general comments

accounting principles

kuka Aktiengesellschaft, Zugspitzstraße 140, 86165 Augsburg, has prepared its Group consolidated financial statements for the period ending December 31, 2008 according to the International Accounting Standards (ias) and the International Financial Reporting Standards (ifrs) of the International Accounting Standards Board (iasb), the interpretations of the Standing Interpretation Committee (sic) as well as the International Financial Reporting Interpretation Committee (ifric). The applied accounting principles were applicable and approved by the European Union as of the balance sheet date and were supplemented by the guidelines stipulated in article 315a, paragraph 1 of the German Commercial Code (hgb). The statements comply with all standards (ifrs / ias) and interpretations (ifrics) for which application is mandatory for the 2008 financial year. As a general rule, the accounting and valuation policies used conform to the methods applied in the prior year except for the standards and interpretations for which application is mandatory for the first time in the 2008 financial year. The newly applied standards and interpretations are listed under changes to accounting and measurement policies.

The Group consolidated financial statements are in compliance with German law. The numbers for the prior year were prepared according to these same standards. With the exception of specific financial instruments reported in fair values, the Group consolidated financial statements are prepared based on historical acquisition or production costs.

The Group consolidated financial statements have been prepared in euros. Unless otherwise noted, all amounts are stated in millions of euros (€ million). The report on emoluments represents an exception, providing information in thousands of euros (€ thousand).

The Executive Board authorized the consolidated financial statements for publication on February 23, 2009.

consolidation principles

Subsidiaries directly or indirectly controlled by kuka ag according to ias 27 or sic 12 (“Control Concept”) are consolidated in the Group financial statements according to the rules of full consolidation.

The Group consolidated financial statements are based on the financial statements of kuka Aktiengesellschaft and those of the consolidated subsidiaries and were prepared according to the uniform accounting and valuation policies for the Group. The consolidation of investments in subsidiaries capital was performed by elimination of the carrying amount of the participation against the proportionate equity in the subsidiary restated as at the date of acquisition. In line with ifrs 3, any positive differences are capitalized as goodwill under intangible assets. Any negative differences must be recognized in the income statement.

Intra-Group sales, expenses, earnings, as well as receivables and payables are netted, and inter-company profits and losses are eliminated. The deferred tax entries required in connection with the consolidation processes have been recorded.

Guarantees and warranties that kuka Aktiengesellschaft issues on behalf of consolidated subsidiaries are eliminated provided they do not have an external effect.

scope of consolidation

In addition to kuka Aktiengesellschaft, the Group consolidated financial statements include seven companies registered in Germany (prior year: ten) as well as 38 companies domiciled outside of Germany (prior year: 33) on whose behalf kuka Aktiengesellschaft exercises directly or indirectly uniform control.

The following changes to the scope of consolidation occurred in 2008:

First-time consolidations

The following companies, which had previously not been consolidated because of their relative insignificance were included in the scope of consolidation for the first time this year:

Systems division
Robotics division

The incorporation of the first-time consolidations had no material effect on the net assets, financial position and results of operations of the Group.

kuka Robotics Canada Ltd., Saint John / Canada, was re-established on November 20, 2008.

Other changes to the scope of consolidations

In the 2008 financial year, the following mergers took place effective January 1, 2008 between companies within the scope of consolidation:

Discontinued operations

ifrs 5 requires a separate disclosure of assets (companies) that are no longer intended to remain as part of continuing operations but are intended for disposal.

The following criteria, which are intended to ascertain that the sale of these companies is highly probable, were adhered to, and companies to which they applied were classified as Discontinued Operations:

As of the date of the classification as assets intended for disposal, the long term assets of these companies are no longer subject to scheduled depreciation. The assets and liabilities are recognized at the lower of their carrying amount or fair value less costs to sell.

The information on discontinued operations only applies for the prior year numbers and has been separately disclosed in the income statement with no valuation adjustment. No prior-period adjustment has been made on the balance sheet. For the income statement, the numbers for all companies categorized as discontinued operations as of December 31, 2007 were reported in accordance with ifrs 5 and shown as earnings from discontinued operations.

