Annual Report 2016
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IV. BALANCE SHEET DISCLOSURES

1
Intangible assets
STATEMENT OF CHANGES IN INTANGIBLE ASSETS
(€ thousands) Concessions, industrial property and similar rights and assets, as well as licences in such rights and assets Goodwill Advance payments Intangible assets Total
Historical cost 2016 2015 2016 2015 2016 2015 2016 2015
Balance at 1 January 61,708 58,279 103,910 103,019 8,550 8,543 174,168 169,841
Changes in consolidated Group 2 135 – 122 137 – 122
Currency translation adjustments 700 – 717 482 525 1,182 – 192
Other 6,502 – 15 -338 – 11 6,164 – 26
Additions 2,519 2,785 7,520 5,527 10,039 8,312
Addition from business combination 40 499 539
Disposals 726 584 14 3,600 740 4,184
Reclassifications 1,061 1,920 – 275 – 1,920 786
Reclassification to assets held for sale – 599 – 599
Balance at 31 December 71,167 61,708 104,189 103,910 15,781 8,550 191,137 174,168
               
Accumulated depreciation and amortisation 2016 2015 2016 2015 2016 2015 2016 2015
Balance at 1 January 51,032 48,161 21,061 10,239 72,093 58,400
Currency translation adjustments 605 – 438 46 – 14 651 – 452
Other 2,089 – 8 – 338 – 10 1,751 – 18
Additions 4,447 3,838 6,478 10,846 10,925 14,684
Disposals 650 521 650 521
Reclassifications
Reclassification to assets held for sale – 229 – 229
Balance at 31 December 57,294 51,032 27,247 21,061 84,541 72,093
Carrying amount at 31 December 13,873 10,676 76,942 82,849 15,781 8,550 106,596 102,075

The additions to intangible assets amounting to € 10.0 million (previous year: € 8.3 million) primarily concerned, as in the previous year, advance payments and own work capitalised for a new software to be deployed in Sales.

As in the previous year, we did not capitalise any development costs in the financial year because not all of the comprehensive recognition criteria defined in IAS 38 were met. The “Concessions, industrial property and similar rights and assets, as well as licences in such rights and assets” item as in the previous year includes € 9.3 million of software including software licences valid for a limited period. As in the previous year, there are no restrictions on ownership or use.

The carrying amounts of the cash-generating units in connection with the impairment testing of goodwill do not contain any items relating to taxes or financing activities.

To determine the discount rate, the weighted average cost of capital (WACC) method is applied in conjunction with the capital asset pricing model (CAPM), taking into account a peer group. Under this method, first the cost of equity is determined using CAPM and the borrowing costs are defined, and then the individual capital components are weighted in accordance with the capital structure taking account of the peer group. The interest rate for risk-free 30-year Bunds was used as a base rate. This rate was 0.5 % in the year under review (previous year: 1.5 %). The market risk premium was set at 5.75 %, which was unchanged on the previous year, with a beta factor of 1.06 (previous year: 1.03). In addition, country-specific tax rates and country risk premiums are taken into account individually for each cash-generating unit (CGU). As in the previous year, we applied growth rates of between 0.75 % and 1.25 %.

DISCOUNT RATES
Before taxes in % (value in use) 2016 2015
Companies in Germany 8.5 – 8.6 9.6 – 9.8
Companies in the Netherlands 8.1 9.3
Companies in Italy 13.3 – 13.5 13.7 – 14.3
Companies in the USA 9.1 10.4
Companies in South Africa 12.8 13.8
Companies in the rest of Europe 8.3 – 14.5 8.9 – 15.4
     
After taxes in % (fair value less costs to sell) 2016 2015
Companies in South Korea 7.3 8.3
GOODWILL
Name of CGU / (€ thousands) 31 Dec. 2016 31 Dec. 2015
KSB Seil Co., Ltd., South Korea 27,432 27,188
DP industries B.V., the Netherlands 18,285 18,285
Société de travaux et Ingénierie Industrielle (ST II), France 5,689 5,689
REEL s.r.l., Italy 5,526
Dynamik-Pumpen GmbH, Germany 3,150 3,150
Uder Elektromechanik GmbH, Germany 2,980 2,980
KSB Finland Oy, Finland 2,603 2,468
KSB Pumps (S.A.) (Pty) Ltd., South Africa 2,059 1,755
KSB SERVICE ETC S.A.S., France 1,412 1,412
63,610 68,453
Other 16 (previous year: 17) companies 13,332 14,396
Total 76,942 82,849

The impairment test performed annually resulted in goodwill impairments for the cash-generating units listed below:

IMPAIRMENT LOSS ON GOODWILL
Name of CGU Segment Discount factor Recoverable amount (€ thousands) Impairment loss (€ thousands)
REEL s.r.l., Italy Pumps 13.5 % 2,412 5,526
KSB, Inc. – Western Division, USA Service 9.1 % 952
Total 31 Dec. 2016 6,478
REEL s.r.l., Italy Pumps 13.9 % 8,367 4,155
KSB SERVICE MEDIATEC S.A.S., France Service 13.4 % 1,058 3,179
KSB Service Centre-Est S.A.S., France Service 11.7 % 1,425 2,609
KSB Service Est S.A.S., France Service 12.1 % 2,546 903
Total 31 Dec. 2015 10,846

The recognised impairments were due to continuing economic difficulties and were reported in the income statement under the “Impairment losses on intangible assets and property, plant and equipment” item.

