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Basis of presentationCorporate InformationThyssenKrupp Aktiengesellschaft ("ThyssenKrupp AG" or "Company") is a publicly traded corporation domiciled in Germany. The consolidated financial statements of ThyssenKrupp AG and subsidiaries, collectively the "Group", for the year ended September 30, 2006, were authorized for issuance in accordance with a resolution of the Executive Board on November 13, 2006. Statement of complianceApplying § 315a of the German Commercial Code (HGB), the Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations of the International Accounting Standards Board (IASB) effective within the EU in accordance with the Regulation No. 1606/2002 of the European Parliament and the Council concerning the use of International Accounting Standards. 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments that are stated at fair value. The consolidated financial statements are presented in Euros since this is the currency in which the majority of the Group's transactions are denominated, with all amounts rounded to the nearest million except when otherwise indicated; this may result in differences compared to the unrounded figures. ConsolidationThe Group's consolidated financial statements include the accounts of ThyssenKrupp AG and all significant entities which are directly or indirectly controlled by ThyssenKrupp AG. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. On acquisition, the identifiable assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the identifiable assets, liabilities and contingent liabilities recognized. All significant inter-company transactions and balances between Group entities are eliminated on consolidation. Included in the Group consolidated financial statements are 241 (2004/2005: 243) domestic and 438 (2004/2005: 427) foreign-controlled entities that are consolidated. During fiscal year 2005/2006, 68 entities were consolidated for the first time. During the same period, the scope of consolidation was reduced by 59 entities of which 16 resulted from the internal merging of Group entities. Investments in associates are accounted for using the equity method of accounting. An associate is an entity over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policies. Significant influence is presumed when the Group holds 20% or more of the voting rights ("Associated Companies"). Where a Group entity transacts with an associate of the Group, unrealized profits and losses are eliminated to the extent of the Group's interest in the relevant associate. The Group reports its interests in jointly-controlled entities (Joint Ventures) using the equity method of accounting. Where the Group transacts with its jointly-controlled entities, unrealized profits and losses are eliminated to the extent of the Group's interest in the joint venture. The Group has 49 (2004/2005: 50) Associated Companies and 26 (2004/2005: 24) Joint Ventures that are accounted for using the equity method of accounting. A complete listing of the Group's shareholdings has been filed with the Commercial Registers of the Duisburg (HR B 9092) and the Essen (HR B 15364) District Courts. Major subsidiaries and equity interests are listed in Note 38. Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary, associate or jointly-controlled entity at the date of acquisition. Goodwill is recognized as an asset and is tested for impairment annually, or on such other occasions that events or changes in circumstances indicate that it might be impaired. Goodwill arising on the acquisition of an associate or a jointly-controlled entity is included within the carrying amount of the associate or the jointly-controlled entity, respectively. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Foreign currency translationThe functional and reporting currency of ThyssenKrupp AG and its relevant European subsidiaries is the Euro (€). Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in the net profit or loss for the period. Financial statements of the foreign subsidiaries included in the Group consolidated financial statements where the functional currency is other than the Euro are translated using their functional currency which is generally the respective local currency. The translation is performed using the current rate method, in which balance sheet amounts are translated to the reporting currency using the rates of exchange prevailing on the balance sheet date, while income statement amounts are translated using the period's average exchange rates. Net exchange gains or losses resulting from the translation of foreign financial statements are accumulated and included in equity. Such translation differences are recognized as income or as expenses in the period in which the operation is disposed of. Non-U.S. companies that manage their sales, purchases, and financing substantially in US dollar use the US dollar as their functional currency. Using the functional currency in these cases involves translating non-monetary items such as non-current assets, including scheduled depreciation, and equity to US dollar using the average exchange rates of the respective year of addition. All other balance sheet line items are translated using the exchange rate as of the balance sheet date and all other income statement line items are translated using the period's average exchange rates. The resulting translation differences are included in the consolidated statement of income as "Other operating income or expenses". Thereafter, the US dollar financial statements are translated into the reporting currency using the current rate method. The exchange rates of those currencies significant to the Group have developed as follows:
