Exhibit 99.1

 

Audited consolidated statements of financial position of Coperion as of December 31, 2011, and 2010, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for the years ended December 31, 2011, 2010, and 2009

 

 

Independent Auditors’ Report

 

The Board of Directors
Coperion Capital GmbH:

 

We have audited the accompanying consolidated statements of financial position of Coperion Capital GmbH as of December 31, 2011 and 2010, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Coperion Capital GmbH as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

/s/ KPMG AG Wirtschaftsprüfungsgesellschaft

Stuttgart, Germany

February 6, 2013

 

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Coperion Capital GmbH

Consolidated Statements of Financial Position

 

				As of December 31,
EUR k		Note		2011		2010
Intangible assets		(8)		187,742		199,381
Property, plant and equipment		(9)		23,474		17,979
Deferred tax assets		(10)		858		689
Other financial assets		(11)		16,373		16,342
Non-current assets				228,447		234,391
Inventories		(12)		58,746		43,581
Non-current assets held for sale		(13)		0		5,400
Trade receivables		(14)		39,651		38,392
Gross amount due from customers for contract work		(15)		60,215		50,692
Current income tax assets		(16)		353		160
Other financial assets		(17)		2,125		2,762
Other non-financial assets		(18)		6,463		3,638
Cash and cash equivalents				20,771		11,905
Current assets				188,324		156,530
Total Assets				416,771		390,921
Issued capital				2,000		2,000
Treasury shares				-753		-1,034
Capital reserves				53,001		53,001
Accumulated deficit				-28,241		-25,878
Equity attributable to the owners of the parent company				26,007		28,089
Non-controlling interests				2,389		2,116
Equity		(19)		28,396		30,205
Interest-bearing financial liabilities		(20)		94,306		101,464
Financial liabilities		(20)		15		83
Provisions for pensions (and similar obligations)		(21)		72,756		76,388
Provisions for other risks		(23)		3,269		5,432
Deferred tax liabilities		(10)		11,675		17,557
Other financial liabilities		(24)		2,671		3,083
Other non-financial liabilities		(25)		1,203		6,040
Non-current liabilities				185,895		210,047
Interest-bearing financial liabilities		(20)		2,184		4,147
Financial liabilities		(20)		86		119
Provisions for pensions (and similar obligations)		(21)		7,824		6,398
Trade payables				97,786		56,823
Gross amount due to customers for contract work		(22)		31,918		27,892
Provisions for other risks		(23)		15,868		22,815
Current tax liabilities				6,094		3,585
Other financial liabilities		(24)		11,315		9,576
Other non-financial liabilities		(25)		29,405		19,314
Current liabilities				202,480		150,669
Total liabilities				388,375		360,716
Equity and liabilities				416,771		390,921

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Coperion Capital GmbH

Consolidated Income Statements and Statements of Comprehensive Income

 

				Year Ended December 31,
EUR k		Note		2011		2010		2009
Gross revenue		(1)		457,506		345,979		398,268
Revenue deductions				1,381		580		1,837
Revenue				456,125		345,399		396,431
Changes in inventories of finished goods and work in progress				4,843		2,379		-8,338
Other operating income		(2)		8,734		5,514		2,334
Total operating performance				469,702		353,292		390,427
Cost of materials		(3)		255,960		170,308		195,288
Personnel expenses		(4)		117,545		105,256		127,310
Other operating expenses		(5)		70,704		59,261		57,234
Depreciation and impairment of property, plant and equipment				3,673		10,281		5,394
Amortization of intangible assets				14,530		14,655		14,746
Interest income				817		177		182
Interest expense				9,314		10,037		9,805
Other financial result				-5,272		-7,732		-4,981
Financial result		(6)		-13,769		-17,592		-14,604
Loss before taxes				-6,479		-24,061		-24,149
Income taxes		(7)		-2,972		-7,708		-13,687
Loss for the year				-3,507		-16,353		-10,462
of which attributable to the owners of the parent company				-4,035		-16,544		-10,618
of which attributable to non-controlling interests				528		191		156
Statement of comprehensive income:
Loss for the year				-3,507		-16,353		-10,462
Unrealized gains and losses from foreign currency translation				1,405		2,688		-118
Unrealized gains and losses from cash flow hedges		(29)		-51		-1,454		1,395
Deferred taxes on unrealized gains and losses		(29)		12		434		-412
Other comprehensive income				1,366		1,668		865
Total comprehensive loss				-2,141		-14,685		-9,597
of which attributable to the shareholders of the parent company				-2,363		-15,089		-9,768
of which attributable to non-controlling interests				222		404		171

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Coperion Capital GmbH

Consolidated Statement of Changes in Shareholders’ Equity

 

										Accumulated deficit						Equity attributable to
EUR k		Note		Issued capital		Treasury shares		Capital reserves		Earned equity		Difference from currency translation		Hedging reserve		the owners of Coperion Capital GmbH		Non- controlling interests		Equity
Closing balance December 31, 2008				2,000		0		53,001		-447		230		-804		53,980		1,541		55,521
Loss for the year										-10,618						-10,618		156		-10,462
Gains and losses recorded in other comprehensive income												-133		1,395		1,262		15		1,277
Deferred taxes recorded in other comprehensive income														-412		-412				-412
Treasury shares at acquisition cost						-1,034										-1,034				-1,034
Closing balance December 31, 2009				2,000		-1,034		53,001		-11,065		97		179		43,178		1,712		44,890
Loss for the year										-16,544						-16,544		191		-16,353
Gains and losses recorded in other comprehensive income												2,475		-1,454		1,021		213		1,234
Deferred taxes recorded in other comprehensive income														434		434				434
Closing balance December 31, 2010				2,000		-1,034		53,001		-27,609		2,572		-841		28,089		2,116		30,205
Loss for the year										-4,035						-4,035		528		-3,507
Gains and losses recorded in other comprehensive income												1,711		-51		1,660		-306		1,354
Deferred taxes recorded in other comprehensive income														12		12				12
Change in the consolidated group																		51		51
Change in treasury shares						281										281				281
Closing balance December 31, 2011		(19)		2,000		-753		53,001		-31,644		4,283		-880		26,007		2,389		28,396