DETAILED INFORMATION ON KEY GOODWILL ITEMS
Cash-generating unit Method Carrying amount of goodwill (€ million) Percentage of total goodwill Discount rate Growth rate Underlying assumptions, corporate planning Method for assessing the value of the underlying assumption
KSB Seil Co., Ltd. Fair value less costs to sell (costs to sell of € 250 thousand) 27.4 36 % 7.3 % after taxes 1.00
  • Improvement in long-term business cycle expectations in shipbuilding (liquefied gas tankers) resulting in tangible improvement in market growth rates
  • Little change in exchange rates
Consideration of macro-­economic key data and external market research
DP industries B.V. Value in use 18.3 24 % 8.1 % before taxes 1.25
  • Greater customer focus
  • Low to significant market growth rates
Consideration of macro-­economic key data and internal estimates of the relevant purchasing and sales departments

For the annual impairment test, the following assumptions on order intake figures, sales revenue and operating result are made for goodwill considered material:

Cash-generating unit Order intake Sales revenue EBIT Planning time horizon
KSB Seil Co., Ltd. Strong growth, on average Significant growth, on average Strong growth, on average, as a result of sales revenue and cost planning 7 years
DP industries B.V. Significant growth, on average Significant growth, on average Moderate growth, on average, as a result of sales revenue and cost planning 5 years

The business performance of KSB Seil Co., Ltd. is closely linked to the economic development of the long-cycle shipbuilding industry. This is also documented in the market development studies from external sources we used, which contain forecasts for the next seven years. Correspondingly, we have selected a monitoring period of seven years instead of our commonly used five-year period for impairment testing of this cash-generating unit.

For the purposes of calculating the fair value less costs to sell of the South Korean KSB Seil Co., Ltd., the input factors used for the discounted cash flow method are largely based on observable market data (base interest rate) or freely accessible information (for example sovereign risk classification, tax rates, procurement prices, sales prices, market studies).

As well as impairment testing, sensitivity analyses are conducted for each cash-generating unit. A 5 % increase in the relevant discount rate or a 0.25 percentage point fall in the growth rate would not necessitate any further write-downs. Moreover, the sensitivity analysis regarding the impact of a 10 % fall in sales revenue, with a corresponding reduction in EBIT, would also not necessitate any further write-downs.

As in the previous year, we did not recognise any impairment losses on other intangible assets in the reporting year.

2
Property, plant and equipment
STATEMENT OF CHANGES IN PROPERTY, PLANT AND EQUIPMENT
(€ thousands) Land and buildings Plant and machinery Other equipment, operating and office equipment Advance payments and assets under construction Total Property, plant and equipment
Historical cost 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Balance at 1 January 344,473 332,531 551,208 528,014 212,750 205,681 53,791 34,359 1,162,222 1,100,585
Changes in consolidated Group 10 – 104 12 – 70 102 – 35 124 – 209
Currency translation adjustments 5,482 815 6,873 3,601 2,878 – 163 92 2,523 15,325 6,776
Other 6 60 – 8 – 20 – 2 40
Additions 10,888 7,717 21,113 19,939 16,599 19,170 23,554 27,669 72,154 74,495
Addition from business combination 134 78 212
Disposals 529 12 12,165 5,242 17,789 13,519 156 41 30,639 18,814
Reclassifications 19,651 3,514 23,921 5,496 1,874 1,709 – 46,232 – 10,719 – 786
Reclassification to assets held for sale – 7,906 – 122 – 7,358 – 668 – 1,203 – 73 – 16,467 – 863
Balance at 31 December 372,075 344,473 583,604 551,208 215,203 212,750 31,049 53,791 1,201,931 1,162,222
                   
Accumulated depreciation and amortisation 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Balance at 1 January 146,566 136,542 372,554 345,201 149,271 143,034 668,391 624,777
Currency translation adjustments 801 1,571 4,266 2,876 2,286 – 454 7,353 3,993
Other 2 20 – 40 – 13 – 38 7
Additions 8,832 8,542 34,178 30,298 18,657 19,321 61,667 58,161
Disposals 273 11,201 4,831 16,600 13,035 28,074 17,866
Reclassifications – 479 479
Reclassification to assets held for sale – 2,907 – 89 – 5,131 – 531 – 936 – 61 – 8,974 – 681
Balance at 31 December 153,019 146,566 394,668 372,554 152,638 149,271 700,325 668,391
Carrying amount at
31 December
219,056 197,907 188,936 178,654 62,565 63,479 31,049 53,791 501,606 493,831

Assets resulting from finance leases are recognised as fixed assets in accordance with IAS 17, and corresponding financial liabilities are recognised. The carrying amount of these capitalised assets amounts to € 2,022 thousand (previous year: € 2,277 thousand), of which € 918 thousand (previous year: € 1,260 thousand) relate to land and buildings, € 123 thousand (previous year: € 113 thousand) to plant and machinery and € 981 thousand (previous year: € 904 thousand) to other equipment, operating and office equipment.