Revenue recognitionRevenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer and the amount of revenue can be measured reliably. Revenue from services is recognized when services are rendered. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due or the possible return of goods. Revenue is recognized net of applicable provisions for discounts and allowances. Construction contract revenue and expense are accounted for using the percentage-of-completion method, which recognizes revenue as performance of the contract progresses. The contract progress is determined based on the percentage of costs incurred to date to total estimated cost for each contract after giving effect to the most recent estimates of total cost. Contracts where the Group provides engineering services are also accounted for like construction contracts. Construction contracts under the percentage-of-completion method are measured at construction cost plus profits earned based on the percentage of the contract completed. Revenues net of advance payments received are recognized as trade accounts receivable in the balance sheet. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the income of a construction contract cannot be estimated reliably, contract revenue that is probable to be recovered is recognized to the extent of contract costs incurred. Contract costs are recognized as expenses in the period in which they are incurred. Where it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. Revenues from contracts with multiple element arrangements, such as those including both goods and services, are recognized as each element is earned based on objective evidence of the relative fair value of each element. Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognized when the shareholders' rights to receive payment have been established. Research and development costsResearch costs are expensed as incurred. Development costs, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, are capitalized if the product or process is technically and commercially feasible, there is a market for the output of the intangible asset, the attributable expenditure can be measured reliably, and the Group has sufficient resources to complete development. Other development costs are expensed as incurred. Capitalized development costs of completed projects are stated at cost less accumulated amortization. Capitalized development costs of projects not yet completed are reviewed for impairment annually or more frequently when an indicator of impairment arises during the reporting year. Earnings per shareBasic earnings per share amounts are computed by dividing net income attributable to ThyssenKrupp AG's shareholders by the weighted average number of shares outstanding. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. There were no dilutive securities in the periods presented. Intangible assetsIntangible assets with finite useful lives are capitalized at cost and amortized on a straight-line basis generally over a period of 3 to 15 years, depending on their estimated useful lives. Useful lives are examined on an annual basis and adjusted when applicable on a prospective basis. Amortization expense of intangible assets is primarily included in the "cost of sales" line item in the consolidated statement of income. Goodwill is stated at cost and tested for impairment annually or on such other occasions that events or changes in circumstances indicate that it might be impaired. Property, plant and equipmentFixtures and equipment are stated at cost less accumulated depreciation. Capitalized production costs for self constructed assets include costs of material, direct labor, and allocable material and manufacturing overhead. Borrowing costs directly attributable to the production of assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Administrative costs are capitalized only if such costs are directly related to production. Maintenance and repair costs (day-to-day servicing) are expensed as incurred. The Group recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing parts and major inspection of such an item if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. Where fixtures and equipment comprise of significant parts having different useful lives those parts are accounted for as separate units and depreciated accordingly. Fixtures and equipment are depreciated using the straight-line method. Upon sale or retirement, the acquisition or production cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is included in the consolidated statement of income. The following useful lives are used as a basis for calculating depreciation:
Investment propertyInvestment property consists of investments in land and buildings that are held to earn rental income or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business. Investment property is stated at cost less accumulated depreciation. The fair value of the Group's investment property is stated in the Notes to the consolidated financial statements. ImpairmentAt each balance sheet date, the Group reviews the carrying amounts of its intangible assets, property, plant and equipment and investment property to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the greater of the fair value less cost to sell and the value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market conditions. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the Cash Generating Unit to which the asset belongs. Goodwill arising on acquisition is allocated to Cash Generating Units. Those groups of Cash Generating Units represent the lowest level within the Group at which goodwill is monitored for internal management purposes. The recoverable amount of the Cash Generating Unit is tested for impairment annually, or on such other occasions that events or changes in circumstances indicate that it might be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately. In case of impairment losses related to Cash Generating Units the carrying amount of any goodwill allocated to the Cash Generating Unit is reduced first. If the amount of impairment losses exceeds the carrying amount of goodwill, the difference is generally allocated proportionally to the remaining non-current assets of the Cash Generating Unit to reduce their carrying amounts accordingly. Where an impairment loss subsequently reverses, the carrying amount of the asset (Cash Generating Unit) is increased to the revised estimate of its recoverable amount. The revised amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (Cash Generating Unit) in prior years. A reversal of an impairment loss is recognized as income immediately. However, impairment losses relating to goodwill may not be reversed. LeasesLeases are classified as either finance or operating. Lease transactions whereby the Group is the lessee and bears substantially all the risks and rewards incidental to ownership of an asset are accounted for as a finance lease. Accordingly, the Group capitalizes the leased asset at the lower of the fair value or the present value of the minimum lease payments and subsequently depreciates the leased asset over the shorter of the lease term and its useful life. In addition, the Group records a corresponding lease obligation on the balance sheet which is subsequently settled and carried forward using the effective interest method. All other lease agreements entered into by the Group, as a lessee, are accounted for as operating leases whereby the lease payments are expensed on a straight-line basis. Lease transactions whereby the Group is the lessor and transfers substantially all of the benefits and risks incident to the ownership of property, are accounted for as a sale and financing of the leased asset. The Group recognizes a receivable at an amount equal to the net investment in the lease and includes interest income in the consolidated income statement. All other lease agreements entered into by the Group, as a lessor, are accounted for as operating leases whereby the leased asset remains on the Group's balance sheet and is depreciated. Scheduled lease payments are recorded as income when earned. InventoriesInventories are stated at the lower of acquisition/manufacturing cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and selling costs. In general, inventories are valued using the average cost method. Manufacturing cost includes direct material, labor and allocable material and manufacturing overhead based on normal operating capacity. ReceivablesReceivables are stated at their cost less impairment losses. Receivables that do not bear interest or bear below market interest rates and have an expected term of more than one year are discounted with the discount subsequently amortized to interest income over the term of the receivable. The Group sells undivided interests in certain trade accounts and notes receivable both on an ongoing and one-time basis to special purpose entities, which are not required to be consolidated, or to other lending institutions. Financial assets sold under these arrangements are excluded from accounts receivable in the Group's balance sheet at the time of sale if it is assured that the cash flows related to those receivables will be passed through to the acquirer and substantially all risks and rewards have been transferred. If substantially all risks and rewards have neither been transferred nor retained, financial assets are excluded from the books at the time of the sale if it is assured that the cash flows of the receivables will be passed through to the acquirer and the acquirer has gained control over the receivables. If substantially all risks and rewards have been retained financial assets remain in the Group's balance sheet as collateral for borrowings. SecuritiesInvestments in securities are recognized on a settlement-date basis and are initially measured at cost. Investments held by the Group are classified as available-for-sale and are measured at subsequent reporting dates at fair value. Unrealized gains and losses are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the net profit or loss for the period. Cash and cash equivalentsCash and cash equivalents comprise cash on hand, checks, and bank deposits with an original maturity of three months or less. Deferred income taxesDeferred tax is accounted for using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit as well as for unused tax losses or credits. In principle, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax assets and liabilities are also recognized on temporary differences arising from business combinations except to the extent they arise from goodwill. Deferred taxes are calculated at the enacted or substantially enacted tax rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited to the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also recognized directly in equity. Cumulative income and expense directly recognized in equityThe equity line item "Cumulative income and expense directly recognized in equity" includes changes in the equity of the Group that were not recognized in the consolidated statement of income of the period, except those resulting from investments by owners and distributions to owners. Cumulative income and expense directly recognized in equity includes foreign currency translation adjustments, recognized actuarial gains and losses relating to pensions and other postretirement obligations as well as unrealized holding gains and losses on available-for-sale securities and on derivative financial instruments. Accrued pension and similar obligationsThe Group's net obligation for defined benefit and other postretirement benefit plans have been calculated for each plan using