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IFRS reconciliations

First-time adoption of international financial reporting and accounting standards

The Regulation No. 1606/2002 of the European Parliament and the Council concerning the use of International Accounting Standards (IAS) was adopted on July 19, 2002. This regulation requires companies, publicly traded and domiciled in the European Union (EU), to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) for fiscal years starting on or after January 01, 2005. Accordingly, ThyssenKrupp ag, as a publicly traded corporation domiciled in Germany, is required to prepare its consolidated financial statements for the fiscal year 2005/2006 under IFRS. ThyssenKrupp AG has decided to adopt the recommendation of the Committee of European Securities Regulators (CESR) to prepare its interim reports in the current fiscal 2005/2006 in accordance with IFRS.

The Group has applied IFRS 1 "First time adoption of International Financial Reporting Standards" to provide a starting point for reporting under International Financial Reporting and Accounting Standards. The date of transition to International Financial Reporting and Accounting Standards was selected as October 01, 2004. An explanation of how the transition to IFRS 1 has affected the reported financial position, financial performance and cash flows of the Group is provided hereafter including reconciliations of equity and profit or loss for comparative periods reported under US GAAP (previous GAAP) to those reported under IFRS.

The opening balance sheet has been prepared using the Standards and Interpretations currently issued and expected to be effective as of September 30, 2006. With the exception of the exemptions granted by IFRS 1, the Group expects to adopt these accounting policies when it prepares its first complete set of IFRS consolidated financial statements as of September 30, 2006. A detailed presentation of the applicable accounting policies is provided in the notes to the interim condensed consolidated financial statements. Until September 30, 2006, the opening balance sheet as of October 01, 2004, the consolidated financial statements for the fiscal year ended September 30, 2005, and any interim consolidated financial statements issued for the period between October 01, 2004 and September 30, 2006 should be seen as provisional as the IASB may still enact provisions that could be applied retroactively. Accordingly, neither the opening balance sheet as of October 01, 2004, nor the consolidated financial statements for the fiscal year ended September 30, 2005 have yet been certified under IFRS by the Group's auditor. They form the basis for the first full consolidated financial statements under IFRS for the fiscal year ending September 30, 2006 and will only be certified in conjunction with the audit of these consolidated financial statements. The condensed consolidated interim financial statements have been prepared on the basis of IFRSs in issue that are effective or available for early adoption at the Group's first IFRS annual reporting date, September 30, 2006. Based on these IFRSs, Management has made assumptions about the accounting policies expected to be adopted (accounting policies) when the first IFRS annual financial statements are prepared for the year ended September 30, 2006.

The Group has taken the following exemptions granted by IFRS 1 when preparing its preliminary opening balance sheet:

• Business combinations

  The Company opted for the retention of the presentation of company acquisitions from the period before October 01, 2004, in place of an accounting treatment in accordance with the provisions of IFRS 3 "Business Combinations". The goodwill arising from those acquisitions contained no intangible assets that should have been shown separately under IFRS and has been taken on to the IFRS opening balance sheet without modifications other than those resulting from the required review of the carrying amounts of goodwill for impairment as of the opening balance sheet date and the required accounting for put options in connection with existing minority interest.

• Employee benefits

  As of October 01, 2004, all unrecognized actuarial gains and losses that arose in the period from the granting of the entitlement up to the date of transition to IFRS have been recognized directly in retained earnings ("fresh start").

• Cumulative currency translation gains and losses

  Cumulative currency translation gains and losses resulting from the translation of subsidiary and associated company financial statements up to the date of transition to IFRS have been directly recognized in retained earnings and have not been reported separately in equity. The recognition in retained earnings does not affect the reported equity. Currency translation adjustments arising after the transition are shown separately in equity and are recognized in income when the respective operations are disposed of.

The adoption of International Financial Reporting and Accounting Standards has resulted in the following changes to the Group's significant accounting policies:

Consolidation

Upon acquisition of a subsidiary the interest of minority shareholders under US GAAP is stated at the minority's proportion of the carrying amount of assets and liabilities of the subsidiary at the date of acquisition. Under IFRS, this minority interest is stated at the minority's proportion of fair values of identifiable assets, liabilities and contingent liabilities recognized at the date of acquisition and reported within equity.

Revenue recognition

Under US GAAP, the Group accounted for construction contracts using the percentage-of-completion method of accounting, if the performance of those contracts took place over a period of at least 12 months, beginning from the effective date of the contract to the date on which the contract is substantially completed. In accordance with IFRS, all construction contracts are accounted for using the percentage-of-completion method of accounting regardless the length of the performance period.

Development Costs

Development costs have been expensed as incurred in accordance with US GAAP. IFRS requires the recognition of development costs as an intangible asset, if certain requirements are met.

Components Approach

Where under US GAAP no specific rules exist, IFRS requires a "component approach" when accounting for property, plant and equipment. Where fixed assets are comprised of significant parts those parts are accounted for as separate units and are depreciated accordingly.

Investment property

Investments in land and buildings held to earn rental income or for capital appreciation are recorded as part of property, plant and equipment under US GAAP. Those investment properties are shown as a separate line item under non current assets in accordance with IFRS. Furthermore, the fair values of investment properties are included in the Notes to the consolidated financial statements where investment properties are recorded at amortized cost.