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Coperion Capital GmbH

Consolidated Statement of Cash Flows

 

				Year Ended December 31,
EUR k		Note		2011		2010		2009
Loss before tax				-6,479		-24,061		-24,149
Financial result		(6)		13,769		17,592		14,604
Depreciation, amortization and impairments				18,203		24,936		20,140
Gain/loss on disposals of non-current assets				-169		4,110		105
Repayment of pension obligations				-6,979		-7,435		-7,524
Other non-cash expenses and income				-860		161		28,899
Change in inventories		(12)		-15,380		2,643		23,883
Change in trade receivables		(14)		-7,954		-22,048		75,278
Change in trade payables				40,501		13,235		-51,550
Change in provisions		(23)		-9,384		-9,955		-7,118
Change in other operating assets and liabilities				5,858		15,939		-17,709
Income taxes paid				-1,004		-1,398		-5,199
Cash flow from operating activities				30,122		13,719		49,660
Cash paid for investments in property, plant and equipment		(9)		-9,573		-2,032		-2,714
Cash paid for investments in intangible assets		(8)		-2,339		-1,573		-156
Cash paid for acquisitions of marketable securities and other financial assets		(11)		-31		-308		-24
Cash received from the disposal of property, plant and equipment		(9)		6,020		41		29
Interest received				750		34		113
Cash flow from investing activities				-5,173		-3,838		-2,752
Cash paid for the acquisition of treasury shares				0		0		-1,034
Cash received from the sale of treasury shares		(19)		281		0		0
Interest paid				-3,670		-4,616		-4,551
Other financial expenses / income settled in cash				-3,238		-5,147		-16,048
Acquisition cost of financial instruments				31		-807		-258
Increase in interest-bearing financial liabilities				0		0		26
Repayments of interest-bearing financial liabilities				-8,550		-14,488		-14,718
Cash flow from financing activities				-15,146		-25,058		-36,583
Changes in cash and cash equivalents due to changes in foreign exchange rates				664		1,104		-33
Change in cash and cash equivalents				10,467		-14,073		10,292
Cash and cash equivalents at the beginning of the period				10,296		24,369		14,077
Cash and cash equivalents at the end of the period				20,763		10,296		24,369

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Notes to the consolidated financial statements

 

I.                General accounting policies

 

General explanations

 

Coperion Capital GmbH (the “Company”) is a German limited liability company with its registered offices at Theodorstrasse 10, 70469 Stuttgart. The Company’s consolidated financial statements as of December 31, 2011 include the Company and all directly and indirectly held Group entities, which together form Coperion. Coperion is hereinafter also referred to as the “Coperion Group” or “Group”.

 

Coperion is a global market leader in planning, production, handling and installing solutions for compounding and extrusion applications, bulk materials logistics and numerous other services. It is the preferred partner for various branches of industry with a focus on polymers and chemicals as well as the foodstuffs, pharmaceuticals and minerals industries.

 

The consolidated financial statements of Coperion Capital GmbH, comprising the consolidated income statements and statements of comprehensive income, the consolidated statements of financial position, the consolidated statements of changes in equity, the consolidated statements of cash flows and the notes to the consolidated financial statements, were prepared in accordance with International Financial Reporting Standards (IFRS) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), issued by the International Accounting Standards Board (IASB).

 

All those standards (IFRS/IAS) and interpretations (IFRIC) subject to mandatory application for 2011 were observed.

 

The following standards and interpretations are not yet mandatory for the reporting period and have not been adopted early:

 

Amendments to IAS 1 — Presentation of Items of Other Comprehensive Income

 

This amendment changes the presentation of other comprehensive income in the statement of comprehensive income. Those items of other comprehensive income which are recycled at a later date through profit and loss must now be presented separately from those items of other comprehensive income that will never be reclassified. When the items are presented gross, i.e. before deferred taxes are offset, the deferred taxes must no longer be presented as a sum but allocated to the appropriate group under other comprehensive income.

 

The amendment applies to all fiscal years beginning on or after July 1, 2012.

 

Amendments to IAS 12 — Deferred Tax on Investment Property

 

For investment property, it is often difficult to assess whether the temporary differences will reverse from continued use of the asset or in the course of its disposal. The amendment to IAS 12 has clarified that deferred taxes should be measured on the basis of the rebuttable presumption that the differences will reverse upon disposal.

 

The amendment applies to all fiscal years beginning on or after January 1, 2012.

 

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IAS 19 — Employee Benefits (revised 2011)

 

In addition to the more comprehensive disclosures required for employee benefits, the revisions to the standard contain the following changes:

 

At present actuarial gains and losses can be presented in various ways in the financial statements. They may be recognized either (a) through profit or loss, (b) in other comprehensive income (OCI) or (c) using the corridor method. The revision of IAS 19 has revoked these alternatives to create more transparent and comparable financial reporting. In the future, actuarial gains and losses may only be posted directly to other comprehensive income.