the projected unit credit method. All actuarial gains and losses as of October 01, 2004, the date of transition to IFRS, were recognized in equity. Actuarial gains and losses that arise subsequent to October 01, 2004, are recognized directly in equity and presented in the Statement of Recognized Income and Expense. Where the plan calculation results in a benefit to the Group, the recognized prepaid benefit cost is limited to the net total of unrecognized past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. Service cost for pensions and other postretirement obligations are recognized as an expense in income from operations, while interest cost and the expected return on plan assets recognized as components of net periodic pension cost are included in net financial income/(expense) in the Group's consolidated statement of income. When benefits of a plan are improved, the portion of the increased benefit relating to past service is recognized as an expense in income from operations on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately. The Group's obligations for contributions to defined contribution plans are recognized as expense in income from operations as incurred. The Group maintains multi-employer plans. Where the required information is available these plans are accounted for as defined benefit plans, otherwise as defined contribution plans. ProvisionsProvisions are recognized when the Group has a present obligation as a result of a past event which will result in a probable outflow of economic benefits that can be reasonably estimated. Where the effect of the time value of money is material, provisions are discounted using a risk adjusted market rate. A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. Provisions for restructuring costs are recognized when the Group has a detailed formal plan for the restructuring and has notified the affected parties. A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Share-based compensationThe Group has management incentive plans which grant stock appreciation rights/stock rights to executive and senior employees. The fair value of these rights is calculated on the date of grant and recognized as expense on a straight-line basis over the vesting period with a corresponding increase in provisions. The provision is remeasured at each balance sheet date and at settlement date. Any changes in the fair value of the provision are recognized as part of income from operations. The Group set up an Employee Share Purchase Plan for selected executive employees that grants purchase of shares at a discount. Services received are recognized on a straight-line basis based on the estimated discount with regard to the shares during the period from the offer of the Employee Share Purchase Plan until the grant date which is the date when the employees accept the offer. Bank borrowingsInterest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Derivative financial instrumentsThe Group uses derivative financial instruments to hedge its exposure to foreign currency exchange, interest rate and commodity price risks arising from operational, financing and investment activities. Derivative financial instruments are used exclusively to hedge existing or anticipated underlying transactions. Such derivative financial instruments and derivative financial instruments that are embedded within other contractual arrangements and have to be separated are recognized initially and subsequently at fair value. The gain or loss on remeasurement to fair value is recognized immediately in profit or loss. If derivatives are used to hedge risks, IAS 39 permits, under certain conditions, the application of special regulations in hedge accounting. Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable forecasted transaction or, regarding currency risks, a firm commitment (socalled cash flow hedges), the effective part of any gain or loss on the derivative financial instrument is recognized in equity. The reclassification from equity into earnings occurs in the same period as the underlying transaction affects earnings. When measuring the effectiveness between the underlying hedged transaction and the hedging instrument the ineffective part of the hedge and adjustments due to time value changes are recognized immediately in the income statement. When the hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship, but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognized in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealized gain or loss recognized in equity is recognized immediately in the income statement. For derivatives which serve to hedge the fair value of recognized assets and liabilities or firm commitments (so-called fair value hedges), the hedging instrument is shown at fair value, with changes in its fair value appearing in the income statement. Any changes in the fair value of the hedged asset, liability or firm commitment resulting from the hedged risk are also recognized in the income statement. Given a perfect hedge, the changes in measurement recognized in the income statement for the hedge and the hedged transaction will largely balance one another. If the asset or liability is recognized at amortized cost according to the general regulations, the book value has to be adjusted for the accumulated changes in fair value resulting from the hedged risk. However, if the asset is recognized at fair value (e.g. an availablefor- sale security), the changes in fair value resulting from the hedged risk have to be recognized, contrary to the general rule, in the income statement. In order to hedge its exposure to foreign currency, the variability in interest rates and commodity risks, the Group mostly applies the Cash Flow Hedge Accounting Model. Trade accounts payable and other liabilitiesTrade