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Notes to the consolidated balance sheets


Changes in the Group's intangible assets were as follows:

million €
Franchises,
trademarks and
similar rights and values as well as licenses thereto		 Development costs, internally developed software and website Goodwill Advance payments on intangible assets Total
Gross amounts          
Balance as of Sept. 30, 2006 1,058 263 4,955 57 6,333
Currency differences (14) (4) (158) 0 (176)
Acquisitions/divestitures of businesses 32 (2) (139) 0 (109)
Additions 97 65 0 9 171
Transfers 33 15 0 (45) 3
Disposals (18) (18) 0 (2) (38)
Balance as of Sept. 30, 2007 1,188 319 4,658 19 6,184
Currency differences (3) 5 (72) 0 (70)
Acquisitions/divestitures of businesses 36 (3) 69 0 102
Additions 57 103 49 35 244
Transfers 19 (2) 0 (11) 6
Disposals (14) (41) (2) (3) (60)
Balance as of Sept. 30, 2008 1,283 381 4,702 40 6,406
           
Accumulated amortization and impairment losses          
Balance as of Sept. 30, 2006 480 132 1,018 0 1,630
Currency differences (6) (2) (44) 0 (52)
Acquisitions/divestitures of businesses 9 (2) (170) 0 (163)
Amortization expense 90 27 0 0 117
Impairment losses 23 2 60 0 85
Reversals of impairment losses 0 0 — 0 0
Transfers 1 0 0 0 1
Disposals (13) (1) (1) 0 (15)
Balance as of Sept. 30, 2007 584 156 863 0 1,603
Currency differences (2) 2 (13) 0 (13)
Acquisitions/divestitures of businesses 1 (4) (4) 0 (7)
Amortization expense 90 33 0 0 123
Impairment losses 5 8 0 0 13
Reversals of impairment losses 0 0 — 0 0
Transfers 0 1 0 0 1
Disposals (14) (21) (2) 0 (37)
Balance as of Sept. 30, 2008 664 175 844 0 1,683
           
Net amounts          
as of Sept. 30, 2006 578 131 3,937 57 4,703
as of Sept. 30, 2007 604 163 3,795 19 4,581
as of Sept. 30, 2008 619 206 3,858 40 4,723

Impairment of goodwill

Goodwill impairment losses are in included in other operating expenses.

In 2006/2007 the annual impairment test resulted in impairments for the Cash Generating Units (CGU) Construction Elements, Metal Forming and Assembly Plant as the recoverable amount was lower than the carrying amount. The CGU Construction Elements is an operating group of the Industry business unit within the Steel segment and offers building elements made of steel for walls and roofs. The impairment of goodwill in the amount of €9 million was the result of a worsened economic situation for this unit. The recoverable amount has been determined by the value in use, which has been calculated using a discount rate of 8.0% after 7.7% in the prior year. Furthermore, an impairment for the CGU Metal Forming was necessary. This CGU has been newly formed as a result of the dissolution of the Automotive segment and belongs now as an operating group to the Auto business unit within the Steel segment. Metal Forming produces body and chassis components for the automotive industry. The impairment was a result both of reduced expected future economic benefits based on a changed strategic direction for this unit and of an increased discount rate from 7.5% to 8.0% as a consequence of the allocation of the unit to the Steel segment. As the required impairment amount for Metal Forming was higher than the carrying amount of goodwill of €50 million, the segment recorded additional impairments on fixed assets in the amount of €26 million. Based on a reduced expected future economic benefit, the CGU Assembly Plant impaired the carrying amount of its goodwill by €1 million.

In 2007/2008 neither the annual impairment test nor other events indicated that goodwill might be impaired because the recoverable amounts of all cash generating units exceeded the respective carrying amounts.

Impairment of other intangible assets

Impairment losses of intangible assets other than goodwill are included in cost of sales.

In 2006/2007 the Elevator segment recorded an impairment on capitalized software in the amount of €23 million, as certain software modules could not be used in the future in their formerly existing form. The amount has been determined based on the capitalized development costs for these modules.

In 2007/2008 the Stainless segment fully impaired in the ThyssenKrupp Acciai Speciali Terni business unit a capitalized intangible asset of €4 million resulting from a former favorable supply of energy which does not longer exist. Furthermore impairment losses of €6 million for capitalized development costs were recognized in the Automotive Solutions business unit as a result of weakening market conditions. The recoverable amounts used to calculate the impairment losses correspond in each case to the values in use. A discount rate of 10.6% was used to calculate the values in use.

Emission rights

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 during the compliance period 2005 to 2007 and 107.0 million tons of CO2 during the compliance period 2008 to 2012. 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 available allowances, the Group records an obligation for the purchase of additional allowances.

Goodwill

Goodwill (excluding goodwill of equity method investments) has been allocated to cash generating units within all segments. The recoverable amount of each cash generating unit is determined based on a value in use calculation using after-tax cash flow projections based on bottom-up prepared financial budgets approved by ThyssenKrupp AG's management covering a five-year period. The budgeted fifth year is generally used to determine the cash flows beyond the five-year period. No growth rate is taken into account to extrapolate the budgeted fifth year. The weighted average cost of capital discount rate is based on a risk-free interest rate of 4.6% and risk premiums for equity and debt capital of 5.0 percentage-point and 1.0 percentage-point, respectively. Moreover for each CGU an individual beta derived from the relevant peer group, an individual tax rate and an individual capital structure is used. The following after-tax discount rate ranges have been applied to the cash flow projections by segment:

in %
After tax discount rate ranges
  Year ended Sept. 30, 2007 Year ended Sept. 30, 2008
Steel 7.7 - 8.4 7.4 - 9.5
Stainless 7.1 - 9.2 7.8 - 9.6
Technologies 5.1 - 9.0 5.8 - 10.0
Elevator 6.2 - 7.2 6.7 - 7.4
Services 6.8 - 8.4 7.2 - 8.9
Corporate 7.5 8.0

The values in use for the CGUs are generally calculated on the basis of expected price inflation in the country in which the CGU is located and on the basis of estimated sales growth rates. These figures are determined based on both historical data and expected forecast market performance. The values assigned to the key assumptions are generally consistent with external information sources.

43 CGUs were identified in the ThyssenKrupp Group, of which 33 report goodwill. Total goodwill as of October 01, 2007 amounts to €3,795 million. 55% of this goodwill relates to the CGUs Metallurgy, Surface Vessel, Submarine and Americas, as shown in the following table:

Table: Significant goodwill

No critical goodwills were identified.

The change in the carrying amount of goodwill (excluding goodwill of equity method investments) is as follows:

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million €
Steel Stainless Technologies Elevator Services Corporate Total*
Balance as of Sept. 30, 2006 384 344 1,570 1,290 333 16 3,937
Currency differences 0 (10) (6) (95) (2) 0 (113)
Acquisitions/(divestitures) (1) 0 10 (8) 31 (1) 31
Impairment (59) 0 (1) 0 0 0 (60)
Balance as of Sept. 30, 2007 324 334 1,573 1,187 362 15 3,795
Currency differences (1) (1) (2) (47) (8) 0 (59)
Acquisitions/(divestitures) 3 0 (21) 19 72 0 73
Additions 0 0 11 38 0 0 49
Balance as of Sept. 30, 2008 326 333 1,561 1,197 426 15 3,858
* excluding goodwill of equity method investments

Changes in the Group's property, plant and equipment were as follows:

Table: Property, plant and equipment

Impairment losses of property, plant and equipment are included in cost of sales.

In 2006/2007, as a result of a weakening economic situation, impairment losses of €8 million were recognized in the Auto business unit of the Steel segment of which €7 million related to land and buildings and €1 million to technical machinery and equipment. The recoverable amounts used to calculate the impairment losses correspond in each case to the values in use. A discount rate of 12.1% was used to calculate values in use. Furthermore the Stainless segment recorded in the ThyssenKrupp Acciai Speciali Terni business unit an impairment in the amount of €14 million on technical equipment due to a lack of future technical use of parts of this equipment. The impairment amount has been determined on the basis of fair value less cost to sell. Also, the Technologies segment recorded impairments of €26 million as a result of a weakening economic situation in the Marine Systems, Mechanical Components and Automotive Solutions business units. €2 million of the total impairment refer to land and buildings, €22 million to technical machinery and equipment and €2 million to other equipment, factory and office equipment. The recoverable amounts used to calculate the impairment losses correspond in each case to the values in use. A discount rate of 11.5% was used to calculate values in use.

In 2007/2008 impairment losses of €6 million were recognized in the Metal Forming business unit of the Steel segment. €1 million of the total impairment refers to land and buildings and €2 million to assets under finance lease which both had to be fully impaired due to the intended closing of a location. Another €3 million of the impairment loss was recognized as a result of the weakening economic situation for technical machinery and equipment. The recoverable amounts used to calculate the impairment losses correspond in each case to the values in use. A discount rate of 15.7% was used to calculate the values in use. Furthermore, the Technologies segment recorded impairments of €15 million as a result of a weakening economic situation in the Mechanical Components, Automotive Solutions and Transrapid business units. €2 million of the total impairment relates to land and buildings and €13 million to technical machinery and equipment. The recoverable amounts used to calculate the impairment losses correspond in each case to the values in use. A discount rate of 12.7% was used to calculate the values in use.

In addition, in 2007/2008 in the ThyssenKrupp Acciai Speciali Terni business unit of the Stainless segment an impairment loss of €14 million on technical equipment has been reversed because compared to September 30, 2007, a higher selling price is expected for parts of the equipment. The amount of the reversal has been based on fair value less cost to sell.

Property, plant and equipment include leased buildings, technical machinery and equipment and other equipment that have been capitalized, where the terms of the lease require the Group, as lessee, to assume substantially all of the benefits and risks of use of the leased asset (finance lease).

million €
Gross amounts Accumulated depreciation
and impairment losses		 Net amounts
  Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2007 Sept. 30, 2008
Land, leasehold rights and buildings including buildings on third-party land 86 97 40 43 46 54
Technical machinery and equipment 157 95 71 59 86 36
Other equipment, factory and office equipment 44 48 28 29 16 19
Assets under finance lease 287 240 139 131 148 109

Property, plant and equipment has been pledged as security for financial payables of €174 million (2007: €216 million).

Changes in the Group's investment property were as follows:

million €
2007 2008
Gross amounts    
Balance as of Sept. 30, 2006 and Sept. 30, 2007, respectively 754 569
Currency differences (1) 0
Acquisitions/divestitures of businesses 0 0
Additions 5 1
Transfers 20 (8)
Disposals (209) (56)
Balance as of Sept. 30, 2007 and 2008, respectively 569 506
     
Accumulated depreciation and impairment losses    
Balance as of Sept. 30, 2006 and Sept. 30, 2007, respectively 253 180
Currency differences 0 0
Acquisitions/divestitures of businesses 0 0
Depreciation expense 5 3
Impairment losses 9 1
Reversals of impairment losses 0 (1)
Transfers 7 (8)
Disposals (94) (26)
Balance as of Sept. 30, 2007 and 2008, respectively 180 149
Net amounts    
as of Sept. 30, 2006 501 —
Balance as of Sep. 30, 2007 and 2008, respectively 389 357

The fair value of the Group's investment property is determined using various internationally accepted valuation methods such as the gross rental method, discounted cash flow method, asset value method and comparison to current market prices of similar real estate. Investment property located in Germany is primarily determined based on internally prepared valuations using the gross rental method which is regulated in Germany by the "Verordnung über Grundsätze für die Ermittlung der Verkehrswerte von Grundstücken – WertV". Investment property located outside Germany is determined by external appraisers.