 

In addition, the expected return on plan assets was determined on the basis of a subjective assessment by management regarding the development of the asset portfolio. Under IAS 19 (revised 2011), it is only possible to record interest on plan assets at a standard rate that may not exceed the discount rate used to record the pension obligations at present value.

 

The amendment applies to all fiscal years beginning on or after January 1, 2013.

 

Due to the fact that Coperion had applied the corridor method to date, the revision to the standard will lead to an increase of EUR 8.2 million in the pension provision based on the circumstances as of December 31, 2011. However, even under the revised version of IAS 19, this increase will have no impact on the consolidated income statement of Coperion Capital GmbH as actuarial gains and losses must be posted directly to other comprehensive income.

 

Amendments to IAS 32 and IFRS 7 — Offsetting Financial Assets and Financial Liabilities

 

This addition to IAS 32 clarifies the prerequisites for offsetting financial instruments. The significance of an unconditional and legal right of offset is explained and clarified as well as which methods for gross offsetting can be viewed as net offsetting under the standard. In addition to these clarifications, the disclosure requirements of IFRS 7 for the notes to the financial statements were extended.

 

The amendment to IAS 32 applies to all fiscal years beginning on or after January 1, 2014.

 

The amendment to IFRS 7 applies to all fiscal years beginning on or after January 1, 2013.

 

Amendments to IAS 27 — Separate Financial Statements

 

With the release of IFRS 10, Consolidated Financial Statements, the principle of control and the requirement to prepare consolidated financial statements were taken out of IAS 27 and put into a new standard, IFRS 10 (see the comments on IFRS 10). As a result, IAS 27 now only covers the accounting treatment of subsidiaries, joint ventures and associates in the separate IFRS financial statements.

 

The amendment applies to all fiscal years beginning on or after January 1, 2013.

 

Amendments to IAS 28 — Investments in Associates and Joint Ventures

 

Amendments were made to IAS 28 associated with the release of IFRS 11, Joint Arrangements. As in the past, IAS 28 governs the use of the equity method. Nevertheless, its scope has been substantially expanded by the release of IFRS 11.  In the future, not only interests in associates must be recognized using the equity method but joint ventures as well (see IFRS 11). The proportional consolidation method is no longer permitted for joint ventures.

 

The amendment applies to all fiscal years beginning on or after January 1, 2013.

 

Currently, there will be no impact on Coperion from the changes as the criteria for using the equity method are not met.

 

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Amendments to IFRS 1 — Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

 

The change to IFRS 1 will mean that the reference to January 1, 2004 as the date of first-time consolidation will be replaced with the phrase “date of first-time adoption of IFRS”.

 

In addition, IFRS 1 lays out the accounting treatment for entities which were not able to meet the IFRS requirements for a sustained period because their functional currency was subject to hyper-inflation.

 

This will not have any impact on Coperion.

 

Amendments to IFRS 7 — Disclosures - Transfers of Financial Assets

 

The changes to IFRS 7 relate to the disclosures on the transfer of financial assets. The standard has made the treatment of transactions between financial assets that do not need to be derecognized and the corresponding financial liabilities more understandable. Furthermore, the nature and the risks of a continuing involvement in the derecognized financial assets can be better assessed. The amendments require additional disclosures if a disproportionate number of transfers with a continuing involvement are performed, e.g. at the end of a reporting period.

 

The amendment is applicable for fiscal years beginning on or after July 1, 2011.

 

It is not currently expected that additional disclosures will be required from Coperion on account of the amendments.

 

IFRS 9 — Financial Instruments

 

IFRS 9 replaces IAS 39 for the accounting and measurement of financial instruments. In the future, financial assets will be classified into two groups and measured accordingly: at amortized cost and at fair value. The group of financial assets measured at amortized cost consists of financial assets that only provide a right to interest and repayment of principal at a certain date and which are held within the framework of a business model whose objective is to hold assets. All other financial assets belong in the at fair value category. In certain circumstances, financial assets in the first category can, similar to previous years, be designated as at fair value (“fair value option”).

 

Changes in the fair value of financial assets must be posted through profit or loss. However, for some equity instruments there is an allowed alternative treatment to post changes in fair value directly to other comprehensive income. However, dividend rights from such assets must be posted through profit or loss.

 

The treatment of financial liabilities has been adopted from IAS 39 in all material respects. The most significant difference lies in the recognition of changes in the value of financial liabilities measured at fair value. In the future, these will be split as follows: the portion for which the entity bears the credit risk is to be posted in other comprehensive income and the remainder of the fair value adjustments must be posted through profit and loss.

 

IFRS 9 applies to all fiscal years beginning on or after January 1, 2015.

 

IFRS 10 — Consolidated Financial Statements

 

This standard fundamentally redefines the principle of control. If an entity controls another entity, the parent company must consolidate it as a subsidiary. Under the new concept, control is deemed to exist when the potential parent holds the decision-making authority over the potential subsidiary on the basis of voting or other rights, participates in the variable returns from the subsidiary, and can influence these returns on the basis of its decision-making authority.

 

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This standard may have an impact on the scope of the consolidated group, including special purpose entities.

 

Subject to endorsement by the EU, the new standard applies to all fiscal years beginning on or after January 1, 2013. If an investment in a subsidiary is qualified differently between IAS 27/SIC-12 and IFRS 10, then IFRS 10 must be applied retroactively. Early adoption is only permitted together with IFRS 11 and IFRS 12 and the versions of IAS 27 and IAS 28 revised in 2011.