The earnings from discontinued operations for the prior year therefore include the earnings from the following Packaging division companies, which were sold to a fund of the Berlin-based holding company Odewald & Compagnie Gesellschaft für Beteiligungen mbH on April 19, 2007:

as well as four non-consolidated participations and two associated companies. Profits from the sale and the results from the disposal of discontinued operations were reported at the time of the sale on April 19, 2007.

currency translation

Receivables and payables denominated in foreign currency are translated as at the balance sheet date using an average rate. Any associated translation gains or losses are recorded as gains or losses under other operating income or expenses.

The annual financial statements of the consolidated foreign subsidiaries are translated from their functional currency (ias 21) into euros. For almost all foreign companies, this is the respective local currency, since they operate predominantly within their currency area. The sole exception is kuka Robotics Hungária Ipari Kft., Taksony / Hungary, which converted to the euro as its functional currency in 2007, since it conducts business predominantly in euros.

Accordingly, all assets and liabilities are translated at the rate effective on the balance sheet date. Goodwill and equity are translated using historical rates. Income and expenses are translated using average rates for the year. The translation of annual profits or losses on the income statement is also done at average rates for the year. Differences arising from the translation of assets and liabilities denominated in foreign currencies compared to their translation in the prior year, as well as translation differences between the income statement and the balance sheet are recognized in the revenue reserves.

accounting and valuation

Goodwill

Within the framework of the rules under ifrs 3, goodwill is recognized using the “impairment only” approach and is tested for impairment at least annually.

The impairment test is performed for the defined cash generating units as per ias 36 rules, using the discounted cash flow method. The data from the detail planning phase from the business plan for the next three years was used as the underlying data for this purpose, assuming in subsequent years that the annual cash flows will generally equal those in year three. For the sake of simplication, the perpetuity calculation further assumes that investments equal depreciation / amortization expense and the working capital remains unchanged.

With respect to the segment-specific discount rates as well as the further parameters and their derivation, and also for the identification of the principal items of goodwill, please refer to the discussions under item 10.

Self-developed software and other development costs

Development costs for newly developed products or internally generated intangible assets (for instance, software) are capitalized provided that the technical feasibility and commercialization of the newly developed products are assured, that this will result in an inflow of economic benefits to the Group, and that the further requirements of ias 38.57 have been met. In this context, the costs of production encompass the costs directly and indirectly attributable to the cost of development. According to ias 38, expenditures on research are recognized as expenses when they are incurred.

Scheduled depreciation commences when the asset is put into use and is recognized over the expected useful life of, as a rule, one to three years, using either the straight-line or unit-based method. Moreover, the value recognized for capitalized costs of development projects not yet completed is subject to impairment tests.

Other intangible assets

Purchased intangible assets, predominantly software, are recognized at their acquisition cost and are amortized as scheduled over their expected useful life of three to five years using the straight-line method.

The kuka Group does not carry any assets with an undefined useful life with the exception of goodwill.

Property, plant and equipment

Property, plant and equipment for continuing operations are recognized at acquisition or production costs less scheduled depreciation, which is generally applied using the straight-line method. If the depreciation according to the declining balance method better reflects the wear and tear of movable tangible assets, this method is applied. The selected depreciation method is continuously reviewed.

In addition to directly attributable costs, the costs of production for internally generated assets also include a proportionate share of overhead costs. Interest on borrowed capital is recognized as an expense when it is incurred.

Scheduled depreciation is based predominantly on the following periods of useful life:

in years

Buildings

25 – 50

Property facilities

2 – 15

Technical plant and equipment

2 – 15

Other equipment

2 – 15

Factory and office equipment

2 – 15

Impairment charges of intangible and tangible assets are recorded in accordance with ias 36 if the recoverable amount of the asset is less than its carrying amount. In this context, the recoverable amount is the higher of the net realisable value and the value in use of the asset in question. If the reasons for an impairment recorded in prior years no longer apply, the impairment is reversed.

Government grants

In accordance with ias 20, government grants are recognized only if there is reasonable assurance that the conditions attaching to them will be complied with and that the grants will be received.

Government grants related to assets (for instance investment subsidies and allowances) are deducted from the acquisition or production costs of the relevant asset. Grants related to income are recognized in the income statement.

