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ThyssenKrupp AG
Notes to the interim condensed consolidated financial statements

ThyssenKrupp Aktiengesellschaft ("ThyssenKrupp AG" or "Company") is a publicly traded corporation domiciled in Germany. The interim condensed consolidated financial statements of ThyssenKrupp AG and subsidiaries, collectively the "Group", for the period from October 01, 2007 to June 30, 2008, were authorized for issue in accordance with a resolution of the Executive Board on August 13, 2008.

The accompanying Group's interim condensed consolidated financial statements have been prepared in accordance with section 37x para. 3 in connection with section 37w para. 2 of the German Securities Trading Act (WpHG) and International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) for interim financial information effective within the European Union. Accordingly, these financial statements do not include all of the information and footnotes required by IFRS for complete financial statements for year end reporting purposes.

The accompanying Group's interim condensed consolidated financial statements have been reviewed. In the opinion of Management, the interim financial statements include all adjustments of a normal and recurring nature considered necessary for a fair presentation of results for interim periods. Results of the period ended June 30, 2008, are not necessarily indicative for future results.

The preparation of interim financial statements in conformity with IAS 34 Interim Financial Reporting requires Management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

The accounting principles and practices as applied in the interim condensed consolidated financial statements correspond to those pertaining to the most recent annual consolidated financial statements. A detailed description of the accounting policies is published in the notes to the annual consolidated financial statements of our annual report 2006/2007. In the 1st quarter ended December 31, 2007, the Group early adopted IFRS 8 "Operating Segments"; the adoption had no impact on the previous idenfication of segments.

Recently issued accounting standards

In fiscal year 2007/2008, the IASB has issued the following Standards which must still be endorsed by the EU before they can be adopted:

In January 2008, the IASB issued the amended versions of IFRS 3 "Business Combinations" and IAS 27 "Consolidated and Separate Financial Statements". The main change concerns the accounting for acquisitions involving the purchase of less than 100% of the shares of a company. An option has been added allowing entities to recognize goodwill from an acquisition by the "full goodwill method", i.e. including the portion attributable to minority interests. In addition, acquisitions or partial disposals of shares without loss of control must be accounted for as equity transactions. Furthermore, all acquisition-related costs must be expensed as incurred. The amended Standards must be applied to business combinations in fiscal years beginning on or after July 01, 2009, while earlier application of both Standards is permitted in fiscal years beginning on or after June 30, 2007. Currently, Management does not expect the adoption of the amended Standards – if endorsed by the EU in the current version - to have a material impact on the Group's results.

In January 2008, the IASB also issued an amendment to IFRS 2 "Share-based Payment". The amendment clarifies that vesting conditions are service conditions and performance conditions only. It also specifies that all plan cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The application of the amended Standard is compulsory for fiscal years beginning on or after January 01, 2009, while earlier application is permitted. Currently, Management does not expect the adoption of the amended Standards – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.

In February 2008 the IASB issued amendments to "IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation". The amendments mainly address the classification of particular types of financial instruments as equity or as a liability. Additional disclosures are required for the instruments affected by the amendments. The application of the amendments is compulsory for fiscal years beginning on or after January 01, 2009, while earlier application is permitted. Currently, Management does not expect the adoption of the amended Standards – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.

In May 2008 the IASB issued "Improvements to IFRSs", a first collection of minor amendments to existing IFRSs. This standard presents amendments to 20 IFRSs in two parts. The first part includes accounting changes that can effect presentation, recognition or measurement. The second part includes terminology or editorial changes. Unless otherwise specified in the specific standard, the application of the amdendments is compulsory for fiscal years beginning on or after January 01, 2009, while earlier application is permitted. Currently, Management does not expect the adoption of the amended Standards – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.

In July 2008 the IASB issued "Eligible Hedged Items – Amendment to IAS 39 Financial Instruments: Recognition and Measurement". The amendment clarifies how the existing principles underlying hedge accounting should be applied in two particular situations – the designation of inflation in a financial hedged item and the designation of a one-sided risk in a hedged item. The application of the amendment is compulsory for fiscal years beginning on or after July 01, 2009 and has to be applied retrospectively; earlier application is permitted. Currently, Management does not expect the adoption of the amendment – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.

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 – 2007 and 107.0 million tons of CO2 during the compliance period 2008 – 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 will record an obligation for the purchase of additional allowances.