 

Currently Coperion has control over all of its investments on the basis of voting rights or similar rights. Consequently, these subsidiaries will also be fully consolidated in future.

 

IFRS 11 — Joint Arrangements

 

IFRS 11 has changed the accounting treatment of joint arrangements. Based on the new concept, a distinction has to be made between joint operations and joint ventures. A joint operation is when the controlling parties directly hold the rights to the assets and the obligations associated with the liabilities. The individual rights and obligations are accounted for on a pro rata basis in the consolidated financial statements. In a joint venture, by contrast, the joint controlling parties have a right to the net surpluses of the operation. This right is accounted for in the consolidated financial statements using the equity method. The allowed alternative treatment of proportionate consolidated is therefore no longer available.

 

Subject to endorsement by the EU, the new standard applies to all fiscal years beginning on or after January 1, 2013. There are specific rules governing the transition from proportionate consolidation to the equity method. Early adoption is only permitted together with IFRS 10 and IFRS 12 and the versions of IAS 27 and IAS 28 revised in 2011.

 

There will be no impact on the financial statements from these changes.

 

IFRS 12 — Disclosure of Interests in Other Entities

 

This standard governs the disclosures required for interests in other entities. The required disclosures are substantially more comprehensive than those previously required by IAS 27, IAS 28 and IAS 31.

 

The new standard applies to all fiscal years beginning on or after January 1, 2013.

 

As things currently stand this standard could result in additional disclosures in the notes to the financial statements of Coperion.

 

IFRS 13 — Fair Value Measurement

 

This standard ensures that fair value measurement in IFRS financial statements is treated in a uniform way. All fair value measurements required by other standards must comply with the uniform requirements of IFRS 13 in the future. Only IAS 17 and IFRS 2 will contain their own treatment.

 

Fair value pursuant to IFRS 13 is defined as the exit price, i.e. the price that can be generated from the sale of an asset or the price that would have to be paid to transfer a liability. The three-level fair value hierarchy based on observable market data that is familiar from the fair value measurement of financial assets will be introduced across the board. The new fair value measurement may lead to different values than under the present IFRSs.

 

The new standard applies to all fiscal years beginning on or after January 1, 2013.

 

IFRIC 20 — Stripping Costs in the Production Phase of a Surface Mine

 

This interpretation is designed to standardize the accounting of restoration costs of strip mines. If it is expected that income will be realized from the continued use of tailings generated by the mining

 

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operation, the allocable stripping costs must be accounted for under inventories pursuant to IAS 2. In addition, an intangible asset needs to be recognized with the mining asset if access to additional minerals is thereby improved and the criteria defined in the interpretation are met. This intangible asset must be amortized over its useful life.

 

IFRIC 20 applies to all fiscal years beginning on or after January 1, 2013.

 

It will not have any impact for Coperion.

 

These consolidated financial statements of Coperion Capital GmbH were authorized for issue by resolution of management dated February 6, 2013.

 

Consolidation principles

 

The financial statements of domestic and foreign entities included in the consolidation are prepared using uniform accounting policies. All business combinations were accounted for pursuant to IFRS 3 (rev. 2004). The changes to IFRS 3 (rev. 2008) had no impact on account of the fact that there have been no combinations since July 1, 2009.  Correspondingly, the capital of subsidiaries consolidated for the first time is consolidated by offsetting the purchase price and incidental acquisition costs against the net assets of the subsidiary revalued at the time of acquisition.

 

This involves recognizing the assets, liabilities and contingencies of the subsidiary at their fair value, regardless of the amount of any non-controlling interests. Any remainder is capitalized as goodwill. In accordance with IAS 36 (Impairment of Assets), goodwill is tested for impairment annually.

 

Expenses and income as well as receivables and liabilities between consolidated companies are eliminated. The same applies for the mandatory disclosures on contingencies and other financial commitments.

 

Profit distributions and absorption of losses between consolidated entities, where they exist, have been eliminated from the income statement. Intercompany profits and losses from deliveries of goods and services between consolidated entities are eliminated from non-current assets and inventories unless they are immaterial.

 

Deferred tax is recognized for consolidation transactions that are recognized in profit or loss. Deferred tax assets and liabilities originating from the individual consolidation entries are not offset against each other.

 

The consolidated financial statements have been prepared in euro. Unless otherwise specified, all amounts are stated in thousands of euro (EUR k). There may be differences in individual figures in the consolidated financial statements due to rounding figures in thousands; however, these differences are immaterial.

 

Consolidated group

 

The consolidated financial statements include the financial statements of Coperion Capital GmbH as well as the financial statements of all Group entities in which Coperion Capital GmbH directly or indirectly holds more than a 50% interest, or which are under the Group management’s financial or operational control. Entities in which Coperion Capital GmbH directly or indirectly holds more than a 50% interest in the voting rights are fully consolidated. All assets, liabilities, income and expenses are fully considered in the financial statements using the full consolidation method.

 

There was one change to the consolidated group in the reporting year owing to the formation of a new company. Effective October 5, 2011 Coperion Middle East Ltd., Jubail, Saudi Arabia, was entered in the commercial register of the local authorities. First-time consolidation took place on December 31, 2011. Coperion GmbH holds 51% of the shares. There were no other first-time consolidations on account of

 

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company formations, acquisitions or strategic alliances, nor were there any reasons for deconsolidating group entities.

