1 PFLEIDERER AG NINE-MONTH FINANCIAL REPORT 2007

Pfleiderer AG has participated in a factoring program since July 2004, under which the factor
purchases the receivables from the Group up to an individual or aggregate limit and assumes the risk
for the debtors' insolvency (non-recourse factoring). This is accounted for as described above.
Inventories
Inventories are measured at the lower of cost and net realizable value on the basis of individual
values or by applying the weighted average method. FIFO is also used in justified individual cases.
Net realizable value is the estimated selling price in the ordinary course of business less estimated
costs of completion and the estimated costs necessary to make the sale.
Costs of conversion comprise direct material and production costs and an appropriate share of the
material and production overheads resulting from the production process.
All foreseeable risks in the inventories resulting from reduced salability or obsolescence are reflected
by appropriate value adjustments. Write-downs are charged for slow-moving items.
Property, plant, and equipment
The amounts recognized for property, plant, and equipment represent cost less accumulated
depreciation. Depreciation is charged on a straight-line basis over the standard useful lives of the
assets concerned. In addition to direct materials and labor costs, the production costs of internally
produced assets include an appropriate share of attributable indirect materials and labor costs and, if
construction takes place over a longer period of time, borrowing costs during the construction period.
Administrative expenses are only capitalized if they are directly related to the construction process.
Repair and maintenance expenditures are recognized as expenses unless they are capitalized when
applying the component approach.
Assets with a finite life are depreciated ratably using the straight-line method. If an item of property,
plant, and equipment has several components with differing useful lives, the individual components
are depreciated separately over their individual useful lives. The component approach is therefore
applied when determining the depreciation period. The carrying amount of a non-current asset is
derecognized when it is sold or scrapped, and the resulting gains or losses are recognized in profit or
loss.
Depreciation is based on the following useful lives:
Years
Buildings 14–25
Technical plant and machinery 8–21
Other equipment, operating and office equipment 3–11
Leasehold improvements and leased items of property, plant, and equipment are depreciated over
the shorter of the standard useful lives of the assets concerned and the rental or lease period.
If an item of property, plant, and equipment consists of several components with differing useful lives,
the individual components are depreciated separately over their individual useful lives.
The component approach is applied when determining the depreciation terms.
28 PFLEIDERER AG NINE-MONTH FINANCIAL REPORT 2007