Kein Folientitel

1
Die Umsetzung der Goodwill-Bilanzierungnach SFAS
141 und SFAS 142bei der ThyssenKrupp AG
Wirtschaftswissenschaftliches Forum Universität
Bochum 7. Mai 2002 Peter Urban
2
Highlight Observations, 1

• Application of Pooling of Interests Method
  Terminated
• Limited or No Impact on ThyssenKrupp

• Basic Concept of Purchase Accounting Unchanged
• i.e., Recording MA Transactions at Fair Value
• Initial Accounting for 99.9 of all
  ThyssenKrupp Purchase Transactions not
  Affected by FAS 141/142

• Amortization of Goodwill Terminated
• EBIT/EBT Improved
• Impact Varies with Exposure to Goodwill/MA
  Acitvities Return on Capital will Come Down
  Long Term

3
Highlight Observations, 2

• New Specific Approach for Impairment Testing
  of Goodwill
• Focus on Planned Future Cash Flows
• Sophisticated, Analytical Methodology
• Increases Risk of Earnings Volatility

• More Restrictive Approach on Recognition of
  Acquired Intangible Assets
• Limited Impact on ThyssenKrupp due to
  Conservative

• Early Adoption Possible Encouraged

4
Transition Timeline - Early Adoption
5
Goodwill Impairment Testing Methodology, 1

• Impairment Testing at Reporting Unit Level

6
Identification of Reporting Units

• Reporting Unit
• Operating Segment , or
• One Level Below, if
• Components of Operating Segment are Dissimilar
  and
• Separate Financial Data is Available

7
Segmentation/Reporting Levels
TK AG
Seg-ment
Steel
Auto.
Elev.
Business Unit
Body
Chassis
Powertrain
OperatingGroup
Entities
8
ThyssenKrupp AG
Segmente
Business Units
Dienstleistungen
Industriegüter
Stahl
9
TK Interpretation of Reporting Units

• Business Units are Operating Segments
• Consistent with FAS 131 Segment
  ReportingOperating Segments are Aggregated to
  Reportable Segments for FAS 131 Segment Reporting

• Levels Below Business Units (Operating Groups)
• Similar, or
• No Separate Financial Data Available

? ThyssenKrupp identified Business Units as
Reporting Units in all Segments
10
Goodwill Impairment Testing Methodology, 2

• Impairment Testing at Reporting Unit Level

?

• Impairment Testing to be Performed Once every 12
  Months

11
TK Policy of Measurement Date

• Regular Measurement Date Oct. 1

• Next Regular Testing at Oct. 1, 2002 at the
  latest because of 12 Months Restriction

• Identical Measurement Dates for all Business
  Units

• Possible Change of Measurement Date to April 1
  Depending on changes in Planning Procedures

12
Goodwill Impairment Testing Methodology, 3

• Impairment Testing at Reporting Unit Level

?

• Impairment Testing to be Performed Once every 12
  Months

?

• Additional Impairment Testing if Certain
  Triggering Events

13
Non Routine Impairment Testing in certain
Triggering Events

• Significant Additions of New Goodwill

• Significant Change in the Reporting Unit Structure

• Adverse Change in Legal Factors or Business
  Climate

• Adverse Action or Assessment by a Regulator

• Loss of Key Personnel

• Disposal of All or a Portion of a Reporting Unit

• Impairment Testing under FAS 121/FAS144 for
  Significant Assets

14
Goodwill Impairment Testing Methodology, 4

• Impairment Testing at Reporting Unit Level

?

• Impairment Testing to be Performed Once every 12
  Months

?

• Additional Impairment Testing if Certain
  Triggering Events

?

• Deriving Market Values of Reporting Units

15
Deriving Market Value

• Use Observed Market Values where Available

• If not Available Calculate Market Value
• Use Discounted Future Cash Flows Methodology
• Derive Discounting Factors from Market
  Observations
• Make Appropriate Adjustments for Risk
• Multiple Valuation

16
Goodwill Impairment Testing Methodology, 5

• Impairment Testing at Reporting Unit Level

?

• Impairment Testing to be Performed Once every 12
  Months

?

• Additional Impairment Testing if Certain
  Triggering Events

?

• Deriving Market Values of Reporting Units

?