As of September 30, 2008, the total fair value of the Group's investment property is €455 million (2007: €502 million) of which €16 million (2007: €23 million) are based on valuations of external appraisers.

Additions which are disclosed in the gross amounts include subsequent expenditure of €0.3 million (2007: €1 million).

The lease of investment property resulted in rental income of €26 million (2006/2007: €43 million) and direct operating expense of €15 million (2006/2007: €27 million). Direct operating expense of €6 million (2006/2007: €16 million) resulted from investment property that does not generate rental income.

Investments in associates

As of September 30, 2008, the carrying amount of investments in associates accounted for using the equity method is €76 million (2007: €78 million). The previous year carrying amount included an investment in an associate accounted for using the equity method for which there was a published price quotation resulting in a fair value of €58 million as of September 30, 2007. The income of investments in associates accounted for using the equity method is €28 million (2006/2007: €15 million).

Summarized financial information of associates accounted for using the equity method is presented in the table below. The information given represents 100% and not the Group's interest in the associates.

million €
Sept. 30, 2007 Sept. 30, 2008
Total assets 701 774
Total liabilities 487 496
     
  Year ended Sept. 30, 2007 Year ended Sept. 30, 2008
Net sales 852 781
Net income 90 57

In 2007/2008, the unrecognized share of losses of an associate accounted for using the equity method amounts to 0 (2006/2007: €0.6 million). The unrecognized losses cumulate to €0.3 million (2006/2007: €1.4 million).

Until end of November 2007, ThyssenKrupp had an investment of 20.56% in RAG Aktiengesellschaft.

Joint ventures

The following table shows the summarized financial information of the Group's joint ventures. The information given represents the Group's interest in the joint ventures.

million €
Sept. 30, 2007 Sept. 30, 2008
Current assets 683 633
Non-current assets 422 399
Current liabilities 477 385
Non-current liabilities 304 308
     
  Year ended Sept. 30, 2007 Year ended Sept. 30, 2008
Net sales 1,366 1,575
Net income 25 45

The associates and joint ventures are included in the list of the Group's subsidiaries and equity interests investments which is presented in Note 38.

The Group is the lessor of various commercial real estate under operating lease agreements.

As of September 30, the future minimum lease payments to be received on non-cancelable operating leases are as follows:

million €
Sept. 30, 2007 Sept. 30, 2008
Not later than one year 30 24
Between one and five years 39 36
Later than five years 33 35
Total 102 95

The amounts reflected as future minimum lease payments do not contain any contingent rentals. No contingent rentals have been recognized in the consolidated statements of income in 2007/2008 (2006/2007: 0).

million €
Sept. 30, 2007 Sept. 30, 2008
Raw materials 1,987 2,145
Supplies 472 490
Work in process 2,184 2,159
Finished products, merchandise 4,221 4,700
Total 8,864 9,494

Inventories of €781 million (2007: €1,953 million) are carried at net realizable value. Inventories of €41 million (2007: €1 million) have a remaining term of more than 1 year. Inventories of €44,150 million (2007: €42,291 million) are recognized as an expense during the period. Included in cost of sales are write-downs of inventories of €76 million (2007: €157 million).

million €
Sept. 30, 2007 Sept. 30, 2008
Receivables from sales of goods and services 6,349 6,853
Amounts due from customers for construction work 1,228 1,032
Total 7,577 7,885

Receivables from the sales of goods and services in the amount of €873 million (2007: €778 million) have a remaining term of more than 1 year. As of September 30, 2008 cumulative impairment losses of €284 million (2007: €300 million) are recognized for doubtful accounts.

An analysis of the age of trade accounts receivable that are past due but not impaired as of the reporting date is presented in the table below:

million €
past due
up to 30
days		 past due
31 to 60
days		 past due
61 to 90
days		 past due
91 to 180
days		 past due
181 to 360
days		 past due
more than
360
days		 Total
Sept. 30, 2007 912 219 199 127 88 149 1,694
Sept. 30, 2008 610 207 95 85 78 135 1,210

Amounts due from customers for construction work are calculated as follows:

million €
Sept. 30, 2007 Sept. 30, 2008
Contract costs incurred and recognized contract profits (less recognized losses) 2,840 2,836
Less advance payments received (1,612) (1,804)
Total 1,228 1,032

Amounts due from customers for construction work include collateralized assets of €48 million (2007: €16 million). Sales from construction contracts of €6,721 million were recognized in the period (2006/2007: €5,082 million).

The Group regularly primarily sells credit insured trade accounts receivable under asset backed securitization programs and other programs as well as under one-time transactions.

As of September 30, 2008, sales of receivables in the amount of €3 million (2007: €9 million) did not result in a derecognition from the balance sheet because the Group retained substantially all the risks and rewards of ownership. The corresponding liability is included in financial debt (see also Note 25). The sales resulted in net proceeds in the amount of €3 million (2006/2007: €9 million).

The amount of receivables sold and derecognized from the balance sheet as of September 30, 2008, was €972 million (2007: €929 million), resulting in net proceeds in the amount of €938 million (2006/2007: €899 million). In some cases, when the Group sells receivables it retains rights and immaterial obligations; these retained interests mainly consist of servicing as well as providing limited cash reserve accounts and dilution reserves. The recognized assets and provided guarantees which serve as a cash reserve account amounted to €72 million (2007: €70 million) as of September 30, 2008. Continuing involvement primarily resulting from the dilution reserve was €26 million (2007: €26 million) as of September 30, 2008.

million €
Sept. 30, 2007 Sept. 30, 2008
  current non-current current non-current
Loans and receivables 256 40 248 44
Available-for-sale financial assets 202 93 107 74
Derivatives that do not qualify for hedge accounting (Financial assets held for trading) 235 — 448 —
Derivatives that qualify for hedge accounting 19 — 78 —
Total 712 133 881 118

Other financial assets in the amount of €156 million (2007: €164 million) have a remaining term of more than 1 year. As of September 30, 2008 cumulative impairments amount to €75 million (2007: €42 million) regarding current other financial assets and €25 million (2007: €31 million) regarding non-current other financial assets.

An analysis of the age of other financial assets that are past due but not impaired as of the reporting date is presented in the table below:

million €
past due
up to 30 days		 past due
31 to 60 days		 past due
61 to 90 days		 past due
91 to 180 days		 past due
181 to 360 days		 past due
more than
360 days		 Total
Sept. 30, 2007 0 2 0 1 0 1 4
Sept. 30, 2008 0 0 0 0 0 0 0
million €
Sept. 30, 2007 Sept. 30, 2008
Advance payments to suppliers of inventories 616 802
Other advance payments and prepayments 205 312
Reimbursement rights 67 83
Others 631 756
Total 1,519 1,953

Other non-financial assets in the amount of €47 million (2007: €60 million) have a remaining term of more than 1 year. As of September 30, 2008 cumulative impairments amount to €34 million (2007: €71 million).

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

Table: Total equity

The following table shows the changes of the foreign currency translation adjustment which is part of cumulative income and expense directly recognized in equity:

million €
Foreign currency translation adjustment
Balance as of Sept. 30, 2006 55
Change in unrealized gains/(losses), net (247)
Net realized (gains)/losses (10)
Balance as of Sept. 30, 2007 (202)
Change in unrealized gains/(losses), net (83)
Net realized (gains)/losses 0
Balance as of Sept. 30, 2008 (285)

Capital stock

The capital stock of ThyssenKrupp AG consists of 514,489,044 no-par bearer shares of stock, all of which have been issued, with 463,473,492 and 488,764,592 outstanding as of September 30, 2008 and 2007, respectively. Each share of common stock has a stated value of €2.56.

All shares grant the same rights. The stockholders are entitled to receive dividends as declared and are entitled to one vote per share at the stockholders' meetings.

Additional paid in capital

Additional paid in capital include the effects of the business combination of Thyssen and Krupp as well as premiums resulting from capital increases at subsidiaries with minority interest.

Retained earnings

Retained earnings include prior years' undistributed consolidated income. In addition, the recycling of actuarial gains and losses in the context of the disposal of accrued pension liabilities as well as equity impacts resulting from share-based compensation are included in this balance sheet item.

Treasury stock

On the basis of the authorization granted by the Annual Stockholders' Meeting on January 18, 2008, the Executive Board of ThyssenKrupp AG resolved on January 31, 2008, to acquire up to approximately 3% of the current capital stock issued. In the period from February 01, 2008 to March 07, 2008, ThyssenKrupp AG purchased a total of 14,791,100 treasury shares, representing approximately 2.9% of the capital stock, at an average price of €35.34. This represents a total amount of €523 million. In addition, based on the authorization of the Annual Stockholders' Meeting, the Executive Board resolved on July 14, 2008, to acquire up to approximately 2% of the capital stock issued. In the period from July 15, 2008 to August 13, 2008, ThyssenKrupp AG purchased a total of 10,500,000 treasury shares, representing approximately 2.0% of the capital stock, at an average price of €33.98. This represents a total amount of €357 million.

After the two acquisitions in 2007/2008 and the treasury share acquisition in 2005 / 2006, ThyssenKrupp AG holds 51,015,552 treasury shares in total as of September 30, 2008, representing approximately 9.9% of the capital stock.

Management of capital

As of September 30, 2008, the equity ratio reached 27.6% (2007: 27.4%). Among the ThyssenKrupp Group's most important financial goals are a sustainable appreciation of entity value and ensuring solvency at all times. Creating sufficient liquidity reserves is therefore of great importance. These objectives are achieved by implementing various capital cost reduction and capital structure optimization measures as well as effective risk management.

The ThyssenKrupp Group's financial risks are assessed on the basis of ratings by rating agencies:

Long- term rating Short- term rating Outlook
Standard & Poor’s BBB A-2 stable
Moody’s Baa2 Prime-2 positive
Fitch BBB+ F2 stable

The ThyssenKrupp Group's capital costs are optimized in the BBB investment grade range. It reflects the Group's solvency and ensures access to a broad base of investors. Capital management at ThyssenKrupp is based on debt ratios published by rating agencies, which calculate cash-flow-to-debt ratios periodically. ThyssenKrupp is not subject to statutory capital requirements.

Authorizations

According to Art. 5 Para. 5 of the Articles of Association of ThyssenKrupp AG, the Executive Board is authorized, with the approval of the Supervisory Board, to increase the capital stock on one or more occasions on or before January 18, 2012, by up to €500 million by issuing up to 195,312,500 new no-par shares in exchange for cash and/or contributions in kind (Authorized Capital).

By resolution of the Annual Stockholders' Meeting on January 23, 2004, the Executive Board is authorized, subject to the approval of the Supervisory Board, to issue bearer bonds with a total par value up to €500 million and to grant the bond holders the right to convert the bonds into bearer shares of the Company (convertible bonds). The authorization is valid until January 22, 2009. In addition, by resolution of the Annual Stockholders' Meeting on January 18, 2008, ThyssenKrupp is authorized through July 17, 2009, to purchase treasury stock for certain defined purposes up to a total of 10% of the current capital stock issued.

Dividend proposal

The Executive Board and Supervisory Board have agreed to propose to the stockholders' meeting a dividend in the amount of €1.30 per share entitled to dividend to be distributed from unappropriated net income of the stand-alone entity ThyssenKrupp AG for fiscal 2007/2008 as determined in conformity with the principles of the German Commercial Code (HGB). This would result in a dividend payout of €603 million in total.