We decided during the financial year to sell the Chinese company KSB Shanghai Precision Casting Co., Ltd., Shanghai (Pumps segment). We also divested the valves business of the US company KSB AMRI, Inc., Houston, in late January 2017. Additionally, we are selling real estate owned by our Australian company, which is assigned to the Pumps segment. Following these decisions taken for strategic reasons, the related assets and liabilities will be classified as being held for sale pursuant to IFRS 5. No write-down needed to be carried out on the disposal group as the fair value less costs to sell was not below the carrying amount. Also, no accumulated income and expenses arising in connection with the disposal group are included in other comprehensive income.

The held-for-sale assets and liabilities are classified as follows:

KSB Australia Pty Ltd., Bundamba QLD, Australia KSB AMRI, Inc., Houston, USA KSB Shanghai Precision Casting Co., Ltd., Shanghai, China
(€ thousands) 31 Dec. 2016 31 Dec. 2016 31 Dec. 2016
Intangible assets 371
Property, plant and equipment 1,467 967 5,058
Inventories 2,891 1,631
Receivables and other current assets 1,430 548
Cash and cash equivalents 4 2
Assets held for sale 1,467 5,292 7,610
KSB Australia Pty Lth., Bundamba QLD, Australia KSB AMRI, Inc.,
Houston, USA
KSB Shanghai Precision Casting Co., Ltd., Shanghai, China
(€ thousands) 31 Dec. 2016 31 Dec. 2016 31 Dec. 2016
Provisions – 216
Liabilities – 152 – 662
Liabilities held for sale – 368 – 662

Disposals of intangible assets and items of property, plant and equipment resulted in book gains of € 1,478 thousand (previous year: € 2,769 thousand) and book losses of € 1,270 thousand (previous year: € 3,258 thousand). The book gains and losses are reported in the income statement under other income and other expenses.

We recognised impairment losses of € 3,757 thousand (previous year: none) on property, plant and equipment, as we do not expect sufficient future and sustained cash inflows from these assets against the background of the consistently difficult economic situation in the energy sector.

3
Non-current financial assets
(€ thousands) 31 Dec. 2016 31 Dec. 2015
Other investments 5,401 5,074
Non-current financial instruments 667 668
Loans 2,458 2,219
8,526 7,961

Other investments are investments in non-consolidated affiliates that were not consolidated due to there being no material impact. As in the previous year, none of the loans are loans to equity investments.

4
Investments accounted for using the equity method

The following table lists the KSB Group’s material joint ventures. “Seat” refers to the country in which the main activity is performed. All joint ventures and associates are accounted for using the equity method and can also be found in the list of shareholdings in these Notes to the Consolidated Financial Statements. The share of capital corresponds to the share of voting rights.

MATERIAL JOINT VENTURES
Name and seat Capital share Nature of the entity’s relationship
KSB Pumps Arabia Ltd.,
Saudi Arabia
50.00 % KSB Pumps Arabia Ltd. in Riyadh, Saudi Arabia, offers a wide range of services and activities for the energy market as well as in water, waste water and building services applications. The portfolio includes business development and marketing, supply chain management, production of pressure booster systems and pump sets, sale of pumps, valves and systems and technical service activities. KSB Pumps Arabia Ltd. is important for the growth of the Group in the Saudi Arabian market.
Shanghai Electric-KSB Nuclear Pumps and Valves Co., Ltd., China 45.00 % Shanghai Electric-KSB Nuclear Pumps and Valves Co., Ltd. in Shanghai, China, produces suitable auxiliary pumps for the secondary coolant circuits and modern reactor coolant pumps for the primary cooling circuits of nuclear power stations. Shanghai Electric-KSB Nuclear Pumps and Valves Co., Ltd. is a strategic partnership on the part of the Group, through which KSB is participating in the expansion of energy capacity in China and other Asian markets.

Neither of the above two joint ventures is listed on a stock market and there is therefore no available active market value.

Summarised financial information on these material joint ventures of the KSB Group is provided below.

