Notes to the consolidated statement of income
04 Net sales
Net sales include revenues resulting from the rendering of services of €11,145 million
(2006/2007: €10,694 million).
05 Other operating income
| Year ended Sept. 30, 2007 |
Year ended Sept. 30, 2008 |
|||
|---|---|---|---|---|
| Gains on the disposal of intangible assets, property, plant and equipment and investment property | 194 | 61 | ||
| Currency exchange differences | 23 | 8 | ||
| Insurance compensation | 195 | 41 | ||
| Miscellaneous | 225 | 232 | ||
| Total | 637 | 342 |
Prior year gains on the disposal of intangible assets, property, plant and equipment and investment property include €119 million resulting from the disposal of real property as part of the concentration of ThyssenKrupp's administrative office locations in Germany; in this context ThyssenKrupp incurred transaction expenses in the amount of €4 million in 2006/2007 and of €3 million in previous periods. Prior year insurance compensation in the amount of €195 million mainly results from one larger fire damage in the Stainless segment. The corresponding expense due to the property and business interruptions is included in cost of sales.
Miscellaneous other operating income includes a multitude of minor single items resulting from the 751 consolidated entities.
06 Other operating expenses
| Year ended Sept. 30, 2007 |
Year ended Sept. 30, 2008 |
|||
|---|---|---|---|---|
| Losses on the disposal of intangible assets, property, plant and equipment and investment property | 41 | 58 | ||
| Restructuring charges | 30 | 124 | ||
| Additions to other provisions (excluding restructuring) | 11 | 55 | ||
| Goodwill impairment | 60 | 0 | ||
| Expenses in connection with non-customer related research and development activities | 199 | 222 | ||
| Other taxes | 29 | 34 | ||
| Miscellaneous | 706 | 232 | ||
| Total | 1,076 | 725 |
In 2006/2007 miscellaneous other operating expenses include a fine of approximately €480 million from the EU Commission which was imposed for infringement of competition regulations by ThyssenKrupp companies in the elevator and escalator business. In addition, miscellaneous other operating income includes a multitude of minor single items resulting from the 751 consolidated entities.
07 Government grants
Especially in connection with the construction of a new steel mill in the USA government grants related to assets led to a €98 million reduction of cost in fiscal year 2007/2008 (2006/2007: €40 million). In addition, government grants to compensate expenses of the Group were recognized in the amount of €5 million (2006/2007: €7 million).
Payment of the above-mentioned government grants is subject to certain conditions which currently will be met.
08 Financial income/(expense), net
| Year ended Sept. 30, 2007 |
Year ended Sept. 30, 2008 |
|||
|---|---|---|---|---|
| Income from companies accounted for using the equity method | 51 | 100 | ||
| Interest income from financial receivables | 139 | 143 | ||
| Expected return on plan assets | 140 | 138 | ||
| Interest income | 279 | 281 | ||
| Interest expense from financial debt | (234) | (266) | ||
| Interest cost of pensions and health care obligations | (443) | (459) | ||
| Interest expense | (677) | (725) | ||
| Income from investments | 9 | 9 | ||
| Write-down of financial assets | (6) | 0 | ||
| Gain/(loss) from disposals of financial assets | (29) | (7) | ||
| Accretion of other provisions | (4) | (3) | ||
| Miscellaneous, net | 26 | 95 | ||
| Other financial income/(expense), net | (4) | 94 | ||
| Financial income/(expense), net | (351) | (250) |
Financial income / (expense), net includes total interest income from financial assets of €199 million (2006/2007: €199 million) and total interest expense from financial liabilities of €308 million (2006/2007: €275 million).
Borrowing costs in the amount of €122 million (2006/2007: €42 million) were capitalized during the period which reduced the line item "miscellaneous, net" as part of other financial income/(expense), net. If financing is directly allocable to a certain investment, the actual borrowing costs are capitalized. If no direct allocation is possible, the Group's average borrowing interest rate of the current period is taken into account to calculate the borrowing costs.
09 Income taxes
Income tax expense/(benefit) for the year ended September 30, 2008 and the previous year consists of the following:
| Year ended Sept. 30, 2007 |
Year ended Sept. 30, 2008 |
|||
|---|---|---|---|---|
| Current income tax expense for the reporting period | 1,039 | 958 | ||
| Deferred income tax expense/(benefit) for the reporting period | 176 | (43) | ||
| Current income tax benefit for prior periods | (117) | (60) | ||
| Deferred income tax expense/(benefit) for prior periods | 42 | (3) | ||
| Total | 1,140 | 852 | ||
| This total breaks down to: | ||||
| Current income tax expense Germany | 499 | 510 | ||
| Current income tax expense foreign | 423 | 388 | ||
| Deferred income tax expense Germany | 135 | 10 | ||
| Deferred income tax expense/(benefit) foreign | 83 | (56) |
The new German corporate income tax law applicable for 2007/2008 sets a statutory income tax rate of 15% (2006/2007: 25%) plus a solidarity surcharge of 5.5%. On average, the Group's German companies are subject to a trade tax rate of 15.1% (2006/2007: 13.0%). At year-end September 30, 2008, deferred taxes of German companies are calculated with a combined income tax rate (including solidarity charge) of 30.9% (2006/2007: 30.9%). In the previous fiscal year, the impact of the decrease in the German tax rate resulted in a deferred tax benefit in the amount of €171 million. The applicable tax rates employed for companies outside Germany range from 5.7% to 40.4% (2006/2007: 5.7% to 42.3%). In fiscal year 2007/2008, changes in foreign tax rates resulted in deferred tax benefit in the amount of €16 million (2006/2007: €15 million).
