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Basis of presentation1 Summary of significant accounting policiesConsolidationThe consolidated financial statements include the accounts of ThyssenKrupp Aktiengesellschaft ("ThyssenKrupp AG") and all material controlled entities, collectively the "Group". Included in the Group financial statements are 243 (Year ending Sept. 30, 2004: 276) domestic and 427 (Year ending Sept. 30, 2004: 424) foreign controlled entities that are consolidated. During fiscal year Year ending Sept. 30, 2005, 37 entities were consolidated for the first time. During the same period, the scope of consolidation was reduced by 67 entities, of which 21 resulted from the internal merging of Group entities. Material equity investments are accounted for using the equity method whenever significant influence can be exerted; this is principally in instances whereby the Group holds between 20% and 50% of the voting rights ("Associated Companies"). All other equity investments are carried on the balance sheet at cost. The Group has 156 (Year ending Sept. 30, 2004: 145) controlled subsidiaries that are not consolidated because their combined influence on the net assets, net income, and net cash flows of the Group is not material. Their net sales amount to 0.4%, their net loss amounts to 0.3% and their Stockholders' Equity amounts to 0.1% of the Group's respective balances. These non-consolidated subsidiaries are classified as financial assets and are presented under the "Investments in nonconsolidated subsidiaries" line item. The Group has 50 (Year ending Sept. 30, 2004: 55) Associated Companies that are accounted for under the equity method. Another 60 (Year ending Sept. 30, 2004: 63) Associated Companies are accounted for under the cost method because their combined results are not material to the Group. Their net income/loss, attributable to the Group, amounts to 0.3% and their Stockholders' Equity amounts to 1.5% of the Group's respective balances. These 60 (Year ending Sept. 30, 2004: 63) Associated Companies are classified as financial assets and are presented under the "Other investments" line item. In consolidating investments in subsidiaries, the purchase price has been allocated to the fair market value of the interest held in the net assets of the consolidated subsidiaries at the time of acquisition. Any excess purchase price is capitalized as goodwill which is tested for impairment at least annually in accordance with the provisions of SFAS 142 "Goodwill and Other Intangible Assets". FIN 46R, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," provides guidance for determining whether an entity qualifies as a variable interest entity ("VIE") by considering, among other factors, whether the entity lacks sufficient equity or its equity holders lack adequate decision-making ability. If the entity does not qualify as a vie, then consolidation is based on previously established accounting standards. The Group consolidates vies in cases where, as the primary beneficiary, it is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns. For the non-consolidated subsidiaries and Associated Companies accounted for under the equity method, the excess of cost of the stock of those companies over the Group's share of their net assets as of the acquisition date is treated as embedded goodwill and tested for impairment in accordance with APB Opinion 18, "The Equity Method of Accounting for Investments in Common Stock". Similar to consolidated subsidiaries, SFAS 142 requires that goodwill from equity method investments is no longer amortized over its estimated useful life. Subsequent changes to the value of this balance resulting from the Group's share of income or losses including impairment of the embedded goodwill are included in "Income from equity investments" of the consolidated statement of income. Intercompany accounts and transactions have been eliminated. Foreign currency translationTransactions denominated in foreign currencies are translated at the current exchange rate at the time of the transaction and adjusted to the current exchange rate at each balance sheet date; any resulting currency fluctuations are recognized in the statement of income. Financial statements of the foreign subsidiaries included in the Group annual 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 current exchange rate as of the balance sheet date, while income statement amounts are translated using the annual average exchange rates. Net exchange gains or losses resulting from the translation of foreign financial statements are accumulated and included in "Accumulated other comprehensive income". Non-US companies that manage their sales, purchases and financing substantially in US dollar use the US dollar as their functional currency. Using the functional currency in these cases involves translating non-monetary items such as fixed assets including scheduled depreciation and equity to US dollar using the average exchange rates of the respective year of addition (historical exchange rates). 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 annual average exchange rates. The resulting translation differences are included in the consolidated statement of income as "Other operating expenses or income". Thereafter, the US dollar annual financial statements are translated into the reporting currency using the current rate method. The exchange rates of those currencies significant to the Group and located outside the European Economic and Currency Union have developed as follows:
Revenue recognitionSales are generated via the delivery of products, the rendering of services, and from rental and lease agreements. Sales are recognized net of applicable provisions for discounts and allowances, when realized or realizable and earned. This is usually the case when there is clear evidence of an agreement, the risk of ownership has been transferred or the service has been rendered, the price has been agreed upon, and there is adequate assurance that collection will be made. Revenues from contracts with multiple element arrangements, such as those including both products and services, are recognized as each element is earned based on objective evidence of the relative fair value of each element. In addition to the above, a significant portion of the Group's sales (11%) are derived from long-term contracts which are accounted for using the percentage-of-completion method. Such agreements are in the Automotive, Technologies, Elevator and Services segments. Long-term contractsSales and profits from long-term contracts are recognized using the percentage-of-completion method of accounting. Long-term contracts are defined as contracts for which performance will take place over a period of at least 12 months, beginning from the effective date of the contract to the date on which the contract is substantially completed. Contracts where the Group acts in the capacity of general contractor or provides engineering services are also considered to be long-term contracts. The percentage-of-completion is measured by 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. All anticipated losses from long-term contracts are recognized in the fiscal year in which such losses are identified. Long-term contracts under the percentage-of-completion method are measured at construction cost plus profits earned based on the percentage of the contract completed. Research and development costsResearch and development costs are expensed as incurred. Earnings per shareBasic earnings per share are computed by dividing the Group's net income 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 assetsPurchased intangible assets with definite useful lives are capitalized and amortized on a straight-line basis over their estimated useful lives. For identifiable internally developed intangible assets, only the direct external costs incurred in generating these assets are capitalized and amortized on a straight-line basis over their estimated useful life. The Group reviews its intangible assets with definite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount of its assets may not be recoverable. Costs incurred in connection with the acquisition and selfdevelopment of internally used computer software, inclusive of the costs for transforming such software into an operational condition, are capitalized and amortized on a straight-line basis over its estimated useful life, usually 3 to 5 years. Costs incurred during the preliminary stage of internal use computer software projects are expensed as incurred. In accordance with SFAS 142, the Group evaluates goodwill and indefinite lived intangible assets for impairment on an annual basis and between annual test dates if events or changes in circumstances indicate that the asset may be impaired. Based on the Group's annual impairment test, no goodwill impairment charges have been necessary since the adoption of the Standard. Property, plant and equipmentProperty, plant and equipment are valued at acquisition or production cost less accumulated depreciation. Capitalized production costs for internally developed assets include direct material, labor, and allocable material and manufacturing overhead costs. When production activities are performed over an extended period, interest costs incurred during production are capitalized. Administrative costs are capitalized only if such costs are directly related to production. Maintenance and repair costs are expensed as incurred. Costs for activities that lead to the prolongation of useful life or to expand future use capabilities of an asset are capitalized. Property, plant and equipment are primarily 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:
LeasingLeases are classified as either capital or operating. Leasing transactions whereby the Group is the lessee and bears all substantial risks and rewards from use of the leased item are accounted for as capital leases. Accordingly, the Group capitalizes the leased asset and records the corresponding lease obligation on the balance sheet. All other leasing agreements entered into by the Group, as a lessee, are accounted for as operating leases whereby the lease payments are expensed as incurred. Leasing 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 or financing of the leased asset. 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 recorded as income when earned. Long-lived asset impairment (including definite-lived intangible assets)The carrying values of long-lived assets such as property, plant and equipment, and purchased intangibles subject to amortization are reviewed for possible impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the carrying amount of any long-lived asset may be impaired, an evaluation of recoverability would be performed whereby the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to fair value is required. The remaining useful life of the asset is evaluated accordingly. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. Inventories other than percentage-of-completion contractsInventories are stated at the lower of acquisition/manufacturing cost or market. The elements of costs include direct material, labor and allocable material and manufacturing overhead. Similar inventories are accounted for using the average cost method. ReceivablesReceivables are stated at net realizable value. If receivables are uncollectible or deemed uncollectible, bad debt expense and a corresponding allowance for doubtful accounts is recorded. 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 qualifying special purpose entities or 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. Cash and cash equivalentsCash and cash equivalents comprise cash on hand, checks, deposits with national banks, as well as other bank deposits with an original maturity of three months or less. Marketable securitiesAll marketable securities in which the Group invests are classified as available-for-sale and valued at market prices as of the balance sheet date. Any unrealized gains and losses, net of deferred income taxes, are reported as a component of the "Accumulated other comprehensive income" line item within equity. An other than temporary loss of value in an available-for-sale security is realized in the statement of income and a new cost basis for the security is established. Deferred income taxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities reflect both net loss carry forwards and the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred taxes are measured using the currently enacted tax rates in effect during the years in which the temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax law is recognized in the period that the law is enacted. Deferred tax assets, net of valuation allowances, are recognized only to the extent that it is more likely than not that the related tax benefits will be realized. Accumulated other comprehensive incomeAccumulated other comprehensive income includes changes in the equity of the Group that were not recognized in the income statement of the period, except those resulting from investments by owners and distributions to owners. Accumulated other comprehensive income includes foreign currency translation adjustments, unrealized holding gains and losses on available-for-sale securities and on derivative financial instruments, as well as additional pension liabilities not yet recognized as net periodic pension cost. Accrued pension and similar obligationsAccrued pension obligations as well as provisions for health care obligations are valued according to the actuarial projected benefit obligation method (or "projected unit credit method"). Plan assets and pension obligations are measured as of June 30 of each year ("early measurement"). For some pension obligations, an additional minimum pension liability exists. A portion of the additional minimum pension liability is offset by an intangible asset to the extent of unrecognized prior service cost with the remainder charged against Stockholders' Equity. Unrecognized prior service cost results from a net transition obligation of the former Thyssen companies. Unrecognized gains and losses are generally amortized over no more than the average remaining service lives or the average remaining life expectancies of the employees entitled to receive benefits. Other accrued liabilitiesLiabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties that are probable of realization, are separately recorded, and are not offset against the related accrued liability. Provisions for contingent losses are calculated using full production cost. Provisions for product warranties depend on the type of goods sold. In the case of singleitem production the provisions are calculated for each product using the full production costs. An accrued liability will be recognized only if it is probable that a claim will be asserted. By contrast, the provisions for product warranties in serial or large-scale production entities are calculated using a percentage of total sales or are based on average historical payments from past claims. If possible, risks from product liabilities (product defect) are covered by insurance contracts. For all other cases an accrued liability is recognized. Asset retirement obligations are legal obligations that arise from the retirement of tangible long-lived assets and are accounted for in accordance with SFAS 143 "Accounting for Asset Retirement Obligations". SFAS 143 requires the Group to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. This fair value is generally determined based upon estimates of future cash flows discounted using a credit adjusted risk free interest rate. The additional carrying amount is depreciated over the remaining useful life of the asset. The obligation is accreted at the end of each period through charges to operating expense. Stock-based compensationAs of July 01, 2005, the Group adopted FASB Statement No. 123 (Revised 2004), "Share-Based Payment, an Amendment of FASB No. 123". The revised statement requires the Group to recognize compensation cost for its management incentive plans using the fair value method. Before the adoption, the Group accounted for its incentive plans under the intrinsic value method of accounting set forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issues to Employees". As a result of adopting SFAS 123(R), expense of €6 million (€(4) million net of tax) has been recorded as cumulative effect of a change in accounting principle in fiscal year ending September 30, 2005. Had SFAS 123(R) been applied as of September 30, 2004 