SUMMARISED BALANCE SHEET
KSB Pumps Arabia Ltd. Shanghai Electric-KSB Nuclear Pumps and Valves Co., Ltd.
(€ thousands) 31 Dec. 2016 31 Dec. 2015 31 Dec. 2016 31 Dec. 2015
Non-current assets 4,051 3,687 90,404 96,312
Current assets 43,248 38,835 86,062 74,975
of which cash and cash equivalents 5,093 1,149 7,569 6,771
Non-current liabilities – 7,583 – 1,976 – 39,238 – 11,451
of which non-current financial ­liabilities
(excluding trade payables and provisions)
– 6,336 – 942
Current liabilities – 20,779 – 20,185 – 107,448 – 121,574
of which current financial liabilities
(excluding trade payables and provisions)
– 3,650 – 4,439 – 40,649 – 18,867
Net assets 18,937 20,361 29,780 38,262
SUMMARISED STATEMENT OF COMPREHENSIVE INCOME
KSB Pumps Arabia Ltd. Shanghai Electric-KSB Nuclear Pumps and Valves Co., Ltd.
(€ thousands) 2016 2015 2016 2015
Sales revenue 38,387 45,896 29,841 51,856
Depreciation / amortisation 290 299 3,758 3,145
Interest income 1 18 15
Interest expense – 418 – 159 – 2,833 – 3,084
Earnings from continuing operations 3,074 7,967 – 6,164 238
Taxes on income – 1,109 – 575 – 934 – 1,513
Earnings after taxes from ­continuing operations 1,965 7,392 – 7,098 – 1,276
Earnings after taxes from discontinued operations
Other comprehensive income 549 1,760 – 1,384 2,507
Comprehensive income 2,514 9,152 – 8,482 1,231
Dividends received from joint ­ventures 1,969 1,203
RECONCILIATION TO CARRYING AMOUNT OF GROUP SHARE IN JOINT VENTURES
KSB Pumps Arabia Ltd. Shanghai Electric-KSB Nuclear Pumps and Valves Co., Ltd.
(€ thousands) 2016 2015 2016 2015
Net carrying amount at 1 January 20,361 13,615 38,262 37,031
Earnings after income taxes 1,965 7,392 – 7,098 – 1,276
Distribution of dividends – 3,937 – 2,406
Other comprehensive income 549 1,760 – 1,384 2,507
Net carrying amount at 31 December 18,938 20,361 29,780 38,262
Investment in joint venture (50 % / 45 %) 9,469 10,181 13,401 17,218
Elimination of intercompany profit and loss – 3,058 – 2,420
Goodwill
Carrying amount at 31 December 9,469 10,181 10,343 14,798
SUMMARISED INFORMATION ON JOINT VENTURES THAT ARE IMMATERIAL INDIVIDUALLY
(€ thousands) Joint ventures 2016 Associates 2016 Total
2016
Joint ventures 2015 Associates 2015 Total
2015
Group share of earnings from continuing operations 266 524 790 679 525 1,204
Group share of other comprehensive income 107 107 305 305
Group share of comprehensive income 383 524 907 984 525 1,509
Total carrying amounts of Group shares in these companies 3,595 1,032 4,627 3,148 1,108 4,256

As in the previous year, there are no pro rata losses that have not been recognised from the consolidation at equity.

5
Inventories
(€ thousands) 31 Dec. 2016 31 Dec. 2015
Raw materials, consumables and supplies 168,455 163,123
Work in progress 179,859 163,716
Finished goods and goods purchased and held for resale 100,534 115,027
Advance payments 18,589 12,545
467,437 454,411

€ 52,336 thousand (previous year: € 61,508 thousand) of the inventories is carried at net realisable value. The impairment losses recognised as an expense in the reporting period amount to € 18,318 thousand (previous year: € 7,125 thousand). Due to new estimates, we reversed write-downs totalling € 7,856 thousand (previous year: € 1,905 thousand) where the current net realisable value was higher than the prior-period value. Inventories amounting to € 871,208 thousand (previous year: € 968,817 thousand) were recognised as an expense in the reporting period.

6
Trade receivables and PoC as well as other financial and non-financial assets
(€ thousands) 31 Dec. 2016 31 Dec. 2015
Trade receivables and PoC 614,293 663,740
Trade receivables 504,595 524,610
Trade receivables from other investments, associates and joint ventures 33,576 36,193
thereof from other investments 6,480 8,316
thereof from associates 39 330
thereof from joint ventures 27,057 27,547
Receivables recognised by PoC 76,122 102,937
Receivables recognised by PoC (excl. advances received from customers PoC) 147,078 185,605
Advances received from customers (PoC) – 70,956 – 82,668
Other financial assets 186,995 156,169
Receivables from loans to other investments, associates and joint ventures 13,578 3,189
Currency forwards 2,170 1,978
Other receivables and other current assets 171,247 151,002
Other non-financial assets 24,923 25,200
Other tax assets 18,100 18,210
Deferred income 6,823 6,990

Impairment losses on trade receivables amount to € 34,530 thousand (previous year: € 35,560 thousand) and on receivables from other investments to € 6,283 thousand (previous year: € 3,644 thousand). As in the previous year, no impairment losses were recognised on receivables from joint ventures and from associates.

