- Corporate Information
- Statement of compliance
- Consolidation
- Foreign currency translation
- Revenue recognition
- Government grants
- Research and development costs
- Earnings per share
- Intangible assets
- Property, plant and equipment
- Investment property
- Impairment
- Leases
- Inventories
- Financial instruments
- Determining fair value
- Financial assets
- Trade accounts receivable and other current receivables
- Cash and cash equivalents
- Financial assets held for trading
- Available-for-sale financial assets
- Financial assets measured at fair value through profit or loss
- Impairment of financial assets
- Financial liabilities
- Trade accounts payable and other non-derivative financial liabilities
- Financial liabilities carried at fair value through profit or loss
- Financial liabilities held for trading
- Derivative financial instruments
- Deferred income taxes
- Cumulative income and expense directly recognized in equity
- Accrued pension and similar obligations
- Provisions
- Share-based compensation
- Segment reporting
- Disposal Groups and Discontinued Operations
- Financial statement classification
- Use of estimates
- Newly published accounting standards not early adopted
- Year ended September 30, 2009
- Year ended September 30, 2009
Basis of presentation
Corporate Information
ThyssenKrupp Aktiengesellschaft ("ThyssenKrupp AG" or "Company") is a publicly traded corporation domiciled in Germany. The consolidated financial statements of ThyssenKrupp AG and its subsidiaries, collectively the "Group", for the year ended September 30, 2009, were authorized for issuance in accordance with a resolution of the Executive Board on November 09, 2009.
Statement of compliance
Applying Art. 315a of the German Commercial Code (HGB), the Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations of the International Accounting Standards Board (IASB) effective within the EU in accordance with the Regulation No. 1606/2002 of the European Parliament and the Council concerning the use of International Accounting Standards.
01 Summary of significant accounting policies
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments that are stated at fair value. The consolidated financial statements are presented in Euros since this is the currency in which the majority of the Group's transactions are denominated, with all amounts rounded to the nearest million except when otherwise indicated; this may result in differences compared to the unrounded figures.
Consolidation
The Group's consolidated financial statements include the accounts of ThyssenKrupp AG and all significant entities which are directly or indirectly controlled by ThyssenKrupp AG. Control is achieved where ThyssenKrupp AG possesses more than half of the voting rights of a company or has in another way the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. On acquisition, the identifiable assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the identifiable assets, liabilities and contingent liabilities recognized.
All significant inter-company transactions and balances between Group entities are eliminated on consolidation.
Included in the Group consolidated financial statements are 226 (2007/2008: 233) domestic and 518 (2007/2008: 518) foreigncontrolled entities that are consolidated. During fiscal year 2008/2009, 32 entities were consolidated for the first time. During the same period, the scope of consolidation was reduced by 39 entities of which 29 resulted from the internal merging of Group entities.
33 (2007/2008: 51) controlled subsidiaries are not consolidated because their combined influence on the Group's net assets, financial position and results of operations is not material. Their net sales amount to 0.03%, their income before tax amounts to (0.08)% and their total equity amounts to (0.01)% of the Group's respective balances. These non-consolidated subsidiaries are measured at fair value or at cost when the fair value of unlisted equity instruments cannot be reliably measured; they are presented under the "Other financial assets, non-current" line item.
Investments in associates are accounted for using the equity method of accounting. An associate is an entity over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policies. Significant influence is presumed when the Group holds 20% or more of the voting rights ("Associated Companies"). Where a Group entity transacts with an associate of the Group, unrealized profits and losses are eliminated to the extent of the Group's interest in the relevant associate.
The Group reports its interests in jointly-controlled entities (Joint Ventures) using the equity method of accounting. Where the Group transacts with its jointly-controlled entities, unrealized profits and losses are eliminated to the extent of the Group's interest in the joint venture.
The Group has 16 (2007/2008: 17) Associated Companies and 20 (2007/2008: 21) Joint Ventures that are accounted for using the equity method of accounting. Another 24 (2007/2008: 27) Associated Companies are measured at fair value or at cost when the fair value of unlisted equity instruments cannot be reliably measured because their combined influence on the Group's net assets, financial position and results of operations is not material; they are presented under the "Other financial assets, non-current" line item. The income/ (loss) before tax of the immaterial Associated Companies amounts to (0.24)% and their total equity to 0.13% of the Group's respective balances.
A complete listing of the Group's subsidiaries and equity interests is presented in Note 38.
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary, associate or jointly-controlled entity at the date of acquisition. Goodwill is recognized as an asset and is tested for impairment annually, or on such other occasions that events or changes in circumstances indicate that it might be impaired.
Goodwill arising on the acquisition of an associate or a jointly-controlled entity is included within the carrying amount of the associate or the jointly-controlled entity, respectively. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.
On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Foreign currency translation
The functional and reporting currency of ThyssenKrupp AG and its relevant European subsidiaries is the Euro (€). Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in the net profit or loss for the period.