and September 30, 2003, the impact on income from operations, net income and earnings per share would not have been material. Financial instrumentsIn accordance with SFAS 133 "Accounting for Derivative Instruments and Hedging Activities" all derivative financial instruments are recorded at fair value as either assets or liabilities on the balance sheet. This standard also requires the accounting for derivative financial instruments that are embedded within other contractual agreements. In general, the Group recognizes the changes in fair value of all derivative financial instruments directly in earnings. However, the Group records the changes in fair value of foreign currency derivatives used to hedge anticipated foreign currency denominated cash flows on firm commitments and forecasted transactions in accumulated other comprehensive income on the balance sheet when the requirements of the standard to apply cash flow hedge accounting are met. The reclassification from accumulated other comprehensive income into earnings occurs in the same period as the underlying transaction affects earnings. The fair value changes that are due to time value changes when measuring the effectiveness between the underlying hedged transaction and the hedging instrument are considered the ineffective portion of the hedge and are recognized in earnings immediately. The fair value changes of interest rate derivatives designated to hedge long-term liabilities subject to interest rate fluctuations are also recognized in accumulated other comprehensive income if they meet the requirements to apply cash flow hedge accounting. These amounts in other comprehensive income will be offset against related asset or liability accounts in the future as fair values fluctuate. When the cash flow hedging model is applied, changes in market rates will not impact future interest expense positions. Disposal Groups and Discontinued OperationsThe Group reports as a disposal group long-lived 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 of SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The Group reports the assets and liabilities of a disposal group separately in the balance sheet line items "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 its cash flows can be clearly distinguished operationally and for financial reporting purposes from the rest of the Group and the Group does not have significant continuing involvement with the component subsequent to its disposal. 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. Financial statement classificationCertain 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 years presentations to conform to that of the current year. The consolidated statements of income and the consolidated balance sheets are presented in accordance with the 4th and 7th directive of the EU. Additional disclosures required by US GAAP are included in the Notes to the consolidated financial statements. Use of estimatesThe preparation of the Group consolidated financial statements requires Management to make estimates and assumptions that affect the reported carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. New accounting pronouncementsRecently adopted accounting standardsIn November 2004, the Emerging Issues Task Force (EITF) reached a final consensus on EITF No. 03-13, "Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations". EITF 03-13 addresses the evaluation of whether the operations and cash flows of a disposed component have been or will be eliminated from the ongoing operations of the entity and whether the selling entity will have significant continuing involvement in the operations of the disposed entity. The consensus should be applied to a component that is either disposed of or classified as held for sale in periods beginning after December 15, 2004. In December 2004, the FASB issued FASB Statement No. 123 (Revised 2004), "Share-Based Payment, an Amendment of FASB No. 123". The revised statement, which is effective for periods beginning after June 15, 2005, requires all share-based payments to employees to be recognized in the income statement based on their fair values. Prior to the adoption of FAS 123(R) on July 01, 2005, the Group accounted for its share-based payments to employees under the intrinsic value method of accounting set forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issues to Employees". The adoption of the revised standard did not have a significant impact on the Group's financial position or results of operations (refer to stock-based compensation above). In December 2004, the FASB issued FASB Statement No. 153, "Exchanges of Nonmonetary Assets", which is an amendment of APB Opinion No. 29 and is effective for periods beginning after June 15, 2005. The guidance in the Opinion allowed certain exceptions to the principle that the exchange of nonmonetary assets should be measured at fair value. The new standard eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange does not have commercial substance if the future cash flows are not expected to change significantly as a result of the exchange. The adoption of the standard did no have a material impact on the Group's financial position or results of operations. Recently issued accounting standardsIn November 2004, the FASB issued FASB Statement No. 151, "Inventory Costs, and Amendment of ARB No. 43". The amendment clarifies that abnormal amounts of idle facility costs, freight, handling costs, and spoilage should be recognized as current period charges rather than capitalized