Construction contracts under IAS 11 include recognised earnings of € 32,167 thousand (previous year: € 44,920 thousand) and costs of € 114,911 thousand (previous year: € 140,685 thousand). Sales revenue in accordance with IAS 11 amounts to € 406,604 thousand (previous year: € 498,435 thousand).

Other receivables and other current assets include hedges of credit balances prescribed by law for partial retirement arrangements and long-term working time accounts of the German Group companies in the amount of € 16,951 thousand (previous year: € 15,501 thousand).

€ 25,230 thousand (previous year: € 31,950 thousand) of all receivables and other assets is due after more than one year.

7
Cash and cash equivalents

Cash and cash equivalents are term deposits with short maturities and call deposits, and also current account balances.

8
Equity

There was no change in the share capital of KSB AG as against the previous year. In accordance with the Articles of Association, it totals € 44,771,963.82 and, as in the previous year, is composed of 886,615 ordinary shares and 864,712 preference shares. Each no-par-value share represents an equal notional amount of the share capital. The preference shares carry separate cumulative preferred dividend rights and progressive additional dividend rights. All shares are no-par-value bearer shares. The individual shares have no par value.

The capital reserve results from the appropriation of premiums from capital increases in previous years.

In addition to revenue reserves from previous years, the revenue reserves include currency translation adjustments, consolidation effects, remeasurements of defined benefit plans under IAS 19 and changes in the market value of interest rate derivatives taken directly to equity. These effects resulted in deferred tax assets in the amount of € 75,663 thousand (previous year: € 61,762 thousand) and deferred tax liabilities in the amount of € 39 thousand (previous year: none).

A total of € 9,857 thousand (dividend of € 5.50 per ordinary share and € 5.76 per preference share) was paid from equity by resolution of the Annual General Meeting of the Group’s parent company KSB AG, Frankenthal, on 11 May 2016.

Non-controlling interests relate primarily to PAB GmbH, Frankenthal, and the interests it holds, as well as to our companies in India and China. KSB AG holds a 51 % interest in PAB GmbH, while Klein Pumpen GmbH, Frankenthal, holds a 49 % interest.

Details of the changes in equity accounts and non-controlling interests are presented in the Statement of Changes in Equity.

The proposal on the appropriation of the net retained earnings of KSB AG calculated in accordance with HGB is shown at the end of these Notes.

Capital disclosures

Sufficient financial independence is a key requirement for safeguarding KSB’s continued existence in the long term. Obtaining the necessary funds for ongoing business operations is also extremely important for us. A key management parameter for us is the net financial position, which is the balance of financial liabilities and interest-bearing financial assets (current and non-current financial instruments, interest-bearing loans, cash and cash equivalents, and receivables from cash deposits). Our long-term objective is to avoid net debt. We regularly monitor the development of this key performance indicator and manage it through active working capital management and by constantly optimising our financial structure, among other things. In the financial year we exceeded our original target of € 200 to 210 million and achieved € 259.5 million, based on further successes in working capital management and a consistently focused investment policy. Our net financial position was already developing more positively in the previous year than originally planned (€ 211.3 million compared with a planned figure of € 180 to 190 million). This can also be attributed to successes in working capital management and a focused investment policy.

9
Provisions

The provisions disclosed in the balance sheet under current and non-current liabilities can be broken down as follows:

31 Dec. 2016 31 Dec. 2015
Changes (€ thousands) Total Non-current Current Total Non-current Current
Employee benefits 676,456 605,540 70,916 614,869 541,256 73,613
Pensions and similar obligations 589,542 589,542 526,033 526,033
Other employee benefits 86,914 15,998 70,916 88,836 15,223 73,613
Other provisions 99,566 1,406 98,160 100,829 1,379 99,450
Warranty obligations and contractual penalties 50,257 50,257 52,234 52,234
Provisions for restructuring 5,294 5,294 3,372 3,372
Miscellaneous other provisions 44,015 1,406 42,609 45,223 1,379 43,844
776,022 606,946 169,076 715,698 542,635 173,063

Individual categories of provisions developed as follows in the 2016 financial year:

Changes (€ thousands) 1 Jan. 2016 Changes in consolidated Group / CTA* / Other Utilisation / Prepayments Reversal Additions 31 Dec. 2016
Employee benefits 614,869 705 – 78,301 – 2,452 141,635 676,456
Pensions and similar obligations 526,033 194 – 15,732 – 953 80,000 589,542
Other employee benefits 88,836 511 – 62,569 – 1,499 61,635 86,914
Other provisions 100,829 570 – 57,715 – 6,982 62,864 99,566
Warranty obligations and contractual penalties 52,234 – 60 – 26,552 – 6,252 30,887 50,257
Provisions for restructuring 3,372 – 16 – 1,372 – 230 3,540 5,294
Miscellaneous other provisions 45,223 646 – 29,791 – 500 28,437 44,015
715,698 1,275 – 136,016 – 9,434 204,499 776,022
* CTA = Currency translation adjustments
Provisions for pensions and similar obligations

The pension obligations in the KSB Group include defined contribution and defined benefit plans and contain both obligations from current pensions and future pension benefit entitlements.