 

As a result, the shareholdings of the Group as at December 31, 2011 were as follows:

 

Entity		Country		Equity EUR k		Profit or loss EUR k		Shareholding %		Consolidation
Coperion Capital GmbH, Stuttgart (parent company)		DE		46,924		-688
Coperion GmbH, Stuttgart, Germany		DE		38,909		-1,033		100	%	C
Coperion AB, Huddinge, Sweden		SE		525		-61		100	%	C
Coperion Corp., Ramsey, New Jersey, USA		US		2,258		3,679		100	%	C
Coperion Ideal Pvt. Ltd., Noida, India		IN		4,974		1,112		51	%	C
Coperion Middle East Ltd., Jubail, Saudi Arabia		SA		103		0		51	%	C
Coperion International Trading (Shanghai) Co. Ltd., Shanghai, China		CN		3,400		622		100	%	C
Coperion K.K., Tokyo, Japan		JP		919		-60		100	%	C
Coperion (Nanjing) Machinery Co. Ltd., Nanjing, China		CN		3,376		1,093		100	%	C
Coperion Ltd., Bramhall, United Kingdom		GB		-304		61		100	%	C
Coperion Ltda., Água Branca - São Paolo, Brazil		BR		142		-536		100	%	C
Coperion Machinery & Systems (Shanghai) Co. Ltd., Shanghai, China		CN		2,214		961		100	%	C
Coperion N.V., Niel, Netherlands		BE		2,656		471		100	%	C
Coperion Pte. Ltd., Singapore, Singapore		SG		4,701		1,469		100	%	C
Coperion Real Estate GmbH & Co. KG, Stuttgart, Germany		DE		-61		-8		100	%	C
Coperion S.a.r.l., Saint Denis. France		FR		154		62		100	%	C
Coperion S.L., Barcelona, Spain		ES		422		263		100	%	C
Coperion S.r.l., Ferrara, Italy		IT		594		18		100	%	C
Coperion OOO, Moscow, Russia		RU		2		16		100	%	C
C= fully consolidated entity

 

II.           Accounting and valuation methods

 

The accounting policies set out below were applied during the periods presented for the consolidated financial statements and the reporting units.

 

All items in the statement of financial position and the figures in the notes derived from these items were determined as at the reporting date on December 31, 2011. Items in the income statement and the statement of cash flows and figures in the notes derived from these items refer to the period from January 1 to December 31, 2011, unless stated otherwise.

 

Assumptions, estimates and judgments

 

The preparation of the financial statements in accordance with IFRS and IFRIC calls for certain judgments and estimates which can have an effect on the value of assets and liabilities and the presentation of contingencies on the reporting date as well as on the value of income and expenses within the reporting period. Actual amounts could vary from these estimates and judgments.

 

Estimates and their underlying assumptions are checked on a continual basis. Actual results may differ from these estimates. Changes are recognized in profit or loss and when better information is available.

 

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The following could give rise to a material risk of changes in the carrying amounts of assets and liabilities:

 

· Goodwill impairment

· Trademarks

· Availability of unused tax losses

· Useful life of non-current assets

· Earnings on long-term construction contracts

· Collection of receivables

· Non-current personnel provisions

· Provisions for litigation risks

· Restructuring provisions

· Deferred tax liabilities

 

Revenue recognition

 

Revenue and other operating income are recognized after the good or service is delivered and risks have passed to the customer. An exception is customer-related long-term construction contracts where revenue is recognized using the percentage-of-completion method pursuant to IAS 11.

 

License income is deferred over the term of the relevant agreement and released on a pro rata temporis basis. Interest income and expenses are also considered on a pro rata basis using the effective interest rate method.

 

Operating expenses are recognized in profit or loss when a service is used or when the costs are incurred.

 

Foreign currency translation

 

The consolidated financial statements are prepared in euros, which is both the functional currency and the presentation currency of the Group. Receivables and liabilities denominated in foreign currencies in the separate financial statements of consolidated entities are translated using the historical rate. Changes in foreign exchange rates are considered by revaluing items at the mean closing rate with any exchange rate gains or losses being reported in the financial result in the income statement.

 

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The following exchange rates were used in the financial statements:

 

		Average exchange rate						Closing rate
		2011		2010		2009		2011		2010		2009
AUD		n.n		1.3399		n.n		n.n		1.3136		n.n
BRL		2.3265		2.3351		2.7709		2.4159		2.2177		2.5113
CHF		1.2333		1.3822		1.5102		1.2156		1.2504		1.4836
CNY		8.9989		8.9842		9.5227		8.1588		8.8220		9.8350
GBP		0.8681		0.8585		0.8916		0.8353		0.8608		0.8881
INR		64.8784		60.7065		67.2972		68.7130		59.7580		67.0400
JPY		111.0362		116.5017		129.9468		100.2000		108.6500		133.1600
RUB		40.8822		40.2884		44.1071		41.7650		40.8200		43.1540
SAR		4.9276		n.n		n.n		4.8674		n.n		n.n
SEK		9.0288		9.5482		10.6250		8.9120		8.9655		10.2520
SGD		1.7492		1.8040		2.0231		1.6819		1.7136		2.0194
TWD		40.9176		n.n		n.n		39.1854		n.n		n.n
USD		1.3924		1.3272		1.3944		1.2939		1.3362		1.4406

 

The separate financial statements of group entities that are prepared in foreign currencies are translated using the functional currency concept pursuant to IAS 21. All assets and liabilities are translated using average closing rates, whereas equity is translated at historical rates.

