142
1998/99
¤ DM
368.3 720.3
0.71581 1.40
Proposal to Annual Stockholders' Meeting
Total dividend payment m
Dividend per share
1998/99
29,380.6
29,794.1
2,397.4
623.8
266.9
0.55
0.83
3.3
9.4
6.3
8.3
– 533.0
– 117.1
6,193.4
8,053.0
76.9
184,770
1998/99
31,964.0
32,377.5
2,551.6
616.3
274.8
0.53
0.79
3.4
9.6
6.4
8.3
– 518.6
– 125.6
6,193.4
8,053.0
76.9
184,770
1997/98
36,265.1
35,883.5
3,042.6
1,335.2
694.6
1.35
1.45
9.0*
18.3*
10.3
12.8
248.0
630.1
3,740.7*
7,750.0*
48.3*
183,937
in ¤
Order intake m
Sales m
EBITDA m
Income before taxes and
minority interest m
Net income m
Earnings per share
Earnings per share excluding non-recurring items
Return on equity
including purchase accounting %
excluding purchase accounting %
ROCE
including purchase accounting %
excluding purchase accounting %
EVA
including purchase accounting m
excluding purchase accounting m
Net financial payables m
Stockholders’ equity m
Gearing %
Employees (Sept. 30)
The Group in figures
Pro forma figures
THE GROUP IN FIGURES
* Thyssen and Krupp excluding Dover Elevators and
Mannesmann Handel
CONTENTS 1
ThyssenKrupp 1998/99: Financial Report.
The Group in Figures
2 Letter to Stockholders
7 Management´s Discussion and Analysis
of Results of Operations and Financial Condition
31 Consolidated Financial Statements
91 Additional Disclosures Pursuant
to Art. 292a of the German Commercial Code (HGB)
132 Report by the Supervisory Board
136 Abbreviated Terms
Dear Stockholders,
For ThyssenKrupp, 1998/99 was the year of the merger:
" Thyssen and Krupp were combined swiftly into a new entity. Our task was to implement the merger
plan that you approved by a large majority in late 1998 and justify the trust you placed in us.
" Our businesses were operating in a difficult economic environment. They were not to be additionally
impeded by the post-merger process. On the contrary, the merger of Thyssen and Krupp was to bring
immediate benefits for all.
" The merger is not the end of the road. It is the platform on which to strengthen the competitiveness of
ThyssenKrupp long-term and the foundation for the strategic realignment ahead.
We went to work on this three-fold challenge immediately, drawing on the combined efforts of all
employees at all levels of the Group to achieve our shared aims. We would like to thank everyone for their
extremely hard work in the crucial first year of the new company.
Today we want to take stock and report to you, the owners of the Company, on the year of the merger.
We also wish to explain to you how we see the future for ThyssenKrupp.
Merger completed in mere months
We succeeded quickly in combining Thyssen and Krupp. A detailed timetable and action plan for
implementing the merger, early decisions on filling management positions and a policy of keeping
employees fully informed were important factors in this. In summer 1999, mere months after the launch
of ThyssenKrupp, the process was largely complete.
Speed was of the essence. The task was to bring the merger plan to life and prove it made sense, and
there is no more persuasive argument than rapid success. Not least through the speed of the post-merger
integration we proved that the merger was the right solution for Thyssen and Krupp.
Compared with combining our production and service capacities, optimizing our locations and uniting
our workforces, the job of harmonizing our internal reporting and information systems will appear to many
2
Letter to Stockholders.
to be of secondary importance, but in fact it was key to managing the new company efficiently and
measuring the success of the integration process.
We used the opportunity created by the harmonization of our reporting systems to take another step
toward enhancing the transparency of our operations, internally and externally. ThyssenKrupp switched its
accounting to US GAAP for the 1998/99 fiscal year and in doing so adopted the highest international stand-
ard. Under US GAAP rules our merger has to be accounted for as if Thyssen had acquired Krupp. The date of
the initial consolidation is December 4, 1998 – the date of the merger stockholders’ meeting of Thyssen AG –
as the hypothetical date of acquisition. Krupp is included in the US GAAP figures as of this date only. This
approach detracts materially from the comparability of the figures and presents an inadequate picture of the
Group's actual performance. Therefore, in addition to the legally relevant US GAAP statements we have
stated key financial figures on a pro forma basis, both for 1998/99 and for 1997/98. For this reason, this
year's annual report is a double offering: the Year One Report is based on the comparable pro forma figures
on an annualized basis, while the Financial Report contains the US GAAP statements.
Business and earnings satisfactory
The economic weakness affecting many of the sectors and regions of importance to the Group left its mark
on our books as well. On a like-for-like basis, sales in the reporting period fell 3.5 billion Euros to 32.4 billion
Euros. Income before taxes and minority interests decreased from 1,335 million Euros to 616 million Euros.
The US GAAP consolidated statements for the first fiscal year show sales of 29.8 billion Euros and income
before taxes and minority interests of 624 million Euros. This translates into earnings per share excluding
non-recurring items of 0.83 Euros or 1.62 DM. Based on this we will be recommending the Annual
Stockholders' Meeting on May 24, 2000 to approve the payment of a dividend of 1.40 DM or 0.71581 Euros
per share for 1998/99.
Six strategic core businesses in future
The world keeps on turning. The merged Group therefore cannot afford to take a break. In fact business
momentum has quickened even more with the new technologies and the increasingly global transfer of
resources of all kinds. It is all the more important to face up to the challenges of competition.
LETTER TO STOCKHOLDERS 3
In summer 1999 we carried out an analysis of the Group's extended portfolio of businesses after the
merger, examining their strengths and weaknesses and assessing their potential for growth and value
generation against their financing requirements. The result was clear – the merger has strengthened our
market positions and opened new strategic opportunities. All our businesses are capable of expansion.
However the available financial resources of the Group and the differences in growth potential between
the businesses call for further concentration and focusing. Selection criteria are profitability and liquidity,
growth in the market, competitive positioning, service share of sales and position in the life cycle. The core
businesses in which ThyssenKrupp aims to rank among the best worldwide are Automotive, Elevators,
Production Systems, Components, MaterialsServices and FacilitiesServices, plus the soon to be listed Steel
business. The Real Estate activities do not meet our strict criteria for a core business but in view of their
significance will also be continued.
For activities which we no longer see as core businesses we will be seeking development opportunities
outside the Group. What we have in mind primarily are strategic partnerships in which the partner's core
business is strengthened by our activities, but other possibilities are collaboration, sale or flotation.
ThyssenKrupp Steel to go public
The future realignment will include the floating off of the Steel segment as a listed stock company.
Thyssen and Krupp grew up with steel. The combination of their steel activities in ThyssenKrupp Steel made
the company into one of the world's foremost carbon steel flat-rolled manufacturers and the number one
stainless flat-rolled producer worldwide.
The IPO planned for the current year will give ThyssenKrupp the opportunity to significantly reduce the
cyclicality of its business. Clearly separated from the listed steel company – a straight steel stock – the
Group's core businesses will in future be capable of being assessed on a more differentiated basis. In
addition, we will be able to use the funds raised by floating 25 – 35% of the steel business to further
strengthen the core businesses.
The steel business will also profit from the move. In future it will be able to develop new sources of finance
for expansion and growth. In addition, with its shares it will have its own acquisition currency for further
LETTER TO STOCKHOLDERS4
strategic options. High technological competence, an optimized cost structure and the successfully initiated
globalization will make the Steel stock an attractive investment. The Group will continue to share in this.
Services for complete customer solutions
A key asset in our relationships with customers is our expertise in technologies, systems and services.
High-quality industrial products and services are our business, backed by advanced technologies.
Whether it's remote-monitored elevators, electronically controlled shock absorbers, just-in-time supply of
tailored materials, maintenance of industrial equipment or operation of customer care centers – we give our
clients individually customized solutions matched to the task in hand. The services side of our business is
increasing all the time. Already services account for 15 – 20% of Group sales. We are working on increasing
our involvement at more and more points along the value chain. Around the world we are developing and
expanding long-term system and value partnerships.
An important role will be played in the future by e-commerce. It will affect all corporate functions – from
buying to selling to services. In future more and more companies will purchase their raw materials on elec-
tronic markets, farm out functions like service or maintenance to online experts and in doing so achieve
major cost savings. ThyssenKrupp intends to seize this opportunity with an e-commerce drive, focusing both
on our own products and on services for others.
The service business offers attractive earnings contributions and low capital intensity and thus delivers
higher value-added, giving us an additional lever to increase the value of the Company.
High enterprise value for a secure future
Concentrating on and growing the six core segments, the planned flotation of Steel and a stronger focus
on services are central planks of ThyssenKrupp's forward strategy. In some areas we are already world
leaders today, while in others the strategic realignment marks out the path to leadership.
LETTER TO STOCKHOLDERS 5
The faster we move down this path, the more successful we will be in raising and sharpening our profile in
the financial community. In future ThyssenKrupp will be identified more and more clearly as a provider of
advanced industrial products and services. Through the efforts of our employees around the globe and
through systematic value management we will create added value for our customers and our stockholders.
This added value will give us the strength for future innovations, sustained profitability and further growth.
Together, let us continue to develop this value-based partnership.
Dr. Gerhard Cromme Prof. Dr. Ekkehard Schulz
Chairmen of the Executive Board
LETTER TO STOCKHOLDERS6
CONTENTS 7
Management´s Discussion and Analysis ofResults of Operations and Financial Condition.
8 Basis for Reporting
8 US GAAP Conversion
9 Reporting in Euro
9 Impact of “purchase accounting”
10 Prior year's figures
11 Segment Reporting
13 Operations to be disposed of
14 Income before taxes and minority interests
17 Income taxes
18 EPS – Earnings per share
19 Dividend
20 Economic Value Added Management
24 Statement of Cash Flows
25 Balance Sheet Presentation
27 Central financing of the ThyssenKrupp Group
29 Long Term Management Incentive Plan
US GAAP Conversion
Thyssen Krupp AG was created by the legal merger of Fried. Krupp AG Hoesch-Krupp (“Krupp”) and
Thyssen AG (“Thyssen”). The annual financial statements of Thyssen Krupp AG for its initial fiscal
year 1998/99 were prepared in accordance with United States Generally Accepted Accounting
Principles (US GAAP). Prior to the merger, the two legacy companies prepared their financial
statements in accordance with the German Commercial Code (HGB). The determining factors in the
Company's decision to report its financial results under US GAAP were as follows:
" US GAAP is widely accepted in international capital markets and facilitates financing activities
in European and non-European capital markets.
" US GAAP is oriented towards shareholder information requirements and provides high
transparency supporting the disclosure of the Group's potential for increased value.
Virtually all of the Group’s consolidated companies have adopted US GAAP for the preparation of
their financial statements. The financial statements of the individual companies comprising the
Group’s consolidated financial statements under US GAAP have been prepared either originally in
accordance with US GAAP or in compliance with the statutory standards applicable in an individual
company’s respective country, which have then been reconciled to US GAAP. The Group decided not
to prepare consolidated financial statements under the German Commercial Code for the following
reasons:
" A change in German Commercial Code (Par. 292a of HGB), has enabled corporations to satisfy
their obligation to prepare consolidated financial statements by preparing consolidated financial
statements in compliance with international standards. US GAAP is among the officially
recognized standards of accounting. Following the newly introduced Par. 292a of the HGB, the
preparation of consolidated financial statements under US GAAP makes the obligation to prepare
consolidated financial statements under HGB redundant.
" The harmonization of the accounting policies of the two former companies, Thyssen and Krupp,
would have required comprehensive adjustment measures in both companies' accounting systems.
Hence, the adoption of US GAAP as a uniform standard assisted in standardizing the new
company's financial reporting.
" In connection with the conversion to US GAAP, the Group also has adopted US GAAP for its
internal reporting. This measure promotes economic value added corporate control.
8
Basis for Reporting.
Pursuant to Par. 292a of the HGB, German companies preparing consolidated financial statements
under US GAAP are obligated to provide particular supplementary comments. Such comments can
be found from page 91 onwards. They encompass a transition of the balance sheet amounts
determined under HGB as of September 30, 1998, to the corresponding amounts under US GAAP.
Reporting in Euro
To facilitate comparability with other European companies, the amounts within the annual report are
presented in Euro. The financial data was prepared on a DM basis and subsequently restated at
the legal conversion rate of DM 1.95583 per Euro. The Group’s restated Euro financial statements
depict the same trends as would have been presented if the Group had continued to present its
consolidated financial statements in DM. The Group’s consolidated financial statements will not be
comparable to the Euro financial statements of other companies that previously recorded their
financial information in a currency other than DM.
Impact of “purchase accounting”
The merger of the former companies Thyssen and Krupp, which created Thyssen Krupp AG,
represented a major event in the fiscal year 1998/99. Under German accounting principles, this
transaction was treated as a merger of equals and the business operations of the participating
companies have been combined retroactively as of October 1, 1998 and continue on a joint basis.
Under US GAAP, the combination of Thyssen and Krupp is accounted for as a purchase of Krupp by
Thyssen, in accordance with APB 16. Accordingly, Thyssen's operations prior to the consummation
of the purchase on December 4, 1998 are presented separately, exclusive of the operations of the
former Krupp. The operations of both companies have been recorded jointly only since the date of
consummation. The purchase price determined for Krupp was based upon the market capitalization
of Thyssen at the time when the merger was agreed and upon the ratio of the old companies' stock-
holders' ownership in Thyssen Krupp AG's equity capital. Krupp's assets and liabilities were valued
at fair market value as of December 4, 1998. The excess purchase price over the fair market value
of net assets acquired, has been recorded as goodwill and has been allocated to the individual
operations of Krupp.
The merger of legacy Thyssen and Krupp cannot be accounted for as a pooling of interests where-
by, as described in APB 16, both companies would have had their historical book values carried
forward. This is due to the fact that the two legacy companies had strong pre-merger common
interests with each other such as the joint venture between Thyssen Krupp Stahl AG and Krupp
Thyssen Nirosta GmbH. Such common interests preclude pooling of interests accounting since the
pooling of interests accounting method requires that the combining companies be independent of
each other.
BASIS FOR REPORTING 9
Prior year's figures
The consolidated financial statements for the fiscal year ended 1998/99 do not present prior year
figures; the reporting covers only the fiscal year 1998/99. The figures of the financial statements for
the fiscal years preceding 1998/99 have not been disclosed, as their informative value would have
been significantly diminished. This is because under US GAAP, only the consolidated financial state-
ments of legacy Thyssen would have been presented for fiscal year 1997/98. Such a presentation
would have provided limited comparability to the corresponding fiscal year 1998/99 figures, since
the scope and objective of the Group's operations have changed significantly as a result of the
merger of Thyssen and Krupp.
The pro forma information prescribed by APB 16 for the fiscal years 1997/98 and 1998/99 provides
a manner in which the operations can be presented on a comparable basis. The reporting procedures
which must be employed for pro forma presentations entails giving effect to significant acquisitions
made during fiscal year 1998/99 as if the transactions occurred at the beginning of each of the
periods presented. Significant acquisitions made during fiscal year 1998/99 encompass Krupp,
Dover Elevators acquired on January 5, 1999, and Mannesmann Handel, acquired on April 1, 1999.
The pro forma information was derived using the accounting basis of the actual purchase for both
1998/99 and 1997/98.
Since the Group first adopted US GAAP effective as of October 1, 1998, the comparative pro forma
figures for fiscal year 1997/98, were not determined using the same policies which were applied
for the 1998/99 consolidated financial statements. The financial information relating to the year
1997/98 was based on the legacy consolidated financial statements of Thyssen and Krupp which
had been prepared, under HGB and were restated, using the policies applied for the fiscal year
1998/99. In order to reconcile the prior year figures to US GAAP, it was necessary to make
significant estimates, which were partially based on general assumptions. The pro forma results are
unaudited and do not necessarily represent results which would have occurred if the acquisitions
had taken place at the beginning of each period.
Statements made in the following pages relating to changes of figures contained in the financial
statements for fiscal year 1998/99 against fiscal year 1997/98 relate to the unaudited pro forma
figures.
BASIS FOR REPORTING10
Segment Reporting
On November 16, 1999, the Executive Board of Thyssen Krupp AG announced its plan for the
Group's strategic realignment. This plan was approved by the Supervisory Board on December 3,
1999. In addition to other measures, the plan encompasses the reorganization of the Company's
portfolio of business operations. Accordingly, the internal corporate structure of the Company is
undergoing a change. The former business segments are being replaced by the following core
segments: Automotive, Elevators, Production Systems, Components, MaterialsServices and
FacilitiesServices. In addition Steel, Real Estate and Engineering are to be reported as segments.
Beginning in fiscal year 1999/2000, substantial operations of the former business segments
ThyssenKrupp Industries and ThyssenKrupp Materials & Services are to be classified as “Others”.
BASIS FOR REPORTING 11
BASIS FOR REPORTING12
Steel
Automotive
Elevators
Production Systems
Components
MaterialsServices
FacilitiesServices
Real Estate
Engineering
Others
Core business operations
by new structure
(future reporting)
Steel
Automotive
Industries
Engineering
Materials & Services
Others
Former Group Structure
(Basis for reporting)
ThyssenKrupp Group
Beginning fiscal year 1999/2000, these changes will impact the segment information to be
presented in accordance with SFAS 131. However, because the Group operated in the fiscal year
1998/99 on the basis of the previously existing corporate structure, the previous corporate structure
must be used as the basis for segment reporting. All explanations presented in the following pages
relate to the corporate structure in place during fiscal year 1998/99. For additional insight, fiscal
year 1998/99 segment information also has been provided under the new corporate structure.
Operations to be disposed of
Prior to the Executive Board's announcement of its plan for strategic realignment, it had been
intended to dispose of particular operations, concerning:
" The long steel products of the steel segment with its companies Edelstahl Witten Krefeld GmbH,
Krupp Edelstahlprofile GmbH and Hoesch Spundwand und Profil GmbH
" The Logistics and Transportation Services segment including Nestrans Group, Krupp Binnen-
schiffahrt GmbH and Krupp Seeschiffahrt GmbH.
The measures regarding the divestment of these operations are presently in different phases of
implementation. The aforementioned operations are not to be classified as “discontinued opera-
tions” within the meaning of APB 30, as they do not representing substantial autonomous parts of
the company. Assets and liabilities as well as income and expense of these activities are recorded in
their respective financial statement line items. To provide a better understanding, the table below
illustrates the effect of the aforementioned operations on the annual 1998/99 financial statements:
BASIS FOR REPORTING 13
Sept. 30, 1999
Assets Financial Payables
438.3 4.3
605.8 492.3
1998/99
Income
(loss) before
Sales taxes
508.5 – 47.8
441.7 12.5
Million Euros
Steel – Long products
Logistics and
Transportation Services
Keine Headline???
In fiscal 1998/99, ThyssenKrupp generated income before taxes and minority interests of
623.8 million Euros. On a pro forma basis this figure amounted to 616.3 million Euros. The
difference between these two amounts represents the earnings of the former Krupp companies for
October and November 1998, the earnings of Dover Elevators for October to December 1998 and
the earnings of the Mannesmann Handel group for October 1998 to March 1999. In comparison
to the prior year pro forma net income, this represents a decrease of 718.9 million Euros.
Income before taxes and minority interests for 1998/99 contains 164.1 million Euros of goodwill
amortization. From this amount, 70.9 million Euros relates to goodwill in connection with the merger
with Krupp and 22.7 million Euros from the acquisition of Dover Elevators. On a pro forma basis,
goodwill amortization from the merger with Krupp amounts to 85.1 million Euros and from the
acquisition of Dover Elevators to 30.1 million Euros. Pro forma EBITDA (earnings before taxes,
minority interests, interest, depreciation and amortization) is 2,551.6 million Euros versus the prior
year pro forma figure of 3,042.6 million Euros.
Income before taxes and minority interests for 1998/99 includes non recurring charges of 153.1
million Euros which includes 136.5 million Euros from the revaluation of the inventories of Krupp at
the acquisition date and 16.6 million Euros in non capitalizable merger related expenses.
The segments made the following contributions to income before taxes and minority interests:
14
Income before taxes and minority interests.
Mögliche
1998/99
248.1
291.1
233.9
4.1
120.7
–224.6
– 57.0
616.3
Mögliche
1997/98
666.8
265.5
264.2
11.5
408.8
–114.5
–167.1
1.335.2
1998/99
222.0
275.0
233.0
21.8
119.2
–174.7
– 72.5
623.8
Million Euros
Steel
Automotive
Industries
Engineering
Materials & Services
Corporate, Others
Consolidation
Group
Income before taxes and minority interests
Pro-forma
The following comments on segment earnings are made exclusively on a pro forma basis.
INCOME BEFORE TAXES AND MINORITY INTERESTS 15
The income before taxes and minority interests of TK Steel decreased 418.7 million Euros to 248.1
million Euros. Despite poor market conditions, the Carbon Steel Flat-Rolled unit earned 169.7
million Euros. This includes a stockholder contribution of 115.5 million Euros from another Group
company. Excluding this contribution earnings were 54.2 million Euros. The earnings of the
Stainless unit reflect unsatisfactory pricing levels in the current period. All stainless businesses
made positive contributions to the profit of 84.3 million Euros. The other steel companies made a
loss in total of 2 million Euros.
TK Automotive increased its earnings 25.6 million Euros to 291.1 million Euros. The encouraging
results of the Body and Chassis units were based on strong auto sector activity in the US and were
additionally helped by the strength of the US dollar. Both units also benefited from an increase in
demand on the German market. As part of a portfolio restructuring, Schalker Verein Rohrsysteme
GmbH was sold. The Powertrain unit recorded favorable earnings on the German market in engine
components and heavy vehicles. Due to the sales situation at Rover and Ford there was a drop in
profits generated in the UK. In addition, the slump in the market for cars and commercial vehicles in
Brazil, coupled with a 30% drop in the value of the Brazilian Real, led to weaker earning levels than
that which was generated in 1997/98. The Systems/Suspensions unit recorded a drop in overall
earnings as a result of the market weakness in Brazil and market problems in the United Kingdom.
In addition, startup losses were incurred in connection with the new axle assembly plant for VW in
Curitiba. Encouraging developments in the European systems business, in particular in the
assembly of rear axles for the Porsche Boxster and corner modules for the Landrover Freelander,
partially offset these negative effects.
The income before taxes and minority interests of TK Industries decreased 30.3 million Euros to
233.9 million Euros. The biggest earnings improvement was made by Elevators where profits
increased 64 million Euros to 145 million Euros. Contributing to this result was the improvement in
the USA, Canada and Australia, resulting from, among other things, the successful integration of
Dover Elevators. The Production Systems segment missed its earnings targets by a clear margin.
A sharp fall in demand for machine tools, particularly in the USA, resulted in a significant decrease
in profits. The body-in-white equipment and assembly system units largely managed to maintain
their profits levels of the previous year. Overall the earnings of Production Systems dropped by 74
million Euros, producing a loss of 6 million Euros. In Components all units reported lower profits
than the previous year. Particularly affected was the Berco group where profits decreased due to
continuing sluggish building activity and temporary in-house production by Asian construction
equipment manufacturers. Plastics Machinery improved its previous year’s earnings to 17 million
Euros. Despite weaker demand, Shipyards held up well reporting a profit of 42 million Euros which
was only 1 million Euro less than the prior year result. Civil Engineering reported a loss of 16 million
Euros. Lastly, the unrecovered development costs of Thyssen Transrapid System GmbH exerted a
negative effect.
INCOME BEFORE TAXES AND MINORITY INTERESTS16
TK Materials & Services achieved a profit of 120.7 million Euros. Last year's income before taxes
and minority interests of 408.8 million Euros included a large amount of non recurring income.
Earnings as adjusted primarily for the gain on the prior year disposals, were 158.2 million Euros or
37.5 million Euros higher than the current period results. The MaterialsServices unit recorded
earnings of 79.8 million Euros, a solid result considering the poor state of the market. The 28.0
million Euros decrease from the prior year’s results were attributable to the MaterialsServices North
America and Materials Trading units and was due mainly to declining foreign demand and sharp
price decreases in the rolled steel business coupled with considerable volume decreases in selected
areas. The earnings of FacilitiesServices fell 121.2 million Euros to 71.2 million Euros due entirely
to non recurring items recorded in fiscal 1997/98. FacilitiesServices comprises the two units
Industrial Services which includes facility-related services for TK Real Estate and Information
Services. Industrial Services achieved a distinct rise in overall earnings due to an expansion of the
business and an improved cost situation resulting from restructuring measures. Nontheless, while
the Information Services unit was profitable, it was below last year's strong results due to signifi-
cantly lower disposal gains. Project Management returned a profit of 5.8 million Euros.
The income before taxes and minority interests of 4.1 million Euros posted by the Engineering
segment is heavily affected by several factors. On the one hand restructuring expenses of the
past were assumed by the parent company, while on the other, the results include charges for
restructuring measures initiated in the current period – particularly at Krupp Fördertechnik and B+V
Industrietechnik. Despite the difficult economic climate, the segment held its operating earnings at
the level of the previous year by balancing its international capacities, utilizing cost advantages at
foreign subsidiaries and realizing synergies.
Corporate and others include Thyssen Krupp AG, the real estate activities, the insurance and
financing companies and the national holding companies. After deducting the service revenues
attributable to FacilitiesServices, the Real Estate business posted a profit of 53.6 million Euros.
The main contributors were the rental and consulting businesses. Excluding investment income
from consolidated companies, Thyssen Krupp AG reported a loss of 140.6 million Euros.
Income taxes for 1998/99 amounted to 315.9 million Euros. This represents a tax rate of 50.6% in
relation to income before taxes and minority interests. This high tax rate is attributable to the
following factors:
Income before taxes includes goodwill amortization of 164.1 million Euros. Goodwill amortization
arising from consolidation is not deductible for tax purposes - both current and deferred taxes. The
ratio of goodwill amortization to pre-tax income thus has a direct influence on the tax rate.
The German Tax Relief Act (Steuerentlastungsgesetz 1999/2000/2002) introduced changes to the
rules governing the calculation of income tax as of fiscal 1998/99. This affected the ThyssenKrupp
Group since the Act requires original values to be reinstated for past writedowns on shares in
German and non-German companies. In the individual financial statements, regular use was made
of the option to form an income tax-reducing reserve in the amount of 4/5 of the reinstated amount.
In the subsequent four years this reserve must be released in the amount of at least 1/4, thereby
increasing taxable income. The Tax Relief Act also reduced the corporate tax rate on retained
earnings from 45% to 40%. The deferred tax assets and liabilities shown in the transitional pro
forma opening balance sheet were therefore still calculated at a tax rate of 45%. The 5 percentage
point reduction in the tax rate results in a reduction in the balance of deferred tax assets and liabili-
ties. The aforementioned changes to the Tax Relief Act result in a non recurring charge of 61.0
million Euros.
17
Income taxes.