For employees of Group companies in Germany there is a defined contribution plan under the German statutory pension insurance scheme into which the employer must pay the currently valid pension contribution rate. Contributions to state pension insurance funds recognised in the income statement totalled € 25,676 thousand (previous year: € 25,866 thousand). € 8,488 thousand (previous year: € 8,546 thousand) was spent on defined contribution schemes for employees in other countries in the year under review.

The obligations for defined benefit pension plans for employees of the Group are mainly due to pension obligations in Germany, as well as in France, the United States and Switzerland.

More than 90 % of the defined benefit pension plans are attributable to the German Group companies. These relate to direct commitments by the companies to their employees. The commitments are based on salary and length of service. Contributions from employees themselves are also considered. This pension provision can be broken down into purely company-financed basic provision and the top-up provision from the employer. The latter is based on the amount of own contributions and the generated return on sales before taxes on income. Both components take account of the general pension contribution (the amount of which partially depends on company performance), personal income (the relationship between pensionable income and maximum income threshold) and the annuity conversion factor (based on age). Pension benefits are paid in annual instalments of one tenth of the amount. However, under certain conditions it is also possible to make a capital payment or pay a monthly pension instead.

Pension schemes in France are governed by the provisions of the respective collective agreements. The obligations are basically covered by assets that have been paid in to an external fund. At the beginning of the final quarter of each year, an actuarial report is prepared to calculate the current obligation. If there is a shortfall, a compensation payment is made to the fund. Differences in the calculation parameters under local and international law ultimately result in a surplus of obligations in the Group. Upon retirement, the employees concerned receive a one-off payment from the fund.

The defined benefit pension plans in the United States are closed to new entrants. The pension benefit amount is derived from the average salary and years of service before closure of the plan. The retirement age is 65 years; from this point a monthly payment is made to the beneficiaries. The pension benefits are financed by external funds.

Pension obligations in Switzerland are predominantly based on statutory obligations. This also includes details on a minimum pension which all employees with uninterrupted contributions are entitled to by law. The employer is therefore required to pay in contributions which are high enough for the respective pension fund or insurance company to pay out these minimum amounts. As well as pension benefits, the plans encompass other benefits such as disability or survivors’ benefits. Both employer and employee contributions are paid to the pension fund, with the company having to make contributions that at least match the employee contributions specified in the terms and conditions of the plan. The retirement benefits are paid out in monthly instalments, but all employees have the option to receive a (partial) capital payment.

In addition, employees in other countries are also entitled to a limited extent to retirement and partly to medical care benefits, depending mainly on the length of service and salary.

These defined benefit plans impose actuarial risks on the Group, such as the longevity risk and interest rate risk. The payments linked to pension obligations are paid largely from our liquid assets. Plan assets are also partially available for financing these obligations. Most of the plan assets are managed by insurers who set their own appropriate investment policies.

The actuarial valuations of the plan assets and the present value of the defined benefit obligation (and the related current service cost and the past service cost) are measured and calculated annually on the basis of actuarial reports using the projected unit credit method (IAS 19).

The amounts disclosed in the balance sheet for defined benefit plans are as follows:

(€ thousands) Defined benefit obligations (DBOs)
31 Dec. 2016
Fair value of plan assets
31 Dec. 2016
Net liability from defined benefit plans
31 Dec. 2016
Defined benefit obligations (DBOs)
31 Dec. 2015
Fair value of plan assets
31 Dec. 2015
Net liability from defined benefit plans
31 Dec. 2015
Germany 560,775 560,775 502,739 502,739
France 17,035 7,265 9,770 13,098 6,918 6,180
USA 15,936 12,180 3,756 15,168 11,293 3,875
Switzerland 17,998 16,493 1,505 17,439 15,740 1,699
Other countries 42,648 28,912 13,736 40,933 29,393 11,540
Balance sheet values 654,392 64,850 589,542 589,377 63,344 526,033

The changes in the present value of the defined benefit obligations are as follows:

(€ thousands) 2016 2015
Opening balance of the defined benefit obligation (DBO) – 1 Jan. 589,377 582,495
Current service cost 15,867 16,504
Interest cost 14,269 13,874
Employee contributions 5,520 6,574
Remeasurements
– / + Gain / loss from the change in demographic assumptions – 215 587
– / + Gain / loss from the change in financial assumptions 52,479 – 16,260
– / + Experience-based gain / loss – 2,481 – 2,804
Benefit payments – 19,054 – 18,231
Past service cost (incl. effects of settlements and curtailments) 445 – 1,343
Transfer of assets – 559 397
Currency translation adjustments – 1,141 3,754
Changes in consolidated Group / Other – 115 3,830
Closing balance of the defined benefit obligation (DBO) – 31 Dec. 654,392 589,377

The current and past service cost is recognised in staff costs under pension costs, and the interest cost is recognised in financial income / expense under interest and similar expenses.