For domestic Group companies the dividend-dependent subsequent taxation of previously untaxed income components was replaced by a flat-rate tax payment under a tax law amendment in 2008. Therefore, a current tax liability of €6 million was recognized as a tax expense as of September 30, 2008. Due to a tax law amendment effective in fiscal year 2006/2007, the German companies of the Group became entitled to a payout in ten equal annual installments of remaining corporate tax credits by the fiscal authorities. Therefore, tax refund claims in the amount of €9 million have been recognized as a tax benefit in fiscal year 2006/2007.
The components of income taxes recognized in equity are as follows:
| Year ended Sept. 30, 2007 |
Year ended Sept. 30, 2008 |
|||
|---|---|---|---|---|
| Income tax expense as presented on the income statement | 1,140 | 852 | ||
| Income tax expense on cumulative income and expense directly recognized in equity | 111 | 133 | ||
| Tax effect resulting from the write-down of treasury stock | — | (156) | ||
| Total | 1,251 | 829 |
As of September 30, 2008, domestic corporate tax loss carryforwards amount to €427 million (2007: €683 million) and domestic trade tax loss carryforwards amount to €63 million (2007: €180 million). In addition, foreign tax loss carryforwards amount to €730 million (2007: €686 million), in particular €288 million (2007: €270 million) in Canada, €69 million (2007: €72 million) in Brazil, and €61 million (2007: €62 million) in Spain.
Deferred tax assets are recognized only to the extent that the realization of such tax benefits is probable. In determining the related valuation allowance, all positive and negative factors, including prospective results, are taken into consideration in estimating whether sufficient taxable income will be generated to realize deferred tax assets. These estimates can change depending on the future course of events. As of September 30, 2008, tax loss carryforwards for which no deferred tax asset is recognized amount to €818 million (2007: €881 million). According to tax legislation as of September 30, 2008, an amount of €381 million (2007: €466 million) of these tax losses may be carried forward indefinitely and in unlimited amounts whereas an amount of €437 million (2007: €415 million) of these tax loss carryforwards will expire over the next 20 years if not utilized. Unrecognized deferred tax assets relating to tax loss carryforwards amount to €218 million as of September 30, 2008 (2007: €246 million). In addition, as of September 30, 2008, no deferred tax asset is recognized for deductible temporary differences in the amount of €452 million (2007: €424 million). No deferred tax liabilities were recorded on undistributed profits of foreign subsidiaries, as such profits are to remain invested on a permanent basis.
Significant components of the deferred tax assets and liabilities are as follows:
| Deferred tax assets | Deferred tax liabilities | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Sept. 30, 2007* | Sept. 30, 2008 | Sept. 30, 2007* | Sept. 30, 2008 | |||||||
| Intangible assets | 55 | 126 | 326 | 356 | ||||||
| Property, plant and equipment | 105 | 86 | 796 | 818 | ||||||
| Financial assets | 74 | 76 | 41 | 39 | ||||||
| Inventories | 1,574 | 1,705 | 414 | 386 | ||||||
| Other assets | 446 | 333 | 667 | 497 | ||||||
| Accrued pension and similar obligations | 718 | 553 | 77 | 123 | ||||||
| Other provisions | 176 | 222 | 70 | 63 | ||||||
| Other liabilities | 362 | 448 | 1,661 | 1,867 | ||||||
| Tax loss carryforwards | 353 | 290 | — | — | ||||||
| Gross value | 3,863 | 3,839 | 4,052 | 4,149 | ||||||
| Valuation allowance | (372) | (351) | — | — | ||||||
| Offset | (3,106) | (3,021) | (3,106) | (3,021) | ||||||
| Balance sheet amount | 385 | 467 | 946 | 1,128 | ||||||
Deferred tax assets and liabilities are offset if they pertain to future tax effects for the same taxable entity towards the same taxation authority. Deferred tax assets of €50 million relate to consolidation items as of September 30, 2008 (2007: €37 million).
