ThyssenKrupp AG
Notes to the interim condensed consolidated financial statements
Corporate information
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, 2009 to December 31, 2009, were authorized for issue in accordance with a resolution of the Executive Board on February 08, 2010.
Basis of presentation
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 December 31, 2009, 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 consolidated financial statements of our annual report 2008/2009.
Recently adopted accounting standards
In fiscal year 2009/2010, ThyssenKrupp adopted the following standards, interpretations and amendments:
In September 2007, the IASB issued a revised version of IAS 1 "Presentation of Financial Statements" that is aimed at improving users' ability to analyse and compare the information given in financial statements. The application of the revised standard is compulsory for fiscal years beginning on or after January 01, 2009. The adoption of the standard has a material impact on the Group's consolidated financial statements.
In March 2007, the IASB issued a revised version of IAS 23 "Borrowing Costs". Accordingly, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of the asset. The current option of immediately recognizing borrowing costs as an expense will be removed. The application of the revised standard is compulsory for fiscal years beginning on or after January 01, 2009. The revision has no impact on the Group's consolidated financial statements because already before the amendment of the standard borrowing costs directly attributable to a qualifying asset has been capitalized as part of production costs.
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. Currently, Management does not expect the adoption of the amended standards 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. Currently, Management does not expect the adoption of the amendment to have a material impact on the Group's consolidated financial statements.
In March 2009 the IASB issued "Embedded Derivatives" which amends IFRIC 9 "Reassessment of Embedded Derivatives" and IAS 39 "Financial Instruments". The amendments clarify the accounting treatment of embedded derivatives for entities that make use of the reclassification of financial instruments. The application of the amendments is compulsory for fiscal years beginning on or after June 30, 2009 and has to be applied retrospectively. Currently, Management does not expect the adoption of the amendments to have a material impact on the Group's consolidated financial statements.
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. Currently, Management does not expect the adoption of the amended standard to have a material impact on the Group's consolidated financial statements.
In January 2008, the IASB issued the amended versions of IFRS 3 "Business Combinations" and IAS 27 "Consolidated and Separate Financial Statements". A material change of IFRS 3 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. Furthermore, all acquisition-related costs must be expensed as incurred. In accordance with IAS 27, acquisitions or disposals of shares without loss of control must be accounted for as equity transactions. In the context of the disposal of shares with loss of control any retained investment is recognized at fair value with any difference to the previous carrying amount recognized in profit or loss. The amended standards must be applied to business combinations in fiscal years beginning on or after July 01, 2009. The adoption of the two amended standards has a material impact on the Group's consolidated financial statements.
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. 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 July 2007, the IFRIC issued IFRIC 14 "IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction". The interpretation provides general guidance on how to assess the limit in IAS 19 "Employee Benefits" on the amount of the surplus that can be recognized as an asset. It also explains how the pensions asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The interpretation will standardise practice and ensure that entities recognize an asset in relation to a surplus on a consistent basis. In the EU, the application of the interpretation is compulsory for fiscal years beginning on or after January 01, 2009. Currently, Management does not expect the adoption of the interpretation 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. Currently, Management does not expect the adoption of the amended standards to have a material impact on the Group's consolidated financial statements.
Recently issued accounting standards
In fiscal year 2009/2010, the following standards, interpretations and amendments to already existing standards have been issued which still must be endorsed by the EU before they can be adopted:
In November 2009 the IASB issued a revised version of IAS 24 "Related Party Disclosures". The revised standard simplifies the disclosure requirements for government-related entities and clarifies the definition of a related party. The application of the amended standard is compulsory for fiscal years beginning on or after January 01, 2011, while earlier application is permitted. Currently, Management does not expect the adoption of the amended standard – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.
In November 2009 the IASB issued the new standard IFRS 9 "Financial Instruments" on the classification and measurement of financial assets. This standard is the first part of the threepart project to replace completely IAS 39 "Financial Instruments: Recognition and Measurement" which should be completed by the end of 2010. In accordance with the approach of IFRS 9 financial assets are measured at amortized cost or fair value. The classification to one of the two measurement categories is based on how an entity manages its financial instruments (so called business model) and the contractual cash flow characteristics of the financial assets. The application of the standard is compulsory for fiscal years beginning on or after January 01, 2013, while earlier application is permitted for 2009 year-end financial statements. Currently, Management is not able to finally assess the impacts of the adoption of the standard – if endorsed by the EU in the current version.
