(2) Accounting principles

Basis

Jungheinrich AG prepared consolidated financial statements for the financial year ending on December 31, 2008, in compliance with International Financial Reporting Standards (IFRS). All standards and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) endorsed by the EU effective as of the cut-off date were taken into account. Regulations under commercial law pursuant to Section 315a of the German Commercial Code (HGB) were complementarily taken into account.

The consolidated financial statements have been prepared in thousands of euros.

The statement of income has been prepared using the cost of sales accounting method.

The consolidated financial statements for the period ended December 31, 2008, were approved for publication by the Board of Management on March 5, 2009.

Consolidation

Subsidiaries that are under the legal or factual control of Jungheinrich Aktiengesellschaft, Hamburg, are included in the consolidated financial statements. Active companies in which Jungheinrich holds a share of 20 to 50 per cent, and on which the Group exerts a significant influence without controlling them, are carried on the balance sheet in accordance with the equity method. Other investments in other companies are carried at their acquisition cost.

Financial statements of Jungheinrich AG as the parent company and of included subsidiaries that are to be consolidated are prepared using uniform accounting and measurement methods as per the cut-off date of the parent company.

The same accounting and measurement methods are applied to determine the prorated shareholders’ equity of companies accounted for using the equity method.

Assets and liabilities of subsidiaries consolidated for the first time are recognized at their fair values at the time of acquisition. In cases where the investment’s acquisition costs exceed the recognized assets and liabilities, the difference on the assets side is capitalized as goodwill. Goodwill is tested for impairment at least once a year. If the fair value of acquired net assets exceeds the acquisition costs, negative goodwill is recognized. In such cases, negative goodwill is immediately recognized in the year of acquisition with an effect on net income.

All receivables and liabilities, all expenses and income as well as intercompany results within the basis of consolidation are eliminated within the framework of the consolidation.

Shares in companies accounted for using the equity method are initially recognized at their acquisition cost. Changes in the investments’ prorated shareholders’ equity following acquisition are offset against the investments’ carrying amount. The Jungheinrich Group’s investments in companies accounted for using the equity method include goodwill arising at the time of their acquisition. Since this goodwill is not stated separately, it does not have to be separately tested for impairment pursuant to IAS 36. Instead, the investment’s entire carrying amount is tested for impairment in accordance with IAS 36 as soon as there are indications of the recoverable amount dropping below the investment’s carrying amount.

Currency translation

Liquid assets, receivables and liabilities in foreign currency in the Group companies’ annual financial statements are translated at the exchange rate valid at the balance sheet date, and any differences resulting from such translation are stated affecting net income.

The annual financial statements of the foreign subsidiary companies included in the consolidated financial statements are translated according to the functional currency concept. This is in each case the local currency if the subsidiary companies are integrated into the currency area of the country in which they are domiciled as commercially independent entities. As regards the companies of the Jungheinrich Group, the functional currency is the local currency.

With the exception of shareholders’ equity, all assets and liabilities in annual financial statements prepared in foreign currencies are translated at the exchange rate valid at the balance sheet date. Shareholders’ equity is translated at historical rates. The statements of income are translated at the annual average exchange rates.

Differences deriving from foreign currency translation in the case of assets and liabilities as compared with the translation of the prior year or as regards shareholders’ equity as against historical rates, as well as translation differences between the statement of income and the balance sheet are stated in shareholders’ equity within the item ‘Accumulated other comprehensive income (loss)’ not affecting net income.

The exchange rates of major currencies for the Jungheinrich Group outside the European Monetary Union changed as follows:

Revenue recognition

Revenue is recognized after deduction of bonuses, discounts or rebates, when the ownership and price risk have been transferred to the customer. In general, this is the case when the delivery has been made or the service has been rendered, the selling price is fixed or determinable, and when the receipt of payment is reasonably certain.

When classifying contracts from financial service transactions as a ‘finance lease,’ revenue is recognized in the amount of the resale value of the leased item and, in the case of an ‘operating lease,’ revenue is recognized in the amount of the leasing rates. If a leasing company acts as an intermediary, for contracts with an agreed residual value guarantee that amounts to more than 10 per cent of the item’s value, the proceeds from the sale are deferred and liquidated over time affecting sales until the residual value guarantee falls due.