For fiscal year 2007/2008, the income tax expense of €852 million (2006/2007: €1,140 million) presented in the financial statements is €114 million (2006/2007: €173 million) lower than the expected income tax expense of €966 million (2006/2007: €1,313 million) which would result if the German combined income tax rate of 30.9% (2006/2007: 39.4%) were applied to the Group's income before income taxes. The following table reconciles the expected income tax expense to the income tax expense presented in the income statement.
| Year ended Sept. 30, 2007 |
in % | Year ended Sept. 30, 2008 |
in % | |||||
|---|---|---|---|---|---|---|---|---|
| Expected income tax expense | 1,313 | 39.4 | 966 | 30.9 | ||||
| Foreign tax rate differential | (95) | (2.9) | (3) | (0.1) | ||||
| Changes in tax rates or laws | (195) | (5.8) | (10) | (0.4) | ||||
| Tax consequences of disposal of businesses | (20) | (0.6) | (38) | (1.2) | ||||
| Permanent items (in fiscal 2006/2007 mainly EU antitrust fine) | 255 | 7.7 | 47 | 1.5 | ||||
| Change in valuation allowance | (47) | (1.4) | (13) | (0.4) | ||||
| Tax benefit not related to the reporting period | (75) | (2.3) | (63) | (2.0) | ||||
| Other, net | 4 | 0.1 | (34) | (1.1) | ||||
| Income tax expense as presented on the income statement | 1,140 | 34.2 | 852 | 27.2 |
10 Earnings per share
Basic earnings per share are computed as follows:
| Year ended Sept. 30, 2007 | Year ended Sept. 30, 2008 | |||||||
|---|---|---|---|---|---|---|---|---|
| Total amount in million € |
Earnings per share in € |
Total amount in million € |
Earnings per share in € |
|||||
| Numerator: | ||||||||
| Net income (attributable to ThyssenKrupp AG’s stockholders) | 2,102 | 4.30 | 2,195 | 4.59 | ||||
| Denominator: | ||||||||
| Weighted average shares | 488,764,592 | 477,750,223 | ||||||
Relevant number of common shares for the determination of earnings per share
Earnings per share have been computed by dividing income attributable to common stockholders of ThyssenKrupp AG (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Shares issued during the period and shares reacquired during the period have been weighted for the portion of the period that they were outstanding.
In 2007/2008, the weighted average number of outstanding shares was reduced by the acquisition of treasury stock in February / March 2008 and in July / August 2008.
There were no dilutive securities in the periods presented.
11 Additional disclosures to the consolidated statement of income
Personnel expenses included in the consolidated statement of income are comprised of:
| Year ended Sept. 30, 2007 |
Year ended Sept. 30, 2008 |
|||
|---|---|---|---|---|
| Wages and salaries | 7,306 | 7,450 | ||
| Social security taxes | 1,253 | 1,304 | ||
| Net periodic pension costs - defined benefit* | 91 | 130 | ||
| Net periodic pension costs - defined contribution | 118 | 140 | ||
| Net periodic postretirement benefit cost other than pensions* | (36) | 9 | ||
| Other expenses for pensions and retirements | 84 | 80 | ||
| Related fringe benefits | 353 | 406 | ||
| Total | 9,169 | 9,519 |
The annual average number of employees is as follows:
| Year ended Sept. 30, 2007 |
Year ended Sept. 30, 2008 |
|||
|---|---|---|---|---|
| Steel | 39,016 | 40,480 | ||
| Stainless | 12,207 | 12,102 | ||
| Technologies | 53,950 | 54,260 | ||
| Elevator | 37,914 | 41,226 | ||
| Services | 42,223 | 45,436 | ||
| Corporate | 2,674 | 2,322 | ||
| Total | 187,984 | 195,826 | ||
| This total breaks down to: | ||||
| Wage earners | 118,858 | 103,554 | ||
| Salaried employees | 64,839 | 87,893 | ||
| Trainees | 4,287 | 4,379 |
Auditors' fees and services
For the services performed by the Group auditors KPMG AG Wirtschaftsprüfungsgesellschaft (formerly KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft) and the companies of the worldwide KPMG association in fiscal years 2006/2007 and 2007/2008 the following fees were recognized as expenses:
| Year ended Sept. 30, 2007 | Year ended Sept. 30, 2008 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total | thereofGermany | Total | thereofGermany | |||||||
| Audit fees | 20 | 10 | 23 | 12 | ||||||
| Audit-related fees | 1 | 1 | 1 | 1 | ||||||
| Tax fees | 1 | 0 | 1 | 0 | ||||||
| Fees for other services | 1 | 1 | 1 | 1 | ||||||
| Total | 23 | 12 | 26 | 14 | ||||||
The audit fees include mainly fees for the year-end audit of the consolidated financial statements, the auditors' review of the interim consolidated financial statements, and the statutory auditing of ThyssenKrupp AG and the subsidiaries included in the consolidated financial statements. The audit-related fees essentially comprise the fees for due diligence services in connection with acquisitions and disposals and auditing of the internal control system. The tax fees include in particular fees for tax consulting services for current and planned transactions, for the preparation of tax returns, for tax due diligence services, for tax advice in connection with projects and Group-internal reorganizations as well as tax advice for employees sent to work abroad. The fees for other services are mainly fees for project-related consulting services.