Financial statements of the foreign subsidiaries included in the Group consolidated financial statements where the functional currency is other than the Euro are translated using their functional currency which is generally the respective local currency. The translation is performed using the current rate method, in which balance sheet amounts are translated to the reporting currency using the rates of exchange prevailing on the balance sheet date, while income statement amounts are translated using the period's average exchange rates. Net exchange gains or losses resulting from the translation of foreign financial statements are accumulated and included in equity. Such translation differences are recognized as income or as expenses in the period in which the operation is disposed of.
Companies that manage their sales, purchases, and financing substantially not in their local currency use the currency of their primary economic environment as their functional currency. Using the functional currency in these cases involves translating nonmonetary items such as non-current assets, including scheduled depreciation, and equity to the functional currency using the average exchange rates of the respective year of addition. All other balance sheet line items are translated using the exchange rate as of the balance sheet date and all other income statement line items are translated using the period's average exchange rates. The resulting translation differences are included in the consolidated statement of income as "Other operating income or expenses". Thereafter, the functional currency financial statements are translated into the reporting currency using the current rate method.
The exchange rates of those currencies significant to the Group have developed as follows:
| Exchange rate as of (Basis €1) | Annual average exchange rate for the year ended (Basis €1) | |||||||
|---|---|---|---|---|---|---|---|---|
| Sept. 30, 2008 | Sept. 30, 2009 | Sept. 30, 2008 | Sept. 30, 2009 | |||||
| US Dollar | 1.43 | 1.47 | 1.50 | 1.35 | ||||
| Canadian Dollar | 1.50 | 1.57 | 1.52 | 1.59 | ||||
| Pound Sterling | 0.80 | 0.91 | 0.76 | 0.87 | ||||
| Brazilian Real | 2.76 | 2.61 | 2.57 | 2.88 | ||||
Revenue recognition
Revenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer and the amount of revenue can be measured reliably. Revenue from services is recognized when services are rendered. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due or the possible return of goods. Revenue is recognized net of applicable provisions for discounts and allowances.
Construction contract revenue and expense are accounted for using the percentage-of-completion method, which recognizes revenue as performance of the contract progresses. The contract progress is determined based on the percentage of costs incurred to date to total estimated cost for each contract after giving effect to the most recent estimates of total cost. If the construction takes a substantial period of time, contract costs also include borrowing costs that are directly attributable. Contracts where the Group provides engineering services are also accounted for like construction contracts. Construction contracts under the percentage-of-completion method are measured at construction cost plus profits earned based on the percentage of the contract completed. Revenues net of advance payments received are recognized as trade accounts receivable in the balance sheet. Variations in contract work, claims and incentive payments are included to the extent that it is probable that they will result in revenue which can be measured reliably.
Where the income of a construction contract cannot be estimated reliably, contract revenue that is probable to be recovered is recognized to the extent of contract costs incurred. Contract costs are recognized as expenses in the period in which they are incurred.
Where it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
Revenues from contracts with multiple element arrangements, such as those including both goods and services, are recognized as each element is earned based on objective evidence of the relative fair value of each element.
Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognized when the shareholders' rights to receive payment have been established.
Government grants
Government grants are recognized only if there is reasonable assurance that the associated conditions will be met and the grants will be received. Grants related to assets are reported as a reduction of cost of the assets concerned with a corresponding reduction of depreciation and amortization in subsequent periods. Grants related to income are stated as other operating income in the periods in which the expenses intended to be compensated by the grant are recognized.
Research and development costs
Research costs are expensed as incurred.
Development costs, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, are capitalized if the product or process is technically and commercially feasible, there is a market for the output of the intangible asset, the attributable expenditure can be measured reliably, and the Group has sufficient resources to complete development. Other development costs are expensed as incurred. Capitalized development costs of completed projects are stated at cost less accumulated amortization. Costs include direct costs of material, direct labour, and allocable material and manufacturing overhead. Borrowing costs directly attributable to a production of assets that necessarily takes a substantial period of time to get the assets ready for their intended use, are included in the cost of those assets until the assets are ready for their intended use. Administrative costs are capitalized only if such costs are directly related to production. Capitalized development costs of projects not yet completed are reviewed for impairment annually or more frequently when an indicator of impairment arises during the reporting year.
Earnings per share
Basic earnings per share amounts are computed by dividing net income/(loss) attributable to ThyssenKrupp AG's shareholders by the weighted average number of shares outstanding. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. There were no dilutive securities in the periods presented.
Intangible assets
Intangible assets with finite useful lives are capitalized at cost and amortized on a straight-line basis generally over a period of 3 to 15 years, depending on their estimated useful lives. Technology resulting from the acquisition of Howaldtswerke-Deutsche Werft (HDW) is amortized over a period of 40 years. Useful lives are examined on an annual basis and adjusted when applicable on a prospective basis. The amortization expense of intangible assets is primarily included in the "cost of sales" line item in the consolidated statement of income.