Management incentive plans

In 2003, ThyssenKrupp implemented a performance based mid-term incentive plan which issues stock rights to eligible participants. All Executive Board members of ThyssenKrupp AG are eligible to participate. Starting with the second installment which was issued in 2004, the group of beneficiaries was expanded to include the segment lead companies as well as several other selected executive employees. As of September 30, 2008, 538,096 stock rights were issued in the 4th installment, 300,390 stock rights in the 5th installment and 234,265 stock rights in the 6th installment.

The number of stock rights issued will be adjusted at the end of each performance period based on the average economic value added (EVA) over the three-year performance period, beginning October 01 of the year the stock rights were granted, compared to the average EVA over the previous three fiscal year period. At the end of the performance period the stock rights will be settled in cash based on the average price of ThyssenKrupp stock during the three month period immediately following the performance period.

To determine the fair value of the stock rights used to calculate the pro-rata liability as of the balance sheet date forward prices of the ThyssenKrupp stock are calculated taking into account partial caps starting in the 3rd installment. The forward calculation is carried out for predefined periods (averaging periods) taking into account the ThyssenKrupp stock price and the Euro interest rate curve as of the balance sheet date and the dividends assumed to be paid until the maturity of the stock rights. The following assumptions were used for the determination of the fair values as of September 30, 2007 and as of September 30, 2008:

Year ended Sept. 30, 2007
3rd installment 4th installment 5th installment
Maturity Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2009
Averaging period Oct. 01 to Dec. 31, 2007 Oct. 01 to Dec. 31, 2008 Oct. 01 to Dec. 31, 2009
ThyssenKrupp stock price as of balance sheet date €44.66 €44.66 €44.66
Assumed dividend payment(s) per stock until maturity — €1.30 on Jan. 21, 2008 €1.30 on Jan. 21, 2008
€1.30 on Jan. 26, 2009
Average dividend yield — 2.64% 2.76%
Average interest rate (averaging period) 4.44% 4.65% 4.53%
Fair value as of Sept. 30, 2007      
- without caps €44.38 €43.15 €41.93
- with caps €24.71 €23.62 €36.20

Year ended Sept. 30, 2008		            
  4th installment 5th installment 6th installment
Maturity Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010
Averaging period Oct. 01 to Dec. 31, 2008 Oct. 01 to Dec. 31, 2009 Oct. 01 to Dec. 31, 2010
ThyssenKrupp stock price as of balance sheet date €21.03 €21.03 €21.03
Assumed dividend payment(s) per stock until maturity - €1.30 on Jan. 26, 2009 €1.30 on Jan. 26, 2009
€1.30 on Jan. 25, 2010
Average dividend yield - 5.80% 6.15%
Average interest rate (averaging period) 4.44% 4.95% 4.67%
Fair value as of Sept. 30, 2008      
- without caps €20.87 €19.65 €18.43
- with caps €20.87 €19.65 €18.43

In the 2nd quarter of 2007/2008, the 3rd installment of the mid-term incentive plan was settled in cash with €41.15 per stock right resulting in a total payment of €54.1 million. In the 1st quarter of 2006/2007, the 2nd installment of the mid-term incentive plan was settled in cash with €29.90 per stock right resulting in a total payment of €27.6 million. In total, in 2007/2008 the Group recorded compensation income from the mid-term incentive plan in the amount of €3.5 million (2006/2007: expense of €69.6 million). The liability arising from the mid-term incentive plan amounts to €43 million as of September 30, 2008 (2007: €101 million).

In February 2006, the Group implemented a Share Purchase Program for selected executive employees who are not beneficiaries of the mid-term incentive plan. Under the Program the beneficiaries are entitled to purchase up to a fixed amount ThyssenKrupp shares at a discount. In the 2nd quarter ended March 31, 2008, the Group's Share Purchase Program for fiscal year 2006/2007 was settled with the purchase of 229,664 shares at a discount. This resulted in compensation expense of €4.1 million in 2007/2008, having already recognized compensation expense of €8.1 million in 2006/2007. At the same time, in March 2008 it was decided to renew the Program for fiscal year 2007/2008. Under the Program, again selected executive employees are entitled to purchase up to a fixed amount ThyssenKrupp shares at a discount. In 2007/2008 the Group recorded compensation expense from the new Program of €9.4 million (2006/2007: €8.1 million); €5.1 million (2007: €4.4 million) were recognized in equity and the remaining amount of €4.3 million (2007: €3.7 million) as an obligation. In total, in 2007/2008 the Group recorded compensation expense for the Share Purchase Program in the amount of €13.5 million (2006/2007: €11.7 million).

Employee share purchase program

In the 3rd quarter of 2006/2007 and in the 3rd quarter of 2007/2008, the Group primarily offered eligible members of its domestic and French workforce the right to purchase up to €270 in ThyssenKrupp shares at a 50% discount as part of an employee Share Purchase Program. The Program resulted in the Group recording compensation expense of €6.6 million and €6.3 million, respectively.

million €
Sept. 30, 2007 Sept. 30, 2008
Accrued pension liability 5,896 5,227
Accrued postretirement obligations other than pensions 915 1,029
Other accrued pension-related obligations 328 294
Total 7,139 6,550

Pensions and similar obligations in the amount of €5,970 million (2007: €6,504 million) have a remaining term of more than 1 year.

Pension plans

The Group maintains defined benefit pension plans and defined contribution plans that cover the majority of the employees in Germany, the USA, Canada and Great Britain. In some other countries, eligible employees receive benefits in accordance with the respective local requirements.

In Germany, benefits generally take the form of pension payments that are indexed to inflation. Benefits for some senior staff are based on years of service and salary during a reference period, which is generally three years prior to retirement. Other employees receive benefits based on years of service. In addition, ThyssenKrupp offers certain German employees the opportunity to participate in a defined benefit program which allows for the deferral of compensation which earns interest at a rate of 6.00% per year.

In the USA and Canada, hourly paid employees receive benefits based on years of service. Salaried employee benefits are typically based on years of service and salary history. In Great Britain, employee benefits are based on years of service and an employee's final salary before retirement.

Defined benefit obligations and funded status

The reconciliation of the changes in the defined benefit obligations and the fair value of plan assets are as follows:

million €
Sept. 30, 2007 Sept. 30, 2008
  Germany Outside Germany Germany Outside Germany
Change in defined benefit obligations (DBO):        
DBO at beginning of fiscal year 6,114 2,541 5,773 2,158
Service cost 73 39 79 29
Interest cost 266 123 292 115
Participant contributions 0 8 0 8
Past service cost 0 1 5 3
Actuarial gain (258) (149) (691) (113)
Acquisitions/(divestitures) (1) (99) (26) (7)
Curtailments and settlements 0 (24) 0 (36)
Currency differences 0 (141) 0 (87)
Benefit payments (420) (148) (421) (144)
Others (1) 7 2 (1)
DBO at end of fiscal year 5,773 2,158 5,013 1,925
         
Change in plan assets:        
Fair value of plan assets at beginning of fiscal year 127 1,940 167 1,910
Expected return on plan assets 9 131 12 126
Actuarial gains/(losses) 0 69 (26) (313)
Acquisitions/(divestitures) 0 (84) (1) (2)
Employer contributions 38 100 37 79
Participant contributions 0 8 0 8
Settlements 0 (2) 0 (47)
Currency differences 0 (124) 0 (89)
Benefit payments (8) (135) (9) (128)
Others 1 7 0 0
Fair value of plan assets at end of fiscal year 167 1,910 180 1,544

As of the balance sheet date, defined benefit obligations related to plans that are wholly unfunded amount to €4,907 million (2007: €5,696 million) and defined benefit obligations that relate to plans that are wholly or partly funded amount to €2,031 million (2007: €2,235 million).

Actual return which amounts to €(201) million (2007: €209 million) is calculated as the total of expected return on plan assets and actuarial gains and losses, respectively.

The following represents the funded status of these plans:

million €
Sept. 30, 2007 Sept. 30, 2008
  Germany Outside Germany Germany Outside Germany
Funded status at end of fiscal year (5,606) (248) (4,833) (381)
Not recognized as an asset due to asset ceiling 0 (6) 0 (3)
Net amount recognized (5,606) (254) (4,833) (384)
         
Amounts recognized in the consolidated balance sheets consist of:        
Other receivables 0 36 0 10
Accrued pension liability (5,606) (290) (4,833) (394)
Net amount recognized (5,606) (254) (4,833) (384)

Net periodic pension cost

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

million €
Year ended Sept. 30, 2007 Year ended Sept. 30, 2008
  Germany Outside Germany Germany Outside Germany
Service cost 73 39 79 29
Interest cost 266 123 292 115
Expected return on plan assets (9) (131) (12) (126)
Past service cost 0 1 5 3
Settlement and curtailment loss/(gain) 0 (22) 0 14
Net periodic pension cost 330 10 364 35

The interest cost and the expected return on plan assets components of net periodic pension cost are included in the line item "Interest expense" and "Interest income", respectively in the Group's consolidated statement of income.

Assumptions

The assumptions for discount rates and the rates of compensation increase on which the calculation of the obligations are based were derived in accordance with standard principles and established for each country as a function of their respective economic conditions. Discount rates are generally determined based on market yields of high quality corporate bonds in the respective countries with terms corresponding to the estimated terms of the post-employment benefit obligations. Due to the current disruptions on international financial markets deductions of generally about 20 to 30 basis points on market yields of indices used (e.g. from iBoxx®) were undertaken to adjust for observed unusual effects. The expected return on plan assets is determined based on detailed studies conducted by the plans' third party investment and actuarial advisors. The studies take into consideration the long-term historical returns and the future estimates of long-term investment returns based on the target asset allocation.

The Group applied the following weighted average assumptions to determine benefit obligations:

in %
Sept. 30, 2007 Sept. 30, 2008
  Germany Outside Germany Germany Outside Germany
Weighted-average assumptions:        
Discount rate 5.25 5.82 6.75 6.44
Expected return on plan assets 6.00 7.29 6.00 7.10
Rate of compensation increase 2.50 2.29 2.50 2.43

Plan assets

In the Group, the majority of reported plan assets associated with the funded pension plans are located in the USA, Canada, Great Britain and to a lesser extent in Germany and some other European countries. The Group invests in diversified portfolios consisting of an array of asset classes that attempt to maximize returns while minimizing volatility. The asset classes include national and international stocks, fixed income government and non-government securities and real estate. Plan assets do not include any direct investments in ThyssenKrupp debt or equity securities.

The Group uses professional investment managers to invest plan assets based on specific investment guidelines developed by the plans' Investment Committees. The Investment Committees consist of senior financial management especially from treasury and other appropriate executives. The Investment Committees meet regularly to approve the target asset allocations, and review the risks and performance of the major pension funds and approve the selection and retention of external managers.

The Group's target portfolio structure has been developed based on asset-liability studies that were performed for the major pension funds within the Group.

The pension plan asset allocation and target allocation are as follows:

in %
Plan assets as of Target allocation
  Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2009
Equity securities 59 44 50-65
Debt securities 37 48 35-45
Real estate/other 4 8 0-10
Total 100 100  

Due to worldwide decreasing share prices and due to scheduled risk management measures the proportion of shares in the asset portfolio has been reduced. As soon as the general market situation recovers a return to the target allocation of the asset portfolio is intended.

Pension plan funding

In general, the Group's funding policy is to contribute amounts to the plans sufficient to meet the minimum statutory funding requirements relevant in the country in which the plan is located. In the USA and Canada, certain plans require minimum funding based on collective bargaining agreements. The Group may from time to time make additional contributions at its own discretion. ThyssenKrupp's expected contribution in fiscal year 2008/2009 is €89 million related to its funded plans, all of which is expected to be as cash contributions.