Product-related expenses

Expenses for advertising and sales promotion as well as other sales-related expenses affect net income when they are incurred. Freight and dispatch costs are carried under the cost of sales.

Product-related expenses also include additions to provisions for warranty obligations as well as to provisions for onerous contracts.

Research expenses and uncapitalizable development costs are stated affecting net income in the period in which they are incurred.

Earnings per share

Earnings per share are based on the average number of shares outstanding during a fiscal year. In the 2008 and 2007 fiscal years, no shareholders’ equity instruments diluted the earnings per share on the basis of shares issued.

Intangible and tangible assets

Purchased intangible assets are measured at acquisition costs and reduced by straight-line amortization over their useful lives of 3 to 8 years insofar as their useful lives are limited.

Development costs are capitalized as manufacturing costs if the manufacture of the developed products is expected to result in an economic benefit for the Jungheinrich Group and is technically feasible and if the costs can be determined reliably. Manufacturing costs comprise all costs directly allocable to the development process, including development-related overheads. From the beginning of production onwards, capitalized development costs are amortized using the straight-line method over the series production’s expected duration, which is normally between 4 and 7 years.

Goodwill from consolidation is capitalized and allocated to intangible assets. Goodwill stemming from the acquisition of companies accounted for using the equity method is included in the carrying amount of investments in companies accounted for using the equity method.

Tangible assets are measured at historical acquisition or manufacturing costs, less accumulated depreciation. The manufacturing costs for self-produced equipment contain not only the direct material and manufacturing expenses, but also attributable material and production overheads as well as production-related administrative expenses and depreciation. Borrowing costs are not capitalized. Maintenance and repair expenses are stated as costs. All costs for measures that lead to an extension of the useful life or a widening of the future possibilities for use of the assets are capitalized. Depreciable objects are reduced by scheduled straight-line depreciation. If objects are sold or scrapped, tangible and intangible assets are retired; any resulting profits or losses are taken into account affecting net income.

The following useful lives are taken as a basis for scheduled depreciation:

Intangible and tangible assets with undeterminable or unlimited useful lives are not reduced using scheduled depreciation or amortization.

Trucks for short-term hire

Jungheinrich hires trucks to customers on the basis of short-term agreements without underlying lease transactions. These trucks for short-term hire are measured at historical acquisition or manufacturing costs, less accumulated depreciation. Depending on the product group, they are depreciated at 30 or 20 per cent over the first two years, after which they are reduced using the straight-line method until the end of their useful lives. Their economic useful lives are set at 6 and 9 years, respectively.

Valuation allowances for intangible assets, tangible assets and trucks for short-term hire

All intangible assets, tangible assets and trucks for short-term hire are tested for impairment at least once a year or whenever there is an indication of a potential reduction in value. In such cases, the recoverable amount of the asset is compared with its residual carrying amount. The recoverable amount is the higher of the fair value of the asset less selling costs and the useful value, which is the estimated discounted cash flow. If the residual carrying amount exceeds the recoverable amount of the asset, an impairment is performed.

If the reason for an impairment carried out in previous years no longer exists, a write-up to amortized acquisition or manufacturing costs is performed. Impairment losses recorded for goodwill are not recovered in subsequent reporting periods.

Leasing

Within the framework of their financial services business, Jungheinrich Group companies conclude contracts with customers either directly or with a leasing company acting as an intermediary.

The classification of the leasing transactions, and thus the way they are reported in the accounts, depends on the attribution of the economic ownership of the lease object. In the case of ‘finance lease’ contracts, the economic ownership lies with the lessee. At the Jungheinrich Group companies, as the lessor, this leads to a statement of leasing rates due in the future as receivables from financial services in the amount of their net investment value. Interest income realized in instalments over the term to maturity ensure that a stable return on outstanding net investments is achieved.