Goodwill is stated at cost and tested for impairment annually or on such other occasions that events or changes in circumstances indicate that it might be impaired. Goodwill impairment losses are included in other operating expenses.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation. Capitalized production costs for self constructed assets include costs of material, direct labour, and allocable material and manufacturing overhead. Borrowing costs directly attributable to the production of assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Administrative costs are capitalized only if such costs are directly related to production. Maintenance and repair costs (day-to-day servicing) are expensed as incurred. The Group recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing parts and major inspection of such an item if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. Where fixtures and equipment comprise of significant parts having different useful lives those parts are accounted for as separate units and depreciated accordingly.
Fixtures and equipment are depreciated using the straight-line method. Upon sale or retirement, the acquisition or production cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is included in the consolidated statement of income.
The following useful lives are used as a basis for calculating depreciation:
| Buildings (incl. investment property) | 10 to 50 years | |
| Building and land improvements | 15 to 25 years | |
| Technical machinery and equipment | 8 to 25 years | |
| Factory and office equipment | 3 to 10 years |
Investment property
Investment property consists of investments in land and buildings that are held to earn rental income or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business.Investment property is stated at cost less accumulated depreciation. The fair value of the Group's investment property is stated in Note 14.
Impairment
At each balance sheet date, the Group reviews the carrying amounts of its intangible assets, property, plant and equipment and investment property to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the greater of the fair value less cost to sell and the value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market conditions. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the Cash Generating Unit to which the asset belongs.
Goodwill arising on acquisition is allocated to the Cash Generating Units that are expected to benefit from the synergies of the acquisition. Those groups of Cash Generating Units represent the lowest level within the Group at which goodwill is monitored for internal management purposes. The recoverable amount of the Cash Generating Unit that carries a goodwill is tested for impairment annually as of October 01, or on such other occasions that events or changes in circumstances indicate that it might be impaired. For more details refer to Note 12.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately.
In case of impairment losses related to Cash Generating Units that carry a goodwill the carrying amount of any goodwill allocated to the Cash Generating Unit is reduced first. If the amount of impairment losses exceeds the carrying amount of goodwill, the difference is generally allocated proportionally to the remaining non-current assets of the Cash Generating Unit to reduce their carrying amounts accordingly.
Where an impairment loss subsequently reverses, the carrying amount of the asset (Cash Generating Unit) is increased to the revised estimate of its recoverable amount. The revised amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (Cash Generating Unit) in prior years. A reversal of an impairment loss is recognized as income immediately. However, impairment losses of goodwill may not be reversed.
Leases
Leases are classified as either finance or operating. Lease transactions whereby the Group is the lessee and bears substantially all the risks and rewards incidental to ownership of an asset are accounted for as a finance lease. Accordingly, the Group capitalizes the leased asset at the lower of the fair value or the present value of the minimum lease payments and subsequently depreciates the leased asset over the shorter of the lease term and its useful life. In addition, the Group records a corresponding lease obligation on the balance sheet which is subsequently settled and carried forward using the effective interest method. All other lease agreements entered into by the Group, as a lessee, are accounted for as operating leases whereby the lease payments are expensed on a straight-line basis.
Lease transactions whereby the Group is the lessor and transfers substantially all of the benefits and risks incident to the ownership of property, are accounted for as a sale and financing of the leased asset. The Group recognizes a receivable at an amount equal to the net investment in the lease and includes interest income in the consolidated income statement. All other lease agreements entered into by the Group, as a lessor, are accounted for as operating leases whereby the leased asset remains on the Group's balance sheet and is depreciated. Scheduled lease payments are recognized in income on a straight-line basis over the lease term.
Inventories
Inventories are stated at the lower of acquisition/manufacturing cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and selling costs. In general, inventories are valued using the average cost method. Manufacturing cost includes direct material, labor and allocable material and manufacturing overhead based on normal operating capacity.
Financial instruments
A financial instrument is any contract that at the same time gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments are recognized as soon as ThyssenKrupp becomes a contracting party to the financial instrument. In cases where trade date and settlement date do not coincide, the settlement date is used for initial recognition or derecognition. Financial instruments stated as financial assets or financial liabilities are generally not offset; they are only offset when a legal right to set-off exists at that time and settlement on a net basis is intended.
Determining fair value
The fair value of financial instruments is generally equal to the amount the Group would receive or pay if it exchanged or settled the financial instruments on the balance sheet date. If available, quoted market prices are used for financial instruments, especially for those categorized as available-for-sale financial assets. Otherwise, fair values are calculated based on the market conditions prevailing on the balance sheet date – interest rates, exchange rates, commodity prices – using middle rates or prices. In doing so, fair values are calculated using common methods, such as the option pricing models for currency and interest rate options or the discounted cash flow method for interest rate swaps. The fair values of some derivatives are based on external valuations by our financial partners.
Financial assets
In particular, financial assets include trade accounts receivable, cash and cash equivalents, derivative financial assets, as well as equity instruments and bonds held. Financial assets are initially recognized at fair value. This includes any transaction costs directly attributable to the acquisition of financial assets, which are not carried at fair value through profit or loss in future periods. The fair values recognized on the balance sheet usually reflect the market prices of the financial assets.
