2005 annual report - · pdf file2005 ni comni g orders ... (dec. 31) in € m 859.9...

2005 Annual Report

Technologies · Systems · Solutions

2 0 0 5

Incoming orders in € m 1,387.4 – 12.3 %

Orders on hand (Dec. 31) in € m 859.9 – 15.9 %

Sales revenue in € m 1,725.8 – 18.8 %

EBIT (earnings before interest and income taxes)before non-recurring expenses1 in € m 35.8 – 90.2 %

Consolidated net profi t (including discontinued operations) in € m 4.7 – 8.5 %

Cash fl ow from operating activities in € m – 115.5 –

Cash fl ow from investing activities in € m – 19.5 –

Cash fl ow from fi nancing activities in € m – 19.4 –

Balance sheet total (Dec. 31) 2 in € m 1,435.8 – 17.2 %

Equity including minority interests 2 in € m 222.7 11.4 %

Net fi nancial debt 3 (Dec. 31) 2 in € m 242.8 – 65.0 %

Net working capital (Dec. 31) 2 in € m 120.5 42.3 %

Employees (Dec. 31) 6,240 – 4.0 %

1 Before restructuring expenses, impairment losses, and investment income/loss.2 Balance sheet fi gures for 2005 and 2004 are, with the exception of equity, comparable only to a limited extent. The balance sheet for 2005 no longer includes values

for Measuring and Process Technologies, but the balance sheet for 2004 does. Thus, we are in compliance with a provision of IFRS 5. 3 Without fi nance leases.4 Continuing operations (without Measuring and Process Technologies).

Immaterial variances may occur in this report due to roundings in the computation of sums and percentages.

Key fi gures (IFRS)(continuing operations)

1,216.9

723.5

1,400.6

3.5

4.3

– 147.6

282.7

– 74.7

1,189.1

248.1

84.9

171.5

5,992

20042005 Change

J A N UA R Y

Honors

in China

Shanghai General Motors (SGM)names Dürr “Best Supplier of the Year 2004.”

F E B R UA R Y

Heinz Dürr Innovation

Award conferred

With Supervisory Board Chairman Heinz Dürr in attendance, teams of employees are honored for outstanding innovations for the fourth time.

M AY

GM considers Dürr

one of the best

Dürr receives General Motors’ “Supplier of the Year Award” for the fi fth time.

The Premier Group is sold to the Voith Group as part of the realignment to focus on core business.

AU G U S T

FOCUS

kick-off

The Board of Management presents the Group-wide FOCUSprogram. The objectives are to focus on the company’s core business with the automotive industry, increase profi tability, and reduce debt.

4

2 0 0 6

20

05

at

a g

lan

ce

Ke

y fi

gu

res

Incoming orders in € m 1,086.4 – 14.3 %

Sales revenue in € m 1,413.8 – 23.0 %

EBIT before non-recurring expenses in € m 34.5 – 79.4 %

Employees (Dec. 31) 4,236 – 6.1 %

931.2

1,090.0

7.1

3,979

20042005 Change

Measuring and Process Systems

(continuing operations)

Paint and Assembly Systems

S E P T E M B E R

New painting robot

presented

Dürr unveils the new EcoRP E painting robot at the 2005 Open House.

The non-core Development Test Systems business unit is sold to HORIBA.

N O V E M B E R

Rating outlook

improves slightly

Standard & Poor’s upgrades its outlook for Dürr’s company rating from “credit watch negative” to “stable”.

O C T O B E R

Anniversary

celebration in China

Dürr Paintshop Systems Engineering celebrates its 20th birthday, and the new plant in Quingpu is dedicated just in time for the anniversary.

The non-core Measuring and Process Technologies business unit is sold to HgCapital.

D E C E M B E R

Successful

capital increase

Dürr issues 1.43 million new shares for € 21.8 million. The Dürr family subscribes approx. 60% of the new shares through Heinz Dürr GmbH.

Financial restructuring

complete

Dürr takes in gross proceeds of € 205 million from the sale of Measuring and Process Technologies. Thus, the fi rst objective of FOCUS,to reduce debt, is achieved.

Incoming orders in € m 301.0 – 5.1 %

Sales revenue in € m 312.0 – 0.4 %

EBIT before non-recurring expenses in € m – 1.3 –

Employees (Dec. 31) 1,953 0.7 %

1 Continuing operations (without Measuring and Process Technologies).

285.7

310.6

5.1

1,966

20042005 Change

1

Dürr Group

Paint and Assembly Systems is the world’s leading supplier of mass-production paint shops for auto-mobile manufacturers and their suppliers. We are also a leading partner to the automotive industry as a full-range supplier of fi nal vehicle assembly sys-tems. Conveyor systems for vehicle bodies and trim parts and environmental systems round out our product range. Apart from the automotive industry, our systems are also used in the aviation industry and other non-automotive industries.

Business units

Paint SystemsApplication TechnologyEnvironmental and Energy SystemsFactory Assembly Systems

Paint and Assembly Systems division

Measuring and Process Systems includes two areas of activity: Balancing and diagnostic systems and indus-trial cleaning and fi ltration systems. Innovative power, a global presence, and precision engineering have made us a world market leader in both areas. Our largest customer group by far is the automotive indus-try, which uses our systems in building engines and transmissions. But our systems are also adding value to production in industries like aerospace, the ma-chinery sector, and the electrical equipment industry.

Business units

Balancing and Diagnostic SystemsCleaning and Filtration Systems

Measuring and Process Systems division

The Dürr Group operates in the market through two divisions which are divided into six business units.

Dürr AG in Stuttgart operates as a pure management holding.

Title: In BMW Group’s Oxford factory, the MINI is painted

with Dürr technology. Roof painting is pictured here.

1

2 Letter from the Board

of Management

4 Report of the Supervisory Board

7 FOCUS

12 Project report

“Precision work required”

14 Paint and Assembly Systems

division

16 Measuring and Process Systems

division

18 Dürr on the capital market

21 Corporate governance

Contents

Group management report

for the 2005 reporting period

23 Organizational and

legal structure

25 Economic environment

26 Business development

31 Financial development

35 Research and development

36 Purchasing

37 Employees

38 Risk report

42 Events subsequent

to the reporting date

42 Outlook

Consolidated financial statements


47 Independent auditors’ report

48 Consolidated income statement

49 Consolidated balance sheet

50 Consolidated statement of

changes in shareholders’ equity

50 Statement of recognized income

and expense in the consolidated

financial statements

51 Consolidated cash flow statement

52 Notes to the consolidated

financial statements for

the 2005 reporting period

101 Dürr worldwide

102 Glossary

Dürr is one of the world’s leading suppliers of equipment, systems, and

services mainly for automobile manufacturing. We offer innovative,

environmentally friendly solutions that help our customers achieve lower

costs, higher quality, and greater flexibility in production and assembly.

Our range of products and services covers important stages of vehicle

production and assembly. As a systems supplier, we plan and build paint

shops and final assembly facilities. We also deliver cleaning, filtration,

and balancing systems for the manufacture of engine, transmission, and

vehicle components.

We are working to increase our profitability for the long term. In doing

so, we are focusing on our strengths: Innovative power, turnkey expertise,

a global presence, particularly in growth markets, and the experience,

dedication, and expertise of our employees.

We have installed many plants and systems at our customer over the

years, and they serve as the basis for a steadily growing modernization

and service business, which we continue to intensify.

Strategy

2

Letter from the Board of Management

Dear shareholders, customers,business partners, and staff,

The year 2005 was one of extensive changes and challenges for the Dürr Group. Incoming orders, sales,and earnings were unsatisfactory in the first half of the year. In addition, we received fewer large-scaleorders and consequently received less in prepayments from customers. This in turn led to an increase indebt, and the Group’s financial structure deteriorated. Hedge funds bought into the lending syndicate.A profound realignment of the Group became necessary. Therefore, in July and August 2005, we createdthe Group-wide FOCUS program, which concentrates on the following aims:

Focusing on our core expertise as machinery and industrial equipment manufacturers and thus essen-tially on our business with the automotive industry.

Adapting our business processes and resources to this key sales market which is currently undergoingdramatic changes. While the volume of orders for new plant construction is shrinking, particularly inthe traditional automotive markets, our customers’ needs in terms of modernizing existing plants andmaking them more flexible are growing. We are responding to rising demand in Eastern Europe andAsia by further expanding our presence in these regions.

Increasing profitability by focusing our activities, adjusting capacities and structures, improvingour business processes and infrastructure, and creating an efficient organizational and managementstructure.

The sale of the Services (Premier), Development Test Systems, and Measuring and Process Technologiesbusiness units marked the completion of our efforts to concentrate on our core expertise. The share of salesthat we generate with the automotive industry is once again more than 90%. In addition, Dürr conducteda 10% capital increase in December. Heinz Dürr GmbH subscribed around 60% of the new shares, bearingwitness to the Dürr family’s confidence in the company.

As a result of these measures, Dürr’s financial situation changed for the better at the end of the year. Wewere able to completely repay the amount drawn under our syndicated loan facility, and on December 31,2005, we had cash and cash equivalents amounting to € 124.7 million. The € 200 million bond we issued inJuly 2004 continues to serve as a financing instrument. We were able to reduce our net financial debt from€ 312.2 million at the end of the third quarter to € 84.9 million at December 31, 2005. Our banks supportFOCUS. As a result, hedge funds have been unable to gain any influence. With an equity ratio of 20.9% atthe end of the year (previous year: 15.5%), Dürr is now on a solid footing.

As in previous years, 2005 was marked by intense global competition for system and machinery ordersfrom the automotive industry, particularly as the total number of large-scale projects continued to decline.This pushed the volume of incoming orders in continuing operations, excluding the business units thatwere sold, down € 170.5 million to € 1,216.9 million. As expected, sales in continuing operations were down,from € 1,725.8 million to € 1,400.6 million, due to the completion of large-scale projects. Intense pricecompetition and declining volumes, combined with insufficient capacity utilization at times, have had anegative impact on earnings for 2005, as have operational problems in the Factory Assembly Systemsand Cleaning and Filtration Systems business units in the United States. As a result, operating earningsbefore interest and taxes (EBIT) declined € 32.3 million, but remained positive at € 3.5 million.

The measures introduced to adjust our capacities and structures as part of FOCUS entailed restructuringexpenses totaling € 45.9 million. In addition, impairment losses on non-current assets resulted in additionalone-time charges of € 27.9 million. However, the Group was able to completely offset both of these effectswith the proceeds from the sale of Measuring and Process Technologies and Premier. Thus, consolidatedearnings after taxes were positive at € 4.3 million.

Stuttgart, March 2006

Ralf DieterChairman of the Board of Management

Martin HollenhorstMember of the Board of Management

Due to the even profit available for distribution of Dürr AG, the Supervisory Board and Board of Manage-ment will propose to the annual shareholders’ meeting that no dividend be paid for 2005. However, FOCUS

has us on the right track to put Dürr in a position to pay dividends again soon. At the end of 2005, the stockmarkets were already rewarding the FOCUS strategy and the measures that had been implemented thus far.The price of Dürr stock has risen by around 50% since the end of October, giving our shareholders a gainof 34% for the year as a whole.

Dürr is a company with great potential and an excellent brand image. Our leadership in technology and onthe market, our broad base of installed equipment and plants, and the skill and motivation of our employeesare a solid foundation on which we can continue to build. And our financial structure is sound once again.

Implementation of FOCUS will extend into 2007. And while 2006 will be dominated by the implementationof measures under FOCUS, the resulting improvements in operating performance should already begin toshow in the second half of the year. We are confident that we will achieve the targets we have set and thatthey will enhance the value of our company for the long term.

We wish to extend special thanks to our employees for your untiring commitment and the valuable contri-butions you have made to the company in challenging times. We also wish to thank our shareholders,customers, and business partners for the confidence you have placed in Dürr.

Sincerely,

Ralf Dieter (44)

Chairman

Paint and Assembly SystemsMeasuring and Process SystemsQualityResearch and DevelopmentPatentsInformation Technology

Martin Hollenhorst (47)

Finance /TaxesControllingOrganizationInvestor Relations /Corporate CommunicationsLegal Affairs / InsuranceRisk ManagementHuman ResourcesInternal Auditing

(from left to right)

4

In 2005, the Supervisory Board performed the duties assigned to it by law and the articles of incorporationand worked closely with the Board of Management in an advisory and supervisory capacity. The SupervisoryBoard was involved in all major decisions. The Board of Management informed the Supervisory Board ina timely and comprehensive manner about the economic situation of the company, about company plan-ning, and about transactions requiring Supervisory Board consent, substantial business transactions, andrisk management. The Supervisory Board adopted its resolutions after thorough review on the basis ofdecision-making materials.

The Supervisory Board held five regular meetings and one special meeting in 2005, on the following dates:February 23, April 20, June 22, August 10 (special meeting), September 28, and December 19. No memberof the Supervisory Board participated in less than three of the meetings. The Chairman of the SupervisoryBoard maintained close contact with the Board of Management outside the meetings in order to analyzethe company’s situation. He always reported the results of these discussions to the entire Supervisory Board.The Personnel Committee and Audit Committee each met twice in 2005. The Mediation Committee wasnot convened.

The Board of Management and the Supervisory Board discussed the orders, sales, and earnings situationas well as the financial position of the Group at all meetings on the basis of written and oral reports fromthe Board of Management. A key topic of consultations in the first half of the year was the reorganizationof the Group into two divisions. In this connection, the Supervisory Board approved the sale of the PremierGroup and the Development Test Systems business unit. At the special meeting of the Supervisory Boardon August 10, 2005, the Board of Management explained the key features of the Group-wide FOCUS pro-gram. At the two subsequent meetings, the Supervisory Board obtained detailed information about theimplementation of FOCUS.

At the meeting on December 19, the Supervisory Board approved the corporate planning for 2006, ac-knowledged the planning for 2007 and 2008, and was informed about the intended business policy. At thesame meeting, the Board of Management and the Supervisory Board jointly issued an updated declaration

Report of the Supervisory Board

Dr.-Ing. E. h. Heinz Dürr

5Report of the Supervisory Board

of compliance – pursuant to Sec. 161 of the German Stock Corporation Act – to the effect that Dürr is largelyfollowing the recommendations of the Government Commission German Corporate Governance Code.Details can be found on p. 21.

In written procedures in which the relevant documents were circulated to each member, the SupervisoryBoard approved the sale of the Measuring and Process Technologies business unit and a 10% increase inDürr AG’s capital stock.

The Board of Management reported regularly and in a timely manner to the Supervisory Board aboutexisting risks. The Supervisory Board advised the Board of Management regarding the expansion of riskcontrol and monitoring systems.

Personnel changes

Harald Lambacher joined the Supervisory Board as representative of the executive personnel on April 22,2005. He succeeded Harald Rüber, who resigned from the Board as of the end of February 28, 2005, becausehe had been appointed Managing Director of Dürr Systems GmbH. The Supervisory Board thanks Mr. Rüberfor his constructive cooperation. In keeping with the election cycle, elections for the employees’ representa-tives on the Supervisory Board will be held on April 24, 2006. The shareholders’ representatives will beelected by the 17th annual shareholders’ meeting on May 24, 2006.

On August 10, the Supervisory Board appointed Ralf Dieter Chairman of Dürr AG’s Board of Managementeffective January 1, 2006. He succeeds Stephan Rojahn, who resigned his post as of December 31, 2005.Mr. Rojahn had served as a regular member of the Board of Management since October 2002 and as theChairman of the Board of Management of Dürr AG since January 1, 2003. The Supervisory Board thankshim for the great personal dedication with which he served the company.

On April 20, 2005, Martin Hollenhorst was appointed a regular member of the Board of Management effec-tive immediately. He is responsible for Finance/Tax, Controlling, Law, Risk Management, Internal Auditing,Human Resources, and Corporate Communications. He is also the Employee Affairs Director of Dürr AG.Mr. Hollenhorst succeeds Kay Bönisch, who resigned from the Board of Management by mutual agree-ment on April 20, 2005.

Dr. Norbert Klapper, who had served as a member of the Board of Management since 2000, requestedthat his contract not be extended so that he could focus on another professional pursuit. He left the Boardof Management with the Supervisory Board’s approval on June 22, 2005. The Supervisory Board thanksDr. Klapper and Mr. Bönisch for their work on behalf of the company. The new rules of procedure for theBoard of Management, which took effect January 1, 2006, were approved by the Supervisory Board onDecember 19, 2005.

Audit and ratification of the annual financial statements

Ernst & Young AG Wirtschaftsprüfungsgesellschaft examined the annual financial statements, the man-agement report, the consolidated financial statements, and the Group management report for Dürr AG,which were prepared by the Board of Management for the period ended December 31, 2005, and issued anunqualified auditor’s report. The annual financial statements, the consolidated financial statements, themanagement report, and the Group management report as well as the auditor’s reports were submitted tothe members of the Supervisory Board in good time. They were discussed in detail with the Board ofManagement at the Supervisory Board meeting held to approve the financial statements on March 29, 2006.The auditors signing the audit report participated in that meeting and in the Audit Committee meeting onMarch 22, 2006. They reported on their audit and were available to provide further explanations.

6

The Supervisory Board examined and accepted the annual financial statements, the consolidated financialstatements, the management report, and the Group management report. The Supervisory Board approvesthe results of the audits of both financial statements and approves the annual financial statements andconsolidated financial statements prepared for the period ended December 31, 2005. The annual financialstatements are thereby ratified.

The Supervisory Board has examined the report prepared by the Board of Management pursuant to Sec. 312of the German Stock Corporation Act concerning relationships with related enterprises (dependentcompany report) for 2005. The auditor issued the following unqualified report pursuant to Sec. 313 (3) ofthe German Stock Corporation Act: “After examination and assessment in accordance with our profes-sional duties, we confirm that: 1. the factual information given in the report is correct, 2. the considerationpaid by the company in connection with the transactions mentioned in the report was not unduly high,and 3. regarding the measures mentioned in the report, no circumstances argue in favor of a materiallydifferent judgment than that made by the Board of Management.” The Supervisory Board concurs withthis result of the review. According to the final results of the examination by the Supervisory Board, thereare no objections to be raised against the declaration by the Board of Management at the end of the depend-ent company report.

The Supervisory Board thanks the Board of Management, the employee representatives, and all employeesfor their dedication in 2005, as well as the shareholders for the confidence they have placed in the company.

Stuttgart, March 29, 2006

Chairman of the Supervisory Board

Dr.-Ing. E. h. Heinz Dürr

7FOCUS

As an equipment supplier to the automotive industry, we see ourselves as a technology

leader. Our global presence and the expertise of our employees are the foundation on

which we have built our leading position. We launched the Group-wide FOCUS program

in August 2005 to secure our strong market position and use it to achieve reasonable

margins. The main objective of FOCUS is to increase efficiency for the long term

by improving operational process flows and to concentrate on our business with the

automotive industry.

FOCUS has four objectives that are key to our future:

To improve our poor operating profitability

To reduce financial debtTo strategically adapt to changes in demandin the automotive industryTo tap new, high-margin lines of business

The improvements made through FOCUS are being implemented over the long term andcontinually reviewed. Our focus here is on involving our employees, whom we informabout the goals, measures, motives, and progress of FOCUS on a regular basis. The pro-gram entails restructuring expenses of € 45.9 million. In addition, extraordinary write-downs of € 27.9 million have arisen as a result of the realignment. We have planned18 months for the implementation of the key measures. While 2006 is the year of imple-mentation, the impact of FOCUS is expected to take effect during the course of 2007.

First goals achieved

We have already achieved two major goals of FOCUS:

We have sharpened our focus on the automotive industry. We have quickly parted withactivities that do not fit this strategy, and proceeds from the sales exceeded our targets(more information on p. 24). The result of this streamlining of our portfolio is a clearpositioning of the Dürr Group as a focused manufacturer of machinery and industrialequipment for the automotive industry.

Just as important as the streamlining of our portfolio is the long-term improvement ofour financial structure. With the proceeds from the sales and from the capital increase inDecember 2005, we reduced net financial debt to € 84.9 million by the end of the year.Thus, the Group is now on a solid financial footing.

FOCUS

Improving earning powerin our core business

“At General Motors in Oshawa, we have just put into service one of the largest paint shops that has ever been built.

Dürr relies on professional project management and knowledge transfer to make sure that such big contracts

go according to plan in every way. For example, in the framework of our FOCUS program, we have put together a

handbook that is the collective know-how of our 50 most experienced project managers.”

Ron Downs, Paint Systems Project Manager

Adapting to a changed market environment

With FOCUS, we are adjusting strategically to a structural change in our market environ-ment. The automotive industry will continue to be a growth industry in the future.For the years ahead, we expect global automobile production to increase by 2% to 3%annually.

However, we will be conducting our business under changed conditions. With theexception of Asia and Eastern Europe, the number of new plants being built will declinebecause excess capacities already exist today. On the other hand, demand for plantconversions – or “revamps” – for modernization and flexibilization will increase sharply.Given rising production volumes and ever-broader ranges of models, automakers andtheir suppliers have to streamline their plants and make them more flexible if they are toremain competitive in the future.

This is why we are stepping up international marketing of our service and conversionservices, establishing additional local service bases near our customers, and developingnew services such as consulting on process optimization and energy audits in automo-tive plants.

9

Above all, the FOCUS program

helps us to improve our structures

and processes. In that connection,

we are concentrating on five

crucial points.

FOCUS: Utilizing potential for improvement

FOCUS

FOCUS ON

PROFITABLE

BUSINESS

REDUCE

CAPACITY

AND COST

IMPROVED

PLANNING AND

CONTROLLING

SYSTEM

STREAMLINE

ORGANIZATIONAL

STRUCTURE

INCREASE

EFFICIENCY

Increasing operating efficiency

In our efforts to improve structures and processes, we are carrying out around 30 indi-vidual projects, primarily in Paint and Assembly Systems. For the most part, the projectscan be divided into three main areas.

Boosting efficiency

To make our work more efficient, we are harmonizing business processes and IT supportsystems in such areas as project management, risk management, costing, contractdrafting, and finance and controlling. In this way, we are creating a framework for smoothinternal cooperation, especially for international projects that involve employees fromdifferent sites. We have better aligned our sales organization with our customers’ struc-tures and needs. For our major customers in the automotive industry, we have establishedGlobal Customer Directors, who have been managing these accounts since October2005 and are responsible for the Group’s entire range of products and services. We arealso pushing forward the modularization of our products, which will play a key role inour ability to complete orders on budget and on time and will also minimize earnings risks.

“The FOCUS program is helping Dürr to grow closer together. In the area of information technology,

we are in the process of standardizing different systems. That will considerably improve cooperation

within the Group. It will also make it easier to carry out international projects.”

Heike Steeg, Application Development, SAP

Streamlining our organizational structure

We have placed each of our six business units under global managers who have enforce-ment rights and bear overall responsibility for results. We have bundled our coverage ofthe painting technology market for automobile manufacturers and automotive suppliersin our Paint Systems business unit. The report on the next page shows how we have im-proved the division of labor within our Paint and Assembly Systems division.

Adjusting capacities and reducing costs

By the end of 2006, we will eliminate around 600 jobs net, primarily as part of the restruc-turing of Paint and Assembly Systems. While some 800 jobs will be cut in WesternEurope and North America, around 200 new employees will be hired in Asia’s burgeon-ing markets. The cuts will enable us to achieve annual savings of more than € 50 millionbeginning in 2007. Around half of the job cuts are due to market-related capacity adjust-ments. The other half are the result of measures to improve efficiency and the consoli-dation of locations in Germany and the United States.

11FOCUS

Our business as machinery and industrial equipment manufacturers for the automotive

industry has many facets, from supplying individual products to converting plants and

systems to building complete paint shops and final assembly facilities. We are directly

represented in 19 countries and maintain 47 sites, of which 24 have their own produc-

tion facilities. In such a global network, there have to be clear guidelines about which

companies within the Group are responsible for which tasks. As part of FOCUS, we

have fundamentally improved this division of labor in our Paint and Assembly Systems

division in order to ensure efficient project management for our customers and to avoid

earnings risks.

Since fall 2005, the companies of our Paint and Assembly Systems division have beendivided into two groups with different task profiles:

The “system centers” in Stuttgart and Detroit are primarily responsible for managinglarge-scale orders. The system centers are companies with strong resources andhighly qualified employees who have completed more than 80 large orders as projectmanagers in the last 15 years. We are currently establishing a third system centerin China/Korea. The system centers divide their responsibilities by region or customer.Stuttgart manages Europe, Africa, and Asia, while Detroit covers the NAFTA countriesand Australia.

All other Paint and Assembly Systems companies function as local business centers.They support the system centers on large-scale orders on site, are responsible forlocal sales, and are expanding our services business. The business centers ensurecustomer responsiveness as they are located in all of the automotive industry’smanufacturing markets, including France, Spain, the UK, Japan, Brazil, China, India,and Russia.

The advantages of the new structure are clear – our customers have an experiencedteam by their side for every project. The risk of going over budget or missing deadlineson orders drops dramatically while our efficiency increases. Bundling expertise in thesystem centers enables us to streamline the business centers. At the same time, coordi-nation by the system centers enables our companies to work together better.

More security throughbetter division of labor

12

P L A N N I N G O R D E R O R D E R

ConstructionPlanning Order income Technical clarification

Project report

Precision work required

Whether the focus is on painting equipment or final assembly systems, extensive revamp-ing projects are always completed in several steps and billed based on the percentageof completion. The first step is always planning. At this stage, the customer commissionsus to develop a new layout for an existing plant. Our planning engineers use computersto determine what the individual production processes have to look like to meet newproduction targets like lower energy consumption or higher capacity.

We are currently handling a particularly challenging conversion project for the BMW

Group. Because the new MINI has been selling so well, capacities at the BMW Group’spaint shop in Oxford, UK, have to be increased considerably. Having built the paint shopnew back in 1997 and 1998, we were predestined for the job. The BMW Group commis-sioned us to do the planning for the conversion in 2004. The next milestone was to clarifythe technical details. In this second planning stage, details were specified that had notyet played a role in the original layout planning. We also consulted with our customer onhow future change requests and expansions could be achieved given the limited amountof space available. We drafted a schedule that distributed our construction work across theindividual plant holidays to avoid disrupting production. We completed the plans suc-cessfully in March 2005. The BMW Group then put out a call for bids on the constructionwork and awarded the contract to Dürr at the end of June 2005.

Preparation phase

We had six months to prepare for the first major conversion stage in Oxford, whichwould take place at the turn of the year from 2005 to 2006. Within Dürr, we set up a10-person core project team consisting of colleagues from Germany and the UK, with

Increasingly, automotive plants are being converted, made more flexible, or expanded

as manufacturers react to rapid model changes and changing customer demands.

These “revamps” must be perfectly planned and executed because production in

the plant has to continue without major disturbances throughout the conversion.

Projects like these require capable partners like Dürr.

13

Production Installation Start of operation Final acceptance

Project report

a project manager and sub-project managers who are responsible for various tasksand product groups, such as spray chambers, dryers, conveying systems, and applicationtechnology. In early October, we made initial deliveries in the paint shop duringa production stop.

First conversion stage goes like clockwork

Precision work was the order of the day during the production stop around the turn ofthe year 2005/2006. Three weeks would have to be enough for us to switch out or installseveral pieces of equipment, such as underbody protection, cavity preservation, andconveying systems. As for paint application equipment, we installed two additional paint-ing robots for the contrast roof booth, where the striking contrast color is applied to theroof of the MINI.

To be able to complete installations like these under time pressure, you need an experi-enced team on site and a well-functioning organization in the background. Both areessential to staying on schedule, managing subcontractors, and properly deploying asmany as 150 workers on the construction site around the clock.

Second conversion stage still ahead

Preparations are currently underway in Oxford for the second, longer stage of the revamp,which will include the installation of several painting robots. All installations and com-missioning should be complete by the end of 2006, so the plant can gear up productionto its new capacity in the weeks that follow.

Contrast roof booth at the

BMW Group plant in

Oxford: Painting robots

apply the contrast color to

the roof of the MINI.