In Novermber 2009 the IASB issued an amendment to IFRIC 14, which is itself an interpretation of IAS 19 "Employee Benefits", titled "Prepayments of a Minimum Funding Requirement". The amendment applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset. The application of the amended interpretation is compulsory for fiscal years beginning on or after January 01, 2011, while earlier application is permitted for 2009 year-end financial statements. Currently, Management does not expect the adoption of the interpretation – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.
In November 2009 the IFRIC issued IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments". The interpretation clarifies the requirements of IFRS when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially. The application of the interpretation is compulsory for fiscal years beginning on or after July 01, 2010, while earlier application is permitted. Currently, Management does not expect the adoption of the interpretation – if endorsed by the EU in the current version – to have a material impact on the Group's consolidated financial statements.
01 Disposals
In October 2009, as part of the portfolio optimization program, the Group initiated the disposal of ThyssenKrupp Industrieservice and ThyssenKrupp Safway of the Materials Services business area which was consummated end of November 2009 and mid of December 2009, respectively. ThyssenKrupp Industrieservice is a facility management service provider; its product range embraces maintenance, supply chain services, location services and technical cleaning as well as industrial assembly and installation. Safway is an American scaffolding services company. These disposals as well as other smaller disposals that are, on an individual basis, immaterial affected in total – based on the values as of the disposal date – the Group's consolidated financial statements as presented below:
| 1st quarter ended Dec. 31, 2009 | ||
|---|---|---|
| Goodwill | 97 | |
| Other intangible assets | 6 | |
| Property, plant and equipment | 170 | |
| Investments accounted for using the equity method | 1 | |
| Other financial assets | 3 | |
| Deferred tax assets | 2 | |
| Inventories | 27 | |
| Trade accounts receivable | 162 | |
| Other current financial assets | 9 | |
| Other current non-financial assets | 10 | |
| Current income tax assets | 2 | |
| Cash and cash equivalents | 5 | |
| Total assets disposed of | 494 | |
| Accrued pension and similar obligations | 12 | |
| Other non-current provisions | 23 | |
| Deferred tax liabilities | 27 | |
| Non-current financial debt | 2 | |
| Other current provisions | 20 | |
| Current income tax liablilities | 3 | |
| Current financial debt | 20 | |
| Trade accounts payable | 13 | |
| Other current financial liabilities | 142 | |
| Other current non-financial liabilities | 29 | |
| Total liabilities disposed of | 291 | |
| Net assets disposed of | 203 | |
| Cumulative other comprehensive income | 14 | |
| Non-controlling interest | 2 | |
| Gain/(loss) resulting from the disposals | 93 | |
| Selling prices | 308 | |
| thereof: received in cash and cash equivalents | 308 |
02 Cost of sales
In the 1st quarter ended December 31, 2009, included in cost of sales are write-downs of inventories of €100 million which mainly refer to the Steel Europe, Stainless Global and Marine Systems business areas. As of September 30, 2009, write-downs amounted to €317 million.
03 Share-based compensation
Management incentive plans
Due to a downward trend of ThyssenKrupp Value Added (TKVA), the Group recorded from the mid-term incentive plan neither any expenses nor any additional income (1st quarter ended December 31, 2008: income of €6.6 million).
In the 1st quarter ended December 31, 2009, the 1st tranche of the Group's Share Purchase Program of fiscal year 2007/2008 was settled with the purchase of 350,924 shares at a discount by the beneficiaries. The Group's Share Purchase Program resulted in a compensation expense of €0.9 million in the 1st quarter ended December 31, 2009 (1st quarter ended December 31, 2008: €5.5 million).
04 Accrued pension and similar obligations
Based on updated interest rates and fair value of plan assets, an updated valuation of accrued pension and health care obligations was performed as of December 31, 2009, taking into account these effects while other assumptions remained unchanged.
| Sept. 30, 2009 | Dec. 31, 2009 | |||
|---|---|---|---|---|
| Accrued pension liability | 6,068 | 6,029 | ||
| Accrued postretirement obligations other than pensions | 1,076 | 1,057 | ||
| Other accrued pension-related obligations | 393 | 381 | ||
| Total | 7,537 | 7,467 |
In the statement of financial position as of September 30, 2009, accrued pension and similar obligations of €12 million are presented in the line item "liabilities associated with assets held for sale".