Goodwill

Under US GAAP, the Group tested goodwill for impairment on Reporting Unit level which corresponded to the reporting one level below its segments. If the first step of such an impairment test resulted in a carrying value of the reporting unit including goodwill that exceeded the fair value of that unit, the goodwill was deemed to be impaired. In a second step, the fair value of the goodwill was determined and compared with its carrying value which then served as a basis of calculation for the amount to be recorded as impairment charge. IFRS requires testing of goodwill for impairment on Cash Generating Unit (CGU) level. The group of Cash Generating Units to which goodwill has been allocated represents the lowest level within the Group that is monitored for internal management purposes. The IFRS requirement leads to testing levels below the Reporting Unit level in certain segments of the Group. The one-step impairment test under IFRS compares the carrying amount of a CGU including goodwill to its recoverable amount with any excess recorded as impairment charge against goodwill. In cases where the carrying amount of goodwill is less than the determined amount of the impairment charge, the difference is generally allocated proportionally to the remaining non-current assets of the CGU to reduce their carrying amounts accordingly.

Intangible assets, property, plant and equipment and investment property

If facts and circumstances indicate that intangible assets with finite useful lives, property, plant and equipment or investment property may have suffered an impairment loss, US GAAP requires a comparison of the carrying amount of those assets with the sum of undiscounted cash flows that are expected to be generated with these assets. If the carrying amount exceeds the sum of undiscounted cash flows, these assets are impaired. The necessary impairment charge is the amount by which the carrying amount of assets exceeds their fair values. Under IFRS, the assets are impaired if the carrying amounts of assets exceed the higher of a fair value less cost to sell or the sum of discounted cash flows that are expected to be generated with these assets (the recoverable amount). The excess carrying amount also represents the necessary impairment charge. Where under US GAAP the impairment creates a new cost basis for the asset, IFRS requires the carrying amount of the asset to be increased to a revised estimate of its recoverable amount if all or a portion of an impairment charge subsequently reverses.

Inventories

US GAAP requires inventories to be stated at the lower of cost or market whereas under IFRS inventories are stated at the lower of cost and net realizable value with a net realizable value being the estimated selling price in the ordinary course of business less estimated costs of completion and selling cost. Where under US GAAP the impairment creates a new cost basis for the asset, IFRS requires the carrying amount of the asset to be increased to a revised estimate of its net realizable value if all or a portion of an impairment charge subsequently reverses.

Receivables

Under US GAAP, receivables sold under the "true sale" concept are derecognized from the balance sheet at the time of the sale. In determining whether sold receivables can be derecognized from the balance sheet, IFRS is based primarily on a risk and rewards approach which in certain cases results in a treatment of the sale that differs from the one under US GAAP.

Accrued pension and similar obligations

The measurement date of accrued pension and similar obligations under US GAAP is allowed to differ from the year end balance sheet date of a company. The Group therefore measured its obligations using the assumptions determined as of June 30 of each fiscal year. Under IFRS the measurement date must correspond to a company's year end. Accordingly, the Group measures its obligations using the assumptions determined as of September 30 of each fiscal year.

As of September 30, 2004/October 01, 2004 and accordingly for fiscal year 2004/2005, the following assumptions were used to determine the pension obligations:

in %
			Sept. 30, 2004 / Oct. 01, 2004
			US GAAP				IFRS
			Germany		Outside Germany		Germany		Outside Germany
Weighted-average assumptions:
Discount rate			5.50		6.10		5.00		5.53
Expected return on plan assets			6.00		7.81		6.00		7.57
Rate of compensation increase			3.00		4.12		3.00		3.76

As of September 30, 2004/October 01, 2004 and accordingly for fiscal year 2004/2005, the following assumptions were used to determine the health care obligations:

in %
			Sept. 30, 2004 / Oct. 01, 2004
			US GAAP USA/Canada		IFRS USA/Canada
Weighted-average assumptions:
Discount rate			6.25		5.75
Health care cost trend rate for the following year			10.01		10.01
Ultimate health care cost trend rate (expected in 2009)			5.45		5.46

When recording an additional minimum pension liability as required under US GAAP, the recognition of an intangible asset is obligatory if certain conditions are met. IFRS has no rules regarding the recognition of an additional minimum pension liability or the related intangible asset.

Starting with balance sheet date September 30, 2005 the Group will no longer apply the corridor approach, but use the so-called "third option" in accordance with IAS 19 amendment (December 2004). Under the provisions of this amendment all actuarial gains and losses are recognized immediately and directly in equity.

The interest cost component and expected rate of return component of pension and health care cost have been included in income from operations under US GAAP. The Group elected to present those components of pension and health care costs within IFRS in net financial income/(expense) for its IFRS reporting.

Share-based compensation

Under US GAAP, the Group had valued its share-based compensation programs using the intrinsic value method until July 01, 2005. Subsequent to the adoption of SFAS 123(R) as of July 01, 2005, the Group valued its plans at fair value. Under IFRS, these programs are also recorded at fair value.

Embedded derivative financial instruments

US GAAP requires the recognition of an embedded derivative where parties conclude a contract that is not denominated in the functional currency of one of the parties to the contract. Under IFRS an embedded derivative is not recognized separately if the contract is denominated in a currency that is commonly used in business transactions in the environment in which the transaction takes place.

Discontinued operations

The Group reports the results of a disposal group that qualifies as component of the Group under US GAAP as discontinued operations if its cash flows can be clearly distinguished operationally and for financial reporting from the rest of the Group and the Group does not have significant continuing involvement with the component subsequent to its disposal. In addition to the identification of a component, IFRS requires that the disposed component must also represent a major line of business or all operations within a geographical area. Therefore, certain disposals may qualify as discontinued operations under US GAAP but not under IFRS.

Balance Sheet Classification

In previously published consolidated financial statements the balance sheet classification followed the 4th and 7th directive of the EU with additional disclosures required by US GAAP included in the Notes to the consolidated financial statements. Under IFRS, assets and liabilities are classified as current or non-current in the balance sheet.