The expected contributions in the following year are anticipated to amount to € 11,770 thousand (previous year: € 19,820 thousand).

The changes in the fair values of the plan assets are as follows:

(€ thousands) 2016 2015
Opening balance of the plan assets measured at fair value – 1 Jan. 63,344 57,926
Interest income 2,329 2,297
Remeasurements
– / + Gain / loss from plan assets excluding amounts already recognised in interest income 2,514 – 390
Contributions by the employer 2,216 2,485
Contributions by the beneficiary employees 279 871
Currency translation adjustments – 1,292 2,945
Changes in consolidated Group
Paid benefits – 4,614 – 3,259
Other 74 469
Closing balance of the plan assets measured at fair value – 31 Dec. 64,850 63,344

Interest income is recognised in financial income net of the DBO interest expense under interest and similar expenses.

The changes in the net liability from defined benefit plans are as follows:

(€ thousands) 2016 2015
Opening balance of the net liability from defined benefit plans – 31 Dec. 526,033 524,569
Current service cost 15,867 16,504
Interest income – 2,329 – 2,297
Interest cost 14,269 13,874
Employee contributions 5,241 5,703
Contributions by the employer – 2,216 – 2,485
Remeasurements
– / + Gain / loss from plan assets excluding amounts already recognised in interest income – 2,514 390
– / + Gain / loss from the change in demographic assumptions – 215 587
– / + Gain / loss from the change in financial assumptions 52,479 – 16,260
– / + Experience-based gain / loss – 2,481 – 2,804
Benefit payments – 14,440 – 14,972
Past service cost (incl. effects of settlements and curtailments) 445 – 1,343
Transfer of assets – 559 397
Currency translation adjustments 151 809
Changes in consolidated Group / Other – 189 3,361
Closing balance of the net liability from defined benefit plans – 31 Dec. 589,542 526,033

Composition of plan assets:

(€ thousands) Quoted market price in an active market
31 Dec. 2016
No quoted market price in an active market
31 Dec. 2016
Total
31 Dec. 2016
Quoted market price in an active market
31 Dec. 2015
No quoted market price in an active market
31 Dec. 2015
Total
31 Dec. 2015
Equity instruments (shares) 20,538 20,538 20,769 20,769
Debt instruments (loans) 22,469 22,469 21,825 21,825
Government bonds 8,602 8,602 8,338 8,338
Corporate bonds 13,867 13,867 13,487 13,487
Currency forwards 20 20
Money market investments 373 373 338 338
Real estate 880 880 843 843
Insurance contracts 17,295 17,295 16,409 16,409
Bank credit balances 2,115 2,115 2,253 2,253
Other investments 800 360 1,160 551 356 907
Total 47,195 17,655 64,850 46,579 16,765 63,344

We allocate to the pension funds the amount of money needed to meet statutory minimum requirements.

The actual income from plan assets amounted to € 4,843 thousand (previous year: € 1,907 thousand).

To calculate the pension obligation and the related plan assets, the following key actuarial assumptions were made:

Discount rate Assumed rate of salary increase Assumed rate of pension increase
(in %) 31 Dec. 2016 31 Dec. 2015 31 Dec. 2016 31 Dec. 2015 31 Dec. 2016 31 Dec. 2015
Germany 1.9 2.3 2.7 2.7 1.9 1.9
France 2.0 2.0 3.0 3.0
USA 3.8 4.1 2.3 2.3 2.3 2.3
Switzerland 0.6 0.7 1.0 1.0 1.0 1.0
Other countries 0.75 – 9.9 0.9 – 9.7 1.0 – 10.5 1.0 – 11.0 1.5 – 3.1 1.0 – 3.0

A mean fluctuation rate (2.0 %) continues to be applied to staff turnover for the German plans, as in the previous year. The biometric assumptions continue to be based on the 2005G mortality tables published by Prof. Klaus Heubeck as in the previous year, and the retirement age used for the calculations is based on the Rentenversicherungs-Altersgrenzenanpassungsgesetz 2007 [RVAGAnpG – German Act Adapting the Standard Retirement Age for the Statutory Pension Insurance System]. Other measurement parameters (e.g. cost trends in the medical care area) are not material.

The discount rate and future mortality were identified as key actuarial assumptions. As in the previous year the basis for the calculation of the sensitivities is the same method which was used for the calculation of the provisions for pensions and similar obligations.

Were the discount factor to increase by 100 basis points, the DBO would fall by € 107 million (previous year: € 95 million). A 100 basis point reduction in the discount factor would increase the DBO by € 145 million (previous year: € 126 million). It should be noted that a change to the discount factor due to particular financial effects (such as compound interest) does not affect the development of the DBO on a straight-line basis. Were life expectancy to increase by 1 year, the DBO would increase by € 27 million (previous year: € 22 million).