The Group applied the following weighted average assumptions to determine pension and postretirement benefit obligations other than pensions:
| Sept. 30, 2009 | Dec. 31, 2009 | |||||||
|---|---|---|---|---|---|---|---|---|
| Germany | Outside Germany | Germany | Outside Germany | |||||
| Discount rate for accrued pension liability | 5.25 | 5.24 | 5.25 | 5.43 | ||||
| Discount rate for postretirement obligations other than pensions (only USA/Canada) | — | 5.50 | — | 5.80 | ||||
The net periodic pension cost for the defined benefit plans is as follows:
| 1st quarter ended Dec. 31, 2008 | 1st quarter ended Dec. 31, 2009 | |||||||
|---|---|---|---|---|---|---|---|---|
| > | Germany | Outside Germany | Germany | Outside Germany | ||||
| Service cost | 15 | 7 | 17 | 7 | ||||
| Interest cost | 81 | 30 | 72 | 26 | ||||
| Expected return on plan assets | (3) | (26) | (3) | (25) | ||||
| Curtailment and settlement gains | 0 | (1) | 0 | 0 | ||||
| Net periodic pension cost | 93 | 10 | 86 | 8 | ||||
The net periodic postretirement benefit cost for health care obligations is as follows:
| 1st quarter ended Dec. 31, 2008 USA/Canada |
1st quarter ended Dec. 31, 2009 USA/Canada |
|||
|---|---|---|---|---|
| Service cost | 3 | 1 | ||
| Interest cost | 17 | 13 | ||
| Expected return on reimbursement rights | (1) | (1) | ||
| Past service cost | (24) | (14) | ||
| Curtailment and settlement gains | (20) | 0 | ||
| Net periodic postretirement benefit cost | (25) | (1) |
05 Total equity
In the context of the settlement of the 1st tranche of the Group's Share Purchase Program, as of December 02, 2009, 350,924 treasury shares were sold to the beneficiaries using a price of €24.62 per share as a basis for the discounted selling price.
06 Contingencies including pending lawsuits and claims for damages
Guarantees
ThyssenKrupp AG and, 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:
| Maximum potential amount of future payments as of Dec. 31, 2009 | Provisionas of Dec. 31, 2009 | |||
|---|---|---|---|---|
| Advance payment bonds | 211 | 1 | ||
| Performance bonds | 80 | 0 | ||
| Third party credit guarantee | 37 | 0 | ||
| Residual value guarantees | 45 | 1 | ||
| Other guarantees | 44 | 2 | ||
| Total | 417 | 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 nonperformance 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 subsidiaries 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.
Commitments and other contingencies
Compared to September 30, 2009, in the Steel Americas and Stainless Global business areas the commitment to enter into investment projects in Brazil and North America decreased by €0.6 billion to €2.1 billion.
Pending lawsuits and claims for damages
The Group is involved in pending and threatened litigation in connection with the purchase and the sale of certain companies, which may lead to partial repayment of the purchase price or the award of damages. In addition, damage claims may be payable to contractual partners, customers, consortium partners and subcontractors under performance contracts. Some of these claims have proven unfounded, have been ended by settlement or expired under the statute of limitations. A number of legal and regulatory proceedings are still pending.
There have been no significant changes since September 30, 2009 to other contingencies, including pending litigations.
07 Derivative financial instruments
The notional amounts and fair values of the Group's derivative financial instruments are as follows:
| Notional amount Sept. 30, 2009 | Fair value Sept. 30, 2009 | Notional amount Dec. 31, 2009 | Fair value Dec. 31, 2009 | |||||
|---|---|---|---|---|---|---|---|---|
| Derivative financial instruments | ||||||||
| Assets | ||||||||
| Foreign currency derivatives including embedded derivatives | 4,693 | 214 | 4,149 | 159 | ||||
| Interest rate derivatives* | 786 | 37 | 775 | 23 | ||||
| Commodity derivatives | 839 | 108 | 447 | 115 | ||||
| Total | 6,318 | 359 | 5,371 | 297 | ||||
| Liabilities | ||||||||
| Foreign currency derivatives including embedded derivatives | 4,112 | 155 | 3,293 | 103 | ||||
| Interest rate derivatives* | 1 | 0 | 2 | 0 | ||||
| Commodity derivatives | 374 | 41 | 584 | 84 | ||||
| Total | 4,487 | 196 | 3,879 | 187 |
08 Related parties transactions
The Heitkamp & Thumann Group located in Düsseldorf and the Heitkamp Baugruppe located in Herne are classified as related parties due to the fact that a member of the Supervisory Board has significant influence on both Groups. In the 1st quarter ended December 31, 2009, the ThyssenKrupp Group realized sales of €4.0 million with the Heitkamp & Thumann Group from the sale of steel and stainless material as well as from industrial servicing and sales of €41 thousand with the Heitkamp Baugruppe from the sale of goods. In the same period ThyssenKrupp purchased nothing from the Heitkamp & Thumann Group and goods with a value of €121 thousand from the Heitkamp Baugruppe. The transactions were carried out at market conditions. As of December 31, 2009, the transactions with the Heitkamp & Thumann Group resulted in trade accounts receivable of €1.5 million and trade accounts payable of €16 thousand, the transactions with the Heitkamp Baugruppe resulted in trade accounts receivable of €3 thousand and trade accounts payable of €121 thousand.