To simplify the reconciliations of the consolidated balance sheets, the US GAAP presentation has been adjusted to the IFRS current/ non-current classification.

The effect of the changes to the Group's accounting policies on the reported financial position, results of operations and cash flows of the Group is presented in the following.

 

Reconciliation of the consolidated opening balance sheet as of October 01, 2004

Assets million €
	Note		US GAAP Sept. 30, 2004		IFRS adjustments		IFRS Oct. 01, 2004
Intangible assets, net	A1, B1, C1		3,554		(385)		3,169
Property, plant and equipment, net	D1, E1, F1, G1		10,574		(1,856)		8,718
Investment property	H1, I1		-		1,618		1,618
Investments accounted for using the equity method	J1		341		(9)		332
Financial assets			679		0		679
Deferred tax assets	K1		1,148		(272)		876
Total non-current assets			16,296		(904)		15,392
Inventories	L1, M1		6,274		(368)		5,906
Trade accounts receivable, net	N1, O1		5,764		653		6,417
Other receivables	P1, Q1		1,049		(75)		974
Current income tax assets			189		0		189
Cash and cash equivalents			1,350		0		1,350
Assets held for sale	R1, S1		219		37		256
Total current assets			14,845		247		15,092
Total assets			31,141		(657)		30,484

Equity and liabilities million €
	Note		US GAAP Sept. 30, 2004		IFRS adjustments		IFRS Oct. 01, 2004
Equity attributable to ThyssenKrupp AG's stockholders			8,327		(1,284)		7,043
Minority interest	A2		-		360		360
Total equity			8,327		(924)		7,403
Minority interest	A2		410		(410)		-
Accrued pension and similar obligations	B2, C2, D2		7,189		1,095		8,284
Other provisions	E2, F2		510		5		515
Deferred tax liabilities	G2		977		(757)		220
Financial liabilities	H2		3,618		60		3,678
Other liabilities	I2		0		42		42
Total non-current liabilities			12,294		445		12,739
Other provisions	J2		1,811		(852)		959
Current income tax liabilities			538		0		538
Financial liabilities	K2		614		238		852
Trade accounts payable	L2		3,644		(13)		3,631
Other liabilities	M2, N2, O2, P2		3,312		831		4,143
Liabilities associated with assets held for sale	Q2		191		28		219
Total current liabilities			10,110		232		10,342
Total liabilities			22,814		267		23,081
Total equity and liabilities			31,141		(657)		30,484

Intangible assets, net

A1 Development costs

Development costs that satisfied the criteria for recognition under IFRS resulted in an increase of intangible assets of €77 million.

B1 Goodwill

The IFRS one-step goodwill impairment test applied on Cash Generating Unit level as of October 01, 2004, resulted in an impairment charge against goodwill in the amount of €437 million.

The recognition of a put option in connection with an existing minority interest of the Dongyang group resulted in an increase of goodwill by €32 million.

C1 Intangible pension asset

The US GAAP intangible pension asset of €53 million was derecognized to account for pension obligations in accordance with IAS 19.

Property, plant and equipment, net

D1 Investment property

Based on the IFRS requirement to present investment property separately in the consolidated balance sheet, property, plant and equipment of €1,688 million were reclassified.

E1 Components approach

Under IFRS, property, plant and equipment is required to be separated into significant accounting parts and depreciated over the expected useful lives of the corresponding units. As a result, the Group recognized an increase of property, plant and equipment of €19 million.

F1 Impairment

The IFRS one-step impairment test of property, plant and equipment based on discounted cash flows resulted in an impairment charge against those assets of €247 million as the corresponding carrying values where no longer supported by the respective recoverable amounts.

G1 Leases

Under US GAAP, the classification of a lease as either operating lease or capital (finance) lease is based on formal criteria. IFRS however, does not use such formal quantitative thresholds to determine the type of a lease. Therefore, the application of IAS 17 "Leases" can result in a different classification of lease transactions. Accordingly, a lease transaction accounted for as an operating lease under US GAAP (whereby the lease payments were expensed as incurred), was accounted for as a finance lease under IFRS (with the related asset and liabilities recognized in the Group's balance sheet). As a result, property, plant and equipment increased by €60 million.

Investment property

H1 Separate balance sheet line item

Based on the IFRS requirement to present investment property separately in the consolidated balance sheet, property, plant and equipment of €1,688 million was reclassified.

I1 Impairment

The IFRS one-step impairment test of investment property based on discounted cash flows resulted in an impairment of €70 million.

Investments accounted for using the equity method

J1 Assets held for sale

Under US GAAP, apart from a disposal group only long-lived assets can be classified as held for sale if certain criteria are met, while under IFRS, all non-current assets can qualify for classification as held for sale. As a result, the Group reclassified an investment accounted for using the equity method in the amount of €9 million in assets held for sale.

Deferred tax assets

K1 IFRS adjustments

Deferred taxes are recognized generally due to different accounting under IFRS/US GAAP and the applicable national income tax calculation methods. As described above, the transition from US GAAP to IFRS accounting resulted in significant changes of various balance sheet items, but the national statutory income tax calculation methods remained unchanged. The transition therefore altered the aforementioned relationship with corresponding impacts on the balance sheet recognition of deferred taxes.

Regulations specifying different rules for the recognition of deferred taxes, under US GAAP and IFRS, as well as goodwill impairment and balance sheet reclassifications (e.g. the reclassification of minority interest to shareholders' equity) did not materially affect deferred taxes.