If economic ownership is attributed to Jungheinrich as the lessor, the agreement is classified as an ‘operating lease,’ so that the trucks are capitalized as ‘trucks for lease from financial services’ at acquisition or manufacturing costs. Financed trucks for lease using the sale and leaseback method are depreciated over the period of the underlying lease agreements. In all other cases, depending on the product group, trucks for lease are depreciated at 30 or 20 per cent over the first two years, after which they are reduced using the straight-line method until the end of their useful lives. The economic useful life of leased equipment was estimated anew taking the latest findings regarding the development of the fair value of certain product groups into account and established at 6 or 9 years. Lease income is recorded with an effect on net income over the period of the contracts using the straight-line method.

These long-term customer contracts (‘finance and operating leases’) are financed by loans with maturities identical to those of the contracts. They are stated on the liabilities side under liabilities from financing in the item ‘liabilities from financial services.’ Besides truck-related loan financing, proceeds from the sale of future leasing rates from intragroup usage right agreements in the Jungheinrich Group are deferred as liabilities from financing and dissolved over the period of the usage right using the effective interest method. In addition, trucks for lease are also financed using the sale and leaseback method. Resulting gains from sales are deferred correspondingly and distributed over the period of the lease agreement with an effect on net income.

In the case of customer contracts with a leasing company acting as intermediary, the economic ownership lies with Jungheinrich Group companies due to the agreed residual value guarantee that accounts for more than 10 per cent of the value of the truck, so that according to IFRS, these trucks, which are sold to leasing companies, must be capitalized as ‘trucks for lease from financial services.’ When they are capitalized, sales proceeds are recorded as ‘deferred sales from financial services’ under deferred income on the liabilities side. Trucks for lease are depreciated over the term of the underlying leases between the leasing companies and the end customer. Deferred sales proceeds are dissolved using the straight-line method with an effect on sales until the residual value guarantee expires. Obligations from residual value guarantees are stated under the item ‘Liabilities from financial services.’

Outside of their financial services business, acting as lessee, Jungheinrich Group companies lease tangible assets as well as customer trucks for short-term hire. In the event of a ‘finance lease,’ on conclusion of the contract, they capitalize the items as tangible assets or trucks for short-term hire and state leasing liabilities in the same amount as the cash value of the leasing rates. Leasing liabilities are carried in the item ‘Financial liabilities.’ Depreciation of tangible assets and trucks for short-term hire as well as the reversal of liabilities are effected over the basic period for which the contract is agreed. In the event of an ‘operating lease,’ rental and leasing rates paid by Jungheinrich are recorded as an expense over the contractual period using the straight-line method.

Financial instruments

In accordance with IAS 32 and IAS 39, financial instruments are defined as contracts that lead to financial assets in one company and financial liabilities or equity instruments in the other.

Pursuant to IAS 39, financial instruments are classified in the four following categories:

Jungheinrich accounts for loans, receivables and liabilities at amortized acquisition costs. Financial instruments carried at amortized acquisition costs are primarily non-derivative financial instruments such as trade accounts receivable and payable, receivables and liabilities from financial services, other receivables and financial assets as well as liabilities, financial liabilities and investments in affiliated companies and companies accounted for using the equity method.

Securities classified as ‘held-to-maturity financial investments’ are accounted for at the lower of amortized acquisition costs using the effective interest method and fair value.

Financial instruments classified as ‘financial assets or liabilities at fair value through profit or loss’ and held for trading are measured at fair value. These include derivative financial instruments. If the value of an active market cannot be determined, the fair value is calculated using valuation methods, for example by discounting future cash flows with the market interest rate, or by applying generally accepted option price models verified by confirmations from the bank processing the transactions.

Receivables

Receivables are measured at amortized acquisition cost using the effective interest method.

Amortized acquisition costs for trade accounts receivable correspond to the nominal value after the deduction of bonuses, discounts and individual valuation allowances. Individual valuation allowances are only made if receivables are wholly or partially uncollectible or likely to be uncollectible, in which case it must be possible to determine the amount of the valuation allowances with sufficient accuracy.

The notes on the treatment of lease agreements contain further information on receivables from financial services.

Liabilities

Liabilities are measured at amortized acquisition cost using the effective interest method, whereby the interest cost is recognized according to the effective interest rate.

Liabilities from finance leases and financial services are measured at the cash value of the leasing rates. Please turn to the notes for the treatment of lease arrangements for further details.