Trade accounts receivable and other current receivables
Receivables are accounted for at amortized cost less valuation allowances.
Impairments in the form of individual allowances for doubtful accounts adequately consider default risk. When there is objective evidence of default, the receivable concerned is derecognized. Receivables that are immaterial, and receivables of similar default risk, are grouped together and tested collectively for impairment based on past experience. Partially, impairments are accounted for using separate allowance accounts. Whether default risk is recognized by means of an allowance account or a direct derecognition of the receivable depends on the probability of default and the reliability of its estimation.
Receivables that do not bear interest or bear below market interest rates and have an expected term of more than one year are discounted with the discount subsequently amortized to interest income over the term of the receivable.
The Group sells undivided interests in certain trade accounts and notes receivable both on an ongoing and one-time basis to special purpose entities, which are not required to be consolidated, or to other lending institutions. Financial assets sold under these arrangements are excluded from accounts receivable in the Group's balance sheet at the time of sale if it is assured that the cash flows related to those receivables will be passed through to the acquirer and substantially all risks and rewards have been transferred. If substantially all risks and rewards have neither been transferred nor retained, financial assets are excluded from the books at the time of the sale if it is assured that the cash flows of the receivables will be passed through to the acquirer and the acquirer has gained control over the receivables. If substantially all risks and rewards have been retained financial assets remain in the Group's balance sheet as collateral for borrowings.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and demand deposits as well as financial assets that are readily convertible to cash and which are only subject to an insignificant risk of change in value, they are measured at amortized cost.
Financial assets held for trading
Derivatives that are not part of an effective hedge accounting in accordance with IAS 39 must be assigned to this category when the fair value is positive as of measurement date. Gains or losses resulting from changes in fair value are recognized in profit or loss.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets not assigned to any of the above categories (trade accounts receivable and other current receivables, cash and cash equivalents, and financial assets held for trading). This category includes primarily equity and debt instruments which are in general measured at fair value. Gains or losses resulting from the measurement of availablefor- sale financial assets are recognized directly in equity, with the exception of impairment losses and foreign currency conversion effects. On disposal of these financial assets, a cumulative gain or loss recognized directly in equity until then is recognized in profit or loss of the respective period. When the fair value of unlisted equity instruments cannot be reliably measured, they are measured at cost.
Financial assets measured at fair value through profit or loss
The Group does not use the option to categorize financial assets at fair value through profit or loss when initially recognized.
Impairment of financial assets
At each balance sheet date, an assessment is made of whether there is any objective evidence that the carrying amounts of financial assets not carried at fair value through profit or loss are impaired. Objective evidence includes, for example, considerable financial difficulty of the debtor obligor, disappearance of an active market, and significant changes in the technological, market, economic or legal environment. A significant or prolonged decline in the fair value of an equity instrument is an objective evidence of impairment.
The impairment loss on a financial asset carried at amortized cost is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. An impairment loss is recognized in profit or loss.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss.
If the decrease in fair value of an available-for-sale financial asset was previously recognized directly in equity, such loss is transferred from equity to profit or loss as soon as an objective evidence of an impairment loss exists. The amount of the impairment represents the difference between historical cost (less any redemption and amortization) and the current fair value less any impairment loss on that financial asset previously recognized in profit or loss. Impairment losses on equity instruments classified as available-for-sale and recognized in the income statement are not reversed through profit or loss, but rather through equity. The amount of any reversal of any write-down of debt instruments, which objectively occurred after the impairment was recognized, is recognized in profit or loss.
Financial liabilities
Financial liabilities are liabilities that must be settled in cash or other financial assets. These especially include trade accounts payable, derivative financial liabilities and components of financial debt, mainly bonds and other securitized liabilities, liabilities to financial institutions and finance lease liabilities. Financial liabilities are initially carried at fair value. This includes any transaction costs directly attributable to the acquisition of financial liabilities, which are not carried at fair value through profit or loss in future periods.
Trade accounts payable and other non-derivative financial liabilities
Trade accounts payable and other non-derivative financial liabilities are in general measured at amortized cost using the effective interest method. Finance charges, including premiums payable on redemption or settlement, are periodically accrued and increase the liabilities' carrying amounts unless they have already been settled in the period in which they were incurred.
Financial liabilities carried at fair value through profit or loss
The Group does not use the option to categorize financial liabilities at fair value through profit or loss when initially recognized.
Financial liabilities held for trading
Derivatives that are not part of an effective hedge accounting in accordance with IAS 39 must be classified as "held for trading" and thus carried at fair value through profit or loss. In the event of negative fair values, such derivatives are recognized as "financial liabilities held for trading".
Derivative financial instruments
The Group generally uses derivative financial instruments to hedge its exposure to foreign currency exchange rate, interest rate and commodity price risks arising from operational, financing and investment activities. Derivatives are used generally to hedge existing or anticipated underlying transactions. Such derivatives and so-called "embedded derivatives", which are an integral part of a non-derivative host contract and must be accounted for separately, are measured initially and subsequently at fair value through profit or loss. Gains or losses due to fluctuations in fair value are recognized immediately in profit or loss.