In fiscal 1998/99 ThyssenKrupp generated earnings per share of 0.55 Euro. This excludes the
earnings of the former Krupp companies prior to December 4, 1998. Accordingly, only the shares
held by former Thyssen stockholders (343,000,000) were considered outstanding for the period
October 1, 1998 to December 4, 1998; the calculations for the rest of the fiscal year were based on
the total number of all outstanding shares (514,489,044) which includes those of former Krupp
stockholders.
On a pro forma basis, earnings per share is 0.53 Euro. This figure is arrived at by dividing the pro
forma income by the total number of outstanding shares (514,489,044).
EPS excluding non-recurring items
Income before taxes and minority interests for 1998/99 includes non-recurring charges from the
revaluation of Krupp’s inventory and non capitalizable merger related expenses totaling 153.1
million Euros on a pre-tax basis. In addition, the Tax Relief Act 1999/2000/2002 resulted in tax
charges of 61.0 million Euros. Excluding these non-recurring charges, net income for the year
amounted to 400.9 million Euros. This equates to adjusted earnings per share of 0.83 Euro on an
actual basis, and 0.79 Euro on an adjusted pro forma basis.
18
EPS – Earnings per share.
A resolution for a dividend payment in the amount of 1.40 DM or 0.71581 Euro per share will be
proposed to be adopted at the annual stockholder’s meeting. The authorized dividend capital or
capital stock of the single legal entity Thyssen Krupp AG amounts to 1,315.3 million Euros. A
dividend in the amount of 368.3 million Euros has been calculated to be distributed.
The legal basis for the dividend distribution consists of the annual net income, in the amount of
481.5 million Euros (DM941.7 million), presented in the annual financial statements of the single
legal entity Thyssen Krupp AG. The 113.2 million Euros which will not be dividended will be trans-
ferred to the retained earnings of the single legal entity Thyssen Krupp AG.
19
Dividend.
Directly after the merger, the management and control systems of the former groups were inte-
grated. The basis for the internally applied controlling standards primarily consists of the status
report prepared by the relevant reporting units. Such status reports is to be prepared in accordance
with US GAAP. The controlling standards used are also used in external reporting. Thus, internal
acceptance and external transparency and is ensured.
The ThyssenKrupp Group is managed and controlled on the basis of an Economic Value Added
(“EVA”) management system. The key goal of this system is a continuous increase in corporate
value by focusing on business segments which – with respect to their performance – are among the
best world-wide. In order to achieve this objective, an integrated controlling concept has been
applied. This concept permits a goal-driven controlling and coordination of activities of all corporate
segments; supports decentralized responsibility; and promotes overall transparency .
By taking timely appropriate actions, the integrated controlling concept realizes the increase of cor-
porate value by bridging operating and strategic gaps between the actual and target situation. The
prerequisite for this concept is the existence of high-quality operational and strategic reporting
systems for the accounting of actual and budgeted results.
In the ThyssenKrupp controlling concept, strategic and operational elements are linked to timely
reporting which is accompanied by regular pro-active communication. The concrete elements of this
strategy are: clearly defined core business areas, economic value added performance measures and
active portfolio management. Core business areas are identified in terms of their ability to satisfy
five key criteria: market, competition, product, innovation and profitability/liquidity.
The central performance measures are return on capital employed (ROCE) and economic value
added (EVA). These two ratios reflect the earning power of capital employed in the form of a relative
quantity (ROCE) and an absolute value (EVA).
20
Economic Value Added Management.
ROCE is calculated as follows:
ROCE =income before taxes, minority interests and interest
capital employed
The numerator is composed of income before taxes, minority interests, net interest income or
expense, and an internally allocated interest expense associated with accrued pension liabilities.
The capital employed denominator is computed on the basis of asset items. It is calculated by
adding net fixed assets to working capital. Deferred tax assets and deferred tax liabilities are not
included into the computation, because the standard figures are determined on a pre-tax basis.
The ROCE is compared to the weighted average costs of capital employed (WACC). The cost of
capital is recorded before income taxes, as is the standard result used. On this basis, the weighted
interest for the Group from equity (14%), debt (6.5%) and pension accruals (6%) amounts to 9%.
This average cost of capital is maintained at a constant level in the medium term, in order to
balance temporary fluctuations and to guarantee a relatively high degree of continuity.
Corresponding cost of capital percentages were derived for the individual operating segments.
These percentages amount to: TK Steel 9.5%, TK Automotive 10.5%, TK Industries 10.5%, TK
Engineering 14.0%, TK Materials & Services 9.5% and TK Real Estate 7.5%.
EVA is computed as the difference between ROCE and the cost of capital, multiplied by the capital
employed. Additional value is only created if the ROCE exceeds the weighted cost of capital.
Accordingly, cost of capital reflects the minimum acceptable rate of return. In addition, individual
target profitability is agreed for individual activities, which are based either on the best competitor or
on an inter-industry benchmark. This management and controlling system is linked to the bonus
system in such way that the amount of the performance-related remuneration is determined by the
achieved EVA.
ECONOMIC VALUE ADDED MANAGEMENT 21
The values presented in the table below are based on pro forma information.
The controlling standards are influenced considerably by the recording of the ThyssenKrupp merger
as a purchase. This is true because the purchase led to additional amortization of goodwill which
impacted the Group’s results. Moreover, at the date of first consolidation, the former Krupp assets
were valued at current market values. This, for example, impacted the first year of the new Group’s
consoldiated results since the partial reversal of Krupp’s inventory revaluation resulted in an additio-
nal charge to cost of goods sold during the year. The capital employed is increased by the valuation
of former Krupp assets at current market values. If those effects are eliminated, the following figures
result – on the basis of the above mentioned cost of capital:
ECONOMIC VALUE ADDED MANAGEMENT22
1997/98
58.8
109.2
90.9
– 18.9
240.7
– 232.7
248.0
1998/99
– 369.5
142.5
24.3
– 9.3
– 81.8
– 224.8
– 518.6
1997/98
10.2
15.3
13.4
5.3
18.0
10.3
1998/99
5.3
16.6
11.2
9.5
6.9
6.4
Steel
Automotive
Industries
Engineering
Materials & Services
Others/consolidation
Group
Values with purchase accounting
ROCE (%) EVA (Million Euros)
1997/98
227.7
182.6
165.3
– 24.6
265.1
– 186.0
630.1
1998/99
– 199.7
200.0
98.9
– 7.4
– 56.4
– 161.0
– 125.6
1997/98
12.6
20.3
16.3
2.6
19.3
12.8
1998/99
6.8
20.3
13.7
9.5
7.6
8.3
Steel
Automotive
Industries
Engineering
Materials & Services
Others/consolidation
Group
Values without purchase accounting
ROCE (%) EVA (Million Euros)
ThyssenKrupp's active portfolio management directly follows the criteria for core businesses and
analysis of the performance measures. It involves structural measures which are principally of a
strategic nature, including the selection and expansion of business areas with which the targeted
increases in EVA or value are to be realized, as well as the timely and profitable withdrawal from
activities which do not achieve adequate increases in EVA. For the Group as a whole it is particularly
important to create a balance between value generators and cash providers. This is a basic pre-
requisite for dividend continuity and sustained growth in core businesses.
In view of the changing framework conditions – e.g. brought about by the accounting switch from
German GAAP (HGB) to US GAAP - the systematic further development of the economic value
added management system is essential. In this context, the ThyssenKrupp Group is examining the
feasibility of applying a cash-oriented performance measure.
ECONOMIC VALUE ADDED MANAGEMENT 23
The statement of cash flows presents the sources and uses of cash flows in fiscal 1998/99 and is
thus of central importance in assessing the financial situation of the ThyssenKrupp Group.
The cash examined in the cash flow statement corresponds to the balance sheet item “cash and
cash equivalents”.
The changes in cash from investing activities and financing activities are calculated in direct reference
to payments and receipts. In contrast, the change in cash from operating activities is calculated
indirectly on the basis of consolidated net income. The changes in balance sheet items relating to
operating activities which are taken into account for this indirect calculation are adjusted for effects
of currency translation and changes to the consolidated Group; for this reason it is not possible to
reconcile them with the corresponding changes on the basis of the published consolidated balance
sheet.
The activities of the former Fried. Krupp AG Hoesch-Krupp are included from the date of purchase.
Therefore in the cash flow statement for fiscal 1998/99, the cash flows relating to Krupp - broken
down into operating activity, investing activity and financing activity - are only included from
December 4, 1998.
The cash inflow from operating activities is 1.5 billion Euros. This cash inflow was not sufficient to
finance the high use of cash for investing activity in the fiscal year – due in particular to the
acquisitions of Dover and Mannesmann Handel. The resulting financing gap of 1.3 billion Euros was
compensated by the 1.9 billion Euros increase in financial payables. Against this background,
internal financing power – defined as the ratio of cash from operating activity versus cash used for
investing activities – is 0.5; the medium-term target is to raise this figure well above 1. The debt-to-
cash flow ratio, which indicates the period in which net financial payables can be repaid by cash
from operating activities, is approximately 4 years.
24
Statement of Cash Flows.
The balance sheet structure as of September 30, 1999 is as follows:
Intangible assets include an amount of 3,819.6 million Euros for goodwill. This corresponds to
11.7% of the balance sheet total. The development of goodwill is as follows:
The goodwill for the former Krupp companies results from the excess purchase price over the fair
market value of Krupp’s net assets acquired. It replaces the goodwill previously reported by Krupp.
The total amount of 3,819.6 million Euros is attributable to the segments as follows:
25
Balance Sheet Presentation.
ThyssenOct. 1, 1998
967.4Million Euros
Balance Sheet Structure as of September 30, 1999
in %
Goodwill 11.7
Other Fixed Assets 41.9
Operating Assets 40.4
Deferred Taxes/Deferred Income 6.0
Stockholders’ Equity 24.7
Minority Interest 0.9
Pensions 20.8
Other Accrued Liabilities 10.2
Financial Payables 21.4
Other Payables 17.5
Deferred Taxes/Deferred Income 4.5
Assets Stockholders’ Equity and Liabilities
in %
Steel 24
Automotive 10
Industries 49
Engineering 7
Materials & Services 10
TotalSept. 30, 1999
3,819.6
Amortization1998/99
(164.1)
Others
432.1
Dover ElevatorsJan. 5, 1999
883.1
KruppDec. 4, 1998
1,701.1
Development of Goodwill
At September 30, 1999, total fixed assets (including goodwill) of 17,496.2 million Euros equate to
46.0% of stockholders' equity. Inventories – less prepayments received in the amount of 1,210.7
million Euros - are stated in the consolidated balance sheet at 6,010.2 million Euros. 2,970.7 million
Euros of this relates to the Steel segment. Trade receivables total 5,206.0 million Euros. The largest
amount - 1,619.7 million Euros - relates to Materials & Services.
Stockholders' equity, which excludes minority interests, is 8,053.0 million Euros, or 24.7% of total
assets. Pension accruals amount to 6,780.2 million Euros or 20.8% of total assets. The gross
financial payables increased over the fiscal year from 2,311.0 million Euros to 6,998.9 million Euros.
This was essentially due to the following reasons:
The “other changes” column includes the financing of other company acquisitions and capital
spending on fixed assets as well as the financing for the increase in current assets. Gross financial
payables less cash and cash equivalents and securities classified as current assets, increased
2,452.7 million Euros during the current year to 6,193.4 million Euros. Gearing, defined as the ratio
of net financial payables to stockholders' equity, is 76.9%.
BALANCE SHEET PRESENTATION26
Total Sept. 30, 1999
6,998.9
Other changes
1,108.4
Dover ElevatorsJan. 5, 1999
1,065.5
Krupp Dec. 4, 1998
2,514.0
Thyssen Oct. 1, 1998
2,311.0Million Euros
Development Gross Financial PayablesHeadline????
The financing of the ThyssenKrupp Group is centrally managed. Thus, the parent company Thyssen
Krupp AG assumes the obligation to maintain the liquidity of the group companies. This is achieved
via the availability of funds within group financing, by negotiating and warranting loans or by the
granting of financial support in the form of letters of comfort.
In order to cover financial requirements of foreign group companies, Thyssen Krupp AG and its
financing companies often use local credit and capital markets.
The central financing is the basis for implementing cost effective capital procurement alternatives.
This financing mode permits a uniform and – with respect to higher volumes – a more significant
presence in financial and capital markets. The negotiating position vis-a-vis credit institutions and
other market participants is therefore strengthened. Moreover, the alternative to operate in inter-
national capital markets with the Group’s own foreign financing companies is used. The inter-
company cash management system is conducive in reducing external financing and optimizing
financial and capital investments of the ThyssenKrupp Group which results in less interest expense.
The cash management system which controls intercompany financial and capital investments takes
advantage of the surplus funds of individual Group companies to cover internal financial require-
ments of other Group companies. Due to the intercompany pricing between the Group companies
via intercompany financial accounts maintained by Thyssen Krupp AG, volumes on bank accounts
are substantially reduced so that less bank charges are incurred.
In addition to the existing bonds of Fried. Krupp Finance B. V. in the total amount of DM1 billion, a
note loan of Giddings & Lewis Inc., acquired in 1997 in the amount of USD100 million, note loans of
Thyssen Krupp Stahl AG of DM140 million, and additional note loans of Fried. Krupp Finance
B. V. of DM50 million; the ThyssenKrupp Group has access to funds from its USD1.5 billion
multiple-facility-agreement. This multiple-facility-agreement may be drawn in USD or – alternatively
– in all freely convertible currencies. The terms of this agreement expire on October 2, 2002.
Additional financing requirements of the Group are mainly covered by bilateral credit facilities.
In order to maintain a presence in international financial and capital markets now and in the future,
the Group continues to examine potential financing alternatives and will enter the market when
favorable market conditions exist for the ThyssenKrupp Group.
27
Central financing of the ThyssenKrupp Group.
Active interest rate risk management is a central task
Due to the international orientation of our business activities, the procurement of funds of the
ThyssenKrupp Group in international financial and capital markets is effected in different currencies
– predominantly in Euro and USD – and with various maturities. The resulting liabilities are partly
exposed to risks from changing interest rates. Our interest rate management is responsible for mini-
mizing the risk from changing interest rates resulting from such liabilities. This is achieved by regular
interest rate risk analyses in currency areas which are important for our business activities. Those
analyses include present value analyses, scenario analyses and crash testing to more clearly iden-
tify the risk profile of a credit portfolio exposed to risks from changing interest rates. The regular
information on the results of the interest rate risk analyses is an integral part of our risk manage-
ment system.
Foreign currency management of the ThyssenKrupp Group
The international orientation of our business activities entails numerous cash flows in different
currencies – in particular in USD. Therefore, hedging of exchange rate risk is an essential part of our
risk management.
Group-wide regulations form the basis for the centrally organized foreign currency management of
the ThyssenKrupp Group. Principally, all companies of the ThyssenKrupp Group are generally
obliged to hedge foreign currency positions at the moment the position is exposed to charges in
foreign currency rates. All domestic companies are obliged to submit documents to the central
clearing office on the hedging of foreign currency positions from trade activities.
The positions submitted are summarized first by currency and then according to maturity; the resul-
ting overall position is globally hedged on a daily basis by the execution of opposing positions at
banks. The hedging of financial transactions and the transactions undertaken by the Group’s foreign
subsidiaries is performed in close cooperation with central Group management. The determination
of hedging budgets, the general requirement to cooperate with central Group management, the
regular review of exchange rate hedging transactions executed by means of Group-wide surveys,
as well as a regular examination performed by our central internal auditing team help ensure that
currency risk management is in compliance with the Group’s requirements.
CENTRAL FINANCING OF THE THYSSENKRUPP GROUP28
On December 3, 1999, the supervisory board of Thyssen Krupp AG decided to introduce a “Long
Term Management Incentive Plan”, for a term of five years. The beneficiaries of this incentive plan
are 224 top executives of the Group, including the members of the Executive Board and heads of
corporate departments at Thyssen Krupp AG, members of the Executive Board of the segment lead
companies, managing directors and Executive Board members within the segments, and managing
directors and Executive Board members of major Group companies.
The incentive plan is a performance oriented model. The base is fixed at the end of the performance
period.
The remuneration derived from the ThyssenKrupp incentive plan is dependent upon the following
two elements:
" the relative performance of ThyssenKrupp shares compared with the Dow Jones STOXX Index,
and
" the absolute performance of ThyssenKrupp shares.
Both elements will be measured over a medium-term period of around three years, counted from
the date of the shareholders’ meeting. The performance period of the first tranche 1999/02 will be
shorter because the launch date of the incentive plan was December 3, 1999.
The beneficiaries of the incentive plan are awarded with stock appreciation rights (phantom stocks).
The remuneration is paid out in cash and is equivalent to that which could be obtained in a
traditional stock option program.
A basic prerequisite for the payment of stock appreciation rights is the attainment of at least one of
two performance targets at the end of the performance period:
" Either the stock market price of ThyssenKrupp shares has outperformed the
Dow Jones STOXX Index,
" or the market price of ThyssenKrupp shares has increased by at least 15%.
29
Long Term Management Incentive Plan.
The payment amount is in principle based on the difference between the current share price and the
base price, which corresponds to the exercise price of a traditional stock option. The base price is
derived from the current share price less the following two discounts:
" The stock/index performance discount, reflecting the perfomance of ThyssenKrupp’s stock
in relation to the Dow Jones STOXX ,
" and the stock performance discount, reflecting the absolute performance of the stock.
For each tranche, both the ThyssenKrupp stock performance and the Dow Jones STOXX perfor-
mance are calculated as the ratio of the average share price or value in the last 20 trading days
before the end of the performance period to the corresponding average in the first 20 trading days
of the performance period. The stock/index performance discount is determined by applying the
percentage of outperformance or underperformance to the current share price. The stock per-
formance discount corresponds to half the absolute appreciation of the stock. The sum of the two
discounts is equal to the payout per stock appreciation right, and cannot exceed 25 Euros per stock
appreciation right.
Beneficiaries are awarded stock appreciation rights every year. In the first tranche, 1.9 million stock
appreciation rights are issued, which amount to a median of 8,200 rights per beneficiary. During the
five years of the incentive plan, a total of 9.5 million stock appreciation rights will be issued.
LONG TERM MANAGEMENT INCENTIVE PLAN30
32 Report of the Executive Board
33 Audit Opinion
35 Consolidated Statement of Income
36 Consolidated Balance Sheet
38 Consolidated Statement of Cash Flows
40 Consolidated Statement of Changes in Stockholders` Equity
41 Notes to the Consolidated Financial Statements
41 Introduction to the Euro
41 Summary of significant accounting policies
50 Business Combination and Acquisitions
54 Notes to the Consolidated Statement of Income
58 Notes to the Consolidated Balance Sheet
90 Notes to the Consolidated Statement of Cash Flows
Consolidated Financial Statements.
CONTENTS 31
32
Report of the Executive Board.
The Executive Board of Thyssen Krupp AG is responsible for the compilation, completeness and
accuracy of the Group annual financial statements and Group situation report as well as the other
information presented in the annual report. The Group annual financial statements have been
prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”)
and, wherever necessary, objective estimates have been made. The Group situation report contains
an analysis of the assets, financial and earnings situation of the Group together with further
explanations required by the regulations of the German Commercial Code.
To ensure the reliability of the information used in preparing the Group annual financial statements,
including the situation report, an effective internal control system exists.
Pursuant to the resolution of the merged annual general meetings of Fried. Krupp AG Hoesch-Krupp
and Thyssen AG, two accounting firms, C&L Deutsche Revision Aktiengesellschaft of Essen, and
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft of Berlin and Frankfurt am Main, have
been appointed by the Supervisory Board as independent joint annual financial statement auditors
for the first fiscal year of Thyssen Krupp AG. They have audited the Group annual financial state-
ments prepared in accordance with US GAAP and they confirm that all of the requirements under
Art. 292a of the German Commercial Code, which relieve the Company from the obligation of
preparing financial statements under German GAAP, have been fulfilled. The auditors have issued
the following auditor’s report.
The Group annual financial statements, the Group management report and the auditor’s report have
been discussed in depth with the auditors in both the Accounting and Investment Committee of the
Supervisory Board, and in the annual financial statement meeting of the entire Supervisory Board.
Dr. Gerhard Cromme Prof. Dr. Ekkehard Schulz Dr. Gerhard Jooss
We have audited the attached consolidated balance sheet of Thyssen Krupp AG, Düsseldorf, as of
September 30, 1999 and the related consolidated statement of income, statement of changes in
stockholders´equity, statement of cash flows and disclosures in the notes (Consolidated Statements)
for the fiscal year then ended. Preparation and content of the Consolidated Statements in accordance
with US accounting principles (United States Generally Accepted Accounting Principles – US GAAP)
are the responsibility of the Executive Board. Our responsibility is to express an opinion on the
consolidated financial statements on the basis of our audit.
We conducted our audit of the consolidated financial statements in accordance with German
auditing standards in compliance with the generally accepted German auditing principles established
by the Institute of Auditors (Institut der Wirtschaftsprüfer - IDW). These standards require that we
plan and perform the audit to obtain reasonable assurance that the consolidated accounts are free
of material misstatements. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Executive Board, as well as
evaluating the overall presentation of the consolidated statements. We believe that our audi
provides a reasonable basis for our opinion.
Our audit did not give rise to any objections with the exception of the following qualification: as
disclosed in the notes to the financial statements of Thyssen Krupp AG, the equity valuation of a
major Associated Company, RAG Aktiengesellschaft, was based on German GAAP financial state-
ments as US GAAP statements were not available.
With this qualification, on the basis of our audit we are of the opinion that the aforementioned
Consolidated Statements present fairly, in all material respects, the assets, liabilities and financial
position of the Group as of September 30, 1999 and of its income situation in the 1998/99 fiscal
year in conformity with US accounting principles.
33
Audit Opinion.
34 AUDIT OPINION
Our audit, which in accordance with German auditing rules also extended to the management report
on the Group prepared by the Executive Board for the fiscal year from October 1, 1998 to
September 30, 1999, did not give rise to any objections in this respect. In our opinion the manage-
ment report on the Group gives a true and fair overall view of the situation of the Group and provides
an accurate representation of the risks from future developments. Furthermore, we confirm that the
consolidated financial statements and the management report on the Group for the fiscal year from
October 1, 1998 to September 30, 1999 comply with the requirements to exempt the company from
preparing consolidated financial statements and a management report on the Group in accordance
with German law. We examined the compliance of the Consolidated Statements with the 7th EC
directive, as required for exemption from the obligation to prepare consolidated accounts under
German commercial code, on the basis of the interpretation of the directive in the German
Accounting Standard No. 1 (DRS 1) of the German Accounting Standards Committee (Deutscher
Rechnungslegungs Standards Committee).
Essen/Düsseldorf, March 17, 2000
C&L Deutsche Revision KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft Wirtschaftsprüfungsgesellschaft
Leuschner Albrecht Maas Dr. Rockel
Auditor Auditor Auditor Auditor
35
Consolidated Statement of Income.
1998/99
29,794.1
– 24,576.7
5,217.4
– 2,698.3
– 2,189.9
914.2
– 494.5
748.9
– 125.1
623.8
– 315.9
– 41.0
266.9
0.55
483,949,899
Million Euros Appendix No.
Net sales
Cost of Sales
Gross margin
Selling expenses
General administrative expenses
Other operating income
Other operating expenses
Income from operations before income taxes
Financial income, net
Income before income taxes and minority interest
Income taxes
Minority interest
Net income
Basic earnings per share
Shares used to compute basic earnings per share*
See accompanying notes to consolidated financial statements.
All financial data have been restated from DM into Euro using the exchange rate
as of January 1, 1999
* Oct. 1, 1998 – Dec. 4, 1998: 343,000,000 legacy Thyssen shares for 65 days
Dec. 5, 1998 – Sept. 30, 1999: 514,489,044 ThyssenKrupp shares for 300 days
4
3
2
1
21
Consolidated Statement of Income
36
Consolidated Balance Sheet.
Sept. 30, 1999
4,268.6
11,635.8
1,591.8
17,496.2
6,010.2
5,206.0
1,178.2
37.6
767.9
13,199.9
1,787.8
165.3
32,649.2
Million Euros Appendix No.
Intangible assets
Property, plant and equipment, net
Financial assets |
Fixed assets
Inventories
Trade accounts receivable
Other receivables and other assets
Securities
Cash and cash equivalents
Operating assets
Deferred taxes
Prepaid expenses and deferred charges
Total assets (current portion amount in 1999: 13,820.4 million Euros)
See accompanying notes to consolidated financial statements.
All financial data have been restated from DM into Euro using the exchange rate
as of January 1, 1999
10
4
9
8
7
6
5
95
5
5
Assets
CONSOLIDATED BALANCE SHEET 37
Sept. 30, 1999
1,315.3
4,668.2
2,085.4
– 15.1
– 0.8
8,053.0
293.3
6,780.2
3,338.4
10,118.6
6,998.9
2,824.0
2,899.9
12,722.8
1,362.8
98.7
32,649.2
Million Euros Appendix No.
Capital stock
Additional paid in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total Stockholders´ Equity
Minority interest
Pensions and similar obligations
Other accrued liabilities
Accrued liabilities (current portion amount in 1999: 3,023.1 million Euros)
Financial payables
Trade accounts payable
Other payables
Payables (current portion amount in 1999: 6,784.8 million Euros)
Deferred taxes (current portion amount in 1999: 104.8 million Euros)
Deferred income (current portion amount in 1999: 79.6 million Euros)
Total Stockholders` Equity and Liabilities
See accompanying notes to consolidated financial statements.
All financial data have been restated from DM into Euro using the exchange rate
as of January 1, 1999
16
15
14
13
12
11
Stockholders` Equity and Liabilities
38
Consolidated Statement of Cash Flows.
1998/99
266.9
41.0
1,571.3
– 61.9
– 65.1
– 274.7
422.6
55.3
– 378.6
73.0
– 71.4
– 73.9
1,504.5
Million Euros
Net income
Minority interest
Depreciation of fixed assets
Other non-cash items
Changes in assets and liabilities, net of effects of acquisitions:
inventories
trade accounts receivable
other assets not related to investing or financing activities
pensions
other accrued liabilities
trade accounts payable
other liabilities not related to investing or financing activities
Gain/loss from disposal of assets
Net cash provided by operating activities
Consolidated Statement of Cash Flows
– 1,619.0
368.5
– 1,946.2
– 80.8
240.1
– 0.3
185.6
34.2
–2,817.9
Purchase of financial assets and businesses
Cash acquired from acquisitions
Capital expenditures for property, plant and equipment
Capital expenditures for intangible assets
Proceeds from the sale of financial assets and businesses
Cash of disposed businesses
Proceeds from disposals of property, plant and equipment
Proceeds from disposals of intangible assets
Net cash used in investing activities
CONSOLIDATED STATEMENT OF CASH FLOWS 39
1998/99
38.3
– 326.7
3,538.6
– 1,082.8
– 124.8
– 130.3
3.6
– 369.6
– 10.8
– 96.6
1,438.9
Million Euros
Proceeds from issuance of bonds
Repayment of bonds
Proceeds from payables to financial institutions
Repayments on payables to financial institutions
Repayments of notes payable and other loans
Decrease of acceptance payables
Decrease of securities classified as operating assets
Payment of Thyssen Krupp AG dividend from the preceding year
Profit distributions to entities outside the Group
Other financing activities
Net cash provided by financing activities
Consolidated Statement of Cash Flows
– 1.7
123.8
644.1
767.9
Effect of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents as of October 1, 1998
Cash and cash equivalents as of September 30, 1999
See accompanying notes to consolidated financial statements.
