Notes

I. GENERAL INFORMATION ON THE GROUP

KSB Aktiengesellschaft, Frankenthal / Pfalz, Germany (hereinafter referred to as KSB AG), is a public limited company [Aktiengesellschaft] under the law of the Federal Republic of Germany. The company is registered with the Handelsregister [Commercial Register] of the Amtsgericht [Local Court] Ludwigshafen am Rhein, registration No. HRB 21016, and has its registered office in Frankenthal / Pfalz, Germany.

The KSB Group is a global supplier of high-quality pumps, valves and related systems and also provides a wide range of services to users of these products. The Group’s operations are divided into three segments: Pumps, Valves and Service.

Basis of preparation of the consolidated financial statements

The accompanying consolidated financial statements of KSB AG were prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the additional requirements of German commercial law under section 315a(1) of the HGB [Handelsgesetzbuch – German Commercial Code]. We applied the Framework, as well as all Standards and the Interpretations issued by the IFRS Interpretations Committee in force at the reporting date. For the purposes of this document, the term IFRSs includes applicable International Accounting Standards (IASs). The consolidated financial statements of KSB AG therefore meet the requirements of IFRS.

The consolidated financial statements were prepared on a going concern basis in accordance with IAS 1.25. They were prepared using the historical cost convention, with the exception of measurement at market value for available-for-sale financial assets and measurement at fair value through profit and loss for financial assets and liabilities (including derivatives). Our investments in associates are measured using the equity method.

The financial year of the companies consolidated is the calendar year.

The income statement has been prepared using the nature of expense method.

All material items of the balance sheet and the income statement are presented separately and explained in these Notes.

The main accounting policies used to prepare the consolidated financial statements are presented below. The policies described were applied consistently for the reporting periods presented unless stated otherwise.

The consolidated financial statements and the group management report, as well as the annual financial statements and management report of the Group’s parent company, are submitted to and published in the Bundesanzeiger [German Federal Gazette].

The accompanying consolidated financial statements were approved for issue by the Board of Management on 14 March 2014 and are expected to be approved by the Supervisory Board on 25 March 2014.

New accounting principles
  • a) Accounting principles applied for the first time in financial year 2013

    The following new and revised Standards issued by the International Accounting Standards Board (IASB) were required to be applied for the first time in financial year 2013:

    The amendment to IAS 1 Presentation of Financial Statements requires a breakdown in other comprehensive income into items that in subsequent periods are reclassified in the income statement (recycled to profit or loss) and those that are not reclassified. In addition, the related tax effects for these two categories are to be presented separately. As far as the KSB Group is concerned, the only impact is on the presentation of the statement of comprehensive income.

    The revised version of IAS 19 Employee Benefits includes new provisions on the recognition, measurement and presentation of the cost of defined benefit pension plans and of benefits relating to the termination of employment (top-up amounts relating to partial retirement schemes are recorded on a pro rata basis as “Other long-term employee benefits” over their term and are no longer carried as liabilities in their full amount as “termination benefits” upon the signing of the contract). The expected return on plan assets may no longer be applied as interest rate. Instead, the discount rate applied to the liability is used (net interest method). As a result of the elimination of the corridor method, actuarial gains and losses (experience adjustments and impact of changes to actuarial and demographic assumptions) are now immediately recognised directly in equity in other comprehensive income, taking into account the relevant tax effect. In accordance with the transitional provisions, the firsttime application of the revised IAS 19 is retroactive. Thus, the prior-period figures presented have been calculated as though the new regulations had already been applied last year. Actuarial gains and losses which to date have been accounted for outside the balance sheet in line with the corridor method have been adjusted within equity as at 31 December 2012 by direct recognition of € 91 million, with € 11 million in deferred tax assets and € 28 million in deferred tax liabilities being taken into account. The effects on provisions as at 31 December 2012 amounted to € 130 million. The impact in the income statement of past service cost is insignificant. This similarly applies to the individual effects resulting from the new accounting rules on top-up amounts in conjunction with partial retirement schemes.

    The provisions of IFRS 1 First-time Adoption of IFRS relate to serious hyperinflation and the removal of fixed dates for first-time adopters of IFRS, as well as to government loans. These are not relevant to the KSB Group. Similarly, the changes to IAS 12 Income Taxes concerning the measurement of deferred taxes for investment properties are not relevant.

    The amendments to IFRS 7 Financial Instruments: Disclosures cover extended disclosure requirements for the offsetting of recognised financial assets and liabilities pursuant to IAS 32.42. This has no impact on KSB’s consolidated financial statements.

    IFRS 13 Fair Value Measurement to be applied prospectively as from 1 January 2013 provides a single framework across standards for measuring fair value, and requires additional disclosures in the Notes. Fair value is the price that independent market participants would, under standard market conditions, receive when selling an asset or pay when transferring a liability at the measurement date. The first-time application did not result in any material deviations when measuring fair values.

    IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine relates exclusively to costs incurred for the removal of mine tailings and waste in the production phase of a mine and is of no relevance to the KSB Group.

  • b) Accounting principles that have been published but that are not yet mandatory
    The following new Interpretations, Standards and revised Standards were not yet mandatory and were not applied in the 2013 financial year:

    IFRS 10 Consolidated Financial Statements replaces the guidelines in IAS 27 Consolidated and Separate Financial Statements on control and consolidation, and changes the definition of “control” to the extent that the same criteria are applied to all companies for the purposes of determining whether a control relationship exists or not. Control requires exposure to variable returns and the ability to affect these returns through power over an investee.

    IFRS 11 Joint Arrangements affects companies involved in joint ventures or joint operations and supersedes IAS 31 Interests in Joint Ventures. The previously permitted pro rata consolidation method may no longer be used for joint ventures, which must now exclusively be accounted for in the consolidated financial statements using the equity method.

    IFRS 12 Disclosure of Interests in Other Entities pools all of the required disclosures in the Notes in relation to subsidiaries, joint arrangements and associate companies, and also nonconsolidated structured companies, in one single standard. The disclosure requirements previously set out in IAS 27, 28 and 31 have thus been replaced and additional disclosure requirements have been added. Consequently, we expect the application of IFRS 12 to result in more comprehensive disclosures in the Notes to the Consolidated Financial Statements.

    The addition to IAS 32 Financial Instruments: Presentation clarifies the conditions for the offsetting of financial assets and liabilities in the balance sheet.

    The aim of the amendment to IAS 36 Impairment of Assets is to eliminate the undesired consequences with regard to disclosure obligations resulting from the introduction of IFRS 13.

    The amendment to IAS 39 Financial Instruments: Recognition and Measurement means that, subject to certain conditions, hedge accounting may be continued in cases where derivatives designated as hedging instruments have been transferred to a central clearing agent to comply with statutory provisions or regulatory rules.

    The changes to IFRS 10 and 11 and to IAS 27, 28, 32, 36 and 39 are not expected to have any (material) effect on the KSB Group’s net assets, financial position and results of operations or on its disclosures in the Notes.

    IFRS 9 Financial Instruments sets out the classification and measurement requirements for financial assets and liabilities. The new provisions have not yet been incorporated into European law. The impact on the KSB Group is being reviewed.

    The other new or amended IFRS standards in the above list are not relevant or have no material relevance to the KSB Group based on a current assessment of the situation.

    As a matter of principle, we have not voluntarily applied the above-mentioned new or revised Standards and Interpretations prior to their effective dates.