• Two Step Impairment Testing Approach

17
Two Step Impariment Testing Approach

• Step 1
• Compare Market Value of Reporting Unit to Net
  Book Value of Reporting Unit (including
  Goodwill) if Market Value of Reporting is less
  than Net Book Value Enter Step 2

• Step 2
• Calculate Difference Between Market Value of
  Reporting Unit and Net Fair Values of Reporting
  Unit Assets and Liabilities (excluding Goodwill)
  if the Difference is less than Goodwill on the
  Books Write Down Goodwill by the Difference

18
Step 1 Approach, 1
19
Step 1 Approach, 2
Entity Value Equity value Net Financial Debt
Entity Value is the Sum of all Discounted Future
Free Cash Flows not Including any Interest Cost
The Concept of Entity Value Assumes that the
Business Unit Does not Bear any Financial Debt ?
All Interest Expense is Excluded from the
Valuation (Add back Financial Debt to
Equity)
Capital Employed - Pension Liabilities Equity
Net Financial Debt
ThyssenKrupps Short Cut Method Assumes that the
Fair Value and the Book Value of Financial Debt
are the Same
20
ThyssenKrupp Market Valuation Approach
Basis Free Cash Flows from Expanded Routine 5
Year Mid Term Planning Process (with Interest
Expense Added Back)
Perpetual Value Average of 5 Planning Years
Adjusted for Non-Recurring Items
Risk Adjustment ?-FactorUse of 5 Year Average
vs. Use of Year 5 Free Cash Flow
Discounting Factor WACC (Weighted Average Cost
of Capital)
21
Cost of Capital Calculation
D/(ED)

22
ThyssenKrupp Market Value Calculation
Source
i Risk Free Interest Rate Blended 30 Year
USD/Euro T-Bond Interest Rate Derived from
Swap-Curve
pe Equity Risk Premium German Investors
Perspective Investment Bank Information
pd Debt Risk Premium Average Derived from TK
Treasury Analysis of Historical Finance
Structure
su Tax Rate Specific to Business Unit
Individual Calculation Based on Historical and
Planned Tax Rates
?u ?-Factor Specific to Business Unit Peer
Group Proposals Predicted Unlevered Betas MA
Aggregates and Condenses Peer Group Betas
23
? Discussion
?u? 1 (1-su) D/E

• Predicted Unlevered Betas have to be Relevered
  to Reflect Specific Tax and Debt/Equity Situation
• Note
• Tax Rate is Specific to Business Unit
• Debt/Equity Ratio Reflects Consolidated TK Debt
  and Consolidated TK Equity,i.e. the Same for All
  Business Units

24
TK Market Valuation Worksheet (Sample)
25
Procedural Observations, 1

• Impairment Testing Required for
• ThyssenKrupp AG Consolidated Financials
• ThyssenKrupp USA Inc. Consolidated Financials

• Worksheet Data Retrieved from Existing Hyperion
  Source (Current Year Planning and Mid Term
  Planning)
• Planning Process extended to 5 Years
• Worksheet Methodology Technology Centrally
  Provided by TK AG (and Discussed with Relevant
  Auditors)

26
Procedural Observations, 2

• Non Recurring Free Cash Flow Adjustments at
  Segment/Entity Level
• Exceptional Capital Expenditure
• Exceptional Proceeds from Disposals
• Start Up Situations
• Restructuring Situations

• Going Forward More Sophisticated Risk Adjustment
  Procedures to be Implemented

27
ThyssenKrupp Step 2 Approach, 1
28
ThyssenKrupp Step 2 Approach, 2
Carrying Amount of Goodwill
Implied Goodwill
./.
Difference in Goodwill

• If Less than 0 Write Down by the Difference
• Intitial Impairment Testing Change in Accounting
  Policies (Below the Line)
• Subsequent Impairment Testing Operating Results

No Write Down if Difference is Greater than or
Equal to O
29
ThyssenKrupp Step 2 Approach, 3

• Fair Value Exercise is Cumbersome but Does not
  Create New Book Values for Assets and Liabilities
  other than Goodwill (Pro Forma Calculation)
• No Central Approach to be Performed Individually
  at Company Level

• Excess of Fair Values of Assets over Carrying
  Amounts will Reduce Implied Goodwill
• Possible Increase of Impairment Write Down

• Internally Generated Intangibles will Reduce
  Implied Goodwill
• Possible Increase of Impairment Write Down

• Remaining Implied Goodwill after Full Write Down
  of Goodwill may Trigger Further Write Down at
  Subsequent Acquisitions of Goodwill