If derivatives are used to hedge the exposure to variability in cash flows and to hedge balance sheet items, the hedging relationship qualifies for hedge accounting under IAS 39 if certain conditions are met. This can reduce volatility in the income statement. There are three types of hedging relationships: fair value hedge, cash flow hedge and hedge of a net investment in a foreign operation.
In a fair value hedge, which is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, the hedging instrument is stated at fair value and any changes in fair value are immediately recognized in profit or loss. Changes in fair value of a hedged asset, liability or firm commitment, which are attributable to a particular hedged risk, are also recognized in profit or loss. Given a perfect hedge, changes in fair value of the underlying and hedging transactions are almost entirely offset. If the asset or liability is measured at amortized cost according to general accounting guidelines, its carrying amount must be adjusted for the cumulative changes in fair value resulting from the hedged risk. However, if the hedged item (e.g. available-for-sale security) is recognized at fair value without influencing the income statement in accordance with the general accounting guidelines, changes in fair value resulting from the hedged risk are recognized in profit or loss, contrary to the general guidelines.
A cash flow hedge is a hedge of the exposure to variability in cash flows associated with a recognized asset or liability, a highly probable forecast transaction, or foreign currency risk of a firm commitment. The effective portion of the fluctuations in fair value is immediately recognized in equity. The effective portion is reclassified from equity to profit or loss in the same period during which the hedged underlying transaction affects profit or loss. If a hedge subsequently results in the recognition of a non-financial asset (e.g. property, plant and equipment or inventories), then the fluctuations in fair value that were recognized in equity affect the value of the non-financial asset. When measuring the effectiveness between the underlying hedged transaction and the hedging instrument the remaining ineffective portion of the hedge and adjustments due to interest rate changes are immediately recognized in the consolidated statement of income. In the case of currency risks, the effectiveness of the hedging relationship is established by including changes in value due to spot rate changes as a hedged risk and excluding the interest component.
When the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship is discontinued, but the forecast underlying transaction is still expected to occur, the cumulative gain or loss on the hedging instrument that has been recognized in equity remains separately in equity until the forecast transaction occurs. It is recognized in profit or loss as detailed above when the transaction affects the income statement. If the hedged forecast transaction is no longer expected to occur, any related cumulative unrealized gain or loss recognized in equity is recognized immediately in the consolidated statement of income.
The Group mainly uses cash flow hedges to hedge its exposure to changes in foreign currency rates, interest rates and commodity prices. In addition, the Group carries out hedging in accordance with the basic principles of risk management under which existing risks are hedged economically, but the hedges do not comply with the strict hedge accounting requirements under IAS 39. The Group does not use hedge accounting for foreign currency derivatives that have been concluded to hedge foreign currency risks arising from monetary balance sheet items. Thus, the effects from the foreign currency conversion of balance sheet items recognized in profit or loss are offset against the fluctuations in fair value of derivatives, which are also recognized in profit or loss.
Currently, the Group does not apply hedging of a net investment in a foreign operation.
More information about financial instruments is provided in Note 30.
Deferred income taxes
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit as well as for unused tax losses or credits. In principle, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax assets and liabilities are also recognized on temporary differences arising from business combinations except to the extent they arise from goodwill that is not taken into account for tax purposes.
Deferred taxes are calculated at the enacted or substantially enacted tax rates that are expected to apply when the asset or liability is settled. Deferred tax is charged or credited to the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also recognized directly in equity.
Cumulative income and expense directly recognized in equity
The equity line item "Cumulative income and expense directly recognized in equity" includes changes in the equity of the Group that were not recognized in the consolidated statement of income of the period, except those resulting from investments by owners and distributions to owners. Cumulative income and expense directly recognized in equity includes foreign currency translation adjustments, recognized actuarial gains and losses relating to pensions and other postretirement obligations inclusive of asset ceiling impacts as well as unrealized holding gains and losses on available-for-sale financial assets and on derivative financial instruments.
Accrued pension and similar obligations
The Group's net obligation for defined benefit and other postretirement benefit plans have been calculated for each plan using the projected unit credit method as of the balance sheet date. A quarterly valuation of pensions and health care obligations is performed on the basis of updated interest rates and fair values of plan assets.
All actuarial gains and losses as of October 01, 2004, the date of transition to IFRS, were recognized in equity. Actuarial gains and losses that arise subsequent to October 01, 2004, as well as gains and losses resulting from asset ceiling are recognized directly in equity and presented in the statement of recognized income and expense.
Where the plan calculation results in a benefit to the Group, the recognized prepaid benefit cost is limited to the net total of unrecognized past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.
Service cost for pensions and other postretirement obligations are recognized as an expense in income from operations, while interest cost and the expected return on plan assets recognized as components of net periodic pension cost are included in net financial income/(expense) in the Group's consolidated statement of income. When benefits of a plan are improved, the portion of the increased benefit relating to past service is recognized as an expense in income from operations on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately.