On January 11, 2008, ThyssenKrupp completed the acquisition of all shares in the British company Apollo Metals Ltd in the Services segment. With ten sites in eight countries, the Apollo group supplies high-value products such as aluminum, stainless steel and nonferrous metals as well as high value-added processing services, mainly for aerospace manufacturers and their suppliers. The acquisition will combine the businesses of the Apollo group, operating chiefly in Europe and the Far East, with the mainly US-based operations of ThyssenKrupp Services to create a global business with 30 sites in 13 countries.

The total purchase price including incidental costs was €89 million in cash. The other intangible assets are almost exclusively customer contracts. The provisonal purchase price allocation resulted in goodwill of €45 million, which includes non-separable assets such as assembled workforce, new contractual customers and synergies arising from the integration of the Apollo businesses. Compared to the half-year financial report, goodwill increased by €7 million because of a purchase price adjustment.

Based on the preliminary values at the acquisition date, the acquisition of the Apollo group affected the Group's consolidated financial statements as presented below:

million €
Carrying amounts Adjustments Fair values
Goodwill 0 45 45
Other intangible assets 0 7 7
Property, plant and equipment 3 0 3
Deferred tax assets 0 1 1
Inventories 52 0 52
Trade accounts receivable 33 0 33
Other current non-financial assets 11 0 11
Cash and cash equivalents 10 0 10
Total assets acquired 109 53 162
Current income tax liablilities 1 0 1
Current financial debt 18 0 18
Trade accounts payable 24 0 24
Other current financial liabilities 1 0 1
Other current non-financial liabilities 21 0 21
Total liabilities assumed 65 0 65
Net assets acquired 44 53 97
Minority interest 1 0 1
Purchase price (incl. incidental acquisition cost)     96
thereof: paid in cash and cash equivalents     96

Since the Apollo group joined the ThyssenKrupp Group, it has generated sales of €88 million and income before income taxes of €9 million, which are included in the 9 months consolidated statement of income.

If the acquisition had taken place on October 01, 2007, the Apollo group would have contributed sales of €137 million and income before income taxes of €17 million to the Group's consolidated income. In the first 9 months ended June 30, 2008, the Group also acquired companies that are, on an individual basis, immaterial. Based on the values of the acquisition date, these acquisitions affected, in total, the Group's consolidated financial statements as presented below:

million €
9 months ended June 30, 2008
  Carrying amounts as of acquisition date Adjustments Fair values as of acquisition date
Goodwill 0 83 83
Other intangible assets 1 31 32
Property, plant and equipment 42 10 52
Investments accounted for using the equity method 0 (26) (26)
Deferred tax assets 2 1 3
Inventories 64 0 64
Trade accounts receivable 73 0 73
Other current financial assets 7 0 7
Other current non-financial assets 7 0 7
Current income tax assets 1 0 1
Cash and cash equivalents 45 0 45
Total assets acquired 242 99 341
Accrued pension and similar obligations 1 0 1
Other non-current provisions 1 0 1
Deferred tax liabilities 2 7 9
Non-current financial debt 19 3 22
Other current provisions 9 0 9
Current income tax liablilities 1 0 1
Current financial debt 31 1 32
Trade accounts payable 47 0 47
Other current financial liabilities 16 0 16
Other current non-financial liabilities 27 1 28
Total liabilities assumed 154 12 166
Net assets acquired 88 87 175
Minority interest 21 3 24
Purchase prices (incl. incidental acquisition cost)     151
thereof: paid in cash and cash equivalents     148

In addition, in the first 9 months ended June 30, 2008, the Group sold companies as part of the portfolio optimization that were, on an individual basis, immaterial. Based on the values at the disposal date, these disposals affected, in total, the Group's consolidated financial statements as presented below:

million €
9 months
ended
June 30,
2008
Goodwill 35
Property, plant and equipment 73
Investment property 4
Deferred tax assets 2
Inventories 54
Trade accounts receivable 48
Other current financial assets 4
Other current non-financial assets 21
Current income tax assets 1
Cash and cash equivalents 68
Total assets disposed of 310
Accrued pension and similar obligations 32
Other non-current provisions 4
Deferred tax liabilities 2
Other current provisions 23
Current income tax liablilities 2
Current financial debt 42
Trade accounts payable 30
Other current financial liabilities 6
Other current non-financial liabilities 72
Total liabilities disposed of 213
Net assets disposed of 97
Gain/(loss) resulting from the disposals 73
Selling prices 170
thereof: received in cash and cash equivalents 170

At the end of November 2007, ThyssenKrupp's shares of RAG Aktiengesellschaft were transferred to the RAG foundation.

