They are excluded in the calculation of underlying revenues and underlying pre-tax profit since they reflect results that are not related to our customer-driven businesses.
- Net gain (losses) on the sale of premises: This item includes net gains or losses on the sale of premises used for banking purposes. Net losses in 2003 related to the divestiture of non-core activities pursuant to our transformation strategy.
- Policyholder benefits and claims: For our internal steering purposes, we reclassify policyholder benefits and claims from noninterest expenses to noninterest revenues so as to consider them together with insurance revenues, to which they are related. The reclassification does not affect our calculation of underlying pre-tax profits. Following the disposition of most of our insurance operations in early 2002, the size of this item has decreased significantly.
- Provision for off-balance sheet positions: Provision for off-balance sheet positions is reclassified from noninterest expenses to provision for credit losses because we manage provision for off-balance sheet positions and provision for loan losses together. This reclassification does not affect our calculation of underlying pre-tax profit.
- Change in measurement of other inherent loan loss allowance: In the third quarter of 2002, we took a charge of € 200 million to reflect a refinement in the measurement of our other inherent loss allowance. This change was made in order to make the provision more sensitive to the prevailing credit environment and less based on historical experience.
- Restructuring activities and Goodwill impairment/amortization are excluded from the calculation of operating cost base and thus underlying pre-tax profit because these items are not considered part of our day-to-day business operations and therefore not indicative of trends.
- Minority interest: Minority interests represents the net share of minority shareholders in revenues, provision for loan losses, noninterest expenses and income tax expenses. This net component is reported as a noninterest expense item. We do not consider this item to be an operating expense, but as minority shareholder’s portion of net income. Accordingly, we exclude such item in the determination of our operating cost base. Minority interest is reflected in the calculation of underlying pre-tax profit as a separate item.
- Adjustments to calculate average active equity: The items excluded from average total shareholders’ equity to calculate average active equity result primarily from the portfolio of shareholdings in publicly-listed industrial companies. We have held most of our larger participations for over 20 years, and are reducing these holdings over time. We realize gains and losses on these securities only when we sell them. Accordingly, the adjustments we make to average total shareholders’ equity to derive the average active equity are to exclude unrealized net gains or losses on securities available for sale, net of applicable tax effects. In addition, we adjust our average total shareholders’ equity for the effect of paying a dividend once a year following approval at the general shareholders’ meeting.