Compared to US GAAP, there are extended possibilities for balancing deferred taxes at single entity level. Because of this deferred tax assets and liabilities respectively are reduced compared to US GAAP.

The netted amount of deferred tax assets and liabilities results in a deferred tax asset under IFRS, while there was a net deferred tax liability under US GAAP. This is in general due to the increased accrued pensions and similar obligations and due to the decreased property, plant and equipment under IFRS.

The IFRS adjustments resulted in a decrease of deferred tax assets of €272 million.

Inventories

L1 Percentage-of-completion method

Under US GAAP, the balance sheet item "Work in progress" included construction contracts accounted for under the percentage-of-completion method. Under IFRS, these construction contracts are included in trade accounts receivable. In this context, €370 million were reclassified.

M1 Lower of cost and net realizable value

The measurement of inventories under IFRS at the lower of cost and net realizable value resulted in an increase of inventories of €2 million.

Trade accounts receivable, net

N1 Percentage-of-completion method

Under US GAAP, the balance sheet item "Work in progress" included construction contracts accounted for under the percentage-of-completion method. Under IFRS, these construction contracts are included in trade accounts receivable. In this context, €370 million were reclassified (ref. L1).

Moreover under IFRS, the percentage-of-completion method is applied to construction contracts which have not been accounted for using the percentage-of-completion method under US GAAP due to their performance duration of less than one year resulting in an increase of trade accounts receivable ("Future receivables from construction contracts") of €47 million.

O1 Sale of receivables

Under IFRS, a risks and rewards approach and control are applied to determine whether receivables sold can be derecognized. The application of this approach to receivables sold as of October 01, 2004, under existing programs resulted in an increase of the respective balance sheet caption by €238 million.

Other receivables

P1 Embedded derivatives

Under IFRS, several transactions do not qualify for a separate accounting as an embedded derivative because they are denominated in a currency that is commonly used in such business transactions. As a result, the Group derecognized assets of €3 million.

Q1 Prepaid pension cost

The IFRS pension accounting resulted in a reduction of the prepaid pension cost of €72 million primarily due to different discount rates and different fair values of plan assets as a result of different measurement dates.

Assets held for sale

R1 Additional assets held for sale under IFRS

Under US GAAP, apart from a disposal group only long-lived assets can be classified as held for sale if certain criteria are met, while under IFRS, all non-current assets can qualify for classification as held for sale. As a result, the Group reclassified an investment accounted for using the equity method in the amount of €9 million in assets held for sale (ref. J1).

S1 IFRS adjustments

Under IFRS, assets held for sale increased by €28 million resulting from IFRS adjustments of asset-backed transactions (ref. O1) of €18 million, separate accounting of significant parts (ref. E1) of €1 million and deferred tax assets (ref. K1) of €8 million. Moreover, the reclassified amount of an investment accounted for using the equity method was increased by €1 million because the basis of presentation of the financial statements of the respective associate has also been changed from US GAAP to IFRS.

Minority interest

A2 Reclassification

Under US GAAP, minority interest is presented as a separate item between equity and liabilities in the consolidated balance sheet. Under IFRS, minority interest is required to be presented as part of equity. This reclassification resulted in an increase of equity of €410 million. Thereof, €50 million refer to IFRS adjustments in the financial statements of the single entities with minority shareholders due to IFRS 1 and the recognition of the put option in connection with the Dongyang group (ref. B1).

Accrued pensions and similar obligations

B2 Pension obligations

A reduced discount rate as of October 01, 2004, compared to the rate used at the early measurement date June 30, 2004 under US GAAP, and the allowed recognition of all actuarial gains and losses in equity in the opening balance sheet resulted in an increase of pension obligations by €484 million.

C2 Postretirement obligations other than pensions

A reduced discount rate as of October 01, 2004 compared to the rate used at the early measurement date June 30, 2004 under US GAAP and the allowed recognition of all actuarial gains and losses in equity in the opening balance sheet resulted in an increase of health care obligations other than pensions by €540 million.

D2 Voluntary early retirement agreements

Under US GAAP, obligations for voluntary early retirement agreements are only recorded for employees who have actually entered into retirement agreements and are accrued on a pro-rata basis. Under IFRS, obligations for voluntary early retirement benefits are recorded based upon management's best estimate of the number of employees expected to enter into early retirement agreements and are accrued on an actuarial basis. As a result, the provisions increased by €71 million.

Other provisions - non-current

E2 Employees' anniversary bonuses

Based on the early measurement option of US GAAP, the Group's provisions for anniversary bonuses were calculated using the assumptions as of June 30, 2004. Under IFRS, the calculation has to be based on the assumptions as of October 01. Because of the reduced discount rate as of October 01, 2004, the provision for anniversary bonuses increased by €2 million.

F2 Share-based compensation

The IFRS accounting of the Group's cash settled management incentive plans using the fair value method resulted in an increase of the provision of €3 million.

Deferred tax liabilities

G2 IFRS adjustments

Deferred taxes are generally recognized due to different accounting under IFRS/US GAAP and the applicable national income tax calculation methods. As described above, the transition from US GAAP to IFRS accounting resulted in significant changes of various balance sheet items, but the national statutory income tax calculation methods remained unchanged. The transition therefore altered the aforementioned relationship with corresponding impacts on the balance sheet recognition of deferred taxes.

Regulations specifying different rules for the recognition of deferred taxes, under US GAAP and IFRS, as well as goodwill impairment and balance sheet reclassifications (e.g. the reclassification of minority interest to shareholders' equity) did not materially affect deferred taxes.