accounts payable and other liabilities are stated at amortized cost. Disposal Groups and Discontinued OperationsThe Group reports as a disposal group non-current assets, that will be disposed of by sale together with other assets and liabilities in a single transaction, which collectively meet the held for sale criteria as specified in IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". The Group reports the assets and liabilities of a disposal group separately in the balance sheet line item "assets held for sale" and "liabilities associated with assets held for sale", respectively. Unless a disposal group qualifies for discontinued operations reporting, the revenues and expenses of the disposal group remain within continuing operations until the date of disposal. The Group reports the results of a disposal group that also qualifies as a component of the Group as discontinued operations if it represents a separate major line of business or geographical area of operations. The Group reports the results of discontinued operations in the period in which they occur separately within the consolidated statement of income as "discontinued operations (net of tax)". All prior period consolidated statements of income are adjusted to report the results of the component within discontinued operations. On initial classification as held for sale, non-current assets are recognized at the lower of the carrying amount and fair value less costs to sell. A disposal group is initially measured in line with the respective IFRS standards to determine the carrying amount of the disposal group which is then compared to the fair value less costs to sell of the group in order to recognize the group at the lower of both amounts. Impairment losses on initial classification as held for sale are included in profit or loss, as are gains and losses on subsequent remeasurement. Financial statement classificationCertain line items in the consolidated statement of income and on the consolidated balance sheet have been combined. These items are disclosed separately in the Notes to the consolidated financial statements. Certain reclassifications have been made to the prior year presentation to conform to that of the current year. In general the Group classifies assets and liabilities as current when they are expected to be realized or settled within twelve months after the balance sheet date. Group companies that have operating cycles longer than twelve months classify assets and liabilities as current if they are expected to be realized within the company's normal operating cycle. Use of estimatesThe preparation of the Group consolidated financial statements requires Management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by Management in the application of IFRS that have a significant effect on the consolidated financial statements are presented in Note 33. Newly published accounting standards not early adoptedThe IASB published the following Standards, Interpretations and Amendments to already existing Standards which are potentially relevant for ThyssenKrupp AG but not yet compulsory. An early application is not intended by ThyssenKrupp AG: IFRIC 5 "Rights to Interest arising from Decommissioning, Restoration and Environmental Rehabilitation Funds"This Interpretation governs the accounting method applied to interest from funds in which entities, having obligations to decommission or recultivate assets, accumulate assets either alone or together with other obliged entities. Such funds are established to finance the resulting costs when they are incurred. The application of IFRIC 5 is compulsory for fiscal years beginning on or after January 01, 2006. Currently, Management does not expect the adoption of the Interpretation to have a material impact on the Group's consolidated financial statements. IFRIC 8 "Scope of IFRIC 2"In IFRIC 8, the IASB comments on the Scope of IFRS 2 "Share-based Payment" applicable to transactions in which the entity receives goods or services as consideration for its share-based payments. According to IFRIC 8, IFRS 2 also has to be applied if the entity can not clearly identify the goods or services received. The application of IFRIC 8 is compulsory for fiscal years beginning on or after May 01, 2006. Currently, Management does not expect the adoption of the Interpretation to have a material impact on the Group's consolidated financial statements. Amendment to IAS 1 "Presentation of Financial Statements – Capital Disclosures"According to the changes made in IAS 1, the financial statements have to include disclosures enabling the reader of financial statements to evaluate the objectives, methods and processes of the capital management. The application of this amendment is compulsory for fiscal years beginning on or after January 01, 2007. The initial application will lead to additional disclosures in the Notes. IFRS 7 "Financial Instruments: Disclosures"This Standard summarizes the information on financial instruments which have previously been governed by IAS 30 "Disclosures in the Financial Statements of Banks and Similar Financial Institutions" and IAS 32 "Financial Instruments: Disclosure and Presentation". In IFRS 7, individual disclosure requirements were changed or amended. The application of IFRS is compulsory for fiscal years beginning on or after January 01, 2007. The initial application will lead to additional disclosures in the Notes. 