The Group's obligations for contributions to defined contribution plans are recognized as expense in income from operations as incurred.
The Group also maintains multi-employer plans. In principle, these multi-employer plans contain defined benefit plans as well as defined contribution plans. With respect to defined benefit multi-employer plans these are accounted for in the same way as any other defined benefit plan in case the required information is available. Otherwise these plans are accounted for as defined contribution plans.
Provisions
Provisions are recognized when the Group has a present obligation as a result of a past event which will result in a probable outflow of economic benefits that can be reasonably estimated. The amount recognized represents best estimate of the settlement amount of the present obligation as of the balance sheet date. Expected reimbursements of third parties are not offset but recorded as a separate asset if it is virtually certain that the reimbursements will be received. Where the effect of the time value of money is material, provisions are discounted using a risk adjusted market rate.
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.
Provisions for restructuring costs are recognized when the Group has a detailed formal plan for the restructuring and has notified the affected parties.
A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.
Share-based compensation
The Group has management incentive plans which grant stock rights to executive and senior employees. The fair value of these rights is calculated on the date of grant and recognized as an expense on a straight-line basis over the vesting period with a corresponding increase in provisions. The provision is remeasured at each balance sheet date and at settlement date. Any changes in the fair value of the provision are recognized as part of income from operations.
The Group set up an Employee Share Purchase Program for selected executive employees that grants purchase of shares at a discount. Services received are recognized on a straight-line basis based on the estimated discount with regard to the shares during the period from the offer of the Employee Share Purchase Program until the grant date which is the date when the employees accept the offer. See also information provided in Note 22.
Segment reporting
In accordance with the so-called management approach, segment reporting of the ThyssenKrupp Group is based on the internal organizational and reporting structure. The data used to determine the internal key figures are derived from the IFRS consolidated financial statements.
Disposal Groups and Discontinued Operations
The Group reports as a disposal group non-current assets, that will be disposed of by sale together with other assets and liabilities in a single transaction, which collectively meet the held for sale criteria as specified in IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". The Group reports the assets and liabilities of a disposal group separately in the balance sheet line item "assets held for sale" and "liabilities associated with assets held for sale", respectively. Unless a disposal group qualifies for discontinued operations reporting, the revenues and expenses of the disposal group remain within continuing operations until the date of disposal. The Group reports the results of a disposal group that also qualifies as a component of the Group as discontinued operations if it represents a separate major line of business or geographical area of operations. The Group reports the results of discontinued operations in the period in which they occur separately within the consolidated statement of income as "discontinued operations (net of tax)". All prior period consolidated statements of income are adjusted to report the results of the component within discontinued operations.
On initial classification as held for sale, non-current assets are recognized at the lower of the carrying amount and fair value less costs to sell and depreciation and amortization ceases. A disposal group is initially measured in line with the respective IFRS standards to determine the carrying amount of the disposal group which is then compared to the fair value less costs to sell of the group in order to recognize the group at the lower of both amounts. Impairment losses on initial classification as held for sale are included in profit or loss, as are gains and losses on subsequent remeasurement.
Financial statement classification
Certain line items in the consolidated statement of income and on the consolidated balance sheet have been combined. These items are disclosed separately in the Notes to the consolidated financial statements. Certain reclassifications have been made to the prior year presentation to conform to that of the current year.
In general the Group classifies assets and liabilities as current when they are expected to be realized or settled within twelve months after the balance sheet date. Group companies that have operating cycles longer than twelve months classify assets and liabilities as current if they are expected to be realized within the company's normal operating cycle.
Use of estimates
The preparation of the Group consolidated financial statements 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 estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Accounting estimates and judgements made by Management in the application of IFRS that have a significant effect on the consolidated financial statements are presented in Note 33.
Newly published accounting standards not early adopted
In fiscal year 2008/2009, the following Standards, Interpretations and Amendments to already existing Standards with relevance for ThyssenKrupp have been issued which still must be endorsed by the EU before they can be adopted:
In March 2009 the IASB issued an amendment to IFRS 7 "Financial Instruments: Disclosures" titled "Improving Disclosures about Financial Instruments". The amendment enhances the disclosure requirements about fair value measurements and about liquidity risk. The application of the amended Standard is compulsory for fiscal years beginning on or after January 01, 2009, while earlier application is permitted. In the first year of application comparative disclosures are not required. The initial application at ThyssenKrupp will lead to additional disclosures in the Notes.
In April 2009 the IASB issued the second omnibus standard "Improvements to IFRSs" as part of its annual improvement process project. This standard slightly adjusts ten existing standards and two interpretations by fifteen amendments. Unless otherwise specified, the amendments are effective for fiscal years beginning on or after January 01, 2010, while earlier application is permitted. Currently, Management does not expect the adoption of the amended standards and interpretations – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.
