NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ThyssenKrupp Aktiengesellschaft ("ThyssenKrupp AG" or "Company") is a publicly traded corporation domiciled in Germany. The interim condensed consolidated financial statements of ThyssenKrupp AG and subsidiaries, collectively the "Group", for the three months ended December 31, 2006, were authorized for issue in accordance with a resolution of the Executive Board on February 08, 2007.

The accompanying unaudited Group's interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) for interim financial information effective within the European Union. Accordingly, these financial statements do not include all of the information and footnotes required by IFRS for complete financial statements for year end reporting purposes.

In the opinion of Management, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal and recurring nature considered necessary for a fair presentation of results for interim periods. Results of the period ended December 31, 2006, are not necessarily indicative for future results.

The preparation of interim financial statements in conformity with IAS 34 Interim Financial Reporting 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 accounting principles and practices as applied in the interim condensed consolidated financial statements correspond to those pertaining to the most recent annual consolidated financial statements. A detailed description of the accounting policies is published in the notes to the annual consolidated financial statements of our annual report 2005/2006.

On January 01, 2005, the Group began to participate in the European Union Emissions Trading Scheme (ets). The Group received notification from the national emissions-trading agency that it is entitled to receive allowances to emit 56.0 million tons of CO2 (one third is allocated to 2005) during the compliance period 2005 – 2007. The majority of the total allowances are allocated to the Steel segment. The rights are capitalized at cost as an intangible asset. If the emissions are expected to exceed the amount covered by the granted allowances, the Group records an obligation for the purchase of additional allowances.

2 DISPOSAL GROUPS

As part of the portfolio optimization program, in December 2006, in the Technologies segment the disposals of the defence technology division of Blohm + Voss Industries GmbH and the ThyssenKrupp Bilstein Wagenheber GmbH have been initiated. The defence technology division develops and manufactures armoured castings for tracked vehicles. The ThyssenKrupp Bilstein Wagenheber GmbH focuses on the acquisition, development, construction and distribution of car jacks and similar products which are utilized serially by the Automotive industry.

Both activities do not meet the requirements for discontinued operation reporting in accordance with IFRS 5. Therefore, revenues and expenses will continue to be presented as income from continuing operations until the date of the disposal.

The following table shows the assets and liabilities of the disposal groups as of December 31, 2006:

million €
     

Defence
technology
division of Blohm + Voss
Industries GmbH Dec. 31, 2006

  

ThyssenKrupp Bilstein Wagenheber GmbH
Dec. 31, 2006

Intangible assets

 

  

0

  

2

Property, plant and equipment, net

 

  

0

  

1

Inventories

 

  

4

  

0

Trade accounts receivable, net

 

  

5

  

3

Other receivables

 

  

0

  

1

Assets held for sale

 

  

9

  

7

 

 

  

 

  

 

Accrued pension and similar obligations

 

  

1

  

0

Deferred tax liabilities

 

  

0

  

1

Other current provisions

 

  

1

  

0

Current financial liabilities

 

  

0

  

3

Trade accounts payable

 

  

0

  

1

Other liabilities

 

  

0

  

1

Liabilities associated with assets held for sale

 

  

2

  

6

In addition to the assets attributable to the two disposal groups the line item "assets held for sale" includes a financial asset held for sale in the amount of €3 million.

The above mentioned "assets held for sale" and "liabilities associated with assets held for sale" are included in the various tables within the notes to the financial statements.

3 EXPENSE FOR SHARE-BASED COMPENSATION

At the end of the 1st quarter ended December 31, 2006, the stock rights granted in the second installment of the mid-term incentive plan were settled with a payment of €27.6 million. In total, ThyssenKrupp recorded compensation expense of €24.1 million for the obligations of this plan in the 1st quarter (1st quarter of 2005/2006: €2.6 million).

The Group's Share Purchase Plan which was implemented in February 2006 and entitles employees to purchase shares at a discount resulted in a compensation expense of €4.9 million in the 1st quarter ended December 31, 2006.

4 OTHER OPERATING INCOME

Other operating income includes €119 million from an insurance settlement in connection with fire damages. The corresponding expense due to the property damage and business interruptions is included in cost of sales.

5 COST FOR PENSIONS AND SIMILAR OBLIGATIONS

The net periodic pension cost for the defined benefit plans is as follows:

million €
 

 

  

1st quarter ended Dec. 31, 2005

  

1st quarter ended Dec. 31, 2006
     
     

Germany

  

Outside Germany

  

Germany

  

Outside Germany

Service cost

 

  

10

  

15

  

9

  

12

Interest cost

 

  

63

  

31

  

66

  

32

Expected return on plan assets

 

  

(2)

  

(33)

  

(2)

  

(35)

Past service cost

 

  

1

  

1

  

0

  

0

Settlement and curtailment loss/(gain)

 

  

0

  

0

  

0

  

(12)

Net periodic pension cost

 

  

72

  

14

  

73

  

(3)

Due to the disposal of subsidiaries in the us, the expected contribution in fiscal year 2006/2007 related to ThyssenKrupp's funded plans increased by €10 million.