Compared to US GAAP, there are extended possibilities for balancing deferred taxes at single entity level. Because of this deferred tax assets and liabilities respectively are reduced compared to US GAAP. The netted amount of deferred tax assets and liabilities results in a deferred tax asset under IFRS, while there was a net deferred tax liability under US GAAP. This is in general due to the increased accrued pensions and similar obligations and due to the decreased property, plant and equipment under IFRS.

The IFRS adjustments resulted in a decrease of deferred tax liabilities of €757 million.

Financial liabilities - non-current -

H2 Leases

As described in G1), certain lease contracts that qualified as an operating lease under US GAAP are treated as a finance lease under IFRS. As a result, non-current financial liabilities increased by €60 million.

Other liabilities - non-current -

I2 Put option

The accounting for the put option at the Dongyang group (ref. B1) resulted in a recognition of a liability of €42 million.

Other provisions - current -

J2 Reclassification

In previously published consolidated financial statements the balance sheet classification followed the 4th and 7th directive of the EU with additional disclosures required by US GAAP included in the Notes to the consolidated financial statements. Under this classification, certain liabilities were shown as provisions. Under IFRS, €852 million formerly recorded as other provisions are reclassified into other liabilities as they do not fulfill the definition of a provision under IFRS.

Financial liabilities - current -

K2 Sale of receivables

The determination whether receivables sold can be derecognized based on the IFRS risk and reward approach and control (ref. O1) resulted in a corresponding increase of current financial liabilities of €238 million.

Trade accounts payable

L2 Percentage-of-completion method

Under IFRS, the percentage-of-completion method is applied on all construction contracts (ref. N1). As a result, the Group reclassified €13 million from trade accounts payable into other liabilities.

Other liabilities

M2 Reclassification

The adoption of the IFRS definitions regarding the classification of provisions and liabilities (ref. J2) resulted in a reclassification of other provisions of €852 million into other liabilities.

N2 Embedded derivatives

Under IFRS, several foreign currency based transactions do not require separate accounting for an embedded derivative component because these transactions are denominated in a currency that is commonly used in such business transactions. As a result, the Group derecognized liabilities of €10 million.

O2 Percentage-of-completion method

Under IFRS, the percentage-of-completion method is applied on all construction contracts (ref. N1). As a result, the Group's other liabilities ("Liabilities from orders in progress (PoC)") increased by €43 million due to excess amounts of advances received or progress billings compared to corresponding attributable revenues.

P2 Sale-and-lease-back transactions

Under US GAAP, gains resulting from sale-and-lease-back transactions are deferred over the contract period. Under IFRS, these gains are recognized immediately on the date of sale if the sale-and-lease-back transaction results in an operating lease and the transaction was established at fair value. This resulted in a decrease of deferred income of €63 million.

Liabilities associated with assets held for sale

Q2 IFRS adjustments

Under IFRS, liabilities associated with assets held for sale increased by €28 million resulting from IFRS adjustments of asset-backed transactions (ref. K2) of €18 million, pension obligations (ref. B2) of €4 million and deferred tax liabilities of (ref. G2) of €6million.

 

Reconciliation of equity as of October 01, 2004

million €
	Note
Stockholders' equity under US GAAP as of Sept. 30, 2004			8,327
Intangible assets, net	A1, B1, C1		(417)
Property, plant and equipment, net	D1, E1, F1, G1		(168)
Investment property	H1, I1		(70)
Deferred tax assets	K1		(272)
Inventories	L1, M1		2
Trade accounts receivable	N1, O1		47
Other receivables	P1, Q1		(75)
Assets held for sale	R1, S1		11
Accrued pensions and similar obligations	B2, C2, D2		(1,095)
Other provisions	E2, F2		(8)
Deferred tax liabilities	G2		757
Financial liabilities	H2		(60)
Other liabilities	N2, O2, P2		33
Liabilities associated with assets held for sale	Q2		(10)
Minority interest	A2		50
Other adjustments			(9)
Equity attributable to ThyssenKrupp AG's stockholders under IFRS as of Oct. 01, 2004			7,043
Minority interest under IFRS as of Oct. 01, 2004			360
Total equity under IFRS as of Oct. 01, 2004			7,403

 

Reconciliation of the consolidated balance sheet as of June 30, 2005

Assets million €
	Note		US GAAP June 30, 2005		IFRS adjustments		IFRS June 30, 2005
Intangible assets, net	A1		4,774		(178)		4,596
Property, plant and equipment, net	B1		9,462		(716)		8,746
Investment property	C1		-		561		561
Investments accounted for using the equity method			300		9		309
Financial assets			674		0		674
Deferred tax assets	D1		369		13		382
Total non-current assets			15,579		(311)		15,268
Inventories	E1		6,945		(580)		6,365
Trade accounts receivable, net	F1		6,571		709		7,280
Other receivables			1,227		(76)		1,151
Current income tax assets			391		0		391
Cash and cash equivalents			3,182		0		3,182
Assets held for sale			412		26		438
Total current assets			18,728		79		18,807
Total assets			34,307		(232)		34,075

Equity and liabilities million €
	Note		US GAAP June 30, 2005		IFRS adjustments		IFRS June 30, 2005
Equity attributable to ThyssenKrupp AG's stockholders			9,708		(1,196)		8,512
Minority interest			-		393		393
Total equity			9,708		(803)		8,905
Minority interest			491		(491)		-
Accrued pension and similar obligations	A2		7,036		1,057		8,093
Other provisions			532		10		542
Deferred tax liabilities	B2		750		(400)		350
Financial liabilities			3,309		58		3,367
Other liabilities			0		208		208
Total non-current liabilities			11,627		933		12,560
Other provisions	C2		2,260		(1,005)		1,255
Current income tax liabilities			536		1		537
Financial liabilities	D2		1,711		118		1,829
Trade accounts payable			3,700		(13)		3,687
Other liabilities	E2		4,020		1,004		5,024
Liabilities associated with assets held for sale			254		24		278
Total current liabilities			12,481		129		12,610
Total liabilities			24,599		571		25,170
Total equity and liabilities			34,307		(232)		34,075