 

Income and expenses in the income statement are translated using the annual average exchange rates.

 

The resulting exchange differences are presented separately in the currency translation reserve under other comprehensive income.

 

Derivative financial instruments

 

Derivative financial instruments are disclosed under other financial assets or other financial liabilities. Risks in connection with changes in exchange rates, interest rates and the commodity prices are hedged within the Group by means of forward exchange contracts, interest hedges and commodity futures. Derivative financial instruments are measured at fair value, both upon initial recognition and subsequent measurement.

 

Unrealized gains and losses (as the hedged item is not yet accounted for in the financial statements) are presented under the financial result.

 

If the conditions are fulfilled, hedge accounting is applied to these cash flow hedges in accordance with IAS 39. In this case the effective gains or losses are reflected directly in a separate line item under equity. The ineffective portions or the gain or loss on the hedging instrument are recognized in profit or loss. As all such agreements are made with partners and institutions with a high credit rating, credit risks are limited.

 

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Intangible assets

 

Goodwill

 

Goodwill is recognized as the difference between the acquisition cost and the fair value of acquired net assets. If the difference is negative (“badwill”), this is recognized immediately in profit or loss.

 

According to IAS 36, goodwill is not amortized over its useful life but is subjected to an impairment test at least once a year.

 

Trademarks

 

Trademarks acquired for a consideration are recognized at cost and not amortized as these have an indefinite useful life. These assets are also subject to a yearly impairment test.

 

Research and development

 

Expenses incurred for research that is undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognized in profit or loss.

 

Development includes a plan or design for the production of new products or processes. Development expenses are only recognized as assets if they can be reliably measured. Moreover, the new product or new process must be both technically feasible and economically viable with it being more likely than not that an economic benefit will give rise to the entity from the development. Additionally, the Group must have an intention to provide the necessary funds and an intention to sell the results of the development.

 

Capitalized development costs are amortized on a straight-line basis over an appropriate useful life.

 

Other intangible assets

 

Other intangible assets acquired for a consideration are stated at cost less any scheduled amortization and any accumulated impairment losses.

 

Intangible assets with a finite useful life are amortized on a straight-line basis over their useful life. Amortization is presented in the income statement under amortization of intangible assets and intangible assets arising from the purchase price allocation.

 

Property, plant and equipment

 

Property, plant and equipment are valued at acquisition or manufacturing cost less scheduled depreciation and any impairment losses.

 

Assets acquired under long-term finance leases are stated at the lower of the present value of the minimum lease payments or fair value. The related, outstanding lease installments are recognized as liabilities.

 

Property, plant and equipment are depreciated on a straight-line basis over their useful lives. For finance leases, this is based on the shorter of the useful life and term of the lease.

 

Useful lives applied for property, plant and equipment

 

· Buildings: 20 to 40 years

· Machinery and equipment: 3 to 15 years

· Other property, plant and equipment (vehicles, IT hardware, etc.): 3 to 5 years.

 

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All gains and losses on the disposal of property, plant and equipment (sales proceeds less the net carrying amount of the asset) are recognized in the income statement under “Other operating income” or “Other operating expenses,” respectively.

 

Low-value assets (with a maximum value of EUR 150, depending on the local accounting legislation) are expensed immediately through profit or loss.

 

According to IFRS 5, items of property, plant and equipment that are classified as held-for-sale must be reclassified to current assets and presented separately from other assets in their own line item.

 

Inventories

 

Raw materials, consumables and supplies and merchandise are measured at the weighted average purchase price. Internally constructed products are measured at the cost of conversion which consists of directly allocable material costs and production costs plus the respective portion of overhead. If the recoverable amount is lower, an impairment loss is recorded.

 

Payments made on account to suppliers are added to inventories while payments received from customers on account for projects in progress are deducted from inventories. Both are recognized at face value.

 

Non-current assets held for sale

 

Non-current assets that are classified as held-for-sale must be presented as “held-for-sale” separately from the other assets at amortized or historical cost less any impairment losses on the date of classification.

 

Receivables and other assets

 

Receivables and other financial assets are initially recognized at fair value plus any associated transaction costs. Subsequent measurement is performed at amortized cost using the effective interest method and less any allowances.

 

The allowances for bad and doubtful debtors depend on the age structure and identifiable risks of default. Apart from specific bad debt provisions, a general bad debt provision measured on a portfolio basis is also maintained on the basis of past loss experience.

 

Gross amount due to/from customers for contract work

 

Long-term construction contracts are accounted for using the percentage-of-completion method pursuant to IAS 11. The percentage-of-completion per contract is calculated by comparing the accumulated costs with the total costs calculated (“cost-to-cost” method). If the result of a construction contract cannot be determined reliably, income is only recognized at the amount of the contract costs incurred (“zero profit method”). If losses are expected on the contract, these are posted immediately through profit or loss in the period in which they become known by writing down the associated receivables. If the expected losses exceed the receivable, a provision is additionally recognized. Possible losses on construction contracts are calculated by considering all identifiable risks on the basis of the ongoing costing.

 

Due to the fact that the cost-to-cost method is based on the estimated costs required to complete the contract, it is possible that cost estimates require adjustment as new information becomes available. The effects of such adjustments measured on the percentage of project completion are recognized through profit or loss in the period in which the differences are identified.

