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Notes to the interim condensed consolidated financial statements

ThyssenKrupp Aktiengesellschaft ("ThyssenKrupp AG" or "Company") is a publicly traded corporation domiciled in Germany. The interim condensed consolidated financial statements of ThyssenKrupp AG and subsidiaries, collectively the "Group", for the period from October 01, 2007 to March 31, 2008, were authorized for issue in accordance with a resolution of the Executive Board on May 08, 2008.

The accompanying Group's interim condensed consolidated financial statements have been prepared in accordance with section 37 w 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 March 31, 2008, are not necessarily indicative for future results.

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

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

Recently issued accounting standards

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

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

In January 2008, the IASB also issued an amendment to IFRS 2 "Share-based Payment". The amendment clarifies that vesting conditions are service conditions and performance conditions only.

It also specifies that all plan cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The application of the amended Standard is compulsory for fiscal years beginning on or after January 01, 2009, while earlier application is permitted. Currently, Management does not expect the adoption of the amended Standards to have a material impact on the Group's consolidated financial statements.

In February 2008 the IASB issued amendments to "IAS 32 Financial Instruments: Presentation und 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 about the instruments affected by the amendments. The application of the amendments is compulsory for fiscal years beginning on or after January 01, 2009, while earlier application is permitted. Currently, Management does not expect the adoption of the amended Standards to have a material impact on the Group's consolidated financial statements.

On January 01, 2005, the Group began to participate in the European Union Emissions Trading Scheme (ETS). The Group received notification from the national emissions-trading agency that it is entitled to receive allowances to emit 56.0 million tons of CO2 during the compliance period 2005 – 2007 and 107.0 million tons of CO2 during the compliance period 2008 – 2012. The majority of the total allowances are allocated to the Steel segment. The rights are capitalized at cost as an intangible asset. If the emissions are expected to exceed the amount covered by the available allowances, the Group records an obligation for the purchase of additional allowances.

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

The total purchase price including incidental costs was €89 million in cash. The intangible assets are almost exclusively customer contracts. The provisonal purchase price allocation resulted in goodwill of €38 million, which includes non-separable assets such as assembled workforce, new contractual customers and synergies arising from the integration of the Apollo businesses.

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

million €
Carrying
amounts		 Adjustments Fair values
Goodwill 0 38 38
Other intangible assets 0 7 7
Property, plant and equipment 3 0 3
Other financial assets 5 0 5
Deferred tax assets 0 1 1
Inventories 52 0 52
Trade accounts receivable 33 0 33
Other current financial assets 3 0 3
Other current non-financial assets 3 0 3
Cash and cash equivalents 10 0 10
Total assets acquired 109 46 155
Current income tax liablilities 2 0 2
Interest-bearing current financial liabilities 24 0 24
Trade accounts payable 24 0 24
Other current financial liabilities 2 0 2
Other current non-financial liabilities 13 0 13
Total liabilities assumed 65 0 65
Net assets acquired 44 46 90
Minority interest 1 0 1
Purchase price (incl. incidental cost) 89
thereof: paid in cash and cash equivalents 89

Since the Apollo group belongs to the ThyssenKrupp Group, it has generated sales of €48 million and income before income taxes of €5 million, which are included in the 1st-half consolidated statement of income.

If the acquisition had taken place on October 01, 2007, the Apollo group would have contributed sales of €97 million and income before income taxes of €13 million to the Group's consolidated income.

In the 1st half ended March 31, 2008, the Group also acquired companies that are, on an individual basis, immaterial. Based on the values of the acquisition date, these acquisitions affected, in total, the Group's consolidated financial statements as presented below:

million €
1st half ended March 31, 2008
Carrying amounts as of acquisition date Adjustments Fair values as of acquisition date
Goodwill 0 50 50
Other intangible assets 1 12 13
Property, plant and equipment 37 5 42
Investments accounted for using the equity method 0 (26) (26)
Deferred tax assets 2 0 2
Inventories 45 0 45
Trade accounts receivable 56 0 56
Other current financial assets 2 0 2
Other current non-financial assets 4 0 4
Current income tax assets 3 0 3
Cash and cash equivalents 44 0 44
Total assets acquired 194 41 235
Other non-current provisions 1 0 1
Deferred tax liabilities 3 3 6
Interest-bearing non-current financial liabilities 4 3 7
Other current provisions 8 0 8
Interest-bearing current financial liabilities 39 0 39
Trade accounts payable 41 0 41
Other current financial liabilities 7 0 7
Other current non-financial liabilities 21 1 22
Total liabilities assumed 124 7 131
Net assets acquired 70 34 104
Minority interest 19 1 20
Purchase prices (incl. incidental acquisition cost) 84
thereof: paid in cash and cash equivalents 84

