MINUTE STEP TEST (Minutos Marcha)

Business combinations are accounted for under the purchase method whereby the consideration transferred for the investment is offset against the investee’s net assets, which are remeasured to fair value. The net assets are based on the fair values of the assets and liabilities, including identifiable intangible assets and contingent liabilities to be recog- nized as liabilities as of the date of acquisition.

If published exchange or market prices cannot be obtained for allocating the purchase price, the fair values are calcu- lated on the basis of suitable valuation techniques. Generally, the discounted cash flow method is used in such cases. Under this method, the expected future cash flows that can be generated by the asset are discounted to the date of the initial consolidation using a discount rate reflecting the inherent risk associated with the asset.

Any remaining excess of the consideration transferred for the acquired business over its proportional share of net as- sets is recognized separately as goodwill; any negative difference is, upon reassessment of the acquired assets and liabilities, directly recognized in the income statement. Non-controlling interests are measured at their proportional share of the fair values of the acquired net assets, i.e., the full goodwill method is not applied. Audit and consulting fees incurred in business combinations are expensed as incurred.

Subsequent changes in interests in consolidated subsidiaries that do not result in a change of the method of consoli- dation are treated as equity capital transactions.

Foreign currency translation

Transactions denominated in foreign currency are translated using the exchange rate at the time of the transaction. Monetary items are translated using the current exchange rate at the balance sheet date. Irrespective of any currency hedges, gains or losses from the remeasurement of monetary assets (excluding foreign currency translation of net investments) and monetary liabilities are recognized in the income statement as other operating income or expenses. Applying the functional currency concept, the annual financial statements of the foreign subsidiaries prepared in foreign currency are translated into euros using the modified closing rate method. The functional currency is determined by the primary economic environment in which the entity operates. All subsidiaries conduct their business inde- pendently in their domestic markets. As such, the functional currency for those entities is the local currency. Assets and liabilities of subsidiaries are translated at the middle rate on the reporting date, while income and expenses are translated at the average exchange rate of the reporting period. Differences arising from such translations applied to the assets, liabilities and components of net income are reported as a separate component of equity and according- ly do not have an impact on net income. Such differences are recognized in net income when the subsidiary is sold.

The exchange rate changes for the main currencies of the Group developed as follows:

Closing rate Average rate

1 € = December 31, 2013 December 31, 2012 2013 2012 Brazilian Real (BRL) 3.2576 2.7036 2.8687 2.5085 Pound Sterling (GBP) 0.8337 0.8161 0.8493 0.8109 Swiss Franc (CHF) 1.2276 1.2072 1.2311 1.2053 US Dollar (USD) 1.3791 1.3194 1.3281 1.2848 Revenue recognition

Revenues from sales of goods are recognized when the material risks and rewards associated with ownership have been transferred to the buyer and the amount of revenues can be reliably measured. This is generally the time of delivery. Prior to delivery, revenues are only recognized when goods have not been delivered at the request of the buyer but ownership has been transferred and the buyer has accepted billing and goods are available and stored separately. Sales are reported net of allowances such as commissions, trade discounts and rebates.

Interest income is accrued on a time basis by reference to the principal amount and the effective interest rate. Dividend income is recognized when the right to receive payment has been legally established.

Share-based payment

The Group’s share-based compensation plans are virtual stock option plans with cash settlement (“VSO”). As of the respective reporting date, a provision is recognized pro rata temporis in the amount of the fair value of the payment obligation; any subsequent change in the fair value is recognized in profit or loss. The fair value of the virtual share options is calculated using an option pricing model based on a Monte Carlo simulation using the following parameters:

The expected volatility is based on market-traded options on Klöckner&Co shares.

Earnings per share

Basic earnings per share are calculated by dividing consolidated net income for the year attributable to shareholders of Klöckner&Co SE by the average number of shares outstanding during the period. The dilutive, potential shares of the outstanding convertible bonds are only included in the calculation of diluted earnings to the extent that such shares are not anti-dilutive.

in % December 31, 2013 December 31, 2012

Risk–free rate of return 0.1– 2.1 0.0– 1.2

Income taxes

Income tax expense represents the total of current and deferred tax expenses.

Current tax expenses are calculated on the basis of the taxable income for the financial year. The taxable income differs from the income before taxes for the year reported in the income statement as it does not include income or expenses that will not be taxable or tax deductible until later financial years, if at all. Tax liabilities are measured at the amount for which payment to the taxation authorities is expected. The liabilities are measured at the tax rates that have been enacted at the balance sheet date.