 

Construction contracts are recognized as either a receivable or a liability. If the accumulated work in process (costs incurred for the contract to date and any profit margin already recognized) exceeds payments received from the respective customers, an asset in the statement of position is reported in the line item “Gross amount due from customers for contract work”. If the payments received from customers

 

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exceed the accumulated work in process, a liability in the statement of position is reported in the line item “Gross amount due to customers for contract work”.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash in hand, bank balances (current account) as well as fixed term investments with a term of up to 90 days; these items are stated at their nominal value.

 

Pension provisions / obligations arising from employee benefits

 

In accordance with IAS 19, provisions for pension obligations for defined benefit plans are measured using the projected unit credit method. This method considers not only the pensions and future claims known on the reporting date but also future anticipated increases in salaries and pensions. Actuarial gains and losses are recognized in the income statement in accordance with the corridor method.

 

Liabilities

 

Financial liabilities are initially recognized at fair value less directly attributable transaction costs. Subsequent measurement is at amortized cost using the effective interest method.

 

Deferred tax assets and liabilities

 

In accordance with IAS 12, deferred tax assets and liabilities are recognized on temporary differences between the tax base and the assets and liabilities reported in the IFRS statement of financial position. Deferred tax assets consider all unused tax losses and unused tax credits.

 

Deferred tax assets are not recognized if it is more likely than not that they cannot be used to reduce future tax burdens.

 

Deferred taxes that are recognized on items recorded directly in other comprehensive income are posted to the respective item in other comprehensive income without affecting profit or loss.

 

Deferred taxes are recognized at the amount of the prospective future tax burden or credit in subsequent accounting periods taking account of the tax rates applying or expected on the date they are recognized. For German companies and consolidation entries, a tax rate of 29.8% applies, without any change on the prior year. For foreign entities, the relevant local tax rates that are in force or that have been enacted by the reporting date apply.

 

If the deferred taxes are of the same term and are settled with the same tax office, deferred tax assets and deferred tax liabilities are offset against each other.

 

Provisions

 

Pursuant to IAS 37, provisions are recognized when an entity has a current obligation from a past event which will probably lead to an outflow of resources embodying economic benefits in future and a reliable estimate can be made of the amount of the obligation.

 

The operating entities of the Group recognize provisions for warranty obligations taking account of any known and justified warranty claims plus the estimated warranty expense expected in future for products already sold, measured on the basis of past experience.

 

Provisions for restructuring measures and the personnel-related obligations associated with the restructuring are recognized by those entities where, in addition to the general recognition criteria, a constructive obligation has arisen based on the entity issuing a detailed formal restructuring plan and, by starting to implement that plan or announcing its main features to those affected, has raised a valid expectation in those affected that the restructuring plan will be carried out.

 

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Other provisions are also recognized pursuant to IAS 37 for all discernible risks and uncertain obligations at the best estimate of the expenditure required to settle the present obligation without considering reimbursements and rights of recourse.

 

Provisions which do not lead to an outflow of resources in the following year are carried at the discounted settlement amount on the reporting date. The discount rate is based on market rates for risk-free securities plus a suitable risk premium.

 

Leased assets

 

Leased assets are recognized as assets if the respective Group entity bears the risks and rewards incidental to ownership (finance lease). The leased asset is measured at the lower of the future minimum lease payments and its fair value and depreciated over the shorter of its useful life or the term of the lease. At the same time, a liability is recognized of the same amount. The lease obligation is repaid in subsequent periods on the basis of the effective interest method and rolled forward accordingly. The finance costs are immediately recorded as an expense.

 

Lease payments for operating leases are recognized as an expense on a straight-line basis over the lease term.

 

III.      Financial risk management and reporting

 

The Coperion Group is exposed to a number of financial risks that arise from its business operations and the financing structure of the Group. Currently the following three categories of market risk are relevant:

 

Credit risk

Liquidity risk

Market risk (interest rates, foreign exchange rates, commodity prices)

 

The Company applies central risk management across the Group to mitigate the risk factors mentioned above by qualifying and quantifying risks and informing management on a regular basis using suitable risk reporting. The identification, analysis and measurement of financial risks have occasioned the Group to use derivative financial instruments to minimize the risks. Such decisions are made centrally in the Group and always in close cooperation with management. Generally, standard financial derivatives issued by top-rated institutions are used.

 

Credit risk

 

The credit risk is the risk that a contractual partner (creditor) does not receive consideration from a counterparty (debtor) for a contractual obligation, or only receives late payment. For the Company, this risk primarily originates from the deterioration in the economic circumstances of its business partners and customers which might lead to partial or complete default on outstanding payments.

 

Credit and default risks are monitored in regular intervals which, depending on customer structure, follow the measures defined in the Group’s guidelines. When entering into contracts with new business partners, trade references are obtained and credit ratings are performed on an on-going basis for those customers in the existing portfolio. Depending on the credit rating, credit insurance, bank guarantees or letters of credit are obtained, particularly for contracts to manufacture plant and machinery. In addition, prepayments are arranged with the customers for such contracts in order to keep the upfront financing for the contract low.

 

Monitoring of the credit risk is an element of the integrated management information process and comprises the latest information on the composition of customers, orders (order intake and order backlog), the aging structure of receivables and the development of debtors, the potential for prepayments

 

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and the related trends in the relevant indicators. If specific default risks are identified in spite of the risk mitigation measures taken, or if defaults have even occurred, appropriate provisions are recorded to cover the potential loss.