Additionally, the individual actuarial assumptions are mutually dependent, but these interdependencies are not taken into account in the sensitivity analysis.

On 31 December 2016 the weighted average term of the DBO was 23 years (previous year: 22 years). The following table shows the pension benefit payments expected over the coming years.

€ millions at 31 Dec. 2016 2017 2018 2019 2020 2021
Expected payments 21,659 21,315 21,549 21,605 22,569
€ millions at 31 Dec. 2015 2016 2017 2018 2019 2020
Expected payments 20,417 22,284 21,314 21,105 21,151
Other employee benefits

Provisions for other employee benefits relate primarily to profit-sharing, jubilee payments, partial retirement obligations and severance payments.

Other provisions

The provisions for warranty obligations and contractual penalties cover the statutory and contractual obligations to customers and are based on estimates prepared using historical data for similar products and services.

The current year’s addition to the provisions for restructuring relates to costs arising in conjunction with the closure of a production site in North Rhine-Westphalia.

The miscellaneous other provisions include provisions for anticipated losses from uncompleted transactions and onerous contracts (€ 1,667 thousand for 2016 and € 1,298 thousand for 2015), customer bonuses and environmental protection measures. They also cover risks of litigation and legal proceedings if the recognition criteria for a provision are met (€ 9.2 million; previous year: € 11.1 million). These are usually risks arising from legal disputes in relation to operations or, in rare cases, disputes with government agencies or personnel matters. In order to determine the amount of the provisions, the facts related to each case, the size of the claim, the results of comparable proceedings and independent legal opinions are considered in individual cases along with assumptions regarding the probability of occurrence and the range of potential claims. In addition, there are contingent liabilities resulting from legal disputes in relation to operations in the amount of € 71.8 million (previous year: € 73.6 million). Appropriate insurance policies in the amount of € 11.0 million (previous year: € 11.0 million) are in place to cover claims.

€ 18,392 thousand (previous year: € 18,790 thousand) of the other provisions are expected to become cash-effective after more than one year.

10
Liabilities
NON-CURRENT LIABILITIES
(€ thousands) 31 Dec. 2016 31 Dec. 2015
Financial liabilities 57,962 133,504
Loan against borrower’s note 47,918 122,371
Bank loans and overdrafts 9,229 10,069
Finance lease liabilities 693 954
Other 122 110
Current liabilities
(€ thousands) 31 Dec. 2016 31 Dec. 2015
Financial liabilities 119,958 44,316
Loan against borrower’s note 74,500
Bank loans and overdrafts 44,571 42,739
Finance lease liabilities 501 436
Liabilities to other investments, associates and joint ventures 376 1,131
Other 10 10
     
Trade payables 210,813 238,848
Trade payables to third parties 208,774 236,879
Liabilities to other investments, associates and joint ventures 2,039 1,969
     
Other financial liabilities 89,406 85,911
Advances received from customers (PoC) 44,046 49,418
Currency forwards 11,203 6,843
Interest rate swaps 435 745
Miscellaneous other financial liabilities 33,722 28,905
     
Other non-financial liabilities 182,979 179,139
Advances received from customers 92,505 87,173
Social security and liabilities to employees 52,657 54,080
Tax liabilities (excluding income taxes) 22,022 19,884
Prepaid expenses 10,882 12,744
Investment grants and subsidies 4,913 5,258
     
Income tax liabilities 9,354 10,082

In 2012, to safeguard liquidity in the medium term, KSB AG took the precaution of placing a loan against borrower’s note with a total volume of € 175 million. This loan is divided into repayment tranches of 3, 5, 7 and 10 years. As the different repayment tranches have different terms, different rates of interest apply, some of which are fixed and some variable. There were no repayments during the reporting year. € 35.0 million was repaid upon maturity and € 17.5 million before maturity in the previous year.

€ 102 million (unchanged on the previous year) of the liabilities arising from the loan against borrower’s note are classified as bank loans and overdrafts, and € 20 million as other financial liabilities (also unchanged).

Assets amounting to € 2,351 thousand (previous year: € 3,778 thousand) have been pledged as security in the KSB Group for bank loans and other liabilities on the basis of standard terms and conditions. Of these, none (as in the previous year) relate to property, plant and equipment, € 724 thousand (previous year: € 180 thousand) to inventories, none (as in the previous year) to receivables and € 1,627 thousand (previous year: € 3,598 thousand) to other securities.

None (previous year: € 93 thousand) of the liabilities were secured by land charges or similar rights in the year under review.

The reported investment grants and subsidies largely comprise funding from the European Union and German entities for new buildings and development aid projects.

The weighted average interest rate on bank loans and overdrafts as well as on an open-market credit (loan against borrower’s note) was 3.44 % (previous year: 3.03 %). Interest rate risk exists for the major portion of the loan against borrower’s note mentioned above.

There were no covenant agreements for loans in the year under review, as was the case in the previous year too.

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