as inventory. The amendment also requires the allocation of fixed production overheads to inventory based on normal capacity of the production facility. The standard is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect the adoption of the standard to have a material impact on the Group's financial position or results of operations. In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Assets Retirement Obligations (FIN 47)", that requires an entity to recognize a liability for a conditional asset retirement obligation when incurred if the liability can be reasonably estimated. FIN 47 clarifies that the term Conditional Asset Retirement Obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The Interpretation is effective for fiscal years ending after December 15, 2005. Management does not expect the adoption of the standard to have a material impact on the Group's financial position or results of operations. In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3". This statement requires that a voluntary change in accounting principle be applied retrospectively to all prior period financial statements issued, unless it is impracticable to do so. SFAS 154 also provides that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate effected by a change in accounting principle. SFAS 154 is effective for fiscal years beginning after December 15, 2005. Management does not expect the adoption of the standard to have a material impact on the Group's financial statements. 2 Acquisitions and divestituresDuring the fiscal years 2004/2005 and 2003/2004 the Group completed the following transactions: Year ending September 30, 2005On January 05, 2005 the merger of ThyssenKrupp Werften and Howaldtswerke-Deutsche Werft (HDW) was formally consummated. The newly formed group is managed by of ThyssenKrupp Marine Systems AG which is headquartered in Hamburg and represents a sales volume of approximately €2.2 billion. The agreement stipulates that in return for the 100% in HDW, the seller (One Equity Partners) received a 25% stake in ThyssenKrupp Marine Systems AG plus a payment of €220 million which has been funded from the cash resources of the new shipyard group. This resulted in a total purchase price of €308 million, including incidental acquisition costs of €13 million. ThyssenKrupp holds a 75% stake in ThyssenKrupp Marine Systems and will assume all the industrial management functions. The agreement provides a call option to ThyssenKrupp and a put option to the minority holder for the remaining 25% share in ThyssenKrupp Marine Systems AG. Both options are exercisable in the period January 01, 2007 to December 31, 2008. The exercise price is dependent on future events and differs for the two option holders. The reason for the merger with HDW was to retain and enhance naval engineering expertise within Germany and thus securing Germany's role as a shipbuilding location. The competence centers in the core businesses of submarines and naval ships will be strengthend and expanded while in the megayacht sector, the acquisition will serve as a catalyst for increasing market share. The results of the HDW-operations have been included in the consolidated financial statements since January 01, 2005. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
Substantially all of the intangible assets were assigned to technology which is subject to amortization and has a weighted average useful life of approximately 40 years. The preliminary purchase price allocation resulted in goodwill of €964 million. No goodwill is deductible for tax purposes. Significant uncertainties exist regarding the assessment of certain tax risks which may result from transactions of the former owners. A reasonable estimate of the possible range of losses is currently not possible. If tax obligations should materialize however, corresponding offsetting claims as defined in the purchase agreement exist against the former owner. The following unaudited pro forma information presents the results of operations of ThyssenKrupp as if the transaction with HDW had taken place on October 01, 2003 and 2004, respectively:
The unaudited pro forma information has been prepared for comparative purposes only and does not necessarily represent results which would have occurred if the transaction had taken place on October 01, 2003 and 2004, respectively nor is the information indicative of the results of future combined operations. The unaudited pro forma results have been adjusted to reflect the additional amortization related to the purchase price allocation. The unaudited pro forma amounts exclude material nonrecurring charges of approximately €21 million related to a restructuring provision recorded by HDW prior to the acquisition. The unaudited pro forma information gives effect only to the adjustments described above and does not reflect management's estimate of anticipated cost savings or other benefits as a result of the acquisition. Year ending September 30, 2004On October 01, 2003, ThyssenKrupp finalized the acquisition of 75% of the common stock and voting rights of the Korean Dongyang group in the Elevator segment for a final purchase price of €125 million (preliminary €128 million). The purchase agreement includes a call option and a put option for the remaining 25% interest. Both options are exercisable between the fourth and the nineth year after closing. In addition, the call option is exercisable earlier if certain events that are defined in the contract occur. Dongyang is the second largest elevator producer and provider of elevator related services in South Korea and with the acquisition ThyssenKrupp Elevator will strengthen its position in the Asian market as South Korea is the third largest elevator market in Asia. The results of these operations have been included in the consolidated financial statements since October 01, 2003. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
