Notes to the consolidated statements of income

4 Selling expenses

Selling expenses include direct shipping and handling cost including related insurance premiums in the amount of €748 million (2003/2004: €746 million; 2002/2003: €724 million).

5 Other operating income

Other operating income includes gains on the disposal of property, plant and equipment and intangible assets in the amount of €37 million (2003/2004: €71 million; 2002/2003: €45 million) and insurance compensation in the amount of €29 million (2003/2004: €46 million; 2002/2003: €27 million).

6 Other operating expenses

Other operating expenses include losses on the disposal of property, plant and equipment and intangible assets in the amount of €44 million (2003/2004: €67 million; 2002/2003: €54 million), restructuring charges in the amount of €17 million (2003/2004: €53 million; 2002/2003: €104 million) and other accruals (excluding restructuring) in the amount of €99 million (2003/2004: €17 million; 2002/2003: €14 million). Additional expenses in connection with non-customer related research activities are shown here in the amount of €186 million (2003/2004: €191 million; 2002/2003: €183 million).

7 Financial income/(expense), net

million €
			Year ending Sept. 30, 2003		Year ending Sept. 30, 2004		Year ending Sept. 30, 2005
Income from profit and loss sharing agreements			1		1		2
Losses from profit and loss sharing agreements			(2)		(2)		(3)
Income from companies accounted for at equity			57		20		37
Income from investments accounted for at cost			9		5		10
amount thereof from non-consolidated subsidiaries			2		2		2
Gains/(losses), net from disposals of investments in non-consolidated companies and other investments			(1)		10		(2)
Write-down of investments in non-consolidated companies and other investments			(6)		(1)		(2)
Income from equity investments			58		33		42
Income from other securities and loans classified as financial assets			8		9		7
Other interest and similar income			111		71		131
amount thereof from non-consolidated subsidiaries			1		1		1
Interest and similar costs			(310)		(298)		(309)
amount thereof from non-consolidated subsidiaries			(1)		0		0
Interest expense, net			(191)		(218)		(171)
Gains/(losses) from disposals of loans and securities, net			3		2		(1)
Write-down of loans and securities			(19)		(5)		(6)
Miscellaneous, net			(8)		(22)		(7)
Other financial income/(loss), net			(24)		(25)		(14)
Total			(157)		(210)		(143)

Interest capitalized in connection with long-term construction activities resulted in a decrease of interest expense in the amount of €16 million (2003/2004: €14 million; 2002/2003: €7 million).

8 Investment in RAG Aktiengesellschaft

In the course of the fiscal year 2004/2005, the political environment concerning the extraction of coal has worsened significantly, which had a direct impact on our RAG investment. Management anticipates that government authorities will subsidize the coal mining industry in Germany to a much lesser extent than in the past. As a result, RAG Aktiengesellschaft will be forced to contribute significantly more capital to maintain its domestic production of coal. Based on revised estimates, ThyssenKrupp expects the period in which domestic coal mining industry will be able to operate under reasonable economic and technical conditions to be much shorter than previously expected. These expected changes have necessitated a full impairment of the Group's cost investment in RAG Aktiengesellschaft amounting to €442 million, which has been reported in a separate line within the consolidated statement of income.

In addition, the Group increased by €32 million its accrual for asset retirement obligations stemming from its former mining business, which was prior to 1969. This change in estimate has resulted from the recent developments concerning the sustainability of the domestic coal mining industry.

9 Income taxes

In the fiscal year ending September 30, 2005, 59% (2004: 39%; 2003: 26%) of income from continuing operations before income taxes and minority interest was attributable to Germany and 41% (2004: 61%; 2003: 74%) to foreign countries.

Income tax expense (benefit) for the year ending September 30, 2005
and the two previous years consists of the following:

million €
* adjusted due to the presentation of discontinued operations (see Note 3)
			Year ending Sept. 30, 2003*		Year ending Sept. 30, 2004*		Year ending Sept. 30, 2005
Current income taxes
Germany			(56)		22		118
Foreign			189		255		255
Deferred income taxes
Germany			(10)		239		332
Foreign			31		71		30
Total			154		587		735

The German corporate income tax law applicable for 2004/2005 sets a statutory income tax rate of 25% (2003/2004: 25%; 2002/2003: 26.5%) plus a solidarity surcharge of 5.5%. On average, the Group’s German companies are subject to a trade tax rate of 13.04% (2003/2004: 13.04%; 2002/2003: 12.75%).