14

GLOSSARY: p.102

New EcoRP E painting robot unveiled

Marketing success for new FAStplant ® final assembly concept

Service: Energy management lowers costs

Paint systems: New plant in China

We continued on our growth course in building new painting plants in Asia. Business withthe South Korean automotive industry developed very well in 2005. And even in China,we were able to win major contracts despite a temporary slowing of the markets. We re-ceived two system orders for the construction of complete paint shops from ShanghaiGeneral Motors. And just in time for the 20th anniversary of our entry onto the Chinesemarket, we dedicated a new plant in Quingpu near Shanghai in October 2005. This plantserves as an important basis on which we will continue to expand our involvement in thegrowth regions of Asia and boost our local value chain.

Based on our process and consulting expertise, we are tightening our focus on the optimi-zation of existing plants. And we’ve been successful. DaimlerChrysler commissioned usto convert several painting lines to more efficient technologies and processes in Germany.We are also helping to significantly increase capacity at the BMW Group’s Oxford (UK)plant, where the MINI series is painted. You can read more about this project on pages12/13.

We further expanded our service activities and opened our test center for SEALING

processes in Bietigheim-Bissingen. The center has four robot stations at which we canwork with our customers to test and optimize production processes, such as the sealingof weld seams, prior to use.

In APPLICATION TECHNOLOGY, in particular, we benefited from the continuing trend towardprocess automation. This is reflected not least of all in the record sale of well over 500painting robots last year. We will continue to expand our robotics business in the future.And the newly developed EcoRP E model, which we unveiled in September 2005, willhelp us do so. The EcoRP E is especially well suited for conversions of existing paintingbooths and for replacing older, less flexible painting machines. Short installation andcommissioning times and a small footprint make it a clear choice. Because it moves on arail mounted below the booth ceiling, the EcoRP E is also extremely flexible and has notrouble reaching all the surfaces of a vehicle body.

We are also breaking new ground in the area of software. We use data from three-dimen-sional MATERIALS FLOW simulations to adjust our standard EcoEMOS SUPERVISORY

CONTROL SYSTEMS to our customers’ specific production processes as quickly as possible.As a result, the fully programmed supervisory control systems are ready for operationsooner, speeding the start-up of the entire plant.


Continued expansion of robotics business

15Paint and Assembly Systems division

Final assembly and conveyor systems:

New FAStplant ® system used for mass production for the first time

We received a strategically important order for final assembly systems in November 2005,when premium carmaker Audi decided to use our new FAStplant ® final assembly con-cept in the production of its Le Mans sports car – giving us an important reference for thesystem’s further marketing for mass production. FAStplant ® consists of preassembledmodules containing all of the interfaces needed to connect to assembly and testing de-vices. This makes it possible to set up or change over the main final assembly line in justa few days.

One focus of our innovative efforts was on test stand technology. Within the scope of theEuropean Union’s SPARC project (www.sparc-eu.net), we developed the prototype ofa vehicle test stand that checks DRIVE-BY-WIRE-based intelligent driver assistance andsafety systems. These systems help drivers stay in their lane, change lanes, and park.They also include more all-encompassing systems that warn drivers of possible hazardsand even take corrective action in an emergency, for example if the driver is not steeringinto a curve properly or is making a dangerous braking maneuver. The new test standcan be easily integrated into the final assembly process. It conducts computer simulationsof dangerous situations and examines whether the installed safety systems are reactingproperly, exactly in accordance with sequence timing requirements. As in aircraft, drive-by-wire components and safety systems based on them will become standard equipmentin many automobiles in just a few years’ time. And we are already well prepared forthis trend.

We have demonstrated our technological expertise and our expertise in a number of de-manding projects. These include a turnkey final assembly plant for KIA in Žilina, Slovakia,the expansion of the new body assembly conveyor systems at DaimlerChrysler in Bremen,Germany, and the installation of a MARRIAGE STATION and the associated conveyorsystems at Ford’s plant in Saarlouis, Germany.

Environmental technology:

New concepts for reducing the amount of energy used for production

Cutting energy consumption will play an increasingly important role in reducing automo-tive production costs in the years ahead. That is why we have set up a consulting teamthat advises our customers on energy management. For example, we studied the energyneeds and costs of all relevant processes in one large automaker’s paint shop in theUnited States. The suggestions for improvement that were developed based on the out-come of our study resulted in such significant savings that they will offset the expenseof converting the system within the first year.

Energy management is also a top priority in the design of our exhaust-air purificationsystems. For example, we developed a pioneering combination technology for use in thecoil coating of steel. The system directs the heated air with which pollutants are inciner-ated back into the production process as heat energy.

Aside from the automotive industry, we are expanding our position in new markets, forexample, as a supplier to the pharmaceutical and chemical industries. Successful prod-ucts like our energy-saving KPR adsorption systems, which are used for concentratingand cleansing large volumes of flue gases, are a cornerstone of this effort.

16

New balance measuring systems CAB 920 and CAB 950

New P-series machines for high-quality metal cleaning

Restructuring in cleaning technology is well under way

Balancing systems: Expanding our services business

In balancing and diagnostic systems, the automotive industry is our largest customergroup, accounting for 60% of sales. Trends this year varied by region. In the United States,we benefited from rising capex within the component supplier industry. Demand de-clined slightly in Europe and remained stable at the previous year’s high level in Asia.Japanese automobile manufacturers in particular continued spending heavily, both inAsia and in North America.

Business outside the automotive industry progressed well. Rising energy consumptionled to increased demand for balancing systems for power plant rotors in the emergingmarkets of Asia. The aviation industry stepped up spending to accommodate rising pas-senger volumes and the switch to more efficient engines.

As a partner for all aspects of the balancing process, we are expanding our services ina targeted manner. We generate more than 25% of our sales with services and that trendis rising. Our global balancing centers, where customers can have us balance gears,axles and other components, are a good example. Our consulting program also has strongmarket potential. With it, we advise customers early on in their development work toensure the optimal design of new products with respect to balancing and vibration.

We have proven our innovative power with the new CAB 920 and CAB 950 BALANCE

MEASURING SYSTEMS. They offer not only easier handling and greater operating safetybut also shorter changeover times and thus higher productivity. In the area of wheelsand tires, we unveiled a new system for assembling and balancing tires equipped withemergency running properties. In the interest of increased safety, more and moreautomobiles are being equipped with these “run-flat tires” and potential demand for ourassembly systems is correspondingly high.

We continue to expand our business in Asia, which holds significant opportunities.In India, we took over our partner’s entire stake in the former Schenck Avery Ltd.joint venture (now Schenck RoTec India Ltd.). Our Chinese company developed a semi-automated balancing machine for electric motors that is designed specifically forlow-cost production sites in Asia.


Innovations strengthen market leadership

17Measuring and Process Systems division

GLOSSARY: p.102

Cleaning technology: Efficiency and cooperation improved

With the brand name Dürr Ecoclean, the Cleaning and Filtration Systems businessunit stands for innovative power, global presence, and top technologies for cleaningand COOLANT RECYCLING.

We expanded further in Asia in 2005. In China, we benefited from close cooperation withthe Balancing and Diagnostic Systems business unit, which has been active in Chinasince the 1980s and has a powerful organization there. In North America, business wasunsatisfactory. In Europe, business development was subdued, although the importantGerman market did pick up at the end of the year.

The restructuring of Cleaning and Filtration Systems has progressed within the scope ofthe FOCUS program. We concentrated especially on coordinating our activities in Europe,North America, and Asia. We assigned specific responsibilities to the individual sites inorder to avoid duplication in design, production, and development. Sales and servicehave been standardized worldwide, as has our brand design. We reduced capacity andimproved processes at our Monschau, Germany, site, and by the end of 2005, the sitewas up to full capacity again for the first time in 20 months. We also adjusted capacitiesin the United States and bundled all filtration technology activities at our site in BowlingGreen, Ohio. A cost-reduction and efficiency program is currently under way in France.

In addition to these improvements, we are focusing on innovations to boost our competi-tiveness. A prime example is the Ecomat 600, a cleaning system with an integratedstorage and loading cell that we developed in collaboration with a partner company foruse in the production of engines and transmissions. From the storage and loading cell,the workpieces are fed into an attached machine tool, retrieved after processing, andconveyed into the cleaning area, all in accordance with an exact timing sequence. Inthe cleaning area, as many as three treatment modules take over the washing and dryingof the parts. INJECTION FLOOD WASHING and vacuum drying ensure optimal cleaning,even of complex workpieces. Another benefit is that the Ecomat 600 requires as much as60% less floor space than conventional systems.

We unveiled the innovative P-series of machines for outstanding metal cleaningresults using solvents. The series evolved from a development partnership with the clean-ing media producer Dow/Safechem and is currently the only series worldwide that isdesigned for use with the new DOWCLENE 1611 cleaner. The space-saving Compact 80Pmodel and the high-throughput Universal 81P deliver outstanding results with manydifferent types of particles and contaminants. The P-series also features integratedsolvent recycling, minimal energy consumption thanks to heat recovery, and virtuallyemissions-free operation.

18

ISIN DE0005565204

Reuters symbol DUEG

Bloomberg code DUE GY

140

130

120

110

100

90

Dürr stock in XETRA trading DAX MDAX SDAX

Price trend of Dürr stock in XETRA trading from January – December 2005

compared with development of the DAX, MDAX, and SDAX (indexed values) in %

J F M A M J J A S O N D

Following a favorable year in 2004, the European stock markets continued to develop wellin 2005, although the leading exchange in the United States did not change appreciably.European stocks benefited from more favorable company valuations and lower interestrates in Europe. Germany’s DAX index registered a plus of 28%. The smaller MDAX andSDAX indexes gained 36% and 35% respectively. Many smaller stocks managed to notonly make up ground against the big blue chips but have since achieved a higher valua-tion on average. Among the important reference indexes, only the TecDAX showed weak-er performance, with a rise of just 13%.

The bond markets saw differing trends over the course of the year. Price losses predomi-nated at the shorter end because of expectations that key interest rates would rise, whilelonger-term bonds gained ground as inflation fears subsided and liquidity increased.Yields on 10-year government bonds declined from about 3.6% to about 3.3% at the endof 2005, and the yield curve flattened.

Dürr stock started the year quoting at € 14.85 on the XETRA electronic exchange and thenmostly moved within the € 14 to € 16 range. Crucial factors contributing to the stock’sweaker performance compared with the market as a whole were the unsatisfactory busi-ness development in the first and second quarters and our rising debt level. The stockreached its low, € 13.23, at the end of October. Various measures aimed at the financialrestructuring of the Group and more intensive communication with investors about theGroup-wide FOCUS program then brought a turnaround in the stock’s price trend. Theannouncement of a 10% capital increase and the fact that the Dürr family subscribedabout 60% of the shares as a major shareholder were well received. Dürr stock closedthe year at € 20.30, a price increase of 34%, which more or less corresponds to the gainsachieved by the market as a whole.

Dürr on the capital market

Sustained rise in stock price inthe last two months of 2005

19Dürr on the capital market

Key figures for Dürr stock

2004

Earnings per share, Group in € 0.30 0.40

Earnings per share, continuing operations in € –7.26 0.00

Cash flow per share, continuing operations in € –10.25 –8.08

Dividend per share in € – –

High in € 20.35 21.10

Low in € 13.23 14.50

Close in € 20.30 15.11

Market capitalization (at Dec. 31) in € m 319.3 216.0

Number of shares (weighted average) 14,400,050 14,298,200

1 Dividend proposed to the annual shareholders’ meeting.

2005

1

Dürr stock is listed in Deutsche Börse’s Prime Standard segment and is traded on allGerman stock exchanges. The stock was withdrawn from the SDAX in September 2005.This index comprises the 50 largest German small caps as measured by trading volumeand the market capitalization of free float. The reasons for the withdrawal were the stock’slow trading volume and small free float. However, the stock’s trading volume and pricewere up again at year’s end. If this trend continues, Dürr stock could once again meetthe criteria for inclusion in the SDAX in the medium term. A designated sponsor, whoregularly makes prices in our stock, ensures that it has adequate liquidity at all times intrading.

Bond

The price of the corporate bond we issued in July 2004 was also influenced by investors’assessment of the Group’s operating and financial situation. The fixed-rate bond ma-tures in 2011 and has a nominal volume of € 200 million and an interest coupon of 9.75%.The bond is subordinated to the syndicated loan, which was also taken up in 2004, whichexplains the higher interest rate on the bond compared with a bank loan.

Standard & Poor’s (S&P) and Moody’s downgraded our company rating and the ratingof the Dürr bond in 2005. After the last downgrade by Moody’s in October, the bond’sprice dropped back to 100.4%. Much like the stock’s price trend, the bond price im-proved considerably once the restructuring measures were announced and S&P boostedits outlook to “stable” in November. S&P cited Dürr’s improved credit quality as thereason for its new rating, saying that the quality improvement was based on Dürr’snew corporate strategy, the sale of companies, and the support of major shareholders. Atthe end of 2005, the bond quoted at 107.25%.

In March 2006, S&P’s company rating for Dürr was “B” and the bond’s rating “CCC+”with a “stable” outlook. The ratings from Moody’s were “B2” for the company and “Caa1”for the bond. Moody’s gave it an outlook of “review for possible downgrade.”

The rating agencies base their assessments primarily on actual data and less on expec-tations for the future. Therefore, the prospects for the future, which we believe haveimproved as a result of FOCUS (see Outlook, p. 42), are not yet taken into account in thecurrent ratings. With FOCUS, we are looking to increase operating results and cash flowin 2006 and 2007. We also intend to further reduce debt in 2007. These are the main factorscritical to improving our ratings.

Bond

ISIN (Reg S): XS0195957658

ISIN (144a): XS0195957815

Bond

ISIN (Reg S): XS0195957658

ISIN (144a): XS0195957815

20

Shareholder structure

Heinz Dürr GmbH

Heinz und Heide Dürr-Stiftung GmbH

Süd-Kapitalbeteiligungsgesellschaft mbH

BWK GmbH Unternehmensbeteiligungsgesellschaft

Kreissparkasse Biberach

Institutional and private investors

According to Deutsche Börse’s calculations,the free float is 36.2%.

10.0%

47.9%26.6%

5.1% 4.1%

6.3%

The Board of Management and Supervisory Board have decided to propose to the annualshareholders’ meeting that no dividend be paid for 2005 due to the even result on thebalance sheet of Dürr AG.

Capital increase

In December 2005, Dürr AG increased its capital stock by 10%. To the exclusion of existingsubscription rights, 1.43 million new common bearer shares were issued. We generatedproceeds of € 21.8 million. The capital increase was conducted as a private placement ata subscription price of € 15.25. The Dürr family, the company’s principal shareholder,supports the measure. Heinz Dürr GmbH subscribed about 60% of the new shares whilea financial investor subscribed the rest.

Intensive capital market communication

Our corporate bond placement has significantly widened the circle of investors andanalysts with whom we communicate and won us far more attention in the financial com-munity. However, the number of analysts covering Dürr stock has declined since its with-drawal from the SDAX.

Our key concern is still to provide all of our shareholders with transparent, timely anduniform information about developments at Dürr to the greatest extent possible. TheBoard of Management has presented the company, its strategy and its business develop-ments at investor conferences and road shows in Germany and other countries in Europe.We have provided numerous private investors with comprehensive information – bytelephone, via the internet, and in regular reports and investor manuals. Attendance wasstrong at the analyst conferences and conference calls that we held when we presentednew financial figures and at other important events.

The new Dürr website went online in November 2005 and provides a much broader rangeof information for investors. At www.durr.com/en/investor, we offer firm financial fore-casts for 2006 and 2007 as well as current presentations and publications. Informationon analyst events, press conferences and the annual shareholders’ meeting are alsoadded in a timely manner. Persons interested in receiving our ad-hoc announcementsand press releases directly via email can subscribe to our news service.

21Corporate governance

We see the German Corporate Governance Code as an important guide for transparentand responsible corporate management and control. The initiative is contributing to betterprotecting shareholder rights and strengthening confidence in German companies.Corporate governance is a high priority at Dürr. However, Dürr has some structures thatare typical of small and mid-sized enterprises. Because our competitors are not publiclylisted companies or operate as subdivisions of large groups, they are subject to far lowertransparency requirements than us. For this reason, we cannot or do not want to follow allof the recommendations of the German Corporate Governance Code (“the Code”).Nevertheless, this year we are in compliance with two more requirements than last year:

Item 5.4.7, Paragraph 1, Sentence 3: Also to be considered [for specifying thecompensation of the members of the Supervisory Board] … shall be … the chair andmemberships in committees.The chairman and members of the committees receive special compensation.

Item 7.1.2, Sentence 3: The consolidated financial statements shall be publiclyaccessible within 90 days of the end of the financial year.

Dürr will publish its consolidated financial statements within 90 days of the end of thefinancial year.

According to Sec. 161 of the German Stock Corporation Act, the Board of Management andthe Supervisory Board of listed stock corporations are obliged to declare once every yearthat the recommendations of the Government Commission German CorporateGovernance Code were and are being complied with, or which recommendations wereor are not being applied. Dürr AG fulfills most of the mandatory provisions of the Codein its June 2, 2005, version. The deviations from the Code are specified below with thecorresponding reasons. In accordance with Sec. 161 of the German Stock Corporation Act,the Board of Management and the Supervisory Board of Dürr AG declare:

“Dürr AG complies with the recommendations of the Government Commission GermanCorporate Governance Code with the following exceptions:

Item 3.8, Paragraph 2: If the company takes out a D&O (directors and officers’ liabilityinsurance) policy for the Management Board and Supervisory Board, a suitabledeductible shall be agreed.

A D&O insurance policy with no deductibles exists for the members of the Boardof Management and the Supervisory Board. This is a Group insurance policy for execu-tives at home and abroad, although a differentiation between board members andemployees does not appear appropriate. In addition, a deductible is not usual abroadand would therefore make it difficult to recruit executives from abroad.

Item 4.2.4: Compensation of the members of the Management Board shall be reportedin the notes of the consolidated financial statements subdivided according to fixed,performance-related and long-term incentive components. The figures should beindividualized.

We report the sum of salaries of the members of our Board of Management in the notesto our consolidated financial statements. In our view, a special, individualized item brokendown into fixed salary and success-related components would not provide any addi-tional benefit for the shareholders. Moreover, individualized reporting brings with it therisk of leveling out performance and task-related differences in compensation.

Corporate governance

22

Item 5.4.1 Sentence 2: Furthermore, ... an age limit to be specified for the members of itsSupervisory Board shall be taken into account.

Dürr sees no necessity for defining an age limit for members of its Supervisory Board.

Item 5.4.7, Paragraph 3: The compensation of the members of the Supervisory Boardshould be reported in the notes of the consolidated financial statements individualized,subdivided according to components. Also payments made by the enterprise to themembers of the Supervisory Board or advantages extended for services provided indi-vidually, in particular advisory or agency services, shall be listed separately in thenotes to the consolidated financial statements.We report the sum of compensation of the members of our Supervisory Board in thenotes of our consolidated financial statements. In our view, a special, individualizeditem broken down by components would not provide any additional benefit for theshareholders. The possibility of obtaining the expertise of individual members of ourSupervisory Board for special topics at any time represents a special advantage forDürr. Cooperation is based on the conditions that are usual in the industry, which arealso maintained in comparable transactions with third parties. Hence, we see no ne-cessity for individualized publication.

Item 7.1.4, Sentences 1 and 3: The company shall publish a list of third-party companiesin which it has a shareholding that is not of minor importance for the enterprise. ... Thefollowing shall be provided: Name and headquarters of the company, the amount of theshareholding, the amount of equity and the operating result of the past financial year.We publish a list of the significant third-party companies, indicating the companies’headquarters. We do not make public additional information for reasons relating tocompetition.”

Management and supervisory structure

In accordance with German company law, to which Dürr is subject as a stock corporationunder German law (AG), the company has a two-part management and supervisorystructure that consists of a three-member Board of Management – since the start of 2006,the Board of Management now has two members – and a twelve-member SupervisoryBoard. In accordance with the German Codetermination Act, the Supervisory Board con-sists of equal numbers of shareholder and employee representatives.

Director’s dealings

Under Sec. 15a of the German Securities Trading Act, members of the Board of Manage-ment and the Supervisory Board and employees exercising management duties mustreport the purchase or sale of Dürr AG shares – including any related derivatives – if thevalue of the transactions conducted by the member and their first-degree relativeswithin a calendar year totals € 5,000 or more. A detailed overview of such transactionsthat were reported to Dürr AG during the current year can be found at www.durr.com.On balance, the Board of Management and Supervisory Board purchased more Dürr stockthan they sold in fiscal 2005.

Implementation

In order to ensure a high standard of corporate governance in the company, the ChiefFinancial Officer is responsible for these matters. The compliance officer ensures com-pliance with the rules governing capital market behavior, in particular to prevent conflicts ofinterest with respect to the purchase or sale of Dürr stock.

For information about the compensation paid to members of the Board of Managementand the Supervisory Board, please see p. 93 of the annual report.

Documents regarding corporate

governance, such as the articles of

incorporation of Dürr AG and our

declarations of compliance, are

available online under “Corporate

Governance” in our “Investor

Relations” section.

Documents regarding corporate

governance, such as the articles of

incorporation of Dürr AG and our

declarations of compliance, are

available online under “Corporate

Governance” in our “Investor

Relations” section.

“We sold over 500 painting robots in 2005, more than ever before. To support the auto industry even better in

automating their factories, we have now developed a second generation of robots, the EcoRP E. The “E” stands

for “elevated.” The new robot moves at a height of 190 centimeters, and that makes it much more flexible.”

Bekim Maxharraj, Product Manager, Painting Robot Technology

190

GLOSSARY: p.102

Dürr is one of the world’s leading suppliers of equipment, systems, and services forautomobile manufacturing. Concentrating on our core business, we now generate morethan 90% of our sales with the automotive industry. Painting systems make up ourlargest individual activity, accounting for 55% of sales. Our leadership in the global marketfor painting systems is based on our system, process, and service expertise combinedwith the leading technology we put into products in such areas as robotics, controls, andatomizer technology. We are also global leaders in balancing and diagnostic systems andindustrial CLEANING TECHNOLOGY. We are among the top three suppliers of final assem-bly and conveyor systems in the world and offer both complete systems and individualproducts. Environmental and energy systems round out our range of products and serv-ices. In this fragmented market, our focus is on planning and installing exhaust-airpurification systems.

Group management report for the 2005 reporting period

Organizational and legal structure

24

Balancing and Diagnostic Systems

Cleaning and Filtration Systems

Paint Systems

Application Technology

Environmental and Energy Systems

Factory Assembly Systems


division


division

BU

SIN

ES

S U

NIT

S

A clear Group structure

As of March 1, 2005, we launched a new Group structure consisting of two divisions thatbundle related activities. The former Paint Systems and Final Assembly Systems businessunits, both of which were primarily involved in plant engineering, now form the newPaint and Assembly Systems (PAS) division. And the Measuring Systems and Ecocleanbusiness units, whose focus was on mechanical engineering, have been combined intothe new Measuring and Process Systems (MPS) division. At December 31, 2005, the twodivisions comprised a total of six business units.

Legal structure

The Dürr Group is made up of 63 companies (previous year: 110). Information on thecombination of companies in fiscal 2005 is contained in item 4 of the notes to the consol-idated financial statements. Dürr AG, Stuttgart, functions as a holding company.

Dürr AG conducted a 10% capital increase in December 2005, to the exclusion of sub-scription rights for existing shareholders. The issuance of 1,429,820 new shares increasedthe total number of shares outstanding to 15,728,020 and the capital stock grew from€ 36.6 million to € 40.3 million. The capital increase brought us proceeds of € 21.8 million.

Divestments: Concentrating on our core business

We sold off the following activities during the past fiscal year because they do not fitwith our core business as a machinery and industrial equipment manufacturer for theautomotive industry:

We sold the Premier Group, which offers production support services, to theVoith Group effective May 31, 2005. Premier generated sales of € 158.6 million infiscal 2004.

We sold the Development Test Systems (DTS) business unit to the Japanese companyHORIBA Ltd. effective September 30, 2005. DTS provides testing equipment for auto-motive development and generated sales of € 74.5 million in 2004.

We sold the Measuring and Process Technologies unit to HgCapital Ltd. effectiveDecember 30, 2005. Measuring and Process Technologies supplies systems for weigh-ing, feeding, automation, and screening in industrial processes, primarily for themining, cement, steel, and chemical industries. In fiscal 2004, Measuring and ProcessTechnologies generated sales of € 177.5 million.

The sale of these three units brought us proceeds of € 314.7 million and a total bookgain of € 116.1 million.

25Group management report for the 2005 reporting period

GDP growth

20042005

World 4.3 5.2

Germany 0.8 1.6

EU 1.5 2.4

USA 3.5 4.2

China 9.3 9.5

Japan 2.5 2.7

Source: European Commission

Amounts in %

Production of passenger

cars and commercial vehicles

in million units

%*2005

World 64.7 3.0

Germany 5.8 3.4

EU 15 16.6 –2.1

New EU countries 1.6 7.5

Eastern Europe 2.6 3.6

USA 11.9 –0.1

Mercosur 2.8 12.1

Asia 23.9 7.0

China 5.3 15.1

Japan 10.7 2.0

* Change versus previous yearSource: German Association of theAutomotive Industry (VDA)

Control and profit-and-loss transfer agreements

Dürr AG did not sign any additional control or profit-and-loss transfer agreements in 2005.

Report on relationships with related companies

In conformity with Sec. 312 of the German Stock Corporation Act, the Board of Manage-ment of Dürr AG prepared a report on relationships with related companies, in whichit issued the following concluding declaration: “We declare that under the circumstancesknown to us at the time when transactions were carried out or a measure was imple-mented or refrained from, our company received fair and reasonable consideration ineach transaction, and was not placed at a disadvantage by implementing or refrainingfrom the measure in question.”

Economic environment

2005: Robust growth of the global economy

At plus 4.3%, global GDP growth was slower in 2005 than it had been the previous year(5.2%). Moreover, the economic trend lost considerable momentum in the second halfdue primarily to sharp rises in energy and commodity prices. Most of the growth wasdriven by the economies of North America and Asia. The United States benefited fromrobust domestic demand. In Asia, the strongest momentum came from China, but growthrates in the emerging economies of Southeast Asia were also above average. In theEuropean Union, GDP grew just 1.5% in 2005, with sharp differences among the individualmember states. Germany was once again below average, with just 0.8% growth.

Automobile production up 3% worldwide

In 2005, the automotive industry produced 64.7 million passenger cars and commercialvehicles worldwide. That corresponds to an increase of 3% compared with the previousyear. This growth resulted from increases in production in the emerging markets.Vehicle production was up 3.6% in Eastern Europe, 7.5% in the new EU member states,and 7% in Asia. By contrast, production volumes declined 2.1% in the established mar-kets of Western Europe and held steady in the United States.

Although vehicle production grew on balance, the market environment remained difficult.Deep discounts, excess capacities, and rising raw material and energy prices put pres-sure on manufacturers’ and suppliers’ margins. For this reason, capital spending in theautomotive industry remained subdued. New plants were primarily built in the emergingmarkets, while our customers in North America and Western Europe, facing pressure toincrease productivity and cut costs, increasingly invested in modernizing existing plants.These capital expenditures are aimed at enhancing quality with new production technol-ogies and reducing energy, material, and operating costs. More and more, capital expen-ditures are driven by the desire to make production processes more flexible, for exampleso that, as model diversity increases, different vehicle types can be assembled on thesame line.

26

Consolidated sales

20042005

Paint and

Assembly Systems 1,090.0 1,413.8

Measuring and

Process Systems 310.6 312.0

Continuing

operations 1,400.6 1,725.8

Amounts in € m

77.8%

22.2%

Consolidated orders on hand

(December 31)

20042005

Paint and

Assembly Systems 612.1 730.9

Measuring and


Continuing

operations 723.5 859.9

Amounts in € m

84.6%

15.4%

Consolidated incoming orders

20042005

Paint and

Assembly Systems 931.2 1,086.4

Measuring and


Continuing

operations 1,216.9 1,387.4

Amounts in € m

76.5%

23.5%

Business development

Unless indicated otherwise, all figures in this management report are for the Dürr Group’scontinuing operations. Any figures cited as “Group” figures relate to both continuingoperations and discontinued operations.