All financial data have been restated from DM into Euro using the exchange rate
as of January 1, 1999
40
Consolidated Statement of Changes in Stockholders` Equity.
Total
5,013.3
266.9
41.9
308.8
3,009.5
0.0
– 280.6
– 81.0
80.2
2.8
8,053.0
Treasurystock
– 81.0
80.2
– 0.8
Minimumpensionliability
– 12.8
– 12.8
Available-for-sale
securities
0.1
6.6
6.7
Cumulativetranslation
adjustment
– 57.1
48.1
– 9.0
Retainedearnings
3,074.7
266.9
– 978.4
– 280.6
2.8
2,085.4
Additionalpaid-in capital
1,118.7
2,571.1
978.4
4,668.2
Capitalstock
876.9
438.4
1,315.3
Million Euros
Balance as of September 30, 1998
Net income
Other comprehensive income
Total comprehensive income
Issuance of capital stock resulting
from purchase of Krupp
Reclassification due to the merger
Dividend payment
Treasury stock purchased
Treasury stock issued
Other changes
Balance as of September 30, 1999
Consolidated Statement of Changes in Stockholders` Equity
Accumulated other comprehensive income
See accompanying notes to consolidated financial statements.
All financial data have been restated from DM into Euro using the exchange rate
as of January 1, 1999
41
Notes to the Consolidated Financial Statements.
Introduction to the Euro
To facilitate comparability with other European companies, the amounts within the annual
report/financial statements are presented in Euros. The financial data was prepared on a DM basis
and subsequently restated at the legal conversion rate of DM 1.95583 per Euro. The Group’s
restated Euro financial statements depict the same trends as would have been presented if the
Group had continued to present its consolidated financial statements in DM. The Group’s
consolidated financial statements will not be comparable to the Euro financial statements of other
companies that previously recorded their financial information in a currency other than DM.
Summary of significant accounting policies
Consolidation
The consolidated financial statements include the accounts of Thyssen Krupp Aktiengesellschaft
(“Thyssen Krupp AG”) and all material majority-owned subsidiaries, collectively the “Group”.
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”).
In consolidating the investment in subsidiaries, the purchase price is offset against the value of
the interest held in the stockholders’ equity of the consolidated subsidiaries at the time of
acquisition. Any excess purchase price over fair market value, is capitalized as goodwill and
amortized using the straight-line method over the estimated useful life.
For the non consolidated subsidiaries and Associated Companies accounted for under the equity
method, the excess cost of the stock of those companies over the Group’s share of their net assets
at the acquisition date is amortized on a straight-line basis over the estimated useful life.
Subsequent changes to the value of the percent of total equity acquired, such as the Group’s share
of income or losses including amortization, are included in the financial income line item of the
consolidated statement of income.
All material intercompany accounts and transactions have been eliminated.
NOTES42
Foreign currency translation
Foreign currency receivables and payables of the Group are converted at the exchange rate as of
the balance sheet date and resulting translation differences are included in income. Foreign currency
balances specifically hedged are valued at the corresponding hedged exchange rate. Currency
balances hedged globally by the Group’s corporate foreign currency management are considered
unhedged, and their basis is determined according to the balance sheet date exchange rate.
Financial statements of the foreign subsidiaries included in the Group annual financial statements
are translated using their functional currency which is generally the respective local currency,
whenever the companies are economically integrated autonomously in the currency zone of the
country where they are located. For the companies of the ThyssenKrupp Group, the functional
currency is usually the local currency.
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 as a separate component of stockholders’
equity.
Some companies in Central and South America use the USD as their functional currency since
these companies manage their sales, purchases and financing substantially in USD. Using the
functional currency in these cases involves translating non monetary items such as fixed assets
including scheduled depreciation and equity to USD using the average exchange rates of the
respective year of addition (historical exchange rates). All other balance sheet line items are
translated using the current 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 income statement as other operational expenses or
income. Thereafter the USD annual financial statements are translated into the reporting currency
using the current rate method.
The assets and liabilities of foreign subsidiaries operating in highly inflationary economies are
remeasured into the reporting currency on the basis of period end rates for monetary assets and
liabilities and at historical rates for non-monetary items, with resulting translation gains and losses
being recognized in income. Furthermore, in such economies, depreciation and gains and losses
from the disposal of non-monetary assets are determined using historical rates. Presently only
Romania must be considered a high-inflation country among the countries relevant for consolida-
tion.
NOTES 43
The exchange rates of those currencies which are important to the Group and located outside the
European Economic and Currency Union have changed as follows:
Revenue Recognition
Net sales are recorded as of the date on which risk transfers or upon performance of services.
Long-term contracts
Sales and profits from long-term contracts are recognized using the “percentage-of-completion”
method. Long-term contracts are defined as contracts for which construction 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 for the furnishing of general contractor or engineer-
ing services are also considered to be long-term contracts.
The percentage of completion is determined from the ratio of contract costs incurred up to the
end of the fiscal year to total contract costs currently estimated at the end of the fiscal year. All
losses from long-term contracts are recognized in the fiscal year in which they are identified.
Long term contracts under the percentage of completion method are valued at manufacturing
cost plus profits earned based on the percentage of the contract completed.
1997/98
1.10
1.59
0.66
1.25
1998/99
1.10
1.65
0.67
1.74
Sept. 30, 1998
1.17
1.78
0.69
1.38
Dec. 4, 1998
1.18
1.79
0.70
1.41
Sept. 30, 1999
1.07
1.56
0.65
2.04
Currencies/Basis 1 Euro
US-Dollar
Canadian dollar
Pfund Sterling
Brazil Real
Foreign currency translation
Exchange rate as of Annual average exchange rate forthe fiscal year
NOTES44
Research and Development Costs
All research and development costs are expensed as incurred.
Earnings per share
Basic earnings per share is computed by dividing the Group’s net income by the weighted
average number of shares outstanding.
Intangible assets
Purchased intangible assets are capitalized and amortized on a straight-line basis over their
estimated useful life. For identifiable internally created 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. Goodwill, which represents the excess of purchase price over the fair
value of net assets acquired, is capitalized and amortized on a straight-line basis over its estimated
useful life, usually 20 years, except for goodwill attributable to Elevator and Information Services
businesses which is amortized over 30 and 10 years, respectively.
Costs incurred in connection with the acquisition and self-development of internally used
computer software including the costs for transforming such software into operational condition are
capitalized and amortized on a straight-line basis over the estimated useful life, usually 3 to 5 years.
Costs incurred during the preliminary stage of internal use computer software projects, as well as
Y2K and EURO conversion costs are expensed as incurred.
Property, plant and equipment
Property, plant and equipment are valued at acquisition or production cost less accumulated
depreciation. Capitalized production costs for internally developed assets include material and direct
labor costs. Allocable material and manufacturing overhead costs are also capitalized. When produc-
tion 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 prolon-
gation of useful life or to expanded future use capabilities of an asset are capitalized.
A full year of depreciation expense is recorded in the year of acquisition for property, plant and
equipment, other than buildings, acquired in the first half of a fiscal year. A half year of depreciation
NOTES 45
expense is recorded for those assets, other than buildings, acquired in the second half of a fiscal
year. Items costing less than 2,500, Euros, and 5,000 Euros for the Steel segment, are fully depre-
ciated in the year acquired. Upon sale or retirement, the acquisition or production cost and related
accumulated depreciation are removed from the respective accounts, and any gain or loss is
included in the statement of income.
Leases
Leases are classified as either a capital or operating lease. Transactions whereby the Group is
the lessor and transfers substantially all of the benefits and risks incident to the ownership of
property, are accounted for as a sale or financing of the item. All other lease agreements entered
into by the Group, as a lessor, are accounted for as operating leases whereby the leased article
remains in the Group’s balance sheet and is depreciated. Scheduled lease payments are recorded
as income when earned.
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
article and records the corresponding obligation in 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. The Group is primarily the lessee in leasing transactions.
10 to 50 years
15 to 25 years
10 to 40 years
8 to 25 years
3 to 10 years
Buildings
Building and land improvements
Heavy machinery and operating facilities
Technical machinery and equipment
Factory and office equipment
The following useful lives are used as a basis for calculating depreciation:
NOTES46
Equity Investments and Marketable Securities
Material equity investments on which a significant influence can be exerted are accounted for
using the equity method. All other equity investments are carried on the balance sheet at amortized
cost.
Marketable securities are available for sale and are valued at market prices on 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. A permanent loss of value
is realized in the statement of income.
Long-lived asset impairment
The carrying values of fixed assets are reviewed for possible impairment on each balance sheet
date or 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 where-
by 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 market value or discounted cash flow
value is required. The remaining useful life of the assets is evaluated accordingly.
Operating assets
Operating assets represent the Group’s inventories, receivables, securities and cash and cash
equivalents, including amounts expected to be realized in excess of one year. The portion of assets
expected to be realized or settled in excess of one year have been disclosed.
Inventories excluding percentage of completion contracts
Inventories are valued at the lower of acquired/manufactured cost or market. Due to the market
situation, an inventory value lower than cost was recorded only in a few instances.
Manufacturing costs include direct material and labor costs, applied material and manufacturing
overhead costs allocated from the production process, and related administrative costs and
depreciation. The LIFO or the average cost method is used to determine the acquisition or
manufactured cost of similar inventories.
NOTES 47
Receivables
Receivables are stated at net realizable value. If receivables are completely or partly uncollectible,
bad debt expense and a corresponding allowance for doubtful accounts is recorded. Receivables
which do not bear interest or bear below market interest rates and have an expected term of more
than one year, are discounted.
Cash and Cash Equivalents
Cash 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.
Deferred taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities reflect both net loss carryforwards 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. Deferred tax assets are
recognized only if it is more likely than not that the related tax benefits will be realized.
Accumulated other comprehensive income
Accumulated other comprehensive income reports all changes in the equity of the Group which
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 additional pension liabilities
not yet recognized as net periodic pension cost.
NOTES48
Pension and similar obligations
Accrued 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”).
For the domestic pension obligations of the former Thyssen Group, a minimum pension liability
exists. A portion of the minimum pension liability is recorded as an intangible asset to the extent of
the unrecognized net transition obligations and prior service costs.
Other accrued liabilities
Provisions for taxes and other accruals are recorded whenever an obligation to a third party
exists or is probable and can be reasonably estimated. If the amount of the necessary provision can
be determined only within a range of possibilities, the most probable amount is accrued. In cases
whereby all amounts within a range of possibilities are equally probable, the lowest amount within
the range is accrued. Provisions for guarantees and provisions for contingent losses are calculated
using full production cost.
Financial instruments
Financial derivatives which can be clearly designated to an underlying transaction and which
hedges with high correlation the potential interest, currency or price risks are combined with the
underlying transaction and form a single valuation unit. The underlying transaction is recorded at its
nominal value and thus impacts the balance sheet. Once allocated, gains or losses from these
valuation units do not affect income until the underlying transaction is realized. The financial deriva-
tive is not presented on the balance sheet. Derivative financial instruments which cannot be clearly
designated to specific assets or payables are valued at market. They are included in the other
assets or other accrued liabilities balance sheet line items. The unrealized profits or losses resulting
from the change in valuation are recognized in net income.
SFAS 133, as amended by SFAS 137, which is effective for all fiscal quarters of all fiscal years
after June 15, 2000, broadens the balance-sheet reporting and disclosure obligations for derivative
financial instruments. The Group plans to adopt this standard beginning in fiscal year 2000/01.
Financial Statement Classification
Certain items in the consolidated statement of income and on the consolidated balance sheet
have been combined. These items are shown separately in the Notes.
Use of Estimates
The preparation of the consolidated Group annual financial statements in accordance with US
GAAP requires management to make estimates and assumptions that affect the reported carrying
amounts of assets and liabilities and disclosure of contingent assets and liabilities at 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.
Scope of consolidation
Included in the Group financial statements are 306 domestic and 399 foreign majority-owned
subsidiaries which are consolidated. During fiscal year 1998/99 341 subsidiaries were consolidated
for the first time, while 43 subsidiaries were removed from the scope of consolidation. The principal
additions were the Krupp Group, Dover Elevators and Mannesmann Handel, and the disposals were
the result of mergers under internal structural reorganizations.
The Group has 375 majority-owned subsidiaries which are not consolidated because their
combined influence on the financial position, income, and cash flows of the Group are not material.
Their net sales amount to 0.9%, their net loss amounts to 2.6% and their stockholders’ equity 0.1%
of the Group’s respective balances. Of the 375 non consolidated subsidiaries, 23 are accounted for
under the equity method and the remaining 352 are accounted for under the cost method.
There are 43 Associated Companies with voting rights between 20% and 50%, which are
accounted for under the equity method. Another 123 Associated Companies are accounted for
under the cost method, because their combined results are not material to the Group. Their net loss,
attributable to the Group, amounts to 0.4% and their stockholders’ equity 1.3% of the Group’s
respective balances. These 123 Associated Companies are classified as financial assets and are
presented under the other investments line item.
NOTES 49
Changes to the scope of consolidation are as follows:
Business Combination and Acquisitions
During fiscal years 1998/99 and 1997/98 the Group completed the following material
transactions:
1998/99
On December 4, 1998 Thyssen AG (“Thyssen”) acquired Fried. Krupp AG Hoesch-Krupp
(“Krupp”). Krupp is a global conglomerate headquartered in Essen and Dortmund, Germany which
operates primarily in the industries, engineering, automotive, Nirosta/stainless and trading business
segments. Under the structure of the agreement, an acquisition company Thyssen Krupp AG (“TK”)
was created whereby the former Thyssen stockholders received 10 shares of TK for each Thyssen
DM 50 par share held, while former Krupp stockholders received 7.88 shares of TK plus DM 0.03
cash for each DM 50 par share held. This transaction was accounted for under the purchase
method and accordingly, the results of operations are included in the accompanying Group
consolidated financial statements since December 4, 1998. The determination of goodwill is based
on a purchase price of 3,009.5 million Euros. The fair value of the acquired net assets of Krupp
amounts to 1,308.4 million Euros, including intangible assets of 30.7 million Euros. The 1,701.1
million Euros difference between the purchase price and fair value of net assets acquired has been
recorded as goodwill and has been allocated to the various business units. The goodwill is being
amortized on a straight-line basis over 20 years. Other intangible assets are being amortized on a
straight-line basis over 2 to 14 years. There are also two brand names which are being amortized
over 40 years.
50 NOTES
186
123
–
4
6
– 13
306
221
162
8
5
33
– 30
399
407
285
8
9
39
– 43
705
Fully consolidated subsidiaries at September 30, 1998
December 4, 1998 Krupp
January 5, 1999 Dover Elevators
April 1, 1999 Mannesmann Handel
Other additions
Disposals
Fully consolidated subsidiaries at September 30, 1999
Vollkonsolidierte Tochterunternehmen: Domestic Foreign Total
NOTES 51
On December 15, 1998 the Group acquired the remaining approximate 4.8% outstanding shares
of its majority owned subsidiary Thyssen Industrie AG (TI) by effectively exchanging approximately
12.5 shares of TK (as adjusted for the recapitalization) for every DM 50 par share of TI. Fractional
shares were settled in cash. The approximate 5.5 million TK shares (as adjusted for the recapital-
ization) given to the former shareholders of TI were acquired by the company on the open market
and had a value of 81.0 million Euros. This acquisition has been accounted for under the purchase
method of accounting and, accordingly, the results of operation for this ownership interest is included
in the accompanying consolidated financial statements from the date of acquisition. The excess of
the purchase price over the fair value of net assets acquired was approximately 32.7 million Euros
and has been recorded as goodwill. Goodwill in the amount of 12.5 million Euros is attributable to
companies operating in the Elevators business unit and is being amortized on a straight-line basis
over 30 years. The remaining 20.2 million Euros of goodwill is attributable to the other acquired
companies and is being amortized on a straight-line basis over 20 years.
On January 5, 1999 the Group acquired Dover Elevators (Dover), a manufacturer of elevators
and industrial lifts, located in Horn Lake, Mississippi, USA for 1,065.5 million Euros. This acquisition
has been accounted for under the purchase method of accounting and, accordingly, the results of
operations are included in the accompanying consolidated financial statements from the date of
acquisition. The excess of the purchase price over the fair value of net assets acquired was
approximately 883,1 million Euros which has been recorded as goodwill and is being amortized on a
straight-line basis over 30 years. Included in net asset acquired are other intangible assets of 78.0
million Euros, relating to service contracts acquired which are being amortized on a straight-line
basis over 17 years.
On April 1, 1999 the Group acquired the Mannesmann Handel Group (MH), a distributor of pipes
and rolled steel, located in Düsseldorf, Germany for 55.4 million Euros. This acquisition has been
accounted for under the purchase method of accounting and, accordingly, the results of operations
are included in the accompanying consolidated financial statements from the date of acquisition.
The excess of the purchase price over the fair value of net assets acquired was approximately 9.0
million Euros which has been recorded as goodwill and is being amortized on a straight-line basis
over 20 years.
In addition to the above, the Group completed 26 minor acquisitions, such as the Brazilian
elevator manufacturer Elevadores Sûr, the US escalator manufacturer Access Industries and the
British industrial service provider Palmers Ltd., which were accounted for as purchase transactions.
Total consideration given in connection with these acquisitions was 179.4 million Euros. Goodwill
recorded in connection with these acquisition was 145.9 million Euros which is being amortized on a
straight-line basis over 20 to 30 years, depending on the type of business acquired.
1997/98
On April 29, 1998 the Group acquired an additional approximate 5.2% of the outstanding shares
of TI for 86.3 million Euros in cash. This increased the Group’s ownership percentage in TI to
approximately 95.2%. This acquisition has been accounted for under the purchase method of
accounting and, accordingly, the results of operations for this ownership interest is included in the
accompanying consolidated financial statements from the date of acquisition. The excess of the
purchase price over the fair value of net assets acquired was approximately 33.0 million Euros and
has been recorded as goodwill. Goodwill in the amount of DM 12.6 million Euros is attributable to
companies operating in the Elevators business unit and is being amortized on a straight-line basis
over 30 years. The remaining 20.4 million Euros of goodwill is attributable to the other acquired
companies and is being amortized on a straight-line basis over 20 years.
The following unaudited pro forma condensed statements of operations give effect to the Krupp,
TI, Dover and MH acquisitions as if the transactions occured at the beginning of each of the periods
presented. The pro forma information does not give effect to the minor acquisitions mentioned
above as their impact on the condensed information provided would not be materially different. This
pro forma information is presented using both the old and new segment structures. The unaudited
condensed pro forma results do not necessarily represent results which would have occurred if the
acquisitions had taken place at the beginning of each period, nor are they indicative of the results of
future combined operations.
NOTES52
53NOTES
1997/98
1.35
1998/99
0.53
1997/98
694.6
1998/99
274.8
1997/98
666.8
265.5
264.2
11.5
408.8
– 114.5
– 167.1
1,335.2
1998/99
248.1
291.1
233.9
4.1
120.7
– 224.6
– 57.0
616.3
1997/98
12,312.1
5,095.2
6,186.8
1,878.9
13,285.8
584.7
–3,460.0
35,883.5
1998/99
10,451.6
5,207.8
6,554.4
1,815.7
10,666.4
610.8
–2,929.2
32,377.5
Million Euros
Steel
Automotive
Industries
Engineering
Materials & Servives
Corporate, Others
Consolidation
Group
Unaudited Condensed Pro Forma Results for the fiscal year 1997/98 and 1998/99 – Old Segment Structure
Net SalesIncome before income taxes and
minority interest Net income Basic net income per share
1997/98
1.35
1998/99
0.53
1997/98
694.6
1998/99
274.8
1997/98
666.8
265.5
80.9
68.0
108.9
107.8
192.4
80.1
11.5
– 99.8
– 146.9
1,335.2
1998/99
248.1
291.1
145.0
– 6.0
76.4
79.8
71.2
54.4
4.1
– 290.8
– 57.0
616.3
1997/98
12,312.1
5,095.2
2,415.2
1,334.7
1,162.1
10,412.3
1,077.9
358.1
1,878.9
3,342.1
–3,505.1
35,883.5
1998/99
10,451.6
5,207.8
2,756.4
1,256.8
1,183.7
8,886.2
1,298.1
426.1
1,815.7
2,108.4
–3,013.3
32,377.5
Million Euros
Steel
Automotive
Elevators
Production Systems
Components
MaterialsServices
FacilitiesServices
Real Estate
Engineering
Corporate, Others
Consolidation
Group
Unaudited Condensed Pro Forma Results for the fiscal year 1997/98 and 1998/99 – New Segment Structure
Net SalesIncome before income taxes and
minority interest Net income Basic net income per share
Notes to the Consolidated Statementof Income
NOTES54
Other operating
income1
Other operating
expenses2
Financial
income, net3
158.6
239.2
218.1
298.3
914.2
Gains from the disposal of assets
Income from the reversal of accrued liabilities
Ancillary income
Other
Total
Million Euros 1998/99
30.5
164.1
83.7
99.1
0.5
16.6
100.0
494.5
Provision for accruals
Goodwill amortization
Loss from the disposal of assets
Other taxes
Exchange rate losses
Cost of acquisition
Other
Total
Million Euros 1998/99
1.1
– 4.7
49.0
62.1
(2.7)
107.5
8.7
(2.1)
117.7
(3.4)
– 328.7
(2.2)
– 202.3
– 42.5
12.2
– 30.3
– 125.1
Income from profit-sharing agreements
Absorption of losses from profit-sharing agreements
Income from companies accounted for under the equity method
Income from other equity investments
(amount thereof from non consolidated subsidiaries)
Income from equity investments
Income from other securities and loans classified as financial assets
(amount thereof from non consolidated subsidiaries)
Other interest and similar income
(amount thereof from non consolidated subsidiaries)
Interest and similar costs
(amount thereof from non consolidated subsidiaries)
Interest expense, net
Depreciation on financial investments and
securities included in operating assets
Gains from undesignated financial instruments
Other financial income
Total
Million Euros 1998/99
Interest capitalized in connection with long-term construction activities resulted in a decrease of
interest expense in the amount of 18.8 million Euros.
The domestic and foreign income tax expense of the Group is as follows:
Since 1977 the corporate income tax system applied in Germany is the full imputation system
whereby the corporate income tax levied on distributed profits at the company level is fully credited
against the income tax or corporate income tax charge of a resident shareholder. The corporate
income tax rate of 30 % on distributed profits is final when a shareholder is not subject to German
taxation on distributed profits. Furthermore, the corporate income tax rate of 30 % is applicable
when the tax liability is calculated considering the deduction of dividend withholding tax.
In the fiscal year 1998/99 retained profits are taxed at a corporate income tax rate of 40% plus a
solidarity surcharge of 5.5%, giving an effective corporation tax rate of 42.2%. For distributed
profits the corporate income tax retention rate decreases from 40% to 30%. For companies in
Germany an effective corporate income tax rate of 42.2% plus an effective trade tax rate of 10.2%
was applied for calculating the deferred taxes in 1998/99. For companies outside Germany the
relevant local tax rate was applied.
The tax assets and liabilities were determined on the basis of the enacted tax rates. Under the “Tax
Relief Act 1999/2000/2002” dated March 24, 1999, the former corporate tax rate of 45% was
reduced to the aforementioned tax rate of 40%, which was retroactively effective as of October 1,
1998. Up until March 24, 1999, the corporate income tax retention rate was 45% plus a solidarity
surcharge of 5.5%, equating to an effective corporate tax rate of 47.5% plus an effective trade tax
rate of 9.3%. The effect of the tax rate change is presented in the rate reconciliation.
NOTES 55
Income taxes4
37.4
219.5
54.0
5.0
315.9
Current Taxes (on income)
Domestic
Foreign
Deferred taxes
Domestic
Foreign
Total
Million Euros 1998/99
The following table reconciles the statutory income tax expense expected in fiscal year 1998/99 to
the actual income tax expense presented in the financial statements. For calculating the statutory
income tax expense, an overall income tax rate of 52.4% was multiplied by income before taxes and
minority interests.
The income tax effect of non-tax deductible goodwill amortization amounts to 65.9 million Euros.
This mainly relates to the acquisitions of Krupp and Giddings & Lewis.
As of September 30, 1999 domestic corporate tax loss carry-forwards amount to 1,263 million
Euros, domestic trade tax loss carry-forwards amount to 1,271 million Euros and foreign tax loss
carry-forwards amount to 212 million Euros. Since 1985 it has been possible to carry forward
domestic losses indefinitely and in unlimited amounts. The carrying forward of losses outside
Germany is, in some cases, subject to restrictions.
For deferred tax assets, a valuation allowance of 19.5 million Euros was established because it was
deemed unlikely that the tax relief would be realized in full. 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.
NOTES56
327.0
– 3.8
28.6
– 97.0
4.0
65.9
– 6.1
– 2.7
315.9
Statutory income tax expense
Domestic corporate income tax credit for dividend distributions
Change in domestic tax rate
Foreign tax rate differential
Adjustment to estimated income tax accrual
Amortization of non-tax-deductible goodwill
Change in deferred tax valuation allowance
Other
Actual income tax expense
Million Euros 1998/99
Significant components of the deferred tax assets and liabilities were as follows:
The classification of the deferred tax assets and liabilities are as follows:
NOTES 57
64.7
656.0
45.5
53.4
196.0
737.1
670.8
750.6
1,236.3
44.0
4,454.4
– 19.5
4,434.9
158.5
269.3
1,593.0
369.8
751.8
269.1
14.8
231.9
346.2
5.5
4,009.9
425.0
Intangible assets
Other fixed assets
Financial assets
Inventories
Other assets
Tax loss carried forward
Pensions and similar obligations
Other accrued liabilities
Other liabilities
Other
Valuation allowance
Deferred tax assets
Intangible assets
Assets under capital lease
Other fixed assets
Financial assets
Inventories
Other assets
Pensions and similar obligations
Other accrued liabilities
Other liabilities
Other
Deferred tax liabilities
Net deferred tax assets
Million Euros Sept. 30, 1999
Sept. 30, 1999
1,787.8
1,362.8
425.0
Non Current
Portion
1,323.2
1,258.0
65.2
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
Million Euros
Deferred tax liabilities on retained profits of foreign subsidiaries were not calculated because these
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:
Notes to the Consolidated Balance Sheet
The development of the Group’s fixed assets is presented in the Consolidated Fixed Assets Schedule
included herein.