The net periodic postretirement benefit cost for health care obligations is as follows:

million €
 

 

  

1st quarter ended Dec. 31, 2005 USA/Canada

  

1st quarter ended Dec. 31, 2005 USA/Canada

Service cost

 

  

6

  

4

Interest cost

 

  

15

  

15

Expected return on reimbursement rights

 

  

(1)

  

(2)

Past service cost

 

  

0

  

0

Settlement and curtailment loss/(gain)

 

  

0

  

(39)

Net periodic postretirement benefit cost

 

  

20

  

(22)

6 TOTAL EQUITY

Total equity and the number of shares outstanding changed as follows:

Table: Total equity


7 CONTINGENCIES INCLUDING PENDING LAWSUITS AND CLAIMS FOR DAMAGES

Guarantees

ThyssenKrupp AG and its segment lead companies as well as – in individual cases – its subsidiaries have issued guarantees in favor of business partners or lenders. The following table shows obligations under guarantees where the principal debtor is not a consolidated Group company:

million €
 

 

 

  

Maximum potential amount of future payments as of Dec. 31, 2006

  

Provision as of Dec. 31, 2006

Advance payment bonds

 

  

131

  

1

Performance bonds

 

  

142

  

0

Third party credit guarantee

 

  

47

  

0

Residual value guarantees

 

  

45

  

1

Other guarantees

 

  

255

  

1

Total

 

  

620

  

3

The terms of those guarantees depend on the type of guarantee and may range from three months to ten years (e.g. rental payment guarantees).

The basis for possible payments under the guarantees is the non-performance of the primary obligor under a contractual agreement, e.g. late delivery, delivery of non-conforming goods under a contract, non-performance with respect to the warranted quality or default under a loan agreement.

All guarantees issued by or issued by instruction of ThyssenKrupp AG or the segment lead companies upon request of principal debtor obligated by the underlying contractual relationship and are subject to recourse provisions in case of default. Is such principal debtor a company owned fully or partially by a foreign third party, then such third party is generally requested to provide additional collateral in a corresponding amount.

Special purpose entities

ThyssenKrupp has leased a facility used in the production of coke. The application of the rules of this Interpretation SIC 12 "Consolidation – Special Purpose Entities" to the company acting as operator of this facility resulted in considering this company to be a special purpose entity under the scope of the Interpretation which has to be consolidated. The consolidation of this company does not have a material effect on the results of operations or the financial position of the Group. In addition, upon review of the owner company, that is also considered to be a special purpose entity under the scope of the Interpretation, it was determined that the Group does not control this company and consequently will not include this entity in the consolidated financial statements. The obligations of the Group existing under the lease and purchasing agreement will continue to be considered future minimum lease payments from operating leases and amount to approximately €62 million in the current fiscal year. The Group's maximum exposure to loss from this facility amounts to approximately €45 million and results from the residual value guarantee for the asset at the end of the lease and purchasing agreement which is mainly covered by third parties.

Commitments and other contingencies

On October 11, 2005, the European Commission announced the initiation of administrative fine proceedings against companies of the elevator and escalator industry. This has also affected some European companies of the ThyssenKrupp Group. Previous to the initiation of the administrative fine proceedings, the European Commission had conducted pre-investigations in the beginning of 2004. As part of these pre-investigations, several revisions were carried out at the four major elevator manufacturers in the European Union and at the corresponding associations. The subject of the administrative fine proceedings is that the respective companies are accused of having violated the Euopean antitrust law in connection with the manufacturing and servicing of elevators and escalators as well as the selling of the respective spare parts in certain memberstates of the European Union. ThyssenKrupp is cooperating with the antitrust authorities. The EU-Commission has not yet declared the amount of any possible administrative fine and therefore ThyssenKrupp is not yet able to estimate the financial consequences of the administrative fine proceedings.

On January 26, 2006, ThyssenKrupp AG has signed an agreement with Mittal Steel N.V. in which ThyssenKrupp has undertaken to acquire up to 100% of the shares in Dofasco if Mittal Steel takes over Arcelor. This may result in a purchase price obligation up to €4 billion. Information about the further development is disclosed in pending lawsuits and claims for damages which are presented below.

In the 1st quarter ended December 31, 2006, in the Steel segment the commitment to enter into investment projects increased by €1.1 billion. In addition, a long term iron ore and iron ore pellets supply contract and a long term iron gas supply contract were fixed. Beginning fiscal year 2008/2009, over a period of 15 and 20 years, respectively, these two contracts will result in purchasing commitments of €5.6 billion in total.

Pending lawsuits and claims for damages

The Group is involved in pending and threatened litigation in connection with the sale of certain companies, which may lead to partial repayment of purchase price or to the award of damages. In addition, damage claims may be payable to customers and subcontractors under performance contracts. Certain of these claims have proven unfounded or have expired under the statute of limitations. The Group believes, based upon consultation with relevant legal counsel, that the ultimate outcome of these pending and threatened lawsuits will not result in a material impact on the Group's financial condition or results of operations.