The Measuring and Process Technologies business unit, which was still part of theMeasuring and Process Systems division and continuing operations in our interim reports,has been allocated to discontinued operations in the 2005 annual financial statementsbecause it was sold effective December 30, 2005. Apart from Measuring and ProcessTechnologies, discontinued operations also include the Development Test Systemsbusiness unit and the Premier Group. Measuring and Process Technologies was consoli-dated under discontinued operations until December 30, 2005, Development TestSystems until September 30, 2005, and Premier until May 31, 2005. Measuring and ProcessTechnologies has only been allocated to continuing operations in the figures for 2004,as required under IFRS 5.

Reference is made in this report to EBIT before non-recurring expenses (restructuringexpenses, impairment losses) and investment income/loss.

New orders and orders on hand fall short of previous year

At € 1,216.9 million, new orders in continuing operations were 12.3% below the previousyear’s figure of € 1,387.4 million. New orders were affected by weak demand for plantengineering (painting and assembly systems) and for cleaning machines. By contrast,demand in our systems and machinery business (including painting robots, applicationtechnology, and balancing technology) and for environmental and energy systems wasconsiderably higher.

At December 31, 2005, orders on hand came to € 723.5 million versus € 859.9 million atthe end of the previous year. The order backlog for continuing operations is 6.2 months,which is more than the average for the German machinery and industrial equipmentsector (4.9 months). However, there are significant differences between the two divisions.Paint and Assembly Systems has a backlog of 6.7 months due to its high share of plantengineering, while at Measuring and Process Systems, as machinery builders, the averageis 4.3 months.

Sales down from higher-than-average previous year

As expected, consolidated sales were down 18.8% to € 1,400.6 million (2004: € 1,725.8 mil-lion). A major force driving the decline was a 23.0% reduction in revenues in Paint andAssembly Systems following an above-average increase in the previous year that wasdue to revenues from a large order. By contrast, Measuring and Process Systems salesremained more or less stable.

We increased sales considerably in the countries of the EU (excluding Germany). Majorcontributions came from business in the Eastern European member states, while busi-ness with the automotive industry also developed well in Spain. Sales in Asia declinedas the Chinese market slowed temporarily. In Germany, we lost some momentum dueto reduced capital expenditures by our customers there. The decline in sales was morepronounced in the United States where the comparable pre-year figure had been ex-ceptionally high.

Consolidated sales by region

20042005

Germany 310.1 436.5

Other European

countries 502.4 391.6

North and

Central America 397.7 654.7

South America 15.3 5.2

Asia/Africa/

Australia 175.1 237.8

Continuing

operations 1,400.6 1,725.8

Amounts in € m

22.1%

12.5%

35.9%

28.4%

1.1%

“At Dürr, the virtual factory has become a reality. For every systems contract, we prepare a three-dimensional

layout of the entire paint shop. That speeds up planning and technical clearance, and prevents interface

problems in linking individual process stations. Our customers have an overview of everything before breaking

ground. On a virtual tour, they can take a close look at their new paint shop, from a single screw to an entire

painting robot, in life-size images on the power wall.”

Michael Baitinger, Virtual Reality and 3-D Layout Developer, Paint Systems

1:1

Development of earnings

Although operating results in continuing operations were down in 2005, we achieveda positive EBIT before non-recurring expenses (primarily restructuring expenses).The higher average level of debt during the year is reflected in our net interest position.However, earnings after taxes for the consolidated Group were positive due to non-recurring income.

Gross margin improved

With gross profit on sales from continuing operations at € 220.2 million (2004: € 240.6 mil-lion), our gross margin was up from 13.9% the previous year to 15.7%. Improvements inproductivity, purchasing, and project management contributed.

In absolute terms, selling expenses were up from € 96.9 million to € 97.6 million, whilesales revenues were down. The reason for this was the management’s strategic decisionto continue to expand the sales organization despite the generally difficult market situa-tion. In particular, we strengthened our sales organization in Asia.

At € 92.8 million, general administrative expenses were also slightly higher than in theprevious year (2004: € 90.7 million). One of the chief reasons for this was non-recurring ex-penses associated with the realignment of operations under FOCUS that were not

28

EBIT (before non-recurring expenses)

Paint and Assembly Systems 7.1 0.7% 34.5 2.4%

Measuring and Process Systems 5.1 1.6% –1.3 –0.4%

Corporate Center –8.7 – 2.6 –

Continuing operations 3.5 0.2% 35.8 2.1%

Amounts in € m

20042005

MarginEBITMarginEBIT

Capital expenditures on property,

plant and equipment and

intangible assets

20042005

Paint and


Measuring and


Corporate Center 0.9 5.7

Continuing


Amounts in € m

64.6%

3.5%

31.9%

Depreciation and amortization*

20042005

Paint and


Measuring and


Corporate Center 2.0 1.1

Continuing


* Excluding impairment losses

Amounts in € m

61.8%

8.5%

29.7%

reported as restructuring expenses. Even so, the absolute amount of administrativeexpenses is unsatisfactory and reducing it is one of the key objectives of FOCUS. We in-creased our spending on research and development (R&D) to € 21.1 million (previousyear: € 20.3 million), underscoring our focus on technological leadership.

Other operating income and expenses show a balance of € –5.3 million (previous year:€ 3.1 million), which was influenced, among other things, by the effects of exchangerate changes and income from the reversal of provisions. At € 44.6 million, other oper-ating expenses were higher than in the previous year (€ 26.1 million) due to the realign-ment of the Group.

Operating result marked by setbacks in Paint and Assembly Systems

Operating earnings (EBIT before non-recurring expenses) were € 3.5 million after€ 35.8 million in the previous year. They were marked by severe earnings setbacks inPaint and Assembly Systems, which resulted mainly from a considerable decline insales revenues in plant engineering.

Investment in property, plant and equipment up slightly

At € 26.0 million in 2005, total capital expenditures for property, plant, and equipmentand intangible assets (excluding Measuring and Process Technologies) were downslightly from the previous year (€ 27.4 million). With depreciation and amortization at€ 23.6 million (previous year: € 21.1 million), this puts the reinvestment ratio at 90.7%(previous year: 77%). Impairment losses are not taken into account in this presentation.We increased capital expenditures for property, plant, and equipment by € 4.9 millionto € 18.5 million despite a difficult market environment. More information about themost important capital expenditures is contained in the chapters on the two divisionsbeginning on p. 30.

Higher net interest expense

After weaker operating earnings, a poorer net interest result was the second major fac-tor affecting earnings performance in 2005. The interest result was down € 10.7 millionto € –35.2 million, with interest expenses rising € 11.3 million to € 37.4 million.

The higher interest expense has two causes:

1. Annual interest payments of € 19.5 million for the corporate bond we issued in July2004. We also incurred interest-related expenses in connection with the bond, includ-ing the amortization of transaction costs as well as the discount on the bond and thesyndicated loan that was taken out parallel to the bond. In fiscal 2005, these expensesamounted to € 2.0 million (previous year: € 0.8 million).


2. Higher financial liabilities (excluding the bond) on average for the year 2005, whichpeaked at € 217.6 million on October 31, 2005 (December 31, 2004: € 112.0 million). Theincrease in financial liabilities corresponded directly to a decline in prepaymentsreceived from customers, which amounted to € 207.5 million at the end of 2004 and€ 112.4 million at December 31, 2005. A critical factor for the decline in prepaymentswas the lower number of large projects in our orders on hand.

High non-recurring expenses

In 2005, we booked restructuring expenses of € 45.9 million as part of FOCUS (previousyear: € 6.7 million), most of which were for personnel adjustments. Non-cash restructur-ing expenses for 2005 are recorded under other liabilities.

As a result of the annual impairment test on our assets, we recorded impairment lossesof € 27.9 million in 2005 (2004: € 0.1 million). These impairment losses were necessitatedby shifts in the Group’s structure and focus under FOCUS and were primarily related tolicenses, patents, and property, plant and equipment. We also had to write down a build-ing that had been renting uneconomically for some time to its lower recoverable amount.Of the impairment losses, € 18.7 million were in Paint and Assembly Systems, € 9.1 millionwere in Measuring and Process Systems, and € 0.1 million were in the Corporate Center.

Investment income/loss includes additional write-downs in the amount of € 2.7 million.

Positive consolidated earnings figure

EBIT after non-recurring expenses (restructuring and impairment losses) came to€ –70.3 million (2004: € 29.0 million), while earnings after taxes were € –104.5 million(€ –1.1 million).

Book gains of € 116.1 million from the sale of business units are allocated to discontinuedoperations in conformity with IFRS. Thus, the earnings from discontinued operations arelargely attributable to the book gain of € 98.8 million that we generated from the sale ofMeasuring and Process Technologies.

For the consolidated Group, which includes both continuing and discontinued operations,earnings after taxes are positive at € 4.3 million (previous year: € 4.7 million). We wereable to offset all restructuring expenses and impairment losses with earnings from thesale of non-core activities, in other words from our own resources, in fiscal 2005. Debtwas also significantly reduced.

The management will propose to the shareholders’ meeting that no dividend be paid for2005. Earnings per share were € –7.26 (previous year: € 0.00) in continuing operationsand € 0.30 (previous year: € 0.40) for the Group.


20042005

New orders 931.2 1,086.4

Sales 1,090.0 1,413.8

EBIT1 7.1 34.5

Capital

expenditures2 16.8 15.4

Employees (Dec.31) 3,979 4,236

1 Before non-recurring expenses2 On property, plant and equipment

and intangible assets

Amounts in € m

“Time is money, especially in the auto industry. That’s why we develop products that can be

put into operation fast. For example, the modular FAStplant® final assembly system. It allows

us to cut the time it takes to install a final assembly line for our customers by up to 30%.”

Gino Caparelli, Sales, Factory Assembly Systems

30


As capital spending in the automotive industry remains subdued, incoming orders inPaint and Assembly Systems were down 14.3% compared with the previous year. Wealso saw a decline in new orders in the plant engineering business of our Paint Systemsand Factory Assembly Systems units, particularly in the United States. By contrast, neworders were up in APPLICATION TECHNOLOGY and Environmental and Energy Systems.Sales revenues declined 23.0% following a high figure for the previous year, which waslargely the result of a big order. The decline in incoming orders and the associated excesscapacities reduced EBIT before non-recurring expenses to € 7.1 million. With FOCUS, weare counteracting the unsatisfactory earnings trend. At December 31, 2005, the number ofemployees was down 6.1% compared with the previous year. In addition, we have intro-duced comprehensive measures to increase efficiency. These measures are describedbeginning on p. 7. We increased investment in property, plant, and equipment andintangible assets to € 16.8 million (previous year: € 15.4 million). This spending primarilywent toward product developments in robotics, the establishment of a testing and logis-tics center at our application technology site in Bietigheim-Bissingen, and the building ofa new facility at our filling systems site in Stollberg.


Measuring and Process Systems1

20042005

New orders 285.7 301.0

Sales 310.6 312.0

EBIT2 5.1 –1.3

Capital

expenditures3 8.3 6.3

Employees (Dec.31) 1,966 1,953

Amounts in € m

1 Excluding the DevelopmentTest Systems andMeasuring and ProcessTechnologies business units,which are allocated to discontinued operations.

2 Before non-recurring expenses3 On property, plant and equipment

and intangible assets

GLOSSARY: p.102

Discontinued operations1

20042005

New orders 399.6 461.4

Sales 379.3 410.5

EBIT2 24.6 13.3

Employees (Dec.31) 3 7,055

Amounts in € m

1 Includes Premier Group, Development Test Systems,and Measuring and ProcessTechnologies

2 Before non-recurring items


New orders in Measuring and Process Systems were dominated by increases in balancingand diagnostic systems and decreases in CLEANING TECHNOLOGY, where the weaknessof the market in Europe and a slowing of the US market in the second half of 2005 affectedorders. Sales developed similarly to new orders. In balancing systems, operating earningsimproved strongly, driven primarily by increases in Germany and the United States. Incleaning technology, earnings improved as a result of the restructuring measures thathad already been implemented, but remained unsatisfactory. While we created new jobsin Asia, we reduced personnel in our traditional markets. On balance, the number ofemployees was more or less level with the previous year. We spent € 8.3 million on prop-erty, plant and equipment and intangible assets, primarily on expanding our contractbalancing business and on replacement parts and equipment.

Corporate Center

EBIT for the Corporate Center (Dürr AG), before non-recurring expenses, amounted to€ –8.5 million in 2005 after € 1.8 million in 2004. The previous year’s figure had largelyresulted from the reversal of a provision that was no longer needed.

Performance yardsticks: EBIT and cash flow from operating activities

An important benchmark for managing our business units is operating earnings, whichis defined as EBIT (earnings before interest and income taxes) before non-recurringitems. Aside from EBIT, cash flow from operations has central importance for managingboth the business units and projects.

Financial development

Cash flow positive overall

In continuing operations, cash flow from operating activities amounted to € –147.6 millionafter € –115.5 million in the previous year. In the reporting period, most of the restruc-turing expenses were not yet cash items. In the consolidated statements of cash flows(p. 51), non-recurring expenses reduce the EBIT shown; these non-cash items are addedback to amortization and depreciation and changes in other liabilities.

The negative cash flow from operating activities is due primarily to still insufficient oper-ating earnings and lower prepayments received. The latter resulted in an increase in networking capital. However, the decline in prepayments received was less pronounced inthe second half of 2005.

32

Cash flow from operating activities

2004

EBIT –71.5 29.0

Amortization and depreciation of non-current assets 54.2 21.3

Income taxes paid –4.6 0.8

Changes in provisions –25.1 –21.8

Changes in net working capital –82.1 –110.8

Other –18.5 –34.0

Total –147.6 –115.5

Amounts in € m

2005

The following table shows the development of cash flow from operating activities insimplified form.

Cash flow from investing activities win continuing operations was positive at€ 282.7 million (previous year: € –19.5 million), and primarily reflected proceeds fromthe divestments.

Cash flow from financing activities was affected by the change in financial liabilities.Non-current financial liabilities were reduced by € 0.8 million and current liabilitiesby € 83.4 million.

Debt reduced at year’s end

We were able to halt the unsatisfactory development of our financial debt and our liquiditysituation in the fourth quarter of 2005. With the capital increase and the proceeds fromthe divestments, we were able to reduce our net financial debt (excluding finance leases)to € 84.9 million at December 31, 2005, (December 31, 2004: € 242.8 million) after it hadrisen as high as € 328.9 million during the year.

In December 2005, we adjusted the framework conditions of the syndicated loan wehad taken up in 2004 with the banks involved. The credit terms (covenants) are now in linewith the restructuring under FOCUS. The credit line extended under the syndicated loanfacility amounted to € 120 million at December 31, 2005. This, and cash and cash equiv-alents amounting to € 124.7 million, are expected to cover our financing needs for 2006.At the end of 2005, we fully repaid the amounts drawn under the credit facility.

The corporate bond is subordinated in relation to the syndicated loan, which explains thehigher rate of interest compared to a bank loan. The medium and long-term portion of ourfinancial liabilities – with reference to continuing operations – was 92.0% at December 31,2005 (December 31, 2004: 71.4%).

Balance sheet: Equity ratio increased

The balance sheets for 2005 and 2004 are comparable only to a limited extent. The balancesheet for 2005 no longer includes figures for Measuring and Process Technologies, butthe balance sheet for 2004 does. This is in compliance with a provision of IFRS 5.Development Test Systems and Premier are not included under continuing operations inthe balance sheets of either period.


Balance sheet structure

(December 31)

2004

Non-current assets 40.8 39.1

Current assets 59.2 60.9

Assets, Group 100.0 100.0

of which continuing operations 99.7 89.8

Equity, incl. minority interests 20.9 15.5

Non-current liabilities 27.3 23.6

Current liabilities 51.8 60.9

Equity and liabilities, Group 100.0 100.0

of which continuing operations 99.8 95.2

Amounts in %

2005

The total of assets and equity and liabilities for continuing operations is not identicaldue to the presentation of discontinued operations pursuant to IFRS 5.

Non-current assets for continuing operations amounted to € 484.9 million (December 31,2004: € 560.9 million). Goodwill and other intangible assets accounted for 24.2% of theGroup’s total assets, or € 288.2 million (December 31, 2004: 24.0% or € 345.1 million).At € 26.0 million, capital expenditures for property, plant and equipment and intangibleassets were slightly lower than in the previous year (€ 27.4 million). Combined with de-preciation (including impairment losses), currency effects, and the sale of Measuring andProcess Technologies, this resulted in a decline in property, plant and equipment to€ 121.7 million (December 31, 2004: € 148.2 million).

Of the impairment losses, which amounted to € 27.9 million (€ 0.2 million), € 16.6 millionrelated to property, plant and equipment, € 10.6 million related to other intangible assets,and € 0.7 million related to other investments. No impairment losses were recognized forgoodwill.

Cash and cash equivalents increased by € 78.2 million to € 124.7 million as a result of thedivestments and the capital increase. Thus, current assets for continuing operations weredown only slightly, from € 728.4 million to € 700.4 million. Trade receivables declined14.9% to € 479.7 million (December 31, 2004: € 563.5 million). The usefulness of a year-on-year comparison of current assets is also limited due to the inclusion of Measuring andProcess Technologies on the balance sheet in 2004.

Equity (including minority interests) increased € 25.3 million to € 248.1 million as of theend of 2005. This is due primarily to the € 21.8 million capital increase. At the same time,total liabilities declined, so the equity ratio improved from 15.5% at the end of 2004to 20.9%. Unlike the other balance sheet items, equity at December 31, 2005, andDecember 31, 2004, is fully comparable.

34

Current and non-current liabilities

(December 31)

2004

Financial liabilities 30.0 112.0

of which current 17.4 85.3

of which non-current1 12.6 26.7

Bond 187.9 186.5

Trade payables 347.8 492.7

of which prepayments received 112.4 207.5

Income tax liabilities 27.8 6.1

Other liabilities 138.9 117.6

Continuing operations 732.4 914.9

1 Excluding the bond

Amounts in € m

2005

We adjusted the provisions for pensions to € 67.8 million (December 31, 2004: € 53.6 mil-lion). The primary reasons for this were lower capital market rates and the associatedlower discount rate. The € 8.9 million decrease in other long-term provisions to € 9.8 mil-lion resulted from their use and from writing back provisions that were no longer neededto income.

Current liabilities in continued operations dropped 23.6% to € 614.7 million (December 31,2004: € 804.8 million). The main reason for this was a reduction in trade payables (to€ 347.8 million from € 492.7 million on December 31, 2004), which was due primarily to adecline in customer prepayments received. The divestments enabled us to reducecurrent financial liabilities sharply as of the end of the year. They were down € 85.3 millionto € 17.4 million. Other liabilities were up from € 117.6 million to € 138.9 million becauserestructuring expenses for FOCUS were recognized under this item.

Value drivers

Most of Dürr’s business areas are project-driven, so the projects themselves are ourvalue drivers. In the past, just a few orders have resulted in large losses. That is why oneemphasis of FOCUS is on improving project management, for instance through packagesof measures that guide project selection and handling. In the future, large-scale projectswill be handled exclusively in the system centers (see p. 11). Margins and possible riskswill be the primary considerations when selecting projects, and projects will be managedon the basis of cash flow.

“A balancing system must cope with huge numbers of units in mass production. For example,

two KBTK systems enable a customer in England to balance up to 575,000 crankshafts a year.

The quality and reliability of the machines are therefore key factors for Schenck. And that

requires precision craftsmanship and technological expertise in the installation process.”

Nicola La Rosa, Electrical Technician, Balancing and Diagnostics Systems

575,000

Research and development

Direct expenditures for research and development (R&D) in fiscal 2005 amounted to€ 21.1 million (previous year: € 20.3 million). The resulting R&D ratio is 1.5% (previousyear: 1.2%). However, the item reported on the income statement contains only a smallportion of our actual R&D spending. As is customary in the engineering business, themajority of our development work is project-related and done within the scope ofcustomer orders, and the associated expenses are treated as cost of sales.

At the end of 2005, we employed 121 people (previous year: 101) – mainly engineers –in the R&D departments of our continuing operations. Many other employees wereinvolved in developing new solutions as part of customer orders. We conduct appliedand experimental R&D work in several centers worldwide. We also work with severalresearch facilities in Germany and abroad which gives us access to the latest scientificknowledge. For example, we maintain close contact with the universities of Stuttgart,Rostock, and Darmstadt as well as several Fraunhofer Institutes.

36

In fiscal 2005, the focus of our R&D work was on increasing quality and reducing produc-tion costs per vehicle, for example, by cutting the amount of energy used in automobileproduction and by developing new manufacturing processes. A good example of a cost-oriented innovation is the “wet-on-wet” application process, which we developed incollaboration with automobile manufacturers and paint producers. In this process, thetop coat is applied immediately after the surfacer, without the surfacer first being allowedto dry. The elimination of surfacer drying reduces throughput times and energy con-sumption. We also developed new energy-saving concepts for controlling air volumes inpainting booths. These concepts open up considerable potential for our customers toreduce costs since no less than two-thirds of the energy used in paint shops is expendedin the painting booth.

We further refined our virtual reality applications for system planning and project hand-ling. For example, in addition to the production lines themselves, we are now also ableto plan buildings and supply systems on the computer. This enables us to preclude possi-ble conflicts early on and simplifies and speeds order handling.

The new EcoRP E painting robot was one of the most important innovations of 2005.Short installation and commissioning times, a small footprint, and great flexibility make itespecially well suited for replacing older painting machines in existing painting booths.In filling technology, we unveiled a system that fills vehicle air conditioners with environ-mentally neutral carbon dioxide for the first time. With this system, we are offering anearly alternative to conventional refrigerants that will not be permitted for use in the fu-ture. In CLEANING TECHNOLOGY, our focus was on making systems more flexible, enablingour customers to handle different workpieces in a single machine in rotation and thusreduce their item-linked capital expenditures.

Purchasing

In fiscal 2005, our purchasing volume represented around 70% of the Group’s sales.Heavy demand on the global market resulted in price increases for the raw materials weuse, primarily steel and aluminized sheet metal. Nevertheless, we were able to slightlyreduce our purchase prices in most product groups. A key factor here was that we workedmore with suppliers from low-cost markets like Eastern Europe, Asia, and Mexico. Wealso benefited from international framework agreements and the bundling of purchasingvolumes across projects and countries.

With the tapping of new procurement markets, we have also further intensified qualityassurance efforts within our purchasing organization. We use uniform evaluation systemsand audits for suppliers and monitor quality and manufacturing processes more strictly,particularly for partners from new procurement markets. We are also increasingly preas-sembling complete modules in our production plants to prevent quality risks and to speedorder completion.

We use online tendering platforms to speed the procurement process. Through theseplatforms, selected suppliers can learn more about our needs. We place orders onlinewhenever possible. For instance, we use internet auctions to purchase simple, straight-forward items. However, many of the components we order are highly specialized, whichmeans that direct contact prior to order placement is beneficial.


Employees by division

(December 31)

200412005

Paint and

Assembly Systems 3,979 4,236

Measuring and

Process Systems 1,966 1,953

Corporate Center 47 51

Continuing

operations 5,992 6,240

66.4%

0.8%

32.8%

Employees by region

(December 31)

200412005

Germany 3,205 3,311

Other European

countries 1,303 1,332

North and Central

America 886 1,036

South America 83 84

Asia/Africa/

Australia 515 477

Continuing

operations 5,992 6,240

53.5%

8.6%

14.8%

1.4%

21.7%

1 Continuing operations (without Measuring and ProcessTechnologies)GLOSSARY: p.102

Employees

Number of employees reduced by capacity adjustments

We reduced our workforce further in 2005. At the end of the year, 5,992 people wereemployed in continuing operations, 248 (4.0%) fewer than at December 31, 20041.

As part of the Group-wide FOCUS program, 332 jobs out of the total of around 800slated were cut by the end of 2005. The regional focus of the cuts was on the mature mar-kets of North America and Western Europe, while we added jobs in Asia to expand ourbusiness there. The number of employees in Asia increased by 8.8% within one year to495 (previous year: 455).

FOCUS: Targeted employee development

Although FOCUS does involve reducing capacities, it is primarily a program aimed at im-proving our operational process flows. With FOCUS, we are promoting our employees ina targeted manner and giving them tools with which they can work more effectively. Incooperation with a consulting firm, our employees are examining existing processesand developing more efficient alternatives wherever necessary. We are conductingcomprehensive training for the ERP(Enterprise Resource Planning) applications that wewill be using throughout the Group in the future. We have also stepped up our foreignlanguage education offerings for our employees. We have developed a new, multistagetraining module for our project managers, and our center of excellence for project man-agement has launched the Corporate Project Management Manual throughout the Group.The manual is based on the expertise of our 50 most experienced project managersand describes standardized project stages and milestones, project organization, changemanagement, and project management tools.

For our managers, we have developed a remuneration system that is uniform worldwideand will apply beginning in 2006 as part of FOCUS. Under the new system, each manag-er’s compensation will be more closely linked to the respective division’s overall results.In this way, we are strengthening our management’s focus on common targets.

Attractive options for young talent

As an engineering company, we have a highly qualified workforce. And in order to bringwell-trained, well educated young people on board, we are seeking to make early contactwith potential new employees through internships, by supporting degree candidates,and by maintaining contact with colleges and universities. In the United States, we offerthe Dürr Bachelor Degree Sponsorship Program, in which young talents work in thecompany’s different departments alongside their studies.

At December 31, 2005, Dürr employed 155 trainees (December 31, 2004: 170). In collabo-ration with universities of cooperative education, we also offer young people opportuni-ties to study mechanical engineering, electrical engineering, IT, mechatronics, and busi-ness administration.

“Our cleaning systems get at even the smallest contaminants. In the final stage of cleaning an injector nozzle,

the magic number is 100 micrometers – a residue particle may not be bigger than that. By comparison, a grain of

fine sand is easily twice as large. We meet this challenge with innovative treatment processes and customized

designs for a very wide variety of workpieces and cleanness requirements.”

Julia Lamparter, Process Developer, Cleaning and Filtration Systems

100

Risk report

We view risk management as a central task of all employees. Risk management at Dürrconsists of four steps: Identification, assessment, control, and monitoring. For each ofthese steps, we have developed appropriate tools that are geared toward our core proc-esses (planning, design, and project handling/completion) and the respective supportprocesses. These tools include a risk management manual, a risk map with Dürr-specificrisk areas, and risk structure sheets for documenting risk type, possible extent of loss,probability of occurrence, and countermeasures. In addition to regular risk reporting,the Board of Management is kept abreast of unexpected risks by way of flash reports.Dürr’s controlling and internal monitoring systems are also key elements of consistentrisk management. Since some risks are beyond the control of the Board of Management,even a functioning risk management system cannot completely rule out all risks. In thisrespect, developments can arise that diverge from the Board of Management’s plans.


General economic development

Our business performance depends heavily on general economic development and, inparticular, trends in the automotive business. In our planning, we have assumed thatglobal economic growth will be modest. With respect to the capital markets, current in-terest rates and the legal and tax situation, no negative deviations from our forecast areexpected.

Automotive business and customers

We systematically analyze global demand for automobiles as well as the production fig-ures and capital spending behavior of our customers. Of late, we have seen a decline inlarge-scale plant engineering orders and reduced demand in North America and WesternEurope. To avert risks arising from these trends, we are reducing our capacities in theUnited States and parts of Western Europe. We are also making ourselves less dependenton new construction business by expanding our modernization and services activities.

Our business with the automotive industry is subject to continued price pressures. Tocounteract this, we improved our cost position in the years from 2003 to 2005 with our

program. Cost reduction is also a priority under FOCUS. In addition, we are ad-dressing price pressures by comparing our customers’ capital cost analyses with themedium and long-term overall cost benefits of a higher quality plant. Consequently, weare also orienting our R&D work toward new developments with measurable added valueand quick return on investment.