Property, plant and equipment includes leased buildings, technical machinery and equipment and
other equipment, which have been capitalized since the Group, as lessee, is assuming substantially
all of the benefits and risks of use of the leased asset. Depreciation on these assets amounted to
59.5 million Euros, and accumulated depreciation amounted to 92.5 million Euros.
The Group holds a 20.57% investment in RAG Aktiengesellschaft which is accounted for under the
equity method. The Group’s interest in RAG is calculated based on consolidated statements
prepared on a German GAAP Basis, as US GAAP statements are not available. Legacy Thyssen held
a 12.7% interest in RAG which was valued based on their share of RAG’s consolidated income
beginning October 1, 1997, and reflects an impairment charge recorded in 1987. Legacy Krupp
held a 7.87% interest in RAG which has been revalued in connection with the purchase of Krupp by
Thyssen. The portion of the purchase price attributable to RAG which was in excess of Krupp’s
share of RAG’s net assets, measured in accordance with German GAAP, at the acquisition date is
being amortized over 20 years and is reported under the “Associated companies accounted for
under the equity method” line item.
NOTES58
315.9
– 6.4
309.5
Income tax expense as presented on the income statement
Income tax expense for “other comprehensive income”
Total income tax expense
Million Euros 1998/99
Fixed assets5
Additions
67.2
7.5
7.3
7.5
89.5
234.6
748.6
289.1
46.3
786.4
2,105.0
89.9
1.4
51.0
58.3
4.3
23.6
9.8
238.3
2,432.8
Acquisitions/
disposals of
businesses
178.9
2,966.8
3.5
0.0
3,149.2
2,353.3
1,604.5
197.1
462.3
202.9
4,820.1
– 19.9
– 5.5
– 52.7
339.7
1.5
87.1
36.0
386.2
8,355.5
Currency
differences
8.0
75.0
0.0
0.0
83.0
41.6
66.5
13.2
22.7
19.0
163.0
2.5
0.0
3.2
1.9
0.5
0.1
0.4
8.6
254.6
Sept. 30, 1998
211.6
1,113.2
6.8
185.1
1,516.7
4,653.3
9,047.9
1,679.9
111.8
658.7
16,151.6
188.1
9.4
707.3
175.0
147.6
40.8
84.5
1,352.7
19,021.0
Million Euros
Intangible assets
Franchises, trademarks and similar rights and values
as well as licenses thereto
Goodwill
Prepayments on intangible assets
Intangible pension assets
Property, plant and equipment
Land, leasehold rights and buildings
including buildings on third-party land
Technical machinery and equipment
Other equipment, factory and office equipment
Assets under capital lease
Prepayments on property, plant and equipment
Financial assets
Investments in non consolidated subsidiaries
Loans to non consolidated subsidiaries
Associated companies accounted for under the equity method
Other investments
Loans to associated companies and other investees
Securities classified as financial assets
Other loans
Total
Gross valuesConsolidated Fixed Assets Schedule
NOTES 60
Transfers
15.9
0.2
– 8.1
0.0
8.0
120.4
546.0
23.5
– 0.5
– 694.8
– 5.4
22.8
0.0
– 21.7
– 3.7
– 127.0
0.0
127.0
– 2.6
0.0
Accumulated
amortiziation,
deprec. as of
Sept. 30, 1999
167.5
336.1
0.0
0.0
503.6
2,310.5
7,059.6
1,319.1
92.5
1.0
10,782.7
84.9
0.0
45.9
19.6
3.9
0.3
143.8
298.4
11,584.7
Sept. 30, 1999
302.1
3,819.6
7.3
139.6
4,268.6
4,930.1
4,545.8
661.0
541.7
957.2
11,635.8
181.3
2.4
614.2
549.9
11.3
137.1
95.6
1.591.8
17,496.2
Amortiziation,
depreciation
1998/99
56.0
164.1
0.0
0.0
220.1
185.5
820.3
243.7
59.5
0.0
1,309.0
1.0
0.0
24.0
14.9
0.2
0.0
2.1
42.2
1,571.3
Sept. 30, 1999
469.6
4,155.7
7.3
139.6
4,772.2
7,240.6
11,605.4
1,980.1
634.2
958.2
22,418.5
266.2
2.4
660.1
569.5
15.2
137.4
239,4
1,890.2
29,080.9
Disposals
12.0
7.0
2.2
53.0
74.2
162.6
408.1
222.7
8.4
14.0
815.8
17.2
2.9
27.0
1.7
11.7
14.2
18.3
93.0
983.0
Amortization/Depreciation Net values
Receivables from the sales of goods and services in the amount of 17.5 million Euros have a
remaining term of more than 1 year.
Other assets include tax refund claims in the amount of 193.8 million Euros.
Other receivables and other assets in the amount of 168.5 million Euros have a remaining
term of more than 1 year.
NOTES61
Inventories61,345.9
2,797.5
(840.0)
2,565.3
512.2
7,220.9
– 1,210.7
6,010.2
Raw materials
Work in process
(amount thereof for long-term contracts)
Finished products and merchandise
Advance payments to suppliers
Less customer prepayments received
Inventories
Million Euros Sept. 30, 1999
Trade accounts
receivable75,326.3
176.9
5,503.2
– 297.2
5,206.0
Receivables from sales of goods and services
(excluding long-term contracts)
Unbilled receivables from long-term contracts, less customer
deposits received
Less allowance for doubtful accounts
Total
Million Euros Sept. 30, 1999
Other receivables
and other assets8 150.0
87.0
945.7
1,182.7
– 4.5
1,178.2
Receivables due from non consolidated subsidiaries
Receivables due from associated companies and other
investees
Other assets
Less allowance for doubtful accounts
Total
Million Euros Sept. 30, 1999
All securities presented in the consolidated balance sheet classified as either a component of
financial assets or operating assets are available-for-sale securities:
The composition of cost, fair value and unrealized gain and loss by security category is as
follows:
The contractual maturities of debt securities available for sale at September 30, 1999, regardless of
their balance sheet classifications, are as follows:
Proceeds from the sale of available-for-sale securities amounted to 36.5 million Euros.
NOTES62
Marketable
securities
classified as
financial and
operating assets
9
Sept. 30, 1999
137.1
37.6
174.7
Current
portion
10.6
21.4
32.0
Non current
portion
126.5
16.2
142.7
Securities presented as a component of financial assets
Securities presented as a component of operating assets
Total
Million Euros
Unrealized
loss
– 0.6
– 0.6
Unrealized
gain
14.7
0.1
14.8
Fair value
98.4
0.1
20.7
50.7
0.2
1.6
3.0
174.7
Amortized cost
or cost
83.7
0.1
20.7
51.3
0.2
1.5
3.0
160.5
Shares
Federal and state bond certificates
Foreign government bond certificates
Corporation bond certificates
Debt based securities
Promissory notes secured by property lien
Other marketable securities
Total
Million Euros Sept. 30, 1999
32.0
39.4
1.0
0.6
73.0
Due within one year
Due between 1 and 5 years
Due between 5 and 10 years
Due after 10 years
Total
Fair values in million Euros Sept. 30, 1999
NOTES 63
Prepaid expenses and deferred charges in the amount of 106.4 million Euros have a remaining term
of more than 1 year.
The capital stock of Thyssen AG increased by DM 857,445,220 (438,404,779.56 Euros) from
DM1,715,000,000 (876,865,576.25 Euros) as of September 30, 1998 to DM2,572,445,220
(1,315,270,355.81 Euros) as of September 30, 1999, as a result of Thyssen’s purchase of Krupp
which resulted in a new legal entity, Thyssen Krupp AG. The capital stock is allocated amongst
514,489,044 no-par-value bearer common shares, all of which have been issued and 514,444,774
are outstanding. This equates to each share theoretically representing DM5 (2.56 Euros) of capital
stock.
The Alfried Krupp von Bohlen und Halbach Foundation holds more than 10% of Thyssen Krupp AG.
It is a "principal owner" according to SFAS 57. Beyond the rights and obligations specified in Article
20 of the Articles of Association of Thyssen Krupp AG, no other trade relationships exist.
In fiscal year 1998/99 Thyssen Krupp AG purchased 5,477,000 of its outstanding shares, with a
purchase cost of DM158.4 million (81.0 million Euros) in accordance with Art. 71 para.1 No.3 of the
German Corporation Law. The shares were purchased for the purpose of being exchanged for the
remaining outstanding shares of the former shareholders of Thyssen Industrie AG in accordance
with Art. 320 of the German Corporation Law. As of September 30, 1999 44,270 shares, with the
cost of DM1.5 million (0.8 million Euros), were still held in treasury.
The additional paid in capital (4,668.2 million Euros) is composed of the additonal paid in capital of
the legacy Thyssen AG (1,118.7 million Euros) and an appropriation (2,571.1 million Euros) derived
from the purchase price for the legacy Krupp group (3,009.5 million Euros) less the capital stock
(438.4 million Euros) granted to the former Krupp stockholders in connection with the capital
increase. In addition it includes the retained earnings previously stated by the stand alone legal
entity Thyssen AG (978.4 million Euros) which as a result of the legal merger into Thyssen Krupp AG
had to be reclassified to additional paid in capital in accordance with Art. 272 para.2 No.1 of the
German Commercial Code.
The following table shows the development of the components of “other comprehensive income”,
net of tax effects:
Prepaid
expenses and
deferred charges
10 70.7
94.6
165.3
Prepaid pension costs
Other prepaid expenses and deferred charges
Total
Million Euros Sept. 30, 1999
Stockholders’
Equity
11
Pensions and similar obligations in the amount of 6,334.5 million Euros have a remaining term of
more than 1 year.
Pension plans
Thyssen Krupp grants company pension benefits to virtually all employees in Germany. Outside
Germany, the overwhelming majority of employees in the USA, Canada and the United Kingdom
receive post-retirement benefits. In Italy, statutory rules require eligible employees to receive
retirement benefits. In other countries some employees receive benefits in accordance with the
respective local requirements.
NOTES64
pre tax
48.1
14.0
– 0.1
13.9
– 26.5
35.5
tax effect
– 7.3
– 7.3
13.7
6.4
net
48.1
6.7
– 0.1
6.6
– 12.8
41.9
Foreign currency translation adjustment
Unrealized gains from market
valuation of securities:
Change in unrealized gains, net
Less net realized gains
Net unrealized gains
Minimum pension liability adjustment
Other comprehensive income
Million Euros 1998/99
Pensions and
similar
obligations
126,246.1
489.4
44.7
6,780.2
Accrued pension liability
Accrued health-care obligations
Other accrued pension-related obligations
Pensions and similar obligations
Million Euros Sept. 30, 1999
The benefits in Germany generally take the form of pension payments. Some senior staff receive
pension benefits which depend on length of service and on the level of pay in a reference period of
generally three years prior to retirement. Other employees generally receive fixed pension amounts
per year of service. By law, pension payments in Germany are indexed to inflation.
In the USA and Canada hourly paid employees receive benefits based on fixed amounts per year of
service. Salaried employees receive benefits as a function of their length of service and the pay
received during their period of service. Employees in the United Kingdom receive pension benefits
as a function of their length of employment and their final salary upon retirement.
The benefit obligations in Germany are unfunded. The same applies to the benefits in Italy. The
pension plans in the USA, Canada and the United Kingdom are financed by assets transferred to
funds (plan assets). The plan assets consist of national and international stocks, fixed-interest
government and non-government securities and real estate. The funding of the plans in the USA
and Canada is governed by statutory requirements and additionally by trade union agreements in
the case of some large plans. The plans in the United Kingdom are funded on the basis of actuarial
opinions taking the statutory minimum funding amounts into consideration.
The valuation of the post-retirement benefits in Germany was based on the 1998 Heubeck tables.
The benefit obligations in Italy are recognized at the undiscounted value of the vested rights which is
in conformity with EITF 88-1.
The following table presents, unfunded post-retirement benefit obligations and fund benefit plans
separately. The obligations presented in the unfunded category relate primarily to pension
obligations in Germany and to a lesser extent, the benefit obligations in Italy and similar pension
obligations in other countries. The obligations presented in the funded plan category relate to the
USA, Canada and the United Kingdom.
NOTES 65
The development of the pension obligations and related fund assets is as follows:
Within the framework of the transition to US GAAP the valuation of plans not previously accounted
for according to SFAS 87 was changed, effective October 1, 1998, as if these plans had previously
been valued according to SFAS 87 since October 1, 1989. October 1, 1989 is the date on which
Thyssen would have been required to implement SFAS 87 for its plans outside the USA, had a
US GAAP valuation been used at this time. This retrospective restatement results in a transitional
deficit for the pension benefit obligations in Germany. The transitional deficit was computed on the
basis of the valuation assumptions as of October 1, 1998 and hypothetically carried forward to the
October 1, 1998 effective date. The plans in the USA and Canada were already valued according to
SFAS 87 before October 1, 1998. Therefore, the existing historical valuations were not altered.
The additions from acquisitions essentially comprise the obligations of former Krupp companies. A
smaller amount of obligations at Dover Elevators and Mannesmann Handel are also included.
NOTES66
Unfunded plans
3,105.8
49.5
320.2
0.0
0.0
– 23.3
3,038.9
0.0
– 366.5
6,124.6
Funded plans
1,089.3
37.0
92.6
5.0
0.3
– 37.4
222.4
105.5
– 80.9
1,433.8
1,221.8
147.3
230.1
22.3
5.0
– 80.9
121.1
1,666.7
Change in projected benefit obligations:
PBO at beginning of fiscal year
Service cost
Interest cost
Participant contributions
Plan amendments
Actuarial gain/loss
Acquisitions/divestitures
Currency changes
Benefit payments
PBO at end of fiscal year
Change in plan assets:
Fair value of plan assets at beginning of fiscal year
Actual return on plan assets
Acquisitions/divestitures
Employer contributions
Participant contributions
Benefit payments
Currency changes
Fair value of plan assets at end of fiscal year
Million Euros Sept. 30, 1999
Pension plans for which the aggregated projected benefit obligation exceed the plan´s assets relate
to projected benefit obligations in the amount of 124.9 million Euros versus plan´s assets in the
amount of 90.6 million Euros. Pension plans for which the aggregated accumulated benefit
obligation exceed the plan´s assets relate to accumulated benefit obligations in the amount of 80.6
million Euros versus plan´s assets in the amount of 58.9 million Euros.
The following table presents the funded status as determined by the difference between projected
benefit obligations and plan assets, which agree to the amounts presented within the consolidated
balance sheet:
The assumptions for interest rates and the rates of salary increase on which the calculation of the
obligations is based were derived in accordance with standard principles and established for each
country as a function of their respective economic conditions. The assumptions on expected capital
gains on plan assets are based on the economic circumstances in the applicable country. The
following weighted average assumptions were:
NOTES 67
Unfunded plans
– 6,124.6
201.3
0.0
– 23.3
– 5,946.6
0.0
– 6,112.2
138.6
27.0
– 5,946.6
Funded plans
232.9
– 5.9
11.0
– 299.9
– 61.9
70.7
– 133.9
1.0
0.3
– 61.9
Funded status at end of fiscal year
Unrecognized net obligation at initial date of application of SFAS 87
Unrecognized prior service cost
Unrecognized actuarial gain/loss
Net amount recognized
Amounts recognized in the consolidated balance sheet consist of:
Prepaid benefit cost
Accrued pension liability
Intangible asset
Accumulated other comprehensive income*
Net amount recognized
*including minorities
Million Euros Sept. 30, 1999
Unfunded plans
5.64
0.00
3.00
Funded plans
7.41
8.94
4.34
Weighted-average assumptions as of July 1:
Discount rate
Expected return on plan assets
Rate of compensation increase
Million Euros Sept. 30, 1999
*Germany: 5.75%
*
The net periodic pension costs for the defined benefit plans were as follows:
Some companies plans make contributions on behalf of employees defined-contribution plans. The
total cost of such contributions in the 1998/99 fiscal year was 17.0 million Euros.
Health care obligations
Some companies in the USA and Canada grant health care and life insurance benefits to full time
employees who meet certain minimum requirements regarding age and length of service. The
obligations primarily relate to The Budd Company and are mainly unfunded.
NOTES68
Unfunded plans
49.5
320.2
0.0
37.7
0.0
0.0
0.1
407.5
Funded plans
37.0
92.6
– 125.9
– 1.8
6.7
– 14.5
– 5.9
Service cost
Interest cost
Expected return on plan assets
Amortization of transition obligations
Amortization of prior service cost
Amortization of actuarial gain/loss
Other
Net periodic pension cost
Million Euros 1998/99
The development of the health-care obligations and of the fund assets is as
follows:
The following table presents the funded status as determined by the difference between the
accumulated postretirement benefit obligations and plan assets, which agree to the amounts
presented within the consolidated balance sheet:
NOTES 69
US/Canadian
plans
425.8
6.6
34.6
– 13.8
10.9
41.4
– 31.7
473.8
0.4
0.8
– 1.0
0.2
Change in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation at beginning of fiscal year
Service cost
Interest cost
Actuarial gain / loss
Acquisitions (divestitures)
Currency changes
Benefit payments
Accumulated postretirement benefit obligation at end of fiscal year
Change in plan assets:
Fair value of plan assets at beginning of fiscal year
Employer contributions
Benefit payments
Fair value of plan assets at end of fiscal year
Million Euros Sept. 30, 1999
US/Canadian
plans
– 473.6
– 34.5
18.7
– 489.4
Funded status at end of fiscal year
Unrecognized prior service cost
Unrecognized actuarial gain/loss
Net amount recognized for accrued health care obligations
Million Euros Sept. 30, 1999
The determination of the actuarial obligations was based on the following weighted
average assumptions:
The net periodic postretirement benefit cost for health care obligations is as
follows:
The effects of a one percentage point increase or decrease in the assumed health
care cost trend rates are as follows:
NOTES70
US/Canadian
plans
7.74
9.25
5.5
5.5
Weighted-average assumptions as of July 1
Discount rate
Expected return on plan assets
Health care cost trend rate for the following year
Ultimate health care cost trend rate
Million Euros Sept. 30, 1999
US/Canadian
plans
6.6
34.6
– 2.8
2.2
– 0.1
40.5
Service cost
Interest cost
Amortization of prior service cost
Amortization of actuarial gain/loss
Other
Net periodic postretirement benefit cost
Million Euros 1998/99
Increase
5.0
48.2
Decrease
– 4.4
– 42.9
Effect on service and interest cost components
Effect on postretirement benefit obligation
Million Euros one percentage point
Other pension related obligations
Some German companies have obligations resulting from partial retirement agreements. Under
these agreements, employees do more work in advance, which is then paid for in installments after
retirement. For these obligations, accruals were recognized in accordance with SFAS 112. This item
also includes the obligations for exiting employees of French companies.
Accrued income and other taxes in the amount of 7.3 million Euros and other provisions in the
amount of 753.7 million Euros have a remaining term of more than 1 year.
Accrued contractual costs represent impending losses from uncompleted contracts, warranties and
uncertain obligations from uninvoiced trade accounts payable.
Accrued compensation and benefit costs represent employment anniversary bonuses and accrued
vacation, while social plan and related costs pertaining to personnel-related structural measures are
reflected in the accrual for restructuring activities. Pension-related obligations for partial retirement
agreements and early retirement programs are part of the accrual for pensions and similar
obligations.
The restructuring accrual is subdivided into accruals for personnel-related and property-related
structural charges which have been established by operating divisions for costs incurred in
connection with activities which do not generate any future economic benefits.
NOTES 71
Other accrued
liabilities13 495.4
797.5
708.9
420.1
170.9
745.6
2,843.0
3,338.4
Accrued income and other taxes (for current taxes)
Other provisions
Accrued contractual costs
Accrued compensation and benefit costs
Restructuring activities
Environmental protection and remediation obligations
Other miscellaneous accruals
Other accrued liabilities
Million Euros Sept. 30, 1999
Restructuring measures are being carried out in all segments. The development of the accrual is as
follows:
As a result of personnel restructuring, approx. 2,700 employees left the company in fiscal 1998/99
and approx. 5,900 employees will leave in subsequent years under restructuring measures.
Of the total amount of restructuring accruals at September 30, 1999, 31.8 million Euros relates to
measures in connection with acquisitions.
Financial payables in the amount of 814.9 million Euros are collateralized by mortgages. Of these
collateralized payables, 431.6 million Euros are related to mortgage loans of Thyssen Krupp
Immobilien GmbH.
As of September 30, 1999, the financial payables reflect a total discount in the amount of 0.5
million Euros which is offset by a total premium in the amount of 4.9 million Euros.
NOTES72
Financial
Payables14
Personnel-rela-
ted structural
measures
412.0
63.4
88.1
– 163.4
– 15.9
– 1.8
382.4
Property-rela-
ted structural
measures
32.1
4.0
6.5
– 9.5
– 0.9
5.5
37.7
Total
444.1
67.4
94.6
– 172.9
– 16.8
3.7
420.1
Status as of September 30, 1998
Acquisitions/divestitures
Additional charges
Amounts utilized
Amounts reversed
Other changes
Status as of September 30, 1999
Million Euros
more than 5
years
307.1
113.6
2,204.1
0.0
301.4
35.1
2,961.3
1 to 5 years
222.2
58.6
2,240.5
3.8
260.5
65.1
2,850.7
up to 1 year
6.1
22.0
934.0
47.7
139.4
37.7
1,186.9
Sept. 30, 1999
535.4
194.2
5,378.6
51.5
701.3
137.9
6,998.9
Bonds
Notes payable
Payables to financial institutions
(without notes)
Acceptance payables
Capital lease obligations
Other loans
Financial payables
Book values in million Euros
Amount thereof with remaining term of
Other loans include loans to associated companies and other investees in the amount of 4.8 million
Euros.
Thyssen Krupp AG guarantees, unconditionally and irrevocably, repayment and all other obligations
from the bonds of Fried. Krupp Finance B.V. The 7% DM 200 million convertible bond of Hoesch
International Finance B.V., Haarlem the Netherlands, and the 7.5% USD 200 million bond of
Thyssen Finance Nederland B.V., Amsterdam, the Netherlands, were repaid on September 29, 1999
and August 6, 1999 respectively.
The fair values of the exchange-listed bonds of Fried. Krupp Finance B.V. are determined by the
exchange-rate quotation as at the end of the fiscal year.
As of September 30, 1999, the financing structure of the payables to financial institutions and other
loans comprise the following:
NOTES 73
Maturity Date
14.7.2006
13.6.2003
1.10.2005
15.10.2005
1.9.2000
18.9.2002
Fair value inmillion Euros
Sept. 30, 1999
299.7
213.5
98.2
80.0
10.5
16.3
718.2
Book value inmillion Euros
Sept. 30, 1999
314.8
220.6
93.8
73.3
10.5
16.6
729.6
Interest ratein %
5.250
6.500
7.500
7.050
6.625
7.000
Nominal valuein million Euros
306.8
204.5
93.8
71.6
10.2
15.3
702.2
Fried.Krupp Finance bond (DM600 million) 98/06
Fried.Krupp Finance bond (DM400 million) 96/03
Giddings & Lewis note (USD100 million) 95/05
Thyssen Krupp Stahl AG note (DM140 million) 98/05
Fried. Krupp Finance note (DM20 million) 95/00
Fried. Krupp Finance note (DM30 million) 95/02
Total Bonds and Notes payable
Bonds, Notes payable
Weightedaverage interest
rate %Sept. 30, 1999
5.505
5.736
6.010
6.810
–
5,869
Amount thereofin USD
834.4
543.8
1,118.3
70.5
–
2,567.0
Fair value inmillion Euros as
at Sept. 30, 1999
928.1
1,456.5
1,834.5
817.1
497.1
5,533.3
Amount thereofin other
currencies
–
–
357.6
14.4
–
372.0
Weightedaverage interest
rate %Sept. 30, 1999
2.826
3.001
3.267
6.424
4.617
4.623
Amount thereofin DM or other
Europeancurrencies
93.7
912.7
358.6
715.3
497.2
2,577.5
Book value inmillion Euros
Sept. 30, 1999
928.1
1,456.5
1,834.5
800.2
497.2
5,516.5
Syndicated joint credit multi-facility agreement
(at variable interest rates)
Revolving bilateral bank loans
(at variable interest rates)
Other loans at variable interest rates
At fixed interest rates (excluding real estate credits)
Real estate credits at fixed interest rates
Total
Million Euros
As of September 30, 1999 appx. USD 990 million (appx. 928.1 million Euros) was outstanding on
the Group’s USD 1.5 billion (appx. 1.4 billion Euros) syndicated joint credit multi-facility agreement.
This agreement expires October 2, 2002.
Another component of financial payables at variable interest rates is a revolving credit agreement
whereby Thyssen Krupp AG, Thyssen Krupp USA, Inc. or Thyssen Finance Nederland N.V. can
borrow in Euros or in USD up to 1,850 million Euros. Of the 1,850 million Euros facility, 80% have a
remaining term of more than 5 years and 19% a remaining term of between 1 and 5 years. As of
September 30, 1999 appx. USD 580 million (appx. 544 million Euros) at a weighted average
interest rate of 5.74% was outstanding. In addition, another DM 1,785 million (appx. 913 million
Euros) at a weighted average interest rate of 3.00% is outstanding under this revolving credit
agreement.
A component of the real estate credits at fixed interest rates are either interest free or below market
rate. They amount to 262.3 million Euros. Such subsidized loans were obtained by Thyssen Krupp
Immobilien GmbH to finance projects in social welfare housing. In turn the company is subject to
rental price control limitations.
The fair values of fixed interest payables are determined using the present value of the anticipated
future cash flows. The future interest and repayment amounts are discounted using the prevailing
interest rates available at the balance sheet date. The discount rates used vary based on the
corresponding maturity of the cash flow. The values of the payables subject to variable interest rates
are calculated accordingly. Fair values of variable interest rate loans approximate their face values
because they are borrowed at current market rates.
NOTES74
For capital lease contracts, the future minimum lease payments as of September 30, 1999 amount to:
Financial payables mature as follows:
NOTES 75
148.2
133.5
125.8
101.1
93.8
451.0
1,053.4
162.0
190.1
701.3
(for fiscal year)
1999/00
2000/01
2001/02
2002/03
2003/04
thereafter
Total future minimum payments
less executory costs
less interest
Present value of future minimum lease
payments (= payables from capital lease)
Million Euros
Total financialpayables
1,186.9
373.9
376.3
1,391.9
708.6
2,961.3
6,998.9
thereof: Payables tofinancial institutions
934.0
278.0
215.1
1,114.1
633.3
2,204.1
5,378.6
1999/00
2000/01
2001/02
2002/03
2003/04
thereafter
Total
Million Euros
Other payables in the amount of 9.4 million Euros are secured by real property.
The payables to non consolidated subsidiaries originated mainly from financing processes and from
income and tax adjustments.