Finance and operating lease

In connection with finance leases, ownership is attributed to the lessee in cases in which the latter assumes substantially all the risks and rewards incidental to ownership (ias 17). Provided that the ownership is attributable to the kuka Group, such leases are capitalized as at the date of the lease agreement at their fair value or at the lower present value of the minimum lease payments. Depreciation is recognized by the straight-line method over the useful life or over the lease term if it is shorter. The discounted value of payment commitments in connection with the lease payments is recognized as a liability and disclosed under other liabilities.

Finance lease agreements, for which the kuka Group is the lessor and all substantial risks and rewards associated with the ownership are transferred to the lessee, are recognized as a sales and financing transaction for the lessor. A receivable is valued at the amount of the net investment value from the leasing relationship and the interest income is recognized in the income statement.

To the extent that the kuka Group has entered into operating leasing according to ias 17, lease or rent payments are directly recognized as an expense in the income statement and distributed using the straight-line method over the term of the leasing agreement, unless a different systematic basis more closely corresponds with the utilization period. Relevant total future costs are reported in item 11.

Financial instruments

Financial instruments are contracts that simultaneously give rise to a financial asset of one entity and a financial liability of another entity. These include both originated financial assets (for instance, trade receivables or trade payables) as well as derivative financial instruments (transactions to hedge the risk of a change in value).

Derivative financial instruments are financial contracts whose value is derived from the price of an underlying asset (for instance, stocks, bonds, money market instruments or commodities) or a reference rate (such as currencies, indices or interest rates). They require little or no initial investment and are settled at a future date. Examples of derivative financial instruments include options, forward contracts and interest rate swap transactions. The kuka Group uses derivatives nearly exclusively to hedge foreign currency risks.

ias 39 differentiates between the following categories of financial instruments that are relevant for kuka:

Unless otherwise noted, financial instruments are recognized at fair value. The fair value of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transactions.

As a general rule, financial instruments are initially recognized or derecognized when the asset is delivered to or by kuka (settlement date accounting).

Participations in associated companies and other financial investments

In the kuka Group, participations in continuing business units that are not material to the net assets, financial position and results of operations of the Group are reported under financial assets available for sale. They are recognized at costs of purchase. Current market values are not available, since no shares are traded in an active market.

Receivables and other assets

Receivables and other assets are recognized at costs of acquisition with appropriate discounts applied for all identified individual risks. General credit risk, to the extent that it can be documented, is also accounted for by appropriate valuation allowances. For this purpose, these financial assets are grouped in accordance with similar default risk characteristics and are collectively tested for impairment, and written down if necessary. When calculating any such impairment losses, the empirical default history is taken into account in addition to contractually stipulated payment flows.

The carrying amount of the assets is lowered using separate accounts for allowances for impairment losses. Actual defaults result in a write-off of the receivables in question. The maximum theoretically possible default risk corresponds with the carrying amounts. The carrying amounts largely correspond with the market values.

Derivatives with a positive fair value are recognized under other assets.

Cash and cash equivalents

Cash and cash equivalents include all cash funds recognized on the balance sheet, i. e. cash on hand, checks and cash balances with financial institutions, provided that they are available within three months.

Liabilities

Liabilities are recognized on the balance sheet at their depreciated / amortized cost of purchase. Payables arising from finance leases are recognized at the present value of future lease payments.

Long-term liabilities with a term of more than one year are discounted to the balance sheet date on the basis of appropriate interest rates where the interest effect is material.

If the fair value of derivatives is negative, this results in recognition under other liabilities.

Derivatives

In accordance with ias 39, the kuka Group recognizes all derivatives at fair value as of the settlement date. The fair value is determined with the aid of standard financial mathematical techniques, using current market parameters such as exchange rates and counterparty credit ratings (mark-to-market method) or quoted prices. Average prices are used for this calculation.

Accounting for hedging instruments within the restrictive framework of the hedge accounting rules must differentiate between fair value hedges and cash flow hedges.

Fair value hedges are used to hedge the risk of changes in the fair value of contractual obligations under orders received or committed (pending transactions). Changes in the fair value of the underlying transactions and of the associated hedging instruments are recognized directly in the income statement when the transactions expire as well as on each balance sheet date.