Pension benefit payments

In fiscal year 2007/2008, pension benefit payments to the Group's German and Non-German plans were €421 million (2006/2007: €420 million) and €144 million (2006/2007: €148 million) respectively. The estimated future pension benefits to be paid by the Group's defined benefit pension plans are as follows:

million €
Germany Outside Germany
(for fiscal year)    
2008/2009 433 162
2009/2010 433 127
2010/2011 434 126
2011/2012 432 130
2012/2013 428 131
2013/2014-2017/2018 2,071 668
Total 4,231 1,344

Amounts recognized for the current and the previous periods for defined benefit pension plans are as follows:

million €
Sept. 30, 2005 Sept. 30, 2006 Sept. 30, 2007 Sept. 30, 2008
Present value of defined benefit obligation 9,209 8,655 7,931 6,938
Fair value of plan assets 1,937 2,067 2,077 1,724
Surplus/(deficit) in the plans (7,272) (6,588) (5,854) (5,214)
Experience adjustments on plan liabilities (43) (52) (89) (47)
Experience adjustments on plan assets 112 13 44 (345)

Defined Contribution Plans

The Group also maintains domestic and foreign defined contribution plans. Amounts contributed by the Group under such plans are based upon percentage of the employees' salary or the amount of contributions made by the employees. The total cost of pension plans accounted for as defined contribution plans in the current fiscal year was €140 million (2006/2007: €118 million). Thereof, €86 million (2006/2007: €81 million) were related to multi-employer plans. In addition, contributions paid to public / state pension insurance institutions amounted to €363 million (2006/2007: €332 million).

Postretirement obligations other than pensions

The Group provides certain postretirement health care and life insurance benefits to retired employees in the USA and Canada who meet certain minimum requirements regarding age and length of service. The plans primarily relate to the retained assets and liabilities of ThyssenKrupp Budd.

In December 2003, the US government signed into law the Medicare Prescription Drug, Improvement and Modernization Act. This law provides for a federal subsidy to sponsors of retiree health care benefit plans that provide benefit that is at least actuarially equivalent to the benefit established by the law. The Group accounts for these federal subsidies as reimbursement rights in accordance with IAS 19.

The changes in accumulated postretirement benefit obligations and reimbursement rights are as follows:

million €
Sept. 30, 2007
US, Canada 		Sept. 30, 2008
US, Canada
Change in accumulated postretirement benefit obligation:    
Accumulated postretirement benefit obligation at beginning of fiscal year 1,122 893
Service cost 12 10
Interest cost 54 52
Past service cost (9) 8
Actuarial loss 5 103
Acquisitions/(divestitures) (79) 0
Curtailments and settlements (43) 0
Currency differences (103) (10)
Benefit payments (66) (43)
Accumulated postretirement benefit obligation at end of fiscal year 893 1,013
     
Change in reimbursement rights relating to postretirement benefits:    
Fair value of reimbursement rights at beginning of fiscal year 90 67
Expected return on reimbursement rights 5 4
Actuarial gains/(losses) (9) 14
Acquisitions/(divestitures) (4) 0
Settlements (3) 0
Employer contributions 3 3
Currency differences (9) 0
Benefit payments (6) (6)
Others 0 1
Fair value of reimbursement rights at end of fiscal year 67 83

The following represents the unfunded status of these plans:

million €
Sept. 30, 2007
US, Canada 		Sept. 30, 2008
US, Canada
Unfunded status at end of fiscal year (893) (1,013)
Unrecognized past service cost (22) (16)
Net amount recognized for postretirement obligations other than pensions (915) (1,029)

Assumptions

The determination of the accumulated postretirement benefit obligations is based on the following weighted average assumptions:

in %
Sept. 30, 2007
US, Canada 		Sept. 30, 2008
US, Canada
Weighted-average assumptions:    
Discount rate 6.38 6.97
Health care cost trend rate for the following year 9.71 9.73
Ultimate health care cost trend rate (expected in 2032) 4.94 5.00

Net periodic postretirement benefit cost

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

million €
Year ended Sept. 30, 2007 US, Canada Year ended Sept. 30, 2008 US, Canada
Service cost 12 10
Interest cost 54 52
Expected return on reimbursement rights (5) (4)
Past service cost (3) 3
Settlement and curtailment loss/(gain) (40) 0
Net periodic postretirement benefit cost 18 61

The interest cost component of net periodic postretirement benefit cost is included in the line item "Interest expense" in the Group's consolidated statement of income.

The effects of a one-percentage-point increase or decrease in the assumed health care cost trend rates are as follows:

million €
one-percentage-point
  Increase Decrease
Effect on service and interest cost components 10 (9)
Effect on postretirement benefit obligation 136 (112)

Amounts recognized for the current and the previous period for postretirement obligations other than pensions are as follows:

million €
Sept. 30, 2005 Sept. 30, 2006 Sept. 30, 2007 Sept. 30, 2008
Present value of defined benefit obligation 1,290 1,122 893 1,013
Fair value of reimbursement rights 79 90 67 83
Surplus/(deficit) (1,290) (1,122) (893) (1,013)
Experience adjustments on plan liabilities (19) (33) 13 (41)
Experience adjustments on reimbursement rights 1 31 0 0

Some German companies have obligations resulting from partial retirement agreements. Under these agreements, employees work additional time prior to retirement, which is subsequently paid for in installments after retirement. For these obligations, accruals in the amount of €242 million (2007: €273 million) were recognized in accordance with IAS 19 "Employee Benefits".

Table: Other provisions

As of September 30, 2008, €1,746 million (2007: €1,559 million) of the total of other provisions are current, while €641 million (2007: €696 million) are non-current. Provisions of €548 million (2007: €349 million) have a remaining term of more than 1 year.

Product warranties and product defects represent the Group's responsibility for the proper functioning of the goods sold (product warranty) as well as the obligation that arise from the use of the products sold (product defect).

Provisions for other contractual costs represent pending losses from uncompleted contracts.

Provisions for employee compensation and benefit costs primarily represent employment anniversary bonuses and obligations for the management incentive plans, while social plan and related costs pertaining to personnel related structural measures are reflected in the provision for restructuring activities. Pension related obligations for partial retirement agreements and early retirement programs are part of the provision for pensions and similar obligations.

The provision for restructurings consists of provisions for employee termination benefits and exit costs which have been established by operating divisions for costs incurred in connection with activities which do not generate any future economic benefits for the Group. Restructurings are being carried out in all segments. The balance as of September 30, 2008, consists of €129 million within the Steel segment and €32 million within the Technologies segment.

The provision for decommissioning obligations mainly consists of obligations associated with mining activities and recultivating landfills. Obligations associated with mining activities and and recultivating landfills are generally handled over long periods of time, in some cases more than 30 years. The technical parameters are very complex. As a result, uncertainty exists with regard to the timing and concrete amount of the expenses.

Provisions for environmental obligations refer primarily to rehabilitating contaminated sites, redevelopment and water protection measures.

Carrying amounts in million €
Sept. 30, 2007 Sept. 30, 2008
Bonds 1,996 1,497
Notes payable 50 479
Liabilities to financial institutions 604 968
Acceptance payables 2 0
Finance lease liabilities 136 98
Other loans 25 26
Non-current financial debt 2,813 3,068
Bonds 0 500
Notes payable 100 50
Liabilities to financial institutions 629 711
Liabilities due to sales of receivables not derecognized from the balance sheet 9 3
Acceptance payables 25 31
Finance lease liabilities 37 27
Other loans 25 26
Current financial debt 825 1,348
Financial debt 3,638 4,416

Current financial debt includes financial debt with a remaining term up to one year, while the non-current financial debt has a remaining term of more than one year.

Bonds, Notes payable
Carrying amount in million €
Sept. 30, 2007		 Carrying amount in million €
Sept. 30, 2008		 Notional amount in million €
Sept. 30, 2008		 Interest rate in % Fair value in million €
Sept. 30, 2008		 Maturity Date
ThyssenKrupp Finance Nederland B.V. bond (€500 million) 2002/2009 499 500 500 7.000 502 03/19/2009
ThyssenKrupp AG bond (€750 million) 2004/2011 748 748 750 5.000 743 03/29/2011
ThyssenKrupp AG bond (€750 million) 2005/2015 749 749 750 4.375 678 03/18/2015
ThyssenKrupp AG note loan (€100 million) 2001/2007 100 — — 5.450 — 10/25/2007
ThyssenKrupp AG note loan (€50 million) 2004/2009 50 50 50 4.500 51 01/19/2009
ThyssenKrupp AG note loan (€100 million) 2008/2013 — 100 100 5.150 98 04/15/2013
ThyssenKrupp AG note loan (€150 million) 2008/2013 — 149 150 5.300 148 04/25/2013
ThyssenKrupp AG note loan (€150 million) 2008/2014 — 150 150 5.375 147 05/21/2014
ThyssenKrupp AG note loan (€80 million) 2008/2016 — 80 80 5.710 78 09/15/2016
Total 2,146 2,526 2,530   2,445  

ThyssenKrupp AG has assumed the unconditional and irrevocable guarantee for the payments pursuant to the terms and conditions of the bond of ThyssenKrupp Finance Nederland B.V.. In April 2008, ThyssenKrupp AG issued two note loans with a 5-year-maturity each and a volume of €250 million in total. Furthermore in May 2008, a €150 million note loan with a 6-year-maturity and in September 2008, an additional €80 million note loan with an 8-year-maturity were issued.

All bonds and note loans are interest only with principle due at maturity.

Current financial debt includes financial debt with a remaining term up to one year, while the non-current financial debt has a remaining term of more than one year.

Liabilities to financial institutions, Other loans
Carrying amount in million €
Sept. 30, 2007		 Carrying amount in million €
Sept. 30, 2008		 Amount thereof in € Weighted average interest rate %
Sept. 30, 2008		 Amount thereof in USD Weighted average interest rate %
Sept. 30, 2008		 Amount thereof in other currencies Fair value in million €
Sept. 30, 2008
Credits at variable interest rates 1,045 1,221 147 5.45 275 5.35 799 1,221
Credits at fixed interest rates 238 510 472 5.66 6 — 32 509
Total 1,283 1,731 619 5.61 281 5.24 831 1,730

As of September 30, 2008, ThyssenKrupp has available a €2.5 billion syndicated joint credit multi-currency-facility agreement. The agreement was fixed in July 2005 and has a term until July 01, 2014. The facility agreement was not utilized as of the balance sheet date.

Another component of financial liabilities are revolving credit agreements with banking institutions whereby ThyssenKrupp AG, ThyssenKrupp Finance USA, Inc. or ThyssenKrupp Finance Nederland B.V. can borrow in Euros, U.S. dollars or in British pounds Sterling up to approximately €2.2 million. Of these facilities, 76% have a remaining term of more than 5 years and 24% a remaining term of up to 5 years. As of September 30, 2007, there were no cash loans outstanding.

In total the Group has available unused, committed credit lines amounting to €4.6 billion.

The Group's Commercial Paper Program also provides up to €1.5 billion in additional financing. As of September 30, 2008, the program was not used.