Payables to associated companies and other investees include a liability of 35.1 million Euros to
RAG Aktiengesellschaft relating to the procurement of coal products. The Group has a 20.57%
investment in RAG Aktiengesellschaft. The volume of supplies and services purchased in fiscal
1998/99 amounted to 340.7 million Euros. In addition, this line item includes liabilities to
Hüttenwerke Krupp Mannesmann GmbH (HKM) in the amount of 60.6 million Euros relating to
purchases of raw steel (continuously cast semi-finished products). The Group has a 50% investment
in HKM. The volume of purchases from HKM amounted to 627.8 million Euros in the reporting
period.
Deferred income in the amount of 19.1 million Euros has a remaining term of more than 1 year.
NOTES76
more than
5 years
0.2
1 to 5 years
12.1
up to 1 year
2,811.7
Sept. 30, 1999
2,824.0Trade accounts payable
Million Euros
Amount thereof with remaining term of
Trade accounts
payable15
Other Payables16
Deferred income17
more than
5 years
0.0
0.0
0.0
31.4
(0.0)
(10.3)
31.4
1 to 5 years
0.1
0.0
0.2
82.2
(5.2)
(11.6)
82.5
up to 1 year
63.5
177.7
1,236.4
1,308.4
(250.1)
(188.1)
2,786.0
Sept. 30, 1999
63.6
177.7
1,236.6
1,422.0
(255.3)
(210.0)
2,899.9
Payables to non consolidated subsidiaries
Payables to associated companies and
other investees
Payables from orders in progress (POC)
Miscellaneous payables
amount thereof for taxes
amount thereof for social security
Other payables
Million Euros
Amount thereof with remaining term of
No provisions have been established for the above contingent payables, because the risk of
occurrence is not deemed probable.
Additionally, the Group bears joint and several liability as a member of certain civil law partnerships,
ordinary partnerships and consortiums.
Rental expense in the amount of 201.1 million Euros resulting from rental contracts, long-term
leases and leasing contracts which are classified as operating leases were incurred in fiscal
1998/99. The composition of this expense is as follows:
The future minimum rental payments, excluding accrued interest from such non-cancelable
contracts, which have an initial or remaining term of more than one year as of September 30, 1999,
is (at face amounts):
Rental obligations to affiliated companies are not material.
NOTES 77
Commitments
and
Contingencies
18137.6
506.7
105.1
5.8
Contingent issuance and transfer of notes
Suretyships and guarantees
Warranty/guaranty contracts
Liability for the collateralization of third party debts
Million Euros Sept. 30, 1999
165.8
35.9
– 0.6
201.1
Minimum rental payments
Contingent rental payments
less: income from sublease agreements
Total
Million Euros 1998/99
86.6
63.8
41.2
30.2
22.8
106.5
351.1
(for fiscal year)
1999/00
2000/01
2001/02
2002/03
2003/04
thereafter
Total
Million Euros
The future minimum rental income from non-cancelable sublease contracts in the amount of 19.4
million Euros is not included in the grand total of future minimum rental payments.
The commitment to subscribe to investment projects amounts to 518.7 million Euros and relate
mainly to the Steel segment.
Payment commitments and obligations to make further contributions to corporations and
cooperative associations exist in the total amount of 38.7 million Euros; of this 34.1 million Euros
relate to ThyssenKrupp Stainless, which has undertaken to make a capital contribution under
specified conditions of up to an amount in accordance with its 60% share in Shanghai Krupp
Stainless Co. Ltd. In addition, other financial commitments exist in the amount of 22.8 million Euros
primarily in relation to liability commitments from the transfer of pension obligations.
Several former stockholders of Thyssen and Krupp have petitioned per Art. 305 UmwG (Reorganization
Act) for a court review of the conversion ratios used in the merger of Thyssen AG and Fried. Krupp
AG Hoesch Krupp to form Thyssen Krupp AG. The proceedings are pending before the Düsseldorf
Regional Court. Should the Court rule in judgment that the conversion ratios are unreasonable,
settlement will be made via an additional cash payment plus interest. The additional payment is to
be made to all affected stockholders, even if they were not petitioners in the judgment precedings.
However, the Group believes any additional cash payments are unlikely.
As a result of the integration of Thyssen Industrie AG into Thyssen AG court proceedings to examine
the appropriateness of the compensation to outside stockholders of Thyssen Industrie AG are
pending. If the court rules that the compensation offered was inappropriate, the increased
compensation will be granted to all outside stockholders by a further cash payment.
The Corporation also anticipates that a lawsuit relating to the acquisition of Hoesch AG by Fried.
Krupp AG Hoesch Krupp as well as the incorporation of Krupp Stahl AG by Fried Krupp AG Hoesch-
Krupp, which has been pending since 1993, will not result in a material adverse impact.
NOTES78
Pending lawsuits
and claims for
damages
19
In the USA, several class-action suits of former forced laborers are pending against Thyssen Krupp
AG. After a thorough review by US attorneys, the Corporation believes that the suits will not be
successful. The same is true for a large number of suits of former forced laborers before German
courts.
German industrial companies, including the Group, are jointly planning with the federal government
an initiative to establish a foundation to supplement the national reparation policy. The initiative will
consist of a humanitarian fund to benefit former forced laborers and other groups harmed by the
Nazis and will have a suitable future endowment for projects related to the creation of the fund. The
success of the initiative is dependent on intergovernmental assurances that the company will be
legally safe and protected from further suits.
Aside from above, as far as the Corporation is aware, court or arbitration proceedings that could
have a significant influence on the economic situation of Thyssen Krupp AG have not been pending
and are not now pending.
Central interest management
To direct and optimize the credit portfolio, the Group makes use of derivative financial instruments
and other strategies. The financial derivatives chosen are exclusively for hedging purposes.
The interest derivatives employed include payer swaps as well as purchased interest rate caps. In
addition, special option forms are also used as interest hedge instruments. These instruments are
contracted for with the objective of limiting the interest and fair-value volatility of the underlying
basic transactions and thereby minimizing the financing costs by an optimal mix of variable-interest
and fixed-interest means. Part of the interest derivatives are designated directly and immediately to
a specific loan (micro hedge), whereas the greater part of the interest derivatives are not specifically
allocated to an individual loan but by means of a macro hedge approach which protects a portfolio
of payables. These macro hedges are reported at fair value on the balance sheet.
Thyssen Krupp AG pays an average fixed interest rate of 5.88 % on its payer swap contracts. The
interest rate caps ensure that the Group has an average maximum interest rate of 6.00 %, with the
advantage of participating in the currently low money market rate level.
NOTES 79
Derivative
financial
instruments
20
As of September 30, 1999, the following financial derivative instruments were used to minimize
interest and currency risk:
NOTES80
Notional Amount
Sept. 30, 1999
1,155.5
8.7
72.1
82.5
2,486.6
511.3
22.3
62.7
4,401.7
259.8
0.5
227.0
10.0
212.7
406.3
1,116.3
0.8
1.8
2.6
5,520.6
631.3
56.2
687.5
338.6
1,026.1
6,546.7
Balance at
Sept. 30, 1999
30.4
0.2
– 0.1
0.1
– 63.7
– 0.8
0.3
– 0.7
– 34.3
1.6
0.0
4.9
0.0
– 2.2
– 2.5
1.8
0.0
0.0
0.0
– 32.5
– 26.3
1.3
– 25.0
1.4
– 23.6
– 56.1
Fair value
Sept. 30, 1999
29.0
0.3
– 0.1
– 1.5
– 62.6
– 0.9
0.3
– 0.3
– 35.8
1.6
0.0
4.7
0.0
– 2.2
– 2.5
1.6
0.0
0.1
0.1
– 34.1
– 33.5
1.3
– 32.2
1.4
– 30.8
– 64.9
Forward foreign currency transaction
Buy
USD
GBP
CHF
Other currencies
Sell
USD
GBP
CHF
Other currencies
Subtotal of forward foreign currency transactions
Foreign currency option transactions
Call buy
USD
GBP
Put buy
USD
GBP
Call sell
USD
Put sell
USD
Subtotal of foreign currency option transactions
Foreign currency swap transactions
Buy
Sell
Subtotal of foreign currency swap transactions
Total foreign currency derivatives
Interest swaps
Payer swaps
Receiver swaps
Subtotal of interest swaps
Interest rate caps
Total interest rate derivatives
Total
Million Euros
The Notional amounts of the derivative financial instruments do not represent agreed payments
between the contracting parties, but are merely the basis for the calculation of the payment. They
do not reflect the risk content of the financial derivatives. The actual payments are effected by
interest rates, exchange rates and other factors.
The fair values of the derivative financial instruments represent the price at which one party could
assume the rights and obligations arising for the other party out of the existing contracts. The fair
values were determined on the basis of market conditions – interest rates, foreign currency exchange
quotations, commodity prices – existing on September 30, 1999. The instruments can experience con-
siderable fluctuations, depending on the volatility of the underlying interest, exchange or price basis.
The fair value of derivative financial instruments is generally determined independent of contrary
developments from underlying basic transactions that may exist.
The mark-to-market valuation of interest swaps is established by discounting the anticipated future
cash flows. For this purpose, the market interest rates applicable for the remaining term of the
contract are used as a basis. In the case of interest options (interest rate caps), widely accepted
models are used to calculate the option prices. The market value of an interest option is influenced
not only by the remaining term of the option but also by further determining factors, such as the
actual rate and the volatility of the underlying interest base.
The fair value of forward foreign currency transactions is calculated on the basis of the average spot
foreign currency quotation applicable on the last day of the fiscal year, adjusted for time-related
premiums and discounts for the respective remaining term of the contract compared to the
contracted forward rate. For foreign currency options, the fair value is determined in a similar
manner as is used for interest options, using widely known models for calculating option prices.
Central foreign currency management
The Group manages foreign currency through a central clearing office. Within the scope of the Group’s
centralized foreign exchange management, domestic subsidiaries are obliged to offer all open positions
arising out of import or export transactions in the major transaction currencies to the clearing office.
The positions offered are combined with the individual currencies in the groups with similar maturities;
the resulting overall position is hedged globally on a daily basis by taking up contrary positions with
banks. In connection with such global hedges, the clearing office has to accept short-term open
positions but in a limited scope to the overall position. When macro hedging is applied, both the hedged
basic transactions and the corresponding derivative financial instruments with banks are reported at fair
value.
The foreign subsidiaries which cannot participate in our central foreign currency management program
are obliged to hedge their foreign currency exchange risk at their local financial institution on a micro
hedge basis in accordance with the corporate financial department. These derivative financial instru-
ments are not reflected in the balance sheet. The underlying basic transactions are recorded at the
hedged rate.
NOTES 81
After the introduction of the Euro as of January 1, 1999, the currency risk for currencies of those
countries participating in the Euro no longer exists. Thereafter an exchange rate risk for the Group
exists in other currencies, primarily in US dollars, British pounds, Canadian dollars, and Australian
dollars.
Hedging against commodity price risk
The transactions of some companies are exposed to risks from changes in commodity prices,
especially in the nonferrous metals sector. In cases in which, because of contractual agreements,
price changes cannot be passed on to customers (contractual price escalation clauses), these
companies make use of derivative financial instruments. In principle, hedging is undertaken at the
local level, but contracting for financial derivatives in these areas is subject to strict guidelines, and
compliance is checked regularly by our Central Internal Audit Department. Solely marketable
instruments are used, for example those traded on the London Metal Exchange or other reputable
commodity exchanges. The instruments used are commodity future transactions, cash transactions
in combination with forward transactions, and the purchase of options. The selling of written option
positions is prohibited. The use of commodity futures is generally based on single transactions
(micro-hedge).
As of September 30, 1999, the total volume of derivative financial instruments related to
commodities was as follows:
NOTES82
Notional value
Sept. 30, 1999
173.8
121.0
14.1
4.6
0.4
0.4
0.2
0.1
314.6
Fair value
Sept. 30, 1999
57.5
– 17.0
1.0
– 0.1
0.1
0.0
0.1
0.0
41.6
Forward commodity transactions
Nickel
Buy
Sell
Copper
Buy
Sell
Aluminium
Buy
Sell
Zinc
Buy
Sell
Total
Million Euros
For the year ended September 30, 1999, Thyssen Krupp AG was historically managed and organi-
zed along the following business segments:
Steel
This segment produces and sells flat steel in all basic and quality steel grades. The flat steel
program includes carbon steel with and without surface finishing, electric strip and stainless steel. In
addition, high-grade metal materials such as nickel-base alloys and titanium are produced by this
segment.
Automotive
This segment produces parts, components, sub-assemblies and modules/systems for the vehicle
chassis, body and drive train/steering of passenger cars and trucks.
Industries
This segment manufactures and sells various components and systems in machinery construction
as well as elevators and escalators. This segment also constructs and maintains ships.
Engineering
This segment provides consulting services for the planning and construction of production facilities
for the chemical and petrochemical industries as well as project management services, for the
cement, sugar and mining industries, and for power engineering activities.
Materials & Services
This segment trades in materials, especially metal materials. In addition, this segment offers
building administration services, demolition services, as well as project management services.
NOTES 83
Segment
reporting21
Others
This category represents, besides real estate, other operating segments including Group-owned
financial and insurance services which are essentially for associated companies. It also includes
holding companies, which control holdings in other equity investments. The real estate business unit
manages the Group’s owned housing properties through the renting and selling of such properties,
as well as provides real estate consulting services.
On November 16, 1999 the Executive Board of the Thyssen Krupp AG presented its concept for the
future strategic alignment of the Group. The structure of the Group will be reorganized to focus on
core businesses. This entails, among other things, the creation of new segments from the divisions
of the former Industries and Material & Services segments. As a result, Elevators, Production
Systems, Components, MaterialsServices and FacilitiesServices will become direct subordinate units
to the Executive Board of the Thyssen Krupp AG.
After having been approved by the Supervisory Board, the new organizational structure was
introduced on December 3, 1999. The following new segments are a result of the modified
reporting structure:
NOTES84
Steel
Automotive
Elevators
Production Systems
Components
MaterialsServices
FacilitiesServices
Real Estate
Engineering
Others
Core businesses
The old segment structure that was in existence during fiscal year 1998/99 is relevant for current
year reporting. For additional insight, segment information is also presented under the new
structure.
As a result of the strategic realignment, the Steel segment will become an independent reporting
entity through a partial initial public offering. Steel will segment its activities when it reports its
financial information. In order to ensure that the report of Thyssen Krupp AG has the same degree
of detail as is presented in the report of Steel, the segment information comprising Steel has been
presented in this report.
Apart from the exceptions outlined below, the accounting principles for the segments are the same
as those described for the Group in the summary of significant accounting principles. The measure
of segment profit and loss which is used to evalute the performance of the operating segments of
the Group is the "income before taxes and minority interests" line item presented in the income
statement. For calculating the segment profit and loss it is assumed that foreign currency hedging
transactions with the central clearing office are to be treated as effective hedges of the underlying
transactions. As a result exchange rate gains and losses incurred at Group level from the market
valuation of the hedging transactions are not included in segment profit and loss. In addition,
certain Group-internal rent and lease agreements, which if taken individually would be classified as
capital leases are treated in the segment reporting as operating leases; however, this does not apply
to rent and lease agreements of companies in the Steel segment with other consolidated
companies.
Sales between segments are transacted at settlement prices standard for the market.
Allocation of sales by country is based on the registered office of the company which makes the
sale. Allocation of financial investments by country is based on the location of the investment,
whereas the other investments are allocated according to the registered office of the investing
company.
Due to the high volume of customers and the variety of business activities, there are no individual
customers which generate sales material to the Group’s consolidated net sales.
NOTES 85
NOTES86
Equity in the net in-come of investees
accounted for bythe equity method
22.4
– 0.8
– 0.6
0.0
6.7
30.8
– 9.5
49.0
Total sales
9,802.5
4,862.7
6,096.8
1,621.6
9,643.4
553.3
– 2,786.2
29,794.1
Internal saleswithin the Group
1,936.6
12.3
32.9
28.7
746.0
29.7
– 2,786.2
0.0
External sales
7,865.9
4,850.4
6,063.9
1,592.9
8,897.4
523.6
29,794.1
Million Euros
Steel
Automotive
Industries
Engineering
Materials & Services
Corporate, Others
Consolidation
Group
Equity in the net in-come of investees
accounted for bythe equity method
22.4
– 0.8
1.1
– 0.5
0.1
3.5
2.3
0.0
0.0
30.4
– 9.5
49.0
Total sales
9,802.5
4,862.7
2,536.6
1,256.8
1,004.3
7,939.9
1,268.9
413.4
1,621.6
1,957.7
– 2,870.3
29,794.1
Internal saleswithin the Group
1,936.6
12.3
2.6
22.3
5.6
451.8
268.7
38.4
28.7
103.3
– 2,870.3
0.0
External sales
7,865.9
4,850.4
2,534.0
1,234.5
998.7
7,488.1
1,000.2
375.0
1,592.9
1,854.4
29,794.1
Million Euros
Steel
Automotive
Elevators
Production Systems
Mechanical Engineering Components
MaterialsServices
Industrial Services
Real Estate
Engineering
Corporate, Others
Consolidation
Group
Equity in the net in-come of investees
accounted for bythe equity method
13.9
1.5
0.0
7.0
22.4
Total sales
8,444.3
3,444.4
857.2
0.0
12,745.9
Internal saleswithin the segment
1,952.7
753.9
4.5
232.3
2,943.4
External sales
6,491.6
2,690.5
852.7
– 232.3
9,802.5
Million Euros
Carbon Steel Flat-Rolled
Stainless Steel
Other companies
Corporate/Consolidation
Steel total
Segment information by product lines and services (old segment structure)
Segment information by product line and services (new segment structure)
The following table presents the components of the Steel segment and corresponds to the reporting structure of Steel in
NOTES 87
Depreciation andamortization
expense
765.5
231.8
77.6
61.4
61.4
64.0
144.2
41.4
43.2
80.8
0.0
1,571.3
Depreciation andamortization
expense
557.0
146.6
61.3
0.6
765.5
Net interestincome (expense)
– 136.0
– 48.4
– 93.5
28.6
– 64.8
111.8
0.0
– 202.3
Income before in-come taxes and
minority interest
222.0
275.0
233.0
21.8
119.2
– 174.7
– 72.5
623.8
Segment assets(=balance sheet
total)
12,171.9
3,960.1
6,494.7
2,134.3
5,418.5
14,089.6
– 11,619.9
32,649.2
Capital expenditu-res (including
intangible assets)
1,101.7
376.8
239.2
22.9
240.1
59.5
– 13.2
2,027.0
Equity investments
0.0
4.6
1.3
0.0
0.0
0.0
0.0
5.9
Other financialinvestments
94.8
4.0
1,259.7
0.2
133.8
154.0
– 33.4
1,613.1
Netinterest income
(expense)
– 136.0
– 48.4
– 50.0
– 35.8
– 11.8
– 48.1
– 6.1
19.1
28.6
86.2
0.0
– 202.3
Income before in-come taxes and
minority interest
222.0
275.0
157.0
– 6.0
55.0
79.6
66.6
53.6
21.8
– 228.3
– 72.5
623.8
Segment assets(=balance sheet
total)
12,171.9
3,960.1
2,722.7
1,480.7
1,169.7
3,852.7
1,189.2
2,740.0
2,134.3
12,847.8
– 11,619.9
32,649.2
Capital expenditu-res (including
intangible assets)
1,101.7
376.8
50.6
60.0
96.6
113.3
124.1
57.9
22.9
36.3
– 13.2
2,027.0
Equity investments
0.0
4.6
0.0
1.0
0.2
0.0
0.0
0.0
0.0
0.1
0.0
5.9
Other financialinvestments
94.8
4.0
1,208.1
1.3
13.6
68.2
24.8
1.8
0.2
229.7
– 33.4
1,613.1
Netinterest income
(expense)
– 82.7
– 42.6
– 0.1
– 10.6
– 136.0
Income before in-come taxes and
minority interest
168.7
52.9
– 2.7
3.1
222.0
Segment assets(=balance sheet
total)
7,932.4
3,195.8
1,099.1
– 55.4
12,171.9
Capital expenditu-res (including
intangible assets)
815.8
218.1
63.1
4.7
1,101.7
Equity investments
0.0
0.0
0.0
0.0
0.0
Other financialinvestments
55.5
22.8
0.0
16.5
94.8
Depreciation and amortization
expense
765.5
231.8
236.9
43.2
186.4
107.5
0.0
1,571.3
accordance with the reporting structure to be presented in the Steel IPO 1998/99
The above segment information is presented on the basis of US GAAP to improve comparability with
the consolidated earnings of Thyssen Krupp AG. The following segment information, however, is
presented on the basis of German GAAP (HGB), because these were the values that were reported
to the Executive Board and Supervisory Board in fiscal 1998/99 and formed the basis for the
management of the Group. However, future reports to the Executive Board and Supervisory Board
will be made on the basis of US GAAP figures. The main differences between US GAAP and German
GAAP accounting are presented in the section “Changes in accounting, valuation and consolidation
methods” on page 111.
NOTES88
Capital expen-
ditures (inclu-
ding intangible
assets)
Sept. 30, 1999
10,371.3
1,744.1
2,728.4
1,060.6
15,904.4
External sales
1998/99
10,682.2
7,218.5
6,441.6
5,451.8
29,794.1
Million Euros
Germany
Other EU
USA
Other countries
Group
Segment information by geographical area
Monthly results
after interest
and
before taxes
97.1
311.9
254.3
– 35.5
199.5
– 88.0
739.3
Sales
9,974.6
5,152.0
6,319.5
1,839.7
10,488.4
– 1,902.2
31,872.0
Steel
Automotive
Industries
Engineering
Materials & Services
Corporate, Others/Consolidation
Group
Million Euros
On December 3, 1999 the supervisory board of Thyssen Krupp AG announced the introduction of a
“Long Term Management Incentive Plan”, which is to be in effect for five years. Participants in the
Incentive Plan include 224 Group executives such as board members of Thyssen Krupp AG and the
lead segment companies, corporate directors of Thyssen Krupp AG and managing directors or
board members of large subsidiaries.
The Incentive Plan is based on the performance of the company’s stock price between the
beginning and ending of a defined performance period. Contrary to a typical stock option plan, the
Incentive Plan awards stock appreciation rights (so called phantom stock) which are settled in cash
upon the attainment of predefined goals.
The Incentive Plan will be accounted for under FASB Interpretation No. 28, whereby an accrued
liability will be recorded for the amount by which the quoted market value of the shares exceeds the
exercise price of a stock appreciation right as of the balance sheet date. At the conclusion of a
performance period and the settlement of any amounts to be paid out, any difference between
amounts formerly accrued and amounts paid out will be reflected as additional expense or income.
Our participation in the Transrapid magnetic levitation transportation system was accounted for as a
continuing operation as of September 30, 1999. Based on a decision made by the Transrapid
Partners on February 5, 2000, the project line Berlin-Hamburg has been cancelled. As such, the
Group is currently considering further developing the technology, alternative routes to use the
technology or possibly selling the technology. Transrapid is not expected to have a significant effect
on fiscal year 1999/2000 results.
The planning phase of the construction of a new coking plant in Duisburg–Hamborn has begun. An
external management company will operate and finance the plant. Negotiations regarding the terms
of the contract are still in the process of being completed.
NOTES 89
Subsequent
events 22
Notes to the Consolidated Statement of Cash Flows
The liquid funds considered in the consolidated statement of cash flows correspond to the “cash
and cash equivalents” line item in the balance sheet.
Included in the Group’s cash flows from operations were the following amounts of interest and
income taxes paid:
Non-cash investing activities
The acquisition of the activities of legacy Krupp on December 4, 1998 was made on a non-cash
basis via the granting of stockholder rights in the newly established Thyssen Krupp AG. The
investing activities section of the cash flow statement is therefore only affected by the cash and
cash equivalents acquired from Fried. Krupp AG Hoesch-Krupp on December 4, 1998 in the amount
of 0.3 billion Euros. The fixed assets of the former Fried. Krupp AG Hoesch-Krupp acquired on
December 4, 1998 amount to 7.78 billion Euros.
The non-cash addition of assets under capital leases in fiscal 1998/99 amounts to 46.3 million
Euros.
Non-cash financing activities
The acquisition of the activities of legacy Krupp led to an addition of gross financial payables in the
amount of 2.51 billion Euros at December 4, 1998.
NOTES90
281.3
188.0
Interest paid
Income taxes paid
Million Euros 1998/99
CONTENTS 91
92 Additional disclosures for the Management Report pursuant to Art. 315 of the German
Commercial Code (HGB)
92 Economic development
95 Development of the business by segment
98 Portfolio changes
98 Employees
99 Procurement markets
100 Research and development
101 Environmental protection
101 Investment
103 Euro capability
103 Year 2000 problems
103 Risk management
104 Future business risks
106 Strategic realignment
107 Outlook for 1999/2000
111 Changes in Accounting, Valuation and Consolidation methods
(including transition calculation)
122 Additional information
124 Executive Board
126 Supervisory Board
(including Supervisory Board Committees)
129 Waive of disclosure pursuant to Art. 264 Par. 3 German Commerical Code (HGB)
Additional Disclosures Pursuant to Art. 292aof the German Commercial Code (HGB).
Fiscal 1998/99 is the first year of the new ThyssenKrupp Group. The extraordinary stockholders'
meeting of Fried. Krupp AG Hoesch-Krupp on November 30, 1998 and the extraordinary
stockholders' meeting of Thyssen AG on December 3/4, 1998 approved the merger of the two
enterprises. Thyssen Krupp AG was entered in the Commercial Register of Düsseldorf local court on
March 17, 1999.
ThyssenKrupp encountered difficult trading conditions during its first fiscal year. The economic
slowdown in numerous countries in Europe, Asia and Latin America placed a considerable burden
on the Group’s business.
Actual sales in 1998/99 amounted to 29.8 billion Euros. On a pro forma basis, i.e. based on the pro
forma figures for the new Group in both 1998/99 and 1997/98, sales decreased to 32.4 billion Euros
in 1998/99 from 35.9 billion Euros in 1997/98. Actual income before taxes and minority interest in
1998/99 totaled 623.8 million Euros. The Executive and Supervisory Boards will propose to approve
the payment of a dividend in the amount of 1.40 DM or 0.71581 Euros per share at the annual
stockholders' meeting.
Economic activity mostly weaker
The overall economic environment provided little positive impetus for ThyssenKrupp’s businesses
during the year. The world economy was weak, especially in the first half of 1999. Thanks to the
recovery that followed, world economic growth climbed to just under 3% in real terms. World trade
increased by a solid 4%.
The initially slow rate of world growth was due in part to the effects of the financial crises in several
countries in Asia and Latin America. In the course of 1999, however, the crisis passed its peak in
most of these countries.
In 1999 the USA once again enjoyed high growth. Due to strong domestic demand, economic
output grew 4%. The trend in Western Europe was much more subdued. Economic output in the
euro-zone increased only around 2% due to extremely weak export activity.
92
Additional disclosures for the ManagementReport pursuant to Art. 315 of the GermanCommercial Code (HGB).