In June 2009 the IASB issued an amendment to IFRS 2 "Share-based Payment – Group Cash-settled Share-based Payment Transactions" that clarify the accounting for Group cash-settled share-based payment transactions in the individual financial statements of the subsidiary. Furthermore the amendment to IFRS 2 incorporates guidance previously included in IFRIC 8 "Scope of IFRS 2" and IFRIC 11 "IFRS 2 – Group and Treasury Share Transactions". The application of the amended Standard is compulsory for fiscal years beginning on or after January 01, 2010, while earlier application is permitted. Currently, Management does not expect the adoption of the amended standards and interpretations – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.
02 Acquisitions and disposals
Year ended September 30, 2009
In the year ended September 30, 2009 the Group acquired companies that are, on an individual basis, immaterial. Based on the values as of the acquisition date, these acquisitions affected in total the Group's consolidated financial statements as presented below:
| Year ended Sept. 30, 2009 | ||||||
|---|---|---|---|---|---|---|
| Carrying amounts as of acquisition date | Adjustments | Fair values as of acquisition date | ||||
| Goodwill | 0 | 20 | 20 | |||
| Other intangible assets | 0 | 9 | 9 | |||
| Property, plant and equipment | 21 | 0 | 21 | |||
| Deferred tax assets | 1 | 0 | 1 | |||
| Inventories | 4 | 0 | 4 | |||
| Trade accounts receivable | 9 | 0 | 9 | |||
| Other current financial assets | 1 | 0 | 1 | |||
| Other current non-financial assets | 1 | 0 | 1 | |||
| Cash and cash equivalents | 2 | 0 | 2 | |||
| Total assets acquired | 39 | 29 | 68 | |||
| Accrued pension and similar obligations | 1 | 0 | 1 | |||
| Deferred tax liabilities | 0 | 2 | 2 | |||
| Other current provisions | 1 | 0 | 1 | |||
| Current income tax liablilities | 1 | 0 | 1 | |||
| Current financial debt | 24 | 0 | 24 | |||
| Trade accounts payable | 4 | 0 | 4 | |||
| Other current financial liabilities | 1 | 0 | 1 | |||
| Other current non-financial liabilities | 7 | 0 | 7 | |||
| Total liabilities assumed | 39 | 2 | 41 | |||
| Net assets acquired | 0 | 27 | 27 | |||
| Minority interest | 0 | |||||
| Purchase prices (incl. incidental acquisition cost) | 27 | |||||
| thereof: paid in cash and cash equivalents | 18 | |||||
In addition, in the year ended September 30, 2009 the Group sold companies as part of the portfolio optimization that were, on an individual basis, immaterial. Based on the values as of the disposal date, these disposals affected in total the Group's consolidated financial statements as presented below:
| Year ended Sept. 30, 2009 |
||
|---|---|---|
| Property, plant and equipment | 13 | |
| Inventories | 6 | |
| Trade accounts receivable | 3 | |
| Other current non-financial assets | 1 | |
| Cash and cash equivalents | 5 | |
| Total assets disposed of | 28 | |
| Accrued pension and similar obligations | 1 | |
| Other current provisions | 6 | |
| Trade accounts payable | 7 | |
| Other current non-financial liabilities | 2 | |
| Total liabilities disposed of | 16 | |
| Net assets disposed of | 12 | |
| Minority interest | 3 | |
| Gain/(loss) resulting from the disposals | (5) | |
| Selling prices | 4 | |
| thereof: received in cash and cash equivalents | 4 |
Year ended September 30, 2008
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 €96 million in cash. The other intangible assets are almost exclusively customer contracts. The final 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.
The acquisition of the Apollo group finally affected the Group's consolidated financial statements as presented below:
| Carrying amounts as of acquisition date | Adjustments | Fair values as of acquisition date | ||||
|---|---|---|---|---|---|---|
| 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 in 2007/2008, it generated sales of €140 million and income before income taxes of €11 million, which are included in the consolidated statement of income of the year ended September 30, 2008.
If the acquisition had taken place on October 01, 2007 in 2007/2008, the Apollo group would have contributed sales of €187 million and income before income taxes of €19 million to the Group's consolidated income.