Management incentive plans

In January 2008, ThyssenKrupp granted 32,440 stock rights under the sixth installment of the mid-term incentive plan. In addition in the 2nd quarter ended March 31, 2008, the stock rights granted in the third installment of the mid-term incentive plan were settled with a payment of €54.1 million. In the 3rd quarter ended June 30, 2008, stock rights under the sixth installment of the mid-term incentive plan were granted to additional executive employees. In total, ThyssenKrupp recorded a compensation expense of €13.4 million from the obligations of the mid-term incentive plan in the 3rd quarter ended June 30, 2008 (3rd quarter ended June 30, 2007: €22.3 million) resulting in compensation expense of €17.0 million in the first 9 months ended June 30, 2008 (9 months ended June 30, 2007: €55.7 million).

In the 2nd quarter ended March 31, 2008, the Group's Share Purchase Program for the fiscal year 2006/2007 was settled with the purchase of 229,664 shares at a discount. 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 of ThyssenKrupp shares at a discount. In total, the Group's Share Purchase Program resulted in a compensation expense of €3.7 million in the 3rd quarter ended June 30, 2008 (3rd quarter ended June 30, 2007: €3.4 million) and of €9.0 million in the first 9 months ended June 30, 2008 (9 months ended June 30, 2007: €8.2 million).

Employee share purchase programs

In the 3rd quarter ended June 30, 2008, the Group offered eligible members of its German and French workforce the right to purchase up to €270 in ThyssenKrupp shares at a 50% discount as part of employee share purchase programs. The programs resulted in a compensation expense of €6.3 million (3rd quarter ended June 30, 2007: €6.6 million).

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

Table: Cost for pensions and similar obligations

A quarterly valuation of pensions and similar obligations as well as of plan assets is generally not performed.

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

million €
9 months
ended
June 30,
2007
USA/Canada		 9 months
ended
June 30,
2008
USA/Canada		 3rd quarter
ended
June 30,
2007
USA/Canada		 3rd quarter
ended
June 30,
2008
USA/Canada
Service cost 10 8 3 3
Interest cost 44 44 15 15
Expected return on reimbursement rights (4) (3) (1) (1)
Past service cost (1) (1) (1) (1)
Settlement and curtailment gain (39) 0 0 0
Net periodic postretirement benefit cost 10 48 16 16

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

Table: Total equity

Following the resolution of the Annual General Meeting on January 18, 2008, ThyssenKrupp AG is authorized until July 17, 2009, to purchase treasury stock for certain defined purposes up to a total of 10% of the current capital stock issued. On the basis of this authorization, the Executive Board of ThyssenKrupp AG resolved on January 31, 2008, to purchase treasury shares on the stock market up to approximately 3% of the capital stock issued. In the period from February 01, 2008, up 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.

Guarantees

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

million €
Maximum
potential
amount of
future
payments as
of June 30,
2008		 Provision
as of
June 30,
2008
Advance payment bonds 141 1
Performance bonds 65 1
Third party credit guarantee 33 0
Residual value guarantees 45 1
Other guarantees 120 1
Total 404 4

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

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

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

Special purpose entities

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

Commitments and other contingencies

On 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. If the outcome of the legal case is unfavorable, a material impact on the consolidated financial statements of ThyssenKrupp cannot be ruled out.

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 can be lodged with the European Court of First Instance (Luxembourg) up to mid-September. Legal measures are currently being examined. It is not yet possible to assess whether and in what amount the Greek government will pursue claims for recovery from HSY. An action has already been filed with the competent court in Athens against the seller of HSY for exemption from such recovery claims. Should this matter not be resolved favorably, a material impact on the consolidated financial statements of ThyssenKrupp cannot be ruled out.

Compared to September 30, 2007, in the Steel and Stainless segments the commitment to enter into investment projects in Brazil and North America increased by €0.9 billion to €3.0 billion. In addition, additional long term lime supply contracts were agreed which will result in purchasing commitments of €0.2 billion. Furthermore, existing purchasing commitments for iron ore and iron ore pellets increased by €3.8 billion to €10.5 billion due to a changed estimate of price conditions.