In addition, in the 1st half ended March 31, 2008, the Group sold companies as part of the portfolio optimization that were, on an individual basis, immaterial. Based on the values at the disposal date, these disposals affected, in total, the Group's consolidated financial statements as presented below:

million €
1st half ended
March 31, 2008
Goodwill 2
Property, plant and equipment 60
Investment property 4
Deferred tax assets 2
Inventories 53
Trade accounts receivable 40
Other current financial assets 4
Other current non-financial assets 5
Cash and cash equivalents 16
Total assets disposed of 186
Accrued pension and similar obligations 29
Other non-current provisions 3
Deferred tax liabilities 2
Other current provisions 14
Current income tax liablilities 2
Interest-bearing current financial liabilities 42
Trade accounts payable 26
Other current financial liabilities 6
Other current non-financial liabilities 17
Total liabilities disposed of 141
Net assets disposed of 45
Gain/(loss) resulting from the disposals 43
Selling prices 88
thereof: received in cash and cash equivalents 88

In December 2007, as part of the portfolio optimization program, in the Technologies segment the disposal of the ThyssenKrupp Präzisionsschmiede was initiated. ThyssenKrupp Präzisionsschmiede develops and produces forged parts for cars and trucks. The transaction did not meet the requirements for discontinued operation reporting in accordance with IFRS 5. Therefore, revenues and expenses continued to be presented as income from continuing operations until the date of the disposal. The disposal was consummated in the 2nd quarter ended March 31, 2008 at a selling price of €85 million paid in cash and the disposal of €8 million of cash and cash equivalents.

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

Management incentive plans

In January 2008, ThyssenKrupp granted 32,440 stock rights under the sixth installment of the mid-term incentive plan. In addition in the 2nd quarter ended March 31, 2008, the stock rights granted in the third installment of the mid-term incentive plan were settled with a payment of €54.1 million. In total, ThyssenKrupp recorded a compensation expense of €5.4 million from the obligations of the mid-term incentive plan in the 2nd quarter ended March 31, 2008 (2nd quarter ended March 31, 2007: €9.3 million) resulting in compensation expense of €3.6 million in the 1st half ended March 31, 2008 (1st half ended March 31, 2007: €33.4 million).

In the 2nd quarter ended March 31, 2008, the Group's Share Purchase Program for the fiscal year 2006/2007 was settled with the purchase of 229,664 shares at a discount. At the same time, in March 2008 it was decided to renew the Program for fiscal year 2007/2008. Under the Program, again selected executive employees are entitled to purchase up to a fixed amount ThyssenKrupp shares at a discount. In total, the Group's Share Purchase Program resulted in a compensation expense of €1.3 million in the 2nd quarter ended March 31, 2008 (2nd quarter ended March 31, 2007: income of €0.1 million) and of €5.3 million in the 1st half ended March 31, 2008 (1st half ended March 31, 2007: €4.8 million).

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

Tabelle: Cost for pensions and similar obligations

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

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

million €
1st half ended
March 31,
2007
USA/Canada		 1st half ended
March 31,
2008
USA/Canada		 2nd quarter
ended
March 31,
2007
USA/Canada		 2nd quarter
ended
March 31,
2008
USA/Canada
Service cost 7 5 3 2
Interest cost 29 29 14 15
Expected return on reimbursement rights (3) (2) (1) (1)
Settlement and curtailment gain (39) 0 0 0
Net periodic postretirement benefit cost (6) 32 16 16

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

Tabelle: Total equity

By the resolution of the Annual General Meeting on January 18, 2008, ThyssenKrupp AG is authorized through July 17, 2009, to purchase treasury stock for certain defined purposes up to a total of 10% of the current capital stock issued. On the basis of this authorization, the Executive Board of ThyssenKrupp AG resolved on January 31, 2008, to purchase treasury shares on the stock market up to around 3% of the capital stock issued. In the period from February 01, 2008, up to March 07, 2008, ThyssenKrupp AG purchased a total of 14,791,100 treasury shares, representing around 2.9% of the capital stock, at an average price of €35.34. This represents a total amount of €523 million.

Guarantees

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

million €
Maximum
potential
amount of
future
payments as
of March 31,
2008		 Provision
as of
March 31,
2008
Advance payment bonds 105 0
Performance bonds 69 1
Third party credit guarantee 31 0
Residual value guarantees 45 1
Other guarantees 129 2
Total 379 4

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

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

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

Special purpose entities

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

Commitments and other contingencies

On November 20, 2007, the EU Commission ruled that a law adopted by the Republic of Italy in 2005 granting ThyssenKrupp Acciai Speciali Terni S.p.A. among other companies certain benefits in the purchase of electricity was inadmissible state aid. The EU Commission requested Italy to recover aid paid under this law from the companies concerned. On January 31, 2008 Italy filed a complaint against the Commission's decision. On February 06, 2008 ThyssenKrupp Acciai Speciali Terni also filed a complaint against the decision. It is not yet possible to say definitively whether, and if, in what amount recovery claims will be made by the Italian government and claims made hitherto by ThyssenKrupp Acciai Speciali Terni will be settled by Italy. If the outcome of the legal case is unfavorable, a material effect on the consolidated financial statements of ThyssenKrupp cannot be ruled out.

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

Pending lawsuits and claims for damages

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

Regarding the remaining contingencies, including pending litigations, there have been no significant changes since the previous year end.