Our customers include nearly all automobile manufacturers and parts suppliers aroundthe world. However, since the automotive industry is dominated by a relatively smallnumber of large companies, the majority of our sales revenues come from a small numberof customers. In 2005, we generated 52% of our sales revenues with our five biggestcustomers. However, the composition of the “top five” group depends on the individualautomobile manufacturers’ investment cycles and therefore changes constantly. Inorder to prevent payment defaults in general, we seek to make our orders cash positiveat all times, that is, to receive prepayments from customers which at least cover thecosts we have incurred for a project up to a given time.

Competitors

Our business units are faced with a variety of competitive situations. In some cases, asin our business as general contractors for painting equipment, we compete with just afew other companies. In other cases, as in environmental and energy systems, we operatein fragmented markets that are dominated by smaller, local providers. Our activitieswithin each of our business units must therefore be matched to these different competi-tive structures.

40

Order handling

Large projects are especially prone to earnings risks when deadlines and agreementsare not met. To avert these risks, we use risk and opportunity checklists and the Board ofManagement and other senior managers track projects closely. We also use training andnew tools to improve our project management (see also p. 37). The new division of laborin Paint and Assembly Systems, under which large projects are managed exclusively bythe big system centers in Detroit, Stuttgart and – in the future – Asia, is also making animportant contribution toward reducing project handling risks.

Purchasing

For more information about how we handle quality risks in relation to raw materialsprocurement and parts suppliers, please see p. 36. Long-term projects entail the risk thatactual procurement costs may exceed budgeted costs if prices increase over the courseof the project. To avert this risk, we use general agreements and arrange procurementprices that will remain firm for the entire duration of the project right from the start.

Currency and interest rate risks

We use financial derivatives to reduce the negative effects of foreign exchange rate andinterest rate changes on cash flows and on the value of receivables and liabilities. Theuse of derivative financial instruments is restricted to the economic hedging of our oper-ating activities.

For us, the primary risks associated with differences in foreign exchange rates arisewhen we convert business figures into euros (translation risk). The currency risk fromproduct exports (transaction risk) is relatively low since a large portion of our added valueis generated in our national companies. We use forward exchange contracts to protectourselves against any remaining currency risks. We use interest rate swaps to counterinterest rate risks. We reduced our interest rate swap positions as of the end of 2005.All financial derivatives and related underlyings are regularly monitored and evaluatedwithin the framework of a Board of Management directive. We enter into derivative con-tracts only with banks that have a strong credit standing. All interest swaps are transactedthrough German banks. Further information regarding hedging activities can be foundunder item 32 of the notes to the consolidated financial statements.

Information technology

We use the latest security solutions to protect our data and infrastructure against intru-sion. We are continuously increasing the availability and fail-safeness of our server andstorage systems for business-critical applications.


Legal risks

One of our competitors in the United States has filed two suits against us. One is a patentinfringement action before the US District Court for the Eastern District of Michigan andthe other is an action before the International Trade Commission (ITC), a US competitionauthority. The plaintiff claims that our robotics unit violated its US patents and is in vio-lation of US competition law. In December 2005, the ITC ruled that Dürr had not infringedon the patents. For this reason, and because we use a technological solution that differsfrom the competitor’s and for which we hold a US patent, we anticipate that the patentaction before the US District Court for the Eastern District of Michigan will also fail.

Liquidity and financing

The decline in prepayments received from customers resulted in a substantial temporaryincrease in our liquidity and leverage risks in fiscal 2005. We were able to reduce bothrisks considerably by the end of 2005. With the proceeds from the capital increase andthe sale of Development Test Systems, Measuring and Process Technologies, and Premier,we were able to reduce our net financial debt (excluding finance leases) to € 84.9 millionat December 31, 2005, after it had risen as high as € 328.9 million during the year. Withfree credit lines of € 123.5 million and cash and cash equivalents amounting to € 124.7 mil-lion (both figures at December 31, 2005), we have good financial leeway.

The terms of the syndicated loan require us to adhere to certain balance sheet and earn-ings ratios. These ratios have been adjusted accordingly for the duration of restructuringunder FOCUS. The corporate bond imposes certain limitations and obligations. Failure toadhere to these could result in the bond amount and accrued interest being called due.

Summary

The material risks to which we are exposed relate to the demand behavior of our custom-ers and order execution. Therefore we are seeking to create investment incentives forcustomers to choose our solutions by offering measurable added value. At the same time,we have made reliable project handling a focus of our risk management. We have sub-stantially reduced our financing and liquidity risks for the long term. No risks that couldthreaten the continued existence of the Dürr Group as a going concern are discernableeither at the moment or for the foreseeable future.

42

GDP growth

Change versus 2005

2006*

World 4.3

Germany 1.2

EU 2.1

USA 3.2

China 8.7

Japan 2.2

* ForecastSource: European Commission

Amounts in %

Events subsequent to the reporting date

Ralf Dieter is new Chairman of the Board of Management

Ralf Dieter took over as Chairman of the Board of Management of Dürr AG as of January 1,2006. Dieter has been a member of the Board of Management of Dürr AG since January 1,2005, and is also the Chairman of the Board of Management of Carl Schenck AG,a wholly owned subsidiary of Dürr AG.

Legal dispute with Alstom settled successfully

On January 9, 2006, we signed an out-of-court settlement with Alstom S.A. to end arbi-tration proceedings in connection with Dürr’s acquisition of the Air Industries Group(France). Further information on this topic can be found under item 34 of the notes to theconsolidated financial statements.

Outlook

Global economy: Continued growth expected

The world’s gross domestic product (GDP) is expected to increase by around 4.3% in2006. Driven by the momentum of China and India, Asia will make a significant contribu-tion to global economic growth. The United States is also expected to contribute im-portant momentum for growth with higher capital expenditures and a continued stronglevel of private consumption. The Eastern European economies will continue theirvigorous expansion. For the European Union, GDP growth of 2.1% is expected, assumingthat the exchange rate between the euro and the US dollar remains stable and the eurozone economy improves slightly. In Germany, the economy is expected to gain only slightmomentum due to weak domestic demand.

Risks for economic development could arise if commodity prices, especially crude oilprices, continue to rise. In addition, a cooling of the US real estate market could havesevere negative repercussions for consumption there.

Automotive industry: Stronger demand expected for modernization

and services business

We anticipate that global production of passenger cars and commercial vehicles will in-crease by around 3% in 2006. Similar levels of growth are also expected for 2007 and sub-sequent years. Strong growth is expected to come from China, India, and Eastern Europe,while Western Europe and North America are expected to increase production onlyslightly.

We estimate the automotive industry’s demand as follows: New plants will continue tobe built primarily in Asia and Eastern Europe, with a decline in the number of new plantsbeing built worldwide. By contrast, capital spending on boosting the productivity andflexibility of existing plants will continue to increase, particularly in the traditional auto-mobile manufacturing centers of Western Europe and the United States.

>750“Saving energy is a top concern of our customers. We therefore offer an economical combination technology in

the area of exhaust-air purification. In thermal oxidation, we heat exhaust air to more than 750 degrees centigrade

to oxidize pollutants. Then, the clean hot air is fed into the production process and used again as thermal energy.

The result is reliable pollution control and less energy consumption.”

Osman Sözeri, Head of Department, Environmental and Energy Systems

The biggest factors driving investment will be shorter model cycles, a growing varietyof models, and high cost pressures in the automotive industry. In addition, capital expendi-tures aimed at reducing energy consumption in production will play an increasinglyimportant role. Demand for services in all aspects of production technology will also rise.We see good opportunities in this area and in spare parts business due to the largeamount of production equipment we have installed. Worldwide, some 60% of all paintshops and some 50% of the final assembly facilities in the automotive industry areequipped with Dürr technology. Automobile component suppliers will continue to gainimportance as a customer group for us as they take over more and more stages of thevalue chain for automobile manufacturers and need the corresponding production tech-nologies. We should benefit from these trends as a supplier of equipment and capitalgoods to the automotive industry.

The process of consolidation among the established American, European, and Japaneseautomobile manufacturers can be expected to continue in the years ahead. The entry ofnew Asian automakers onto the market and the expansion efforts of up-and-coming pro-ducers, for example from South Korea, create opportunities for us since the new manu-facturers are investing to expand capacities and increase quality standards.

44

Research and development

For 2006 and 2007, we plan to increase R&D spending slightly. In Paint Systems, wewill focus primarily on further evolving our robotics technology. In Factory AssemblySystems, mobile electronics testing for vehicles during the assembly process will be amajor focus of our development work.

Purchasing

We expect raw materials prices to drop only slightly, if at all, in 2006 and 2007. We willrespond to the high prices by optimizing our process costs and pushing forward thestandardization of components in order to bundle larger purchasing volumes. We willfurther intensify our purchasing management and bundling of orders by increasingcooperation between our smaller companies and the system centers in Stuttgart andDetroit.

Employees

In 2006, 450 jobs are expected to be eliminated within the Group as part of FOCUS,primarily in Western Europe and the Americas. At the same time, we will further expandour personnel capacities in growth markets. From today’s perspective, we expect to havearound 5,700 employees at the end of 2006. We expect the overall number of employeesto remain stable in 2007.

New orders, sales, and earnings

Given the existing capacities in the automotive industry, we expect demand for the con-struction of new plants to remain subdued in 2006 and beyond. Nevertheless, due to thepositive demand trend in the modernization and services business, we expect new or-ders volume to increase in 2006. Sales revenues are unlikely to change significantly bothfor the Group as a whole and in the two divisions due to the smaller order backlog. Forfiscal 2007, we anticipate a slight increase in incoming orders and sales in the Group andin the divisions.

Our most important task for 2006 will be to resolutely push forward implementation ofFOCUS. We expect to see the first benefits of the program in 2006. The personnel costsavings will only partly take effect in 2006. On this basis, we expect a considerable im-provement in our operating results for 2006. Our net interest position will improve in2006 and 2007, although interest expenses for the bond as well as interest-related ex-penses like the accrued discount from the bond will remain unchanged. On the whole,we expect earnings after taxes for 2006 to be slightly positive. From today’s perspective,we expect a significant improvement for 2007.

FOCUS should develop its full effects during 2007. We expect to achieve annual savingsof more than € 50 million over 2005 in personnel costs alone. The improvements inproductivity that we are seeking to achieve with FOCUS hold even greater potential forimproving our bottom line. We also face stiff price competition. Our target margins are4% for earnings before taxes and 8% at the EBITDA level. Margins may still fall short ofthese targets for 2007 as a whole because the effects of FOCUS will only feed throughfully in the course of the year.


Cash flow

Earnings development and changes in net working capital, particularly the changes inprepayments received, will be key factors affecting cash flow. In general, we are workingto achieve a marked reduction in net working capital, which should have a strong positiveimpact on cash flow over the longer term. In 2006, cash flow will be influenced by out-flows of restructuring expenses, so we expect a negative free cash flow figure for the year.We aim to generate positive free cash flow beginning in 2007.

Capital expenditures

For 2006 and 2007, we plan to increase capital spending for property, plant and equipmentand intangible assets slightly. Depreciation and amortization will likely develop parallelto capital expenditures.

Net financial debt and equity

We expect net financial debt to increase slightly in 2006 following a sharp reduction at theend of 2005. We expect net financial debt to decrease noticeably beginning in 2007.Equity should increase on the back of considerably improved earnings, and the equityratio should approach our target of around 30%.


Dürr Aktiengesellschaft

The Board of Management

Consolidated financial statementsfor the 2005 reporting period

47 Independent auditors’ report48 Consolidated income statement49 Consolidated balance sheet50 Consolidated statement of changes in shareholders’ equity50 Statement of recognized income and expense in the

consolidated financial statements51 Consolidated cash flow statement52 Notes to the consolidated financial statements


47Consolidated financial statements for the 2005 reporting period

Baierl

Wirtschaftsprüfer

(German Public Auditor)

Elkart

Wirtschaftsprüfer

(German Public Auditor)

Independent auditors’ report

We have issued the following opinion on the consolidated financial statements and Group manage-

ment report:

“We have audited the consolidated financial statements prepared by Dürr Aktiengesellschaft,

Stuttgart, comprising the balance sheet, the income statement, statement of recognized income and

expense, statement of changes in equity, cash flow statement and the notes to the consolidated

financial statements, together with the Group management report for the fiscal year from January 1,

2005, to December 31, 2005. The preparation of the consolidated financial statements and the Group

management report in accordance with IFRSs as adopted by the EU, and the additional require-

ments of German commercial law pursuant to Sec. 315a (1) HGB are the responsibility of the parent

company’s management. Our responsibility is to express an opinion on the consolidated financial

statements and on the Group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB

and German generally accepted standards for the audit of financial statements promulgated by the

Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit

such that misstatements materially affecting the presentation of the net assets, financial position

and results of operations in the consolidated financial statements in accordance with the applicable

financial reporting framework and in the Group management report are detected with reasonable

assurance. Knowledge of the business activities and the economic and legal environment of the

Group and expectations as to possible misstatements are taken into account in the determination

of audit procedures. The effectiveness of the accounting-related internal control system and the

evidence supporting the disclosures in the consolidated financial statements and the Group manage-

ment report are examined primarily on a test basis within the framework of the audit. The audit

includes assessing the annual financial statements of those entities included in consolidation, the

determination of entities to be included in consolidation, the accounting and consolidation princi-

ples used and significant estimates made by management, as well as evaluating the overall pres-

entation of the consolidated financial statements and the Group management report. We believe

that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with

IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant

to Sec. 315a (1) HGB and give a true and fair view of the net assets, financial position and results of

operations of the Group in accordance with these requirements. The Group management report

is consistent with the consolidated financial statements and as a whole provides a suitable view of

the Group’s position and suitably presents the opportunities and risks of future development.”


Ernst & Young AG Wirtschaftsprüfungsgesellschaft

48

Continuing operations

Sales revenues (8) 1,400,602 1,725,817Cost of sales –1,180,407 –1,485,205Gross profit on sales 220,195 240,612

Selling expenses –97,635 –96,855General and administrative expenses –92,761 –90,716Research and development costs –21,055 –20,295Other operating income and expenses (10) –5,260 3,103 3,484 35,849

Restructuring expenses /onerous contracts (11) –45,903 –6,692Impairment losses (11) –27,874 –141

Earnings before investment income,

other interest and similar income, interest

and similar expenses and income taxes –70,293 29,016

Result of associates (12) –1,159 532Other investment income (loss) – –563Other interest and similar income 2,189 1,594Interest and similar expenses (13) –37,357 –26,085Earnings before taxes of continuing operations –106,620 4,494

Income taxes (14) 2,073 –5,609Earnings of continuing operations –104,547 –1,115

Earnings of discontinued operations 108,855 5,822

Net income of the Dürr Group 4,308 4,707

Profit/loss share of minority interests

Continuing operations 3 –1,049Discontinued operations –40 33Dürr Group –37 –1,016

Profit/loss share of shareholders of Dürr Aktiengesellschaft

Continuing operations –104,550 –66Discontinued operations 108,895 5,789Dürr Group 4,345 5,723

Earnings per share in € (basic and diluted) (7)Continuing operations –7.26 0.00Discontinued operations 7.56 0.40Dürr Group 0.30 0.40

2004

Amounts in € k restated

2005

Consolidated income statement of Dürr Aktiengesellschaft, Stuttgart, for the period from January 1 to December 31, 2005

Note


Assets

Goodwill (15, 35) 267,377 308,801Other intangible assets (15, 35) 20,777 36,335Property, plant and equipment (15, 35) 121,671 148,170Investment property (15) 13,068 –Investments in associates (16, 36) 12,892 15,762Other financial assets (35) 4,950 5,263Income tax receivables – 100Deferred taxes (14) 43,170 45,729Prepaid expenses 960 735Non-current assets 484,865 560,895

Inventories and prepayments (17) 43,716 52,683Trade receivables (18) 479,705 563,532Income tax receivables 6,158 5,022Other receivables and other assets (19) 43,171 57,783Cash and cash equivalents 124,658 46,448Prepaid expenses 3,010 2,903Current assets 700,418 728,371For information purposes:Total assets of continuing operations 1,185,283 1,289,266

Assets of a disposal group classified as held for sale(discontinued operations) (6) 3,832 146,524

704,250 874,895

Total assets Dürr Group 1,189,115 1,435,790

Equity and liabilities

Subscribed capital (20) 40,264 36,603Capital reserve (20) 160,459 159,000Revenue reserves (20) 65,967 44,937Other comprehensive income (20) –20,140 –19,670Equity without minority interests 246,550 220,870

Minority interests (21) 1,517 1,875Equity with minority interests 248,067 222,745

Provisions for pension obligations (22) 67,818 53,556Other provisions (23) 9,753 18,717Bonds (24) 187,901 186,471Other financial liabilities (24) 12,602 26,706Income tax liabilities (25) 443 288Deferred taxes (14) 44,408 51,694Deferred income 1,632 1,811Non-current liabilities 324,557 339,243

Other provisions (23) 81,979 101,716Trade payables (25) 347,833 492,705Financial liabilities (24) 17,410 85,279Income tax liabilities (25) 27,332 5,813Other liabilities (25) 138,896 117,551Deferred income 1,241 1,777Current liabilities 614,691 804,841

For information purposes:Total equity and liabilities

of continuing operations 1,187,315 1,366,829

Liabilities in direct connection with assets classifiedas held for sale (discontinued operations) (6) 1,800 68,961

616,491 873,802

Total equity and liabilities Dürr Group 1,189,115 1,435,790

Consolidated balance sheet of Dürr Aktiengesellschaft, Stuttgart, as of December 31, 2005

20041

Amounts in € k

2005Note

1 The amount comprises the liabilities of discon-tinued operations pursuant to IAS 35 reported ina separate column in the prior year. For editorialreasons, the presentation is in compliance withIFRS 5. A detailed classification as in the presen-tation of the prior year can be found in note 6of the notes to the consolidated financialstatements.

restated

50

January 1, 2004

(before adjustment) 36,603 159,000 39,214 –3,069 – –12,880 –15,949 218,868 5,248 224,116

Adjustment from IAS 19(revised) – – – – 137 – 137 137 – 137

January 1, 2004

(after adjustment) 36,603 159,000 39,214 –3,069 137 –12,880 –15,812 219,005 5,248 224,253

Other changes – – – – – – – – –2,516 –2,516

Other comprehensiveincome – – – 1,260 –1,642 –3,476 –3,858 –3,858 159 –3,699

Profit/loss fromcontinuing operations – – –66 – – – – –66 –1,049 –1,115

Profit/loss fromdiscontinued operations – – 5,789 – – – – 5,789 33 5,822

December 31, 2004 36,603 159,000 44,937 –1,809 –1,505 –16,356 –19,670 220,870 1,875 222,745

Capital increaseDürr Aktiengesellschaft 3,661 18,144 – – – – – 21,805 – 21,805

Other changes – –16,685 16,685 – – – – – –366 –366

Other comprehensiveincome – – – 1,123 –13,348 11,755 –470 –470 45 –425

Profit/loss fromcontinuing operations – – –104,550 – – – – –104,550 3 –104,547

Profit/loss fromdiscontinued operations – – 108,895 – – – – 108,895 –40 108,855

December 31, 2005 40,264 160,459 65,967 –686 –14,853 –4,601 –20,140 246,550 1,517 248,067

Consolidated statement of changes in shareholders’ equity of Dürr Aktiengesellschaft, Stuttgart, for the period from January 1 to December 31, 2005

Equity

with

minority

interests

Minority

interests

(21)

Equity

without

minority

interests

Total accu-

mulated

other

compre-

hensive

income

(20)

Currency

translation

(20)

Unrealized

gains/

losses

from cash

flow

hedges

(20)

Revenue

reserves

Capital

reserve

(20)

Sub-

scribed

capital

(20)

Other comprehensive income

2004

Change in fair value recorded in equity of financial instruments used for hedging purposes 1,800 2,123Adjustment item for currency translation of foreign subsidiaries 11,800 –3,317Actuarial gains/losses from defined benefit obligations and similar obligations –18,150 –2,486Deferred taxes on revaluations recognized directly in equity 4,125 –19Revaluations recognized directly in equity –425 –3,699

Profit after tax 4,308 4,707

Total profit for the period and revaluations recognized directly in equity in the period 3,883 1,008

Amounts in € k

2005

Unrealized

actuarial

gains/

losses

(20)

Amounts in € k

Note

Statement of recognized income and expense in theconsolidated financial statements of Dürr Aktiengesellschaft, Stuttgart, as of December 31, 2005


Continuing operations

Earnings before interest and taxes (EBIT) –71,452 28,985Income taxes paid –4,553 841Result of associates –1,585 –532Dividends from associates 741 168Amortization and depreciation of non-current assets 54,181 21,322Net gain on the disposal of property, plant and equipment –1,658 –2,012Non-cash expenses and income 38 287Changes in operating assets and liabilities

Inventories 206 9,039Trade receivables 50,589 55,099Other receivables and assets –23,326 6,305Provisions –25,099 –21,776Trade payables –132,907 –174,913

Other liabilities (other than bank) 8,243 –35,107Other assets and liabilities –979 –3,172

Cash flow from operating activities of continuing operations –147,561 –115,466

Cash flow from operating activities of discontinued operations 34,365 11,999Cash flow from operating activities –113,196 –103,467

Purchase of intangible assets –7,212 –7,730Purchase of property, plant and equipment –18,492 –13,629Purchase of other financial assets –220 –1,005Acquisitions, net of cash acquired –925 –5,446Proceeds from the disposal of non-current assets 11,907 8,303Disposal of discontinued operations, net of cash disposed of 297,599 –Cash flow from investing activities of continuing operations 282,657 –19,507

Cash flow from investing activities of discontinued operations –3,502 –8,132Cash flow from investing activities 279,155 –27,639

Change in current bank liabilities –83,442 –52,724Repayment of long-term borrowings –847 –141,260Bond issue – 186,899Payment of finance lease liabilities –920 –924Change in financial liabilities to associates –15 631Internal financing 21,450 1,976Increase in subscribed capital 3,661 –Additions to capital reserve 18,144 –Interest received 1,268 1,267Interest paid –34,027 –15,255Cash flow from financing activities of continuing operations –74,728 –19,390

Cash flow from financing activities of discontinued operations –20,328 –3,752Cash flow from financing activities –95,056 –23,142

Effects of exchange rate changes 2,483 5,860Change in cash and cash equivalents 73,386 148,388Cash and cash equivalents

At the beginning of the period 51,471 199,859At the end of the period 124,857 51,471Of continuing operations 124,658 39,468Of discontinued operations 199 12,003Dürr Group 124,857 51,471

Consolidated cash flow statement of Dürr Aktiengesellschaft, Stuttgart, for the period from January 1 to December 31, 2005

2004

Amounts in € k

2005

52

Basis of presentation

Notes to the consolidated financialstatements for the 2005 reporting period

Dürr Aktiengesellschaft (“Dürr AG” of the “Company”) is headquartered at Otto-Dürr-Strasse 8 in

70435 Stuttgart. Dürr AG and its subsidiaries (“Dürr” or the “Group”) are a worldwide leading

supplier of plants, systems and services for automotive production. The offering covers all the main

production and assembly stages of a vehicle. As a system supplier, Dürr designs and constructs

paint shops and final assembly plants. Dürr also supplies cleaning systems, filtration systems and

balancing machines for the manufacture of engines, transmission and vehicle components. Dürr’s

main customers are the major companies in the automobile industry worldwide.

The consolidated financial statements are prepared as of the balance sheet date in accordance with

IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant

to Sec. 315a (1) HGB [“Handelsgesetzbuch”: German Commercial Code]. The consolidated financial

statements are in line with all IFRSs that have to be adopted by the balance sheet date.

The accounting policies used generally correspond to the methods applied in the prior year. In

addition, the Group has applied the new and/or revised standards that are binding for fiscal years

beginning on or after January 1, 2005.

The changes in accounting policies result from the adoption of the following new or revised

standards.

IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”: Dürr has applied IFRS 5

prospectively in accordance with the transitional provisions of IFRS 5, which led to a change in

accounting policies for discontinued operations. Pursuant to IAS 35, the initial disclosure event is

the occurrence of one of the following, whichever occurs earlier:

the date on which the Group enters into a binding purchase agreement; or

the date on which management approves and announces a formal plan of sale.

Pursuant to IFRS 5, a component of an entity is classified as a discontinued operation at the point

in time from which this component of an entity satisfies the criteria for classification as held for

sale or is actually sold. An asset classifies as held for sale if its carrying amount will be recovered

principally through a sale transaction rather than through continuing use. Such a component of

an entity represents a separate major line of business or geographical area of operations, is part

of a single coordinated plan to dispose of a separate major line of business or geographical area

of operations or is a subsidiary acquired exclusively with an intent to resell. In effect, the change in

accounting policies means that the Group has accounted for a discontinued operation at a later

date than required according to IAS 35 due to the stricter criteria in IFRS 5.

IAS 19 “Employee Benefits”: The Group adopted IAS 19 (revised) for the first time as of January 1,

2005. According to this, actuarial gains and losses are recorded without effect on income directly

in equity. Furthermore, additional disclosures are made on developments of assets and liabilities

in the defined benefit plans and on the assumptions underlying the components of the costs for

defined benefit plans. The change in accounting policies means that the consolidated financial

statements as of December 31, 2005, and December 31, 2004, contain additional disclosures.

The effects of the first-time adoption on the recognition and measurement are explained in note 22.

IAS 21 “The Effects of Changes in Foreign Exchange Rates”: The changes in the revised IAS 21 be-

came binding during the fiscal year. As a result, any goodwill arising on the acquisition of a foreign

entity and any fair value adjustments to the carrying amounts of assets and liabilities arising on

1. Summary of significant

accounting policies

The Company


the acquisition of that foreign entity are recognized as assets and liabilities of the foreign entity and

translated at the closing rate. The change is applied prospectively in accordance with the transi-

tional provisions of IAS 21. Furthermore, goodwill acquired in the course of a business combination

prior to January 1, 2005 and fair value adjustments arising from the business combination are

treated as assets and liabilities of the parent. This change in accounting policies has no material

effects either as of December 31, 2005 or as of December 31, 2004.

The Group decided not to early adopt the following standards and IFRIC interpretations which have

already been issued but have not entered into force yet. Generally speaking, Dürr intends to adopt

all standards when their adoption becomes mandatory for the first time.

IFRSs and IFRIC interpretations adopted by the EU in the comitology procedures which have not yet

entered into force are:

Amendments to IAS 1 “Presentation of Financial Statements”: The additional disclosure require-

ments resulting from the amendment of IAS 1 “Presentation of Financial Statements” were not

observed in the consolidated financial statements. The amendments are applicable for fiscal years

beginning on or after January 1, 2007.

Amendments to IAS 39 “Fair Value Option and Cash Flow Hedge Accounting”: The amendments

are applicable for fiscal years beginning on or after January 1, 2006. Management had not completed

the analysis of the effects of this amendment by the time the consolidated financial statements

were prepared.

Amendments of IAS 39 and IFRS 4 “Financial Guarantee Contracts”: Following the revision of IAS 39

and IFRS 4, financial guarantees fall under the scope of IAS 39 only. In the past, financial guarantees

were either subject to IAS 39 or to IFRS 4, depending on their structure. The amendments are

applicable for fiscal years beginning on or after January 1, 2006. Management had not completed

the analysis of the effects of this amendment by the time the consolidated financial statements

were prepared.

IFRS 6 “Exploration for and Evaluation of Mineral Resources”: This standard is not relevant for the

business operations of the Group.

IFRS 7 “Financial Instruments: Disclosures”: IFRS 7 governs the disclosure requirements for finan-

cial instruments for industrial entities as well as banks and similar financial institutions. IFRS 7

replaces IAS 30 “Disclosures in the Financial Statements of Banks and Similar Financial Institutions”

as well as the disclosure requirements contained in IAS 32 “Financial Instruments: Disclosure and

Presentation”. IFRS 7 is applicable for fiscal years beginning on or after January 1, 2007. Manage-

ment had not completed the analysis of the effects of this standard by the time the consolidated

financial statements were prepared.

IFRIC 4 “Determining whether an Arrangement contains a Lease” and IFRIC 5 “Rights to Interests

Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds”: These

interpretations are applicable for the first time for fiscal years beginning on or after January 1, 2006.

They are not expected to have any material effects on the consolidated financial statements.