In the 1st quarter ended December 31, 2009, a Group subsidiary realized sales of €41 thousand 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.
09 Segment reporting
Since the implementation of the new organizational structure as of October 01, 2009, the Group is organized in the following eight business areas that represent the Group's activities within materials and technologies. The business areas are in line with the internal organizational and reporting structure. Prior year figures have been adjusted accordingly.
Steel Europe: The business area brings together the premium flat carbon steel activities, from intelligent material solutions to finished parts.
Steel Americas: This business area includes the production, processing and marketing of high-quality steel products in North and South America. It also contains the steelmaking and processing plants currently under construction in Brazil and USA.
Stainless Global: The business area is supplier of flat stainless steel products and high performance materials such as nickel alloys and titanium. The business area also includes the new stainless steel mill in USA.
Materials Services: The business area activities comprise materials distribution, logistics and services, and the provision of technical services. In addition to rolled steel, stainless steel, tubes and pipes, nonferrous metals and plastics, Materials Services also offers services from processing and logistics to warehouse and inventory management through to supply chain management. The business area offers technical and infrastructure services in the areas of railway and construction equipment, industrial plants and steel mills.
Elevator Technology: The business area is active in the construction, modernization and servicing of elevators, escalators, moving walks, stair and platform lifts as well as passenger boarding bridges. Alongside a full range of installations for the volume market, the business area also delivers customized solutions.
Plant Technology: The business area is supplier of chemical plants, refineries, cement plants, innovative solutions for the mining and handling of raw materials and minerals, production systems and assembly lines for the automotive industry.
Components Technology: The business area offers efficient and innovative components for the automotive, construction and engineering sectors as well as for wind turbines.
Marine Systems: The business area is supplier for naval surface vessels, submarines and premium-segment yachts.
Corporate: Corporate comprises the Group's head office including management of the business areas. It also includes the business services activities in the areas of finance, communications, IT and human resources. In addition, part of Corporate is real estate not used in operating that is managed and utilized centrally as well as inactive companies that could not be assigned to an individual business area.
Segment information for the 1st quarter ended December 31, 2008 and December 31, 2009 is as follows:
10 Earnings per share
Basic earnings per share is computed as follows:
| 1st quarter ended Dec. 31, 2008 |
1st quarter ended Dec. 31, 2009 |
|||||||
|---|---|---|---|---|---|---|---|---|
| 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) | 168 | 0.36 | 164 | 0.35 | ||||
| Denominator: | ||||||||
| Weighted average shares | 463,473,492 | 463,586,567 | ||||||
Relevant number of common shares for the determination of earnings per share
Earnings per share have been calculated by dividing net income attributable to common stockholders of ThyssenKrupp AG (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Shares sold 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 2009/2010 the weighted average number of outstanding shares was increased by the sale of treasury shares in December 2009 in the context of the Group's Share Purchase Program.
There were no dilutive securities in the periods presented.
11 Additional information to the consolidated statement of cash flows
Non-cash investing activities
In the 1st quarter ended December 31, 2009, the acquisition and first-time consolidation of companies created no increase in non-current assets (1st quarter ended December 31, 2008: €7 million).
The non-cash addition of assets under finance leases in the 1st quarter ended December 31, 2009 amounted to €4 million (1st quarter ended December 31, 2008: €6 million).
Non-cash financing activities
In the 1st quarter ended December 31, 2009 as well as in the 1st quarter ended December 31, 2008, the acquisition and first-time consolidation of companies did not result in any increase in gross financial debt.
12 Subsequent events
No reportable events occurred.
Düsseldorf, February 08, 2010
ThyssenKrupp AG
The Executive Board
| Schulz | ||||
| Berlien | Eichler | Hippe | Labonte |