Investments in affiliated companies and companies accounted for using the equity method

Investments in affiliated companies stated under financial assets are accounted for at acquisition cost, since they do not have listed market prices and their fair value cannot be reliably determined. Investments in companies recognized at equity, are accounted for using the equity method.

Securities

Financial investments classified as securities are measured at amortized acquisition costs due to the intention and capability of holding them to maturity. Differences between the original amount and the amount repayable at maturity are distributed over their terms and recognized in the financial income (loss). Furthermore, Jungheinrich holds securities that are not disposable in order to secure its obligations under the partial retirement plan. Gains and losses from the measurement of these securities stated at fair value are recognized with an effect on earnings.

Derivative financial instruments

At Jungheinrich, derivative financial instruments are used for hedging purposes.

IAS 39 requires all derivative financial instruments to be accounted for at fair value as assets or liabilities. Depending on whether the derivative is a fair value hedge or a cash flow hedge, any change in the fair value of the derivative is taken into account in the result or in the shareholders’ equity (as part of the ‘accumulated other comprehensive income (loss)’). In the case of a fair value hedge, the results from changes in the fair value of derivative financial instruments are stated affecting net income. The changes in the fair value of derivatives that are to be classified as cash flow hedges are carried on the balance sheet under shareholders’ equity in the amount of the hedge-effective part not affecting net income. These amounts are transferred to the statement of income at the same time as the effect on the result of the underlying transaction. The hedge-ineffective part is directly taken into account in the result.

Derivative financial instruments not meeting hedge accounting criteria are stated at their fair value and recognized as other current assets or other liabilities. Gains and losses from these derivative financial instruments resulting from fair valuation are directly recognized in the result.

Liquid assets

Liquid assets are cash balances, checks, and immediately available credit balances at banks with an original term of up to three months.

Inventories

Inventories are measured at acquisition cost or manufacturing cost or at lower net realizable value (‘Lower of cost and net realizable value’). Manufacturing costs include not only the direct material and manufacturing expenses, but also the attributable material and production overhead costs as well as production-related administrative expenses and depreciation. Borrowing costs are not capitalized. The average cost method is applied to calculate the acquisition or manufacturing costs of inventories of the same type.

Usage risks resulting from storage time are taken into account by way of value reductions on the basis of historical usage. Once the reason for the write-down ceases to exist, a reversal of the write-down is carried out.

Deferred taxes

Deferred tax assets and liabilities are stated in accordance with the balance sheet-oriented liability method for all temporary differences between group and tax-based valuation. This procedure is applied for all assets and liabilities with the exception of goodwill from the consolidation of investments. In addition, deferred tax assets are stated on the balance sheet to carry forward unused tax losses and unused tax credits if it is probable that they will be utilizable. Deferred taxes are valued at the current rates of taxation. If it is to be expected that the differences will be offset in years with different rates of taxation, then the latter rates valid at that time are applied. In case there are any changes in the tax rates, these changes will be taken into account in the years in which the relevant changes in tax rates are approved.

The carrying amounts of deferred tax assets are reduced if it is unlikely or cannot be expected that they can be recovered due to the respective company’s long-term earnings forecasts.

Accumulated other comprehensive income (loss)

Stated in this item are changes in the shareholders’ equity not affecting net income insofar as these are not based on capital transactions with shareholders. These include the currency translation adjustment and differences from the valuation of derivative financial instruments.

Provisions

Provisions for pensions and similar obligations are valued on the basis of actuarial calculations in accordance with IAS 19 by applying the projected unit credit method for defined benefit obligations from pensions. This method takes into account pensions and vested future benefits known as of the balance sheet date, expected increases in salaries and pensions as well as biometric accounting principles. Pension obligations and similar obligations of some foreign companies are covered by pension funds. These pension funds are qualifying plan assets pursuant to IAS 19.

Actuarial gains and losses are offset with an effect on net income only once they exceed a corridor of 10 per cent of the higher of the obligation and fair value of the plan assets. In such cases, they are amortized over the respective employees’ average expected remaining working lives.