IFRSs and IFRIC interpretations which have not yet entered into force and have not been adopted

by the EU in the comitology procedures:

IFRIC 7 “Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary

Economies”: This interpretation is applicable for the first time for fiscal years beginning on or after

January 1, 2007. It is not expected to apply for the consolidated financial statements.

54

IFRIC 8 “Scope of IFRS 2”: The amendments are applicable for the first time for fiscal years beginning

on or after May 1, 2006. They are not expected to have any effects on the consolidated financial

statements.

The requirements of the standards applied were satisfied in full. The financial statements thus give

a true and fair view of the net assets, financial position and results of operations and cash flows

of the Company.

The reporting year of Dürr is the calendar year. The consolidated financial statements are prepared

in thousands of euros (€ thousand or € k), unless stated otherwise.

All assets and liabilities are measured at historical or amortized cost. The only exceptions are

derivative financial instruments and available-for-sale securities which are measured at fair value.

The consolidated financial statements and Group management report of Dürr Aktiengesellschaft

prepared by the Board of Management as of December 31, 2005, were approved at the meeting of

the Board of Management on March 14, 2006, for submission to the Supervisory Board.

The consolidated financial statements of Dürr are based on the IFRS financial statements of Dürr AG

and the subsidiaries and associates included in the consolidation as of December 31, 2005, prepared

in accordance with uniform rules and audited by independent auditors.

For subsidiaries included in the consolidated financial statements for the first time, capital consoli-

dation is performed according to the purchase method of accounting (IFRS 3 “Business Combina-

tions”). Thereby the purchase costs of the acquired shares are offset against pro rata equity of the

subsidiary. All purchased assets and liabilities are included in the consolidated balance sheet at

the acquisition date, taking hidden reserves and encumbrances into account. Any remaining debit

difference is shown as goodwill or under intangible assets. When the entity is removed from

consolidation, the goodwill is released to profit and loss. Negative differences are posted imme-

diately to income.

Entities over which the Company exercises significant influence (associates) are measured using

the equity method; this is generally the case with a share of voting rights of 20% to 50%. Any

goodwill is disclosed under investments in associates. All other investments are accounted for at

amortized cost because market values are not available or determinable and fair values cannot

be reliably determined.

Intercompany sales, other income and expenses and all intercompany receivables and liabilities

and contingencies are eliminated. Intercompany profits which are not realized by sale to third

parties are eliminated.

Besides Dürr AG, the consolidated financial statements as of December 31, 2005, contain all domes-

tic and foreign entities which Dürr AG can control, directly or indirectly (control concept). The

entities are included in the consolidated financial statements from the date when the possibility

of control was obtained.

Approval of the consolidated

financial statements

as of December 31, 2005

2. Basis of consolidation

3. Consolidated group


Besides Dürr AG as parent company, the consolidated group contains the entities listed below:

The consolidated financial statements contain two (2004: nine) entities in which minority share-

holders hold interests.

In the reporting year, three entities were formed in connection with the sale of the MPT business

unit and deconsolidated effective as of December 30, 2005.

A further six entities were wound up during the reporting period. They were deconsolidated and

have left the consolidated group.

In Germany, the following entities were merged into Dürr Systems GmbH, Stuttgart, with economic

effect as of January 1, 2005: Dürr Automotion GmbH, Dürr Environmental GmbH and DSEngineering

GmbH. In the USA, the entities Acco Systems Inc., Behr Systems Inc., Dürr Environmental Inc. and

Dürr Production Systems Inc. were merged into Dürr Systems Inc. (formerly Dürr Industries Inc.),

Plymouth, with economic effect as of January 1, 2005. All entities were already fully consolidated

even before the merger. This, therefore, did not impact the consolidated financial statements.

The subsidiaries sold in the reporting year were part of the discontinued operations. Reference is

made to note 6. A full list of the Group’s shareholdings is filed with the commercial register at the

Stuttgart district court.

Financial statements denominated in foreign currency of the subsidiaries included in the consoli-

dation are translated into euros on the basis of the functional currency concept pursuant to IAS 21

(The Effects of Changes in Foreign Exchange Rates). The functional currency is the local currency

for all foreign subsidiaries of the Group, since these entities operate independently from a financial,

economic and organizational viewpoint. According to this concept, assets and liabilities are thus

translated at the exchange rate as of balance sheet date, while income and expenses are generally

translated at average rates. Any currency translation differences are recorded without effect on

income in other comprehensive income.

2004

Number of fully consolidated entities

Germany 17 25

Other countries 46 85

63 110

2005

2004

Number of entities accounted for at equity

Germany 1 1

Other countries 5 6

6 7

2005

4. Changes in the

consolidated group

5. Currency translation

56

In the separate financial statements of Dürr AG and its subsidiaries, receivables and liabilities in a

currency other than the euro are measured at purchase cost; current transactions are translated at

the current exchange rate. Any exchange rate gains and losses are included in the income state-

ment under other operating income and other operating expenses. For further explanations of the

exchange rate gains and losses with effect on income, reference is made to note 10 to the income

statement.

The following main exchange rates are decisive for currency translation in the Group (equal to € 1):

In the separate financial statements of the foreign subsidiaries, goodwill is translated at the rate

prevailing on the Group balance sheet date. Applying the transitional ruling of IAS 21.59, goodwill

that is not accounted for in the separate financial statements of the subsidiaries is accounted

for at the historical exchange rate (at the time of acquisition) as of the Group balance sheet date.

Hidden reserves disclosed in the course of business combinations are accounted for in euros as

these were only incurred at entities whose local currency is the euro.

Pursuant to IFRS 5 (“Assets Held for Sale and Discontinued Operations”), a component of an entity is

classified as a discontinued operation at the point in time from which this component of an entity

satisfies the criteria for classification as held for sale or is actually discontinued. An asset is classi-

fied as held for sale if its carrying amount will be recovered principally through a sale transaction

rather than through continuing use. Such an operation represents a separate major line of business

or geographical area of operations, is part of a single coordinated plan to dispose of a separate

major line of business or geographical area of operations or is a subsidiary acquired exclusively

with an intent to resell.

On February 23, 2005, and October 31, 2005, the Supervisory Board approved the resolutions of

the Board of Management to discontinue certain activities in future (Services, Development Test

Systems, Measuring and Process Technologies).

Based on this, Dürr sold the Services business unit to the Voith group effective May 31, 2005.

Services consisted of the Premier group with the core company Premier Manufacturing Support

Services Inc., USA. As of September 30, 2005, the Development Test Systems business unit was

sold to HORIBA, Japan. The Measuring and Process Technologies business unit was sold to

HgCapital, United Kingdom, as of December 30, 2005. Where necessary, the antitrust authorities

have given their approval.

US dollar 1.1834 1.3640 1.2380 1.2456

Pound sterling 0.6870 0.7071 0.6832 0.6797

Australian dollar 1.6145 1.7489 1.6261 1.6927

Canadian dollar 1.3769 1.6430 1.4988 1.6157

Brazilian real 2.7567 3.6206 3.0021 3.6016

Renminbi yuan 9.5515 11.2891 10.1344 10.1563

Korean won 1,191.0000 1,412.2900 1,265.8208 1,406.0242

Polish zloty 3.8686 4.0877 4.0329 4.5168

20042005Dec.31, 2004Dec.31, 2005

Closing rate Average rate

6. Discontinued operations


The current earnings from discontinued operations break down as follows:

The effect of the discontinued operations on the cash flow statement is shown below:

At the time of sale, the net assets of the discontinued operations are as follows:

All sales were made for a consideration.

2004

Discontinued operations

Income 386,440 416,931

Expenses 362,926 409,612

Current earnings before taxes 23,514 7,319

Income taxes 6,147 1,498

Current earnings after taxes 17,367 5,821

Profit from sale before taxes 116,090

Income tax expense from sale 24,602

Profit from sale after taxes 91,488

Amounts in € k

2005

2004


Cash flow from operating activities 34,365 11,999

Cash flow from investing activities –3,502 –8,132

Cash flow from financing activities –20,328 –3,752

Exchange rate changes on cash and cash equivalents –5,824 1,499

Change in cash and cash equivalents 4,711 1,614

Amounts in € k

2005


Non-current assets 128,922

Current assets without bank balances and cash 209,380

Bank balances and cash 17,094

Non-current liabilities 17,464

Current liabilities 139,329

198,603

Total consideration: 314,693

Net inflow of cash and cash equivalents from the sale

Cash consideration in the reporting period 314,693

less bank balances and cash sold 17,094

297,599

Amounts in € k

2005

58

To ensure comparability with the prior-year figures, the assets and liabilities as of December 31,

2004, that stem from discontinued operations (Services and DTS) are presented below:

This item contains goodwill, franchises, industrial rights and similar rights as well as capitalized

development costs.

Purchased and internally generated intangible assets are capitalized pursuant to IAS 38 (Intangible

Assets) if it is probable that a future economic benefit will flow to the entity from the use of the

asset and the cost of the asset can be reliably determined.

Intangible assets with a finite useful life are carried at cost and amortized systematically over

their useful life using the straight-line method provided there is no impairment loss. Goodwill and

indefinite-lived intangible assets are not amortized systematically.

In the Group, development costs are only recognized as internally generated intangible assets if the

conditions set forth in IAS 38 are satisfied. This includes the following criteria: Technical feasibility

of completion for use or sale, it is probable that future economic benefit will flow to the entity from

the use of the asset, ability to reliably assess the expenditure during the development. Cost is

the sum of expenditure incurred from the date when the intangible asset first meets the recognition

criteria. Development costs which do not meet these criteria as well as research costs are recog-

nized as an expense immediately.

Assets

Non-current assets

Goodwill 44,955

Other intangible assets 2,229

Property, plant and equipment 13,375

Other non-current assets 3,501

Current assets

Inventories and prepayments 5,178

Trade receivables 66,288

Cash and cash equivalents 5,023

Other current assets 5,975

146,524

Equity and liabilities

Equity with minority interests 31,518

Non-current liabilities

Provisions for pension obligations 364

Other provisions 3,870

Internal financing 46,045

Other non-current liabilities 8,620

Current liabilities 56,107

146,524

Amounts in € k

2004

(adjusted)

7. Accounting policies

Intangible assets


The useful life of intangible assets is estimated as follows:

Property, plant and equipment are accounted for at cost less scheduled straight-line depreciation

over the useful life. Production cost comprises all costs that can be allocated to the production

process, directly or indirectly.

The useful life of intangible assets is estimated as follows:

The cost of property, plant and equipment includes major expenditures and replacements which

extend useful lives or increase capacity. The historical cost of assets that are either sold or scrapped

is eliminated after deduction of accumulated depreciation. Any gains and losses from the dis-

posal of assets are disclosed as other operating income or expenses. Costs of ongoing repairs and

maintenance are expensed immediately.

An investment property is measured initially at its cost including incidental costs. The carrying

amount contains the costs for investments to replace an existing investment property at the time

these costs are incurred provided the recognition criteria are satisfied. The carrying amount does

not contain the costs of day-to-day maintenance of these properties. In the course of subsequent

measurement, the investment property is carried at fair value. Fair value reflects the market condi-

tions on the balance sheet date. Gains and losses from changes in fair value of investment property

are recorded in the income statement in the year they occur.

Investment property is derecognized when it is sold or retired from active use and no future eco-

nomic benefit is expected upon its disposal. Gains or losses arising from the retirement or disposal

of investment property are recognized in the year of retirement or disposal.

Properties are allocated to investment property if a change in use has occurred which is substan-

tiated by being occupied by another party after the end of owner occupation or the inception of an

operating lease with another party.

All intangible assets with an indefinite useful life and goodwill are tested for impairment at the end

of each reporting period. Other intangible assets and property, plant and equipment are reviewed

for impairment whenever events or changes in circumstances indicate that the carrying amount of

an asset may not be recoverable. Investment property that is largely rented to third parties is also

subjected to an impairment test by external valuers.

An impairment loss is recognized if the recoverable amount of the asset falls short of the carrying

amount. The recoverable amount is the higher of an asset’s net selling price and its value in use.

The net selling price is the amount recoverable from the disposal of an asset at customary market

conditions less costs to sell. Value in use is the fair value of estimated future cash flows expected

Franchises, industrial rights and similar rights 1 to10

Capitalized development costs 3 to 8

Amounts in years

Property, plant and equipment

IT hardware 3 to 5

Furniture and fixtures 5 to10

Machines and equipment 5 to15

Buildings and leasehold improvements 5 to 50

Amounts in years

Investment property

Impairment test

60

to arise from the continuing use of an asset and from its disposal at the end of its useful life. The

recoverable amount is determined for each asset individually or, if that is not possible, for the cash-

generating unit to which the asset belongs. As regards goodwill acquired in business combina-

tions, the relevant cash-generating units correspond to the business units of the Dürr Group based

on internal reporting structures. To determine the estimated cash flow of each cash-generating

unit, basic assumptions have to be made. These include assumptions regarding financial planning

and the interest rates used for discounting.

Impairments recorded in prior periods are revised with profit and loss effect if they no longer exist

or have decreased. The increase in value or the reduction of an impairment loss of an asset is,

however, only recorded to the extent that it does not exceed the carrying amount that would have

existed if the regular amortization or depreciation had been recorded and no impairment losses

had been recognized. Impairments on goodwill may not be recorded.

According to IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance)

government grants are only recorded if it is reasonably certain that the conditions attached to

the grants will be fulfilled and the grants actually awarded. Grants are deducted from the carrying

amount of the subsidized asset.

The entities in the Dürr Group are lessees of land, buildings, office and operating equipment. The

majority of leases are classified as operating leases.

When the leases meet the definition of finance leases, the leased asset is capitalized at acquisition

cost. Acquisition cost is the net present value of future minimum lease payments less costs incurred

for insurance, maintenance and taxes on any profit thereon. A liability is also established at that

time for the same amount. The upper limit for the recognition of a leased asset and the liability is the

fair value. The leased asset is depreciated over the shorter of the lease term and its estimated use-

ful life. Interest is imputed on the obligation using the effective interest method over the lease term.

Lease payments on operating leases are recorded as an expense in the income statement over the

term of the lease.

Entities on which Dürr does not exert a significant influence are recorded as investments in asso-

ciates. The Group’s share of profits and losses is shown in the consolidated balance sheet as a

change in the carrying amount and recognized in the consolidated income statement under result

of associates. Dividends received are deducted from the carrying amount.

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

Financial assets held for trading

Held-to-maturity investments

Loans and receivables originated by the entity and

Available-for-sale financial assets.

Financial assets with fixed or determinable payments and fixed maturity that the entity intends and

has the ability to hold to maturity other than loans and receivables originated by the entity pursuant

to IAS 39 are classified as held-to-maturity financial assets. Financial assets that are acquired

principally for the purpose of generating a profit from short-term fluctuations in price or dealer’s

margins are classified as held-for-trading financial assets. All other financial assets apart from

loans and receivables originated by the entity pursuant to IAS 39 are classified as available-for-sale

financial assets.

Government grants

Leases

Investments in associates

Financial instruments


Held-to-maturity investments are disclosed under non-current assets unless they are due within

12 months of the balance sheet date. Held-for-trading financial assets are disclosed under current

assets. Available-for-sale financial assets are disclosed under current assets if management intends

to sell them within 12 months of balance sheet date.

Purchases or sales of financial assets are accounted for using the trade date method.

The initial recognition of a financial asset is at cost which corresponds to the fair value of the

consideration given or received; transaction costs are included.

Changes in the fair value of held-for-trading financial assets are recorded in the net profit or loss.

For this purpose, the fair value of a financial instrument is the amount that can be generated for the

asset in an arm’s length transaction between knowledgeable and willing parties, under current

market conditions.

Held-to-maturity investments are measured at amortized cost using the effective interest rate

method. If it is more likely than not that the value of financial assets measured at amortized cost

is impaired, the impairment is recorded against earnings. If an impairment loss recorded in a

prior period decreases and the decrease in the impairment (or a reversal) can be objectively related

to an event occurring after the impairment loss, the reversal is included in net profit and loss. A

write-up cannot, however, exceed the carrying amount that would have been recognized without

the impairment.

Loans and receivables originated by an entity and not held for trading are measured at amortized

cost or the lower net realizable value on the balance sheet date.

Available-for-sale financial assets are accounted for at market value. Unrealized gains and losses

are disclosed in other comprehensive income, net of a tax portion. The reserve is released to profit

and loss either upon disposal or if it is impaired.

The Group uses derivative financial instruments such as forward exchange contracts and interest/

currency swaps in order to hedge against interest and currency risks.

For hedge accounting purposes, hedges are designed to:

hedge the exposure to changes in the fair value of a recognized asset or liability;

hedge the exposure to variability in cash flows that is attributable to a particular risk associated

with a recognized asset or liability or a forecasted transaction; or

hedge the net investment in a foreign entity.

A hedge of the currency risk of a firm commitment is accounted for as a cash flow hedge. At the

inception of the hedge, the hedging relationship and the entity’s risk management objective and

strategy for undertaking the hedge are formally documented. This documentation contains identi-

fication of the hedging instrument, the related hedged item or transaction, the nature of the risk

being hedged, and how the entity will assess the hedging instrument’s effectiveness in offsetting

the exposure to changes in the hedged item’s fair value or the hedged transaction’s cash flows that

is attributable to the hedged risk. Such hedges are considered to be highly effective in offsetting

the risks from changes in the fair value or in the cash flow. They are continuously assessed whether

they were in fact highly effective for the whole reporting period for which the hedge is designated.

Hedges which satisfy the strict criteria for hedge accounting are accounted for as follows:

Fair value hedge accounting

By hedging against changes in fair value, the Group secures itself against the risk of a change in

fair value of a recognized asset or recognized liability or an unrecognized firm commitment or a

precisely defined part of such an asset, such a liability or such a firm commitment that is attributable

Derivative financial instruments

and hedging

62

to a certain risk and which could have an effect on the profit or loss of the period. To hedge the fair

value, a gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount

of the hedged item, the derivative financial instrument is revalued at its fair value and the resulting

gain or loss is recognized immediately in net profit or loss. For fair value hedges which relate to

hedged items carried at amortized cost, the adjustments of the carrying amount are released to

profit and loss over their term until maturity. If an unrecognized firm commitment is designated

as a hedged item, the subsequent accumulated change in fair value of the firm commitment that is

attributable to the hedged risk is recognized as asset or liability and in the profit or loss of the period.

Changes in the fair value of a hedged item are also reported in net profit. A fair value hedge has

to be reversed when the hedging instrument expires, is sold, ended or exercised or the criteria for

the use of hedge accounting are no longer satisfied. Every adjustment of the carrying amount of

a hedged financial instrument is released to income using the effective interest method. As soon

as there is an adjustment, the reversal can begin, but no later than when the hedged item ceases

to be adjusted for changes in its fair value attributable to the risk being hedged.

Cash flow hedge accounting

Hedges qualify as cash flow hedges if they hedge exposure to variability in cash flows that is attrib-

utable to a particular risk associated with a recognized asset or liability or a forecasted transaction

and that can have an effect on the profit or loss of the period. The portion of the gain or loss on a

hedging instrument that is determined to be an effective hedge should be recognized directly in

equity, while the ineffective part is recorded in profit and loss. Amounts that are recognized directly

in equity are recognized in profit or loss in the period in which the hedged transaction affects the

net profit or loss of the period. If the hedged item is the acquisition costs of a non-financial asset

or non-financial liability, the amounts recorded in equity are added back to the carrying amount

of the non-financial asset or non-financial liability originally recorded. If the forecasted transaction

is no longer expected to occur, any related net cumulative gain or loss that has been reported

directly in equity is reported in net profit or loss for the period. When the hedge expires or is sold,

terminated without replacement or rolled over into another hedge or if the Group retracts the

designation of a hedge, the previously disclosed amounts remain as a separate item in equity until

the forecasted transaction occurs. If the forecast transaction is no longer expected, the amount is

recorded in profit and loss.

The marketable securities disclosed under other financial assets are classified as available-for-sale

securities and therefore measured at market value on the balance sheet date.

Inventories of raw materials, consumables and supplies, work in process from non-contract pro-

duction and finished goods are carried at the lower of cost or market on the balance sheet date.

Valuation allowances are recorded for obsolete and slow-moving inventories.

Cost of conversion comprises direct materials costs, direct labor costs as well as all production-

related overheads including production-related depreciation. Borrowing costs are not included.

Dürr generates most of its sales revenues from long-term construction contracts. Contract revenue

is recognized according to the percentage-of-completion method based on costs incurred relative to

total estimated costs. The zero-profit method is used in situations where estimated costs to com-

plete cannot be reliably determined.

Progress billings issued to customers and cash received from customers are not recorded as sales

but deducted, without effect on income, from cost and estimated earnings in excess of billings on

uncompleted contracts or added to advances received.

Other financial assets

Inventories and prepayments

Construction contracts


To the extent that costs have been incurred on contracts, but the amounts cannot yet be billed under

the terms of the contracts, they are reported together with the corresponding partial earnings as

“cost and estimated earnings in excess of billings on uncompleted contracts.” The invoicing of such

amounts is dependent on certain contractually defined milestones being reached. Cost and esti-

mated earnings in excess of billings on uncompleted contracts includes directly allocable costs

(material, labor cost and cost of services provided by third parties) as well as the appropriate portion

of production overheads and estimated earnings. Shipping costs are included in the cost of sales.

Also included in cost and estimated earnings in excess of billings on uncompleted contracts are

amounts that Dürr seeks to collect from customers or others for errors or changes in contract

specifications or design, contract change orders in dispute or unapproved as to both scope and

price, or other customer-related causes of unanticipated additional contract costs, claims and pend-

ing change orders. These are carried at the estimated amount provided their realization is probable

and can be reliably estimated. No profits in addition to these accumulated costs are reported.

Pending change orders involve the use of estimates. Therefore, it is possible that revisions to the

estimated recoverable amounts of recorded pending change orders will be made in the future.

The POC method and ZP method are based on estimates. Due to the uncertainties prevailing in this

respect, estimates of the cost to complete, including expenses for contractual penalties and war-

ranties, may have to be adjusted subsequently. Such revisions to costs and income are recognized

in the period in which the revisions are determined. Provisions for potential losses from pending

transactions are recognized in the period in which losses are identified.

Receivables are carried at the lower of amortized cost or net realizable amount.

The Group assesses the recoverability of its receivables by referring to a number of factors. Should

Dürr become aware of any issues which would impinge on the ability of certain customers to meet

their financial obligations, it posts a specific valuation allowance to write down the net receivable

due to the Group to the reasonably expected recoverable amount. The appraisals of the separate

debtor accounts which are either overdue or in default are performed by management. For all

other customers, the Group records specific valuation allowances on a portfolio basis based on the

period overdue, current business circumstances and past experience. A local collection manage-

ment system takes account of the commercial and political risks of bad debts. The collection manage-

ment system consists of: Carrying out regular credit rating, entering into credit insurance policies

and – particularly in the export business – issuing letters of credit.

All short-term liquid financial assets with an original term of up to three months are carried as cash

and cash equivalents at face value.

Pursuant to IAS 23, borrowing costs incurred due to the issue of a bond are deducted from the

bond in the consolidated balance sheet. Calculated using the effective interest method, borrowing

costs are amortized over the term of the bond.

Costs in connection with the syndicated loan are shown in the consolidated balance sheet as other

intangible assets and amortized over the term of the syndicated loan.

The Group’s post-employment benefits include both defined contribution plans and defined

benefit plans.

In the case of defined contribution plans, the Company pays voluntary contributions to state or

private pension funds based on legal or contractual provisions. No further payment obligations

arise for the Company from the payment of contributions.

Trade receivables

Cash and cash equivalents

Borrowing costs in connection

with the refinancing of the Group

Provisions

64

The large majority of the Company post-employment benefit systems are based on defined benefit

plans which guarantee the beneficiary a monthly old-age pension for life. These are funded by the

Company and by the employees.

In accordance with IAS 19, provisions for pension commitments are measured using the projected

unit credit method. For this purpose, the future commitments are measured on the basis of the pro

rata employee benefit obligations as of the balance sheet date. Pension provisions are calculated

taking into account development assumptions (e.g. salary developments) for those factors which

affect the benefit amount.

In the reporting year, Dürr decided to apply IAS 19 (revised) to measure the benefit obligations.

According to this, actuarial gains and losses are recorded without effect on income directly in equity.

Comparability with the prior-year figures is ensured by adjusting the balance sheet positions con-

cerned. The effects in terms of amount can be seen from the statement of changes in Group equity

as of January 1, 2004, and December 31, 2004 (adjusted).

Provisions for reinsured benefit obligations are netted against plan assets in accordance with the

criteria of IAS 19 (revised).

Other provisions are recorded if the obligation to a third party results from a past event which is

expected to lead to an outflow of economic benefits and can be reliably determined. They represent

uncertain obligations which are stated in that amount which, in the best possible estimate, is

necessary to cover them. Provisions with a residual term of more than one year are discounted

at market interest rates which reflect the risk and period until the obligation is met.

Liabilities from finance leases are carried at the present value of the lease payments or the lower

market value of the capitalized leased asset; all other liabilities are accounted for at amortized cost.

Deferred taxes are accounted for using the balance sheet-oriented liability method according to

IAS 12 (Income Taxes).

This involves creating deferred tax items for all temporary accounting and measurement differences

between IFRS and tax carrying amounts. They are not created if the temporary difference arises

from goodwill or the initial recognition of other assets and liabilities in a transaction (not a business

combination) which impacts neither the tax nor the commercial profit or loss. A deferred tax asset

is set up for all taxable temporary differences arising from shares in subsidiaries or associates, and

interests in joint ventures, unless the parent company can control the reversal of the temporary

difference and the temporary difference will probably not reverse in the foreseeable future. Further,

deferred tax assets for future economic benefits from unused tax losses must be taken into account

if it is highly probable that they will be used.

Deferred taxes are measured taking into account the respective local income tax rates which apply

in the individual countries at the time of realization or which are expected (basis: Applicable tax

law). Valuation allowances are only recorded on deferred tax assets if the loss of the tax benefit is

more probable than its use.

Deferred tax assets and deferred tax liabilities are netted if, and only if, the entity has a legally

enforceable right to offset current tax assets against current tax liabilities and the deferred tax

assets and the deferred tax liabilities relate to income taxes levied on the same taxable entity by the

same taxation authority. Deferred taxes are recorded as tax income or expense in the income

statement unless they relate to items recorded directly in equity; in this case, the deferred taxes

are also recorded directly in equity.

Liabilities

Deferred taxes


Liabilities are disclosed in the notes to the financial statements as contingent liabilities for a possible

obligation that arises from past events and whose existence will be confirmed only by the occur-

rence or non-occurrence of one or more uncertain future events not wholly within the control of

the entity. Contingent liabilities can arise from a present obligation that results from past events

but is not recognized because:

it is not probable that an outflow of resources embodying economic benefits will be required

to settle the obligation, or

the amount of the obligation cannot be measured with sufficient reliability.

A contingent liability is not disclosed if the possibility of an outflow of resources embodying eco-

nomic benefits is remote.

Research and non-capitalizable development costs are recorded with effect on income when they

are incurred.

Earnings per share are determined pursuant to IAS 33 (Earnings Per Share).

If there are dilutive effects present, two different ratios for earnings per share must be disclosed.

The ratio “Earnings per share” does not take account of dilutive effects; the earnings share of the

shareholders of Dürr Aktiengesellschaft is divided by the weighted average number of shares

outstanding. The ratio “Earnings per share (diluted)” accounts not only for the shares outstanding,

but also for shares potentially available on the basis of options.

The calculation is presented below (all amounts in thousands of euros, except earnings per share).

In the reporting periods 2005 and 2004, there were no dilutive effects as no option rights were

issued and all existing option rights have expired.

The development of Dürr hinges on the willingness of the automotive industry to invest. A significant

portion of the Group’s revenues is generated with a limited number of customers because the world-

wide market for automobiles is dominated by a small number of corporations.

The preparation of the consolidated financial statements pursuant to IFRS requires management to

make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent liabilities at balance sheet date and the reported amounts of revenues and

expenses during the reporting period. Actual figures may diverge from these estimates.