1998/99
29.8
623.8
184,770
1998/99
32.4
616.3
184,770
1997/98
35.9
1,335.2
183,937
Sales Billion Euros
Income Million Euros
Employees (Sept. 30)
ThyssenKrupp figures
Pro forma
In Germany, real GDP grew by only 1.5%. While private consumption rose as a result of the
improvement in real income, overall economic growth was held back by very weak exports early in
the year. It was only in the second half of 1999 that economic activity picked up notably in Germany
as well as in other European countries.
Mixed sector trends
The international steel market showed a mixed picture in 1999. Demand was clearly in decline at
the beginning of the year with prices falling, but picked up markedly as the year progressed. World
raw steel production increased slightly from 777 million metric tons to 787 million metric tons.
Stainless steel accounted for approximately 2% of total output.
In Western Europe steel demand reached a satisfactory level in the second half of 1999.
Contributing factors included a the stable workload in the steel processing sectors, in particular the
automobile industry, and the increasing normalization of inventory levels at traders and consumers.
In addition, import pressure from non-EU countries weakened – partly as a result of the anti-dumping
actions filed with the European Commission.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 93
Gross domestic product 1999*
1.5
2.8
2.0
1.3
1.7
1.5
4.1
0.8
– 1.0
0.8
7.1
5.1
2.8
Germany
France
United Kingdom
Italy
C./E. Europe
Russia
USA
Brazil
Latin America(excl. Brazil)
Japan
China
Asia (excl. CHand J)
World
Real change against the previous year (%)
*Estimate
German raw steel production in 1999 at 42 million metric tons was almost 5% lower than the
previous year. Steel prices, on a steep decline since mid-1998, recovered gradually in the second
half of 1999, but on average were still well below the comparable prior-year figures.
Demand for stainless steel flat products remained on an upward trend in 1999. However, at the
beginning of the year European manufacturers were still under considerable price pressure. The
Asian crisis and anti-dumping actions in the USA led to fewer export opportunities. It was not until
later in the year that price increases could be pushed through.
The international automobile market remained active in 1999. More than 55 million vehicles were
produced worldwide. Production in Japan and Brazil, however, declined. In contrast, the high level of
output in the NAFTA region was further increased to 17.6 million vehicles. Demand was particularly
high for light commercial vehicles such as minivans, sport utility vehicles and pickup trucks, parts
for which are supplied by The Budd Company, a subsidiary of ThyssenKrupp Automotive. In Western
Europe production was on par with the previous year at 16.8 million cars and trucks. The German
automobile industry equaled its record of 5.7 million vehicles set a year earlier.
After years of recession the German construction sector slightly recovered. There was growth in the
western part of the country, but building investment in eastern Germany slipped further. The
construction industry performed much better in the rest of Western Europe and in particular in
Central and Eastern Europe.
Low investment in Western Europe strongly affected the German mechanical engineering industry in
1999. Orders fell significantly, and it was only thanks to high order backlogs that production
approximately matched the prior-year figures. While German machine tool manufacturers achieved
production growth of 3%, demand on the North American market was very weak. Production by
German plastics machinery manufacturers was stable. The plant engineering industry suffered from
declining orders from the Asian region.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)94
Sales by customer group 1998/99
in %
Automobile industry 24
Steel/steel-relatedprocessing 15
Building ind. 11
Mech. eng. and plant const. 12
Trading 10
Transport techn. 3
Packaging industry 3
Public sector 2
Energy and utilities 2
Other customers 18
Business at ThyssenKrupp impacted by weak economy
On a pro forma basis, order intake at ThyssenKrupp decreased 11.9% during the year. Customers
outside Germany accounted for 63% of orders.
In 1998/99 the ThyssenKrupp Group achieved sales of 29.8 billion Euros. On a pro forma basis,
sales were down from 35.9 billion Euros in 1997/98 to 32.4 billion Euros in 1998/99.
The following notes on sales relate to the figures calculated on a pro forma basis.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 95
Orders received by region 1998/99
in %
Germany 37
Other EU countries 24
Non EU countries/CIS 4
NAFTA 24
South America 2
Asia/Middle East 6
Other regions 3
1998/99
9,802.5
4,862.7
6,096.8
1,621.6
9,643.4
553.3
32,580.3
2,786.2
29,794.1
1998/99
10,451.6
5,207.8
6,554.4
1,815.7
10,666.4
610.8
35,306.7
2,929.2
32,377.5
1997/98
12,312.1
5,095.2
6,186.8
1,878.9
13,285.8
584.7
39,343.5
3,460.0
35,883.5
Million Euros
Steel
Automotive
Industries
Engineering
Materials & Services
Corporate, Others
Sales of the segments
Inter-segment sales
Group
Sales by segment
Pro forma
In the Steel segment sales decreased 15.1% to 10.5 billion Euros. In Carbon Steel Flat-Rolled this
was mainly due to lower shipments. The decline in revenues was less pronounced than that
experienced by competitors as a result of selective order booking and the high proportion of contract
business. Shipments and sales of hot-rolled and uncoated cold-rolled flat products suffered the
most serious decline. Coated products fared better. Sales of the Stainless division were lower than
the previous year. This was due entirely to unfavorable prices; shipments showed a slight
improvement against the previous year. Sales of the VDM group, which specializes in nickel-base
alloys, fell slightly. The segment's raw steel output dropped 14% to 16.1 million metric tons. Toward
the end of the reporting period, however, nearly all core facilities had returned to full capacity.
The Automotive segment achieved sales of 5.2 billion Euros and thus continued its strong prior-
year performance. A positive factor was continuing strong auto sector activity in North America and
Germany. In the Body division, both the U. S. based Budd Company, and the German plants
expanded their sales. However the UK plants recorded falling revenues due to the unfavorable sales
situation of their local customers. The Chassis division likewise suffered setbacks in the UK, but
these were offset by higher sales in North America. Particularly encouraging improvements were
recorded at Krupp Fabco in Canada and The Budd Company's Waupaca Foundry in the USA. The
Powertrain division held up well. Lower sales in Brazil were more than offset by improved business
in Europe and North America, especially from the sales of camshafts and steering columns. The
Systems/Suspensions division enjoyed significant growth, mainly reflecting the market success of its
innovative air spring/shock absorber units.
The Industries segment generated sales of 6.6 billion Euros, an increase of 5.9% over the prior
year. The elevators business recorded further growth. However, regional market developments were
mixed. While demand in the crisis regions of Southeast Asia, Russia, and China slowed down
markedly, the markets in the USA and Europe remained stable. Sales of the Production Systems
division fell short of the prior-year figure, mainly due to unusually weak demand for machine tools in
North America. However, sales of the body-in-white and assembly equipment units were strong.
Despite weak activity in the German construction industry, the Components division equaled its high
sales level of the previous year. The activities now allocated to Others under the new segmentation
of the organization performed as follows: Plastics Machinery continued its good performance of
recent years with a rise in sales. The Shipyards turned in another solid performance; their 2.4 billion
Euros order back-log secures capacity utilization until 2006. The Civil Engineering division suffered a
large drop in sales.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)96
The amount of orders of the Engineering segment were affected by the currency and financial crises
in Southeast Asia; as a result sales in the current year decreased 3.4% to 1.8 billion Euros. Krupp
Uhde – chemical and petrochemical plants – has a steady workload; the company's worldwide
engineering capacities are fully utilized. Krupp Polysius – cement plants – increased its sales thanks
to orders booked before the Asian crisis. Sales of Krupp Fördertechnik decreased on account of the
difficult situation on the raw materials markets. ThyssenKrupp EnCoke, which combines the
coke-oven plant activities of the former Thyssen Still Otto Anlagentechnik and Krupp Uhde, also
recorded a decrease in sales. B + V Industrietechnik increased its sales thanks to its stable ship
equipment business. Despite difficult conditions on the Indian market, Krupp Industries India
performed well although sales fell slightly.
In the Materials & Services segment, sales at 10.7 billion Euros were 19.7% lower than the previous
year due to generally weak activity on the materials and construction markets. The Materials
Services division encountered major sales problems in the first half of 1998/99 in European and
overseas export markets. In North America the market position was strengthened but prices and
margins slipped perceptibly. Despite the market trend, sales in Germany almost matched the level of
the previous year. The systematic expansion of the product and service range and the focus on a
broader customer base led to higher shipments and gains in market share. Sales in the Facilities
Services business exceeded the prior-year figure despite the subdued German economy. A major
factor in this was the targeted expansion and integration of individual service elements such as
maintenance, erection and installation, environmental services, facility systems and facility
management. There was a disproportionate increase in business at the Information Services unit,
which operates computing centers, clientserver architectures and customized communications
systems for industry and public authorities. Sales were also up at the Project Management division,
which in the new segmentation of the organization, is now included in Others. Project management
activities focused on the discharging of shipbuilding orders, the conclusion of a major German wind
farm project, and international trading in technical systems and components.
Aside from Real Estate, Corporate and Others include financial and insurance services (essentially
for affiliated companies), holding companies with shares in affiliated companies, and investments.
The Real Estate division generated sales of 426 million Euros. The housing business continues to be
the main pillar of sales; at the end of September 1999 the division managed 55,591 housing units
in Germany's Rhine/Ruhr region, 53,636 of them Group-owned. The Immobilien Management unit
controls the use of the Group's real estate, including non-operating property. The projects of
Immobilien Development as property developer and general contractor relate both to the Group's
own property and to third-party real estate. The move of the German Bundestag from Bonn to Berlin
was planned and controlled by Immobilien Consulting.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 97
Further focusing of the portfolio
The aim of our portfolio strategy is to achieve a sustained increase in the value of the enterprise. For
this reason we concentrate our resources on areas of business which are or have the potential to be
among the best on a world scale. The main acquisitions and divestments in the year under review
were as follows:
" With the acquisition of French companies Coste S.A. and S.A. Laminoires et Ateliers de Jeumont,
the Steel segment expanded its European steel service center network. In the electrical sheet
sector, a majority stake was acquired in the French Usinor Grains Orientés S.A.; regulatory
approval for the acquisition was granted by the European Commission in October 1999.
" In the Industries segment the main acquisition was that of Dover Elevators, USA, which made
Thyssen Aufzüge the third biggest elevator manufacturer in the world. Following the purchase of
Access Industries, USA, the company is now the world market leader in the field of stair lifts. In
Brazil, Thyssen Aufzüge bought Elevadores Sûr. Lastly, the light conveyor activities were sold.
" Materials & Services continued to concentrate its activities. The Materials Services division took
over the tube and rolled-steel operations as well as the technical trading business from
Mannesmann Handel AG, which now trades under the name Thyssen Mannesmann Handel AG.
The stainless steel service center business was bolstered by the acquisition of Vetchberry Steels
Ltd. in the UK. The Facilities Services division acquired Palmers Limited, a leading UK supplier in
this sector. ThyssenKrupp Information Services sold IS Internet Services with its fixed-line and
mobile telephone activities. On October 1, 1999 the Nestrans Logistik group, including the inland
waterway shipping business, was sold.
Number of employees increased
On September 30, 1999 Thyssen Krupp AG had 184,770 employees worldwide. On a pro forma
basis this was 833 or 0.5% more than a year earlier. The increase is mainly attributable to the
further internationalization of the core businesses. At year end, ThyssenKrupp employed 76,601
people outside Germany, 6.2% more than a year earlier. Actual personnel expense in 1998/99
amounted to 7,945.0 million Euros.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)98
In Germany the number of employees decreased 3.2% to 108,169. The percentage of foreign
employees at the Group’s German companies decreased to 12%. During the year, the Group’s
German companies recruited 4,092 new employees, of which 2,227 have time-limited contracts.
Fewer employees left the Group under social plans. 895 employees took early retirement, a further
1,439 left under termination agreements.
The Group trains apprentices beyond its own requirements. In fiscal 1998/99 1663 new apprentices
were taken on in Germany. At the end of September 1999 a total of 4,981 young people were
undergoing vocational training. At almost 5%, the percentage of apprentices in the domestic
workforce was on par with the previous year.
Procurement markets
Conditions on the procurement markets were advantageous in the period under review. The Group’s
overall actual materials expense in the reporting year amounted to 17,415.7 million Euros. No
bottlenecks were encountered in the procurement of raw materials, energy or other products.
Electricity prices eased perceptibly. The introduction of the European single market directive for
electricity and new national legislation triggered increased competition in Germany. ThyssenKrupp
took advantage of this deregulation and saved considerably on its electricity costs. At the Group
level we pooled our power requirements and invited bids on the liberalized market. The increased
demand volume of the post-merger ThyssenKrupp Group also had a positive effect. A similar
development is expected for the gas industry in the near future; in anticipation of this we have
already achieved initial reductions in gas prices. We expect the increased market presence of
international energy suppliers and the introduction of energy exchanges to generate further
competition in Germany.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 99
Sept. 30, 1999
54,388
37,594
51,090
9,594
30,571
1,533
184,770
108,169
76,601
Sept. 30, 1998
56,140
37,836
49,522
9,745
28,922
1,772
183,937
111,781
72,156
Steel
Automotive
Industries
Engineering
Materials & Services
Corporate, Others
Group
of which: in Germany
outside Germany
Employees by segment
Pro forma
The success achieved in reducing Germany's energy cost disadvantage is, however, being
undermined by the ecological tax reform. Despite reductions in non-wage labor costs, energy-
intensive Group companies, who were originally to be exempted from the tax, will, on balance, have
to pay more.
On the raw materials markets prices generally eased. The cost of iron ore fell as a result of
decreasing demand and lower ocean freight rates. Brazil continued to be the main supply source;
more than half of the supplies from Brazil were from our mining company Ferteco Mineração. Coal
volumes and prices were also down in comparison to the previous year. The reduction in the price of
imported coal is attributable in part to the expansion of new mining capacities. Nickel and chromium
prices began to climb again from an all-time low, with the increase in nickel prices particularly
pronounced. Scrap prices for carbon steel production fell significantly.
The key material prices decreased across the board. We achieved more favorable procurement
prices for parts, components and subsystems thanks to subdued economic activity and targeted
purchasing management. In the transport area, the worldwide pooling of transport volumes
continued and the logistics chains further optimized; in some areas this has already started to yield
cost advantages.
Research and development
In the year under review we spent 467.6 million Euros on research and development including quality
assurance. Around three thousand scientists, engineers and technicians were involved in over two
thousand R&D projects, focusing on mechanical engineering, process technology, electrical
engineering, electronics as well as metallurgy and materials technology.
All research projects are aimed at strengthening our core competences in products and processes.
To ensure closeness to customers, the projects are carried out directly by our operating companies.
Altogether the Group has 30 in-house research centers which form a network to collaborate on joint
projects. We also cooperate closely with universities, research institutes and the research
departments of our suppliers and customers and participate in national and international research
programs.
Together with applied research institutes of the Fraunhofer Gesellschaft, Thyssen Krupp Stahl
established the Dortmunder OberflächenCentrum, which in the future will combine the development
activities in surface engineering and sheet coating technology. An equipment manufacturer is also to
be involved in the project.
Partnerships are also driving the development of the direct strip casting process to production
maturity. ThyssenKrupp Stahl has entered into an alliance with the French steel producer Usinor and
the Austrian equipment builder Voest-Alpine. The Eurostrip project brings together the process
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)100
technology findings made in Isbergues/France, Terni/Italy and Krefeld/Germany with Voest-Alpine’s
expertise in plant construction.
The Steel and Automotive segments are cooperating closely on projects which will drive progress in
the auto sector. As partners in the international development projects ULSAS (UltraLight Steel Auto
Suspension) and ULSAC (UltraLight Steel Auto Closures) they are designing attractive lightweight
steel automotive parts. High-strength steels, tailored blanks comprising different steel grades, and
new manufacturing technologies such as hydroforming and laser welding play a central role.
Environmental protection
In 1998/99 the Group spent 390.8 million Euros in Germany alone, on the operation of pollution
control facilities and environmental management. With a share of 42% in current expenditures,
water pollution control was the biggest item. Air pollution control accounted for 36% and the
recycling of residual materials 17%. Noise control and landscape protection played a less important
role in terms of expenditures. 101.7 million Euros was invested in pollution control facilities. The
focus was on the Steel segment, in terms of both investment and ongoing expenditure.
New environmentally friendly production facilities have been installed in the Steel segment. Both
Carbon Steel Flat-Rolled and Stainless are contributing to air pollution control with their innovative
casting-rolling and strip casting units in Duisburg and Krefeld. In addition, these innovations
drastically reduce carbon dioxide emissions, energy consumption, sulfur dioxide emissions, nitrogen
oxide emissions and dust. ThyssenKrupp is committed to climate protection and to improving
energy efficiencies and environmental performance in all segments.
For its future environmental policy the ThyssenKrupp Group has drawn up a ten-point environmental
program which identifies environmental protection as a key aim of corporate policy. From the very
early stages of their conception, ThyssenKrupp products have to be designed for durability,
recyclability and minimum-possible energy consumption. Production wastes are to be avoided,
recycled or disposed of without causing harm to the environment.
Investment in core businesses
In the 1998/99 fiscal year ThyssenKrupp invested 3,646.0 million Euros. Capital expenditure on
tangible and intangible assets amounted to 2,027.0 million Euros, while the remaining 1,619.0
million Euros related to the acquisition of companies and equity interests. The aim of investment was
to strengthen the core businesses worldwide.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 101
Investment in the Steel segment amounted to 1,196.5 million Euros. In the Carbon Steel Flat-Rolled
division most of the spending went to optimizing the plant configuration. The casting-rolling line in
Duisburg (Germany), the biggest investment project in recent years, was completed on schedule in
April 1999. In the Stainless unit Krupp Thyssen Nirosta built the world’s first strip caster for making
stainless hot band. In addition, construction work began on a finishing center in Krefeld (Germany).
At Acciai Speciali Terni (Italy) investment focused on a new Sendzimir cold-rolling mill and a bright
annealing line. Mexinox (Mexico) is currently investing in a new pickling line for hot-rolled chromium
steel strip.
Capital spending in the Automotive segment totaled 385.4 million Euros. In Hopkinsville, Kentucky,
a completely new plant for chassis components was built. Gray and SG iron casting capacities were
significantly expanded. A new hydroforming facility with downstream processing and welding
capabilities is under construction.
The Industries segment invested 1,500.2 million Euros. In the Elevators division the spending
centered on further strengthening our international market position. Dover Elevators and Access
Industries were acquired in the USA and Elevadores Sûr in Brazil. In the Components division,
Novoferm built a new plant in Dortmund (Germany).
Investment at Materials & Services totaled 373.9 million Euros. The Materials Services division
strengthened its market position with the acquisition of the tube and rolled-steel activities as well as
the technical trading business of Mannesmann Handel. In the UK the stainless business was
expanded with the acquisition of an independent stainless steel service center. In Richmond, South
Carolina, USA, a new processing and distribution center went into operation. In Germany
investment focused on expanding the new stainless steel service center in Dortmund. The Facilities
Services division broadened its company base with the acquisition of Palmers Limited in the UK, a
leading provider of industrial services.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)102
1998/99
1,196.5
385.4
1,500.2
23.1
373.9
213.5
– 46.6
3,646.0
2,027.0
1,619.0
Million Euros
Steel
Automotive
Industries
Engineering
Materials & Services
Corporate, Others
Consolidation
Group
of which: Property, plant and equipment1)
Financial assets
1) including intangible assets
Investment by segment
Euro capability established
Since January 1, 1999 the ThyssenKrupp Group has been able to offer external business partners
the option of conducting transactions in the currency of one of the EMU participating countries or in
Euro. Internally the switch to the Euro will be made in fiscal 1999/2000.
No Year 2000 problems
Both Thyssen and Krupp initiated groupwide Year 2000 projects several years ago and prepared
themselves comprehensively and systematically to deal with the problems associated with the
change of millennium. No problems were encountered in connection with the date change.
Risk management
The risks involved in any business activity are controlled by risk management. Early recognition and
control of potential risks to assets, finances and income permits measures to be taken to secure the
long-term future of the business. In Germany, a further function of risk management is to satisfy the
new regulations imposed by the laws on business control and transparency (KonTraG) which was
introduced on May 1, 1998.
Following the merger of Thyssen and Krupp, work began on harmonizing the existing risk
management systems of the two former groups, starting out from the actual structure of the merged
companies as presented in the Thyssen Krupp AG Merger Report dated October 16, 1998. The
ThyssenKrupp Group has a multitier management structure. Overall responsibility for the Group lies
with the Executive Board of Thyssen Krupp AG. Group management is characterized by a sharing of
duties and extensive delegation.
The ThyssenKrupp Group is combining the risk management policies of the former groups into a
single system and has established its own risk management principles. Based on a review,
documentation and assessment of the existing systems for the 1998/99 fiscal year, opportunities for
further optimization and increased efficiency are being utilized. Risk management in the Group is
supported by an integrated financial control system as part of a value-oriented management policy
that targets a systematic and sustained increase in the company's value by concentrating on the
core businesses and achieving leading competitive positions in all activities.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 103
Particularly important for successful risk management is communication between the Group parent
company and the segments. To this end, status reports are submitted to the parent company's
Executive Board at regular and frequent intervals during the year.
Group financing is handled centrally by Thyssen Krupp AG to limit the risks involved, secure the
Group's liquidity and maintain its financial independence. We use derivative financial instruments to
counter risks from foreign currency transactions, price fluctuations for raw materials and changes in
interest rates. However, derivatives are used only to manage risks arising from underlying business
activities. No transactions of a speculative nature are undertaken.
Future business risks
ThyssenKrupp is a capital goods and services group faced with the typical business risks that can
have a significant impact on assets, liabilities, financing capabilities, and income. Such risks include
falling demand, exchange rate fluctuations, geographical risks and risks arising from technological
advances.
The Carbon Steel Flat-Rolled business is reducing the risk inherent in operating in restricted
traditional markets by globalizing its production and sales. Growing demands for weight reduction
from the auto industry and its suppliers – the division's key customer sector – are primarily met by
the development and systematic marketing of high-strength and ultra-high-strength steels, and
through participation in the ULSAB (UltraLight Steel Auto Body) project and its follow-up projects.
Future developments in the Stainless division depend primarily on the situation vis-à-vis
competitors who have locational advantages through integrated production, and on barriers to
market entry in growth regions outside Europe. The division is looking to further strengthen its
position by investing outside Germany. Another important aspect is the volatility of the raw materials
and currency markets, which is primarily countered by concluding corresponding commodity and
exchange futures to cover underlying transactions.
In the Automotive segment, the risk of a potential fall in demand on specific automobile markets
is being countered by an increasingly global presence – in particular in growth regions. The
consolidation trend among auto manufacturers and competitors is being met by dynamic internal
and external growth, both quantitative and qualitative. The risk of automotive products being
superseded by technological progress, substitution or modified product requirements is offset by
research and development and, where appropriate, by cooperation or acquisitions.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)104
Risks from future developments in the Industries segment are minimized by targeted counter-
actions. The future of the Elevators division is being secured by the continued expansion of
sustained profitable service activities.
The Production Systems division is faced with a sharp fall in demand for machine tools in the USA.
This is being offset by stepping up exports from our American plants.
In the Mechanical Engineering Components division, conceivable negative political and socio-cultural
developments (e.g. cessation of funding programs for wind energy, reduction in subsidies for
building modernization) are countered by suitable measures (e.g. maintaining a broad range,
increasing exports).
In the Shipyards division, the drop in prices for merchant ships – in particular container ships from
Korea – as a result of the Asia crisis, is being offset by utilizing opportunities in naval shipbuilding
and adapting capacities. With regard to the Transrapid project, further market openings are being
sought outside Germany irrespective of the decision on the Berlin to Hamburg line.
The strategic measures implemented by the Engineering segment are designed as a response to the
increasing consolidation taking place among suppliers and important customers.
The risk situation in the Materials & Services segment is mixed. In Materials Services, cyclical price
dependency is being reduced by a further expansion of material price-independent service business.
In addition, the effects of sudden price fluctuations is being mitigated by lowering inventory levels
through the further centralization of warehouses and the improvement in logistics control systems.
Certain operations of the Facilities Services business can be highly labor-intensive. The effects of
this are mitigated by part-time employment.
The Real Estate business currently sees no risks arising from changes in the law or other external
influences.
The overall assessment of the risk situation in the ThyssenKrupp Group revealed the risks to be
limited and managed. No threat to the continued existence of the Company, either now or in the
foreseeable future is believed to exist.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 105
Events subsequent to the balance-sheet date: Strategic realignment
In its meeting on December 3, 1999 the Supervisory Board discussed and approved the plan for the
strategic realignment of the ThyssenKrupp Group.
The primary objective continues to be increasing the value of the enterprise on a sustained basis.
This includes stabilizing the business by limiting the effects of cyclical swings.
The original organization of the ThyssenKrupp Group comprised 23 divisions, 21 of which were
allocated to five segments. Many of these activities already hold strong competitive positions and
offer high development potential. However, the Group's funds are not sufficient to meet the growth
needs of all areas and enable them to grasp the opportunities offered by globalization. Streamlining
the Group and concentrating resources are therefore the guiding principles behind ThyssenKrupp's
future strategic alignment.
The package of measures for the forward-looking strategy has a number of key components:
1. Focusing of businesses
The Group will concentrate on core businesses which deliver higher-than-average EVA through
continuous growth and leading market positions. Alongside ThyssenKrupp Steel, the six core
areas will be Automotive, Elevators, Production Systems, Components, MaterialsServices and
FacilitiesServices. Development opportunities outside the Group will be sought for activities with total
annual sales in excess of 10 billion DM, including Plastics Machinery, Shipyards, Engineering and
Project Management.
2. Strengthening of ThyssenKrupp Steel through flotation
ThyssenKrupp Steel is a world class producer holding leading international positions in its areas
of business. The initial public offering is to take place before the end of the year 2000.
ThyssenKrupp Steel will then be in a position both to realize its ambitious growth objectives more
quickly and to play an active part in shaping the ongoing consolidation process in the steel industry.
3. Stronger service orientation
Another guiding principle is to supplement our production-based business with innovative, know-
how-intensive services offering high value-adding potential. This will be done by expanding product-
related services and establishing or acquiring completely new service-oriented businesses. One
aspect of this will be rapid entry into the “e-commerce” sector.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)106
4. Organizational restructuring
The current segment (level 2) and business unit (level 3) management levels will be combined
and streamlined. The management principle under which the large operating units are represented
by their chairmen on the Executive Board of Thyssen Krupp AG will be retained.
5. Introduction of US GAAP
Group accounting was converted to US GAAP during fiscal 1998/1999. This increases
transparency as US GAAP rules are of the highest international standard. Internal accounting is now
also being carried out according to US GAAP – a key condition for more efficient value control.
6. Stock options program
The Long Term Management Incentive Plan, part of the new strategy, was introduced in
December 1999. There are 224 selected executives who participate in the program. A management
incentive system based on the capital market is an important precondition for realizing the strategic
objectives as quickly as possible.