Substantially all of the intangible assets were assigned to service contracts which are subject to amortization and have a weighted average useful life of approximately 15 years. The final purchase price allocation resulted in goodwill of €130 million (preliminary €121 million) which has been assigned entirely to the acquired companies. No goodwill is deductible for tax purposes. On November 17, 2003, ThyssenKrupp acquired 60% of Mercedes-Benz Lenkungen (MB Lenk) in the Automotive segment at a purchase price of €43 million. The purchase agreement includes a put option nd a call option for the remaining 40% interest. The put option is exercisable between two and five years from the purchase date and the call option is exercisable between three and six years from the purchase date. MB Lenk manufactures steering gears and with the acquisition ThyssenKrupp Automotive becomes a global supplier of complete steering systems. The results of these operations have been included in the consolidated financial statements since December 01, 2003. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:
The final purchase price allocation resulted in goodwill of €6 million (preliminary €8 million) which has been assigned entirely to the acquired companies. No goodwill is deductible for tax purposes. 3 Discontinued operations and disposal groupsAs part of the portfolio optimization program, the Group has sold or has initiated the disposal of several businesses during the current and the prior year period. In accordance with SFAS 144, the majority of these transactions has been classified as discontinued operations and accordingly the results as well as the gain or loss on the disposals of the discontinued operations have been presented separately in the consolidated statements of income in the line item "discontinued operations (net of tax)". Prior periods have been adjusted accordingly. For the entities for which the disposal has not been completed as of September 30 of the respective year, the assets and liabilities of the disposal groups have been disclosed separately in the consolidated balance sheet of the respective reporting period as "assets held for sale" and "liabilities associated with assets held for sale". Year ending September 30, 2005The Steel segment has sold or has initiated the disposal of the following activities: In March 2005, the disposal of Edelstahl Witten-Krefeld GmbH (EWK) was initiated. EWK is an international manufacturer of long products made from special engineering steels, tool steels and stainless steels. On May 09, 2005, the disposal was consummated. The selling price amounted to €107 million resulting in a loss on disposal in the amount of €52 million (€52 million net of tax) of which €44 million were recognized as an impairment loss to write down the related carrying amounts of the long-lived assets to their fair values less cost to sell. The results from the discontinued operation are disclosed in the income statement table of the Steel segment. In September 2005, the disposal of the Hoesch Contecna Systembau GmbH was initiated. The company is involved in the design and installation of steel roof and wall cladding elements. In conjunction with the initiated sale an impairment loss of €11 million (€11 million net of tax) to write down the related carrying amounts of the longlived assets to their fair values less cost to sell was recognized in the line item "loss on the disposal of discontinued operations". The results from the discontinued operation are disclosed in the income statement table of the Steel segment and the assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of Hoesch Contecna Systembau. In September 2005, the disposal of the Schwerte production location of the Hoesch Hohenlimburg GmbH was initiated where special profiles made of steel are produced. The Schwerte plant does not meet the requirements for discontinued operation reporting. Therefore, revenues and expenses will continue to be presented as income from continuing operations until the date of the disposal; this is also applicable for the impairment loss of €19 million to write down the related carrying amounts of the long-lived assets to their fair values less cost to sell which was recognized in conjunction with the initiated sale. The assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of Hoesch Hohenlimburg. The following table shows the assets and liabilities of the disposal groups of the Steel segment:
Results from discontinued operations in the Steel segment are as follows:
The Automotive segment has sold or has initiated the disposal of the following activities: In December 2004, the disposal of the Alu Castings business was initiated. Alu Castings is a development partner and producer of light metal cast products for the international automobile industry. On February 04, 2005, the disposal was consummated. The selling price amounted to €112 million resulting in a gain on disposal of €32 million (€24 million net of tax). The results from the discontinued operation are disclosed in the income statement table of the Automotive segment. In June 2005, the disposal of the European truck spring business which manufactures mainly leaf springs for use in trucks was initiated. On July 14, 2005, the disposal was consummated. The selling price was €10 million resulting in a loss on disposal in the amount of €19 million (€13 million net of tax) recognized as an impairment loss to write down the related carrying amounts of the long-lived assets to their fair values less cost to sell. The results from the discontinued operation are disclosed in the income statement table of the Automotive segment. In September 2005, the disposal of the ThyssenKrupp Stahl Company was initiated. ThyssenKrupp Stahl is one of the largest permanent mold aluminium foundries in the US. In conjunction with the initiated sale an impairment loss of €42 million (€24 million net of tax) to write down the related carrying amounts of the long-lived assets to their fair values less cost to sell was recognized in the line item "loss on the disposal of discontinued operations". The results from the discontinued operation are disclosed in the income statement table of the Automotive segment and the assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of ThyssenKrupp Stahl Company. The following table shows the assets and liabilities of the disposal group ThyssenKrupp Stahl Company of the Automotive segment:
Results from discontinued operations in the Automotive segment are as follows: Table: Discontinued operations in the Automotive segment The Technologies segment has sold or has initiated the disposal of the following activities: In March 2005, the disposal of ThyssenKrupp's Stahlbau business was initiated. ThyssenKrupp Stahlbau manages the manufacturing and the sale of steel building products, including buildings, industrial plants and traffic facilities. On April 15, 2005, the disposal was consummated. The disposal resulted in a loss in the amount of €14 million (€14 million net of tax) which were recognized as an impairment loss to write down the related carrying amounts of the long-lived assets to their fair values less cost to sell. The results from the discontinued operation are disclosed in the income statement table of the Technologies segment. In August 2005, the disposal of the MetalCutting business unit was initiated. MetalCutting offers application-driven solutions for metalcutting machines dedicated to individual user needs. The products offered range from standardized machinery incorporated into production systems to application machinery. In conjunction with the initiated sale, in the 3rd quarter 2004/2005, an impairment loss of €126 million to write down the related carrying amounts of longlived assets to their fair values less cost to sell was recognized. In addition to the impairment of long-lived assets, a loss of €78 million (before tax) was recognized in discontinued operations in the 4th quarter 2004/2005 resulting in total loss on the transaction in 2004/2005 of €204 million before tax and €166 million net of tax, respectively. The results from the discontinued operation are disclosed in the income statement table of the Technologies segment and the assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of MetalCutting. In August 2005, the disposal of the turbine components operation group was initiated. The turbine components group is a manufacturer of components for the international aero engine and power generation industry. In conjunction with the initiated sale an impairment loss of €27 million (€27 million net of tax) to write down the related carrying amounts of the long-lived assets to their fair values less cost to sell was recognized in the line item "loss on the disposal of discontinued operations". The results from the discontinued operation are disclosed in the income statement table of the Technologies segment and the assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of turbine components. The following table shows the assets and liabilities of the disposal groups of the Technologies segment:
Results from discontinued operations in the Technologies segment are as follows: Table: Discontinued operations in the Technologies segment The Services segment has initiated the disposal of the following activities in the current year: In September 2005, the disposal of the Hommel Group was initiated. Hommel distributes a manufacturer-overlapping range of CNC machine tools, including pre- and after-sales services for new and pre-owned machines. In conjunction with the initiated sale an impairment loss of €24 million (€24 million net of tax) to write down the related carrying amounts of the long-lived assets to their fair values less cost to sell was recognized in the line item "loss on the disposal of discontinued operations". The results from the discontinued operation are disclosed in the income statement table of the Services segment and the assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of the Hommel Group. In September 2005, the disposal of the Krupp Druckereibetriebe GmbH was initiated. The company offers a complete package of advertising consultancy and design services, integrated dataprocessing activities and a comprehensive publishing service. The results from the discontinued operation are disclosed in the income statement table of the Services segment and the assets and liabilities of the disposal group as of September 30, 2005, are disclosed in the balance sheet table of Krupp Druckereibetriebe. The following table shows the assets and liabilities of the disposal groups of the Services segment:
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