Pending lawsuits and claims for damages

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

There have been no significant changes since the previous year end to other contingencies, including pending litigations.

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

million €
Notional
amount
Sept. 30,
2007		 Carrying
amount
Sept. 30,
2007		 Notional
amount
June 30,
2008		 Carrying
amount
June 30,
2008
Derivative financial instruments        
Assets        
Foreign currency derivatives including embedded derivatives 3,950 182 5,623 237
Interest rate derivatives* 757 4 826 50
Commodity derivatives 854 68 972 130
Total 5,561 254 7,421 417

Liabilities		        
Foreign currency derivatives including embedded derivatives 5,181 241 6,465 391
Interest rate derivatives* 208 6 138 4
Commodity derivatives 827 86 827 128
Total 6,216 333 7,430 523
* inclusive of cross currency swaps

In the first 9 months ended June 30, 2008, a Group subsidiary realized sales of €1.3 million resulting from a €2 million elevator modernization contract which the subsidiary received in 2006/2007 from an entity belonging to the Alfried Krupp von Bohlen and Halbach Foundation.

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 is a managing director. In the first 9 months ended June 30, 2008, the Group realized sales of €1.4 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 from ESG Legierungen GmbH. The transactions were carried out at market conditions and resulted in trade accounts receivable of the Group of €0.1 million as of June 30, 2008.

Segment information for the first 9 months ended June 30, 2007 and June 30, 2008 as well as for the 3rd quarter ended June 30, 2007 and June 30, 2008 is as follows:

Download

million €
Steel Stainless Technologies Elevator Services Corporate Consolidation Group
9 months ended June 30, 2007                
External sales 8,790 6,141 8,366 3,347 12,006 240 0 38,890
Internal sales within the Group 1,130 845 45 3 608 17 (2,648) 0
Total sales 9,920 6,986 8,411 3,350 12,614 257 (2,648) 38,890
Income/(loss) before income taxes 1,298 912 411 (187) 550 (115) (16) 2,853
 
9 months ended June 30, 2008                
External sales 9,611 5,083 9,133 3,556 12,198 69 0 39,650
Internal sales within the Group 1,144 643 75 3 504 14 (2,383) 0
Total sales 10,755 5,726 9,208 3,559 12,702 83 (2,383) 39,650
Income/(loss) before income taxes 1,138 86 566 301 515 (291) (18) 2,297
 
3rd quarter ended June 30, 2007                
External sales 3,038 2,263 2,825 1,178 4,121 19 0 13,444
Internal sales within the Group 375 345 (10) 1 187 5 (903) 0
Total sales 3,413 2,608 2,815 1,179 4,308 24 (903) 13,444
Income/(loss) before income taxes 428 296 155 106 218 21 (5) 1,219
 
3rd quarter ended June 30, 2008                
External sales 3,494 1,711 3,317 1,210 4,431 18 0 14,181
Internal sales within the Group 408 222 40 1 172 5 (848) 0
Total sales 3,902 1,933 3,357 1,211 4,603 23 (848) 14,181
Income/(loss) before income taxes 389 93 201 92 248 (110) (4) 909

Basic earnings per share is computed as follows:

Table: Earnings per share

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 fiscal year 2007/2008 the weighted average number of outstanding shares was reduced by the repurchase of treasury shares in the period from February 01, 2008, up to March 07, 2008.

There were no dilutive securities in the periods presented.

Non-cash investing activities

In the first 9 months ended June 30, 2008, the acquisition and first-time consolidation of companies created an increase in non-current assets of €163 million (9 months ended June 30, 2007: €30 million).

The non-cash addition of assets under finance leases in the first 9 months ended June 30, 2008 amounts to €38 million (9 months ended June 30, 2007: €9 million).

Non-cash financing activities

In the first 9 months ended June 30, 2008, the acquisition and first-time consolidation of companies results in an increase in gross financial debt of €71 million (9 months ended June 30, 2007: €0 million).

On the basis of the authorization granted by the Annual Stockholders' Meeting on January 18, 2008, the Executive Board of ThyssenKrupp AG resolved on July 14, 2008 to purchase up to 10.5 million additional treasury shares before the authorization expires on July 17, 2009. This represents approximately 2% of the capital stock.