Issues requiring assumptions and estimates include the recognition and measurement of cost and

estimated earnings in excess of billings on uncompleted contracts, for bad debt allowances as

well as for contingent liabilities and other provisions; the same applies to determining the fair value

of long-lived items of property, plant and equipment and intangible assets and for the impairment

testing of goodwill and the recognition of deferred taxes on unused tax losses.

Contingent liabilities

Research and non-capitalizable

development costs

Earnings per share

2004

Profit/loss allocable to shareholdersof Dürr Aktiengesellschaft in € k 4,345 5,723

of which continuing operations in € k –104,550 –66

of which discontinued operations in € k 108,895 5,789

Number of shares outstanding (weighted average) 14,400.0 14,298.2

Earnings per share (basic and diluted) in € 0.30 0.40

of which continuing operations in € –7.26 0.00

of which discontinued operations in € 7.56 0.40

2005

Dependence on a few customers

Use of estimates

66

Notes to the items of theconsolidated financial statements

Notes to the consolidated income statement

For the composition of the restructuring expenses/encumbered contracts shown separately in the

income statement and impairment losses recorded on the individual functional costs, reference is

made to note 11.

Sales revenues break down as follows:

The expense positions of the income statement contain the following personnel expenses:

Other operating income and expenses mainly consist of:

8. Sales revenues

2004

Contract revenues 1,145,732 1,489,965

Revenues from services 220,609 222,416

Other sales revenues 34,261 13,436

1,400,602 1,725,817

Amounts in € k

2005

9. Personnel expenses

2004

Wages and salaries 312,757 325,049

Social security contributions 68,535 73,397

381,292 398,446

of which post-retirement benefits 7,773 7,068

Amounts in € k

2005

10. Other operating income

and expenses

2004

Other operating income

Exchange rate gains 21,180 14,448

Reversal of provisions 6,887 5,090

Book gains on the disposal of non-current assets 3,813 2,245

Other 7,492 7,458

Other operating expenses

Exchange rate losses 22,173 14,493

Impairment of receivables and other current assets 2,750 2,152

Book losses on the disposal of non-current assets 2,155 237

Other 17,554 9,256

–5,260 3,103

Amounts in € k

2005


In the course of the Group-wide program FOCUS, Dürr is restructuring the Paint and Assembly

Systems division and the Cleaning and Filtration Systems business unit. The largest part of the

restructuring expense pertains to Paint and Assembly Systems.

The total restructuring expenses in the reporting year amount to € 45,903 thousand (2004: € 6,692

thousand). Part of the expenses are allocable to other liabilities. Liabilities for restructuring measures

have developed as follows:

A further € 11,506 thousand relates to restructuring expenses for measures already implemented

in the fiscal year 2005.

The restructuring expenses/onerous contracts can be allocated to the individual functional costs

as follows: € 23,266 thousand (2004: € 2,447 thousand) relates to cost of sales, € 3,509 thousand

(2004: € 777 thousand) relates to selling expenses, € 17,240 thousand (2004: € 3,379 thousand) to

administrative expenses and € 1,888 thousand (2004: € 89 thousand) relates to research and

development costs.

As part of FOCUS, impairment losses were also allocated to intangible assets (€ 10,588 thousand),

property, plant and equipment (€ 11,115 thousand) and to investment property (€ 5,471 thousand).

Impairment losses of an additional € 700 thousand were recorded on financial assets.

Impairment losses on intangible assets mainly pertain to licenses and patents which are no longer

used at all, or only to a limited extent, in the course of restructuring. The largest portion of impair-

ment losses on intangible assets relates to the Paint and Assembly Systems reporting segment.

Generally speaking, the recoverable amount was calculated as value in use. Due to the short residual

terms of the assets on which impairment losses have been recorded, discounting in the calculation

of values in use was implicitly considered by means of markdowns on the future cash flows.

During the 2005 reporting period, the segment sales, restructuring and reorganization activities in

the Dürr Group resulted in shifts in the use of property which made a review of carrying amounts

necessary. For the first time, the land and buildings, most of which is let to third parties, was classi-

fied as a cash-generating unit pursuant to IAS 40 and disclosed as investment property and also

subjected to an impairment test pursuant to IAS 36. An appraisal by an external valuer forms the

11. Restructuring expenses

and impairment losses

January 1, 2004 4,785 15,429 20,214

Currency differences –32 –8 –40

Utilization 3,264 13,309 16,573

Addition 3,174 452 3,626

December 31, 2004 4,663 2,564 7,227

Currency differences 321 38 359

Utilization 1,180 2,482 3,662

Reversal 2,664 – 2,664

Addition 21,912 12,485 34,397

December 31, 2005 23,052 12,605 35,657

Paint and

Assembly

Systems

Measuring

and Process

Systems

Amounts in € k

Dürr Group

68

basis of the impairment calculation. The impairment requirement for the land and buildings, most

of which is let to third parties, amounts to € 5,471 thousand. The directly recoverable amount for the

land and buildings, most of which is let to third parties, is equal to the fair value less costs to sell

of this Group; we also refer to note 15.

An impairment loss was also recorded on a property in the US which has been allocated to the PAS

division. Based on an appraisal – prepared by an independent valuer – the value of the property has

been written down to market value by € 5,331 thousand. This property is available for sale because,

due to the restructuring of the Dürr Group, it is no longer needed for business operations; we refer

to the information about land and buildings in note 15.

The impairment can be allocated to the individual functional costs as follows: € 13,954 thousand

(2004: € 85 thousand) relates to cost of sales, € 1,510 thousand (2004: € 0 thousand) relates to selling

expenses, € 3,939 thousand (2004: € 56 thousand) to administrative expenses and € 8,471 thousand

(2004: € 0 thousand) relates to research and development costs.

An impairment loss was recorded on three associates based on future estimated income (€ 2,744

thousand). The residual amount relates to the profit/loss shares from equity consolidation.

Currency effects within the accumulated other comprehensive income were recorded directly

in equity.

Interest and similar expenses consist of:

For details of the Group financing structure, please refer to note 24.

The income taxes include the domestic corporate income tax including a solidarity surcharge and

trade taxes on income. Comparable taxes of foreign subsidiaries are also shown under this position.

The tax expense for discontinued operations is explained in note 6.

Deferred taxes are computed using an unchanged tax rate of 39.0% (prior year: 39.0%). Besides the

corporate income tax rate of 25% and the solidarity surcharge of 5.5%, an average trade tax on

income rate was considered. There were no major changes in tax expense due to changes in the

respective local tax rates.

12. Result from associates

13. Interest and similar expenses

2004

Amortization of transaction costs/debt discount from the issueof a bond and from a syndicated loan 1,982 825

Other interest expenses 35,375 25,260

Interest and similar expenses 37,357 26,085

Amounts in € k

2005

14. Income taxes


The tax expense on income is made up as follows:

As a result of accumulated losses in the past three years in certain tax jurisdictions, Dürr did not

record any deferred tax assets on unused tax losses. In addition, deferred tax assets have only been

created if it can be assumed that a future taxable profit will be available against which the deferred

tax assets can be used. Deferred tax assets have thus initially been carried at the amount equivalent

to the existing deferred tax liabilities in terms of the same tax authorities and the same taxpayer,

provided the tax credits can be used before they are forfeited. When determining the amount rec-

ognized, reverse effects of deferred tax liabilities and additional tax income of up to three years

were considered, provided they could be assumed with reasonable certainty.

Dürr assesses the deferred taxes regularly. The ability to recognize tax income from deferred taxes

depends on the possibility of generating taxable income in the future and using up unused tax

losses before they expire.

The following table shows the reconciliation of theoretical income taxes to the actual income tax

expenses using the German corporate tax rate of 39.0% (2004: 39.0%).

2004

Current income taxes

Income tax expenses, reporting year 27,549 3,629

Adjustment of tax expense, prior years 1,729 48

29,278 3,677

Deferred taxes

Origin and reversal of temporary differences –602 3,430

Total tax expense 28,676 7,107

Less tax expense from discontinued operations 30,749 1,498

Tax income/expense –2,077 5,609

Amounts in € k

2005

2004

Profit/loss before income taxes from continuing operations –106,620 4,494

Profit before income taxes from discontinued operations 139,604 7,320

Profit before income taxes 32,984 11,814

Theoretical income tax expenses in Germany of 39% (2004: 39%) 12,864 4,607

Adjustments of actual income taxes incurred in prior years 1,729 2,037

Non-deductible operating expenses 3,395 2,370

Taxation difference, foreign tax jurisdictions –784 –308

Unrecognized deferred taxes, esp. on unused tax losses 25,687 1,708

Change in valuation allowance on deferred tax assets 13,670 2,444

Subsequent recognition of deferred taxes on unused tax losses –3,402 –2,400

Zero-rated income –23,607 –2,940

Other –876 –411

Effective income tax expense of the Group 28,676 7,107

Income tax income/expense disclosed in theconsolidated income statement –2,073 5,609

Actual income taxes allocable to discontinued operations 24,033 1,498

Deferred income taxes allocable to discontinued operations 6,716 –

Effective income tax expense of the Group 28,676 7,107

Amounts in € k

2005

70

The deferred tax assets and liabilities break down as follows:

Deferred income tax assets

Accounting for intangible assets 321 408 –87

Revaluation of land and buildings 1,095 633 462

Revaluation of financial assets 2,005 1,654 351

Bad debt allowance 1,987 1,775 212

Interest/currency transactions 438 1,115 677 –

Cost and estimated earnings in excessof billings on uncompleted contracts 1,431 7,478 –6,047

Billings in excess of cost and estimatedearnings on uncompleted contracts 7,047 12,094 –5,047

Post-retirement benefits 8,815 3,481 –4,802 532

Restructuring, provisions notrecognized for tax purposes 10,778 12,993 –2,215

Unused tax losses 31,176 24,823 6,353

Total deferred tax assets before

valuation allowances 65,093 66,454

Valuation allowances –16,114 –2,444 –13,670

Total deferred income tax assets 48,979 64,010

Netting –5,809 –18,281

Discontinued operations 515 2,938

All deferred tax assets 43,685 48,667

Deferred tax liabilities

Accounting for intangible assets –2,635 –2,008 –627

Capitalized development costs –1,727 –1,071 –656

Non-deductible goodwill –8,839 –7,380 –1,459

Revaluation of land and buildings –15,901 –17,723 1,822

Revaluation of financial assets –4,557 –4,557 –

Construction contracts –7,329 –25,981 18,652

Recognition of other assets –6,666 –7,878 1,212

Amortization of costs related to bondand syndicated credit costs –2,563 –3,377 814

Total deferred income tax liabilities –50,217 –69,975

Netting 5,809 18,281

Discontinued operations –654 –6,818

All deferred tax liabilities –45,062 –58,512

Offset directly against equity –4,125

Deferred income tax income/(expense) 602

Consolidated

income

statement

2005

Consolidated

balance sheet

2005

Consolidated

balance sheet

2004

Amounts in € k

Offsetting

against

equity


Notes to the consolidated balance sheet: Assets

In 2004, deferred taxes of € 3,430 thousand were recognized in the income statement and € –19 thou-

sand was recorded directly in equity.

Deferred tax assets and deferred tax liabilities are netted if, and only if, the entity has a legally

enforceable right to set off current tax assets against current tax liabilities and the deferred tax

assets and liabilities relate to income taxes levied by the same taxation authority on the same

taxable entity.

Unused tax losses for which no deferred tax assets were recognized came to € 125,128 thousand

(2004: € 78,723 thousand). Of these, unused tax losses of € 8,114 thousand (prior year: € 1,926 thou-

sand by 2008) have to be realized by 2009 at the latest and unused tax losses of € 23,841 thousand

(prior year: € 5,744 thousand by 2013) have to be used by 2024.

As of December 31, 2005, the distributable reserves of foreign subsidiaries amounted to around

€ 116,740 thousand (2004: € 108,352 thousand). As Dürr Aktiengesellschaft intends to reinvest

these gains for an indefinite period of time, no tax implications from possible distributions or divi-

dend payments of foreign subsidiaries were considered in the consolidated financial statements.

Details regarding the changes in the Group’s intangible assets and property, plant and equipment

are presented in the statement of changes in non-current assets in the Group in note 35.

Prepayments relate exclusively to franchises, industrial rights and similar rights as well as property,

plant and equipment. Property, plant and equipment are recognized as assets under construction

if costs for own or third-party work have already been incurred for their manufacture but they have

not been completed by the balance sheet date.

Scheduled amortization and depreciation is shown in the income statement within the

functional costs:

In the reporting period, assets were also written down to the recoverable amount by recording

impairment losses. The recoverable amount is generally determined on the basis of the value in use

and at the level of the cash-generating unit. To improve the insight into the earnings situation, this

was disclosed separately in the income statement. For additional information, we refer to note 11.

The goodwill acquired from business combinations was allocated to the cash-generating unit for

impairment testing. The divisions Paint and Assembly Systems and Measuring and Process

Systems are defined as cash-generating units. The calculation model is used in exactly the same

way for both cash-generating units as the main parameters apply equally to the two divisions.

15. Intangible assets and

property, plant and

equipment

2004

Cost of sales 8,962 8,716

Selling expenses 933 845

General administrative expenses 10,052 9,023

Research and development costs 1,491 1,268

Other operating expenses and income 2,125 1,329

23,563 21,181

Amounts in € k

2005

Impairment test for goodwill

72

The net realizable amount of the cash-generating unit is determined on the basis of value in use. This

calculation is prepared on the basis of cash flow forecasts which are based on the financial planning

approved by management for a period of three years. In the reporting period, the discount rate be-

fore taxes for the cash flow forecast was within the range of 9.61% to 9.81% (2004: 11.26% to 11.62%).

Cash flows after the three-year period are extrapolated using a growth rate of 1.5% (2004: 1.5%)

based on the long-term growth rate of the divisions.

The gross profit margins are determined in the subsidiaries’ bottom-up planning. These are based

on the figures determined for the previous reporting year taking anticipated efficiency increases

into account.

The capital costs are the weighted mean of debt capital and equity costs before tax. Borrowing

costs are based both on the credit rating and also the rating for the bond issued in 2004. When

calculating the capital costs, a beta factor is also assumed which is derived from the capital market

data of comparable entities and the capital structure of Dürr.

Price increases in raw materials are determined from the forecast price indices of the countries

from which the raw materials are procured by the respective subsidiaries.

In the three-year plan, the German subsidiaries have assumed annual salary increases of 2%.

The foreign subsidiaries have used the applicable local rate of increase for the respective planning

period.

The table below shows the development of goodwill, broken down by division:

The additions are explained in note 25.

Land or buildings of the Group in Mexico and three properties in the USA are to be sold in accor-

dance with a resolution taken by the Board of Management of Dürr Aktiengesellschaft on January 18,

2006. These properties are available for sale as they are no longer needed for ordinary business

operations following the restructuring measures implemented in the Group. The Board of Manage-

ment expects the concrete sales activities of the respective national entities to lead to a sale within

the next 12 months. One of the properties in the USA belongs to the MPS division while the other

three belong to the PAS division; for further information we refer to note 11.

Planned gross profit margins

Capital costs (discount rate)

Increase in the price of

raw materials

Increase in salary costs

Carrying amount

as of January 1, 2004 217,458 79,879 48,734 346,071

Currency differences –1,825 –853 –3,779 –6,457

Additions 1,146 12,996 – 14,142

Carrying amount

as of December 31, 2004 216,779 92,022 44,955 353,756

Currency differences 5,600 3,019 6,551 15,170

Additions – 638 – 638

Disposals – 50,681 51,506 102,187

Carrying amount

as of December 31, 2005 222,379 44,998 – 267,377

Services

Measuring

and Process

Systems Dürr Group

Paint and

Assembly

Systems

Amounts in € k

Land and buildings


In the reporting period, three (2004: four, three of which in continuing operations) buildings were

capitalized as finance leases; Dürr does not have legal title to these buildings. The depreciation

expense recorded on these buildings is included in property, plant and equipment.

The table below shows cost and accumulated depreciation for these buildings which are reported

as finance leases under property, plant and equipment.

Dürr measures investment property according to the cost model. A distinction is made between

property that is largely owner-occupied and property that is let to third parties. A property is

considered to be largely used by third parties if more than 90% of it is let to third parties. The prop-

erties that are now largely let to third parties used to be owner-occupied. This thus constitutes a

change in use.

In the 2005 reporting period, rental income of € 2,136 thousand was generated with these properties;

of this amount, € 823 thousand pertains to entities classified during the reporting year as discon-

tinued operations for as long as they belong to the Group. The directly allocable operating expenses

came to € 1,294 thousand; € 404 thousand pertains to entities classified during the reporting year

as discontinued operations for as long as they belong to the Group. Expenses of € 209 thousand are

allocable to vacant property.

The buildings are depreciated systematically using the straight-line method of depreciation over the

useful life of the various buildings between 20 and 50 years. In addition, the property that is mainly

rented to third parties was subjected to an impairment test by an external valuer. In his report, the

valuer estimates that all the buildings have a residual useful life of on average 20 years. He estimates

the rent income and rent expenses for this period for the specific buildings and, where contracts

exist, adjusts the rent income to the current contractual situation.

The gross book values of the land and buildings as of January 1, 2005, came to € 27,843 thousand.

On December 31, 2005, they came to € 28,710 thousand. The accumulated depreciation including

all impairments has increased from € 9,443 thousand as of January 1, 2005, to € 15,643 thousand

as of December 31, 2005.

The table below presents a reconciliation statement showing the development of the carrying

amount of the investment properties (belonging to the MPS division), at the beginning and end

of the reporting period.

For additional information, we refer to note 11.

Dec.31, 2004

Historical cost 17,337 17,229

Accumulated depreciation 8,518 7,100

Net carrying value 8,819 10,129

Amounts in € k

Dec.31, 2005

Investment property

As of January 1, 2005 (opening balance) –

Transfers from portfolio of owner-occupied properties 18,400

Additions from subsequent costs 868

Systematic depreciation 729

Impairment losses pursuant to IAS 36 5,471

As of December 31, 2005 13,068

Amounts in € k

Dec.31, 2005

74

Details of the investments in associates are presented in the table below:

Inventories and prepayments break down as follows:

Raw materials, consumables and supplies of € 30,884 thousand (2004: € 27,635 thousand) were

measured at average cost and € 7,776 thousand (2004: € 6,074 thousand) using the FIFO method

(first in, first out). Changes in valuation allowances of € 2,619 thousand were recorded with effect

on income.

Trade receivables are comprised of the following:

The majority of Group receivables are due from automobile manufacturers. Generally, these receiv-

ables are not secured by bank guarantees or collateral. The receivables are reported net of valuation

allowances for doubtful debts of € 17,199 thousand (2004: € 12,345 thousand); the changes in

valuation allowances of € 3,882 thousand have been expensed. As of December 31, 2005, 50.4%

(2004: 52.9% ) of the trade receivables were due from four (2004: six) customers.

16. Investments in associates

Total assets 78,147

Liabilities 55,375

Income 68,663

Profit/loss of the period 3,540

Amounts in € k

2005

17. Inventories and prepayments

Dec.31, 2004

Raw materials, consumables and supplies 38,660 42,180

less valuation allowances 6,249 5,649

Work in process from non-contract production 1,388 4,186

less valuation allowances 126 2,408

Finished goods 4,502 8,057

less valuation allowances 851 1,466

Prepayments 6,392 7,783

43,716 52,683

Amounts in € k

Dec.31, 2005

18. Trade receivables

Cost and estimated earningsin excess of billings 163,763 163,763 – 207,263 207,263 –

Trade receivables 314,499 313,953 546 348,449 347,333 1,116

Trade receivables from associates 1,443 1,443 – 7,820 7,820 –

479,705 479,159 546 563,532 562,416 1,116

Amounts in € k

Dec.31, 2005 Dec.31, 2004

CurrentTotal Non-currentCurrentTotal Non-current


The table below provides a summary of the cost and estimated earnings in excess of billings on

uncompleted contracts:

These amounts are offset on a contract basis and are included in either cost and estimated earnings

in excess of billings or billings in excess of cost and estimated earnings (see note 25).

Cost and estimated earnings in excess of billings contain prepayments (asset) of € 192,909 thousand

(2004: € 309,879 thousand) net of work in process.

Other receivables and other assets break down as follows:

Other assets include in particular tax refund claims not relating to income taxes of € 12,196 thousand

(2004: € 18,584 thousand), amounts due from suppliers of € 1,195 thousand (2004: € 958 thousand),

receivables from employees of € 845 thousand (2004: € 987 thousand) and forward exchange con-

tracts recorded at fair value of € 1,264 thousand (2004: € 6,835 thousand).

Cost and estimated earnings 356,672 356,672 – 517,142 517,142 –

less billings 305,325 305,325 – 517,333 516,984 349

51,347 51,347 – –191 158 349

Amounts in € k

Dec.31, 2005 Dec.31, 2004


Cost and estimated earningsin excess of billings 163,763 163,763 – 207,263 207,263 –

less billings in excess of costand estimated earnings 112,416 112,416 – 207,454 207,105 349

51,347 51,347 – –191 158 349

Amounts in € k

Dec.31, 2005 Dec.31, 2004


19. Other receivables and

other assets

Receivables from financing activitiesdue from associates 750 750 – 760 760 –

Other assets 42,421 41,967 454 57,023 55,645 1,378

43,171 42,717 454 57,783 56,405 1,378

Amounts in € k

Dec.31, 2005 Dec.31, 2004


76

Notes to the consolidated balance sheet: Equity and liabilities

In December 2005, Dürr Aktiengesellschaft carried out a capital increase of 10%, precluding the sub-

scription right. By issuing 1,429,820 new no-par value shares, the number of shares increased to

15,728,020 (2004 and 2003: 14,298,200) and the capital stock from € 36,603 thousand to € 40,264 thou-

sand. The capital increase resulted in an inflow of funds of € 21,805 thousand.

Each share represents € 2.56 of the subscribed capital and is made out to the bearer.

By resolution of the annual shareholders’ meeting on May 30, 2001, the Board of Management is

authorized through May 30, 2006, to increase capital stock by a total of up to € 16,219,904 through

the issuance of up to 6,335,900 shares of common stock and/or non-voting preferred stock, each

representing € 2.56 of capital stock, in exchange for cash. As a result of the capital increase carried

out in the reporting year, the authorized capital available for further increases in capital decreased

to € 12,559,564.80, divided into up to 4,906,080 bearer no-par value shares.

By resolution of the annual shareholders’ meeting on May 30, 2001, the Board of Management is

authorized, with the consent of the Supervisory Board, through May 30, 2006, to increase capital

stock by a total of up to € 10,240 thousand through the issuance of up to 4 million new no-par value

shares issued to the bearer in the form of common stock and/or preferred stock, each representing

€ 2.56 of capital stock (conditional capital I). The conditional capital increase can be used to issue

convertible bonds with a nominal value of up to € 102,400 thousand, which can have a term of up

to 15 years. The authorization is valid until May 30, 2006. To date, no conditional capital increase

has been carried out.

Under the Dürr International Stock Option Plan (DISOP), the Board of Management is further author-

ized to increase capital stock conditionally by up to € 2,560 thousand through the issuance of up

to 1 million common shares, each representing € 2.56 (conditional capital II) of capital stock.

In the 2005 reporting period, Dürr did not issue any further options to participants under the stock

option plan (DISOP). All options issued in prior years had already expired at the beginning of the

reporting year.

The premium received of € 18,144 thousand from the issue of new shares was transferred to the

capital reserve. An amount of € 16,685 thousand was withdrawn to offset the net loss for the year of

Dürr Aktiengesellschaft. As of December 31, 2005, the capital reserve amounts to € 160,459 thou-

sand (2004: € 159,000 thousand).

The capital reserve is subject to the restrictions of Sec. 150 AktG [“Aktiengesetz”: German Stock

Corporation Act].

The amount of dividends available for distribution to shareholders is regulated by German stock

corporation law, and is based upon the earnings of Dürr Aktiengesellschaft as reported in its statu-

tory financial statements prepared in accordance with HGB. In the reporting year, Dürr Aktien-

gesellschaft recorded a net loss for the year; this was offset by releasing revenue reserves and part

of the capital reserves. There were no earnings available for distribution in the reporting year.

20. Equity without minority

interests

Subscribed capital

Authorized capital

(Dürr Aktiengesellschaft)

Conditional capital

(Dürr Aktiengesellschaft)

Capital reserve

Dividends


The table below shows the development of other comprehensive income and the related tax effect:

Minority interests contain adjustment items from the capital consolidation for minority interests in

capital required to be consolidated and the profits and losses allocable to them. The consolidated

financial statements contain two (2004: nine) entities in which minority shareholders hold interests.

The Group’s post-employment benefits include both defined contribution plans and defined

benefit plans.

The post-employment benefits available to the employees of Dürr’s German subsidiaries include

a life insurance program (BZV) of € 687 thousand (2004: € 701 thousand) in line with the respective

tariff group. The German pension obligations were measured using the 2005 G Heubeck tables.

The US subsidiaries contribute to external pension funds for union employees. In the 2005

reporting period, pension expenses for these employees amounted to approx. € 1,240 thousand

(2004: € 1,312 thousand).

In addition, Dürr’s US subsidiaries have a 401(k) profit-sharing plan for certain employees. The

benefits are based on years of service and the employees’ compensation. The Group’s contribution

is discretionary and is determined annually by management. In the 2005 reporting period, expenses

came to € 829 thousand (2004: € 2,660 thousand).

Pension entitlements have been granted to individual former members of the Board of Management

of Dürr Aktiengesellschaft and the members of the Board of Management and managing directors

of German subsidiaries based on their recent fixed salary and years of service.

At Dürr subsidiaries, those workers who were employed at the German locations in Filderstadt and

Wyhlen and at the Schenck entities at the time their entities were acquired were entitled to pension

benefits. The pensions are based on years of service. The payments foreseen by the pension plan

are calculated on actual contributions plus an element that is dependent on years of service.

Other comprehensive income

Net losses from derivatives

to hedge cash flows

Currency translation 45 –16 29 – – –

Change in unrealized gains (–)/ losses –1,475 575 –900 –2,207 821 –1,386

Realized losses 3,230 –1,236 1,994 4,330 –1,684 2,646

Net gains /net losses (–)from derivatives, total 1,800 –677 1,123 2,123 –863 1,260

Additional benefit obligations

Changes in consolidated group 289 –112 177 – – –

Change in actuarial gains and losses –18,439 7,394 –11,045 –2,486 844 –1,642

Adjustment of deferred taxes – –2,480 –2,480 – – –

Net change from benefit obligations –18,150 4,802 –13,348 –2,486 844 –1,642

Currency translation difference 11,800 – 11,800 –3,317 – –3,317

Change in other comprehensive

income –4,550 4,125 –425 –3,680 –19 –3,699

Amounts in € k

2005 2004

Tax effectBefore tax NetTax effectBefore tax Net

21. Minority interests

22. Provisions for benefits

obligations

Defined contribution plans

Defined benefit plans

78

The US subsidiaries of Dürr have pension plans covering all non-union employees at these sub-

sidiaries. The plan provides benefits based on the average salaries earned in the past five years.

The following table presents further information on these pension plans:

The amount of benefit obligations carried in the balance sheet is contained in the following

positions:

Dec.31, 2004

Changes in projected benefit obligation

Projected benefit obligation at the beginning of the year 67,784 63,704

Reclassification pursuant to IFRS 5 –2,075 –

Effect of currency translation 2,854 –1,572

Service cost 3,706 2,676

Interest cost 3,814 3,392

Actuarial gains or losses 16,532 2,885

Benefits paid –4,841 –3,753

Other 522 452

Projected benefit obligation at end of year 88,296 67,784

Amounts in € k

Dec.31, 2005

Dec.31, 2004

Change in plan assets

Fair value of plan assets at beginning of year 14,228 13,807

Effect of currency translation 2,022 –1,176

Actual return on plan assets 805 798

Employer contributions 1,033 715

Benefits paid –1,375 –915

Plan assets from reinsurance 2,946 946

Other 899 53

Fair value of plan assets at end of year 20,558 14,228

Funded status1 67,738 53,556

1 Difference between the projected benefit obligation and the plan assets.

Amounts in € k

Dec.31, 2005

Dec.31, 2004

Prepaid expenses –80 –

Other comprehensive income –20,429 –2,288

Pension provisions 67,818 53,556

Amounts in € k

Dec.31, 2005


At year-end, plan assets break down as follows:

Total income expected from plan assets are calculated on the basis of the market prices of time.