At year-end September 30, 2005, as well as in the two previous years, deferred taxes of German companies were calculated with a combined income tax rate of 39.42% (including 13.04% trade tax rate). For foreign companies, the respective country-specific tax rates have been used.

The following table reconciles the statutory income tax expense to the actual income tax expense presented in the financial statements. For calculating the statutory income tax expense, in fiscal year 2004/2005, the combined income tax rate of 39.42% (2003/2004: 39.42%; 2002/2003: 40.71%) was applied to income from continuing operations before taxes and minority interest.

million €
* adjusted due to the presentation of discontinued operations (see Note 3)
			Year ending Sept. 30, 2003*		in %		Year ending Sept. 30, 2004*		in %		Year ending Sept. 30, 2005		in %
Expected income tax			326		40.7		582		39.4		724		39.4
Changes in German tax law			(6)		(0.8)		1		0.1		0		0.0
Foreign tax rate differential			(21)		(2.6)		(30)		(2.0)		(10)		(0.5)
Tax consequences of disposal of businesses			13		1.6		(2)		(0.2)		(2)		(0.1)
Non-deductible expenses			6		0.8		19		1.3		38		2.1
Change in valuation allowance			23		2.9		27		1.8		13		0.7
Reversal and adjustment of tax positions			-146		(18.2)		0		0.0		0		0.0
Income from companies accounted for at equity			(20)		(2.5)		(2)		(0.2)		(5)		(0.3)
Other, net			(21)		(2.6)		(8)		(0.5)		(23)		(1.3)
Actual income tax expense			154		19.3		587		39.7		735		40.0

As of September 30, 2005, tax loss carryforwards amount to €2,501 million (2004: €2,496 million). According to tax legislation as of September 30, 2005, tax losses in the amount of €1,995 million (2004: €2,030 million) may be carried forward indefinitely and in unlimited amounts. An amount of €506 million (2004: €466 million) of the tax loss carryforwards will expire over the period through 2025 if not utilized. German tax law restricts offset of taxable income against existing tax loss carryforwards to an amount of €1 million plus 60% of taxable income above €1 million.

For deferred tax assets, a valuation allowance of €372 million (2004: €323 million) is reported which primarily relates to the tax loss carryforwards. In general, deferred tax assets are recognized to the extent it is considered more likely than not that such benefits will be realized in future years. Management believes that, based on a number of factors, the available evidence creates sufficient uncertainty regarding the ability to realize particular tax benefits. In determining this valuation allowance, all positive and negative factors, including prospective results, were taken into consideration in determining whether sufficient income would be generated to realize deferred tax assets.

Significant components of the deferred tax assets and liabilities are as follows:

million €
			Sept. 30, 2004		Sept. 30, 2005
Intangible assets			56		33
Property, plant and equipment			423		122
Financial assets			6		18
Inventories			89		113
Other assets			104		158
Tax loss carryforwards			799		765
Accrued pension and similar obligations			758		1,293
Other accrued liabilities			263		318
Other liabilities			607		932
			3,105		3,752
Valuation allowance			(323)		(372)
Deferred tax assets			2,782		3,380
Intangible assets			177		261
Property, plant and equipment			1,123		1,050
Financial assets			43		49
Inventories			586		851
Other assets			359		450
Accrued pension and similar obligations			2		1
Other accrued liabilities			150		360
Other liabilities			176		405
Deferred tax liabilities			2,616		3,427
Net deferred tax assets			166		(47)

The classification of the deferred tax assets and liabilities is as follows:

million €
			Sept. 30, 2004		Non current portion		Sept. 30, 2005		Non current portion
Deferred tax assets			1,150		966		1,480		1,228
Deferred tax liabilities			984		408		1,527		440
Net deferred tax assets			166		558		(47)		788

Deferred tax liabilities on undistributed profits of foreign subsidiaries were not recorded, as such profits are to remain invested on a permanent basis. It is not practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings.

The components of income tax expense are as follows:

million €
* adjusted due to the presentation of discontinued operations (see Note 3)
			Year ending Sept. 30, 2003*		Year ending Sept. 30, 2004*		Year ending Sept. 30, 2005
Income tax expense as presented on the income statement			154		587		735
Income tax expense/(benefit) for "other comprehensive income"			(147)		31		(317)
Income tax expense on discontinued operations			23		62		48
Income tax benefit on the cumulative effects of changes in accounting principles			(8)		0		(2)
Total			22		680		464