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

million €
Notional amount Sept. 30, 2007 Carrying amount Sept. 30, 2007 Notional amount March 31, 2008 Carrying amount March 31, 2008
Derivative financial instruments
Assets
Foreign currency derivatives including embedded derivatives 3,950 182 3,754 285
Interest rate derivatives* 757 4 798 50
Commodity derivatives 854 68 839 69
Total 5,561 254 5,391 404
 
Liabilities
Foreign currency derivatives including embedded derivatives 5,181 241 5,005 445
Interest rate derivatives* 208 6 151 7
Commodity derivatives 827 86 585 73
Total 6,216 333 5,741 525
* inclusive of cross currency swaps

In the 1st half ended March 31, 2008, a Group subsidiary realized sales of €1.1 million resulting from a €2 million elevator modernization contract which the subsidiary received in 2006/2007 from an entity belonging to the Alfried Krupp von Bohlen and Halbach Foundation.

ESG Legierungen GmbH is classified as a related party due to the fact that a close member of the family of an Executive Board member is a managing director. In the 1st half ended March 31, 2008, the Group realized sales of €0.9 million with ESG Legierungen GmbH from the sale of zinc. In the same period the Group purchased zinc alloy with a value of €0.1 million from ESG Legierungen GmbH. The transactions were carried out at market conditions and settled as of March 31, 2008.

Segment information for the 1st half ended March 31, 2007 and March 31, 2008 as well as for the 2nd quarter ended March 31, 2007 and March 31, 2008 is as follows:

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million €
Steel Stainless Technologies Elevator Services Corporate Consolidation Group
1st half ended March 31, 2007
External sales 5,752 3,878 5,541 2,169 7,885 221 0 25,446
Internal sales within the Group 755 500 55 2 421 12 (1,745) 0
Total sales 6,507 4,378 5,596 2,171 8,306 233 (1,745) 25,446
Income/(loss) before income taxes 870 616 256 (293) 332 (136) (11) 1,634
 
1st half ended March 31, 2008
External sales 6,117 3,372 5,816 2,346 7,767 51 0 25,469
Internal sales within the Group 736 421 35 2 332 9 (1,535) 0
Total sales 6,853 3,793 5,851 2,348 8,099 60 (1,535) 25,469
Income/(loss) before income taxes 749 (7) 365 209 267 (181) (14) 1,388
 
2nd quarter ended March 31, 2007
External sales 2,995 2,114 2,766 1,087 4,120 32 0 13,114
Internal sales within the Group 394 293 38 1 214 7 (947) 0
Total sales 3,389 2,407 2,804 1,088 4,334 39 (947) 13,114
Income/(loss) before income taxes 471 291 108 (390) 140 (43) (5) 572
 
2nd quarter ended March 31, 2008
External sales 3,245 1,723 3,012 1,163 4,034 22 0 13,199
Internal sales within the Group 394 232 17 1 198 4 (846) 0
Total sales 3,639 1,955 3,029 1,164 4,232 26 (846) 13,199
Income/(loss) before income taxes 396 38 186 90 135 (97) (6) 742

Basic earnings per share is computed as follows:

Tabelle: Earnings per share

Relevant number of common shares for the determination of earnings per share

Earnings per share have been computed by dividing income attributable to common stockholders of ThyssenKrupp AG (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Shares issued during the period and shares reacquired during the period have been weighted for the portion of the period that they were outstanding.

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

There were no dilutive securities in the periods presented.

Non-cash investing activities

In the 1st half ended March 31, 2008, the acquisition and first-time consolidation of companies created an increase in non-current assets of €135 million (1st half ended March 31, 2007: €8 million).

The non-cash addition of assets under finance leases in the 1st half ended March 31, 2008 amounts to €31 million (1st half ended March 31, 2007: €8 million).

Non-cash financing activities

In the 1st half ended March 31, 2008, the acquisition and first-time consolidation of companies results in an increase in gross financial liabilities of €70 million (1st half ended March 31, 2007: €0 million).

On April 03, 2008, ThyssenKrupp Elevator informed the relevant employees representation bodies about its plan to shut down the factories in Gratkorn (Austria) and in Valencia (Spain). Main reason for this closure is the market driven cessation of components and systems which have been produced in these factories so far. Expected expenses will be around €40 million.

On April 16, 2008, ThyssenKrupp Access Manufacturing LLC acquired the business operations of The National Wheel-O-Vator Company (NWOV), both USA, in an asset deal. NWOV has been engaged since 1982 in the production of mainly home elevators and vertical platform lifts. With the acquisition, ThyssenKrupp Elevator intends to strengthen its leading market position in the USA in the above-mentioned product areas. In 2007 NWOV generated sales of around €31 million and employed roughly 180 people.

In the Steel segment, the management of ThyssenKrupp Sofedit began formal consultations with employee representatives on May 06, 2008 about a project to restructure the company. The project involves the closure of two sites (Amilly and Vendôme), the restructuring of the Auxi-le-Château site and the relocation of the head office in Saint-Quentin-en-Yvelines (near Paris) to the largest production site in Le-Theil-sur-Huisne to achieve necessary cost savings and adapt capacities to falling domestic production by French auto manufacturers. Expenses of around €100 million are expected.