Deferred taxes are calculated in line with the concept of the balance sheet liability method. Deferred taxes result from temporary differences in the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profits (temporary differences) and from consolidation entries. The calculation is based on tax rates that have been enacted or substantively enacted due to an almost concluded legislative procedure. Such deferred taxes or liabilities are not recognized, if the temporary differences arise from goodwill (as long as these differences were not considered for tax purposes) or from the initial recognition (other than in a busi- ness combination) of other assets and liabilities in a transaction that neither affects taxable profits nor the ac- counting profits.

A deferred tax asset is also recognized for the carryforward of unused tax losses to the extent that it is probable that future taxable profits will be available against which the unused tax losses can be utilized.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow part of, or the entire, deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and a previously unrecog- nized deferred tax asset is recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are calculated using tax rates that are applicable at the date of the reversal of temporary differences respectively the use of loss carryforwards and that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would result from the manner in which Klöckner&Co expects, at the balance sheet date, to recover or settle the car- rying amount of its assets and liabilities.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right to set off exists and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority and a net settlement is intended.

Current and deferred taxes are recognized in income unless they relate to items that are recognized directly in equity or in other comprehensive income. In such cases, they are also charged or credited to equity or other comprehensive income. Intangible assets

Intangible assets with finite useful lives are carried at cost less accumulated amortization and impairments, if the use of the asset entails an economic benefit and the costs of the asset can be reliably determined.

Intangible assets are amortized on a straight-line basis in line with their estimated useful life over a period generally between one and 15 years. Intangible assets recognized in business combinations for customer relationships are amortized based on the expected churn rates between four and 15 years.

The useful life is reviewed annually and future expectations are adjusted, if necessary. Intangible assets with an indefinite useful life – at Klöckner&Co only goodwill – are reviewed for impairment annually or more frequently, if indications for impairment arise.

Property, plant and equipment

Property, plant and equipment is carried at acquisition or manufacturing cost less accumulated depreciation. The manufacturing costs comprise all direct costs as well as attributable overheads. Administrative costs are only capitalized to the extent that they relate to production.

Maintenance and repair costs are expensed as incurred.

Property, plant and equipment subject to depreciation is generally amortized on a straight-line basis. On disposal or retirement, the cost and the corresponding accumulated depreciation are derecognized, any gain or loss is recognized in income.

Depreciation is based on the following useful lives:

Leases

For leasing transactions, the Company differentiates between finance lease and operating lease transactions. Trans- actions in which the Klöckner&Co Group bears all significant risks and benefits are classified as finance leases. All other lease arrangements, in which Klöckner&Co is the lessee are accounted for as operating leases.

Assets held under finance leases are initially recognized at fair value at the inception of the lease, or if lower, at the present value of the minimum lease payments. The corresponding liability for future lease payments is included in the balance sheet as financial liability. Such liabilities are subsequently accounted for under the effective interest method. Assets held under finance leases are depreciated over their expected useful lives or, if shorter, the term of the underlying lease.

For operating lease arrangements in which the Group is lessee, lease payments are recognized as straight-line expense over the lease term.

Investment property

Land and buildings held to earn rentals or for capital appreciation rather than for use in the delivery of goods or for providing services or for administrative purposes are presented as investment property. Measurement of such proper- ty follows the cost model. The fair values of such property are disclosed in Note 15 (Intangible assets, property, plant and equipment and investment property).

Depreciation methods and useful lives are similar to those applied to property, plant and equipment.

Useful life in years

Office building, factory and warehouse buildings 10–50

Plant facilities similar to buildings 8–33

Warehouse and crane equipment and other technical equipment 2–20

Impairments

At each balance sheet date, the Group reviews its tangible and intangible assets as well as its investment properties to determine if there is any indication of impairment. If such indication exists the recoverable amount of the asset is estimated to determine the extent of the impairment loss. The recoverable amount is the higher value of the fair value less cost to sell and the value in use. In case a recoverable amount for the specific asset can be estimated the recoverable amount is determined for the cash-generating unit (“CGU”) to which the asset belongs. Where an im- pairment loss subsequently reverses (unless related to goodwill), the carrying amount of the asset or cash-generating unit is increased to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income.

Goodwill arising in business combinations is tested for impairment at least annually. The impairment test is performed at the level of the cash-generating unit to which the goodwill has been assigned. Cash-generating units are the lowest reporting level in the Group at which management monitors goodwill for internal reporting purposes. Except for the Becker Stahl-Service group (BSS) the national sub-consolidation groups represent the cash-generating units. The an- nual impairment test for goodwill is performed in the fourth quarter of each financial year – or more frequently in case of an indication that the unit may be impaired. If the carrying amount exceeds the recoverable amount an im- pairment loss is recognized in the amount of the difference and cannot be reversed in subsequent periods.