As of the balance sheet date the future minimum lease payments reconcile to their present value (= finance lease obligation) as follows:

million €
Sept. 30, 2007 Sept. 30, 2008
  Future minimum lease payments Interest Present value (finance lease liabilities) Future minimum lease payments Interest Present value (finance lease liabilities)
Not later than one year 40 3 37 35 8 27
Between one and five years 145 31 114 92 16 76
Later than five years 29 7 22 29 7 22
Total 214 41 173 156 31 125

Maturity of financial debt is as follows:

million €
Total financial debt thereof: Liabilities to financial institutions
(for fiscal year)    
2008/2009 1,348 711
2009/2010 168 112
2010/2011 823 52
2011/2012 96 81
2012/2013 581 325
thereafter 1,400 398
Total 4,416 1,679

Trade accounts payable in the amount of €40 million (2007: €11 million) have a remaining term of more than 1 year.

million €
Sept. 30, 2007 Sept. 30, 2008
  current non-current current non-current
Financial liabilities measured at amortized cost 513 125 999 321
Derivatives that do not qualify for hedge accounting 164 — 369 —
Derivatives that qualify for hedge accounting 169 — 176 —
Total 846 125 1,544 321

Other financial liabilities amounting to €328 million (2007: €125 million) have a remaining term of more than 1 year.

million €
Sept. 30, 2007 Sept. 30, 2008
  current non-current current non-current
Amounts due to customers for construction work 3,301 — 3,445 —
Advance payments 844 — 1,084 —
Selling and buying market related liabilities 694 — 642 —
Liabilities due to put options 180 22 180 19
Liabilities to the employees 904 — 965 —
Liabilities for social security 107 — 122 —
Deferred income 189 — 187 —
Tax liabilities (without income taxes) 404 — 370 —
Other 481 — 506 1
Total 7,104 22 7,501 20

Other non-financial liabilities amounting to €883 million (2007: €1,414 million) have a remaining term of more than 1 year.

Amounts due to customers for construction work are calculated as follows:

million €
Sept. 30, 2007 Sept. 30, 2008
Contract costs incurred and recognized contract profits (less recognized losses) 4,328 5,382
Less advance payments received (7,629) (8,827)
Total (3,301) (3,445)

Contingencies

ThyssenKrupp AG and its segment lead companies as well as – in individual cases – its subsidiaries have issued or have had guarantees issued in favor of customers 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 Provision as of
  Sept. 30, 2007 Sept. 30, 2008 Sept. 30, 2007 Sept. 30, 2008
Advance payment bonds 107 145 0 1
Performance bonds 112 67 1 1
Third party credit guarantee 40 42 0 0
Residual value guarantees 45 45 1 1
Other guarantees 167 79 2 1
Total 471 378 4 4

Guarantees include no (2007: €3 million) contingent liabilities of associates and €189 million (2007: €217 million) of contingent liabilities of joint ventures.

The terms of these 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 always the non-performance of the principal debtor 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 are 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.

ThyssenKrupp bears joint and several liability as a member of certain civil law partnerships, ordinary partnerships and consortiums.

Former stockholders of Thyssen and of Krupp have petitioned per Art. 305 UmwG (Reorganization Act) for a judicial review of the share exchange ratios used in the merger of Thyssen AG and Fried. Krupp AG Hoesch-Krupp to form ThyssenKrupp AG. The proceedings are pending with the Düsseldorf Regional Court. Should a ruling be made in favor of the petitioners, the Court would require settlement to be made via an additional cash payment plus interest. The additional payment also would be required to be made to all affected stockholders, even if they were not petitioners in the judicial proceedings. However, the Group expects no such payments to become due as the exchange ratios were duly determined, negotiated between unrelated parties and audited and confirmed by the auditor that has been appointed by court.

As a result of the integration of Thyssen Industrie AG into Thyssen AG, the Group is defendant to court proceedings from minority stockholders of Thyssen Industrie AG to examine the appropriateness of the merger consideration received. If the court rules that the consideration offered was inappropriate, the increased consideration will be granted to all outside stockholders by an additional cash payment.

The Group is involved in pending and threatened litigation in connection with the purchase and sale of certain companies, which may lead to partial repayment of purchase price or to the payment of damages. In addition, damage claims may be payable to customers, consortium partners and subcontractors under performance contracts. Certain of these claims have proven unfounded or have expired under the statute of limitations. Some of these lawsuits are still pending.

Special purpose entities

ThyssenKrupp has leased a facility used in the production of coke. The application of the rules of the 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 leasing and purchasing agreement are included in the future minimum lease payments from operating lease as disclosed below in "Commitments and other contingencies". 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

The Group is the lessee to property, plant and equipment classified as operating leases. Rental expense amounting to €272 million (2006/2007: €232 million) resulting from rental contracts, long-term leases and leasing contracts classified as operating leases was incurred in fiscal 2007/2008. It comprises exclusively of minimum rental payments.

The future minimum rental payments, excluding accrued interest from such non-cancelable contracts that have an initial or remaining term of more than one year as of the balance sheet date are (at face amounts):

million €
Sept. 30, 2007 Sept. 30, 2008
Not later than one year 220 258
Between one and five years 557 565
Later than five years 505 453
Total 1,282 1,276

The future minimum rental income from non-cancelable sublease contracts amounting to €4 million (2006/2007: €6 million) is not included in the total of future minimum rental payments.

The commitment to enter into investment projects amounts to €5,090 million (2007: €2,584 million) and relates mainly to the Steel segment.

Payment commitments and obligations to make further contributions to corporations and cooperative associations exist in the total amount of €3 million (2007: €9 million). In addition, other financial commitments exist in the amount of €3,539 million (2007: €3,214 million), primarily from the commitments to purchase coking coal, coal and lime under long term supply contracts and obligations under ship-charter contracts in the Steel segment as well as purchasing commitments resulting from the Group's electricity and gas supply contracts. In addition, in the Steel segment long term iron ore and iron ore pellets supply contracts exist which will result in purchasing commitments over a period of up to 15 years, beginning in fiscal year 2008/2009. Due to the high volatility of iron ore prices, the measurement of the complete purchasing commitments is based on the iron ore price as of the current balance sheet date resulting in purchasing commitments of €10,120 million in total.

Under property and business interruption insurance policies, substantial deductibles exist for some production units of the Steel and Stainless segments. One or more damages at these units could significantly impact the Group's net assets, financial position and results of operations.

On November 20, 2007, the EU Commission ruled that a law adopted by the Republic of Italy in 2005 granting ThyssenKrupp Acciai Speciali Terni S.p.A. among other companies certain benefits in the purchase of electricity was inadmissible state aid. The EU Commission requested Italy to recover aid paid under this law from the companies concerned. On January 31, 2008 Italy filed a complaint against the Commission's decision. On February 06, 2008 ThyssenKrupp Acciai Speciali Terni also filed a complaint against the decision. It is not yet possible to say definitively whether, and if, in what amount recovery claims will be made by the Italian government and claims made hitherto by ThyssenKrupp Acciai Speciali Terni will be settled by Italy.

In its decision of July 02, 2008, the EU Commission classified various investment subsidies and undertakings granted to Hellenic Shipyards S.A. (HSY) as state aid which is not compatible with the Single Market. The aid was partly granted between 1997 and 2002 in connection with the privatization of the formerly nationalized shipyards. A clause in the purchase contract for the acquisition of HSY in 2002 exempting the purchaser Howaldtswerke-Deutsche Werft GmbH from any claims for repayment of the aid is also considered incompatible with state aid rules by the Commission. The EU Commission has requested Greece to recover the aid from HSY; in the Commission's opinion, the amount involved is approximately €236 million (plus interest). An appeal against the Commission's findings was lodged with the European Court of First Instance (Luxembourg). An action has already been filed with the competent court in Athens against the seller of HSY for exemption from contingent recovery claims of the Greek government. The recovery obligation of the Greek government only refers to the non-naval business of HSY, and not to the naval one. Should this matter in total not be resolved favorably, a material impact on the consolidated financial statements of ThyssenKrupp cannot be ruled out currently.

The following table shows financial assets and liabilities by measurement categories and classes. Finance lease receivables and liabilities, and derivatives that qualify for hedge accounting are also included although they are not part of any IAS 39 measurement category.

Table: Financial instruments

The carrying amounts of trade accounts receivable, other current receivables as well as cash and cash equivalents equal their fair values. The fair value of fixed rate loans equals the present value of expected cash flows which are discounted on the basis of interest rates prevailing on the balance sheet date.

Available-for-sale financial assets primarily include equity and debt instruments. They are in general measured at fair value, which is based to the extent available on market prices as of the balance sheet date. When no quoted market prices in an active market are available and the fair value cannot be reliably measured, availablefor- sale financial assets are measured at cost.

The fair value of foreign currency forward transactions is determined on the basis of the middle spot exchange rate applicable as of the balance sheet date, and taking account of forward premiums or discounts arising for the respective remaining contract term compared to the contracted forward exchange rate. Common methods for calculating option prices are used for foreign currency options. The fair value of an option is influenced not only by the remaining term of an option, but also by other factors, such as current amount and volatility of the underlying exchange or base rate.

Interest rate swaps and cross currency swaps are measured at fair value by discounting expected cash flows on the basis of market interest rates applicable for the remaining contract term. In the case of cross currency swaps, the exchange rates for each foreign currency, in which cash flows occur, are also included.

The fair value of commodity futures is based on published price quotations. It is measured as of the balance sheet date, both internally and by external financial partners.

The carrying amounts of trade accounts receivable and other current liabilities equal their fair values. The fair value of fixed rate liabilities equals the present value of expected cash flows. Discounting is based on interest rates applicable as of the balance sheet date. The carrying amounts of floating rate liabilities equal their fair values.

The following table shows net gains and losses from financial instruments by measurement categories. Gains or losses arising from finance lease and from derivatives that qualify for hedge accounting are not included, as they are not part of any IAS 39 measurement category.

million €
Year ended
Sept. 30, 2007		 Year ended
Sept. 30, 2008
Loans and receivables (5) 136
Available-for-sale financial assets 62 140
Derivatives that do not qualify for hedge accounting (Financial assets held for trading) (30) 107
Financial liabilities measured at amortized cost (163) (291)

Net losses under "loans and receivables" mainly comprises interest on financial receivables, impairment allowances on trade accounts receivable and gains and losses on foreign currency receivables.

The category "available-for-sale financial assets" mainly includes current earnings from equity and debt instruments as well as gains or losses on their disposal.

Gains and losses arising from changes in fair value of foreign currency, interest rate and commodity derivatives that do not comply with the hedge accounting requirements under IAS 39 are included in the "derivatives that do not qualify for hedge accounting" category.

The category "financial liabilities measured at amortized cost" includes interest expenses on financial liabilities as well as gains and losses on foreign currency liabilities.

Derivative financial instruments

The Group uses various derivative financial instruments, including foreign currency forward contracts, foreign currency options, interest rate swaps, cross currency S.A.S.and commodity forward contracts. Derivative financial instruments are generally used to hedge existing or anticipated underlying transactions so as to reduce foreign currency, interest rate and commodity price risks.