A1 Intangible assets, net

Primarily due to the following reasons the decrease of intangible assets as of June 30, 2005 was reduced by €207 million compared to October 01, 2004:

The amount of additional impairment charges against goodwill in the opening balance sheet was reduced by €38 million as of June 30, 2006, mainly due to impairment losses to be recognized under US GAAP but already included in the opening balance sheet.

Capitalized development cost increased by €13 million.

The recognition of a put option in connection with an existing minority interest of the Howaldtswerke-Deutsche Werft (HDW) and a corresponding reconsideration of the purchase price allocation resulted in an increase of goodwill by €100 million.

B1 Property, plant and equipment, net

Primarily due to the following reason the decrease of property, plant and equipment as of June 30, 2005 was reduced by €1,140 million compared to October 01, 2004:

In the opening balance sheet the Group reclassified property from property, plant and equipment into investment property. As a result of the disposal of the Residential Real Estate business during the 2nd quarter ended March 31, 2005 the amount of reclassification was omitted.

Moreover, under US GAAP impairment losses of €42 million has to be recognized; these impaiment losses have been already included in the opening balance sheet.

C1 Investment property

Due to the disposal of the Residential Real Estate business during the 2nd quarter ended March 31, 2005 the increase of investment property was reduced by €1,057 million compared to October 01, 2004.

D1 Deferred tax assets

The reduction of deferred tax assets as of June 30, 2005 decreased by €285 million compared to October 01, 2004.

This is due to, compared to US GAAP, extended possibilities for balancing deferred taxes at single entity level and changes in currency exchange rates.

E1 Inventories

Primarily due to the necessary reclassification into trade accounts receivable in connection with the percentage-of-completion method the reduction of inventories as of June 30, 2005 increased by €212 million compared to October 01, 2004.

F1 Trade accounts receivable, net

Primarily due to the following reasons the increase of trade accounts receivable as of June 30, 2005 rose by €56 million compared to October 01, 2004:

The necessary reclassification from inventories into trade accounts receivable in connection with the percentage-of-completion method increased by €212 million. At the same time, the adjustments due to the extended application of the percentage-of-completion method decreased by €36 million.

Adjustments of asset-backed programs to achieve an off balance treatment, disposals from the scope of consolidation and changes of exchange rates resulted in an increase of derecognized trade accounts receivables of €120 million as of June 30, 2005.

A2 Accrued pension and similar obligations

Primarily due to the following reasons the increase of accrued pension and similar obligations as of June 30, 2005 was reduced by €38 million compared to October 01, 2004:

Regarding accrued pension obligations the necessary amount of adjustments decreased by €27 million due to the application of the fresh-start method in the opening balance sheet as of October 01, 2004 and as a result of changes in currency exchange rates.

Regarding postretirement obligations other than pensions (healthcare obligations) the necessary amount of adjustments increased by €3 million due to the application of the fresh-start method in the opening balance sheet as of October 01, 2004 and as a result of changes in currency exchange rates.

B2 Deferred tax liabilities

The reduction of deferred tax liabilities as of June 30, 2005 decreased by €357 million compared to October 01, 2004.

This is due to, compared to US GAAP, extended possibilities for balancing deferred taxes at single entity level and foreign currency effects.

C2 Other provisions – current –

The reduction of current other provisions as of June 30, 2005 rose by €153 million compared to October 01, 2004.

This is primarily due to an increased amount of reclassification from provisions into other liabilities.

D2 Financial liabilities – current –

Adjustments of asset-backed programs to achieve an off balance treatment, disposals from the scope of consolidation and changes in currency exchange rates resulted in a decrease of current financial liabilities by €120 million as of June 30, 2005.

E2 Other liabilities – current –

The increase of current other liabilities as of June 30, 2005 rose by €173 million compared to October 01, 2004.

This is primarily due to an increased amount of reclassification from provisions into other liabilities.

Reconciliation of equity as of June 30, 2005

million €
	Note
Stockholders' equity under US GAAP as of June 30, 2005			9,708
Intangible assets, net	A1		(352)
Property, plant and equipment, net	B1		(89)
Investment property	C1		(70)
Deferred tax assets	D1		13
Trade accounts receivable	F1		12
Other receivables			(71)
Assets held for sale			26
Accrued pensions and similar obligations	A2		(1,057)
Other provisions			(10)
Deferred tax liabilities	B2		400
Financial liabilities	D2		(58)
Other liabilities	E2		4
Liabilities associated with assets held for sale			(24)
Minority interest			98
Other adjustments			(18)
Equity attributable to ThyssenKrupp AG's stockholders under IFRS as of June 30, 2005			8,512
Minority interest under IFRS as of June 30, 2005			393
Total equity under IFRS as of June 30, 2005			8,905

 

Reconciliation of the consolidated statement of cash flows for the 9 months ended June 30, 2005

The free cash flow, i.e. the difference between the cash flow from operating activities and the cash flow from investing activities, increased by €138 million to €1,634 million. This is due to the recognition of a decrease of liabilities resulting from the disposals of trade accounts receivables which are not derecognized from the balance sheet as cash flows from financing activities. As a consequence, the cash inflow resulting from the disposal of a trade account receivable is only recognized in cash flow from operating activities if and at the time the corresponding customer payments are transferred to the bank.