Cash flow hedges are used to hedge the risk of changes in the value of future cash flows. Until it is realized, the change in fair value of the hedging instrument is retained in equity as a reserve and is reclassified as gains or losses on the income statement in the same periods in which the underlying transaction affects profit or loss.

ias 39 imposes strict requirements for the use of hedge accounting. kuka complies with these as follows: At the initiation of a hedging transaction, both the relationship between the financial instrument used for hedging and the underlying transaction, and the hedging strategy and objectives are documented. This includes the specific matching of hedging instruments with the corresponding assets / liabilities or (committed) future transactions, as well as an estimate of the degree of effectiveness of the hedging instruments used. The effectiveness of existing hedges is monitored continuously; if a hedging relationship becomes ineffective, the ineffective positions are immediately unwound.

Inventories

According to ias 2, inventories are valued at average cost of acquisition or production. In addition to the direct unit costs, production costs also include appropriate costs for indirect materials and production overheads according to ias 2. Interest on borrowed capital is not capitalized. Write-downs to lower net realizable value have been taken to the extent required. In addition to valuation allowing disposal at no net loss, these writedowns also cover all other inventory risk. If and when the circumstances that previously caused the inventories to be written down no longer exist, the amount of the write-down is reversed.

Construction contracts

Construction contracts that meet the criteria of ias 11 are recognized according to the percentage-of-completion method (poc method). As a rule, the percentage of completion to be recognized by contract is determined by the cost of work to date as a percentage of the estimated total costs (cost-to-cost method). The corresponding earnings from the contract are recognized on the basis of the percentage of completion thus determined. These contracts are presented as receivables respectively liabilities from contracts. To the extent that services performed to date exceed advances received, the contracts are recorded on the balance sheet as receivables arising from contracts. If there is a negative balance after deduction of advances, this is recognized as liabilities from construction contracts. If necessary, provisions are recognized for impending losses.

Current and deferred taxes

Tax receivables and liabilities are assessed using the expected amount of the reimbursement from, i. e. payment to the tax authorities.

According to ias 12, deferred tax assets and liabilities have been recorded for all temporary differences between the carrying value of assets and liabilities on the Group consolidated balance sheet and their recognized value for tax purposes (liability method) as well as for tax loss carry-forwards. Deferred tax assets for accounting and valuation differences as well as for tax loss carry-forwards are only recognized to the extent that there is a sufficiently probable expectation that the corresponding benefit will be realized in the future. Deferred tax assets and liabilities are not discounted. Deferred tax assets are netted against deferred tax liabilities if the tax creditor and periodicity are the same.

Pension provisions and similar obligations

The measurement of pension liabilities and similar obligations is performed according to ias 19. Pensions and similar obligations comprise obligations of the Group to pay benefits under defined benefit plans. The pension obligations are determined according to the so-called projected-unit-credit method. In addition to known pensions and vested benefits as at the balance sheet date, this method also takes expected future increases in salaries and pensions into account. The calculations are based on actuarial reports that must be prepared annually and must be based on biometric data. Service costs are recognized as personnel expense, the interest portion of the addition to provisions as well as the return on the fund assets are recognized as financing activities. Actuarial gains and losses are recognized directly in equity (the so-called “Option 3”).

Other provisions

Other provisions are recognized in the event that there is a current obligation to third parties arising from a past event. It must be possible to estimate the amount reliably and it must, more likely than not, lead to an outflow of future resources. Provisions are only recognized for legal and constructive obligations to third parties.

No provisions were recognized for future expenses, since the latter do not represent an external obligation.

Liabilities in the personnel area, such as vacation pay, flex-time credits and the statutory German early retirement scheme (Altersteilzeit) are recognized under other liabilities.

Liabilities for outstanding vendor invoices are recognized under trade payables.

Long-term provisions with a term of more than one year are discounted to the balance sheet date on the basis of appropriate interest rates where the interest effect is material.

Share-based compensation

The Phantom Share Programs for the Executive Board of the kuka Group are recognized as share-based compensation with a cash settlement. A provision is made for the payment commitment in the amount of the pro-rated fair value as of the respective key date; changes to the fair value are recognized in the income statement.