The following table shows the notional amounts and fair values of derivatives used within the Group:

million €
Notional amount Sept. 30, 2007 Carrying amount Sept. 30, 2007 Notional amount Sept. 30, 2008 Carrying amount Sept. 30, 2008
Assets        
Foreign currency derivatives that do not qualify for hedge accounting 2,712 124 4,041 150
Foreign currency derivatives qualifying as cash flow hedges 397 18 1,466 55
Embedded derivatives 841 40 189 8
Interest rate derivatives that do not qualify for hedge accounting* 750 4 71 21
Interest rate derivatives qualifying as cash flow hedges* 7 0 0 0
Commodity derivatives that do not qualify for hedge accounting 829 67 1,113 269
Commodity derivatives qualifying as cash flow hedges 9 1 116 17
Commodity derivatives qualifying as fair value hedges 16 0 44 6
Total 5,561 254 7,040 526
         
Liabilities        
Foreign currency derivatives that do not qualify for hedge accounting 2,268 62 3,534 179
Foreign currency derivatives qualifying as cash flow hedges 2,720 165 2,415 137
Embedded derivatives 193 14 855 52
Interest rate derivatives that do not qualify for hedge accounting* 61 4 750 21
Interest rate derivatives qualifying as cash flow hedges* 147 2 148 4
Commodity derivatives that do not qualify for hedge accounting 760 84 670 117
Commodity derivatives qualifying as cash flow hedges 48 2 143 34
Commodity derivatives qualifying as fair value hedges 19 0 10 1
Total 6,216 333 8,525 545
* inclusive of cross currency swaps

Derivatives that qualify for hedge accounting

Hedge accounting in accordance with IAS 39 is used to hedge foreign currency risks of firm commitments, future receivables and liabilities denominated in foreign currency, commodity price risks arising from sales and purchase transactions, and interest rate risks from non-current liabilities.

Cash flow hedges

Cash flow hedges are mainly used to hedge future cash flows against foreign currency and commodity price risks arising from future sales and purchase transactions as well as interest rate risks from non-current liabilities. These derivatives are measured at fair value, divided into an effective and ineffective portion. Until realization of the hedged underlying transaction, the effective portion of fluctuations in fair value of these derivatives is recognized directly in equity in the cumulative income and expense position, while the ineffective portion is recognized in profit or loss. The cumulative gain or loss recognized in equity is reclassified to profit or loss in the same period during which the future underlying transactions (hedged items) affect profit or loss. As of 30 September 2008, hedging instruments with positive fair value totaled €72 million (2007: €19 million) and those with negative fair value totaled €175 million (2007: €169 million). For the 2007/2008 financial year, €189 million (2006/2007: €180 million) (before tax) in unrealized gains or losses have been recognized directly in equity in the cumulative income and expense position. Cash flows from future transactions are currently hedged for a maximum of 60 months.

During the current fiscal year, €21 million (2007: €14 million) in cumulative gain or loss recognized directly in equity were reclassified to profit or loss as a result of the underlying transactions being realized during the year; of this amount €21 million (2006/2007: €14 million) are attributable to sales and €0 million (2006/2007: 0) to other financial income / (expense), net. In addition, €191 million (2007: €15 million) in cumulative gain or loss recognized directly in equity were reclassified to increase cost of inventories, as the hedged commodities were recognized, although the underlying transaction had not yet been taken to profit or loss; an expense of €(41) million of that reclassified amount is expected to impact earnings in the subsequent fiscal year.

As of September 30, 2008, net income from the ineffective portions of derivatives classified as cash flow hedges totaled €(3) million (2006/2007: €20 million).

The cancellation of cash flow hedges during the current fiscal year resulted in earnings of €1 million (2006/2007: €1 million) due to reclassification from cumulative gain or loss recognized directly in equity to profit or loss. These fluctuations in fair value of derivatives originally recognized in equity were reclassified to profit or loss when the hedged underlying transaction was no longer probable to occur.

In the subsequent fiscal year, fluctuations in fair value of derivatives included under cumulative change in equity as of the reporting date is expected to impact earnings by expenses of €(71) million. During the 2009/2010 fiscal year, earnings are expected to be impacted by expenses of €(27) million, during the 2010 / 2011 fiscal year by expenses of €(2) million and during the following fiscal years by expenses of €(89) million.

Fair value hedges

Fair value hedges are mainly used to hedge the exposure to changes in fair value of a firm commitment and exposure to inventory price risks. These commodity derivatives as well as their corresponding underlying transactions are measured at fair value. As of September 30, 2008, hedging instruments with positive fair value totaled €6 million (2007: 0) and those with negative fair value totaled €1 million (2007: 0). Fluctuations in fair value are recognized immediately in profit or loss under sales or cost of sales, depending on the type of underlying transaction. During the fiscal year, income / (expense), net from the measurement of fair value hedging instruments totaled €(3) million (2006/2007: €(16) million), while income / (expense), net from the corresponding underlying transactions during the same period amounted to €3 million (2006/2007: €16 million).

Derivates that do not qualify for hedge accounting

If a hedging relationship does not meet the requirements for hedge accounting in accordance with the conditions under IAS 39, the derivative financial instrument is recognized as a derivative that does not qualify for hedge accounting. The resulting impact on profit or loss is shown in the table on net gains and losses from financial instruments by measurement categories. This item also includes embedded derivatives. They exist in the ThyssenKrupp Group in the way that regular supply and service transactions with suppliers and customers abroad are not concluded in the functional currency (local currency) of either contracting parties.

Financial risks

The management of ThyssenKrupp AG has implemented a risk management system that is monitored by the Supervisory Board. The general conditions for compliance with the requirements for proper and future-oriented risk management within the ThyssenKrupp Group are set out in the risk management principles. These principles aim at encouraging all Group members of staff to responsibly deal with risks as well as supporting a sustained process to improve risk awareness. The risk management manual and other Group guidelines specify risk management processes, compulsory limitations, and the application of financial instruments. The risk management system aims at identifying, analyzing, managing, controlling and communicating risks promptly throughout the Group. ThyssenKrupp Group's risk environment is updated at least twice a year by carrying out a risk inventory in all Group companies. The results of the risk inventory process are communicated to both ThyssenKrupp AG's Executive Board and the Supervisory Board's audit committee. Risk management reporting is a continuous process and part of regular Group reporting. Group guidelines and information systems are checked regularly and adapted to current developments. In addition, the internal auditing department regularly checks whether Group companies comply with risk management system requirements.

Being a global Group, ThyssenKrupp is exposed to credit, liquidity and market risks (foreign currency, interest rate and commodity price risks) during the course of ordinary activities. The aim of risk management is to limit the risks arising from operating activities and associated financing requirements by applying selected derivate and non-derivative hedging instruments.

Credit risk (counterparty default risk)

To the Group, financial instruments bear default risk resulting from one party's possible failure to meet its payment obligations, with the maximum default risk being equal to the positive fair value of the respective financial instrument. In order to minimize default risk, the ThyssenKrupp Group only enters into financial instruments for financing purposes with contracting parties of very good credit standing in compliance with specified risk limits, so minimizing default risk as far as possible. In the operative area, receivables and default risks are monitored by Group companies on an ongoing basis and partially covered by merchandise credit insurance. Risks arising from the delivery of goods to major customers are subject to a special credit watch. In addition, letters of credit and indemnity bonds are used to hedge receivables from major customers. However, receivables from these contracting parties do not reach levels that would result in extraordinary risk concentrations. Default risk is taken into account by valuation allowances.

Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its existing or future obligations due to insufficient availability of cash or cash equivalents. Managing liquidity risk, and therefore allocating resources and hedging the Group's financial independence, are some of the central tasks of ThyssenKrupp AG. In order to be able to ensure the Group's solvency and financial flexibility at all times, longterm credit limits and cash and cash equivalents are reserved on the basis of perennial financial planning and monthly rolling liquidity planning. Cash pooling and external financing focus primarily on ThyssenKrupp AG and specific financing companies. Funds are provided internally to Group companies according to need. The following table shows future undiscounted cash outflows (positive amounts) and cash inflows (negative amounts) from financial liabilities based on contractual agreements.

million €
Carrying amount Sept. 30, 2007 Cash flows in 2007/2008 Cash flows in 2008/2009 Cash flows between 2009/2010 and 2011/2012 Cash flows after 2011/2012
Bonds 1,996 105 605 923 848
Liabilities to financial institutions 1,233 682 259 239 313
Finance lease liabilities 173 40 34 111 29
Other financial debt 236 167 69 8 8
Trade accounts payable 4,960 4,949 6 5 0
Derivative financial liabilities that do not qualify for hedge accounting 164 150 7 3 4
Derivative financial liabilities that qualify for hedge accounting 169 107 56 6 0
Other financial liabiltities 638 511 1 1 125
million €
Carrying amount Sept. 30, 2008 Cash flows in 2008/2009 Cash flows in 2009/2010 Cash flows between 2010/2011 and 2012/2013 Cash flows after 2012/2013
Bonds 1,997 605 70 886 816
Liabilities to financial institutions 1,679 796 146 666 559
Finance lease liabilities 125 35 38 54 29
Other financial debt 615 145 29 336 264
Trade accounts payable 5,731 5,691 31 9 1
Derivative financial liabilities that do not qualify for hedge accounting 369 308 32 22 (15)
Derivative financial liabilities that qualify for hedge accounting 176 156 16 0 0
Other financial liabiltities 1,320 994 4 322 0

Cash flows from derivatives are offset by cash flows from hedged underlying transactions, which have not been considered in the analysis of maturities. If cash flows from the hedged underlying transactions were also considered, the cash flows shown in the table would be accordingly lower.

Market risks

Market risk is the risk that fair values or future cash flows of non-derivative or derivative financial instruments will fluctuate due to changes in risk factors. Among market risks relevant to ThyssenKrupp are foreign currency, interest rate, commodity price, and especially raw material price risks. Associated with these risks are fluctuations in income, equity and cash flow. The objective of risk management is to eliminate or limit emerging risks by taking appropriate precautions, especially by applying derivatives. The application of derivatives is subject to strict controls set up on the basis of guidelines as part of regular reporting. The Group primarily concludes over-the-counter (OTC) forward foreign currency transactions, cross currency derivatives and commodity forward contracts with banks and trading partners. In addition, exchange-traded futures are used to hedge commodity prices.

The following analysis and amounts determined by means of sensitivity analyses represent hypothetical, future-oriented data that can differ from actual outcomes because of unforeseeable developments in financial markets. Moreover, non-financial or nonquantifiable risks, such as business risks, are not considered here.

Foreign currency risk exposures

The international nature of our business activities generates numerous cash flows in different currencies – especially in US dollars. Hedging the resulting currency risk exposures is an essential part of our risk management.

Group-wide regulations form the basis for ThyssenKrupp Group's currency management. Principally, all group companies are obliged to hedge foreign currency positions at the time of inception. Affiliated companies based in the Euro zone are obliged to submit all unhedged positions from trade activities in major transaction currencies to a central clearing office. Depending on the derivatives' hedging purpose and resulting accounting treatment, the offered positions are either hedged under a portfolio hedge approach or directly hedged with banks on a back-to-back basis taking into account the respective maturity. Financial transactions and the transactions undertaken by our subsidiaries outside the Euro zone are hedged in close cooperation with central Group management. Compliance with the Group's requirements is regularly ascertained by our Central Internal Audit Department.

Foreign currency hedging is used to fix prices on the basis of hedging rates as protection against any unfavorable exchange rate fluctuations in the future. When hedging anticipated productionrelated ore, coal and coke purchases, favorable developments in the Euro / US dollar exchange rate are also systematically exploited.

Hedging periods are generally based on the maturities of underlying transactions. Foreign currency derivative contracts usually have maturities of twelve months or less, but can also be significantly longer in exceptional cases. The hedging periods for forecasted ore, coal and coke purchases have been established on the basis of a theoretical fair exchange rate (based on purchasing power parity) and the margin of fluctuation between the US dollar and the Euro based on historical data. In accordance with a set pattern, purchases forecasted for a specific period are hedged whenever defined hedging rates are reached.