Reconciliation of the consolidated statement of income for the 3rd quarter ended June 30, 2005

million €
	Note		US GAAP 3rd quarter ended June 30, 2005		IFRS 5 adjustments		Other IFRS adjustments		IFRS 3rd quarter ended June 30, 2005
Net sales	A1, B1		11,191		102		(40)		11,253
Cost of sales	C1, D1, E1		(9,339)		(62)		127		(9,274)
Gross margin			1,852		40		87		1,979
Selling expenses			(640)		(16)		1		(655)
General and administrative expenses	F1		(602)		(4)		47		(559)
Other operating income			49		1		(1)		49
Other operating expenses			(104)		3		(9)		(110)
Gain/(loss) on the disposal of subsidiaries, net			1		(45)		36		(8)
Income from operations			556		(21)		161		696
Income from companies accounted for at equity			12		0		(1)		11
Other financial income/(expense), net			(37)		(2)		(91)		(130)
Financial income/ (expense), net	G1		(25)		(2)		(92)		(119)
Income from continuing operations before income taxes			531		(23)		69		577
Income tax expense	H1		(218)		6		(21)		(233)
Minority interest	I1		(18)		0		18		-
Income from continuing operations			295		(17)		66		344
Discontinued operations (net of tax)			(141)		17		38		(86)
Net income			154		0		104		258
Thereof:
ThyssenKrupp AG's stockholders			154		0		88		242
Minority interest			-		0		16		16
Net income			154		0		104		258
Basic earnings per share
Income from continuing operations (attributable to ThyssenKrupp AG's stockholders)			0.59		(0.03)		0.10		0.66
Net income (attributable to ThyssenKrupp AG's stockholders)			0.31		0.00		0.17		0.48

US GAAP 3rd quarter ended June 30, 2005

The originally published US GAAP 3rd quarter ended June 30, 2005 has been adjusted to include all discontinued operations of the year ended September 30, 2005. Compared to the originally published figures in the adjusted US GAAP 3rd quarter ended June 30, 2005, net sales decreased by €96 million and income from continuing operations before income taxes increased by €2 million due to a corresponding decrease of financial expense, net.

IFRS 5 adjustments

Based on the differences in the definition of a discontinued operation under US GAAP and IFRS, the following disposals qualified for reporting as discontinued operations under US GAAP but do not under IFRS:

Segment Steel (structure until Sept. 30, 2005)

• Edelstahl Witten-Krefeld GmbH
• Hoesch Contecna Systembau GmbH

Segment Automotive

• Alu Castings
• European truck spring businesses
• ThyssenKrupp Stahl Company

Segment Technologies

• ThyssenKrupp Stahlbau business
• Turbine components operation group

Segment Services

• Hommel group
• Krupp Druckereibetriebe GmbH

In addition, expenses resulting from disposals of discontinued operations incurred in fiscal year 2003/2004 qualified for reporting as discontinued operations under US GAAP but do not under IFRS.

As a result, only the disposals of the MetalCutting business unit and of the Residential Real Estate business qualify for reporting as discontinued operations under US GAAP and under IFRS as well.

The adjustments to present the disposals as part of continuing operations under IFRS are disclosed in column "IFRS 5 adjustments".

Other IFRS adjustments

These adjustments primarily result from the roll forward of the corresponding adjustments due to the transition from US GAAP to IFRS as of October 01, 2004.

Net sales

A1 Foreign currency embedded derivatives

Under IFRS, for several transactions denominated in foreign currencies separate accounting for embedded derivatives is not required because they are denominated in a currency that is commonly used in such business transactions. As a result, net sales decreased by €21 million due to the elimination of the foreign currency embedded derivative effects.

B1 Construction contracts

The extended application of the percentage-of-completion method resulted in an decrease of net sales by €19 million.

Cost of sales

In total, cost of sales was reduced by €127 million, especially due to the following items:

C1 Foreign currency embedded derivatives

Under IFRS, for several transactions denominated in foreign currencies separate accounting for embedded derivatives is not required because they are denominated in a currency that is commonly used in such business transactions. As a result, cost of sales decreased by €45 million due to the elimination of the foreign currency embedded derivative effects.

D1 Personnel expenses

Personnel expenses included in cost of sales decreased by €33 million. This is primarily due to the absence of amortization of actuarial losses stemming from pension and other postretirement benefit plans under IFRS as the result of the application of the fresh start method in the opening balance sheet. Moreover, cost of sales decreased because of the reclassification of pension interest cost to net financial income/(expense). Cost of sales increased by the reclassification of the expected return on plan assets to net financial income/(expense).

E1 Construction contracts

The extended application of the percentage-of-completion method resulted in an decrease of cost of sales by €20 million.

General and administrative expenses

F1 Personnel expenses

Personnel expenses included in general and administrative expenses decreased by €54 million. This is primarily due to the reversal of amortization of pension and pension-related actuarial losses under IFRS as the result of the application of the fresh start method in the opening balance sheet. Moreover, personnel expenses decreased due to the reclassification of pension interest cost to net financial income/(expense). Personnel expenses increased due to the reclassification of the expected return on plan assets to net financial income/(expense).

Financial income/(expense), net

G1 Accrued pension and similar obligations

Financial expense, net increased by €(92) million primarily due to the recognition of pension interest cost of €(127) million offset by the recognition of the expected return on plan assets of €34 million.