These apply for the period of time over which the obligation is settled.

The variance between the estimated and actual amounts of benefit obligations and of the plan

assets is presented below.

For the 2006 reporting period, plan additions of € 1,196 thousand are expected.

Composition of net periodic pension cost:

The net periodic pension cost is contained in the following positions of the income statement:

The cutoff date for the measurement of benefit obligations and plan assets is December 31, 2005;

the measurement date for pension cost is January 1, 2005.

Dec.31, 2004

Shares 10,065 7,917

Fixed-yield securities 10,300 6,246

Property 193 65

20,558 14,228

Amounts in € k

Dec.31, 2005

Benefit obligations –2,735

Plan assets –518

Amounts in € k

2005

Dec.31, 2004

Service cost 3,706 2,676

Interest cost 3,814 3,392

Expected return on plan assets –1,300 –562

Other –65 476

6,155 5,982

Amounts in € k

Dec.31, 2005

Dec.31, 2004

Cost of sales 1,475 1,514

Selling expenses 526 553

General administrative expenses 4,108 3,899

Research and development costs 16 16

Other operating expenses and income –19 –

Interest and similar expenses 49 –

6,155 5,982

Amounts in € k

Dec.31, 2005

80

The following averages were used to calculate benefit obligations:

The following averages were used to calculate pension cost:

Other provisions break down as follows:

The contract-related provisions mainly consist of provisions for potential losses in the order backlog,

for after-sales expenses and for warranties. The personnel provisions mainly contain provisions

for long-service awards and obligations for phased retirement. Other provisions relate to numerous

identifiable specific risks and contingent liabilities.

Those other provisions that are expected to be used within the next 12 months are classified as

current. The payments for non-current provisions are expected to be incurred within the next two

to five years.

Other provisions developed as follows in the reporting period:

2004

Average valuation factors

Discount rate 4.33 5.58

Long-term salary increases 2.09 2.46

Amounts in %

2005

2004

Average valuation factors

Discount rate 5.58 5.60

Estimated long-term return on plan assets 7.55 7.46

Long-term salary increases 2.46 2.92

Amounts in %

2005

23. Other provisions

Contract-related provisions 70,045 65,830 4,215 88,526 82,993 5,533

Personnel provisions 9,970 4,457 5,513 10,754 7,647 3,107

Other provisions 11,717 11,692 25 21,153 11,076 10,077

91,732 81,979 9,753 120,433 101,716 18,717

Amounts in € k

Dec.31, 2005 Dec.31, 2004


As of January 1, 2005 88,526 10,754 21,153

Adjustment pursuant to IFRS 5 –7,019 –990 –1,456

Currency differences 2,945 112 497

Utilization –67,028 –3,655 –7,879

Reversal –6,649 – –8,797

Addition 59,270 3,749 8,199

As of December 31, 2005 70,045 9,970 11,717

Other

provisions

Contract-related

provisions

Personnel

provisions

Amounts in € k


All interest-bearing liabilities of the Group are shown under the bonds and other financial liabilities

item. They break down as follows:

Those liabilities with a residual term of between one and five years are disclosed as medium term;

otherwise as short or long term.

On July 6, 2004, Dürr AG placed a fixed-interest bond on the capital market. With a total volume

of € 200,000 thousand, the bond was placed with a coupon of 9.75% and a term of seven years. The

purpose of the bond is the long-term financing of the Group.

A syndicated loan of € 272,119 thousand is also in place with a bank syndicate, consisting of a

revolving cash line and a guarantee line. The cash line was not used as of the balance sheet date

while the guarantee line of € 123,668 thousand was used. The loan expires in 2009. Premature

termination by the bank syndicate is only possible if the covenants are infringed and with a two-

third majority of the lending banks. To take account of the restructuring measures initiated, it

was agreed in 2005 to adjust the covenants for the period until December 31, 2006. Based on the

calculations of the Board of Management, the agreed covenants were complied with as of the

balance sheet date. Depending on the currency, the interest is based on the refinancing rate with

the same maturity (EURIBOR or LIBOR) plus a margin determined in relation to the financial ratio

of total net debt to EBITDA.

Shares in subsidiaries and second-tier subsidiaries have been pledged as collateral for the issued

bond and the syndicated loan.

Besides the syndicated loan, the Company has bilateral lines of credit for working capital as well as

smaller loans with various banks. These loans have terms of between one and 15 years, are charged

interest once every three or six months (between 3.75% and 6.75% p.a. or the three-month or six-

month EURIBOR plus a customary bank margin) and are secured by mortgages of € 14,259 thousand

(2004: € 15,242 thousand).

24. Bonds and financial liabilities

Bond 187,901 – 187,901 – 187,901

(2004) (186,471) (–) (186,471) (–) (186,471)

Liabilities to banks 21,692 16,001 5,691 2,770 2,921

(2004) (102,743) (83,645) (19,098) (16,029) (3,069)

Liabilities to associates 1,068 148 920 920 –

(2004) (1,083) (163) (920) (920) (–)

Liabilities from finance leases 7,252 1,261 5,991 4,797 1,194

(2004) (8,159) (1,471) (6,688) (4,451) (2,237)

December 31, 2005 217,913 17,410 200,503 8,487 192,016

(December 31, 2004) (298,456) (85,279) (213,177) (21,400) (191,777)

Amounts in € k

TotalShortTotal

Term Term

Medium Long

82

The total amount of liabilities to banks which are due within the next five years and thereafter

breaks down as follows:

The total lines of credit and bank guarantees can be broken down as follows:

€ 2,704 thousand (2004: € 45,088 thousand) of the liabilities to banks are in US dollars and € 84 thou-

sand (2004: € 430 thousand) in pounds sterling. The remaining share is generally payable in euros.

The weighted average interest rate for short-term liabilities to banks as of December 31, 2005, was

6.18% (2004: 5.41%) and for long-term liabilities to banks 2.84% (2004: 5.08%).

Trade payables, tax liabilities and other liabilities break down as follows:

Those liabilities with a residual term of between one and five years are disclosed as medium term;

otherwise as short or long term.

Liabilities to banks 16,001 969 963 419 419 2,921

Amounts in € k

Thereafter20102009200820072006

Dec.31, 2004

Total amount of lines of credit and bank guarantees available 508,890 804,448

Total amount of lines of credit and bank guarantees used 304,335 463,682

of which with a residual term of less than one year 233,764 336,917

of which with a residual term of more than one year 70,571 126,765

Amounts in € k

Dec.31, 2005

25. Trade payables, tax liabilities

and other liabilities

Billings in excess of costs on uncompleted contracts(not from construction contracts) 6,253 6,179 74 74 –

Billings in excess of costs on uncompleted contracts(from construction contracts) 112,416 112,416 – – –

(2004) (207,454) (207,105) (349) (349) (–)

Trade payables 227,212 227,119 93 93 –

(2004) (280,170) (279,984) (186) (185) (1)

Tax liabilities 27,775 27,332 443 322 121

(2004) (6,101) (5,813) (288) (288) (–)

Payable to associates 1,952 1,920 32 32 –

(2004) (5,081) (5,081) (–) (–) (–)

Other liabilities 138,896 122,831 16,065 12,616 3,449

(2004) (117,551) (109,943) (7,608) (7,608) (–)

December 31, 2005 514,504 497,797 16,707 13,137 3,570

(December 31, 2004) (616,357) (607,926) (8,431) (8,430) (1)

Amounts in € k

TotalShortTotal

Term Term

Medium Long


Other notes

Other liabilities include in particular tax liabilities not relating to income taxes of € 18,422 thousand

(2004: € 15,117 thousand), liabilities relating to social security of € 10,628 thousand (2004: € 11,447

thousand), liabilities to employees of € 39,577 thousand (2004: € 39,831 thousand) and derivative

financial instruments of € 4,572 thousand (2004: € 2,511 thousand). There are also obligations

from restructuring measures of € 35,657 thousand (2004: € 7,227 thousand), which are explained

in note 11.

The cash flow statement shows how the cash of the Group changed in the course of the reporting

year as a result of cash received and paid. In accordance with IAS 7 (Cash Flow Statements) a dis-

tinction is made between cash received from operating activities and that received from investing

and financing activities.

The cash and cash equivalents presented in the cash flow statement contain all liquid assets

shown in the balance sheet, i.e. cash in hand, checks and bank balances with an original term of

less than three months.

The cash flow from investing and financing activities is determined on the basis of payments made

or received. The cash flow from operating activities, on the other hand, is derived indirectly from

the earnings before interest and taxes. When performing the indirect calculation, changes in balance

sheet items considered in connection with ordinary activities are adjusted for effects from currency

translation and changes in the consolidated group. There are therefore differences in terms of

changes of the balance sheet items concerned in the published consolidated financial statements.

The cash and cash equivalents in the discontinued operations presented in the cash flow state-

ment for 2004 diverge by € 6,980 thousand from the disclosure in the annual report as of Decem-

ber 31, 2004, as the MPT business unit was classified as discontinued operation.

In the reporting year, the remaining shares (26%) in Schenck Avery Ltd., Noida (India), of € 297 thou-

sand were acquired in cash. The successive share purchase resulted in additional goodwill of

€ 263 thousand. The goodwill was calculated as the difference between the purchase price and the

pro rata equity acquired.

Another purchase resulted in goodwill of € 375 thousand. It was resold before the end of the re-

porting year, thus leading to a disposal of the previously recognized goodwill.

26. Notes to the consolidated

cash flow statement

Acquisitions

The segment reporting was prepared according to IAS 14 (Segment Reporting). Based on the inter-

nal reporting and organizational structure of the Group, the consolidated financial statement data

is presented by division and region. The segmentation aims to make the earnings power and the

net assets and financial situation of the Group’s different activities and regions more transparent.

The primary reporting is based on the divisions of the Group. The Dürr Group is comprised of a

management holding and two divisions (2004: five) differentiated by product and performance

spectrum which each have global responsibility for their products and results.

27. Segment reporting

84

2005

Sales revenues with external customers 1,089,990 310,612 – – 1,400,602 379,293 1,779,895

Sales revenues with other divisions 1,522 8,401 – –9,923 – – –

Total sales revenues 1,091,512 319,013 – –9,923 1,400,602 379,293 1,779,895

Operating EBIT 7,146 5,067 –8,488 –241 3,484 24,625 28,109

Restructuring expense /onerous contracts –29,864 –15,130 –909 – –45,903 –1,104 –47,007

Impairment losses –18,659 –9,085 –130 – –27,874 –284 –28,158

Profit from discontinued operations – – – – – 116,090 116,090

EBIT –41,377 –19,148 –9,527 –241 –70,293 139,327 69,034

Profit/loss from associates –2,560 1,401 – – –1,159 269 –890

Amortization and depreciation –33,209 –16,067 –2,161 – –51,437 –1,944 –53,381

Capital expenditures 11,591 6,892 9 – 18,492 5,278 23,770

Assets 726,004 282,834 574,584 –585,017 998,405 3,118 1,001,523

Liabilities 469,791 153,367 32,338 –10,951 644,545 1,146 645,691

Employees (as of Dec. 31, 2005) 3,979 1,966 47 – 5,992 3 5,995

2004

Sales revenues with external customers 1,413,913 311,904 – – 1,725,817 410,545 2,136,362

Sales revenues with other divisions 3,332 4,464 – –7,796 – – –

Total sales revenues 1,417,245 316,368 – –7,796 1,725,817 410,545 2,136,362

Operating EBIT 34,475 –1,319 1,843 850 35,849 13,278 49,127

Cost of restructuring –4,137 –2,555 – – –6,692 –194 –6,886

Amortization and depreciation –79 –62 – – –141 –6,555 –6,696

EBIT 30,259 –3,936 1,843 850 29,016 6,529 35,545

Profit/loss from associates –3 535 – – 532 –4 528

Amortization and depreciation –14,133 –6,044 –1,145 – –21,322 –12,770 –34,092

Capital expenditures 10,045 5,401 15 – 15,461 3,047 18,508

Assets 779,212 399,381 550,741 –553,129 1,176,205 138,462 1,314,667

Liabilities 577,683 183,104 28,835 –7,637 781,985 56,374 838,359

Employees (as of Dec. 31, 2004) 4,236 2,971 51 – 7,258 6,037 13,295

Dis-

continued

operations

Total

divisions

Amounts in € k

Consolida-

tion

Corporate

Center

Measuring

and Process

Systems

Paint and

Assembly

Systems

Continuing

operations

Paint and Assembly Systems develops and builds paint shops, final assembly lines and conveyor

technologies for the automotive industry. The offering also includes exhaust cleaning systems for

various branches of industry as well as assembly and conveyor systems for aircraft construction.

Measuring and Process Systems offers balancing or diagnosis technology as well as industrial

cleaning and filtration technology. Besides the automotive industry, the division serves industries

like machine engineering, the electrical engineering industry or the aerospace industry.

Details of the discontinued operations in the reporting period can be found in note 6.

The Corporate Center mainly consists of Dürr AG.


division


division


The principles underlying the Group’s management reporting and controlling are substantially the

same as those described in the consolidated financial statements according to IFRS. The Company

measures the performance of its divisions by earnings before interest and income tax in accordance

with the disclosure in the consolidated income statement.

Transactions between the divisions are carried out at arm’s length prices. Revenues are generally

allocated to regions based on the location of the customer. Division assets are allocated on the basis

of the location of the subsidiary reporting these assets.

The net profit/loss from continuing operations is derived as follows from the earnings before

interest and taxes:

Gross assets and gross liabilities from continuing operations are derived as follows from the

segment assets and segment liabilities:

2004

Operating EBIT 3,484 35,849

Restructuring expense/onerous contracts –45,903 –6,692

Impairment losses –27,874 –141

EBIT of continuing operations –70,293 29,016

Profit /loss from associates –1,159 –31

Other interest and similar income 2,189 1,594

Interest and similar expenses –37,357 –26,085

Income taxes 2,073 –5,609

Net income/loss from continuing operations –104,547 –1,115

Amounts in € k

2005

2004

Segment assets from continuing operations 998,405 1,176,205

Cash and cash equivalents 124,658 46,448

Tax claims 6,158 5,122

Investments in associates 12,892 15,762

Deferred tax assets 43,170 45,729

Gross assets from continuing operations 1,185,283 1,289,266

Amounts in € k

2005

2004

Segment liabilities from continuing operations 644,545 781,985

Bonds 187,901 186,471

Liabilities to banks 21,692 102,865

Liabilities from finance leases 7,252 8,157

Tax liabilities including other taxes 33,450 12,912

Deferred tax liabilities 44,408 51,694

Gross liabilities from continuing operations1 939,248 1,144,084

1 Consolidated balance sheet total less equity including minority interests, in both cases from continuing operations.

Amounts in € k

2005

86

2005

Sales revenue with third parties 310,073 502,475 397,740 15,250 175,064 1,400,602

Capital expenditures 10,200 1,028 5,621 695 948 18,492

Assets 682,507 192,357 96,279 5,398 21,864 998,405

Employees (as of Dec. 31, 2005) 3,205 1,303 886 83 515 5,992

2004

Sales revenue with third parties 436,457 391,657 654,660 5,243 237,800 1,725,817

Capital expenditures 7,403 1,722 4,535 124 1,677 15,461

Assets 788,354 196,532 136,879 2,009 52,431 1,176,205

Employees (as of Dec. 31, 2004) 3,720 1,493 1,157 149 739 7,258

Continuing

operations

Asia/

Africa/

Australia

South

America

North/

Central

America

Other

European

countriesGermany

Amounts in € k

In contrast to the prior year, in the 2005 reporting period, the figures for other EU countries and

other European countries were combined.

In the 2005 reporting period, sales with one customer accounted for 20.2% of consolidated net sales

revenue compared to 24.5% in the 2004 reporting period. Another customer accounted for 14.1% of

consolidated net sales revenue in the 2005 reporting period compared to 10.0% in 2004.

Entities that are known to be under uniform control are considered to be one customer.

Dr.-Ing. E. h. Heinz Dürr is Chairman of the Supervisory Board of Dürr AG. Dr.-Ing. E. h. Heinz Dürr is

also a member of the Administrative Board of Landesbank Baden-Württemberg. As a result of con-

sulting services provided for Dürr Aktiengesellschaft and its subsidiaries, expenses of € 522 thou-

sand (2004: € 518 thousand) were due to Heinz Dürr GmbH, Berlin, of which Dr.-Ing. E. h. Heinz Dürr

is Managing Director. For his former activity as Managing Director, Dr.-Ing. E. h. Heinz Dürr also

received benefits from the pension pledge of April 2, 1978, (supplemented December 21, 1988) of

€ 212 thousand (2004: € 210 thousand).

Mr. Joachim Schielke is a Supervisory Board member of Dürr AG and a member of the Board of

Management of Landesbank Baden-Württemberg. From the current business relationship, there

was a balance at Baden-Württembergische Bank of € 78,835 thousand (2004: liability € 17,914 thou-

sand). From these transactions, there are interest expenses in the reporting year of € 2,191 thou-

sand (2004: interest expenses € 3,961 thousand). The warranties and guarantees issued by Baden-

Württembergische Bank on behalf of Dürr amounted to € 29,209 thousand as of the balance

sheet date.

Dr. Tessen von Heydebreck is a Supervisory Board member of Dürr AG and a member of the Board

of Management of Deutsche Bank AG. From the current business relationship, there was a balance

at Deutsche Bank of € 14,676 thousand (2004: liability € 17,914 thousand). From these transactions,

there are interest expenses in the reporting year of € 2,194 thousand (2004: interest expenses

€ 4,179 thousand). The warranties and guarantees issued by Deutsche Bank AG on behalf of Dürr

amounted to € 34,062 thousand as of the balance sheet date.

28. Related-party transactions


For additional information about the financial liabilities, we refer to note 24.

For further information about members of the Supervisory Board of Dürr Aktiengesellschaft,

please refer to note 34.

The forward exchange transactions and interest hedges are mainly processed through Baden-

Württembergische Bank and Deutsche Bank AG. For details of the forward exchange transactions

and interest hedges, please refer to note 32.

The Board of Management confirms that all the related party transactions described below were

carried out at arm’s length conditions. For further information about members of the Board of

Management of Dürr Aktiengesellschaft, please refer to note 34.

As of December 31, 2005, the Company had the following contingent liabilities:

Besides liabilities, provisions and contingent liabilities, the Company has other financial obligations,

in particular from rent and lease agreements for buildings, furniture and fixtures, office space

and vehicles. Future minimum payments up to the first contractually agreed termination date are

as follows:

The Group has entered into finance leases for various items of property, plant and equipment.

The future minimum lease payments from finance leases can be reconciled with their present

value as follows:

29. Contingent liabilities

Dec.31, 2004

Liabilities from guarantees, notes and check guarantees 10,333 51

Other 4,594 1,475

14,927 1,526

Amounts in € k

Dec.31, 2005

30. Other financial obligations

Rent and lease agreements

(operating leases)

Dec.31, 2004

Within one year 14,364 19,034

Between one and five years 33,444 36,810

More than five years 32,023 31,393

79,831 87,237

Amounts in € k

Dec.31, 2005

Finance leases

Dec.31, 2004

Within one year 1,839 2,000

Between one and five years 6,481 6,397

More than five years 1,843 3,256

Total minimum lease payments 10,163 11,653

Less interest expense due to increasein discounted amount –2,911 –3,494

Present value of minimum lease payments 7,252 8,159

Amounts in € k

Dec.31, 2005

88

The other financial obligations that do not result from rental and lease agreements are listed below:

The Group operates in countries in which there are political and commercial risks. From a current

perspective, the Group is not aware of any effects of such risks for the Group and they are therefore

not included in the consolidated financial statements.

Dürr may be involved in lawsuits, including product liability, in the normal course of business. There

are no such matters pending that the Board of Management expects to be material in relation to

the Group’s business or financial position. Litigation costs are recognized in the income statement.

There is litigation pending related to a tax field audit conducted in fiscal year 2000. A claim for back-

tax of € 900 thousand plus possible interest is currently being heard. The Board of Management

estimates the chances of the Company winning the litigation as more likely than not. The legal

counseling and consulting fees associated with the case have been posted against earnings.

Due to its international operations, Dürr is exposed to currency risks, interest rate, liquidity and cred-

it risks. The general regulations for a Group-wide risk policy are laid out in the Group guidelines.

Derivative financial instruments are used in the Group to minimize the risks concerning changes in

exchange rates, interest rates or cash flows and the change in fair value of receivables and liabilities.

Dürr is exposed to credit risk in the event of non-performance by counterparties (banks) to the

financial instruments described below.

All financial derivatives as well as their underlyings are subject to ongoing and regular internal

control and measurement in accordance with the directive of the Board of Management. Derivative

contracts are only entered into with banks with a good credit standing. Derivative financial instru-

ments are only entered into to hedge the operating business.

Credit risk results from the danger that business partners may fail to perform their obligation with

primary and derivative financial instruments and that capital losses could be incurred as a result.

Credit ratings are performed for all new customers. The payment behavior of regular customers

is analyzed on an ongoing basis.

As we do not conclude any general netting agreements with our customers, the sum of the amounts

reported under assets also represents the maximum credit risk. There is no apparent concentration

of credit risk from exposures to a single debtor or to groups of debtors.

Other financial obligations

Other continuousobligations 15,118 7,592 7,034 7,033 7,046 7,060 50,883

Thereafter20102009200820072006

Amounts in € k

Total

31. Risks

32. Financial instruments

Use of derivative financial

instruments

Credit risk


Currency risks exist in particular where receivables or liabilities exist or will arise in the ordinary

course of business in a currency other than the local currency of the Company. Forward exchange

transactions are entered into to hedge against exchange rate fluctuations from cash flows relating

to anticipated purchasing and sales transactions with terms of up to 23 months (2004: 18).

The currency risks from intercompany loans were hedged by forward exchange contracts and

interest and currency swaps. They have terms of between one month and six years.

To manage the market risk for changes in interest rates of existing and anticipated variable-rate

liabilities to banks, the Company entered into interest swaps with residual maturities of up to

two months.

Unused credit lines at the disposition of the Group ensure that it has sufficient funds.

The financial instruments of the Group not accounted for at fair value mainly consist of cash equiva-

lents, trade receivables, trade payables and other liabilities, overdraft facilities and long-term loans.

The carrying amount of cash equivalents and the current account liabilities approximates fair value

due to the high liquidity of the instruments. The fair value of receivables and payables based on the

customary terms of trade also approximates their carrying amount at historical cost.

The fair value of non-current liabilities is based on the current interest rate for borrowing at similar

terms and conditions with the same due date and credit rating. With the exception of the bond, the

fair value of debt capital corresponds closely to the net carrying amount. As of December 30, 2005,

the bond is listed at 107.25%, which is equal to a fair value of € 214,500 thousand.

Depending on their fair value on the balance sheet date, derivative financial instruments are reported

under other assets or other liabilities respectively.

The scope and fair value of the financial instruments as of December 31, 2005, are shown below:

The fair value of the financial instruments was estimated using the following methods and

assumptions:

The fair value of currency swaps were estimated on the basis of the difference between the con-

tractually agreed exchange rates and the forward rate prevailing on the balance sheet date. The fair

values of the interest rate swaps are estimated as the present value of expected future cash flows.

Currency risk

Interest rate risk

Liquidity risk

Fair value

Interest/currency swaps 27,127 – – – 3,441 –

Interest swaps 20,000 34,663 – – 124 1,315

Forward exchangecontracts 184,469 203,656 1,264 6,835 1,007 1,196

Positive fair value Negative fair valueNominal value

Amounts in € k

2004200420042005 2005 2005

90

Currency swaps, interest/currency swaps and interest rate swaps are recognized in the consoli-

dated balance sheet at fair value. If the criteria for hedge accounting are fulfilled, the changes in fair

value are accounted for as cash flow hedges as described in the following paragraph. Otherwise

the changes in market value are recorded in the consolidated income statement as of each balance

sheet date.

The effective portion of the change in market value of interest swaps, interest/currency swaps and

forward exchange transactions classified as cash flow hedges is recorded through accumulated

other comprehensive income. Upon realization, the values recorded in equity are taken to the in-

come statement in the interest result (interest swaps), the cost of sales (forward exchange contracts)

or in other operating expenses (interest/currency swap). For the changes in gains and losses re-

corded in equity we refer to note 20. There was no net loss (2004: net loss € 9 thousand) from inter-

est swaps due to the ineffectiveness in net interest. It is anticipated that through the occurrence

of the underlying € 554 thousand (2004: € 120 thousand) of net losses included in accumulated other

comprehensive income will be reclassified to income during the next twelve months.

With reference to Sec. 264 (3) HGB, the financial statements of the following German subsidiaries

are not published: Dürr Systems GmbH, Stuttgart; INTX AG, Stuttgart; Dürr Ecoclean GmbH,

Filderstadt; Dürr International GmbH, Stuttgart; Dürr Ecoclean International GmbH, Stuttgart; Dürr

Beteiligung Alpha GmbH, Stuttgart; Dürr Holding GmbH, Stuttgart; Dürr Special Material Handling

GmbH, Wyhlen; Dürr Somac GmbH, Stollberg.

On January 9, 2006, we reached an extrajudicial composition with Alstom S.A. and ended the

arbitration proceedings on the purchase of Dürr Systems S.A.S. and its subsidiaries. The composi-

tion required Alstom S.A. to make an additional payment. The amount of the additional payment

corresponded to the receivables recognized in the consolidated financial statements; there were

no effects on the purchase cost used in purchase accounting.

The declaration of compliance prescribed by Sec. 161 AktG was submitted by the Board of Manage-

ment and the Supervisory Board of Dürr AG on December 19, 2005, and made accessible to the

shareholders on the internet.

Accounting and disclosure of

derivative financial instruments

and hedge accounting

Cash flow hedges

33. Additional disclosure

requirements

Exemption pursuant to

Sec. 264 (3) HGB

34. Other notes

Subsequent events

German corporate governance

code: Declaration of compliance

pursuant to Sec.161 AktG


Annual average number of employees:

As of December 31, 2005, Dürr had 5,992 employees in continuing operations (2004: 7,258) and

just three in discontinued operations (2004: 6,037).

The Group audit fees recorded as an expense for the reporting period break down as follows:

Average headcount

2004

Manual workers 4,643 6,419

Salaried employees 5,107 6,364

Trainees/apprentices 186 296

9,936 13,079

2005

Fees of the auditor of the

consolidated financial statements

Annual audit 838

Other assurance services 312

Tax advisory 108

Other services rendered for the parent or subsidiaries 237

1,495

Amounts in € k

2005

92

Members of the Board of Management

Ralf W. Dieter

(since January 1, 2005, Chairman since

January 1, 2006), Chairman of the Board of

Management of Carl Schenck AG



Research and development, information

technology, quality management

Dürr Inc.* (since January 19, 2006, Chairman)

Interautomation Inc.*

(until September 30, 2005, Chairman)

Schenck Canada Inc.*

(until September 30, 2005, Chairman)

Schenck Corporation*

(until January 31, 2005)

Schenck Ltd.* (until January 31, 2005)

Schenck Pegasus Corporation*

(until September 30, 2005)

Schenck RoTec Corp.*


Schenck Test Automation Ltd.*


Schenck Trebel Corporation*


Martin Hollenhorst

(since April 20, 2005)

Director of labour relations

Commercial areas, law/patents,

human resources, risk management,

corporate communications and

investor relations, internal audit

INTX AG* (since January 1, 2005,

Chairman since May 30, 2005)

Olpidürr S.p.A.* (since January 1, 2006)

Verind S.p.A.* (since January 1, 2006)

Stephan Rojahn

Chairman (until December 31, 2005)

Internal audit, upper management

Carl Schenck AG*

(until June 6, 2005, Chairman)

Dürr Inc.* (until January 18, 2006, Chairman)

Olpidürr S.p.A.*

(until December 31, 2005, Deputy Chairman)

Verind S.p.A.* (until December 31, 2005)

Kay Bönisch

(until April 20, 2005)

Director of labour relations

Finance/taxes, controlling,

law/insurance, human resources

Carl Schenck AG* (until April 30, 2005)

Dürr Systems GmbH*

(until February 20, 2005)

INTX AG* (until April 30, 2005, Chairman)

Dürr Inc.* (until April 30, 2005)

Premier Manufacturing Support

Services Inc.* (until April 13, 2005)

Dr. Norbert Klapper

(until June 30, 2005)

Services

Quality, patents, sales & marketing

Dürr Inc.* (until June 22, 2005)

Dürr Paintshop Systems Engineering

(Shanghai) Co. Ltd.* (until June 30, 2005)

Dürr Systems Spain S.A.*

(until November 11, 2005)

Premier Manufacturing Support

Services Inc.* (until April 30, 2005)

Offices held by members of the Board of Management.