All of the pension expense components arising from additions of amounts to provisions for pensions and similar obligations are included in the personnel expenses of the corresponding functional areas.

Furthermore, provisions have been accrued for claims of employees which fall due according to national regulations after the employees in question leave the company as well as for other short or long-term employee benefits. Obligations are accounted for in compliance with IAS 19.

Other provisions are accrued in accordance with IAS 37 if a past event results in a present obligation to third parties, it is probable that resources will be used to meet this obligation, and the anticipated amount of the required provision can be estimated reliably. Other provisions are accounted for based on the best possible estimate of costs required to meet the present obligation as of the balance sheet date. If the amount of the necessary provision can only be determined within a certain bandwidth, the most probable value is stated, and if all amounts are of equal probability, the mean value is stated.

Non-current provisions are discounted and stated at the cash value of the expected expense. Provisions are not offset against claims under rights of recourse.

Classification of accounts

Current and non-current assets as well as current and non-current liabilities are stated on the balance sheet as separate classification groups. Assets and liabilities are classified as being current if their realization or repayment is expected within 12 months from the balance sheet date. Accordingly, assets and liabilities are classified as being non-current if they have a remaining term to maturity of more than one year. Pension obligations are stated in line with their nature under non-current liabilities as benefits due to employees in the long term. Deferred tax assets and liabilities are classified as non-current assets and non-current liabilities.

Individual items in the statement of income as well as on the balance sheet are summarized. They are shown separately in the notes.

Estimates

In the consolidated financial statements, to a certain degree, it is necessary to make estimates and assumptions that have an impact on the assets and liabilities included in the balance sheet at the balance sheet date and on the statements of income and expenses during the reporting period. Estimates and assumptions must be made primarily to determine the economic useful lives of tangible assets and trucks for short-term hire and lease uniformly throughout the Group, to conduct impairment tests on assets, and to account for and measure provisions, including those for pensions, risks associated with residual value guarantees, warranty obligations and lawsuits. Estimates and assumptions are made on the basis of premises based on the latest knowledge available and on historical experience as well as on additional factors such as future expectations.

It is possible for the actual amounts to deviate from the estimates. When the actual course of events deviates from the expectations, the premises, and if necessary, the carrying amounts of the affected assets and liabilities are adjusted accordingly.

The global financial crisis began to affect the world economy in the 2008 reporting period, accelerating the economic downturn witnessed the world over in the second half of 2008, which led to a recession in a number of regions. This was the reason the material handling equipment industry lost momentum, experiencing a massive year-on-year collapse in the fourth quarter of 2008.

As evidenced once again by the first two months of 2009, the size of the material handling equipment, warehousing and material flow technology markets of relevance to Jungheinrich can be expected to be much smaller overall in fiscal 2009 compared with the year under review. The unusually weak economic development will also have an impact on the short-term hire and used equipment business, albeit to a slightly lesser extent. However, the high proportion of services from a single source with fairly stable shares of sales is the Jungheinrich business model’s special strength, which the company demonstrates especially in recessionary phases.

When material assets of the Jungheinrich Group were tested for impairment against the backdrop of a planned withdrawal from service with a corresponding marketing risk in 2009, an impairment loss was recognized for the residual carrying amounts of the short-term hire fleet capitalized as of December 31, 2008. Furthermore, an impairment loss was recognized for material non-current assets in countries with extremely poor market environments at present.

Unforeseen developments may cause the actual business trend to deviate from expectations, which are based on assumptions and estimates made by Jungheinrich company management. It is impossible to make a reliable prognosis of the economic development beyond the 2009 financial year.

Estimates of future costs for lawsuits and warranty obligations are subject to a number of uncertainties.

It is often impossible to predict the outcome of individual lawsuits with certainty. It cannot be ruled out that, due to the final ruling on some of the outstanding lawsuits, Jungheinrich may be faced with costs that exceed the provisions accrued for this purpose, the timing and extent of which cannot be predicted with certainty.

Warranty obligations are subject to uncertainties surrounding the enactment of new laws and regulations, the number of affected trucks and the nature of measures to be initiated. It cannot be ruled out that the expenses actually incurred for these measures may exceed the provisions accrued for them to an unpredictable extent.