2 SIGNIFICANT ACQUISITIONSDuring the fiscal year 2005/2006 the Group completed the following transaction: On August 03, 2006, the acquisition of Atlas Elektronic GmbH located in Bremen and its subsidiaries was consummated. ThyssenKrupp acquired at first a 60% interest in Atlas at a purchase price of €88 million plus incidental acquisition costs of €5 million. EADS aquired a 40% interest. Due to the fact that the two shareholders ThyssenKrupp and EADS agreed upon joint control of Atlas, the entity is treated as a joint venture which has to be accounted for using the equity method of accounting in accordance with the ThyssenKrupp accounting principles. During the fiscal year 2004/2005 the Group completed the following transaction: On January 05, 2005 the merger of ThyssenKrupp Werften and Howaldtswerke-Deutsche Werft (HDW) was formally consummated. The newly formed group is managed by ThyssenKrupp Marine Systems AG which is headquartered in Hamburg and represents a sales volume of approximately €2.2 billion. The agreement stipulates that in return for the 100% in HDW , the seller (One Equity Partners) received a 25% stake in ThyssenKrupp Marine Systems AG plus a payment of €220 million to be funded from the cash resources of the new shipyard group. The agreement provides a call option to ThyssenKrupp and a put option to the minority holder for the remaining 25% share in ThyssenKrupp Marine Systems AG. Both options are exercisable in the period January 01, 2007 to December 31, 2008. The exercise price is dependent on future events and differs for the two option holders. Because of the existing put option, 100% of HDW has been consolidated. For the minority stake a purchase price liability was recognized, so that the acquisition as a whole does not include a non-monetary component. The purchase price liability is measured at fair value and amounts to €160 million as of January 05, 2005. This resulted in a total purchase price of €393 million, including incidental acquisition costs of €13 million. As of September 30, 2006, the purchase price liability is unchanged with an amount of €160 million. The reason for the merger with HDW was to retain and enhance naval engineering expertise within Germany and thus securing Germany's role as a shipbuilding location. The competence centers in the core businesses of submarines and naval ships will be strengthend and expanded while in the megayacht sector, the acquisition will serve as a catalyst for increasing market share. The results of the HDW-operations have been included in the consolidated financial statements since January 01, 2005. For the nine months in 2004/2005, €0.5 million income of HDW are included in the Group's net income. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
Substantially all of the intangible assets were assigned to technology which is subject to amortization and has a weighted average useful life of approximately 40 years. The final purchase price allocation resulted in goodwill of €1,064 million. No goodwill is deductible for tax purposes. Contingent liabilities resulting from legal risks of €46 million are recognized as part of non-current provisions. In subsequent periods no significant income impacts resulted from the business combination. The following table shows the carrying amounts of the assets and liabilities immediately before the combination:
The following unaudited pro forma information presents the results of operations of ThyssenKrupp as if the transaction with HDW had taken place on October 01, 2004:
The unaudited pro forma information has been prepared for comparative purposes only and does not necessarily represent results which would have occurred if the transaction had taken place on October 01, 2004 nor is the information indicative of the results of future combined operations. The unaudited pro forma results have been adjusted to reflect the additional amortization related to the purchase price allocation. The unaudited pro forma amounts exclude material nonrecurring charges of approximately €21 million related to a restructuring provision recorded by HDW prior to the acquisition. The unaudited pro forma information gives effect only to the adjustments described above and does not reflect management's estimate of anticipated cost savings or other benefits as a result of the acquisition. 3 DISCONTINUED OPERATIONS AND DISPOSAL GROUPSAs part of the portfolio optimization program, the Group has sold or has initiated the disposal of several businesses during the current and prior year. The majority of these transactions have not met the requirements of IFRS 5 for discontinued operation reporting. Therefore, revenues and expenses will continue to be presented as income from continuing operations until the date of the disposal. Only the disposals of the MetalCutting business unit and the Real Estate business were classified as discontinued operations and accordingly the results as well as the gain or loss on the disposal had to be presented separately in the consolidated statement of income in the line item "Discontinued operations (net of tax)". For entities for which the disposal has not been completed as of September 30 of the respective year, the assets and liabilities of the disposal groups have been disclosed separately in the consolidated balance sheet of the respective reporting period as "assets held for sale" and "liabilities associated with assets held for sale". Year ended September 30, 2006The Automotive segment has initiated the disposal of the following activities in the year ended September 30, 2006: In September 2006, the disposal of the ThyssenKrupp Fundicoes Ltda. was initiated and consummated in the meanwhile. The Brazilian company is a manufacturer of cast crankshafts. The assets and liabilities of the disposal group as of September 30, 2006 are disclosed in the balance sheet table of the Automotive segment. Furthermore the disposal of the North American body and chassis operations in the Automotive segment was initiated in September 2006; on October 16, 2006, signing took place. The assets and liabilities of the disposal group as of September 30, 2006 are disclosed in the balance sheet table of the Automotive segment.