Membership in statutory supervisory boards. Membership in comparable domestic and foreign

control bodies (of business entities).* Group boards.


In the reporting year, total remuneration of the

Board of Management can be broken down as

follows: Current employee benefits € 2,551 thou-

sand (2004: € 1,906 thousand) and payments

received at the end of employment of € 1,026

thousand (2004: none). The addition to the

pension provisions for this group of persons in

the 2005 reporting period amounted to € 540

thousand.

The former members of the Board of Manage-

ment received payments of € 820 thousand

(2004: € 679 thousand). Pension provisions

for this group of persons amounted to

€ 9,339 thousand as of December 31, 2005

(2004: € 9,650 thousand).

Compensation paid to members of the Board

of Management of Dürr AG comprises fixed

and variable components. When deciding on

the fixed components, the Supervisory Board

considers not only the economic situation of

the Dürr Group, but also the duties and respon-

sibilities of the respective board members. The

biannual review considers both the personal

performance of each board member as well as

the performance of the board as a whole and

takes these into account when making any

changes. The amount of the variable compen-

sation components depends to a large extent

on the success of the Company.

Another component of the variable compen-

sation is the DISOP (Dürr International Stock

Option Plan). DISOP is by nature subject to

risk and acts as a long-term incentive with a

vesting period. The Supervisory Board decides

annually on the issue of new DISOP tranches.

No new options were issued during the report-

ing year.

94

Members of the Supervisory Board

Dr.-Ing. E. h. Heinz Dürr1

Entrepreneur, Berlin

Chairman

Benteler AG

Carl Schenck AG

(since June 6, 2005, Chairman)

Dürr Systems GmbH

(since February 21, 2005, Chairman)

Dussmann AG & Co. KGaA

Krone GmbH (Chairman)

Landesbank Baden-Württemberg

(member of the Administrative Board)

Peter Weingart1, 3

Chairman of the Group Works

Council of Dürr AG, Stuttgart,

Deputy Chairman

Dürr Systems GmbH (Deputy Chairman)

Prof. Dr. Norbert Loos1, 2

Managing partner of

Loos Beteiligungs-GmbH, Stuttgart

Deputy Chairman

BHS-tabletop AG (Chairman)

Carl Schenck AG

Hans R. Schmid Holding AG (Chairman)

LTS Lohmann Therapie-Systeme AG

(Chairman)

MVV-Energie AG

Trumpf GmbH + Co. KG

Behr GmbH & Co. (until December 14, 2005)

LTS Corp., USA (Chairman)

Mannheimer Kongress- und Touristik GmbH

Stadt Mannheim Beteiligungsgesell-

schaft mbH

Lieselotte Dedek-Fried 2, 3

Member of the Works Council of

Schenck RoTec GmbH, Darmstadt

Benno Eberl 2, 3

Trade Union Secretary of IG Metall

administrative offices, Stuttgart

ThyssenKrupp Elevator AG

(Deputy Chairman)

ThyssenKrupp Aufzüge GmbH

(Deputy Chairman)

Prof. Dipl.-Ing. Jörg Menno Harms

Managing Director of Menno Harms GmbH,

Stuttgart

Heraeus Holding GmbH

Hewlett-Packard GmbH

(Chairman, since November 2005)

Jenoptik AG

Württembergische

Hypothekenversicherung AG

CA Leuze GmbH & Co. KG


Groz Beckert KG (Deputy Chairman)

Management Partner GmbH


Dr. Tessen von Heydebreck

Member of the Management Board

of Deutsche Bank AG, Frankfurt am Main

BASF AG

BVV Versicherungsverein des

Bankgewerbes a.G.

Deutsche Bank Privat- und

Geschäftskunden AG*

DWS Investment GmbH* (Deputy Chairman)

Deutsche Bank Luxembourg S.A.*

(Chairman)

Deutsche Bank OOO, Moscow* (Chairman)

Deutsche Bank Polska S.A.* (Chairman)

Deutsche Bank Rt., Budapest* (Chairman)

Deutsche Bank Trust Corp.*

DB Trust Company America*


1 Member of the Mediation Committee andPersonnel Committee.

2 Member of the Audit Committee.3 Employee representative.

Membership in statutory supervisory boards. Membership in comparable domestic and foreign control

bodies (of business entities).* Group boards.

Werner Kramp 3

Chairman of the Works Council of Dürr

Assembly Products GmbH, Püttlingen

Harald Lambacher 3

(since April 22, 2005)

Head of Human Resources of

Dürr Systems GmbH, Stuttgart

Günter Lorenz1, 3

Principal Authorized Representative of

IG Metall administrative offices, Darmstadt

Carl Schenck AG

Siemens VDO Automotive AG

Harald Rüber 3

(until February 28, 2005)

Head of Project Development at Dürr Systems

GmbH, Stuttgart (until February 28, 2005)

Managing Director of Dürr Systems GmbH,

Stuttgart (since March 1, 2005)

CPM S.p.A.* (since May 6, 2005)


(Shanghai) Co. Ltd.*

(since January 18, 2005, Chairman)

Dürr Systems Spain S.A.*

(since November 11, 2005, Chairman)

Olpidürr S.p.A.* (since January 1, 2005)

Joachim Schielke 2

Member of the Management Board of

Landesbank Baden-Württemberg, Stuttgart

Chairman of the Management Board of

Baden-Württembergische Bank AG, Stuttgart

ICS Informatik Consulting Systems AG

Internationales Bankhaus Bodensee AG

(until February 20, 2006, Chairman)

Süd Private Equity Management

GmbH & Co. KGaA* (Deputy Chairman)

Wüstenrot & Württembergische AG

(since January 1, 2006)

Behr GmbH & Co. KG

BWK GmbH Unternehmensbeteiligungs-

gesellschaft* (Chairman)

Landesbank Rheinland Pfalz*

(deputy member of the Administrative Board)

Leitz GmbH & Co. KG

MKB Mittelrheinische Bank GmbH*

(Chairman since May 1, 2005)

MMV Leasing GmbH* (Chairman of the

Advisory Board since May 1, 2005)

Rehabilitationsklinik Bad Wurzach GmbH

(until December 31, 2005)

Dr. Hans Michael Schmidt-Dencker

Spokesperson of the management of

BWK GmbH Unternehmensbeteiligungs-

gesellschaft, Stuttgart

Kunert AG (until August 31, 2005, Chairman)

Sick AG

Behr GmbH & Co. KG

Bizerba GmbH & Co. KG

BW Mergers & Acquisitions GmbH

Dr. Haas GmbH

Mypegasus Beteiligungs-GmbH

Schmidt Holding GmbH (Chairman)

In the reporting period, remuneration of the

Supervisory Board totaled € 298 thousand

(2004: € 162 thousand).

96

35. Statement of changes in non-current assets

Accumulated cost

as of January 1, 2004 297,337 58,624 5,445 1,120 362,526

Currency differences –2,678 –926 –564 –16 –4,184

Additions 14,142 6,109 4,376 1,201 25,828

Reclassifications – 254 – –101 153

Disposals – –752 – –2 –754

Accumulated cost

as of December 31, 2004 308,801 63,309 9,257 2,202 383,569

Reclassifications pursuant to IFRS 5 –48,870 –4,466 –440 – –53,776

Currency differences 7,401 1,281 907 206 9,795

Changes in consolidated group – – – – –

Additions 263 2,425 4,451 336 7,475

Reclassifications – 680 – –677 3

Disposals –218 –12,759 –664 –179 –13,820

Accumulated cost

as of December 31, 2005 267,377 50,470 13,511 1,888 333,246

Accumulated amortization

as of January 1, 2004 – 32,365 605 120 33,090

Currency differences – –522 –94 –13 –629

Scheduled amortization – 5,611 712 40 6,363

Impairment losses – – – – –

Disposals – –391 – – –391


as of December 31, 2004 – 37,063 1,223 147 38,433

Reclassifications pursuant to IFRS 5 – –3,211 –39 – –3,250

Currency differences – 950 192 203 1,345

Change in consolidated group – – – – –

Scheduled amortization – 7,119 1,379 40 8,538

Impairment losses – 10,460 128 – 10,588

Reclassifications – 1 – – 1

Disposals – –9,957 –427 –179 –10,563


as of December 31, 2005 – 42,425 2,456 211 45,092

Net carrying amount as of December 31, 2005 267,377 8,045 11,055 1,677 288,154

Net carrying amount as of December 31, 2004 308,801 26,246 8,034 2,055 345,136

Net carrying amount as of January 1, 2004 297,337 26,259 4,840 1,000 329,436

Intangible assets

Prepayments

for intangible

assets

Amounts in € k

Recognized

development

costs

Franchises,

industrial

rights and

similar rightsGoodwill

Continuing

operations


Accumulated cost

as of January 1, 2004 177,816 – 58,432 113,609 860 350,717

Currency differences –4,374 – –1,419 –2,206 –39 –8,038

Change in consolidated group – – – – – –

Additions 3,145 – 2,958 6,033 3,324 15,460

Reclassifications 558 – 881 725 –346 1,818

Disposals –4,166 – –21,216 –12,546 –181 –38,109

Accumulated cost

as of December 31, 2004 172,979 – 39,636 105,615 3,618 321,848

Reclassifications pursuant to IFRS 5 2,705 – –3,783 –11,937 –2 –13,017

Reclassifications pursuant to IAS 40 –27,842 27,842 – – – –

Currency differences 8,729 – 2,391 4,606 178 15,904


Additions 6,307 868 2,486 6,690 2,141 18,492

Reclassifications 8,831 – 526 2,450 –3,537 8,270

Disposals –6,777 – –1,307 –21,823 –37 –29,944

Accumulated cost

as of December 31, 2005 164,932 28,710 39,949 85,601 2,361 321,553

Accumulated depreciation

as of January 1, 2004 57,300 – 46,859 87,152 – 191,311

Currency differences –1,653 – –972 –1,566 – –4,191


Scheduled depreciation 5,098 – 2,665 8,752 – 16,515

Impairment losses – – – 141 – 141

Reclassifications 442 – 919 609 – 1,970

Disposals –940 – –19,191 –11,937 – –32,068


as of December 31, 2004 60,247 – 30,280 83,151 – 173,678

Reclassifications pursuant to IFRS 5 1,459 – –2,592 –8,648 – –9,781

Reclassifications pursuant to IAS 40 –9,442 9,442 – – – –

Currency differences 3,469 – 1,703 3,262 – 8,434


Scheduled depreciation 4,415 729 2,901 6,980 – 15,025

Impairment losses 8,804 5,471 464 1,847 – 16,586

Reclassifications 1,962 – 493 1,580 – 4,035

Disposals –465 – –1,146 –19,552 – –21,163


as of December 31, 2005 70,449 15,642 32,103 68,620 – 186,814

Net carrying amount as of December 31, 2005 94,483 13,068 7,846 16,981 2,361 134,739

Net carrying amount as of December 31, 2004 112,732 – 9,356 22,464 3,618 148,170

Net carrying amount as of January 1, 2004 120,516 – 11,573 26,457 860 159,406

Property, plant and equipment

Prepayments

and assets

under

construction

Other

equipment,

furniture

and fittings

Technical

equipment

and

machines

Investment

property

Land, land

rights, and

buildings

including

buildings

on third-

party land

Amounts in € k

Continuing

operations

98

Accumulated cost

as of January 1, 2004 17,642 2,084 568 2,332 22,626

Currency differences –484 – 1 76 –407

Additions 214 510 – 499 1,223

Reclassifications – – – –1 –1

Disposals –1 –563 –4 –38 –606

Accumulated cost

as of December 31, 2004 17,371 2,031 565 2,868 22,835

Reclassifications pursuant to IFRS 5 371 – –195 – 176

Currency differences 256 –1 7 600 862


Additions 1,569 – – 220 1,789

Reclassifications 801 – – – 801

Disposals –3,123 –173 – –246 –3,542

Accumulated cost

as of December 31, 2005 17,245 1,857 377 3,442 22,921

Accumulated write-downs

as of January 1, 2004 1,609 200 1 – 1,810

Currency differences – – – – –

Impairment losses – – – – –

Disposals – – – – –


as of December 31, 2004 1,609 200 1 – 1,810

Reclassifications pursuant to IFRS 5 – – –1 – –1

Currency differences – –1 – – –1


Impairment losses 2,744 700 – – 3,444

Reclassifications – – – – –

Disposals – –173 – – –173


as of December 31, 2005 4,353 726 – – 5,079

Net carrying amount as of December 31, 2005 12,892 1,131 377 3,442 17,842

Net carrying amount as of December 31, 2004 15,762 1,831 564 2,868 21,025

Net carrying amount as of January 1, 2004 16,033 1,884 567 2,332 20,816

Financial assets

Other

loans

Continuing

operations

Amounts in € k

Long-term

investments

Other

investments

Investments

in associates


Germany

Dürr Systems GmbH, Stuttgart1, 2 100

INTX AG, Stuttgart1, 2 100

Dürr Ecoclean GmbH, Filderstadt1, 2 100

Dürr Grundstücks-GmbH, Stuttgart2 100

Dürr International GmbH, Stuttgart1, 2 100

Dürr Ecoclean International GmbH, Stuttgart1, 2 100

Dürr Holding GmbH, Stuttgart1, 2 100

Dürr Beteiligung Alpha GmbH, Stuttgart1, 2 100

Dürr Somac GmbH, Chemnitz1, 2 100

Dürr Special Material Handling GmbH, Wyhlen1, 2 100

Carl Schenck AG, Darmstadt2 100

Schenck RoTec GmbH, Darmstadt1, 2 100

Schenck Fertigungs & Service GmbH, Darmstadt1, 2 100

Waagen und Maschinen Ed. Schmitt & Cie. GmbH, Darmstadt1, 2 100

Schenck Atis GmbH, Darmstadt1, 2 100

SchenckTechnologie- und IndustriePark GmbH, Darmstadt1, 2

(formerly Schenck Immobilien & Service GmbH) 100

Dürr Assembly Products GmbH, Püttlingen1, 2

(formerly Schenck Final Assembly Products GmbH) 100

Gades Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs KG, Mainz3, 4 100

Fludicon GmbH, Darmstadt5 14

Unterstützungseinrichtung der Carl Schenck AG, Darmstadt, GmbH, Darmstadt5 100

Other EU countries

Dürr Anlagenbau GmbH, Zistersdorf /Austria2 100

Dürr Ltd., Warwick /United Kingdom2 100

Dürr Ecoservice Ltd., Warwick /United Kingdom2 100

Behr Industrial Equipment Ltd., Warwick /United Kingdom2 100

Inlac (UK) Ltd., Warwick /United Kingdom2 100

Schenck Ltd., Banbury /United Kingdom2 100

Schenck Automation Systems Ltd., Warwick /United Kingdom2 100

SchenckTest Automation Ltd., Worcester /United Kingdom2 100

SRH Systems Ltd., Worcester /United Kingdom2 57

Dürr Ecoclean S.A.S., Loué/France2 (formerly STIC-HAFROY S.A.S.) 100

Dürr Systems S.A.S., Montigny le Brettonneux/France2 100

Schenck S.A.S., Cergy-Pontoise /France2 100

Dürr Systems Spain S.A., San Sebastian /Spain2 100

Dürr Ecoclean, S.A., Barcelona/Spain2 (formerly Ingeniera Agullo S.A.) 100

Olpidürr S.p.A., Novegro di Segrate / Italy2 65

Verind S.p.A., Rodano/ Italy3 50

Polisistem S.r.l.,Turin / Italy3 29

CPM S.p.A., Beinasco/ Italy3 50

Schenck Italia S.r.l., Paderno Dugnano/ Italy2 100

Schenck Vaegt- og Maskinfabrik ApS., Copenhagen/Denmark2 100

Carl Schenck Machines en Installaties B.V., Rotterdam/Netherlands2 100

Dürrpol Sp. z o.o., Radom/Poland2 100

Dürr Ecoclean spol. s r.o., Oslavany/Czech Republic2 100

Share of

capital

in %Name and location

36. List of Group shareholdings

1 Profit-and-loss transfer agreement withrespective parent.

2 Fully consolidated entity in the Dürr Group.3 Associate in the Dürr Group.4 Not consolidated as only 10% of voting rights.5 Non-consolidated entity in the Dürr Group.

100

Other European countries

Schenck Industrie-Beteiligungen AG, Glarus /Switzerland2 100

North America/Central America

Dürr Inc., Plymouth, Michigan/USA2 100

Dürr Systems Inc., Plymouth, Michigan/USA2 100

Dürr Ecoclean Inc., Wixom, Michigan/USA2 100

Behr Robotics Inc., Auburn Hills, Michigan/USA2 100

Dürr Sigma Systems Inc., Plymouth, Michigan/USA2 100

Dürr AIS Inc., Plymouth, Michigan/USA2 100

Schenck Corporation, Deer Park, NewYork /USA2 100

Schenck RoTec Inc., Deer Park, NewYork /USA2 100

Schenck RoTec Corporation,Troy, Michigan/USA2 100

SchenckTrebel Corporation, Deer Park, NewYork /USA2 100

Dürr Canada Corp., Halifax, Nova Scotia /Canada2 100

Dürr Acco Canada Inc., Windsor, Ontario /Canada2 100

Behr Industrial Systems Inc., Windsor, Ontario /Canada2 100

Dürr de México, S.A. de C.V., Naucalpan de Juarez /Mexico2 100

South America

Dürr Brasil Ltda., São Paulo /Brazil2 100

Irigoyen 330 S.A., Cap. Fed. Buenos Aires /Argentina2

(formerly Premier Servicios de Soporte para Manufacturas, Argentina S.A.) 100

Africa/Asia/Australia

Dürr South Africa (Pty.) Ltd., Port Elizabeth /South Africa2 100

Dürr India Private Ltd., Chennai / India2 100

Schenck RoTec India Limited, Noida / India2 (formerly Schenck Avery Ltd.) 100

Dürr Korea Inc., Seoul /South Korea2 100

Dürr Paintshop Equipment and Engineering (Shanghai) Co. Ltd.,Shanghai /P.R. China2 100

Schenck ShanghaiTesting Machinery Corporation Ltd., Shanghai /P.R. China3 50

Schenck Shanghai Machinery Corporation Ltd., Shanghai /P.R. China2 99

Dürr Paintshop Systems Engineering (Shanghai) Co. Ltd.,Shanghai /P.R. China2 100

Dürr Japan K.K.,Yokohama/Japan2 100

Nagahama Seisakusho Ltd., Osaka /Japan3 50

Dürr Pty. Ltd., Adelaide /Australia2 100

1 Profit-and-loss transfer agreement withrespective parent.

2 Fully consolidated entity in the Dürr Group.3 Associate in the Dürr Group.4 Not consolidated as only 10% of voting rights.5 Non-consolidated entity in the Dürr Group.

Share of

capital

in %Name and location

A complete list of shareholdings has been filed with the commercial register

of the District Court of Stuttgart.


Dürr Aktiengesellschaft

The Board of Management

Ralf W. Dieter Martin Hollenhorst

101Dürr worldwide



Dürr worldwide

Germany

Dürr AG

Stuttgart, phone: [email protected]

Carl Schenck AG

Darmstadt, phone: [email protected]

Dürr Systems GmbH

Stuttgart, phone: [email protected]

Bietigheim-Bissingen, phone: [email protected]

Butzbach, phone: [email protected]

Brunswick, phone: [email protected]


Ochtrup, phone: [email protected]

Dürr Assembly Products GmbH

Püttlingen, phone: [email protected]

Dürr Somac GmbH

Stollberg, phone: [email protected]

Dürr Special Material Handling GmbH

Grenzach-Wyhlen, phone: [email protected]

Dürr Ecoclean GmbH

Filderstadt, phone: [email protected]

Monschau, phone: [email protected]

Schenck RoTec GmbH


Australia

Dürr Pty. Ltd.

Adelaide, phone: [email protected]

Austria

Dürr Anlagenbau Ges.m.b.H.

Zistersdorf, phone: [email protected]

Brazil

Dürr Brasil Ltda.

São Paulo, phone: [email protected]

China


(Shanghai) Co. Ltd.

Shanghai, phone: [email protected]

Schenck Shanghai Machinery Corp. Ltd.

Shanghai, phone: [email protected]@durr-ecoclean.com.cn

Schenck Shanghai Testing Machinery

Corp. Ltd.

Shanghai, phone: +86-21-3064599

Czech Republic

Dürr Ecoclean spol. s.r.o.

Oslavany-Padochov,phone: [email protected]

France

Dürr Systems S.A.S.

Montigny-le-Bretonneux,phone: [email protected]

Dürr Ecoclean S.A.S.

Loué, phone: [email protected]

Schenck S.A.S.

Cergy-Pontoise, phone: [email protected]

Great Britain

Dürr Ltd.

Warwick, phone: [email protected]

Schenck Ltd.

Warwick, phone: [email protected]

India

Dürr India Pvt. Ltd.

Chennai, phone: +91-24-323620/[email protected]

Schenck RoTec India Ltd.

Noida (U.P.), phone: [email protected]

Italy

Olpidürr S.p.A.

Novegro di Segrate, phone: [email protected]

CPM S.p.A.

Beinasco, phone: [email protected]

Polisistem S.r.l.

Turin, phone: [email protected]

Verind S.p.A.

Rodano, phone: [email protected]

Schenck Italia S.r.l.

Paderno Dugnano (MI),phone: [email protected]

Japan

Dürr Japan K.K.

Yokohama, phone: [email protected]

Nagahama Seisakusho Ltd.

Osaka, phone: [email protected]

Mexico

Dürr Systems México

Queretaro, phone: [email protected]

Netherlands

Carl Schenck Machines en Installaties B.V.

Rotterdam, phone: [email protected]

Poland

Dürrpol Sp. z o.o.

Radom, phone: [email protected]

Russia

Dürr Systems GmbH

Moscow, phone: [email protected]

South Africa

Dürr South Africa Ltd.

Port Elizabeth, phone: [email protected]

South Korea

Dürr Korea Inc.

Seoul, phone: [email protected]

Spain

Dürr Systems Spain S.A.

Madrid, phone: [email protected]

San Sebastian, phone: [email protected]

Valladolid, phone: [email protected]

Viladecans, phone: [email protected]

Dürr Ecoclean S.A.

Barcelona, phone: [email protected]

USA

Dürr AIS Inc.

Plymouth, phone: [email protected]

Dürr Inc.

Plymouth, phone: [email protected]

Dürr Systems Inc.

Auburn Hills, phone: [email protected]

Plymouth, phone: [email protected]@[email protected]

Warren, phone: [email protected]

Dürr Ecoclean Inc.

Bowling Green, phone: [email protected]@hrblack.com

Wixom, phone: [email protected]

Schenck RoTec Corp.

Orion, phone: [email protected]

Schenck Trebel Corp.

Deer Park, phone: [email protected]

102

Application technology

General term for all products related to thespray application of paint and high-viscositymaterials. Important products that fall underthe heading of “application technology”include painting robots, paint atomizers, paintsupply systems, and color change systems.

Balance measuring system

A balance measuring system detects vibra-tions of a rotating body that are the result ofimbalance and analyzes these signals. On thebasis of this analysis, the system determinesthe extent of the imbalance and calculates arecommendation for balancing.

Cavity preservation

An additional protective coating is applied toprevent corrosion on the interior surfaces ofcavities in the vehicle body.

Cleaning technology

Dürr cleaning systems remove residual parti-cles resulting from the mechanical toolingprocess from workpieces. Workpiece clean-ing is critical in the construction of enginesand transmissions because even the tiniestamounts of residual particles can causedamage.

Coolant recycling (filtration)

Coolants are used in workpiece machining, forinstance, for boring and milling. They coolthe workpieces and tools, reduce friction andwear, and bind any metal shavings. Therecycling systems cool the used coolant andremove the shavings through filtration sothe coolant can be reused in the machiningprocess.

Dip-painting

Process used for priming the vehicle body. Indip-painting, the body is completely sub-merged in the paint. The liquid paint adheresto the entire body surface as well as thecavities. After dipping, the paint is dried andcured as in other painting processes.

A

B

C

D

Drive-by-wire

Drive-by-wire means that commands from thevehicle driver are no longer passed on to therelevant devices mechanically but electroni-cally. The commands (e.g. steering or pushingon the accelerator) are received by sensors,processed by a computer, and then passed onto the relevant assemblies (e.g. the steeringsystem, engine, transmission or brakes) viaelectric motors. Mechanical linkages like thesteering rod and hydraulic brakes are notneeded in drive-by-wire vehicles.

ERP (Enterprise Resource Planning) system

Software used to support resource planningwithin a company. If possible, ERP systemsshould cover all business processes, includ-ing materials management, production, sales,and controlling.

High-viscosity materials

Sprayable materials, often containing PVC,that are applied to car bodies to seal weldseams, to preserve cavities, or as underbodyprotection. Adhesives and liquid insulationmaterials also fall under this general term.

Injection flood washing

Industrial cleaning process in which work-pieces are placed in a closed chamber that isflooded with water and cleaning media. Jetsthen create currents and turbulences, and thepowerful movement of the water washes anyparticles off the workpieces.

Marriage

Joining and bolting together of power train,chassis, and body in vehicle final assembly.

Materials flow

The conveyance of vehicle bodies and com-ponents in an automobile factory.

Sealing

In the paint shop, seams that are made whennew vehicle body assemblies are welded aresealed with PVC material to seal the body andprevent corrosion.

E

H

I

M

S

Supervisory control systems

Centralized computer system for controllingand supervising control of a complete pro-duction plant.

Surfacer

The paint build-up of a vehicle body normallyconsists of the prime coat (cathodic dipcoating), surfacer, base coat and clear coat.The surfacer coat serves to fill and level outany unevennesses in the substrate. Within theoverall paint build-up it also helps to improveresistance to stone chipping and protects theprime coat against ultraviolet radiation.

Underbody protection

Highly viscous material containing PVC.Applied to the underbody and the lower partof door openings of the vehicle body afterdip-painting. Protects the primer layer fromimpact with rocks.

Virtual reality

A three-dimensional, animated environmentcreated by computer through which the usercan move with the aid of software or electronicdevices (such as a monitor visor). Virtualreality software is used to plan and designautomobile factories, for instance. It createsa real-life image of the factory with all theproduction lines and processes.

U

V

Glossary

Financial calendar for 2006

March 30, 2006 Financial press conference, Stuttgart

March 30, 2006 Analysts’ conference, Stuttgart

May 11, 2006 Interim report fi rst quarter 2006

May 24, 2006 Annual shareholders’ meeting

August 10, 2006 Interim report fi rst half 2006

November 14, 2006 Interim report on fi rst nine months of 2006

Please contact us for

further information:

Dürr AG

Corporate Communications &

Investor Relations

Otto-Dürr-Strasse 8

70435 Stuttgart, Germany

Phone: +49-711-136-1785

Fax: +49-711-136-1034

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www.durr.com

Published by: Dürr AG, Otto-Dürr-Strasse 8, 70435 Stuttgart, Germany

The English translation of our 2005 annual report is based on the German version. The German version shall prevail.

Design: 3st kommunikation, Mainz, Germany Setting: Knecht, Ockenheim, Germany Printing: Koch, Wiesbaden-Nordenstadt, Germany

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