Revenue recognition

Construction contracts (ias 11) are accounted for by the percentage-of-completion method. Other revenues are recognized in accordance with ias 18. Sales revenues are booked in the period in which the products or goods were delivered or the services were rendered. Any reductions to the proceeds, contract penalties and cash discounts are deducted from this. At this time, the amount of revenues can be reliably measured and the inflow of economic benefits from the transaction is sufficiently probable.

Cost of sales

The cost of sales comprises the cost of production of the goods sold as well as the acquisition cost of any merchandise sold. In addition to the cost of attributable direct materials and labor, this also includes indirect costs, including the depreciation and amortization of production plants and intangible assets as well as any write-downs of inventories. kuka accounts for provisions for product warranties as part of the cost of sales at the time of revenue recognition. Pending losses from contracts are recognized in the reporting period in which the current estimate for total costs arising from the respective contract exceeds the expected contract revenue.

Research and development costs

Research and development costs that are not eligible for recognition as an asset are recognized as expenses when they are incurred.

assumptions and estimates

The preparation of the Group consolidated financial statements requires management to make assumptions and estimates that affect the recognition and amount of assets and liabilities on the balance sheet, revenues and expenses, as well as the disclosure of contingent liabilities. Actual amounts may differ from these assumptions and estimates on a case-by-case basis. In the application of accounting and measurement methods, the company has made the following important discretionary decisions, which have a significant effect on the amounts in the annual financial statements. These do not include those decisions that represent estimates.

Development costs

Development costs are recognized as assets in accordance with the methods described under accounting and measurement methods. For the purpose of determining the amounts to be recognized as assets, management must make assumptions concerning the expected future cash flows from assets, the applicable discount rates and the timing of the inflow of expected future cash flows that the assets will generate.

Goodwill impairments

The Group tests assets recognized as goodwill at least once a year for impairment. This requires an estimate of the value in use less costs of disposal of the respective cash-generating units to which the goodwill has been allocated. To determine the value in use, management must estimate the future cash flows of the respective cash generating units and further select an appropriate discount rate for calculating the present value of these cash flows. For details about the carrying amounts of the assets recognized as goodwill and the performance of the impairment tests please refer to the discussion under item 10.

Deferred tax assets

Deferred tax assets are recognized to the extent that it is probable that taxable income will be available such that the loss carry-forwards can actually be used. The determination of the amount of deferred tax assets requires an estimate on the part of management of the expected timing and amount of anticipated future taxable earnings as well as future tax planning strategies. For details please refer to the discussion under item 6.

Receivables and liabilities from construction contracts

A number of companies, particularly in the Systems segment, conduct a portion of their business in the form of construction contracts, which are recognized using the percentage of completion method. Sales are reported based on the percentage of completion. A precise estimate of the progress toward completion is essential for the accounting process. Depending on the method used to determine the percentage of completion, the most important estimates include the total order costs, the costs yet to be incurred until completion, the total project revenues and risks as well as other assessments. The management team responsible for the respective project continuously monitors all estimates and adapts these as needed.

Pensions and other post-employment benefits

Expenditures under defined-benefit plans and other post-employment medical benefits are determined on the basis of actuarial calculations. The actuarial calculations are prepared on the basis of assumptions with respect to discount rates, expected returns on plan assets, future increases in wages and salaries, mortality rates and future pension increases. In line with the long-term orientation of these plans, such estimates are subject to significant uncertainties.

changes in accounting and measurement policies

kuka Aktiengesellschaft’s consolidated financial statements were not affected by changes in accounting and measurement policies in fiscal 2008.

The new mandatory interpretations effective in 2008 – ifric 12 Service Concession Arrangements and ifric 14 ias 19 The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction – likewise have little or no effect.

ifrs Standards and interpretations that are not yet mandatory

The following new and amended standards and interpretations had been adopted by the preparation date of the Group consolidated financial statements. However, they will only become effective at a later date and were not applied to the present Group consolidated financial statements under early adoption. Their impact on the Group consolidated financial statements of kuka Aktiengesellschaft has not yet been completely analyzed. Consequently, the anticipated effects as described in the footnotes to the table only represent a first estimate.