The systematic and rapid implementation of the above measures will considerably strengthen the
Group's earning power. The improvement in earnings and the revenues from the disposal of
activities will form the basis for continuous growth in our core businesses. At the same time the
non-core businesses will be given the opportunity to develop within the framework of their markets.
Outlook for 1999/2000: Higher sales and improved earnings for ThyssenKrupp
Business conditions are improving. The world economy is growing faster, with regional differences
becoming less pronounced. North America remains strong and Western Europe looks set to catch
up. For the most part, the economic crises in the Far East and Latin America were overcome faster
than expected. However, Japan continues to struggle.
For the world economy as a whole we believe real growth will exceed 3.5% in the year 2000. At 7%,
the expansion in world trade should be above average. No major changes in exchange rates are
expected.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 107
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)108
The domestic economy in Germany should gradually gather momentum. However, our 2.5% growth
forecast is based on the assumption that exports will once again deliver the main impetus.
On the markets of importance to ThyssenKrupp the signs are mainly positive. The international steel
cycle is on an upward trend. In 2000 we expect world raw steel production to approach 800 million
metric tons. German raw steel production is estimated to reach 45 million metric tons, an increase
of 7%. The price recovery for both carbon steel and stainless is expected to continue.
Gross domestic product 2000*
2.5
3.0
3.0
2.5
3.0
1.5
3.5
2.0
2.5
1.5
7.0
4.0
3.5
Germany
France
UK
Italy
Cent./E. Europe
Russia
USA
Brazil
Latin America(excl. Brazil)
Japan
China
Asia (excl. Chinaand Japan)
World
Real change against previous year (%)
*Forecast
Industrial output in Germany 2000*
7
–1
4
1
Steel
Automobile
Mech. eng.
Construction
Index, real change against previous year (%)
*Forecast
The automobile industry is continuing to expand. A further slight increase in world production is
expected in 2000. Auto sector activity in Latin America and Southeast Asia is showing distinct signs
of recovery. Our biggest customers, the automobile manufacturers in North America and Germany,
are once again expected to achieve high production volumes, although not all will be able to match
the level of 1999.
Machinery production will recover as investment picks up worldwide. For German mechanical
engineering companies, too, the period of weak demand seems to be over, with orders already on
the rise in the second half of 1999. In 2000 we expect output to increase 4%.
The German construction sector – with the exception of the eastern German states – seems to have
come through the worst of its crisis. However, for 2000 as a whole we are assuming growth in
building output of only 1%.
With the economic recovery continuing we expect our business to grow at a disproportionate rate.
Orders received in recent months indicate a significantly higher level of new business in 1999/2000.
In our business with steel and other materials we expect double-digit growth rates. Activities
influenced by the investment cycle should also fare considerably better.
In fiscal 1999/2000 a 10% increase in sales is planned. This excludes the effects of portfolio
changes resulting from the strategic realignment. The most significant improvement is planned to
come from the Steel and MaterialsServices segments. The overall improvement in the economy
should lead to improved results. With the exception of Production Systems, we expect all segments
to be profitable. The further realization of synergies will contribute to the improvement in planned
results. Overall the Group is expecting to achieve results which will once again permit the payment
of an appropriate dividend.
With 180,000 budgeted employees at September 30, 2000, the Group’s workforce is expected to be
slightly smaller than the year before. This figure does not take into account possible portfolio
changes.
The economic upturn has already led to a general rise in demand on the international raw materials
markets. While this means that we must expect higher average prices in the new fiscal year, we see
no further risks for procurement.
In fiscal 1999/2000 ThyssenKrupp will spend around 420 million Euros on research and
development projects and quality assurance measures. R&D expenditures will therefore approximate
1998/99 expenditures.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB) 109
For the operation and maintenance of pollution control facilities we expect ongoing costs of 400
million Euros, mostly for water and air pollution control.
In December 1999 ThyssenKrupp approved additional investment of 1.5 billion Euros, 95% of which
will go to the Group’s core businesses. A further increase in investment is planned in early 2000.
Europe and North America will remain the main areas for capital spending, most of which will be
financed using the Group’s cash flows.
ADDITIONAL DISCLOSURES FOR THE MANAGEMENT REPORT PURSUANT TO ART. 315 OF THE GERMAN COMMERCIAL CODE (HGB)110
111
The consolidated financial statements of Thyssen Krupp AG have been prepared in accordance with
United States Generally Accepted Accounting Principles (US GAAP). Thyssen Krupp AG is therefore
exempt from the obligation to prepare its financial statements under German Commercial Code
(HGB), as set out in Art. 292a. The Company's consolidated financial statements are in compliance
with the 4th and 7th EU Accounting Directive, as interpreted by the German Standards Committee
Council in its German Accounting Standard No. 1.
The complete set of consolidated financial statements under Art. 292a HGB, including investment
holdings, are filed with the Trade Register in Düsseldorf under reference number HR B 37003.
The accounting, valuation and consolidation methods under US GAAP are different from the German
provisions of the HGB primarily in the following respects:
Intangible Assets
Under HGB and US GAAP, intangible assets acquired for consideration must be capitalized. However,
under HGB, intangible assets which were not acquired for consideration or which were developed
internally may not be capitalized.
Under US GAAP, external costs that are directly attributable to the development of intangible assets
may be capitalized. This includes incidental costs incurred in obtaining patents and copyright
protection. Also, direct expenses associated with the development of internally used software may
be capitalized.
Capitalized Interest
Under HGB, the capitalization of interest expense in the cost of property, plant and equipment is not
mandatory, but permitted if certain conditions are met. Under US GAAP, in accordance with SFAS
34, interest expense is required to be capitalized if such costs are material and attributable to the
acquisition or production of a qualifying asset. Qualifying assets are assets that require a long time
to acquire or produce.
Leases
The HGB does not explicitly prescribe the treatment of leasing operations. Measurement is generally
based on regulations promulgated by the German Fiscal Administration. Taking account of fiscal
criteria, lease agreements are generally designed in a way that the leased property must be
recorded by the lessor.
Changes in Accounting, Valuation andConsolidation Methods.(including transition calculation)
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS112
US GAAP contains comprehensive regulations regarding the reporting of leasing transactions (in
particular SFAS 13). It basically makes a distinction between “capital leases” and “operating
leases” which depends upon the identification of the economic owner to whom substantially all
benefits and risks inherent in the ownership of the property are transferred. If the transaction
qualifies as a “capital lease”, the lessee as the economic owner, is required to capitalize the leased
property. Under an “operating lease”, the lessor capitalizes the property.
Reversal of Impairment Charges
Under HGB, when impairment charges have been recorded to reflect a lower applicable asset value,
this lower value must be reversed if the reason for which the impairment charge was recorded no
longer exists at a later balance sheet date (requirement to reinstate original values under Art. 280
HGB). Under US GAAP, SFAS 121 prohibits the reversal of an impairment charge to an asset’s
original value.
During the fiscal year, only investments which eliminate in consolidation were subject to
reinstatement of original values. Hence, the consolidated financial statements remained unaffected.
Inventory Valuation
Lower of cost or market
Under HGB, the lower of cost or market principle must be observed which requires that inventory is
valued at the balance sheet date at acquisition or production cost or at the lower of market or applic-
able value. The applicable value for raw materials and supplies is determined on the basis of the
purchase cost on the market. The applicable value for unfinished and finished goods is determined
on the basis of the estimated net realizable value obtainable from selling the goods and -– for
merchandise held for resale – on the basis of the cost to replace the goods and the estimated net
realizable value obtainable from selling the goods. US GAAP – in accordance with ARB 43 – follows
the lower of cost or market principle, too. In contrast to HGB, all categories of inventory require that
the purchase price as well as the selling price be taken into account when determining inventory
value. If the replacement cost is lower than the acquisition or production cost, inventories are valued
at the middle value of the calculated replacement cost, net realizable value or net realizable value
less an allowance for normal profit.
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS 113
Long-term production/construction contracts
Principally, the German HGB and German GAAP permit income recognition only after delivery and
acceptance of an item is completed, that is, at the earliest when the contractual obligations have
largely been met and the remaining risks can be considered immaterial (“completed-contract-
method”).
Under US GAAP, income is recognized based on the progress made toward completing the contract,
if a reliable estimate of total proceeds, total costs and stage of progress can be determined
(“percentage-of-completion-method”). Measurement is prescribed primarily by SOP 81-1 and
ARB 45.
Valuation of Unrealized Gains at the Balance Sheet Date
The imparity principle under HGB prescribes that only unrealized losses be reported. Under US
GAAP, however, unrealized gains are also reported in the following instances:
Assets and liabilities denominated in foreign currency
Under HGB unhedged assets and liabilities denominated in a foreign currency are valued at either
their purchase cost or at their market price, which ever is more conservative at the balance sheet
date. Under US GAAP, pursuant to SFAS 52, all unhedged assets and liabilities denominated in
foreign currency are valued at the prevailing market rates as of the balance sheet date. As a result,
unrealized gains are recognized in the results of the current year.
Long term and current asset investments
Under HGB, investments are valued at net book value or market value, whichever is lower at the
balance sheet date. Under US GAAP, securities are allocated to different categories, according to
which the valuation is made as prescribed by SFAS 115. The securities held by the ThyssenKrupp
Group are classified as “available for sale” and are accounted for at year-end market values, even if
it results in recording an unrealized gain. The year-end market value adjustment is not recognized in
income however, but is rather recorded as a component of equity.
Derivative financial instruments
According to HGB, there is no mandatory approach with respects to the measurement of derivative
financial instruments. Hence, valuation is made on the basis of the historical cost concept, the
realization rule and the imparity principle.
In common interpretations of the HGB, global macro hedges require that the hedged items are
valued at the amounts at which they were hedged. Under US GAAP, such global hedge transactions
are not regarded as hedges at all and must be valued at their year-end market rates. Unrealized
gain and loss on such transactions must be recognized in the year-end results.
Deferred Taxation
Under HGB, deferred taxes must be determined for all timing differences arising between the tax
bases of assets or liabilities and their reported amounts in the consolidated financial statements
(so-called timing concept), using the current tax rate for computational purposes. Deferred taxes
may not be recognized for quasi-permanent differences, which are reconciled only after a very long
period of time or through sale or liquidation. Likewise, deferred taxes may not be recognized for tax
loss carryforwards.
Under US GAAP, SFAS 109, deferred taxes must be reported for all temporary differences arising
between the tax bases of assets or liabilities and their reported amounts in the consolidated
financial statements; quasi-permanent differences are also regarded as temporary differences
(temporary concept). In addition, deferred tax assets are recognized for tax loss carryforwards. The
applicable tax rate is the current rate based on enacted law as of the balance sheet date, which
incorporates future known changes to the tax rate. At the end of each accounting period, a judge-
ment must be made concerning the realizability of the deferred tax assets recognized.
Pension Plans and Similar Obligations
Under both HGB and US GAAP, a liability for the potential cost of post-employment benefits must be
accrued on the basis of the expected amount of the projected discounted benefit obligation. HGB
permits a number of different actuarial methods; the partial value (“Teilwert”) method pursuant to
Art. 6a of the German Income Law is most commonly used, but it is not the only permissible
method. Under US GAAP, the projected unit credit method is mandatory. Thanks to the flexibility in
choice of methods, this is also permitted under HGB. As far as pension funds are concerned,
certain qualifying assets, pursuant to SFAS 87, must be deducted from the total amount of the
obligation or must be capitalized, should the assets exceed the amount of the obligation. In some
instances, certain assets also have the ability to offset pension liabilities under German GAAP,
however what qualifies as assets which have the ability to offset pension liabilities differs under US
GAAP and HGB. The extent to which a minimum liability must be recognized under SFAS 87 meets
the requirement under HGB. The allocation to the accrual, however, is not always expensed.
Instead, the full amount of the obligation may be covered by recording an intangible asset or
reducing equity, thereby not affecting income. This is not permitted under HGB.
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS114
Other Accruals
Under HGB, in addition to the recognizable accruals for probable contingencies and contingent
losses, accruals for anticipated internal expenses (such as cost of repair or maintenance) are
permitted, although they do not represent an obligation to a third party. Measurement is made
based on conservatism.
US GAAP is much more restrictive in this regard. Accruals are only permitted, if they correspond to
an obligation to a third party, if the event leading to the accrual is probable to occur and if the
amount of the accrual is reasonably measurable. Accruals for anticipated internal expenses are not
permitted. With respects to the measurement of the accrual, the most probable amount is accrued
and in a range of equally probable amounts, the lowest amount is accrued. Recognition is essentially
prescribed in CON 6 and SFAS 5.
Discontinued Operations
Pursuant to Art. 246 (2) of the HGB, expenses may not be offset against income, nor assets against
liabilities. As a result, the items allocable to discontinued operations may not be disclosed separately.
Under US GAAP, however, in accordance with APB 30, the income statement and balance sheet
items are adjusted for the effects associated with discontinued operations. After offsetting, the
adjusted amounts are reported in a separate line of the income statement or balance sheet
respectively, as the result or net assets of discontinued operations.
During the reporting year, the ThyssenKrupp Group did not conduct any operations qualifying as
“discontinued operations”.
Scope of Consolidation
Under Art. 295 HGB, a controlled subsidiary shall not be included in the consolidated financial
statements if its activities are so divergent from the activities of the other consolidated companies
that its inclusion in the consolidated financial statements would conflict with the requirement to
present a true and fair view. Pursuant to US GAAP, all controlled subsidiaries must be included in
consolidation regardless of their activities. The ThyssenKrupp Group has no controlled subsidiaries
whose inclusion in the consolidated financial statements would be prohibited under Art. 295 HGB.
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS 115
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS116
Purchase Accounting
In accordance with both Art. 302 of the HGB and APB 16 the historical book values are carried
forward in a business combination accounted for as a pooling of interests transaction. However, the
requirements which must be met to obtain pooling of interests accounting under APB 16 are much
more stringent than those of the HGB.
The ThyssenKrupp merger satisfied the pooling of interests provisions prescribed by the HGB but
failed to meet the pooling requirements of APB 16. Accordingly, the ThyssenKrupp merger had to be
reported as a business purchase in accordance with the purchase accounting provisions of APB 16.
Minority Interests
The HGB follows the entity theory which requires that minority interests be classified as a part of
equity. In addition, the income or loss attributable to minority interests is included in the
consolidated entity’s net income or loss.
Under US GAAP, in accordance with the parent company theory, minority interests are not
considered part of equity but are classified separately between equity and liabilities. The income or
loss attributable to minority interests is recorded as income or expense and is therefore excluded
from the consolidated entity’s net income or loss.
Excess of Acquired Net Assets over Cost (“Negative Goodwill”)
If the fair market values assigned to the net assets acquired exceed the cost of the investment, a
negative difference arises in purchase accounting. Under Art. 309 (2) HGB, this difference is
released and recognized in the income statement if it reflects unfavorable developments expected
for the results of the company or if it becomes clear at the balance sheet date that it corresponds to
a realized gain. Pursuant to APB 16, the excess of acquired net assets over cost must proportionally
reduce the fair market value of non-current assets, excluding long term investments in marketable
securities, being acquired. If the allocation reduces the value of non-current assets to zero, the
remainder of the excess over cost should be classified as a deferred credit and amortized ratably to
income. To date Thyssen Krupp has not had any instances of negative goodwill.
Classification Requirements
In order to comply with the 4th and 7th EU Accounting Directive as required, the balance sheet was
prepared in accordance with the classification standards prescribed in Art. 266 HGB. Hence, it does
not conform to the classification standards applicable in the preparation of US financial statements,
which are orientated toward the realizability of assets and liabilities. Nevertheless, the information
regarding the realizability of the individual balance sheet items, which would have been presented if
the financial statements had been classified in conformity with US GAAP standards, is provided as
additional information in the notes or in the balance sheet prepared under HGB classification
requirements.
Under HGB, the development of fixed assets must be presented separately, whereas such a
separate disclosure is not required by US accounting standards. In order to ensure conformity with
EU Accounting Directives, the development of fixed assets is presented additionally as a schedule in
the notes.
Transition to US GAAP
Balance Sheet as of September 30, 1998
As of September 30, 1998, the financial reporting was transformed from German HGB to US GAAP
and all assets and liabilities of the former Thyssen Group had to be restated.
In order to facilitate comparability with information presented in prior financial statements of the
Thyssen Group, the first column shows the amounts under HGB as of September 30, 1998,
expressed in DM. The next column reflects the figures translated into Euro, using the official fixed
conversion rate of 1.95583 DM to 1 Euro.
The following computation reflects the impact on major balance sheet items:
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS 117
Fair Value KruppUS GAAP
1.70
6.08
2.19
2.40
0.98
13.35
3.01
0.27
3.04
1.23
2.51
2.48
0.81
13.35
ThyssenUS GAAP
Sept. 30, 1998
0.97
7.61
3.59
5.02
1.03
18.22
5.02
0.89
3.62
2.17
2.31
3.48
0.73
18.22
Pro FormaOpening
Balance SheetThyssenKrupp
US GAAP
2.83
12.80
5.78
6.86
2.01
30.28
7.75
0.29
6.66
3.40
4.82
5.82
1.54
30.28
Consolidation/Reclassification
0.16
– 0.89
0.00
– 0.56
0.00
– 1.29
– 0.28
– 0.87
0.00
0.00
0.00
– 0.14
0.00
– 1.29
Restatement/Reclassification
– 0.17
1.26
0.83
0.25
0.97
3.14
0.64
0.11
0.62
– 0.02
0.14
0.92
0.73
3.14
Thyssen HGB
Sept. 30, 1998
1.14
6.35
2.76
4.77
0.06
15.08
4.38
0.78
3.00
2.19
2.17
2.56
0.00
15.08
ThyssenHGB
Sept. 30, 1998
billion DMs
2.22
12.42
5.40
9.33
0.11
29.48
8.56
1.52
5.87
4.28
4.24
5.01
0.00
29.48
Goodwill
Other Fixed Asset
Inventory
Other Operating Asset
Deferred Tax Assets
Total Assets
Stockholders' Equity
Minority Interest
Pension Liabilities
Other Liabilities
Financial Payables
Other Payables
Deferred Tax Liabilities
Total Stockholders' Equity and Liabilities
* including dividend
Transition Calculation
billion Euros
***
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS118
Thyssen HGB to Thyssen US GAAP
Within the scope of full consolidation, a total of 150 domestic and 172 foreign subsidiaries were
included in the consolidated financial statements of Thyssen AG as of September 30, 1998. Since
the German concept of materiality is different to that of the U.S., when it comes to the inclusion of
subsidiaries, an additional 36 domestic and 49 foreign subsidiaries had to be included in the
consolidated financial statements of Thyssen AG as of September 30, 1998, in order to be prepared
in accordance with US GAAP. All balance sheet items were affected, but this effect may be
considered to be of minor importance compared with the effect of restatement.
Goodwill decreased as a result of a reclassification of “buried” goodwill associated with equity
investments. Under US GAAP the excess cost of the stock of an equity investment over the share of
net assets acquired is classified as part of the equity investment. This increase was offset by the
initial consolidation of the Otto Wolff Group (1989), the formation of Krupp Thyssen Nirosta GmbH
(1995), and Thyssen Krupp Stahl AG (1997). At the same time, the amortization period for goodwill
was extended from 15 to 20 years; and to 30 years for businesses operating in the Elevators seg-
ment.
The rise in other fixed assets relates primarily to depreciable tangible fixed assets. First, acquisition
or production cost of property, plant and equipment whose construction time exceeded 1 year
(“qualifying assets”) was increased by the capitalization of interest. Then, depreciation was charged
using a straight-line method, on the basis of the economic useful lives that are commonly applied
internationally, which are longer than the economic useful lives assumed in prior years.
Furthermore, intangible assets present an amount created by the change in the method for
computing pension accruals (so-called transition amount). This is mandatory pursuant to SFAS 87.
It is assumed that the Thyssen Group retroactively changed the accounting for its pension
obligations with effect from the date of the initial application of SFAS 87, which would have been in
1989. The computed difference as of September 30, 1998 amounts to 185.1 million Euros.
The lease agreements of the former Thyssen Group were reviewed to determine whether they
contained conditions which would require the agreements to be capitalized under US GAAP. It was
determined that leased property totaling 78.8 million Euros was subject to capitalization. At the
same time, the corresponding lease obligations were recorded as additional financial payables.
The increase in inventory relates primarily to long-term construction whereby the percentage of
completion method has been adopted to replace the completed contract method.
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS 119
Under HGB, deferred tax assets and deferred tax liabilities may be offset. At Thyssen, a net asset
was created, amounting to 58.5 million Euros. As far as the deferred tax assets reported under
US GAAP are concerned, temporary differences arising between commercial reporting and the
reporting for tax purposes were recognized for the first time, which is an optional approach under
Art. 274 HGB. Furthermore, deferred tax assets relating to tax-loss carryforward were included.
In equity, capital stocks was divided into the shares held by the shareholders of the former Thyssen
AG and third parties. The reported increase represents the net effect of all measurement changes
recorded to assets and liabilities.
Pension accruals, which to date had been computed using the partial value (“Teilwert”) method
under Art. 6a of the German Income Law, were restated in accordance with US GAAP.
The decline in other liabilities is attributable primarily to the fact that accruals for anticipated internal
expenses are not permitted under US GAAP.
Deferred tax liabilities are recognized at gross amounts, i.e. they were not offset against deferred tax
assets. Furthermore, an increase was recorded, to reflect the deferred tax on the above restated
items.
Thyssen US GAAP to Pro Forma ThyssenKrupp Opening Balance Sheet
In accordance with US GAAP, the merger of Thyssen AG (TAG) and Fried. Krupp AG Hoesch-Krupp
(FKAG), which was approved at the general meeting of shareholders held on November 30, 1998 -
FKAG – and on December 4, 1998 - TAG – respectively, should be reported as a purchase of FKAG
by TAG. Accordingly, as of December 4, 1998, all assets and liabilities of the former Krupp Group
had to be revalued. The current market value of the individual assets and liabilities of the former
Krupp Group are shown in the column “Fair Value Krupp”. The revalued net assets of the Krupp
Group are offset against the purchase price of Krupp. The difference arising therefrom, amounting to
1.7 billion Euros is recognized as goodwill and replaces the goodwill previously existing on the
books of the former Krupp Group.
In the column “Consolidation/Reclassification” all relations existing between Thyssen and Krupp
were eliminated, i.e. separate items for investments in the joint ventures Thyssen Krupp Stahl,
Krupp Thyssen Nirosta and Rasselstein Hoesch, as well as the reciprocal accounts receivable and
accounts payables.
The last column presents a “Pro Forma Opening Balance Sheet” for the ThyssenKrupp Group.
Pro Forma Disclosures for 1997/98
In order to compare the amounts determined for the 1998/99 income statement against the prior
year amounts, the 1997/98 income statement prepared under HGB was reconciled to US GAAP. The
different income statement items of the former Thyssen companies were reconciled as follows:
Sales were adjusted for effects arising from the percentage of completion-method. This means,
sales achieved on the basis of the completed contract method were eliminated and replaced by
sales determined on the basis of the percentage of completion method.
Expenses for pensions and other benefits recognized in personnel expense were replaced by
expenses for pensions computed under US GAAP.
With respects to depreciation and amortization, goodwill amortization was recomputed on the basis
of the new amortization periods. This applies also for the depreciation of large pieces of property,
plant and equipment in the Steel segment. Other depreciation was reconciled by making a lump-
sum adjustment which was based on conclusions made in the fiscal year 1998/99.
The results from investments accounted for under the equity method were restated in accordance
with US GAAP.
The line items other operating income and other operating expense were adjusted for the changes
regarding general allowances, accruals for anticipated internal expenses and other changes in
accruals prohibited under US GAAP.
Based on the presentation made in 1998/99, the income statement was finally reclassified
according to the cost of sales method.
A substantial change occurred in tax expenses. As a result of the recognition of deferred taxes,
which had to be determined retroactively for the period beginning October 1, 1997, tax expense
amounted to 315.9 million Euros. Under HGB, tax expense was 63.8 million Euros, since it had
been possible to offset a material portion of income against tax loss carryforwards. Because these
tax carryforwards had to be previously capitalized under US GAAP as of October 1, 1997, the
subsequent usage of deferred tax assets relating to tax loss carryforwards impacted tax expense.
With respects to the former Krupp companies, the following specifics should be considered:
The financial statements of Krupp for 1998 do not reflect a complete fiscal year, but only the period
from January 1, to September 30, 1998. In order to create a comparative period of 12 months, the
months October to December of the calendar year 1997 were used and combined with the figures
of the short period. The pro forma disclosures are presented as if the Krupp acquisition was
consummated as of the first day of the fiscal period.
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS120
Additional amortization and depreciation resulting from the goodwill and the increase in fixed assets
values created in purchase accounting were reflected in the 1997/98 results. Furthermore, the
1997/98 results reflect the impact of the reversal of the Krupp inventory revaluation. Lastly, the
1997/98 results reflect a decrease in interest expense which arose as a result of the revaluation of
all assumed liabilities recorded in purchase accounting.
The pro forma disclosures for 1997/98 also include the effects of the two major purchases in
1998/99, Dover Elevators and Mannesmann Handel.
After consolidating the pro forma income statements of Thyssen, Krupp, Dover Elevators and
Mannesmann Handel, prepared under US GAAP, the pro forma results were further segmented. Pro
forma disclosures of sales, and income before taxes and minority interests are presented in the
notes to the financial statements on page 53.
CHANGES IN ACCOUNTING, VALUATION AND CONSOLIDATION METHODS 121
122
Personnel expenses
The following information is presented in order to be compliant with the disclosure requirements of
the German Commercial Code.
Employees
In the Group, the actual average number of employees over the past fiscal year were as follows:
Material expense
The following material expense is included in the cost of sales:
Additional information.
6,130.7
1,144.4
401.6
17.0
40.5
28.7
182.1
7,945.0
Wages and salaries
Social security taxes
Net periodic pension costs – defined benefit
Net periodic pension costs – defined contribution
Net periodic postretirement benefit cost other than pensions
Other expenses for pensions and retirements
Related fringe benefits
Total
Million Euros 1998/99
51,827
34,585
45,635
8,334
28,019
1,485
169,885
105,952
59,229
4,704
Steel
Automotive
Industries
Engineering
Materials & Services
Others
Total
This breaks down to
Wage earners
Salaried employees
Trainees
Million Euros 1998/99
14,086.4
3,329.3
17,415.7
Cost of raw materials, consumables and supplies
and of purchased parts
Cost of purchased services
Total
Million Euros 1998/99
ADDITIONAL INFORMATION 123
Executive and Supervisory Board Remuneration
Total remunerations made to the Executive Board amounted to 9.7 million Euros in fiscal year
1998/99. The total renumerations made to former members of the Executive Board and of their
surviving dependants amount to 12.4 million Euros.
An amount of 73.2 million Euros is accrued for pension obligations benefiting former members of
the Executive Board and their surviving dependants.