The recoverable amount is the higher value of fair value less cost to sell and value in use. The value in use represents the discounted cash flow of the asset or cash-generating unit, respectively. Value in use or fair value less cost to sell is usually determined using a discounted cash flow approach. The estimated cash flows are based on the Company’s current three-year business plan, based on management’s estimates for the respective business unit. The interest rates used reflect the risk specific to the underlying business and the country in which the business is operated. Among other things, interest rates are based on Peer Group data. The composition of the Peer Group is regularly reviewed and ad- justed, if deemed necessary.

Impairment losses are reported in the income statement under impairment losses. Reversals of impairment losses are included in other operating income.

Government grants and government assistance

Government grants are only recognized, if it is reasonably assured that the Company complies with the conditions and the grants are actually received. The grants are recognized in net income in the same period in which the respec- tive expenses are recognized.

Government grants related to assets, mainly property, plant and equipment, are deducted from the cost of the asset. Grants becoming receivable as compensation for expenses or losses already incurred or for the purpose of giving im- mediate financial support with no future-related costs are recognized as other operating income in the period in which they become receivable for Klöckner&Co.

Inventories

Inventories are stated at the lower of cost or net realizable value. The net realizable value is the estimated selling price in the ordinary course of business less estimated cost of completion and estimated cost to make the sale. The manufacturing costs comprise production-related costs calculated on the basis of normal capacity.

In addition to the directly attributable costs, adequate material and production overhead expenses including produc- tion-related depreciation are reflected in the manufacturing costs (e.g., certain coil inventory). Cost is generally as- signed to inventories on the basis of the monthly moving average method. In selected cases the specific identification method is applied.

Financial instruments

Financial instruments are any contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

The Group’s financial assets primarily consist of cash and cash equivalents, financial instruments available for sale, trade receivables and derivative financial instruments with positive fair values. The Group’s financial liabilities include bonds, liabilities due to banks, trade payables, finance lease liabilities and derivative financial instruments with negative fair values.

The Klöckner&Co Group recognizes all regular-way contracts as of the settlement date regardless of their classification. For derivative financial instruments classified as “held for trading” the Group applies trade date accounting.

The fair value option provided by IAS 39 (Financial Instruments: Recognition and Measurement) is not applied. Financial instruments are initially measured at fair value, including transaction costs directly attributable to the ac- quisition or issue unless such financial instruments are classified at fair value through profit or loss. Subsequent measurement of financial assets and liabilities depends on the financial instruments classification to categories of IAS 39. a) Financial assets and financial liabilities and equity instruments issued by Klöckner&Co

Cash and cash equivalents include cash on hand, bank balances and short-term securities with an original maturity of less than three months with an insignificant risk of changes in value and are stated at nominal value. Foreign currency balances are converted into euros at the mid-rate on the balance sheet date.

Financial assets at fair value through profit or loss include financial assets initially classified as “held for trading”. In the Klöckner&Co Group, this classification only applies for derivative financial instruments unless designated in a documented hedge. Such instruments are presented as other assets in the consolidated financial statements.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. They are measured at amortized cost using the effective interest method. Also assigned to this category are non-current loans and non-current securities that do not have a quoted market price in an active market, which are measured at amortized cost.

All identifiable risks are allowed for by making appropriate valuation adjustments to reflect the risk of default, taking into account the credit insurances in place. The carrying amounts of financial assets are assessed for impairment, if there is objective material evidence, such as substantial financial difficulty on the part of the obligor, knowledge of insolvency proceedings or being overdue. Valuation allowances are recorded on separate accounts.

Non-derivative financial assets that are not assigned to any of the other categories described in IAS 39 are classified as “available for sale financial assets” and are measured at fair value. Such assets also include shares in non- consolidated subsidiaries and other equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, which are accounted for at cost. If required, valuation allowances are established through profit or loss to account for an impairment loss. Impairment losses are reversed when the reasons for such impairment losses no longer apply unless they relate to “available for sale financial assets,” which are accounted for at cost for which no reversal of impairment losses is allowed.

Financial instruments are initially recognized as a financial liability or an equity instrument in accordance with the substance of the contractual agreement. An equity instrument is recognized in the amount of the proceeds received from the issuance less directly attributable transaction costs.

The components of compound financial instruments such as the convertible bonds are recognized separately as financial liabilities and equity. At the date of issuance, the fair value of the liability component is calculated using a market in-