The US dollar is the only relevant risk variable for sensitivity analyses under IFRS 7, as the vast majority of foreign currency cash flows occurs in US dollars. As hedging transactions are generally used to hedge underlying transactions, opposite effects in underlying and hedging transactions are almost entirely offset over the total period. Thus, the currency risk exposure described here results from hedging relationships with off-balance sheet underlying transactions, i.e. hedges of firm commitments and forecasted sales. Based on our analysis, the US dollar exposure as of September 30, 2008 was as follows:

If the Euro had been 10% stronger against the US dollar as of September 30, 2008, the hedge reserve in equity and fair value of hedging transactions would have been €229 million (2007: €177 million) lower and earnings resulting from the measurement as of the balance sheet date €32 million (2006/2007: €35 million) higher. If the Euro had been 10% weaker against the US dollar as of September 30, 2008, the hedge reserve in equity and fair value of hedging transactions would have been €280 million (2007: €216 million) higher and earnings resulting from the measurement as of the balance sheet date €41 million (2006/2007: €37 million) lower.

Interest rate risk

Due to the international focus of ThyssenKrupp's business activities, the Group procures liquidity in international money and capital markets in different currencies – predominantly in Euros and US dollars – and with various maturities. Some of the resulting financial debt and financial investments are exposed to interest rate risk. The Group's central interest rate management manages and optimizes interest rate risk. This includes regular interest analyses. In some cases, the Group uses derivatives to hedge interest rate risk. These instruments are contracted with the objective of minimizing interest rate volatilities and finance costs for underlying transactions.

Some interest derivatives are immediately and directly allocated to a particular loan as a cash flow hedge. These are derivatives that qualify for hedge accounting. The sum total of interest expenses from these derivatives' underlying transactions and allocated interest derivatives recognized in the statement of income represents the hedging relationship's fixed interest rate.

Another part of the interest derivatives is not specifically allocated to an individual loan but hedges a portfolio of individual loans using a macro hedge approach.

Cross currency S.A.S.have been contracted primarily in connection with the US dollar financing activities. These instruments are also measured at fair value. The effect on earnings resulting from changes in the US dollar / €exchange rate, which occurred since the beginning of the US dollar cross currency swaps, is offset by the impact on earnings of related existing foreign currency positions (intragroup US dollar receivables).

Interest rate instruments can result in cash flow risks, opportunity effects, as well as interest rate risks affecting the balance sheet and earnings. Refinancing and variable-rate financial instruments are subject to cash flow risk which expresses the uncertainty of future interest payments. Cash flow risk is measured by means of cash flow sensitivity. Opportunity effects arise from non-derivatives, as these are measured at amortized cost rather than fair value, in contrast to interest derivatives. This difference, the socalled opportunity effect, affects neither the balance sheet nor the statement of income. On-balance sheet interest rate risks affecting equity result from the measurement of interest derivatives qualifying as micro hedges. Interest rate risks affecting earnings arise from the remaining interest derivatives. Opportunity effects and interest rate risks affecting the balance sheet and earnings are determined by calculating fair value sensitivity analyses and changes.

As of September 30, a +100 / (100) basis point parallel shift in yield curves is assumed for all currencies in interest analyses. This would result in the opportunities (positive values) and risks (negative values) shown in the following table:

million €
Changes in all yield curvesas of Sept. 30, 2008 by
  + 100 basis points (100) basis points
Cash flow risk 21 (21)
Opportunity effects 100 (106)
Interest rate risks resulting from interest rate derivatives affecting balance sheet 1 (1)
Interest rate risks resulting from interest rate derivatives affecting earnings 2 (2)

In the previous year the analysis resulted in the opportunities (positive values) and risks (negative values) shown in the following table:

million €
Changes in all yield curves as of Sept. 30, 2007 by
  + 100 basis points (100) basis points
Cash flow risk 31 (31)
Opportunity effects 78 (83)
Interest rate risks resulting from interest rate derivatives affecting balance sheet 2 (2)
Interest rate risks resulting from interest rate derivatives affecting earnings (1) 1

If, as of September 30, 2008, all yield curves combined had been 100 basis points higher, the hedge reserve in equity and fair value of the relevant interest derivatives would have been €1 million (2007: €2 million) higher and earnings resulting from the measurement as of the balance sheet date €23 million (2006/2007: €30 million) higher. If, as of September 30, 2008, all yield curves combined had been 100 basis points lower, the hedge reserve in equity and fair value of the relevant interest derivatives would have been €1 million (2007: €2 million) lower and earnings resulting from the measurement as of the balance sheet date €23 million (2006/2007: €30 million) lower.

Commodity price risks

The Group uses various nonferrous metals, especially nickel, as well as commodities such as ore, coal, coke and energy, for different production processes. Purchase prices for commodities and energy can vary significantly depending on market conditions. Fluctuations in commodity prices cannot always be passed on to customers.

This causes commodity price risks which can affect income, equity and cash flow. Long-term supply contracts have been concluded with suppliers, especially for ore, coal and coke, to hedge commodity price risks. In addition, some Group companies use derivatives, especially for nickel and copper, so as to minimize risks arising from commodity price volatilities. These instruments are in general hedged locally, and the contracting of such financial derivatives is subject to strict guidelines which are checked for compliance by internal auditing. Only marketable instruments are used, as there are commodity forward contracts and options. Commodity forward contracts are measured at fair value. Fluctuations in fair value are recognized predominately in profit or loss under sales revenue or cost of sales. Sometimes cash flow hedge accounting is used when commodity derivatives are immediately and directly allocated to a particular firm commitment. In some cases, fair value hedges are used to hedge the exposure to changes in fair value of a firm commitment and exposure to inventory price risks.

Risks resulting from rising energy prices are limited by structuring procurement on the electricity market and concluding or extending long-term natural gas contracts. These contracts are subject to the so-called "own use exemption" and therefore not carried as derivatives.

Only hypothetical changes in market prices for derivatives are included in scenario analysis, required for financial instruments under IFRS 7. Offsetting effects from underlying transactions are not taken into account and would reduce their effect significantly.

In assuming oversupply of various metals, we used market prices at production cost level of important manufacturers; depending on said commodities, this equates to a hypothetical maximum price reduction of 73% (2006/2007: 77%). The reason for this assumption is that downturns in metal production, and even closures, are usually the consequence of significantly lower market prices for a sustained period of time. As usual at times of oversupply, there are high forward mark-ups ("contango") on each metal. The estimated hypothetical impact on profit or loss resulting from the measurement as of the balance sheet date is €275 million (2006/2007: €(19) million), and on equity €(64) million (2007: €(27) million). Historical peak market prices are used in a scenario of high prices associated with severe shortages. Forward discounts ("backwardation") usually associated with undersupplied markets also reflect historical peak prices. Depending on commodity, price rises of up to 252% (2006/2007: 94%) are assumed. The estimated hypothetical impact on profit or loss resulting from the measurement as of the balance sheet date is €(295) million (2006/2007: €28 million), and on equity €116 million (2007: €32 million).

Based on the notification received in accordance with German Securities Trade Act (WpHG) Art. 21 as of December 21, 2006, the Alfried Krupp von Bohlen und Halbach Foundation holds an interest of 25.10% in ThyssenKrupp AG; based on a voluntary notification of the Foundation as of October 02, 2008, the interest in ThyssenKrupp AG amounts to 25.14% as of September 30, 2008. Outside the services and considerations provided for in the by-laws (Article 21 of the Articles of Association of ThyssenKrupp AG), there are no other significant delivery and service relations except for the following transactions. In fiscal year 2006/2007 real property was sold to the Foundation at its fair value of €1.6 million. Also in 2006/2007, a Group subsidiary received a €2 million elevator modernization contract from an entity belonging to the Alfried Krupp von Bohlen und Halbach Foundation. Based on this contract, a Group subsidiary realized sales of €1.4 million in 2007/2008.

To a minor extent, the Group has business relations with nonconsolidated subsidiaries. Transactions with these related parties result from the delivery and service relations in the ordinary course of business.

A related party of major importance is Hüttenwerke Krupp- Mannesmann (HKM), in which ThyssenKrupp holds a 50% interest as of September 30, 2007 and 2008 and which is accounted for under the equity method of accounting. Substantial business relations exist with HKM during the current and the previous fiscal year which include the purchase of crude steel (semi-finished continuous casting) and the sale of transport services and coke deliveries. The volume of the transactions is disclosed below:

million €
Sept. 30, 2007 Sept. 30, 2008
Sales 175 195
Supplies and services 1,336 1,497
Receivables 16 35
Payables 231 286

Furthermore a related party of major importance is the Atlas Elektronik Group, in which ThyssenKrupp holds a 51% interest as of September 30, 2007 and 2008, respectively. The joint venture is accounted for under the equity method of accounting. The existing business relations with Atlas Elektronik include the purchase of sensor and sonar systems for conventional submarines. The volume of the transactions is disclosed below:

million €
Sept. 30, 2007 Sept. 30, 2008
Sales 0 1
Supplies and services 170 18
Receivables 93 115
Payables 1 4

Also a related party of major importance is the Thyssen Ros Casares S.A., in which ThyssenKrupp holds a 50% interest as of September 30, 2007 and 2008, respectively. The joint venture is accounted for under the equity method of accounting. Business relations exist with the company, mainly involving the processing and sale of coils. The volume of the transactions is disclosed below:

million €
Sept. 30, 2007 Sept. 30, 2008
Sales 50 57
Supplies and services 0 0
Receivables 8 9
Payables 0 0

Also a related party of major importance is the ANSC-TKS Galvanizing Co., Ltd., in which ThyssenKrupp holds a 50% interest as of September 30, 2007 and 2008, respectively. The joint venture is accounted for under the equity method of accounting. Business relations exist with the company, mainly relating to the hot-dip galvanizing, electroplating and sale of sheet. The volume of the transactions is disclosed below:

million €
Sept. 30, 2007 Sept. 30, 2008
Sales 6 4
Supplies and services 0 9
Receivables 3 1
Payables 0 0

Also a related party of major importance is the Acciai di Qualità, Centro Lavorazione Lamiere S.p.A., Ltd., in which ThyssenKrupp holds a 24.9% interest as of September 30, 2008 and which is accounted for as an associate under the equity method of accounting. Business relations exist with the company relating to the sale of thick plate in Italy. The volume of the transactions is disclosed below:

million €
Sept. 30, 2008
Sales 21
Supplies and services 0
Receivables 4
Payables 0

Also a related party of major importance is the BCCW (Tangshan) Jiahua Coking & Chemical Co., Ltd., in which ThyssenKrupp holds a 25% interest as of September 30, 2008 and which is accounted for as an associate under the equity method of accounting. Business relations exist with the company relating to the running of a coking plant and the right of a ThyssenKrupp company to do the worldwide marketing (excluding China). The volume of the transactions is disclosed below:

million €
Sept. 30, 2008
Sales 19
Supplies and services 38
Receivables 14
Payables 0

In addition, ESG Legierungen GmbH is classified as a related party due to the fact that a close member of the family of an Executive Board member of ThyssenKrupp AG is a managing director. In 2007/2008 the Group realized sales of €1.7 million (2006/2007: €2.0 million) with ESG Legierungen GmbH from the sale of zinc. In the same period the Group purchased zinc alloy with a value of €0.2 million (2006/2007: 0) from ESG Legierungen GmbH. The transactions were carried out at market conditions and resulted in trade accounts receivable of €0.1 million (2007: 0) as of September 30, 2008.

Compensation of current Executive and Supervisory Board members

The Group's key management personnel compensation which has to be disclosed in accordance with IAS 24 comprises of the compensation of the current Executive and Supervisory Board members.