Since Thyssen Krupp AG succeeds both Thyssen AG and Fried. Krupp AG Hoesch-Krupp, all
disclosures relating to former members of the board also comprise compensation and pension
obligations of the board members of former Thyssen AG and Fried. Krupp AG Hoesch-Krupp,
including all companies preceeding the latter.
As of September 30, 1999, no credits or advances have been granted to members of the Executive
Board.
To cover the honorarium stipulated for the Supervisory Board in the Articles of Incorporation, an
amount of 1.3 million Euros has been recognized as a liability for the fiscal year.
The members of the Executive Board and of the Supervisory Board are listed on the following
pages.
124
Dr. Gerhard CrommeChairman
Allianz Versicherungs-AG
RAG AG *
Ruhrgas AG
VEBA AG
Volkswagen AG
ABB AG/Switzerland
Suez-Lyonnaise des Eaux S.A./France
Thomson-CSF S.A./France
within the Group:
Thyssen Krupp Industries AG (Chairman)
The Budd Company/USA
Prof. Dr. Ekkehard SchulzChairman
Commerzbank AG
Hapag-Lloyd AG
MAN AG
RAG AG (Vice Chairman) *
RWE Energie AG
Strabag AG
within the Group:
Eisen- und Hüttenwerke AG (Chairman)
Krupp Thyssen Stainless GmbH (Chairman)
Thyssen Budd Automotive GmbH
Thyssen Krupp Materials & Services AG (Chairman)
Thyssen Krupp Stahl AG (Chairman)
The Budd Company/USA
Thyssen Inc./USA
Executive Board.
125
Dr. Hans-Erich ForsterMannesmannröhren-Werke AG *
within the Group:
Thyssen Krupp Automotive AG
Thyssen Krupp Werkstoffe GmbH (Chairman)
WIG Industrieinstandhaltung GmbH (Chairman)
Thyssen Inc./USA
Dieter HennigBöhler Thyssen Schweißtechnik GmbH *
Dortmunder Eisenbahn GmbH *
Zoo Duisburg AG *
within the Group:
EBG Gesellschaft für elektromagnetische
Werkstoffe mbH
Eisenbahn und Häfen GmbH
Hoesch Hohenlimburg GmbH
Rasselstein Hoesch GmbH
Thyssen Krupp Materials & Services AG
Dr. Gerhard JoossAllgemeine Kreditversicherung AG
ERGO Versicherungsgruppe AG
Westfalenbank AG
WestLB International S.A./Luxembourg
within the Group:
Buckau Walther AG (Chairman)
Krupp Uhde GmbH (Chairman)
Thyssen Krupp Engineering AG
Thyssen Krupp Steel AG (Chairman)
Dr. Ulrich MiddelmannDeutsche Hyp Deutsche Hypothekenbank
Frankfurt-Hamburg AG
Remington Arms Company, Inc./USA
within the Group:
Krupp Thyssen Stainless GmbH
Thyssen Krupp Automotive AG
Thyssen Krupp Industries AG
Thyssen Krupp Stahl AG (Vice Chairman)
Acciai Speciali Terni S.p.A./Italy
Giddings & Lewis LLC/USA
The Budd Company/USA
Thyssen Elevator Holding Corp./USA
Prof. Dr. Eckhard RohkammHDI Haftpflichtverband der Deutschen Industrie VVaG
Mannesmann Rexroth GmbH
within the Group:
Blohm + Voss Holding AG (Chairman)
Krupp Werner & Pfleiderer GmbH
Thyssen Aufzüge GmbH (Chairman)
Thyssen Budd Automotive GmbH (Chairman)
Thyssen Krupp Engineering AG (Chairman)
Thyssen Krupp Steel AG
Thyssen Krupp Werften GmbH (Chairman)
Gidding & Lewis LLC/USA
The Budd Company/USA
Thyssen Elevator Holding Corp./USA
Jürgen Rossbergwithin the Group:
Thyssen Krupp Engineering AG
Thyssen Krupp Materials & Services AG
Thyssen Krupp Stahl AG
Thyssen Krupp Steel AG
Dr. Heinz-Gerd SteinAXA Colonia Versicherung AG
Bankgesellschaft Berlin AG
Dürr AG
Gerling Konzern Speziale Kreditversicherungs AG
Mannesmannröhren-Werke AG *
within the Group:
Eisen- und Hüttenwerke AG
Thyssen Budd Automotive GmbH
Thyssen Krupp Automotive AG (Chairman)
Thyssen Krupp Industries AG
Thyssen Krupp Materials & Services AG
Thyssen Krupp Steel AG
Thyssen Stahl AG (Chairman)
The Budd Company/USA
Thyssen Elevator Holding Corp./USA
EXECUTIVE BOARD
= Membership of statutory Supervisory Boards
within the meaning of Art. 125 of the German Stock
Corporation Act (“AktG”)
(As of September 30, 1999)
* Minority investment of the ThyssenKrupp Group
= Membership of comparable German and non-German
regulatory bodies of business enterprises within the
meaning of Art. 125 of the German Stock Corporation
Act (“AktG”)
(As of September 30, 1999)
126
Dr. Heinz Kriwet, DüsseldorfChairman
Allianz Lebensversicherungs-AG
Dresdner Bank AG
Siemens AG
Dieter Schulte, DuisburgVice ChairmanChairman of the German Trade Union Federation(DGB)
Bayer AG
Dr. Karl-Hermann Baumann, Munich Chairman of the Supervisory Board of Siemens AG
Allianz AG
Deutsche Bank AG
Linde AG
Metallgesellschaft AG
Schering AG
Siemens AG (Chairman)
Wilfried Behrend, Kassel(until September 30, 1999)Production planning engineerVice Chairman of the Works Council of Thyssen Henschel GmbH
Thyssen Henschel GmbH
Wolfgang Boczek, Bochum(from October 28, 1999Materials tester Chairman of the Works Council UnionThyssen Umformtechnik + Guss
Thyssen Krupp Automotive AG
Carl L. von Boehm-Bezing, Bad SodenMember of the Executive Board of Deutsche Bank AG
Messer Griesheim GmbH
Philipp Holzmann AG (Chairman)
Rütgers AG
RWE AG
Steigenberger Hotels AG
within the Group:
Deutsche Grundbesitz-Anlagegesellschaft mbH
(Chairman)
Deutsche Grundbesitz-Investmentgesellschaft mbH
(Chairman)
Eurohypo AG (Chairman)
Seats are also held in comparable German and
non-German regulatory bodies within the meaning of
Art. 125 para. 1 of the German Stock Corporation Act
(“AktG”).
Dr. Klaus Götte, MunichChairman of the Supervisory Board of MAN AG
Allianz Lebensversicherungs-AG
KM Europa Metal AG
MAN AG (Chairman)
SMS AG
Gerd Kappelhoff, WittenTrade union secretary at the Düsseldorf branch office of IG Metall
Thyssen Krupp Automotive AG
Thyssen Krupp Industries AG
Rasselstein Hoesch GmbH
Dieter Kroll, DuisburgSkilled steel mill workerChairman of the Group Works Council ofThyssen Krupp AG and Chairman of the Works Council of Thyssen Krupp Stahl AG
Thyssen Krupp Steel AG
Prof. Dr. Günter Vogelsang, DüsseldorfHonorary Chairman
Prof. Dr. h.c. mult. Berthold Beitz, EssenHonorary ChairmanChairman of the Board of Trustees of theAlfried Krupp von Bohlen and Halbach Foundation
= Membership of other statutory Supervisory Boards
within the meaning of Art. 125 of the German Stock
Corporation Act (“AktG”)
(As of September 30, 1999)
Supervisory Board.(incl. Supervisory Board Committees)
127
Reinhard Kuhlmann, Frankfurt/MainSecretary General of the European Metalworkers' Trade Union Federation
Adam Opel AG
Dr. Manfred Lennings, EssenIndependent industrial consultant
Bayer AG
Deilmann-Haniel GmbH (Chairman)
Deutsche Post AG
Gildemeister AG (Chairman)
IVG Holding AG (Chairman)
Werner Nass, DortmundSalaried employeeChairman of the European Works Council of Thyssen Krupp AG
Dr. Mohamad-Mehdi Navab-Motlagh, TehranVice Minister for International Affairsand Foreign Investment and President of the Organization of Investment, Economicand Technical Assistance of Iran
IFIC Holding AG (Chairman)
Dr. Friedel Neuber, DuisburgChairman of the Executive Board ofWestdeutsche Landesbank Girozentrale
Babcock Borsig AG (Chairman)
Deutsche Bahn AG
Douglas Holding AG
Hapag-Lloyd AG
Preussag AG (Chairman)
RWE AG (Chairman)
Seats are also held in comparable German and
non-German regulatory bodies within the meaning of
Art. 125 para. 1 of the German Stock Corporation Act
(“AktG”).
Paul Ring, Hagen(until December 31, 1999)Industrial electricianChairman of the Group Works Council of Thyssen Krupp AG
Thomas Schlenz, HamminkelnShift foremanChairman of the Works Council UnionThyssenKrupp Materials & Services
Dr. Henning Schulte-Noelle, MunichChairman of the Executive Board of Allianz AG
BASF AG
Dresdner Bank AG
Linde AG
MAN AG (Vice Chairman)
Mannesmann AG
Münchener Rückversicherungs-Gesellschaft AG
(Vice Chairman)
Siemens AG
VEBA AG
within the Group:
Allianz Versicherungs-AG (Chairman)
Allianz Lebensversicherungs-AG (Chairman)
Seats are also held in comparable German and
non-German regulatory bodies within the meaning of
Art. 125 para. 1 of the German Stock Corporation Act
(“AktG”).
Wilhelm Segerath, DuisburgAutomotive bodymakerChairman of the General Works Council of Thyssen Krupp Stahl AG
Thyssen Krupp Stahl AG
Dr. Walter Seipp, Königstein i. Ts.Honorary Chairman of the Supervisory Board of Commerzbank AG
Ernst-Otto Tetau, Brietlingen(since February 16, 2000)Machine fitterChairman of the Works Council of Blohm + Voss GmbH and Chairman of the Works Council UnionThyssenKrupp Industries
Blohm + Voss GmbH
Thyssen Krupp Werften GmbH
SUPERVISORY BOARD (INCL. SUPERVISORY BOARD COMMITTEES)
128
Bernhard Walter, Bad HomburgSpeaker of the Executive Board of Dresdner Bank AG
Bilfinger + Berger Bauaktiengesellschaft
DaimlerChrysler AG
Degussa-Hüls AG
Deutsche Lufthansa AG
Deutsche Telekom AG
Heidelberger Zement AG
Henkel KgaA
Metallgesellschaft AG
Staatliche Porzellan-Manufaktur Meissen GmbH
within the Group:
Deutsche Hyp Deutsche Hypothekenbank
Frankfurt-Hamburg AG (Chairman)
Seats are also held in comparable German and
non-German regulatory bodies within the meaning of
Art. 125 para. 1 of the German Stock Corporation Act
(“AktG”).
Dieter Wittenberg, DortmundDirector of Thyssen Krupp Industries AG
Supervisory Board Committees
Executive Committee (Präsidium)Dr. Heinz Kriwet (Chairman)Dieter SchulteDieter KrollDr. Friedel Neuber
Committee in accordance with Art. 27 para. 3 German Codetermination Act(”Mitbestimmungsgesetz”)Dr. Heinz Kriwet (Chairman)Dieter SchulteDieter KrollDr. Friedel Neuber
Personnel CommitteeDr. Heinz Kriwet (Chairman)Dieter SchulteDieter KrollDr. Friedel Neuber
Accounting and Investment CommitteeDr. Heinz Kriwet (Chairman)Dieter SchulteDr. Klaus GötteWerner NassDr. Mohamad-Mehdi Navab-MotlaghWilhelm Segerath
SUPERVISORY BOARD (INCL. SUPERVISORY BOARD COMMITTEES)
= Membership of other statutory Supervisory Boards
within the meaning of Art. 125 of the German Stock
Corporation Act (“AktG”)
(As of September 30, 1999)
129
The following domestic subsidiaries in the legal form of a capital corporation have fullfilled the
requirements of Art. 264 Par. 3 German Commercial Code to be allowed to make use of the
exemption and therefore do not publish their financial statements:
Waive of disclosure pursuant to Art. 264 Par. 3German Commercial Code (HGB).
Allgemeine Aufzugswartung GmbH, Berlin
Altmann & Böhning GmbH, Berlin
BIS Blohm + Voss Inspection Service GmbH, Hamburg
Blohm + Voss GmbH, Hamburg
Blohm + Voss Repair GmbH, Hamburg
Brandenburger Sondermaschinen- und Anlagenbau de Haan Aufzüge GmbH, Müllrose
Christian Hein GmbH, Langenhagen
ComLink Service und Datentechnik GmbH, Köln
Eckert GmbH, Mannheim
Eggers-Kehrhahn GmbH, Hamburg
EGM Entwicklungsgesellschaft für Montagetechnik GmbH, Hannover-Langenhagen
Eisenmetall Rostfrei GmbH, Dortmund
ESA Elektrotechnik, Stark- und Schwachstrom-Anlagen GmbH, Frankfurt/Main
Fördertechnik und Aufzugservice GmbH, Frankfurt/Main
Gold & Wellfonder GmbH, Himmelstadt
Götz Aufzüge GmbH, Bühl-Vimbuch
Henschel Recycling Technik GmbH, Kassel
HF Vermögensverwaltungsgesellschaft im Ruhrtal GmbH, Hagen
Hoesch Rothe Erde GmbH, Dortmund
Hommel CNC Technik GmbH, Köln
Hommel Präzision GmbH, Köln
Hommel Unverzagt GmbH, Köln
Hüller Hille GmbH, Ludwigsburg
Innovative Meerestechnik GmbH, Emden
J.H. Bachmann Airfreight GmbH, Bremen
J.H. Bachmann GmbH, Bremen
Johann A. Krause Maschinenfabrik GmbH, Bremen
Johann A. Krause Systemtechnik GmbH, Chemnitz
Kloth-Senking Metallgießerei GmbH, Hildesheim
Krupp Automotive Systems GmbH, Bochum
Krupp Berco Bautechnik GmbH, Essen
Krupp BERCO Deutschland GmbH, Ennepetal
Krupp Bilstein GmbH, Ennepetal
Krupp Bilstein Suspension GmbH, Ennepetal
Krupp Bilstein Wagenheber GmbH, Mandern
Krupp Binnenschiffahrt GmbH, Duisburg
Krupp Corpoplast Maschinenbau GmbH, Hamburg
Krupp Drauz GmbH, Heilbronn
130
Krupp Druckereibetriebe GmbH, Essen
Krupp Elastomertechnik GmbH, Hamburg
Krupp Extraktionstechnik GmbH, Hamburg
Krupp Fördertechnik GmbH, Essen
Krupp Gerlach GmbH, Homburg/Saar
Krupp GfT Gesellschaft für Anlagen-, Bau- und Gleistechnik mbH, Essen
Krupp GfT Tiefbautechnik GmbH, Essen
Krupp Hoesch Federn GmbH, Werdohl
Krupp Hoesch Stahl und Metall GmbH, Gelsenkirchen
Krupp Hoesch Stahl AG, Dortmund
Krupp Hoesch Tecna GmbH, Dortmund
Krupp Kautex Maschinenbau GmbH, Bonn
Krupp Koppers GmbH, Essen
Krupp Kunststofftechnik GmbH, Essen
Krupp Montage- und Servicetechnik GmbH, Duisburg
Krupp Polysius AG, Beckum
Krupp Presta lIsenburg GmbH, lIsenburg
Krupp Stahlbau Berlin GmbH, Berlin
Krupp Stahlbau Hannover GmbH, Hannover
Krupp Uhde GmbH, Dortmund
Liftservice und Montage GmbH, Saarbrücken
Mai-Born Aufzüge GmbH, Aachen
Metalltüren und -tore Celle GmbH, Celle
Nestrans Logistik GmbH, Duisburg
Nestrans Seehafenspedition GmbH, Bremen
Noske-Kaeser Gebäudetechnik GmbH, Düsseldorf
Nothelfer GmbH, Ravensburg
Nothelfer Planung GmbH, Wadern-Lockweiler
Novoferm GmbH, Isselburg
Panopa Logistik GmbH, Duisburg
Panopa Reisebüro GmbH, Essen
Plagge Aufzug-Service GmbH, Kirchheim unter Teck
Reisebüro Dr. Tigges GmbH, Essen
RöRo Bautechnik GmbH, Ratingen
Schulte & Bruns Schiffahrts-, Speditions- und Umschlagsgesellschaft mbH, Dortmund
Siebau Siegener Stahlbauten GmbH, Kreuztal
Still Otto Montage GmbH, Haltern
SVG Steinwerder Verwaltungsgesellschaft mbH, Hamburg
Technische Dienste und Elektronik-Ingenieurgesellschaft mbH, Rüsselsheim
Thyssen Aufzüge Berlin GmbH, Berlin
Thyssen Aufzüge Düsseldorf GmbH, Neuss
Thyssen Aufzüge Frankfurt GmbH, Frankfurt a.M.
WAIVE OF DISCLOSURE PURSUANT TO ART. 264 PAR. 3 GERMAN COMMERCIAL CODE (HGB)
131
Thyssen Aufzüge GmbH, Neuhausen a.d.F.
Thyssen Aufzüge Hamburg GmbH, Hamburg
Thyssen Aufzüge München GmbH, Feldkirchen
Thyssen Aufzüge Sachsen GmbH, Boehlitz-Ehrenberg
Thyssen Aufzüge Service GmbH, Berlin
Thyssen Aufzüge Stuttgart GmbH, Neuhausen a.d.F.
Thyssen Aufzugswerke GmbH, Neuhausen a.d.F.
Thyssen Budd Automotive GmbH, Essen
Thyssen Facility Management GmbH, Düsseldorf
Thyssen Fahrtreppen GmbH, Hamburg
Thyssen Fahrzeugtechnik GmbH, Emden
Thyssen Gastronomie und Service GmbH, Düsseldorf
Thyssen Handel Berlin GmbH, Berlin
Thyssen Henschel Airport Systems GmbH, Kassel
Thyssen Henschel Industriedienste GmbH, Kassel
Thyssen Hünnebeck GmbH, Ratingen
Thyssen Krupp Automotive AG, Bochum
Thyssen Krupp Dienstleistungen GmbH, Essen
Thyssen Krupp EnCoke GmbH, Bochum
Thyssen Krupp Engineering AG, Essen
Thyssen Krupp Industries AG, Dortmund
Thyssen Krupp Materials & Services AG, Essen
Thyssen Krupp Versicherungsdienst GmbH Industrieversicherungsvermittlung, Düsseldorf
Thyssen Krupp Werften GmbH, Hamburg
Thyssen Nordseewerke GmbH, Emden
Thyssen Polymer GmbH, Bogen
Thyssen Rheinstahl Technik GmbH, Düsseldorf
Thyssen Trans GmbH, Düsseldorf
Thyssen Transrapid System GmbH, Kassel
Uhde Hochdrucktechnik GmbH, Hagen
UVA Unverzagt GmbH, Stuttgart
Volker Mack GmbH, Stutensee-Spöck
Werner Engelhard Gerüstbau GmbH, Wuppertal
Westerwälder Eisen-Rohstoffhandels GmbH, Steinebach/Bindweide
Witzig & Frank Turmatic GmbH, Offenburg
WAIVE OF DISCLOSURE PURSUANT TO ART. 264 PAR. 3 GERMAN COMMERCIAL CODE (HGB)
132
The merger of Thyssen AG and Fried. Krupp AG Hoesch-Krupp to form Thyssen Krupp AG came into effect
on entry in the Düsseldorf Commercial Register on March 17, 1999 with economic effect at October 1, 1998.
In the Merger Deed of October 16, 1998, Thyssen AG and Fried. Krupp AG Hoesch-Krupp appointed
Dr. Karl-Hermann Baumann, Carl L. von Boehm-Bezing, Dr. Klaus Götte, Dr. Heinz Kriwet, Dr. Manfred
Lennings, Dr. Mohamad-Mehdi Navab-Motlagh, Dr. Friedel Neuber, Dr. Henning Schulte-Noelle, Dr. Walter
Seipp and Bernhard Walter as members of the founding Supervisory Board of Thyssen Krupp AG – comprising
stockholder representatives only – pursuant to Art. 36 para. 2 of the German Reorganization Act (“Umwand-
lungsgesetz”) in conjunction with Art. 31 of the German Stock Corporation Act (“Aktiengesetz”). The appoint-
ment of the stockholder representatives was approved by the merger stockholders' meetings of Fried. Krupp
AG Hoesch-Krupp on November 30, 1998 and Thyssen AG on December 3 and 4, 1998.
Upon completion of a so-called status procedure initiated after the official registration of the merger,
Wilfried Behrend, Gerd Kappelhoff, Dieter Kroll, Reinhard Kuhlmann, Werner Nass, Paul Ring, Thomas
Schlenz, Dieter Schulte, Wilhelm Segerath and Dieter Wittenberg were appointed members of the Supervisory
Board of Thyssen Krupp AG as employee representatives by decision of Düsseldorf local court on April 27,
1999.
In its constituent meeting on April 28, 1999 the Supervisory Board elected Dr. Heinz Kriwet as Chairman
and Dieter Schulte as Vice Chairman of the Supervisory Board. At the same meeting an Executive Committee
(“Präsidium”), a committee in accordance with Art. 27 para. 3 of the German Codetermination Act
(“Mitbestimmungsgesetz”), a Personnel Committee and an Accounting and Investment Committee were
established and their members elected. The composition of the individual committees is presented in the list
of the Supervisory Board members.
The Executive Board provided regular written and oral reports to the Supervisory Board on the develop-
ment of business, the situation of the Group and all major transactions. All important events were discussed
in detail in meetings of the Executive Board with the Supervisory Board Chairman, in the Executive Committee
Report by the Supervisory Board.
REPORT BY THE SUPERVISORY BOARD 133
of the Supervisory Board and in the Supervisory Board itself. Since Thyssen Krupp AG was registered on
March 17, 1999 there have been two Supervisory Board meetings – on April 28 and July 28, 1999. The
Supervisory Board was also informed about projects and events of particular significance or urgency out-
side the scheduled meetings and its approval requested if necessary.
Of the four Supervisory Board committees, the Executive Committee and the Personnel Committee
(which have exactly the same members) met once in the year under review, dealing primarily with Executive
Board personnel matters and questions relating to future corporate development. There were no meetings
of the committee in accordance with Art. 27 Codetermination Act in the reporting period. The Accounting
and Investment Committee met on November 24, 1999 to discuss the investment program and the effects
of first-time consolidation under US GAAP. The annual financial statements of Thyssen Krupp AG – drawn
up under German GAAP – and the US GAAP consolidated financial statements were discussed on March
16, 2000. The parent-company statements were recommended to the full Supervisory Board for approval.
A major part of discussions in the Supervisory Board centered on updated and detailed information on
sales, earnings and workload developments in the Group and its segments and the financial situation of
the Group. In its meeting on April 28, 1999 the Supervisory Board approved the Group's starting organiza-
tion. Further topics of discussion in this and the subsequent meeting on July 28, 1999 were the future
strategic alignment of the Group and the development of the Group portfolio. In the meeting on July 28,
1999 the Supervisory Board was informed at length about the changeover of the consolidated financial
statements to US GAAP.
In accordance with resolutions passed by the merger stockholders' meetings of Fried. Krupp AG
Hoesch-Krupp and Thyssen AG, the financial statements for the fiscal year from October 1, 1998 to
September 30, 1999 drawn up by the Executive Board under German GAAP rules and the Management
Report of Thyssen Krupp AG were audited jointly by C&L Deutsche Revision Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft, Essen, and KPMG Deutsche Treuhandgesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft, Berlin and Frankfurt am Main. The auditors passed an unqualified audit
opinion.
REPORT BY THE SUPERVISORY BOARD134
The first consolidated statements of Thyssen Krupp AG were drawn up under US GAAP rules. Invoking the
exemption clause in Art. 292a of the German Commercial Code (“HGB”), no consolidated financial state-
ments were drawn up to German GAAP rules. The US GAAP statements were drawn up in German marks and
subsequently translated into euros. Furthermore, the Management Report on the Group was extended with
additional explanations in accordance with Art. 292a HGB. The US GAAP consolidated financial statements
and the Management Report likewise received an unqualified audit opinion, with one exception. The qualifica-
tion relates to the equity valuation of the investment in RAG Aktiengesellschaft, which is available only on the
basis of the share of German GAAP equity of RAG and not on the basis of the US GAAP equity as prescribed
under US GAAP rules.
The Supervisory Board assigned to the auditors to examine the parent company and consolidated
financial statements. In addition, the audit focused on the changeover to the Year 2000 and the early warning
system for risks. The final changeover measures were completed on schedule. The assigned auditors delivered
the following opinion on the existing early warning system for risks:
“With reference to the early warning system for risks, the auditors declare that the Executive Board has
carried out the measures required under Art. 91 para. 2 of the German Stock Corporation Act, in particular
the installation of a monitoring system. The early warning system for risks in place in the ThyssenKrupp
Group is suitable to recognize at an early stage developments which could jeopardize the continued existence
of the Company.”
The annual financial statement documents and the audit reports were distributed to all Supervisory Board
members. The auditors were present during the discussion of the parent company and consolidated financial
statements in the Supervisory Board, reported in detail on the conduct of their examinations and were avail-
able to provide supplementary information. On the basis of its own examination of the parent company state-
ments, the consolidated statements, the management report, management report on the Group, and the
proposal on the disposition of the unappropriated profit, the Supervisory Board approved the result of the
examination by the auditors. It approved the parent company financial statements which are thus established.
The Supervisory Board was in agreement with the proposal of the Executive Board concerning the disposition
of the unappropriated profit.
REPORT BY THE SUPERVISORY BOARD 135
Company managements, employees and the employee representative bodies cooperated responsibly and
constructively in the first joint fiscal year of the ThyssenKrupp Group. The merger of Thyssen and Krupp
called for great personal commitment. The Supervisory Board would like to express its thanks and
appreciation to the Executive Board and all employees for their great dedication and successful work.
Düsseldorf, March 31, 2000
The Supervisory Board
Dr. Heinz Kriwet
Chairman
ABBREVIATED TERMS136
APB Accounting Principles Board Opinion
ARB Accounting Research Bulletin
CON Statement of Financial Accounting Concepts
EITF Emerging Issues Task Force
EPS Earnings per Share
EVA Economic Value Added
FASB Financial Accounting Standards Board
FIN FASB Interpretation
Gearing Net Financial Payables divided by Total Stockholders´ Equity
HGB German Commercial Code
IPO Initial Public Offering
MD&A Management´s Discussion and Analysis of Results of Operations
and Financial Condition
PBO Projected Benefit Obligation
PoC Percentage of Completion
ROCE Return on Capital Employed
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SOP Statement of Position
US GAAP United States Generally Accepted Accounting Principles
WACC Weighted Average Capital Cost
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