Income tax expense

H1 IFRS adjustments

The increase of income tax expenses by €21 million relates to deferred taxes resulting from IFRS adjustments.

Minority interest

I1 Reclassification

Under US GAAP, net income is presented after reduction of minority interest. Under IFRS, net income is inclusive of minority interest. This reclassification resulted in an increase of net income of €18 million.

Reconciliation of the consolidated statement of income for the 9 months ended June 30, 2005

million €
	Note		US GAAP 9 months ended June 30, 2005		IFRS 5 adjustments		Other IFRS adjustments		IFRS 9 months ended June 30, 2005
Net sales	A1, B1		31,178		763		10		31,951
Cost of sales	C1		(25,809)		(656)		187		(26,278)
Gross margin			5,369		107		197		5,673
Selling expenses			(1,917)		(71)		3		(1,985)
General and administrative expenses	D1		(1,762)		(61)		153		(1,670)
Other operating income			161		5		12		178
Other operating expenses			(266)		(13)		(3)		(282)
Gain/(loss) on the disposal of subsidiaries, net			3		(13)		39		29
Income from operations			1,588		(46)		401		1,943
Income from companies accounted for at equity			28		0		2		30
Other financial income/(expense), net			(149)		(4)		(265)		(418)
Financial income/ (expense), net	E1		(121)		(4)		(263)		(388)
Income from continuing operations before income taxes			1,467		(50)		138		1,555
Income tax expense	F1		(581)		(2)		(49)		(632)
Minority interest	F1		(50)		0		50		-
Income from continuing operations			836		(52)		139		923
Discontinued operations (net of tax)			638		52		45		735
Net income			1,474		0		184		1,658
Thereof:
ThyssenKrupp AG's stockholders			1,474		0		137		1,611
Minority interest			-		0		47		47
Net income			1,474		0		184		1,658
Basic earnings per share
Income from continuing operations (attributable to ThyssenKrupp AG's stockholders)			1.68		(0.10)		0.18		1.76
Net income (attributable to ThyssenKrupp AG's stockholders)			2.96		0.00		0.27		3.23

US GAAP 9 months ended June 30, 2005

The originally published US GAAP 9 months ended June 30, 2005 has been adjusted to include all discontinued operations of the year ended September 30, 2005. Compared to the originally published figures in the adjusted US GAAP 9 months ended June 30, 2005, net sales decreased by €305 million and income from operations increased by €8 million. Income from continuing operations before income taxes increased by €13 million.

IFRS 5 adjustments

Based on the differences in the definition of a discontinued operation under US GAAP and IFRS, the following disposals qualified for reporting as discontinued operations under US GAAP but do not under IFRS:

Segment Steel (structure until Sept. 30, 2005):

• Edelstahl Witten-Krefeld GmbH
• Hoesch Contecna Systembau GmbH

Segment Automotive

• Alu Castings
• European truck spring businesses
• ThyssenKrupp Stahl Company

Segment Technologies

• ThyssenKrupp Stahlbau business
• Turbine components operation group

Segment Services

• Hommel group
• Krupp Druckereibetriebe GmbH

In addition, expenses resulting from disposals of discontinued operations incurred in fiscal year 2003/2004 qualified for reporting as discontinued operations under US GAAP but do not under IFRS.

As a result, only the disposals of the MetalCutting business unit and of the Residential Real Estate business qualify for reporting as discontinued operations under US GAAP and under IFRS as well.

The adjustments to present the disposals as part of continuing operations under IFRS are disclosed in column "IFRS 5 adjustments".

Other IFRS adjustments

These adjustments primarily result from the roll forward of the corresponding adjustments due to the transition from US GAAP to IFRS as of October 01, 2004.

Net sales

A1 Construction contracts

The extended application of the percentage-of-completion method resulted in an increase of net sales by €16 million.

Cost of sales

In total, cost of sales was reduced by €187 million, especially due to the following items:

B1 Foreign currency embedded derivatives

Under IFRS, for several transactions denominated in foreign currencies separate accounting for embedded derivatives is not required because they are denominated in a currency that is commonly used in such business transactions. As a result, cost of sales decreased by €49 million due to the elimination of foreign currency embedded derivatives.

C1 Personnel expenses

Personnel expenses included in cost of sales decreased by €117 million. This is primarily due to the absence of amortization of actuarial losses stemming from pension and other postretirement benefit plans under IFRS as the result of the application of the fresh start method in the opening balance sheet. Moreover, cost of sales decreased because of the reclassification of pension interest cost to net financial income/(expense). Cost of sales increased by the reclassification of the expected return on plan assets to net financial income/(expense).

General and administrative expenses

D1 Personnel expenses

Personnel expenses included in general and administrative expenses decreased by €168 million. This is primarily due to the reversal of amortization of pension and pension-related actuarial losses under IFRS as the result of the application of the fresh start method in the opening balance sheet. Moreover, general and administrative expenses decreased due to the reclassification of pension interest cost to net financial income/(expense). General and administrative expenses increased due to the reclassification of the expected return on plan assets to net financial income/(expense).

Financial income/(expense), net

E1 Accrued pension and similar obligations

Financial expense, net increased by €(263) million primarily due to the recognition of pension interest cost of €(339) million offset by the recognition of the expected return on plan assets of €74 million.

Income tax expense

F1 IFRS adjustments

The increase of income tax expenses by €49 million relates to deferred taxes resulting from IFRS adjustments.

Minority interest

G1 Reclassification

Under US GAAP, net income is presented after reduction of minority interest. Under IFRS, net income is inclusive of minority interest. This reclassification resulted in an increase of net income of €50 million.