In September 2006, the disposal of the ThyssenKrupp Servicios Técnicos s.a. was initiated in the Services segment and consummated in the meanwhile. The Spanish company provides industrial maintenance service. The assets and liabilities of the disposal group as of September 30, 2006 are disclosed in the following table:
Year ended September 30, 2005The Steel segment has initiated the disposal of the following activities in the year ended September 30, 2005: In September 2005, the disposal of Hoesch Contecna Systembau GmbH was initiated. The company is involved in the design and installation of steel roof and wall cladding elements. The assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of the Steel segment. The disposal was consummated in the 1st quarter ended December 31, 2005 at a selling price of €0 million with the disposal of €0.1 million in cash and cash equivalents. Also in September 2005, the disposal of the Schwerte production location of Hoesch Hohenlimburg GmbH was initiated where special steel profiles made of steel are produced. The assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of the Steel segment. The disposal was consummated in the 1st quarter ended December 31, 2005 at a selling price of €18 million paid in cash without any disposals of cash and cash equivalents. The following table shows the assets and liabilities of the disposal groups of the Steel segment:
In the Automotive segment, the disposal of the ThyssenKrupp Stahl Company was initiated in September 2005. ThyssenKrupp Stahl is a permanent mold aluminium foundry in the US. The assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the following table. The disposal was consummated in the 3rd quarter ended June 30, 2006 at a selling price of €23 million paid in cash and the disposal of €0.4 million of cash and cash equivalents. The following table shows the assets and liabilities of the disposal group of the Automotive segment:
The Technologies segment has initiated the disposal of the following activities in the year ended September 30, 2005: In August 2005, the disposal of the Turbine Components operation group was initiated. The Turbine Components group is a manufacturer of components for the international aero engine and power generation industry. The assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of the Technologies segment. The disposal was consummated in the 1st quarter ended December 31, 2005 at a selling price of €12 million paid in cash and the disposal of €0.2 million of cash and cash equivalents. Also in August 2005, the disposal of the MetalCutting business unit of the Technologies segment was initiated. MetalCutting offers application-driven solutions for metal-cutting machines dedicated to individual user needs. The products offered range from standardized machinery incorporated into production systems to application machinery. MetalCutting met the requirements for discontinued operation reporting and accordingly the results as well as the loss on the disposal had to be presented separately in the consolidated statement of income in the line item "Discontinued operations (net of tax)". The results from the discontinued operation are disclosed in the income statement table of the discontinued operations, the assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of the Technologies segment. At the beginning of the 1st quarter ended December 31, 2005, the disposal was consummated at a selling price of €11 million resulting in a loss on the disposal of €212 million (€174 million net of tax) which had already been recognized as a disposal loss in fiscal 2004/2005 in conjunction with the initiated sale. In the context of the disposal €77 million of cash and cash equivalents were disposed of. The following table shows the assets and liabilities of the disposal groups of the Technologies segment:
The Services segment has initiated the disposal of the following activities in the year ended September 30, 2005: In September 2005, the disposal of the Hommel Group was initiated. Hommel distributes a manufacturer-overlapping range of CNC machine tools, including pre- and after-sales services for new and pre-owned machines. The assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of the Services segment. The disposal was consummated in the 3rd quarter ended June 30, 2006 at a selling price of €0 million without any disposals of cash and cash equivalents. Also in September 2005, the disposal of the Krupp Druckereibetriebe GmbH was initiated. The company offers a complete package of advertising consultancy and design services, integrated data-processing activities and a comprehensive publishing service. The assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of the Services segment. The disposal was consummated in the 1st quarter ended December 31, 2005 at a selling price of €14 million paid in cash and without any disposals of cash and cash equivalents. The following table shows the assets and liabilities of the disposal groups of the Services segment:
In December 2004, in Corporate the disposal of ThyssenKrupp's Residential Real Estate business which manages approximately 48,000 housing units in Germany's Rhine-Ruhr region was initiated and consummated in the 2nd quarter ended March 31, 2005. The disposal met the requirements for discontinued operation reporting. The selling price of €1,940 million paid in 146 cash resulted in a gain on disposal in the amount of €871 million (€788 million net of tax). The following table shows the results from the discontinued operation. Results from the discontinued operations of MetalCutting of the Technologies segment and of Residential Real Estate business are as follows:
The above mentioned "assets held for sale" and "liabilities associated with assets held for sale" as well as the "income/(loss) from discontinued operations" are included in the amounts disclosed in the notes to the consolidated financial statements. |
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