In the year ended September 30, 2008 the Group also acquired companies that are, on an individual basis, immaterial. Based on the values as of the acquisition date, these acquisitions affected in total the Group's consolidated financial statements as presented below:
| Year ended Sept. 30, 2008 | ||||||
|---|---|---|---|---|---|---|
| Carrying amounts as of acquisition date | Adjustments | Fair values as of acquisition date | ||||
| Goodwill | 0 | 87 | 87 | |||
| Other intangible assets | 6 | 42 | 48 | |||
| Property, plant and equipment | 42 | 10 | 52 | |||
| Investments accounted for using the equity method | 0 | (29) | (29) | |||
| Deferred tax assets | 2 | 1 | 3 | |||
| Inventories | 66 | 0 | 66 | |||
| Trade accounts receivable | 75 | 0 | 75 | |||
| Other current financial assets | 6 | 0 | 6 | |||
| Other current non-financial assets | 8 | 0 | 8 | |||
| Current income tax assets | 1 | 0 | 1 | |||
| Cash and cash equivalents | 46 | 0 | 46 | |||
| Total assets acquired | 252 | 111 | 363 | |||
| Accrued pension and similar obligations | 1 | 0 | 1 | |||
| Other non-current provisions | 1 | 0 | 1 | |||
| Deferred tax liabilities | 2 | 9 | 11 | |||
| Non-current financial debt | 19 | 3 | 22 | |||
| Other current provisions | 9 | 0 | 9 | |||
| Current income tax liablilities | 2 | 0 | 2 | |||
| Current financial debt | 32 | 0 | 32 | |||
| Trade accounts payable | 49 | 0 | 49 | |||
| Other current financial liabilities | 16 | 0 | 16 | |||
| Other current non-financial liabilities | 27 | 1 | 28 | |||
| Total liabilities assumed | 158 | 13 | 171 | |||
| Net assets acquired | 94 | 98 | 192 | |||
| Minority interest | 20 | 3 | 23 | |||
| Purchase prices (incl. incidental acquisition cost) | 169 | |||||
| thereof: paid in cash and cash equivalents | 167 | |||||
In addition, in the year ended September 30, 2008 the Group sold companies as part of the portfolio optimization that were, on an individual basis, immaterial. Based on the values as of the disposal date, these disposals affected in total the Group's consolidated financial statements as presented below:
| Year ended Sept. 30, 2008 | ||
|---|---|---|
| Goodwill | 35 | |
| Property, plant and equipment | 80 | |
| Investment property | 4 | |
| Deferred tax assets | 3 | |
| Inventories | 54 | |
| Trade accounts receivable | 48 | |
| Other current financial assets | 4 | |
| Other current non-financial assets | 21 | |
| Cash and cash equivalents | 68 | |
| Total assets disposed of | 317 | |
| Accrued pension and similar obligations | 35 | |
| Other non-current provisions | 7 | |
| 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 | 219 | |
| Net assets disposed of | 98 | |
| Minority interest | 0 | |
| Gain/(loss) resulting from the disposals | 58 | |
| Selling prices | 156 | |
| thereof: received in cash and cash equivalents | 158 |
03 Disposal groups
As part of the portfolio optimization program, in fiscal year 2008/2009 the Group has initiated the disposal of several businesses. These transactions have not met the requirements of IFRS 5 for a presentation as discontinued operations. Therefore, revenues and expenses will continue to be presented as income from continuing operations until the date of the disposal. For entities for which the disposal has not been completed as of September 30, 2009, the assets and liabilities of the disposal group have been disclosed separately in the consolidated balance sheet as of September 30, 2009 as "assets held for sale" and "liabilities associated with assets held for sale".
At the beginning of October 2009, the disposal of the ThyssenKrupp Industrieservice business was initiated in the Services segment. The lineup of the facility management services companies embraces maintenance, supply chain services, location services and technical cleaning as well as industrial assembly and installation. The assets and liabilities of the disposal group as of September 30, 2009 are disclosed in the following table:
| Sept. 30, 2009 | ||
|---|---|---|
| Intangible assets | 25 | |
| Property, plant and equipment | 23 | |
| Investments accounted for using the equity method | 1 | |
| Deferred assets | 2 | |
| Inventories | 7 | |
| Trade accounts receivable, net | 55 | |
| Other current financial assets | 1 | |
| Other current non-financial assets | 2 | |
| Cash and cash equivalents | 20 | |
| Assets held for sale | 136 | |
| Accrued pension and similar obligations | 12 | |
| Other non-current provisions | 1 | |
| Deferred tax liabilities | 2 | |
| Other current provisions | 7 | |
| Current financial debt | 34 | |
| Trade accounts payable | 8 | |
| Other current non-financial liabilities | 26 | |
| Liabilities associated with assets held for sale | 90 |
Also in the Services segment, the disposal of the American scaffolding services company Safway was initiated in October 2009. The assets and liabilities of the disposal group as of September 30, 2009 are disclosed in the following table:
| Sept. 30, 2009 | ||
|---|---|---|
| Intangible assets | 78 | |
| Property, plant and equipment | 150 | |
| Other financial assets | 2 | |
| Deferred assets | 1 | |
| Inventories | 14 | |
| Trade accounts receivable, net | 97 | |
| Other current financial assets | 4 | |
| Other current non-financial assets | 3 | |
| Cash and cash equivalents | 6 | |
| Assets held for sale | 355 | |
| Other non-current provisions | 28 | |
| Deferred tax liabilities | 26 | |
| Other current provisions | 28 | |
| Current income tax liabilities | 2 | |
| Current financial debt | 105 | |
| Trade accounts payable | 8 | |
| Other current financial liabilities | 1 | |
| Liabilities associated with assets held for sale | 198 |
The above mentioned "assets held for sale" and "liabilities associated with assets held for sale" are included in the amounts disclosed in the notes to the consolidated financial statements.