 

Most of the Group’s customers, particularly for large machinery and industrial equipment, are global players with correspondingly healthy credit ratings. In addition, there are a large number of medium-sized customers in the component and service business line, which also generally display good credit-ratings. Consequently, there is no accentuated concentration of credit risk. The maximum default risk is reflected by the carrying amount of the assets in the statement of financial position, primarily trade receivables and gross amount due from customers for contract work, which total EUR 99,866 k. As of the reporting date, there were no major agreements in place to reduce the company´s credit risk.

 

Liquidity risk

 

Liquidity risk is the risk of the company having insufficient funds to fulfill its payment obligations. The payment obligations mainly result from debt servicing and the need to settle on-going liabilities as they fall due.

 

The Group’s liquidity risk is largely inherent in temporary delays in the receipt of payments from customers, which could lead to an unexpected short-term liquidity squeeze. The Group mitigates this risk with measures to create cash reserves and through active receivables management at the Group’s entities. In addition, the Coperion Group maintains a cash pooling system for the German entities to pool available liquidity and manage cash inflows and outflows. Worldwide, liquidity is managed using a monthly netting procedure by settling global short-term cash requirements from the cash in the cash pool which effectively broadens the cash management to the entire Group.

 

The management information process includes detailed financial planning and cash flow projections which have the function of initiating these measures in good time if they are needed.

 

All existing loans have been extended by major international banks with a high ranking. Most of these loans are long-term in nature. As the loans mature, the Group finds and takes out suitable refinancing in good time as needed.

 

According to the agreement with the banking consortium, the Coperion Group must comply with certain financial covenants. These covenants must be confirmed to the relevant banks and financial institutes on a quarterly basis. If the financial covenants are breached repeatedly the banking consortium has a formal right of termination.

 

Market risk

 

Market risk relates to the risk that the value of non-derivative financial instruments and future cash flows could change from fluctuations in market prices. Market prices include foreign exchange rates, interest rates and commodity prices.

 

This risk is inherent in any kind of business transaction that entails one of the three categories of market price.

 

Interest rate risk

 

Interest rate risk is the risk that the value of interest-bearing financial instruments and the related cash flows can change due to fluctuations in market interest rates. It covers the interest-related risk in the conditions of fixed-interest financial instruments and floating-rate financial instruments equally.

 

Since 2007, the Group has financed its operations primarily by means of floating-rate loans. It uses interest swaps to hedge against possible market fluctuations in interest rates.

 

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Currency risk

 

Foreign currency risk is the risk that the value of financial instruments and future cash flows will change due to the fact that they are based on transactions which will be settled in a different currency, usually the local currency, to the functional currency of the Coperion Group.

 

This risk is primarily related to the US dollar. Future fluctuations in the exchange rate between the US dollar and the euro are a substantial uncertainty for the Group which could lead to higher risk potential or, alternatively, greater opportunity.

 

The Group uses forward exchange contracts as cash flow hedges for cash flows denominated in foreign currency and also as fair value hedges for assets and liabilities denominated in foreign currency that are already recognized by the Group. Short-term and long-term debt is primarily denominated in euro which rules out any foreign currency risk in this regard.

 

Commodity price risk

 

Commodity price risk is the risk of financial losses arising from changes in the market prices for certain raw materials and commodities.

 

Coperion is primarily exposed to commodity price risks for steel which constitutes the main raw material in the plant and machinery it manufactures. Particularly with regard to higher quality steel, this is also tied to the market price for nickel as nickel is a fixed component of steel alloys and, as such, is a decisive factor in the mark-ups for steel alloys, thereby also causing fluctuations in the market price of steel.

 

Coperion concludes nickel futures transactions to offset its exposure to volatility in the price of steel.

 

The Group applies a number of guidelines to counter the respective market price risk at any particular time. The main principle of the guidelines is to hedge all significant risks with a suitable hedging instrument. Hedging instruments are only taken out in the form of standard products entered into with contractual parties with which the Coperion Group has standing business relations and which are among the world’s leading banks and financial institutions enjoying top credit ratings.

 

The risk of default by a contractual partner and the risk of the ensuing losses can therefore be regarded as low.

 

The management information system of the Coperion Group also involves regular reporting on the latest status of market price risks and all associated hedging instruments and their development. In addition, management communicates constantly with the central reporting units, primarily with Corporate Treasury, to learn of the latest developments and initiate countermeasures as needed. The comprehensive reporting includes a weekly financial status, monthly cash flow projections, and permanent documentation of all hedging instruments for market price risks in addition to their development and measurement on the respective cut-off date.

 

IV.       Notes to the income statement

 

1.              Revenue

 

Revenue includes all amounts invoiced to customers for deliveries of goods and services as well as revenue from long-term construction contracts calculated according to the percentage-of-completion method.

 

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Revenue breaks down into the following regions as follows:

 

EUR k		Total
2011
Europe		152,419
The Americas		65,476
Asia		235,230
Other		4,381
Total		457,506
2010
Europe		100,214
The Americas		59,005
Asia		175,740
Other		11,020
Total		345,979
2009
Europe		112,399
The Americas		68,789
Asia		214,068
Other		3,012
Total		398,268

 

2.              Other operating income

 

EUR k		2011		2010		2009
Commission received		607		99		157
Gains and losses from the disposal of property, plant and equipment and intangible assets		150		88		13
Collection of bad debts		304		286		480
Own work capitalized		1,315		1,035		0
Insurance indemnification		282		28		109
Foreign exchange gains and losses		666		39		53
Income from operating welfare facilities		582		598		553
Income from cost allocations		191		326		292
Income from reversal of warranty provisions		3,604		1,829		0
Other income		1,033		1,186		677
Other operating income		8,734		5,514		2,334

 

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