On January 26, 2006, ThyssenKrupp AG has fixed an agreement with Mittal Steel N.V. in which Mittal Steel has untertaken to sell up to 100% of the shares in Dofasco if the takeover of Arcor will be successful. Dofasco is currently owned by a Dutch foundation to which Arcelor transferred the Dofasco shares as part of its defense against Mittal Steel's takeover bid.

On November 10, 2006, the directors of this foundation decided not to follow the requests of the Boards of Arcelor and Mittal Steel to transfer the Dofasco shares back to Arcelor. As a consequence, on December 22, 2006, ThyssenKrupp filed legal action against Mittal Steel N.V. in Rotterdam to obtain judicial clarification of the sale of Dofasco to ThyssenKrupp, as bindingly agreed by Mittal Steel. On January 23, 2007, the Rotterdam court decided that the release of Dofasco from the Dutch foundation cannot be enforced by court action.

Regarding the remaining contingencies, including pending litigations, there have been no significant changes since the previous year end.

8 DERIVATIVE FINANCIAL INSTRUMENTS

The notional amounts and carrying amounts of the Group's derivative financial instruments are as follows:

million €

 

 

  

Notional amount Sept. 30, 2006

  

Carrying amount Sept. 30, 2006

  

Notional amount Dec. 31, 2006

  

Carrying amount Dec. 31, 2006

Derivative financial instruments

 

  

 

  

 

  

 

  

 

Assets

 

  

 

  

 

  

 

  

 

Foreign currency derivatives incl. embedded derivatives

 

  

4,462

  

118

  

3,931

  

109

Interest rate derivatives

 

  

29

  

0

  

5

  

0

Commodity derivatives

 

  

802

  

87

  

1,022

  

80

Liabilities

 

  

 

  

 

  

 

  

 

Foreign currency derivatives incl. embedded derivatives

 

  

3,116

  

72

  

3,340

  

106

Interest rate derivatives

 

  

980

  

58

  

993

  

41

Commodity derivatives

 

  

758

  

112

  

871

  

94

Total

 

  

10,147

  

447

  

10,162

  

430

9 RELATED PARTIES

In the 1st quarter ended December 31, 2006, real property was sold to the Alfried Krupp von Bohlen und Halbach Foundation at its fair value of €1.6 million resulting in a gain of €0.4 million.

10 SEGMENT REPORTING

As of October 01, 2006, the operatings of the Automotive segment remaining after the disposals in North America were combined with the Technologies segment so as to pool key capital goods capabilities in the new Technologies segment. The retained assets and liabilities and the held-for-sale operations of ThyssenKrupp Budd were assigned to Corporate as of October 01, 2006; the held-for-sale operations were deconsolidated in the course of the 1st quarter 2006/2007. Prior period presentation has been adjusted accordingly.

Segment information for the 1st quarter ended December 31, 2005 and December 31, 2006 is as follows:

Table: Segment information


11 EARNINGS PER SHARE

Basic earnings per share is computed as follows:

million €
 
 

 

  

1st quarter ended Dec. 31, 2005

  

1st quarter ended Dec. 31, 2006
     
     

Total amount in million €

  

Earnings per share in €

  

Total amount in million €

  

Earnings per share in €

Numerator:

 

  

 

  

 

  

 

  

 

Net income (attributable to ThyssenKrupp AG's stockholders)

 

  

250

  

0,49

  

641

  

1.31

 

 

  

 

  

 

  

 

  

 

Denominator:

 

  

 

  

 

  

 

  

 

Weighted average shares

 

  

505,796,438

  

 

  

488,764,592

  

 

Relevant number of common shares for the determination of earnings per share

Earnings per share have been computed by dividing income attributable to common stockholders of ThyssenKrupp AG (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Shares issued during the period and shares reacquired during the period have been weighted for the portion of the period that they were outstanding.

The weighted average number of outstanding shares was reduced by the reacquisition of shares on May 06, 2003 and increased by the sale of those shares in the 2nd quarter ended March 31, 2004, the 3rd quarter ended June 30, 2005 and the 1st quarter ended December 31, 2005. In the 4th quarter ended September 30, 2006, the weighted average number of outstanding shares was reduced again by the reacquisition of shares.

There were no dilutive securities in the periods presented.

12 ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

Included in the Group's cash flows from operations were the following amounts of interest received and paid as well as income taxes paid:

million €

 

 

  

1st quarter ended Dec. 31, 2005

  

1st quarter ended Dec. 31, 2006

Interest received

 

  

37

  

37

Interest paid

 

  

63

  

42

Income taxes paid, net

 

  

87

  

182

Non-cash investing activities

In the 1st quarter ended December 31, 2006, the acquisition and first-time consolidation of companies created an increase in intangible assets, property, plant and equipment and investment property of €3 million (December 31, 2005: €0 million).

The non-cash addition of assets under finance leases in the 1st quarter December 31, 2006 amounts to €3 million (December 31, 2005: €2 million).

Non-cash financing activities

In the 1st quarter ended December 31, 2006, the acquisition and first-time consolidation of companies did not result in any increase in gross financial payables (December 31, 2005: €0 million).

13 SUBSEQUENT EVENTS

No reportable events occurred.