Compensation of the current Executive Board members is as follows:

Thousand €
Year ended Sept. 30, 2007 Year ended Sept. 30, 2008
Short-term benefits (without share-based compensation) 23,945 18,871
Post-employment benefits 2,818 1,502
Share-based compensation 1,487 963

Service cost resulting from the pension obligations of the current members of the Executive Board is disclosed as post-employment benefits. The disclosure of share-based compensation refers to the fair value at grant date.

In addition, in fiscal 2007/2008, the Executive Board members received payments of €13,272 thousand (2006/2007: €10,762 thousand) from share-based compensation.

As of September 30, 2007 and 2008, respectively, no loans or advance payments were granted to members of the Executive Board; also as in the previous year no contingencies were assumed for the benefit of Executive Board members.

Compensation of the current Supervisory Board members is as follows:

Thousand €
Year ended Sept. 30, 2007 Year ended Sept. 30, 2008
Short-term benefits 2,679 2,721
Long-term benefits 688 895

In addition, members of the Supervisory Board of ThyssenKrupp AG received compensation of €223 thousand in fiscal 2007/2008 (2006/2007: €150 thousand) for supervisory board mandates at Group subsidiaries.

As of September 30, 2007 and 2008, respectively, no loans or advance payments were granted to members of the Supervisory Board; also as in the previous year no contingencies were assumed for the benefit of Supervisory Board members.

For individualized presentation and further details of Executive and Supervisory Board compensation refer to the presentation of the audited compensation report which is part of the "Corporate Governance" chapter and following of the annual report.

Compensation of former Executive and Supervisory Board members

Total compensation paid to former members of the Executive Board and their surviving dependants amounted to €13.7 million (2006/2007: €15.1 million). Under IFRS an amount of €142.3 million (2007: €157.8 million) is accrued for pension obligations benefiting former Executive Board members and their surviving dependants.

Former Supervisory Board members who left the Supervisory Board prior to October 01, 2007 receive a proportional payment from the long-term compensation component in the total amount of €16 thousand (2006/2007: €30 thousand).

The segments described below follow the internal organizational and reporting structure of the Group. The various products and services of the Group are considered in the segmentation.

Steel

The Steel segment concentrates on the production and sale of high-quality carbon steel flat products. The product range is focused on products with high value added along the value chain. The segment's capabilities are characterized by intelligent materials solutions, product-specific processing, services and extensive customer support.

Stainless

This segment combines all production and sales functions for flat-rolled stainless steel, nickel alloys and titanium. With its strong delivery performance, flexibility and full range of services, Stainless supports customers in the manufacture of high-quality end products.

Technologies

The companies of the Technologies segment produce high-tech plants and components. They include Plant Technology, Marine Systems, Mechanical Components, Automotive Solutions and Transrapid. Plant Technology provides project management for the engineering and construction of specialized and large-scale plants for the chemical, petrochemical, cement, mining / handling and coke sectors. Marine Systems specializes in building, repair, conversion and service in particular of naval ships, i.e. conventional submarines and surface vessels. In non-naval shipbuilding, Marine Systems builds mega-yachts and container ships. The Mechanical Components companies produce components for the mechanical engineering and automotive industries, including large-diameter antifriction bearings, assembled camshafts, crankshafts, castings and undercarriages for construction machinery. Automotive Solutions develops solutions to meet the needs of the auto industry. Products and services range from steering and damping systems to the entire body technology process chain, systems solutions for chassis applications to assembly equipment for the auto industry. Transrapid is involved in engineering, project management and construction of high-speed maglev train systems.

Elevator

This segment is active in the construction, modernization and servicing of elevators, escalators, moving walks, stair and platform lifts as well as passenger boarding bridges. Alongside a full range of installations for the volume market, the segment also delivers customized solutions.

Services

The Services segment is a service provider for industrial materials, raw materials and industrial processes. Alongside the distribution and sale of rolled and specialty steel, tubular products, nonferrous metals and plastics, it offers services ranging from primary processing and logistics to warehouse and inventory management and supply chain management. The process services include production support as well as complex maintenance activities. Other capabilities include the worldwide supply of metallurgical raw materials and development of innovative technical system solutions.

Corporate

Corporate includes the Group's head office and internal service providers as well as inactive companies which could not be assigned to an individual segment. In addition, the non-operating property is managed and utilized centrally by Corporate. Also the retained assets and liabilities of ThyssenKrupp Budd were assigned to Corporate.

Corporate loss before taxes consists of:

million €
Year ended Sept. 30, 2007 Year ended Sept. 30, 2008
Corporate administration (205) (192)
Pension expenses (13) (20)
R&D promotion 0 (6)
Interest cost of financial receivables/debt 45 (2)
Interest cost of pensions (154) (159)
Miscellaneous financial income/(expense) (22) (22)
Risk and insurance services 21 21
Special items 152 (47)
Other Corporate companies (1) 0
Loss Corporate Headquarters (177) (427)
Income/(loss) Corporate Real Estate (28) 10
Loss Corporate before income taxes (205) (417)

Consolidation

Consolidation essentially contains the elimination of intercompany profits in inventories. The elimination of the income from equity investments in which the segments Steel and Services are jointly involved also takes place in the Group consolidation. These jointly owned companies are fully consolidated by the Steel segment in which they are managed. In the Services segment, the equity method of accounting for investments is used. Within Services, results on investments from intra-group joint ventures amount to €19 million (2006/2007: €18 million).

Apart from the compensation for expenses outlined above, the accounting principles for the segments are the same as those described for the Group in the summary of significant accounting principles. The measure of segment profit and loss, which is used to evaluate the performance of the operating segments of the Group, is the "Income before income taxes" line item presented in the consolidated statements of income.

Inter-segment pricing is determined on an arm's length basis.

Table: Information by segments

In presenting information for geographical areas, allocation of sales is based on the location of the customer. Allocation of segment assets and capital expenditures is based on the location of the assets. Capital expenditures are presented in line with the definition of the cash flow statement.

The geographical segment "Other EU" comprises of all member states of the European Union (besides Germany) as of the current reporting date. European countries which are currently not member of the European Union are part of the "Other countries" segment. The "Americas" segment includes the countries of the Nafta and of South America. The "Asia / Pacific" segment consists of Asia and Australia.

Due to the high volume of customers and the variety of business activities, there are no individual customers that generate sales values that are material to the Group's consolidated net sales.

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Information by geographical area million €
Germany Other EU* Americas Asia / Pacific Other countries Group
External sales (location of the customer)            
Year ended Sept. 30, 2007 18,545 16,198 10,218 4,146 2,616 51,723
Year ended Sept. 30, 2008 19,161 16,677 9,706 4,852 3,030 53,426
             
Capital expenditures (intangible assets, property, plant and equipment and investment property) (location of the assets)            
Sept. 30, 2007 8,092 2,265 3,059 714 276 14,406
Sept. 30, 2008 8,129 2,515 5,437 795 332 17,208
* member states as expanded as of January 01, 2007

The preparation of the Group's consolidated financial statements requires management estimates and assumptions that affect reported amounts and related disclosures. All estimates and assumptions are made to the best of management's knowledge and belief in order to fairly present the Groups financial position and results of operations. The following accounting policies are significantly impacted by management's estimates and judgements.

Business combinations

As a result of acquisitions the Group recognized goodwill in its balance sheet. In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at the date of acquisition at their respective fair value. One of the most significant estimates relates to the determination of the fair value of these asset and liabilities. Land, buildings and equipment are usually independently appraised while marketable securities are valued at market price. If any intangible assets are identified, depending on the type of intangible asset and the complexity of determining its fair value, the Group either consults with an independent external valuation expert or develops the fair value internally, using an appropriate valuation technique which is generally based on a forecast of the total expected future net cash flows. These evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied.

Goodwill

As stated in the accounting policy in Note 01, the Group tests annually and in addition if any indicators exist, whether goodwill has suffered an impairment. If there is an indication, the recoverable amount of the cash-generating unit has to be estimated which is the greater of the fair value less costs to sell and the value in use. The determination of the value in use involves making adjustments and estimates related to the projection and discounting of future cash flows (see Note 12). Although management believes the assumptions used to calculate recoverable amounts are appropriate, any unforeseen changes in these assumptions could result in impairment charges to goodwill which could adversely affect the future financial position and operating results.

Recoverability of assets

At each balance sheet date, the Group assesses whether there is any indication that the carrying amounts of its property, plant and equipment, investment property or intangible assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated. The recoverable amount is the greater of the fair value less costs to sell and the value in use. In assessing the value in use, discounted future cash flows from the related assets have to be determined. Estimating the discounted future cash flows involves significant assumptions, including particularly those regarding future sale prices and sale volumes, costs and discount rates. Although management believes that its estimates of the relevant expected useful lives, its assumptions concerning the economic environment and developments in the industries in which the Group operates and its estimations of the discounted future cash flows are appropriate, changes in the assumptions or circumstances could require changes in the analysis. This could lead to additional impairment charges in the future or to reversal of impairments if the trends identified by management reverse or the assumptions or estimates prove incorrect.

Revenue recognition on construction contracts

Certain Group entities, particularly in the Technologies and Elevator segments, conduct a portion of their business under construction contracts which are accounted for using the percentage-of-completion method, recognizing revenue as performance on the contract progresses. This method requires accurate estimates of the extent of progress towards completion. Depending on the methodology to determine contract progress, the significant estimates include total contract costs, remaining costs to completion, total contract revenues, contract risks and other judgements. The managements of the operating companies continually review all estimates involved in such construction contracts and adjust them as necessary.

Income taxes

The Group operates and earns income in numerous countries and is subject to changing tax laws in multiple jurisdictions within the countries. Significant judgements are necessary in determining the worldwide income tax liabilities. Although management believes they have made reasonable estimates about the ultimate resolution of tax uncertainties, no assurance can be given that the final tax outcome of these matters will be consistent with what is reflected in the historical income tax provisions. Such differences could have an effect on the income tax liabilities and deferred tax liabilities in the period in which such determinations are made.

At each balance sheet date, the Group assesses whether the realization of future tax benefits is sufficiently probable to recognize deferred tax assets. This assessment requires the exercise of judgement on the part of management with respect to, among other things, benefits that could be realized from available tax strategies and future taxable income, as well as other positive and negative factors. The recorded amount of total deferred tax assets could be reduced if estimates of projected future taxable income and benefits from available tax strategies are lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of the Group's ability to utilize future tax benefits. See Note 09 for further information on potential tax benefits for which no deferred tax asset is recognized.

Employee benefits

The Group accounts for pension and other postretirement benefits in accordance with actuarial valuations. These valuations rely on statistical and other factors in order to anticipate future events. These factors include key actuarial assumptions including the discount rate, expected return on plan assets, expected salary increases, mortality rates and health care cost trend rates. These actuarial assumptions may differ materially from actual developments due to changing market and economic conditions and therefore result in a significant change in postretirement employee benefit obligations and the related future expense. (See Note 23 for further information regarding employee benefits).

ThyssenKrupp companies are parties to litigations related to a number of matters as described in Note 29. The outcome of these matters may have a material effect on the financial position, results of operations or cash flows. Management regularly analyzes current information about these matters and provides provisions for probable contingent losses including the estimate of legal expense to resolve the matters. For the assessments internal and external lawyers are used. In making the decision regarding the need for loss provisions, management considers the degree of probability of an unfavorable outcome and the ability to make a sufficiently reliable estimate of the amount of loss. The filing of a suit or formal assertion of a claim against ThyssenKrupp companies or the disclosure of any such suit or assertions, does not automatically indicate that a provision of a loss may be appropriate.

No reportable events occurred.