Although the expenses resulting from a necessary adjustment in provisions in the period under review can have a significant impact on Jungheinrich’s results, it is expected that—including provisions already accrued for this purpose—potentially ensuing obligations will not have a material effect on the Group’s economic situation.

New accounting regulations endorsed by the EU

The IASB issued the amendment standard (Improvements to IFRSs) in May 2008. In addition to amendments of rather terminological and editorial nature, this standard contains numerous changes to existing IFRS standards. These amendments largely become effective for fiscal years starting on January 1, 2009, or thereafter. Jungheinrich does not expect the application of the revised standards to have a material effect on the consolidated financial statements.

New accounting regulations not yet endorsed by the EU

In January 2008, the IASB published the revised standards IFRS 3 (Business Combinations) and IAS 27 (Consolidated and Separate Financial Statements).

The new policies included in IFRS 3 primarily relate to the measurement of minority interests, the recognition of future company acquisitions and the treatment of conditional purchase price components as well as ancillary purchasing costs. According to the new rules, minority interests can be measured at fair value (full goodwill method) or at the fair value of identifiable prorated net assets. Successive company acquisitions are remeasured at the fair value of the shares held at the time of the change of control with an effect on net income. In the future, adjustments to conditional purchase price components stated as liabilities at the time of the acquisition will be recognized with an effect on net income. Ancillary purchasing costs are recognized as an expense when they are accrued.

Material amendments to IAS 27 relate to the accounting treatment of transactions where a company retains or loses control. Transactions that do not result in a loss of control are recognized in equity without an effect on profit or loss. Remaining shares are measured at fair value at the time of the loss of control.

These two revised standards become effective for fiscal years starting on July 1, 2009, or thereafter. Jungheinrich does not expect the application of these revised standards to have a material impact on the consolidated financial statements.

The IASB issued the IFRIC 16 (Hedges of a Net Investment in a Foreign Operation) interpretation in July 2008. This interpretation supplements the IAS 39 (Financial Instruments) standard, which only contains guidelines for accounting for hedges, with concrete pointers on how to proceed when hedging net investments. The application of IFRIC 16 becomes effective for the first time for financial years starting on October 1, 2008, or thereafter. At present, Jungheinrich cannot identify any cases of application that would result in a change in the Group’s existing hedging strategy.

Basis of consolidation

The parent company Jungheinrich Aktiengesellschaft, Hamburg, and all its subsidiaries are included in the consolidated financial statements. The basis of consolidation was enlarged over the previous year and now encompasses 43 (prior year: 43) foreign and 13 (prior year: 12) domestic companies. Three companies have been stated on the balance sheet in accordance with the equity method.

The full list of Jungheinrich Aktiengesellschaft’s shareholdings is disclosed separately.

Changes in the basis of consolidation

In the second quarter of 2008, Jungheinrich Landsberg AG & Co. KG, Landsberg, was established in Germany for the production of battery-powered low-platform trucks.

Jungheinrich Fleet Services S.L. and Jungheinrich Rental S.L., Abrera/Barcelona (Spain), were founded in the third quarter of 2008 to expand the Spanish financial services business.

The first-time consolidation of all newly established companies did not result in any differences.

After the sale of the shares in Boss Manufacturing Ltd., Leighton Buzzard (UK), to Jungheinrich UK Holdings Ltd., Milton Keynes (UK), in the third quarter of 2008, Boss UK Holding Company Ltd., Leighton Buzzard (UK), which acted as a holding company until then and is currently in liquidation, was removed from the basis of consolidation as of September 30, 2008. The €2,308 thousand in currency translation adjustment items of the removed company recognized without an effect on net income until then were recognized with an effect on expenses as part of the Group’s other operating expenses within the scope of the deconsolidation.

Following the intragroup sale of the shares in Jungheinrich Finance S.A.S. to Jungheinrich Financial Services S.A.S., both Vélizy-Villacoublay (France), in the fourth quarter of 2008, Jungheinrich Finance S.A.S. was folded into the parent company Jungheinrich Financial Services S.A.S., Vélizy-Villacoublay (France), as of December 31, 2008.

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