Standard / Interpretation

Effective date for fiscal years starting on or after

Planned application by kuka ag

ifrs 8 – Operating Segments

January 1, 2009

Fiscal 2009

Amendment to ifrs 2 – Share-based Payment

January 1, 2009

Fiscal 2009

ifrs 3 – Business Combinations (revised)

July 1, 2009

Fiscal 2010 *

ias 1 – Presentation of Financial Statements (revised)

January 1, 2009

Fiscal 2009

ias 23 – Borrowing Costs (revised)

January 1, 2009

Fiscal 2009

ias 27 – Consolidated and Separate Financial Statements according
to ifrs (revised)


July 1, 2009


Fiscal 2010 *

Amendment to ias 32 Financial Instruments:
Presentation and ias 1 Presentation of Financial Statements


January 1, 2009


Fiscal 2009 *

Amendments to ias 39 – Eligible Hedged Items

January 1, 2009

Fiscal 2009 *

Amendments to ifrs (Annual Improvements Process 2007) **

January 1, 2009

Fiscal 2009 *

ifric 11 – ifrs 2 – Group Cash-settled Share-based Payment Transactions

March 1, 2009

Fiscal 2009 *

ifric 13 – Customer Loyalty Programs

July 1, 2009

Fiscal 2009

ifric 15 – Agreements for the Construction of Real Estate

January 1, 2009

Fiscal 2009

ifric 16 – Hedges of a Net Investment in a Foreign Operation

October 1, 2008

Fiscal 2009 *

ifric 17 – Distribution of Non-cash Assets to Owners

July 1, 2009

Fiscal 2010 *

* Pending adoption by the European Union.

** This affects the following standards: ifrs 5, ias 1, ias 16, ias 19, ias 20, ias 23, ias 27, ias 28, ias 29, ias 31, ias 36, ias 38, ias 39, ias 40 and ias 41.

The iasb and the ifric have published the following standards and interpretations that have already been adopted under eu law under the comitology procedure, but for which application was not yet mandatory in the 2008 financial year.

ifrs 8 Operating Segments

ifrs 8 was published in November of 2006 and must be adopted for the first time for financial years starting on or after January 1, 2009. ifrs 8 requires the disclosure of information about the operating segments of an entity and takes the place of the obligation to define primary (business) and secondary (geographic) segment reporting formats for a company. ifrs 8 takes what is termed the management approach, according to which segment reporting is determined solely by the financial information that is used by the decision makers of the entity for the internal control and management of the enterprise. The main parameters for this are the internal reporting and organization structure as well as the financial information that is used to make decisions about the allocation of resources and to assess performance.

The Group has not elected for an early adoption of ifrs 8 and continues to apply ias 14 Segment Reporting. The new standard will have an effect on the nature and format of financial information that is disclosed about the operating segments of the Group, but not on the recognition and measurement of assets and liabilities in the consolidated financial statements.

ias 1 – Presentation of Financial Statements (revised)

The revised Standard ias 1 was published in September of 2007 and must be adopted for the first time for financial years starting on or after January 1, 2009. The new version of the Standard includes significant changes to the presentation and disclosure of financial information in the annual financial statements. The innovations include, in particular, the introduction of comprehensive statement comprising both the net profit / loss generated during a period as well as unrealized gains and losses that have, to date, been recognized directly in equity, and that replaces the income statement in its present form. In addition it will now be necessary to prepare a balance sheet as of the beginning of the comparison period in addition to the balance sheet as of the balance sheet reporting date and the balance sheet as of the prior reporting date, if and when the entity applies accounting and measurement methods retrospectively, corrects an error or reclassifies a line item in the annual financial statements.

The new standard will have an effect on the nature and format of financial information that is disclosed about the Group, but not on the recognition and measurement of assets and liabilities in the consolidated financial statements.

Amendment to the ifrs (Annual Improvements Process 2007)

The annual improvements process acts as a vehicle for the iasb to make non-urgent but necessary amendments to existing standards. The main objective is to eliminate inconsistencies and clarify ambiguous formulations. The first standard consists of two parts and was issued in May 2008. The first part contains amendments that can affect the presentation, the approach, or the valuation. The second part contains amendments to formulations or editorial changes.

At this time the kuka Group does not expect that the application of the revised version – provided it is endorsed by the eu in this form – will have any considerable effect on the presentation of the financial statements.

The following standards and interpretations have already been adopted into eu law, but have little or no effect on kuka ag’s consolidated financial statements: