Technologies Systems Solutions Annual Report

Transcription

1 Technologies Systems Solutions 2002 Annual Report

2 Dürr AG Paint Systems Final Assembly Systems Services Ecoclean Measuring Systems Paint Systems is the Final Assembly Systems Services supports Ecoclean supplies Measuring Systems leading supplier of paint shops for largescale production of automobiles and automotive components. plans and carries out projects as one of the world s leading suppliers of products and complete systems for final vehicle assembly. the automotive industry worldwide with production-related services. high-tech systems for parts cleaning, coolant recycling, and automation in workpiece machining. concentrates the measuring technology activities of the Schenck Group. The automotive industry forms the focus of our wide range of customers. Product lines Product lines Product lines Product lines Product lines Paint Systems Automotive Complete automotive Assembly Turnkey Turnkey final assembly plants, including planning Manufacturing Support Services Services, primarily for Cleaning Systems Automotive Cleaning technology used Development Test Systems (Schenck Pegasus) paint shops, including and project handling paint shops, including in the production of power Engine, power train, buildings, materials flow cleaning, maintenance train components by the vehicle, exhaust and and process systems, and control and super- Final Assembly Products and repair of equipment, material logistics, and automotive industry brake testing systems as well as wind tunnel visory control systems Handling and assembly equipment, filling sys- facility management Cleaning Systems Industrial balances for automobile development Paint Systems Industrial Complete paint shops tems, and test stands for the end of the assembly line Operating Models Operator models for all stages of automobile Cleaning technology for automotive components suppliers and other Balancing (Schenck RoTec) for automotive compo- production industrial enterprises Balancing and diagnostic nent suppliers and other industrial sectors Automotion Conveyor Techniques Automation systems for rotating and oscillating components Conveyor systems for Automation technology Application Technology Hardware and software body and paint shops and final assembly lines in for workpiece transport and handling Weighing/Feeding (Schenck Process) systems for automated the automotive industry Systems and components paint application DSEngineering Chip and Coolant Systems for weighing, feeding, automation, and vibration Environmental Systems Planning of final assembly plants and testing centers Systems for coolant recycling conveying in industrial processes Exhaust-air purification for vehicle and compo- equipment for auto- nent development motive paint shops and for production processes in other industries

3 Key figures for the Dürr Group (US-GAAP) * Sales and earnings Consolidated sales in k 2,082,137 2,196,169 EBITDA in k 89, ,837 (earnings before interest expense, taxes, depreciation and amortization) EBIT (earnings before interest expense and taxes) in k 55,070 83,675 EBT (earnings before taxes) in k 22,620 39,790 Net income in k 12,018 20,003 Financial and capital structure Fixed assets in k 611, ,093 Non-fixed assets in k 1,109,158 1,130,823 Equity in k 262, ,982 In % of total assets Of which capital stock in k 36,603 36,603 Pension accruals in k 53,142 51,692 Other accruals in k 257, ,746 Financial debt in k 353, ,639 Total assets in k 1,790,301 1,835,684 Capital expenditures (without operator models) in k 27,653 35,897 Statements of cash flows Net cash provided by operating activities in k 198, ,444 Net cash used in investing activities in k 40,417 44,799 Net cash used in financing activities in k 74,237 40,028 Personnel Employees (average for the year) 12,620 12,561 Employees at year s end 12,902 12,675 Personnel expenses in k 647, ,404 Key figures of interest to the capital markets Dividend per share in 0.80** 1.10 Earnings per share in Market price of Dürr shares High in Low in Close in No. of shares at year s end in k 14,298 14,298 Market capitalization at year s end in m ** As restated (see p. 74) ** Dividend proposed to the annual shareholders meeting

4 Amounts in m Paint Systems Total sales 1, ,094.5 Total incoming orders 1, ,036.5 EBITDA Employees at year s end 2,837 2,952 Final Assembly Systems Total sales Total incoming orders EBITDA Employees at year s end 1,609 1,631 Services Total sales Total incoming orders EBITDA Employees at year s end 4,272 3,727 Ecoclean Measuring Systems Total sales Total incoming orders EBITDA Employees at year s end 1,079 1,084 Total sales Total incoming orders EBITDA Employees at year s end 3,046 3,224 Key figures for the Dürr Group The Corporate Center (see p. 53) had 59 employees on December 31, 2002 (2001: 57); the Corporate Center s EBITDA amounted to 2.3 million (2001: 0.3 million). For information regarding consolidation, see p. 49. Consolidated sales in m EBITDA* in m 2,500 1,014 1,224 2,042 2,196 2, , , , * As restated (see p. 74)

5 Technologies Systems Solutions The Dürr Technology Group is one of the world's leading suppliers of products, systems, and services for automobile manufacturing. Our customers include all significant automobile manufacturers and numerous suppliers of modules and parts. We realize innovative technologies for them that contribute decisively to greater efficiency, quality, and flexibility in vehicle development and production. Our range of products and services covers the entire life cycle of production systems, from planning and execution to services during operation and on to modernization. We enhance our customers' competitiveness with trendsetting solutions. Contents Our strengths are the great commitment and consistent customer orientation of our employees, global presence, and outstanding innovating power. On this basis, we intend to grow profitably and substantially raise the value of our enterprise. 2 Letter to the shareholders 6 Report of the Supervisory Board 10 Dürr stock Reports from the business units 16 Paint Systems 22 Final Assembly Systems 28 Services 34 Ecoclean 40 Measuring Systems Management report 46 Economic environment 47 Strategy 49 Business developments 55 Financial position 58 Development and innovation 59 Purchasing management 60 Employees 62 Environmental protection 62 Risk management 64 Events subsequent to the reporting date 65 Outlook 68 Annual financial statements 114 Dürr worldwide Contents 1

6 Board of Management Stephan Rojahn (54), Chairman and Chief Executive Officer Ecoclean and Measuring Systems Public & Investor Relations, Quality Management, and Corporate Audit High incoming orders despite weak economy Incoming orders increased Net debt cut in half Earnings burdened by restructuring and margin pressure earnings enhancement program started in 2003 After becoming Chairman of Dürr AG s Board of Management at the beginning of this year, I now present the past fiscal year s results to you for the first time. Despite continuing weakness of the world economy and the automotive industry, the Dürr Technology Group managed to increase incoming orders again in Receiving many large orders, we confirmed our leading position as a supplier of production systems and manufacturing support services for the automotive industry. Consolidated order intake grew on the previous year by almost 14% to 2,346.7 million. Orders on hand rose by about 18 % to 1,381.4 million at the end of the year, with significant differences among the individual business units. Consolidated group sales came to 2,082.1 million and were thus slightly below the previous year s amount of 2,196.2 million, mainly due to currency influences. On the other hand, development of earnings was unsatisfactory. Besides high margin pressure, restructuring expenses amounting to about 20 million were the main burden. Including restructuring, group EBITDA operating result (earnings before interest expense, taxes, depreciation and amortization) amounted to 89.1 million after million* in the previous year, and earnings before taxes to 22.6 million (previous year: 39.8 million*). We stepped up measures to safeguard earnings already at the beginning of With targeted restructuring programs, primarily in the Measuring Systems business unit and the Environmental Systems product line, we lowered our cost base. Besides reducing personnel and combining business locations, we also adjusted capacities. * As restated, see p. 74 2

7 Dr. Wolfgang Baur (50), Chief Financial Officer Finance, Controlling, Legal, Human Resources, and IT Dr. Reinhold Grau (49) Paint Systems R&D and Marketing Dr. Norbert Klapper (40) Final Assembly Systems and Services Global Sourcing Scheduled repayments of loans taken out in the past years to finance our acquisitions had a positive effect on earnings. Expanded management of interest expenses and currency, improved working capital management, and advance payments on large projects substantially contributed to increasing our cash position. That enabled us to reduce net debt as of the end of 2002 by half in comparison with the previous year. Different market situations in the business units The Paint Systems business unit maintained its top position in the field of painting technology with systems orders from all major sales regions. Innovative technologies such as the enhanced RoDip dip-painting process had just as convincing an impact as the Dürr Ecopaint painting robot, of which more than 300 units were delivered in the past fiscal year. We furthermore managed to achieve significant market share gains in the component supplier industry and in the niche market of aircraft painting. The Final Assembly Systems business unit strengthened its market position significantly as a systems supplier of turnkey final assembly plants. We improved our competitiveness, above all, by organizationally combining the competencies of Schenck and Dürr companies, by developing new products with lower capital investment and operating costs, and by tapping more cost-effective procurement and production opportunities. With new, multiple-year contracts, the Services business unit achieved another sales plus. Internal process optimization, an extended range of services, and the continuing trend toward outsourcing on the part of automobile manufacturers will continue to form the key prerequisites for profitable growth in the future. After years of strong growth, sales and earnings declined in the Ecoclean business unit under cyclical influences. We nevertheless expanded our strong world market position with innovative solutions in systems for parts cleaning and coolant recycling in engine and transmission production. Given our lowered production costs, we are confident of our quick return to the path of previous successes on economic upturn. Incoming orders in the Measuring Systems business unit were slightly below the previous year s level due to the stronger euro and reduced capital spending propensity in many customer industries and regions. Restructuring expenses in the Schenck Group and high margin pressure affected earnings. We are planning further cost-cutting measures, in view of the market s continuing weakness. Letter to the shareholders 3

8 Difficult stock markets In open dialogue, we have explained current business development and our strengths and opportunities for improvement in detail to analysts and investors and to you, our shareholders. Dürr stock has nevertheless not been able to escape the general weakness of the stock market. Given the subdued earnings situation, the Board of Management is proposing at the annual shareholders meeting to pay a dividend of 0.80 per share in the interest of a continuous dividend policy (previous year: 1.10). Despite the reduced payout compared with the previous year, Dürr stock would thus achieve an attractive dividend yield of 5% for 2002 based on the year s closing share price. With the new segmentation of the German stock market, Dürr now belongs to the SDAX index. As a member of Deutsche Börse s new Prime Standard segment, we satisfy international standards of transparency and disclosure. We have largely implemented the new German Corporate Governance Code with the commitment to a value-oriented approach to corporate governance. Strategic capital investments by our customers Our main customer group, the automotive industry, is one of the most important business sectors worldwide. Competition among automobile manufacturers has intensified due to cyclical influences and is characterized by increasing model variety, ambitious cost goals, and higher quality standards. Against that background, there is great need for Dürr s state-ofthe-art production systems, which improve the efficiency and flexibility in the manufacturing process. That also applies to the segment of parts and module suppliers. They are providing ever more comprehensive services in all areas of vehicle production and are therefore investing more in high-performance manufacturing technologies. Robust business model Dürr is outstandingly positioned as a market and technology leader in its business areas. Our life cycle concept offers solutions for the entire service life of production systems: from planning to execution to services during operation and on to technical modernization. Our range of products and services, expanded by acquisitions, encompasses all major stages of the automotive value chain: vehicle development, power unit production, painting, and final assembly. We make this range available to our customers worldwide. Our business model offers good possibilities for development and furthermore allows us to smooth out to a large extent cyclical fluctuations in demand among regions, customers, and product lines. 4

9 gives highest priority to improving earnings After years of expansion, and in view of the continuing difficult economic environment, we are now directing all our efforts to improving our cost and earnings position. At the beginning of 2003, the Board of Management decided to step up the SPRINT earnings enhancement program. The program is now called and features more ambitious targets, deeper penetration throughout the Group, and faster implementation. It emphasizes cutting purchasing costs, optimizing processes in design, project engineering, and production, reducing order handling risks, and streamlining location and portfolio structures. Outlook for fiscal 2003 We do not expect any great impetus for the world economy in The business environment remains subject to many political imponderables. Accordingly, the capital spending behavior of our principal customer group the automotive industry will be guided by caution. Against this background, we have not assumed any improvement of general conditions in our planning for Because of the high order intake in 2002, the good level of orders on hand as well as the restructuring measures implemented last year, we expect our sales and earnings situation to stabilize in However, reliable forecasts are not possible at present in view of the economic and political uncertainties. Nevertheless, with the program we are fulfilling all the prerequisites to be able to profit above average on an economic upswing. We wish to thank all our members of staff especially. Their dedication, skills, and customer orientation have helped our products and services receive high recognition worldwide. My colleagues and I would also like to thank our customers and business associates for their good cooperation and you, our shareholders, for the confidence that you have placed in us. Stephan Rojahn Chairman of the Board of Management Letter to the shareholders 5

10 Dr.-Ing. E. h. Heinz Dürr Report of the Supervisory Board The Supervisory Board regularly and diligently monitored the Board of Management s activities in 2002, and beyond that provided advice to further the Dürr Group s development. The Board of Management informed the Supervisory Board about the economic situation and the company s development and planning, including financial, investment and personnel planning, and about transactions requiring Supervisory Board consent and substantial business occurrences. All Supervisory Board resolutions were adopted after thorough review, on the basis of detailed written and oral reports. The Supervisory Board convened in the period under review at five regular meetings and one extraordinary meeting. The Personnel Committee met twice in the same period, while the Mediation Committee was not convened. The Audit Committee came together on April 7, 2003 to discuss the 2002 financial statements. The composition of the Supervisory Board remained unchanged in Between meetings, the Chairman of the Supervisory Board maintained close contact with the Board of Management and obtained timely reports on important events, primarily from the Chairman of the Board of Management. He furthermore discussed business policy, strategic orientation and the financial situation of the Group and its subsidiary enterprises with the Chairman of the Board of Management and reported the results of these discussions to the entire Supervisory Board, either immediately or at its next meeting. One of the focal points of the deliberations of both Boards was how to improve both the cost situation and the operating profitability of the Dürr Group. With a view to preserving the Group s technological leadership in the long term, the Supervisory Board informed itself concerning Dürr s innovation strategy and selected development projects in the business units. In the framework of positioning the new Final Assembly Systems business unit as a provider of solutions for the final stage of vehicle assembly, the Supervisory Board consented to the acquisition by Dürr Automotion GmbH of Schenck Somac GmbH and DSEngineering GmbH, companies belonging to Carl Schenck AG. The Supervisory Board also approved the takeover of the assets and liabilities of Schenck Motorama Inc. by Dürr Production Systems Inc., a subsidiary of Dürr Inc. In its extraordinary meeting of September 4, 2002, the Supervisory Board appointed Mr. Stephan Rojahn a regular member of Dürr AG s Board of Management effective October 1, 2002 and Chairman of the Board of Management effective January 1, Mr. Rojahn succeeds Mr. Hans Dieter Pötsch, who left the company at his own request on December 31, 2002 to pursue a new professional function. The Supervisory Board thanks Mr. Pötsch for the great personal dedication with which he continuously led and expanded the Dürr Group since

11 At its meeting of December 5, 2002, the Supervisory Board granted Mr. Frank Haun s wish to leave Dürr AG s Board of Management on March 31, The Supervisory Board also thanks him for many years of dedicated service. After Mr. Haun s departure, Mr. Rojahn assumed responsibility within the Board of Management for the Ecoclean and Measuring Systems business units. The assignment of other duties within the Board of Management remained unchanged. Together with the Board of Management, the Supervisory Board has concerned itself with issues of corporate governance. In December 2002, the Supervisory Board and the Board of Management issued a joint declaration of compliance, according to which Dürr will largely follow the recommendations and suggestions of the Government Commission German Corporate Governance Code. The Board of Management reported continuously and in a timely manner to the Supervisory Board about existing risks. The Supervisory Board advised the Board of Management regarding expansion of risk control and monitoring systems. The annual financial statements and management report prepared by the Board of Management as of December 31, 2002, together with the consolidated financial statements and consolidated management report of Dürr AG were examined, including the particular auditing points specified by the Supervisory Board, by the auditors engaged by the Supervisory Board after appointment by the annual shareholders meeting, and have received an unqualified audit report. The annual financial statements and consolidated financial statements, the management report and consolidated management report, the proposal for the use of unappropriated profit, and the auditors reports concerning the auditing of the annual financial statements and of the consolidated financial statements were submitted to all members of the Supervisory Board in good time before the meeting held to approve the financial statements, and were discussed in detail with the Board of Management at that meeting of the Supervisory Board on April 9, The auditors signing the audit reports for the annual financial statements and the consolidated financial statements of Dürr AG also participated in that meeting with regard to the relevant points on the agenda, and reported concerning their audit. The Supervisory Board took approving note of the audit result. The Supervisory Board examined the annual financial statements and consolidated financial statements and the management report and consolidated management report. This examination by the Supervisory Board revealed no cause for objection. The Supervisory Board concurs in the assessment of the business situation and future development of the consolidated Group as presented in the consolidated management report. Report of the Supervisory Board 7

12 The Supervisory Board approves the annual financial statements prepared by the Board of Management, which are hereby ratified. The Supervisory Board approves the Board of Management s proposal for the use of the unappropriated profit. The Supervisory Board also approves the consolidated financial statements. The Supervisory Board has examined the report prepared by the Board of Management pursuant to Sec. 312 of the German Stock Corporation Law concerning relationships with associated enterprises for the period from January 1 to December 31, 2002 (dependent company report). The dependent company report was also examined by the auditors appointed by the annual shareholders meeting, and has been issued the following unqualified audit report pursuant to Sec. 313 (3) of the German Stock Corporation Law: After examination and assessment in accordance with our professional duties, we confirm that: 1. the factual information given in the report is correct, 2. the performance rendered by the company in connection with the transactions mentioned in the report was not unduly high, 3. regarding the measures mentioned in the report, no circumstances argue in favor of a materially different judgment than that made by the Board of Management. The examination of the dependent company report by the Supervisory Board revealed no cause for objection. The Supervisory Board concurs in the results of the examination of the dependent company report by the auditors. According to the final results of the examination by the Supervisory Board, there are no objections to be raised against the declaration by the Board of Management at the end of the dependent company report. The Supervisory Board thanks the Board of Management, all employees, and the representatives of the staff for their dedication in the past year, as well as the shareholders for the confidence they have placed in the company. Stuttgart, April 9, 2003 The Chairman Dr.-Ing. E. h. Heinz Dürr 8

13 Members of the Supervisory Board Dr.-Ing. E. h. Heinz Dürr 1 Entrepreneur, Berlin Chairman Werner Kramp Chairman of the Group Works Council of Carl Schenck AG, Darmstadt Peter Weingart 1 Chairman of the Group Works Council of Dürr AG, Stuttgart Deputy Chairman Peter Krüger Manager of Commercial Order Processing of Dürr Systems GmbH, Stuttgart Prof. Dr. Norbert Loos 1, 2 Managing Partner of Loos Beteiligungs-GmbH, Stuttgart Deputy Chairman Günter Lorenz 1 Principal Authorized Representative of IG Metall administrative offices, Darmstadt Lieselotte Dedek-Fried 2 Member of the Works Council of Schenck RoTec GmbH, Darmstadt Benno Eberl 2 Trade Union Secretary of IG Metall administrative offices, Stuttgart Prof. Dipl.-Ing. Jörg Menno Harms Chairman of the Managing Board of Hewlett Packard GmbH and Holding GmbH, Böblingen Joachim Schielke Member of the Board of Management of Landesbank Baden-Württemberg, Stuttgart Dr. Heinz Gerd Stein 2 Business consultant, Duisburg Until September 30, 2002, Member of the Board of Management of ThyssenKrupp AG, Duisburg and Essen Dr. Tessen von Heydebreck Member of the Board of Management of Deutsche Bank AG, Frankfurt/Main 1 Member of the Mediation Committee and Personnel Committee 2 Member of the Audit Committee Report of the Supervisory Board 9

14 Dürr stock Tough year on the stock markets In 2002, Dürr stock performed in line with the general downward trend on the exchanges. But it achieved an above-average dividend yield of 5%. Dürr stock was trading at in the XETRA electronic trading system at the beginning of It reached its high for the year of at the end of May In line with the negative development on the capital markets, the price of Dürr stock then dropped to at the end of the year ( 34%). The comparative indexes also finished negatively. The DAX lost 44% in the course of the year, the MDAX 30%, and the CDAX-Machinery 31%. Above all, uncertainty at the stock markets and general economic weakness, reinforced by fear of war in Iraq and related crude oil price increases, formed the background for these losses. Dürr secured its stock s liquidity in the XETRA system with one Designated Sponsor in About 7,000 no-par shares were traded daily on average. Adjusted dividend Dürr achieved earnings per share of 0.84 in 2002 (previous year: 1.40) due to expenses for restructuring measures. The Board of Management and the Supervisory Board will propose to the annual shareholders meeting a dividend in the amount of 0.80 per share (previous year: 1.10). Key figures No. of shares at year s end in k 14,298 14,298 Net income in k 12,018 20,003* Earnings per share in * Cash flow per share in * Dividend per share in 0.80** 1.10 Dividend yield at share price close in % Share price high in Share price low in Share price close in Price-earnings ratio at year s end * Price-cash flow ratio at year s end * Market capitalization at year s end in m ** As restated (see p. 74) ** Dividend proposed to the annual shareholders meeting 10

15 Dürr stock price development from January to December 2002 compared with indexed development of the DAX, MDAX, and CDAX-Machinery in WKN ISIN DE Reuters symbol DUEG Bloomberg code DUE J F M A M J J A S O N D Dürr stock in Frankfurt DAX MDAX CDAX-Machinery Despite this adjustment, Dürr shareholders achieved an above-average dividend yield of 5.0%. All no-par shares are fully entitled to dividends. Tax credits are no longer possible since the introduction of the half-income method of taxing dividends. The dividend payout date is May 30, Shareholder structure Heinz Dürr GmbH holds 49% of the capital of Dürr AG, LBBW Trust GmbH 11%, and BWK GmbH Unternehmensbeteiligungsgesellschaft 7%. The free float amounts to 33% of capital stock: Heinz und Heide Dürr-Stiftung GmbH holds 4.5%, institutional investors 19.1%, and individual investors 9.4%. Domestic investors own 96% of the capital stock, and foreign investors 4%. The latter are primarily in the USA, the Netherlands, Liechtenstein, Great Britain, and Switzerland. Dürr employees again had the opportunity in 2002 to acquire stock in the company at a price discount of 30%. New stock market segmentation: Dürr in Prime Standard Deutsche Börse AG resolved to introduce a new segmentation of the German stock market in 2002, providing for two new segments, the Prime Standard and the General Standard, as of January 1, Moreover, the newly composed MDAX, SDAX, and TecDAX indexes have taken effect as of March 24, Dürr has already fulfilled the prerequisites for belonging to the Prime Standard for years, for example, by publishing quarterly reports and applying International Accounting Standards. Dürr was thus one of the first German companies to be admitted by Deutsche Börse to the Prime Standard. The MDAX comprised 70 stocks until the end of March 2003 and was then reduced to 50. Dürr, which was in the bottom third of the MDAX, has therefore been quoted in the SDAX since March 24, Dürr stock 11

16 First Dürr Capital Markets Day About 40 stock analysts, bank representatives and investors gathered information at first hand about Dürr stock and the Group at the first Dürr Capital Markets Day on September 12, 2002 in Stuttgart. The Board of Management explained the company s strategy, markets, and key figures. With the Dürr Capital Markets Day as an additional communication tool, we intend to continue providing comprehensive information about the company and strengthening confidence in the stock in the future. Intensive communication with investors Dürr regularly provides up-to-date, detailed information about the Group s development. We keep analysts, the press, and investors abreast of current events on equal terms and in a timely manner. In 2002, we further intensified direct contact with institutional and individual investors at five meetings with analysts and banks, regular conference calls, and nine national and international road shows for example in Great Britain, France, and the USA as well as at many individual talks. Fourteen different banks and analyst firms wrote a total of 35 analyses about Dürr in We offer access to important information such as stock price development, company press releases, analyst studies, and earnings estimates on the investor relations pages of our website. Financial reports can be ordered in printed form, downloaded, or studied online. We are again broadcasting our annual shareholders meeting live on the Internet on May 28, Dürr is again organizing several road shows at home and abroad this year. Corporate Governance Code implemented The concept of corporate governance stands for responsible company management and control aimed at sustained growth of company value. Important aspects include attention to shareholders interests, efficient cooperation between managing and supervisory boards, and open, transparent corporate communications. Dürr was one of the first listed companies in Germany to take up the issue of corporate governance, and already in 2001 established its own Code of Best Practice. In 2002, we adopted the German Corporate Governance Code shortly after its publication and got 81% on the DVFA scorecard (which evaluates compliance with the Code). Dürr understands corporate governance as a continuous process and is pursuing all the Code s changes in a timely manner. You will find more information about this topic on the investor relations pages of our website. According to Sec. 161 of the German Stock Corporation Law, the board of management and the supervisory board of a listed stock corporation are obliged to declare once every year that the recommendations of the Government Commission German Corporate Governance Code were and are being complied with, or which recommendations were or are not being applied. Dürr AG already fulfills most of the mandatory provisions of the Code, while planning on implementing further provisions. The deviations from the Code are specified below with the corresponding reasons. 2

17 In accordance with Sec. 161 of the German Stock Corporation Law, the Board of Management and the Supervisory Board of Dürr AG declare: Dürr AG complies with the recommendations of the Government Commission German Corporate Governance Code with the following exceptions: The Management Board shall arrange for the appointment of a representative to exercise shareholders voting rights in accordance with instructions. (Code, Item 2.3.3, Sentence 3, 1st Half Sentence) The banks assume the task of offering shareholders the opportunity to exercise their right to vote by a representative appointed by the bank acting on and bound by their instructions. If the company takes out a D&O (directors and officers liability insurance) policy for the Management Board and Supervisory Board, a suitable deductible shall be agreed. (Code, Item 3.8, Paragraph 2) A D&O insurance policy with no deductibles exists for the members of the Board of Management and the Supervisory Board. This is a group insurance policy for executives at home and abroad, although a differentiation between members of the executive body and employees does not appear appropriate. In addition, a deductible is not usual abroad and would therefore make it difficult to recruit executives from abroad. Compensation of the members of the Management Board shall be reported in the Notes of the Consolidated Financial Statements subdivided according to fixed, performancerelated and long-term incentive components. (Code, Item 4.2.4, Sentence 1) We report the sum of the salaries of the members of our Board of Management in the notes to our consolidated financial statements. In our view, a special item broken down into fixed salary and success-related components would not provide any additional benefit for the shareholders. Furthermore,... an age limit to be specified for the members of the Supervisory Board shall be taken into account. (Code, Item 5.4.1, Sentence 2, Last Part) Dürr sees no necessity for defining an age limit for members of its Supervisory Board. Also to be considered [for specifying the compensation of the members of the Supervisory Board]... shall be the chair and memberships in committees. (Code, Item 5.4.5, Paragraph 1, Sentence 3, Last Part) Because of the success-related compensation of the members of our Supervisory Board there is no separate remuneration for the chair or for membership in committees. Dürr stock 13

18 Also payments made by the enterprise to the members of the Supervisory Board or advantages extended for services provided individually, in particular, advisory or agency services shall be listed separately in the Notes to the Consolidated Financial Statements. (Code, Item 5.4.5, Paragraph 3, Sentence 2) The possibility of obtaining the expertise of individual members of our Supervisory Board for special topics at any time represents a special advantage for Dürr. Cooperation is based on the conditions that are usual in the industry, which are also maintained in comparable transactions with third parties. Hence, we see no necessity for individualized publication. Corresponding information [for the purchase or sale of shares in the company or of related purchase or sale rights (e.g. options) and of rights directly dependent on the stock market price of the company by members of the management board and supervisory board of the company or its parent company and by related parties] shall be provided in the Notes to the Consolidated Financial Statements. The shareholdings, including options and derivatives, held by individual Management Board and Supervisory Board members must be reported if these directly or indirectly exceed 1% of the shares issued by the company. If the entire holdings of all members of the Management Board and Supervisory Board exceed 1% of the shares issued by the company, these shall be reported separately according to Management Board and Supervisory Board. (Code, Item 6.6, Paragraph 2) The quota of shares held by large shareholders and statements about directors dealings are published as specified by the German Securities Trading Law. We believe that these legally regulated mandatory statements are adequate. The Consolidated Financial Statements shall be publicly accessible within 90 days of the end of the financial year; interim reports shall be publicly accessible within 45 days of the end of the reporting period. (Code, Item 7.1.2, Sentence 2) At present we are unable to comply with all the recommended deadlines. However, in the medium term we plan to comply in full with this recommendation. Our consolidated financial statements are published within four months of the end of the fiscal year. Our half-year report is publicly accessible within 60 days; the interim reports for the first quarter and for the first nine months of the fiscal year are accessible within 45 days of the end of the reporting period. Dürr AG Public & Investor Relations Otto-Dürr-Strasse Stuttgart Germany Phone: Fax: investor.relations@durr.com 14

19 Financial calendar for 2003 Financial press conference April 10, 2003, Stuttgart Publication of the 2002 annual report DVFA analysts conference April 11, 2003, Frankfurt/Main Road show in Germany April 2003 Interim report on first quarter of 2003 and conference call May 14, 2003 Road show in Great Britain May 2003 Annual shareholders meeting May 28, 2003, Stuttgart Dividend payment May 30, 2003 Interim report on first half of 2003 and conference call August 20, 2003 Road show in Germany August/September 2003 Second Dürr Capital Markets Day September 10, 2003 Road show in the USA October 2003 Interim report on first nine months of 2003 and conference call November 13, 2003 Road show in Germany November 2003 German Mid Cap Conference calendar week 49, 2003, Frankfurt/Main Road show in Germany and the USA July 2003 Dürr stock 15

20 Wet or dry

21 Paint Systems business unit The requirements in massproduction automotive painting are becoming ever more complex due to the growing variety of models. As the technology and market leader, Dürr is an expert in all types of painting techniques and thus does justice to its customers different approaches to automobile painting. We provide the right solution for every process requirement and vehicle model whether emission-free powder paint or wet paint.

22 Paint Systems Strong technology position translated into market successes In 2002, the Paint Systems business unit maintained its position as the world market leader with large orders for body paint shops in Europe, North America, and China. Top technologies like the Ecopaint painting robot and the RoDip dip-painting process played a significant role in our order success. In the automotive supply segment, we made significant market share gains with innovative, highly efficient systems solutions Amounts in m Total sales 1, ,094.5 Total incoming orders 1, ,036.5 EBITDA Employees at year s end 2,837 2,952 Large projects make for record order inflow In 2002, the Paint Systems business unit landed numerous large projects and set a new record for incoming orders despite sluggish conditions in the automotive industry. Nevertheless, earnings were down from the previous year s high, mainly because of restructuring charges in the Environmental Systems product line. The upswing in volume was propelled by the strong need of our customers in the automobile manufacturing and component supply industries to rationalize and modernize their operations under the influence of competition. Modern process technologies enable customers to paint new car models not only less expensively and more safely from the environmental viewpoint, but also more flexibly, with more variants, and faster. Our new business also benefited from our abilities in completing complex turnkey projects in every automobile manufacturing region of the world. In China, we continued our very good performance from the year before. Among other successes, the local automobile manufacturer SAIC Chery Automobile in the eastern Chinese city of Wuhu hired us to build a complete paint shop with a capacity of 150,000 vehicles per year. Shanghai Volkswagen presented us with its Supplier Award 2002 for installing a new paint shop at its Shanghai facility. This plant s excellent values for energy consumption, level of automation, and ergonomics set standards for the entire Chinese market. With sales, 18

23 More quality at lower cost: The innovative RoDip dip-painting process. engineering, production, and service directly present there, Dürr is a market leader with excellent prerequisites for participating further in the dynamic growth of the Chinese automotive industry. We also felt an awakening interest in Dürr paint technologies in Japan, Asia s biggest automotive market. Dürr has had its own company there since In North America, a US automobile manufacturer placed a large order for a turnkey system for body pretreatment and dip-painting. Korean automobile manufacturer Hyundai ordered a complete paint shop for its US plant in Montgomery, Alabama, with a capacity of 300,000 bodies per year. In Germany, the BMW Group ordered an extensive package that included several fully automated lines for applying primer and top coats. This large, technologically demanding project also incorporates our new generation of Dürr products for powder painting, fully the equal of our range in wet painting products. Innovations and systems projects of showcase quality We also enhanced our market and technological leadership by completing a number of showcase contracts in For DaimlerChrysler in Sindelfingen (Germany), we started up a new pretreatment and electrocoating system that also handles the premium Maybach model. For Volkswagen in Wolfsburg (Germany), we updated an entire paint shop to produce the new Touran minivan. At the BMW facility in Dingolfing (Germany), Dürr was the general contractor for the installation of three robotic primer lines. These also use the innovative Dürr Ecopurge Reflow system, which minimizes paint loss in color changes and thus enhances efficiency. We further highlighted our capabilities in high-end process solutions in powder painting as part of a large order for Ferrari in Maranello (Italy). Besides powder painting, another focus of innovation in paint systems technology was the further development of the RoDip dip-painting process. The new RoDip 3 Plus version, especially designed for smaller production rates, has individually driven body conveyor units whose forward and rotary movements can be programmed individually. This provides for maximum flexibility in handling a variety of different body types on a single line. RoDip s advantages in quality and cost have established it as the leading process in a very short time. Ten systems have been ordered worldwide just since the beginning of Paint Systems business unit 19

24 Quality assurance: The Dürr Ecopaint Checker uses a laser sensor for fully automatic measurement of point film thickness. Supplier industry: Gains in market share In the automotive supply segment of the market, Dürr expanded its position even further. Only about three years after the Paint Systems Industrial product line was established, nearly every major supplier of modules and trim parts is one of our customers. In 2002, for example, Decoma ordered two turnkey systems to paint plastic bumpers for plants in Belgium and North America. For Peguform in Germany, we are supplying a painting system for door panels and headlining. The French supplier industry placed a great many orders, including painting systems for chassis components and headlights. In the future, automotive suppliers will show a growing need for high-performance painting systems, because the ongoing trend toward outsourcing is leading automobile manufacturers to commission their suppliers not just to make, but increasingly also to paint vehicle trim parts. Dürr products optimized specifically for this market segment ensure that paint results meet manufacturers highest quality requirements, even when the base materials and painting systems differ. The niche market in aircraft painting also did well in It is handled mainly by our British center of competence. Dürr is supplying systems to surface-treat wing parts and to paint fully assembled wings for the new Airbus A 380 megaliner. Application technology: Painting robots on the way to becoming industry standard The Application Technology product line supplies technologies for automated paint application, including painting robots and machines, paint supply systems, quality measurement systems, and software solutions. In 2002, we maintained the high-volume growth track of previous years and further expanded our market share. A primary contributor to our success was the Dürr Ecopaint painting robot a technology leader. It offers persuasive advantages in efficiency, flexibility, and quality, and is increasingly replacing conventional painting machines. Some 900 units have been ordered since the Dürr robot was introduced for massproduction painting in 1999 (as of the end of 2002). That makes the Ecopaint robot the world s most sought-after model of its kind and puts it on the way to becoming an industry standard for all customers. We also found growing interest in the Dürr Ecopaint Checker. This fully automated instrument uses a laser sensor to measure layer thickness in the wet film after paint has been applied. If discrepancies from the optimum are found, the associated Ecopaint Expert database system can immediately help define new parameters for programming painting machines and robots. 20

25 Growth market: Dürr provides automotive component suppliers with optimized solutions for painting trim parts. Environmental systems: Dürr offers a wide range of efficient processes in the field of exhaust-air purification. To enhance the performance of robot application even further, Dürr developed the new Ecobell 2 generation of wet-paint atomizers. The Ecobell 2 has higher paint outputs that enable optimized robot movement patterns, making for faster painting. Environmental technology: Successful restructuring Performance was generally sluggish in the exhaust-air purification systems business pursued by the Environmental Systems product line. Aside from in-house deliveries for Dürr paint shops, the main emphasis was on orders from focus sectors: the chemical, pharmaceutical, and semiconductor industries. Spending on exhaust-air purification systems contracted in the United States because environmental regulations were relaxed to stimulate the US economy after September 11, We responded to this demand slowdown by rapidly adjusting capacities. The additional harmonization of our product range positions us for profitable future performance, not only in our business with automobile manufacturers and suppliers, but also in our other focus sectors. Paint Systems business unit 21

26 Final Assembly Systems business unit In the final stage of vehicle assembly, a painted body and a variety of components and assemblies are turned into a complete automobile in a few hours. Producing the growing number and variety of models economically requires perfectly coordinated logistics, assembly, and testing. As a full-range supplier, Dürr plans and builds turnkey final assembly facilities that offer our customers lower costs, greater flexibility, and more quality.

27 Producing more efficiently

28 Final Assembly Systems Strong demand for full range of final assembly equipment In 2002, Dürr reinforced its market position as a full-range provider for final vehicle assembly. Aside from successes in stand-alone products, several system orders also made a significant contribution. We enhanced the level of automation in a number of products to give our customers even greater productivity and flexibility in final assembly Amounts in m Total sales Total incoming orders EBITDA Employees at year s end 1,609 1,631 The Final Assembly Systems business unit, founded at the beginning of 2002, is the successor to the former Automotion business unit 1. Final Assembly Systems has the goal of building our new business in products and systems for final vehicle assembly into a further strong pillar of the Dürr Group. It is aiming at world market leadership in the medium term. The prerequisites for that have been fulfilled well. After acquiring a majority interest in Carl Schenck AG in 2000, we organizationally pooled our operations in assembly, testing, filling, and conveying systems. Within a very short time, we had established ourselves as a complete provider with the broadest range of any competitor. Final Assembly Systems has the in-house resources to supply around 70% of the machinery and software solutions needed for a final assembly installation. We can also take over the process planning for the customer on request. The combination of these two aspects puts us in a very good position to win contracts for complete final assembly plants. The ongoing need for automation and greater flexibility in final assembly leads us to expect significant market growth in the medium term. As part of our two-pronged strategy, we intend to profit from this situation both in business involving individual installations and as a general contractor for large turnkey systems. The sharp rise in new orders in fiscal 2002 demonstrates just how well the market has been accepting our range of products and services. 1 See p

29 Fast and precise: Car bodies and power trains are joined at Dürr marriage stations. Systems business: Large orders for new construction and modernization Dürr already has a market share of around 10% in systems business for complete final assembly systems. After showcase projects like the new Opel final assembly plant in Rüsselsheim (Germany), a model for the entire General Motors Group in respect to productivity and the conversion of a final assembly line for Magna Steyr Fahrzeugtechnik in Graz (Austria), we continued to benefit in 2002 from the growing demand for turnkey systems with a number of new contracts. Volkswagen commissioned us as general contractor to convert an existing line for the assembly of the new Golf A5 at its facility in Mosel (Germany). At Land Rover s plant in Solihull (Great Britain), Dürr is building new assembly conveyor systems and an automated marriage station to combine power trains and bodies of the new T5 model. A strategically important systems order from DaimlerChrysler marks our debut as a general contractor for final assembly in the high-volume North American market. At the Mercedes plant in Tuscaloosa, Alabama (USA), we took charge of converting an assembly line to produce the new M-Class model generation. Final assembly products: Fully automated solutions in demand An important factor in Dürr s expansion in final vehicle assembly is our broad range of inhouse products, including assembly and handling equipment, test stands for quality control of fully assembled vehicles, and filling stations to dispense such essential supplies as brake fluid and transmission oil. In this technologically demanding segment, where the entry barriers for new vendors are high, our Final Assembly Products product line is the market leader in Europe. We intend to continue expanding in North America in the future by means of increased know-how and technology transfers from Europe. Given the growing pressure to increase productivity in the manufacturing process, demand on the part of automobile companies in 2002 was primarily aimed at systems with the maximum degree of automation. Among our market successes were fully automated marriage stations. We also combined forces with a German automobile manufacturer to develop an innovative solution for wheel alignment on vehicle geometry test stands. The core is a seeing robot with two cameras and an image processing system, which ensures exact positioning of the alignment device on the tie rod. This innovative technique has good marketing prospects, since it offers not only an alternative to ergonomically awkward manual wheel alignments, but also higher quality and shorter throughput times. We also foresee good chances for other new developments like a robot system for the fully automated mounting of windshields and rear windows, and a leakage test method for brake systems. With our expanded product range for electronic testing in the assembly process, we are correctly positioned to benefit from the rising use of electronics in vehicles today. Final Assembly Systems business unit 25

30 Efficient assembly processes: Dürr plans and executes intelligent solutions for the installation of complete modules. In filling technology, we received important showcase orders from the premium manufacturers Bentley and Porsche. The top Volkswagen model, the Phaeton, is also filled using Dürr equipment at the Glass Factory in Dresden (Germany). As part of a large order, we also supplied two complete sets of line equipment for automated filling of the new Fiesta at the Ford facilities in Cologne (Germany), and Valencia (Spain). In the automotive supplier market, the Dürr Somac filling equipment center of competence in Chemnitz (Germany) continued along its path of successful expansion. Demand there focused especially on combined solutions for filling, testing, and assembly to be used, for example, for clutch components and shock absorbers. Conveyor systems: Numerous large projects Large orders for conveyor systems, especially from the North American automotive industry, enabled the Automotion Conveyor Techniques product line to make an important contribution to the business unit s high total incoming orders. For example, Ford ordered new body assembly conveyor systems for its US plants in Dearborn, Michigan, and Norfolk, Virginia; Volkswagen also ordered them for its Wolfsburg plant in Germany. Added to that were extensive internal deliveries for final assembly systems projects and for new turnkey paint shops of the Paint Systems business unit. The after-sales business was especially good in France. Our service centers, which we maintain locally for a number of clients, proved their value in that connection. In the niche market for aircraft construction, we received technologically demanding orders from Airbus for precision assembly and conveying equipment for tail and wing parts of the new Airbus A 380 megaliner. Analogically to our good market position in paint shop conveyor equipment, we also want to become established as the leading provider of conveying equipment in the area of final assembly. We therefore expanded our range of products further. The emphasis was on developing electric overhead rail systems that can convey body shells and body parts at variable speeds and with ergonomic flexibility. Our innovative MOVITRANS system for contact-free power and data transfer became even better established in the market. It is used, for example, in the conveying system for a new marriage station at Volkswagen s Mosel plant in Germany, and in skillet conveyor systems at Magna Steyr Fahrzeugtechnik s Graz plant in Austria. To cut costs, we have begun moving our detailed engineering, electrical pre-assembly, and pre-startup operations from Germany to a facility at Radom (Poland). We have achieved additional savings by standardizing our product range and purchasing more extensively in Eastern Europe. 26

31 Quality check: All vehicle functions are tested and adjusted at the end of the line. Plant planning: Good order situation The newly created DSEngineering product line, a service provider that plans final assembly lines and testing centers for vehicle and subassembly development, registered a generally good inflow of orders in DaimlerChrysler, for example, commissioned us to handle the concept planning for the assembly of the Mercedes Sprinter and Vito models at a new US facility. For Adam Opel AG, DSEngineering is planning the modification of assembly systems for the new Astra series and is coordinating the conversion activities at several plants. Our innovative planning concepts make more flexible and economical manufacturing and testing processes possible for our customers. In this connection, despite generally slacker automobile sales, we expect further market growth of around 10% per year in plant planning. In expanding our activities, we focus both on large projects in assembly and testing systems and on the stand-alone business outside the Dürr systems alliance. An important basis for growth is our above-average process and product competence, which we ensure through regular exchanges with systems specialists from other Dürr units. Final Assembly Systems business unit 27

32 Trend rising

33 Services business unit Services related to automobile production are a growth market and the trend is rising. The reason is that manufacturers are assigning more and more tasks to external specialists for example, equipment cleaning, maintenance and facility management. The Services business unit is benefiting from this outsourcing trend, also because we are expanding with our customers into new markets. Already about 4,000 employees are now contributing to greater cost efficiency and higher quality in more than 80 automobile factories worldwide.

34 Services New markets and services Although conditions in the automotive industry remained sluggish overall, the Services business unit increased sales again in A major contribution here came from new, long term cleaning and maintenance contracts, primarily in North America, South America, and Europe.To enable further growth, we expanded our capabilities as a provider of specialized technical services. We also pushed ahead with our regional expansion, and optimized in-house processes Amounts in m Total sales Total incoming orders EBITDA Employees at year s end 4,272 3,727 The Services business unit represented by the US-based Premier Group, acquired in 1999 differs from competitors who either operate only locally or are tied to specific manufacturers by concentrating and offering above-average technical know-how, a global range, and uniform service standards worldwide. Since joining the Dürr Group, Premier has boosted sales more than 30%, most notably through close cooperation with the Paint Systems business unit. In North America the most important geographical market segment, accounting for more than 30% of sales Premier enjoys a market leadership. We significantly improved our position in Europe, Central America, South America, and Asia, with plenty of potential still left to tap. Range of services expands The Services business unit pursues a strategy of steadily expanding its core business with new, technically sophisticated service capabilities. This is yet another way we stand out from among our competitors. It lays the groundwork for continuing profitable growth, even as competition in the conventional cleaning business intensifies. In 2002, for example, we launched the Premier Tech consulting program in North America. Here, experienced teams of Premier experts advise customers about operational and strategic aspects of equipment maintenance. In a model project in Sweden, we started our own first paint stripping system, which uses an innovative method to clean paint shop equipment. The paint stripping process equally cost-effective and with a minimum 30

35 Good starting position: With the Premier Group, Dürr has a strong base in the growing services market. Outsourcing: We are able to carry out a wide range of services covering all aspects of automobile manufacturers on behalf of our customers. of environmental impact has strong market potential worldwide. We also tried new approaches in customer relations during 2002 for example in an operator model for a customer in Great Britain, where we took over the entire wheel assembly process under a pay-on-production agreement. Broadening our range from technical cleaning through facility management to maintenance and consulting has enabled us to strengthen the marketing of our comprehensive service packages. With this full-service concept, we are making the most of the trend among automobile manufacturers particularly in cases of new facilities toward buying in as many production-related services as possible from key partners so as to take advantage of such outsourcing benefits as lower costs, lower capital tie-up, and higher quality. Additionally, full-service capabilities improve our position in new project acquisitions. This is an important basis for expanding our volume further, thus increasing the service business contribution, resistant to economic cycles, to the Dürr Group s sales. We anticipate further stimuli for growth due to a stronger focus on new customer business and a more thorough development on the supplier market, where we already enjoyed considerable gains in Expansion continued One emphasis of market cultivation in 2002 was placed on new automobile plants which our customers were building at low-cost locations as part of their global production and selling strategies. We continued our expansion in the growth market of Eastern Europe. At Volkswagen s facility in Poznań (Poland), we are now in charge not only of technical cleaning in the paint shop, but also of complete maintenance of outside production facilities. In the Czech Republic, Škoda placed an order with us to clean production areas at its Mladá Boleslav plant. Services business unit 31

36 Special know-how: Premier is expanding its range by adding sophisticated technical services. Business performance at production facilities in Latin American was similarly positive. After successfully restructuring our activities, we especially gained shares in the growing Mexican market. In Brazil, new customer business particularly benefited from our maintenance skills. In Asia, China is still the market for Services with the greatest growth potential. We also plan to position ourselves in Thailand with a joint venture organization. In the following years, market volume for production support services will grow substantially as Western automobile manufacturers set up new plants there. We expanded our good position in the core North American market through follow-up orders from existing customers and contracts with new customers. For example, Ford placed orders for two plants in the United States. A key factor in this order success was our convincing performance at the Camaçarí plant in Brazil, where Ford gave us its first order in We also expanded our strong position at the US plants of Japanese automobile manufacturers, for example with a long term full-service package for cleaning and maintenance at the Honda plant in Alabama. In Western Europe, Great Britain remained the most important market for Services in Here, we strengthened our lead not only with the operator model mentioned above, but also with new orders in spare parts management. Premier pursued its entry into the Benelux market by founding a new company in the Netherlands. At the end of 2002, we received our first package of orders from Mitsubishi s Dutch subsidiary, Nedcar, for cleaning and maintenance services at the Born facility, where Volvo and Mitsubishi models are produced. As part of its European expansion strategy, Premier is planning to expand its market position especially in France, but also in the intensely competitive German market. 32

37 Qualified employees: Premier relies on continuing programs of vocational and specialist training. Internal processes optimized Premier enhanced its profitability with a number of different programs and process adjustments in 2002, laying important groundwork for further growth. One emphasis was on activities in the United States. Here, we cut overhead and tightened up cost management at operating sites. We also pursued the Voice of the Customer program to foster dialogue with our customers, so that we can harmonize our range of services even better to our customers needs. To ensure uniform service quality worldwide for automobile manufacturers that operate globally, Premier developed a system to standardize its services. Services business unit 33

38 Absolutely clean

39 Ecoclean business unit Manufacturing residue such as metal shavings can cause engine and transmission failure under operating conditions. Thorough cleaning of all components is therefore an indispensable element of quality assurance in the automotive industry. Dürr Ecoclean builds innovative cleaning systems that reliably remove dirt even from the smallest drill holes. By combining different technologies, we set standards worldwide both for quality and cleaning costs per unit.

40 Ecoclean Holding our own in a tough market environment with innovative technology The Ecoclean business unit increased its market shares in fiscal 2002 despite a slight decline of incoming orders. We are making use of the economic slowdown to strengthen our profitability and expect to return to the growth path of past years once our markets recover. The basis for that will be our proximity to customers, orientation to quality, and ability to innovate as a partner for cleaning and automation concepts in engine and transmission production Amounts in m Total sales Total incoming orders EBITDA Employees at year s end 1,079 1,084 Because of capital spending freezes and project postponements in the USA, the volume of orders placed for cleaning and filtration systems declined by about one third in fiscal To strengthen our operating profitability against that background, we are improving our cost position by various means. Those include further product range standardization and optimized supply chain management. We are tapping cost-saving potential in the production process by utilizing the location advantages of our Czech plant and by means of a new center for the manufacture of the mechanical components at our facility in Loué (France). Added value through technological crossover concepts Despite declining capital spending and heightened competitive and price pressure under cyclical influence, we managed to increase our market shares further in fiscal One reason for that was the continuing consolidation process in the industry, which reduced the number of competitors in the regional markets. For another thing, the Ecoclean business unit successfully differentiated itself from smaller, locally operating suppliers primarily by the superior technology and performance of its products, but also through outstanding proximity to customers and high advisory and planning skills. To make added value possible for our customers in the form of maximum cleaning quality, environmental compatibility, and production efficiency, we are working systematically on developing sophisticated technological crossover concepts. That includes XINC, our innovative systems solution combining cleaning technology and coolant recycling. Already employed 36

41 Maximum cleanness: Crankshafts are deburred and cleaned during and after the manufacturing process. by numerous customers, this combination improves intermediate cleaning of workpieces by a multiple of ten and reduces capital expenditures and operating costs. Moreover, XINC systems can be located flexibly inside facilities at shop level as they require no foundations and therefore leave no holes in the concrete floor. In the framework of our innovation management, we have further increased the efficiency of Ecoclean cleaning systems. Our goal is the reliable removal of particles even on the scale of milligrams, that are generated in the machining of engine and transmission components. Moreover, we have been working on solutions to reduce the coolant quantities needed in workpiece machining by 30% to 40%. Large-scale orders from the automotive industry The Cleaning Systems Automotive product line managed to partly offset the weaker business trend in the USA thanks to a continuing good inflow of orders in Europe. We received large-scale orders there primarily from Audi and DaimlerChrysler. Within one of the most extensive orders in Ecoclean history, we supplied cleaning and filtration systems for the production of cylinder heads, crankcases, and crankshafts to the Audi plant in Györ (Hungary). DaimlerChrysler ordered a total of 28 systems for cleaning cylinder heads and blocks as well as camshafts and crankshafts for its German plants in Stuttgart, Kölleda, and Berlin. The Ford Group pressed ahead with its global deployment of standard production and cleaning technologies in 2002 and commissioned us to supply 25 cleaning machines for various plants. Flexible cleaning systems for industrial customers in the non-automotive industry In the Cleaning Systems Industrial product line, Dürr Ecoclean managed to maintain the previous year s sales level despite an overall decline of project volume. In industrial business, parts suppliers to the automotive industry are the most important customer group, followed by machinery builders. We fulfill the diverse requirements of the heterogeneous non-automotive sector with modular products that can be flexibly adapted to different types of workpiece. Ecoclean business unit 37

42 Dirt analysis: The careful study of drill holes and cavities of cleaned workpieces provides us with new knowledge for the optimization of our cleaning systems. Market successes were achieved in 2002 particularly by the newly launched, fully standardized Minio system, which employs non-halogenated hydrocarbons as solvents to clean components susceptible to corrosion. The system is completely closed and therefore operates absolutely emission-free. Automation technology: More flexibility in the manufacturing process The Automation product line registered stable business development in the USA, its principle market. The centerpiece was the completion of a large-scale order for General Motors in its engine factory in Tonawanda, New York (USA) where Dürr Ecoclean, acting as supplier and systems integrator, realized all the automation systems in addition to the cleaning and filtration technology. In Europe, we managed to further expand our market position as planned. For example, Dürr Ecoclean received its first automation systems order from Peugeot. For its cylinder head production plant in Trémery (France), we realized the entire floor conveyor technology as well as fully automated gantries for loading and unloading cleaning and machining equipment. We expanded our range of solutions in automation technology last year with specific aims in view. For example, we developed RoboLoop, a new gantry robot system with automated grippers. It enables maximum flexibility in loading and unloading machines, for example, through simultaneous handling of different workpieces. RoboLoop also offers additional possibilities to interlink machines variably, because this innovative system can transport workpieces around curves and is thus not restricted to conventional straight production lines. 38

43 Intelligent automation: Materials flow systems from Dürr Ecoclean for engine and transmission manufacture building. Coolant recycling: Positive development in Germany In the area of coolant recycling, demand declined in the well-established US market. On the other hand, we continued to grow in the newly developed German market. We managed to increase sales there significantly on the preceding year, albeit still from a low level. The main reason for that were orders for filtration systems in the framework of large-scale Ecoclean contracts from the automotive industry, on which we cooperated closely with other product lines of the Ecoclean business unit. Ecoclean business unit 39

44 Measuring Systems business unit The engine is the heart of an automobile. The development teams of automobile manufacturers and component suppliers are constantly working on future generations of power units. Their goal is more performance and driving comfort with lower fuel consumption and emissions. Dürr is an important partner in this innovation process. New engines are checked on our fully automated test stands with maximum precision and thus reach the stage of production readiness faster.

45 Highest precision

46 Measuring Systems The stage is set for improved earnings Incoming orders for the Measuring Systems business unit were down slightly from the previous year as a result of a considerably poorer investment climate in many industries and regions, and a very strong euro particularly at the end of the year. With a comprehensive restructuring plan, we were able to cut costs and improve our competitiveness Amounts in m Total sales Total incoming orders EBITDA Employees at year s end 3,046 3,224 Since the beginning of 2002, all of the Schenck Group s activities in measuring technology Development Test Systems (Schenck Pegasus), Balancing (Schenck RoTec) and Weighing/Feeding (Schenck Process) have been combined in the Measuring Systems business unit. Comprehensive restructuring improved competitiveness Capital investment was weaker in many of our customer industries and regions in 2002, not least as a result of the events of September 11, It was not until the second half of 2002 that we registered some improvement. The trend in Asia was positive, particularly in China. On the whole, incoming orders were down slightly from 2001, due also to currency exchange fluctuations. Intense competition and heavy pressure on margins continued to cause generally unsatisfactory earnings. For this reason, we implemented a broadly based restructuring plan for Schenck s measuring technology activities last year. The FoCus turnaround program included e.g. adjusting capacities, streamlining our product range, consolidating smaller locations, and improving asset management. We reduced our workforce by more than 300 employees, mostly in Germany, Great Britain and the USA. On the whole, Measuring Systems improved its cost structure considerably, lowered its break-even point and as a result of this became more stable when faced with economic fluctuations. Nevertheless, the result for the year 2002 was marked primarily by the one-time restructuring expense. We pursued a policy of targeted capacity expansion in the emerging Asian market. In China, in particular, the accessible market volume is growing fast, as there has been strong demand for Schenck measuring systems in developing new production capacities there. In 42

47 Vehicle development: Precision scales from Schenck are used to determine the coefficient of drag for new models. Higher productivity: Fully automatic balancing machines for electric armatures shorten cycle times. addition to strengthening our sales and marketing presence, we have also further expanded our manufacturing capacities in Asia, to make our production close to the market and costeffective. As part of our global manufacturing strategy, we are also using the advantages of our Asian locations to strengthen our competitiveness in North America and Europe. Development Test Systems: New automation system for engine testing The Development Test Systems product line (Schenck Pegasus) is one of the leading suppliers of testing and measuring systems for automotive development. One focus of our regional expansion last year was in Japan, Asia s largest automotive market. At the turn of the year from 2002 to 2003, we founded a new joint venture there between Schenck Pegasus GmbH and Tokyo Koki Seizosho Ltd., the testing systems specialist, and Horiba Ltd., the market leader in emissions testing systems. The stage-one objective of the joint venture operating under the name Schenck-TKS Test Systems Ltd., is to reinforce our sales and service network in Japan and to adapt our testing technology more efficiently to the specific demands of the Japanese market. This will then enable us to follow the global expansion strategies of our Japanese customers better in a second stage. At the SAE 2002 World Congress in Detroit, we unveiled our new STARS software platform for endurance testing, emissions testing and dynamic engine development tests. STARS is the first proprietary system developed by SRH Systems, the joint venture founded in 2001 between Schenck Pegasus, Horiba Ltd. and the British engine and transmission developer, Ricardo plc. That international collaboration between application specialists and software developers has enabled us to ensure that STARS meets all the needs of the automotive industry and can be used the world over. This automation system, which was used by well-known customers and partners immediately after it was launched on the market, also provides additional key advantages such as shorter development times thanks to simultaneous testing of engine and vehicle components, multi-site data analysis, and cost savings resulting from simple configuration and maintenance. We started a new technology trend in the area of wind tunnel systems as well. For a French automobile manufacturer, we developed the world s first wind tunnel balance with rolling road system and wheel drive units. This design enables a far more realistic simulation of the aerodynamic forces acting on a moving vehicle, including crosswind, particularly with respect to the underbody and tire areas. This is a key factor in optimizing the aerodynamics of new vehicles and reducing their fuel consumption. Measuring Systems business unit 43

48 Quality control: We have developed an innovative laser measuring system for fully assembled wheels. Balancing: High end systems boost market position Our Balancing product line (Schenck RoTec) was able to further expand its competitive position as technology and market leader in a field characterized by consolidations. Our global presence and strong expertise in providing high-quality balancing systems were an important basis for a generally positive development. With innovative, high end solutions, Schenck RoTec made a significant contribution to assuring quality and increasing productivity not only among automotive manufacturers and suppliers, our largest customer group accounting for 60% of sales, but also in other key industries such as the machinery sector, aerospace, the electrical equipment industry and the turbo machinery industry. We further enhanced and expanded our broad range of balancing and diagnostic systems in For balancing electric motor rotors in mass production, we launched a new generation of fully automatic rotary transfer balancing machines with far shorter cycle times, cutting balancing costs by up to 25% per piece. The CAB 850 digital measuring unit forms the core of the new product generation. In addition to carrying out measuring tasks, the CAB 850 also controls all internal processes, thus eliminating the additional costs of conventional SPS controls. For automobile manufacturers and just-in-time or supply-in-line-sequence (SILS) suppliers, we developed a system for the fully automated assembly, inflation and balancing of complete wheels. For the first time, we integrated a laser measuring station, which enables testing of up to 250 complete wheels per hour with maximum precision. The system uses two laser beams to scan the tread and sidewall of the tire for eccentricity or deformations and at the same time check the tire sits properly. Compared with conventional methods, the laser inspection allows ten times greater measuring accuracy a significant contribution to greater road safety. Weighing/Feeding: Focusing on modular design Our Weighing/Feeding product line (Schenck Process) is the only global supplier of hightech systems and components for weighing, feeding, screening and automation in industrial processes. In a fragmented market, we are among the top three suppliers worldwide. Against the background of the continuing economic slowdown, we experienced more intense competition and heavier pressure on margins in 2002 in our primary markets, the cement, steel, mining, chemical, plastics and logistics industries. To differentiate ourselves from our competitors, we are increasingly offering complete systems solutions for industrial processes in addition to providing individual components. Our focus is firmly on modular mechatronic solutions. This approach reduces the amount of engineering involved in each individual project, simplifies the integration of our systems into our customers overall processes and therefore increases cost-efficiency. 44

49 Optimized processes: Intelligent Schenck weighing and feeding systems contribute to more economical production in many industries. Together with an Austrian customer, we developed a plant concept that ensures the optimum feeding and mixing of different ingredients for cement production. It allows producers to mix a variety of cement types to given formulae, at a precisely defined quality. The plant incorporates our new MULTIDOS-H weighfeeder, which was specially designed for very heavy loads and large discharge cross-sections. We delivered four MULTIRAIL WheelScan diagnostic systems to the Spanish national railway, RENFE, for rail line maintenance and safety management. Each system has seven concrete weighing sleepers equipped with high-precision strain-gange weighbeams, which can precisely measure the axle and wheel loads of around 150 trains each day while the trains are moving at speeds of up to 160 km/h. A software tool analyzes the data and provides an information base that can be used for the status-oriented maintenance of the rail network. Each time a measurement is taken, each and every wheel of a rail vehicle is analyzed for possible out-of-round condition an essential tool for accident prevention. The diagnostic system reports any acute safety problems such as flat spots on the wheels within just 120 seconds. Measuring Systems business unit 45

50 Management report Economic environment World economy remains slow The global slowdown of growth continued in 2002, particularly under the influence of worldwide economic conditions and geopolitical risks. Plunging stock markets worldwide, the threat of a war in Iraq, and the world economy s heavy dependency on US business conditions and the US current account deficit were among the factors that exerted particularly strong effects. Additionally, the International Monetary Fund (IMF) cites risks posed by the interest rate policies of the leading central banks. Worldwide gross domestic product (GDP) grew 2.8% in The United States, hitherto the world economy s driving force, achieved growth of a bit over 2%. While Europe grew about 1%, Germany took last place in the European Union, with only 0.2%. Only certain regions in Asia notably South Korea and China had growth substantially above the figure for the world economy. The Japanese economy, which recovered appreciably at first in 2002, lost momentum again toward the end of the year. Stagnating automotive business and structural weakness Amid the slow overall economic growth, the automotive industry no more than matched its previous figures for sales volumes, at 57 million motor vehicles sold. The industry is particularly suffering from large excess capacity in vehicle production, excessive financing to promote sales, and painful pressure on margins. Yet automobile manufacturers continue to invest in up-to-date production systems which allow them to produce more flexibly and more efficiently amid intensifying competition worldwide. The trend toward niche vehicles and the increasing variety of models also ensure demand for high-performance production technologies. Furthermore, the mass manufacturers have been shifting production duties more and more extensively to their suppliers of parts and modules. As a result, demand for production systems will grow further amid this customer segment. In North America, the highest-volume market, vehicle sales volumes fluctuated significantly during 2002, but settled in around 16.7 million vehicles overall. Yet this level was achieved only through massive rebates, bonuses and financing promotions, and by filling up dealers inventories. Automotive sales in South America have been stagnating for years. In Brazil alone, manufacturers have built 22 new plants over the past six years, however only about 50% of the production capacity of 3.2 million vehicles can actually be sold. New vehicle registrations in Western Europe were down more than 3% in 2002, so that the number of vehicles sold was about 14.6 million by the year s end. Modest growth in Central and Eastern Europe was unable to compensate for the decline. Germany reported its fourth weak year in a row, with about 3.2 million cars sold. 46

51 Wide product range: Dürr offers solutions for production and testing at many stages of the automotive industry's value chain from vehicle development to final assembly. Asia, China and South Korea were the biggest growth markets. Nearly every automotive manufacturer is investing locally, even though sales volumes are still low in absolute terms. In Japan, by contrast, sales stagnated at roughly 4.5 million vehicles. However, Japanese automobile manufacturers profited from the weak yen and the associated higher import costs for competing products, and also from the market successes of Japanese cars abroad. Strategy A key supplier with potential for synergy In the past few years, Dürr has significantly strengthened its position as a key supplier to the automotive industry. Ongoing innovation and strategic acquisitions including Carl Schenck AG in Darmstadt (Germany) and Premier Manufacturing Support Services L.P. in Cincinnati, Ohio (USA) enabled us to expand substantially both our systems skills and our global presence. Our range extends through planning, implementation and financing, to servicing and operating installations. Today we supply solutions of uniform high quality for all aspects of flexible production systems all over the world especially to automobile manufacturers and suppliers, our primary customer group. Dürr is concentrating on making better use of the potential for synergy within its expanded corporate group, for its customers benefit for example, through worldwide product standards. This approach enables Dürr to offer solutions that are not only competitive, but meet ever rising expectations for quality, productivity and flexibility. Our state-of-the-art production systems permit substantial productivity increases in vehicle manufacturing, even as model variety expands and product life cycles decrease. Our clear orientation to the automotive industry and our excellent positioning in other important sectors give us prospects for sustained growth in both sales and earnings. Painting systems As the world s leading, globally based supplier of mass-production paint shops for automobile manufacturers, Dürr profits from the ongoing international trend toward placing large systems orders. At the same time, our technological leadership in the field of paint application equipment also gives us a strong market position in other growth sectors, including automotive supply, commercial vehicle manufacture and general industry branches such as aviation. Management report 47

52 Final assembly systems In automotive final assembly, Dürr has established itself promptly as one of the leading systems suppliers. Our strong market position is based on our success in the strategically crucial product business. We will continue to focus on automotive final assembly in the future, and expand our market position further. Dürr has the in-house resources to supply around 70% of the products and solutions for systems orders in final assembly. The result is significant advantages for our customers in terms of time, money and coordination. Manufacturing support services The automotive industry is continuing its trend toward outsourcing projects and processes that are not part of the core business. For that reason, we have further expanded our range of services in all aspects of automotive production. Today, apart from paint plant cleaning, it also includes such technical services as consulting, maintenance and facility management. We have been offering an increasing number of complete service packages. Cleaning technology for engine and transmission construction The dynamic evolution of engine and transmission technology reinforces our position for profitable growth. Dürr systems for workpiece cleaning, coolant recycling and automation make significant contributions toward producing new models of engines and transmissions with maximum quality and flexibility, and minimum environmental impact. We stand out from our competitors through our international presence, our marked orientation toward quality, and our innovative strength. New machine concepts offer our clients lower costs for both initial investment and operation. Apart from the product business, we are also expanding our position as a systems integrator for complete processing lines in engine and transmission manufacture drawing on our process and planning capabilities. Measuring technology In measuring technology, Dürr concentrates on key applications for balancing and diagnostics systems, for weighing and feeding equipment, and for test systems used in the development of new vehicles and automotive components. Our solutions stand out for their precision, innovation and standardized quality, and have been opening up opportunities for us in growth markets. The SRH Systems Ltd. joint venture gives us excellent know-how in testing equipment for automotive development. It serves us as a base for the development of standardized solutions that can be used worldwide. 48

53 Business developments Dürr prepares its consolidated financial statements under United States Generally Accepted Accounting Principles, or US-GAAP. The terms previous year or year before always refer to Material changes in comparison to last year s report are listed below: In conjunction with the transfer of a company within the consolidation group, receivables on orders and project-related accruals had to be restated. These restatements had the following impact for fiscal 2001: Year ended December 31, 2002, amounts in m Income before income taxes Net income As previously reported Restatements As restated All profit figures for fiscal 2001 incorporate this restatement, and are thus presented on a comparable basis. In the new Final Assembly Systems business unit (formerly Automotion), created at the beginning of 2002, Dürr pooled all its activities in automotive final assembly. The Development Test Systems product line (Schenck Pegasus) was assigned organizationally to the Measuring Systems business unit (formerly Automotion). The previous year s values for Final Assembly Systems and Measuring Systems are presented on a comparable basis. In compliance with Statement of Financial Accounting Standards (SFAS) No. 142, as of fiscal 2002 goodwill is no longer amortized. Instead an impairment test must be applied that is intended to reveal any loss of value in capitalized goodwill, and thus indicate any need for an impairment. No impairment was recognized in fiscal As of July 3, 2002, Dürr Automotion GmbH acquired DSEngineering GmbH and Schenck Somac GmbH (now Dürr Somac GmbH) from Carl Schenck AG and from one of Carl Schenck AG s subsidiaries respectively. Schenck Motorama Inc. sold its assets and liabilities to Dürr Production Systems Inc. as part of an asset deal. Management report 49

54 Incoming orders rise Consolidated incoming orders for the Dürr Group in 2002, at 2,346.7 million, were well above the previous year s figure ( 2,063.2 million). Here, several major orders profited from the automotive industry s long term capital spending strategies. Total incoming orders in the Paint Systems business unit again outperformed the previous year, at 1,286.8 million (previous year: 1,036.5 million). Particularly important contributions came here from major orders for painting systems for automobile manufacturers in Germany, France, China, and the United States. Besides the growing variety of models, another key factor behind the automotive industry s capital spending on new painting systems is the increase in expectations about productivity, quality and environmental impact in vehicle painting. The niche market in airplane painting also performed gratifyingly, as did business with suppliers to the automotive industry. Total incoming orders at the Final Assembly Systems business unit were well above the previous year s figure, at million (previous year: million). One emphasis here was large orders for complete final assembly lines in North America and Europe. The business unit also participated in the high level of incoming orders in Paint Systems, through orders for conveyor systems in paint shops. The Services business unit continued its steady growth course, generating aggregate incoming orders of million (previous year: million). It particularly attracted new orders from the United States, Brazil, Great Britain, the Netherlands, and Eastern Europe. Total incoming orders at the Ecoclean business unit were down slightly from 2001, to million (previous year: million). This was primarily a consequence of Total incoming orders by business units in 2002 Total: 2,524.0 million Consolidated incoming orders by regions in 2002 Total: 2,346.7 million Paint Systems 1,286.8 million (51.0%) Final Assembly Systems million (18.8%) Services million (5.7%) Germany million (24.8%) Rest of EU million (22.5%) Rest of Europe 93.0 million (4.0%) Ecoclean million (9.4%) Measuring Systems million (15.1%) North/Central America million (36.2%) South America 33.4 million (1.4%) Asia/Africa/Australia million (11.1%) Total incoming orders: Incoming orders of a business unit including intra-group orders from other business units 50

55 lower demand for industrial cleaning technology in the United States, as a result of the weak economy. Technological crossover concepts like the XINC systems solution met with a very good response on the market. It combines cleaning technology and coolant recycling to cut both operating expenses and investment costs. In the Measuring Systems business unit, total incoming orders were slightly below the previous year, at million (previous year: million). The critical factor here was the considerable deterioration of the investment climate in many industries and regions, and the very strong euro, especially toward the year s end. Developments in Asia, especially in China, were quite satisfactory. In regional terms, consolidated incoming orders for the Group broke down as follows: The figure rose in Europe to 1,204.0 million (previous year: 1,142.3 million). Large orders from the United States, as mentioned above, raised the figure for North and Central America from the previous year s million to million. New orders in South America, at 33.4 million, were below the previous year s 58.5 million. The figure in Asia, already high at million the year before, rose to million, thanks primarily to orders from China. Sales remain high Dürr had consolidated sales of 2,082.1 million in We were thus only 5.2% below the previous year s high level ( 2,196.2 million), despite the difficult overall economic environment. After adjustments on the order of roughly 60 million for the effects of foreign exchange rates, the decline in sales was 2.5%. Total sales by business units in 2002 Total: 2,210.7 million Consolidated sales by regions in 2002 Total: 2,082.1 million Paint Systems 1,054.3 million (47.7%) Final Assembly Systems million (18.3%) Services million (6.5%) Germany million (24.9%) Rest of EU million (28.5%) Rest of Europe 75.7 million (3.6%) Ecoclean million (10.0%) Measuring Systems million (17.5%) North/Central America million (27.2%) South America 70.6 million (3.4%) Asia/Africa/Australia million (12.4%) Management report 51

56 The Paint Systems business unit achieved total sales (including sales to other Group business units) of 1,054.3 million, maintaining the previous year s very high level ( 1,094.5 million). Total sales at the Final Assembly Systems business unit were down from million in 2001 to million. This was mostly due to customers delays in placing orders, which in turn meant that the orders were processed and revenues recognized later. New projects at the Services business unit increased aggregate sales to million (previous year: million). The Ecoclean business unit, at million, did not match the previous year s high level of million. The primary cause was a decline in demand for industrial cleaning technology in the United States. The Measuring Systems business unit billed million, down from the previous year s million, primarily because of declines in North America. Regionally, Europe remained the focal point for sales volume, with some 57% of consolidated Group sales (previous year: 53%), or 1,185.6 million (year before: 1,154.9 million). It was followed by North and Central America, with million (previous year: million). Sales in South America were down from the previous year s million to 70.6 million. Here, medium-sized orders declined from the year before. Major orders from China pushed up sales in Asia from the previous year s million to million in High orders on hand ensure capacity utilization Despite some unstable markets, Dürr had a very large consolidated catalog of orders on hand as of December 31, 2002, amounting to 1,381.4 million (previous year: 1,171.6 million). This backlog will ensure that capacity remains adequately utilized well into the current fiscal year. Total orders on hand by business units as of December 31, 2002 Total: 1,502.5 million Paint Systems million (58.2%) Final Assembly Systems million (20.1%) Services 59.6 million (4.0%) Ecoclean million (9.5%) Measuring Systems million (8.2%) 52

57 Restructuring and margin pressure take toll on earnings Earnings for the past fiscal year were severely affected by one-time charges. These charges, incurred mainly for German and American companies in the Group, totaled some 20 million. They were largely for structural adjustments such as combining locations, or adjusting to lower volumes. Additionally, differences in foreign exchange rates from 2001 adversely affected the Group s results when earnings from our subsidiaries and associated companies were converted. In particular, the strength of the euro against the US dollar contributed to a decline of Group earnings before taxes by around 3 million from the year before. Economic conditions and unstable markets pulled down earnings still further, especially in the high-margin products business. Thus EBITDA (earnings before interest expense, taxes, depreciation and amortization) receded from million to 89.1 million in The return on sales went down from 5.8% to 4.3%. EBITDA before restructuring charges was around 110 million. On this basis, Dürr generated a return on sales of 5.3%. The Group s income before income taxes and minority interests was 22.6 million in 2002 (previous year: 39.8 million). This means that Dürr achieved a ratio of pretax income to sales of 1.1%, compared to 1.8% the year before. After deducting income taxes and minority interests, the Group s net income for the year was 12.0 million (previous year: 20.0 million), and earnings per share were 0.84 (previous year: 1.40). Depreciation and amortization were 34.1 million (previous year: 44.2 million). Interest expenses, primarily for outside financing of acquisitions, were cut to 32.5 million (previous year: 43.9 million). The Paint Systems business unit generated pretax income of 23.3 million (previous year: 34.6 million). Restructuring charges in the Environmental Systems product line a consequence of a sharp drop in demand in the US were a particularly important factor here. Despite customer postponements on orders and restructuring charges in North America, pretax income at the Final Assembly Systems business unit rose to 10.0 million (previous year: 6.3 million). The Services business unit contributed 7.5 million to consolidated pretax income (previous year: 7.7 million). After adjustments for the effects of currency translation and intra-group transfers, the business unit s profitability at the operations level improved compared to the year before. The Ecoclean business unit, at 10.4 million, was unable to repeat the previous year s strong pretax income of 14.7 million, because of a severely recessionary US market and increasingly intense competition. Primarily because of restructuring charges, the Measuring Systems business unit reported a loss of 4.5 million (previous year s profit: 1.5 million). The net result for the Corporate Center was 24.1 million (previous year: 25.0 million), and mainly comprises headquarters costs, special projects, and financing expenses associated with corporate acquisitions. Earnings before taxes were down primarily in Germany and other European countries, but improved in North America. In Asia they were slightly below the previous year s figure, but still satisfactory. Management report 53

58 50 40 Earnings before taxes and EBITDA by business units in 2002 Amounts in m Paint Systems Final Assembly Systems Services Ecoclean Measuring Systems Corporate Center Earnings before taxes: 22.6 million EBITDA: 89.1 million Improved profitability a core objective After years of expansion, and in view of the continuing difficult economic environment, we are now directing all our efforts to improving our cost and earnings position. At the beginning of 2002 we already took more extensive steps to safeguard our profits. Targeted restructuring programs especially in the Measuring Systems business unit and the Environmental Systems product line lowered our cost base as planned. Besides reducing personnel and combining business locations, we also adjusted capacity. At the beginning of 2003, the Board of Management decided to step up the SPRINT earnings enhancement program. The program is now called and features more ambitious targets, deeper penetration throughout the Group, and faster implementation. It emphasizes cutting purchasing costs, optimizing processes in design, project engineering, and production, reducing order handling risks, and streamlining location and portfolio structures. We also aim to improve profits via lower capital tie-up, Group-wide liquidity management, and debt reduction. Statement of income The poor economy reduced consolidated sales by million from the year before, to 2,082.1 million. The gross margin was down 46.0 million in 2002, to million. Thus it declined from 19.5% of sales to 18.3%. The main reason for the drop was one-time expenditures, most of which are included in the cost of sales. 54

59 Despite higher restructuring expenses, selling, administrative and other operating expenses were down 14.5 million, to million. Aside from the elimination of goodwill amortization (previous year: 9.9 million), the savings on costs we pursued in 2002 also had a positive impact here. The net financial expense improved 10.5 million in 2002, to 25.2 million. This was the effect of a substantial reduction of debt thanks to successful Group-wide management of working capital and advance payments. Personnel expenses remained at the previous year s level. Financial position Total assets decrease Total assets declined to 1,790.3 million in fiscal 2002 (previous year: 1,835.7 million). Both fixed and non-fixed assets were down from the year before. Fixed assets amounted to million, equivalent to 34.1% of total assets (previous year: 35.2%). The decline in property, plant and equipment in 2002 resulted from a restrictive capital spending policy, and from currency translation effects. The largest item in fixed assets is still intangible assets, at million or 21.8% of total assets. This figure includes goodwill of million. The impairment review performed on this goodwill in the preparation of the annual financial statements indicated no need for valuation adjustments. Non-fixed assets amounted to 1,109.2 million, equivalent to 62.0% of total assets (previous year: 61.6%). The following changes resulted when the item for costs and estimated earnings on uncompleted contracts was reallocated from inventories to receivables: inventories were reduced 0.5% to million, and receivables and other assets were down 11.7% to million. Thus we have reaped the first results of our vigorous management of inventories and receivables. This effect was partially reversed by an increase of 80.8 million in cash and cash equivalents as of the reporting date, to million, as a consequence of payments that were received immediately before the end of the year, too late for them to be applied toward repaying debt. Management report 55

60 Financial position Fixed assets 34 % 15 % Shareholders equity Non-fixed assets 62 % 17% Accruals Deferred taxes and prepaid expenses 4 % 65 % 3% Liabilities Deferred taxes and deferred income Assets Liabilities and shareholders equity December 31, 2002 Fixed assets 35 % 16 % Shareholders equity Non-fixed assets 62 % 18% Accruals Deferred taxes and prepaid expenses 3 % 64 % Liabilities 2% Deferred taxes and deferred income Assets Liabilities and shareholders equity December 31, 2001 Equity, at million, declined by 30.7 million from the year before, in part because of less favorable foreign exchange rates. The resulting equity ratio is 14.7% (previous year: 16.0%). After adjustments for the effect of the reporting date on cash and cash equivalents, the equity ratio remained at the previous year s level. Out of the accruals of million, the main item, i.e million, was for postcontract costs, warranties and anticipated losses on pending transactions; 14.0 million were for tax accruals, and 53.1 million for pension accruals. Net debt cut by more than half Net cash provided by operating activities in 2002 was slightly above the previous year, at million (previous year million). Net cash used in investing activities declined, as planned, to 40.4 million, from the previous year s 44.8 million. Net cash used in financing activities, at 74.2 million, comprised mainly a reduction of short term bank debt for 11.1 million and scheduled redemption of long-term bank loans for 52.1 million. The Group s long term cash and cash equivalents increased, especially during the second half, 56

61 because of high levels of advance payments and also as a result of improved management of interest expenses, foreign currencies, and working capital. Following the previous year s good figure of million, they rose to million in As a consequence, net debt as of the end of fiscal 2002 was down from million to million. Acquisitions No acquisitions were made in In December 2002, we paid on schedule the installments of 40.0 million and US$ 10.0 million on loan financing for acquisitions from previous years. Capital expenditures The Dürr Group s capital expenditures, not including investments in operator models, amounted to 27.7 million for fiscal 2002 (previous year: 35.9 million). The Paint Systems business unit spent 10.3 million (previous year: 8.7 million), especially to expand painting robot production in Germany. Capital expenditures by the Final Assembly Systems business unit amounted to 2.8 million, after the previous year s 11.4 million. Here, it should be borne in mind that a facility expansion was carried out in the United States in fiscal The Services business unit spent 4.3 million (previous year: 3.2 million) to build up new, high-margin lines of business in technical services. This is an important prerequisite for continuing our growth course in the service business. The Ecoclean business unit invested 6.1 million (previous year: 2.8 million) to enhance productivity Capital expenditures by business units in 2002 Total: 27.7 million Paint Systems 10.3 million (37.2%) Final Assembly Systems 2.8 million (10.1%) Services 4.3 million (15.5%) Ecoclean 6.1 million (22.0%) Measuring Systems 4.2 million (15.2%) Not including investments in operator models Management report 57

62 Innovation management: User-oriented development work forms the basis for the market success of new products. at production facilities in Germany and France, and thus to safeguard operating profitability in the medium term. The Measuring Systems business unit reported capital expenditures of 4.2 million (previous year: 9.2 million). This was primarily for replacements and rationalization. Control and profit-and-loss transfer agreements In addition to the existing profit-and-loss transfer agreements, Dürr AG signed control agreements with the following companies in 2002: Dürr Automotion GmbH, Dürr Ecoclean GmbH, Dürr Ecoservice GmbH, Dürr Environmental GmbH and INTX AG. It also signed control and profit-and-loss transfer agreements with Dürr Ecoclean International GmbH, Dürr Beteiligung Alpha GmbH and Dürr International GmbH. Report on relationships with associated companies In conformity with Sec. 312 of the German Stock Corporation Law, the Board of Management of Dürr AG prepared a report on relationships with associated companies, in which it issued the following concluding declaration: "We declare that under the circumstances known to us at the time when transactions were carried out or a measure was implemented or refrained from, our company received fair and reasonable consideration in each transaction, and was not placed at a disadvantage by implementing or refraining from the measure in question." Development and innovation Expenses for research and development (R&D) shown in the income statement for fiscal 2002 are 35.3 million (previous year: 36.5 million). This represents 1.7% of the Group s sales. Allowing for additional project related R&D expenditures included under client orders, this again yields an R&D ratio of just above 6%. The objective of our R&D activities is to expand our position in the market and among the competition by continuously improving our range of products and services. In this regard, in 2002 we concentrated primarily on increasing the proportion of modular-design product families in our total portfolio. In product development, we aim to apply state-of-the-art technologies quickly to new solutions. The new version of our EMOS Electronic Monitoring and Operating System software, for example, uses Web browser techniques to provide a visual display of plant and equipment. Dürr is increasingly using virtual reality programs in process planning. 58

63 Through close cooperation among business units, and by using the same parts, modules and processes, we ensure that our individual solutions are perfectly coordinated with one another, so they can be fitted together more easily into complete systems. One goal of our innovation management is to establish new developments swiftly on the market. The Dürr Group maintains systematic contact with universities and research institutions, so we can develop approaches to innovative, user-oriented solutions jointly with outside specialists. Cooperation between Carl Schenck AG (Measuring Systems business unit) and Darmstadt Technical University in the field of mechatronics is just one example. Purchasing management Cutting costs through international cooperation As an engineering-oriented company with generally shallow production depth, Dürr does a great deal of purchasing. For that reason, purchasing management plays a key role in cutting costs Group-wide. The objective of purchasing is to maximize savings through volume, and to take advantage of all opportunities to cut the overall cost of purchases. That is why we signed additional framework agreements in 2002 some of them applicable worldwide with preferred suppliers, and why we continued pooling purchasing volumes across national borders, both within the business units and (where possible) at the Group level. One important aid here was the global orientation of our purchasing organization. Within the business units, there are regular international coordination efforts to organize pending orders to be placed and framework agreements to be signed. As a supplement, we intensified the dialogue between the specialty buyers for various business units so as to enable further synergy for example in procuring standard items. Transparency is further ensured by our Group-wide Purchasing Information Base on the corporate intranet, with information about framework agreements and the demands for various commodity groups. We have expanded the amount of purchasing we do in low-wage countries. As a member of the AEV general purchasing alliance, we benefit from the joint framework agreements of the participating companies. As part of our supplier management program, we seek longterm cooperation with efficient, quality-oriented partners. Management report 59

64 Rational processes To rationalize our purchasing processes, we increasingly count on electronic purchasing tools. Dürr uses the Internet to place calls for bids and identify new suppliers. We regularly conduct reverse auctions via the Web for all major locations including for international demands. This helps us to cut costs and speed up the procurement process. To obtain items on parts lists, we use electronic data transfer systems that can automatically trigger order placements. Employees Image as an attractive employer makes recruitment easier Dürr s attractions as an employer are enhanced by excellent opportunities for development and the chance to act on one s own responsibility within an international, team-oriented working environment. This has enabled us to recruit qualified staff, especially engineers, in a job market where supply still remains tight. We offer especially good career prospects in the medium and long term by means of assistance programs for young members of the next generation. As of December 31, 2002, the Dürr Group had a total staff of 12,902 (previous year: 12,675). Restructuring measures, especially in the Schenck Group, led to major adjustments in human resources. By contrast, the Services business unit created 545 additional positions for new projects. After adjustment for this business unit, the Dürr Group s staff as of December 31, 2002, was smaller by 318 employees ( 3.6%). Targeting prospective university graduates The Internet, job markets, and direct contacts with university-level institutions of learning are important tools in Dürr s staff and university marketing. The Corporate Management Development unit and representatives from our business units attend university job fairs and are in close contact with academic chairs of technical and business disciplines. We support up-and-coming young people with fellowships. Through internships, we offer secondary school and university students an opportunity to gather experience with everyday operations. Thanks to our good university contacts, in 2002 we filled vacancies with very promising recruits. 60

65 Teamwork and innovative thinking: Highly qualified employees are the reason for our technological leadership. Special management development program At the end of 2002, we adopted the Management Education Network, an international management development program. Through this training program, which includes six subject areas and practically oriented case studies, along with other material, we offer our executives an attractive opportunity for career development. International training In keeping with the importance of both our forward-looking human resources work and our social responsibility, we increased the number of trainees by 14 to 282. As part of their systematic basic training, our junior staff quickly learns to understand the requirements of globalization for example, through internships at locations in other countries. We oriented the Dürr continuing education program even more toward the business units needs in This qualification tool is well accepted, as is clear from the steadily high attendance at specialty seminars. One point of emphasis in our continuing education program is improving our staff s foreign language skills. In this, we pay due attention to the increasingly international nature of our business. Employees by business units as of December 31, 2002 Total: 12,902 Employees by regions as of December 31, 2002 Total: 12,902 Paint Systems 2,837 (22.0%) Final Assembly Systems 1,609 (12.5%) Services 4,272 (33.1%) Germany 4,859 (37.7%) Rest of EU 2,353 (18.2%) Rest of Europe 720 (5.6%) Measuring Systems 3,046 (23.6%) Corporate Center 59 (0.4%) Ecoclean 1,079 (8.4%) North/Central America 3,319 (25.7%) South America 1,003 (7.8%) Asia/Africa/Australia 648 (5.0%) Management report 61

66 Maximum environmental compatibility: Dürr develops emission-free painting processes jointly with the automobile industry. Environmental protection Maximum environmental compatibility is one of the most important features our clients expect from Dürr production systems. For that reason, conservation of resources and emission reduction remained one of the main criteria in product development for In painting technology, for example, Dürr expanded its range of products for solvent-free powder painting. Additionally, we help conserve paint even further with color change systems that reduce consumption, and new solutions to minimize overspray in the application process. The Ecoclean business unit supported its clients in environmental matters with seminars on new regulations on pollution control. Our in-house production generally has little environmental relevance. The emphasis at our production locations is on assembly processes, involving comparatively low energy consumption and little waste. We use environmental management systems to control existing risks and further improve environmental protection. During the year, our systems continued their successful course of obtaining certification. Today, virtually every location in the United States and Germany is environmentally certified to ISO Risk management The Dürr Group views risk management as managing both opportunities and threats, and as a central management task of the Board of Management and other senior management. We have developed our own tools to identify, assess, control and monitor risks for example, a risk management manual, a specific Dürr risk profile, and a risk structure sheet for each type of risk. We additionally ensure continuous, uniform risk management Groupwide through appropriately organized controlling and internal control systems. There are no apparent risks that might jeopardize the company s continuing existence. General economic development Dürr s business performance is influenced by the general economic situation, and especially by the situation in the automotive industry. For that reason, the Board of Management, Supervisory Board and other senior management watch economic developments in this sector with particular attention. Our reporting system is oriented toward detecting changes in our principal client group s investment behavior at an early stage, so that we can take early measures accordingly. 62

67 Competitors As a technology group, we counter the risks posed by the intense competition in our markets through innovative products and processes. As part of risk management, we compare our solutions with our competitors best efforts (benchmarking) with regard to both cost and the scope of performance. In this context, we work continuously on improving the price-performance ratio of our products and services. Clients and market Dürr is a key supplier for many of its clients. This close partnership enables us largely to anticipate the risks that result from changes in requirements, and to modify our products and services accordingly. Client and market development is additionally one of the focal points for the managing bodies of our Group and our companies. Close partnership with our clients and corporate management s dedication are reliable safeguards. Order handling and monitoring Profit-oriented order handling is of vital importance to Dürr s business success. Additionally, many of our orders are projects worth millions. They are technically complex, and are usually carried out over a matter of several months. To minimize the associated risks, we use proven tools, such as project management manuals and risk and opportunity checklists. Major projects are regularly analyzed by the Board of Management and other senior managers. Supplier relations The ongoing trend toward large projects has led to more extensive, more complex orders for Dürr as a general contractor. These go together with larger purchasing volume. We counter the resulting risks with systematic contract management and supplier evaluations. Dürr experts regularly monitor suppliers quality standards and their reliability in work on projects. We maintain long term business relationships, especially with our preferred suppliers of technically complex components or equipment, in order to reduce procurement risks. Currency fluctuations As a company operating worldwide, Dürr is exposed to foreign exchange risks. Since a large portion of our added value is generated in the US and Germany, we keep a sharp eye on the exchange rates between the dollar and the euro. We minimize risks from exchange rate fluctuations by designing, producing and purchasing locally, and by using financial derivatives and centralized foreign currency management. We hedge major goods and services transactions with forward exchange contracts, and smaller orders through macro-hedging. Management report 63

68 Information technology In information technology, which is so important for business, we use the latest security solutions to protect our infrastructure and data against intrusion. We further increased the availability and fail-safeness of our server and storage systems for business-critical applications. Legal dispute with Alstom An integral part of the acquisition of the Air Industries Group from Alstom in fiscal 2000 was an equity guarantee for the consolidated group, and a margin guarantee for selected orders. The two parties Alstom S.A. on one side, and Dürr AG and Dürr Systems GmbH on the other disagree on the actual amount of these guarantees. Since May 2001, arbitration proceedings have been pending before the International Chamber of Commerce (ICC) in Paris. No final decision has been issued. A decision against us might have an adverse impact on the Dürr Group s future earnings. Financing Acquisitions in previous years were financed with long term loans. The terms of these loans require us to maintain certain balance sheet and earnings ratios. If these ratios change, the lenders might modify the associated terms of the loans. Events subsequent to the reporting date No events occurred after the end of fiscal 2002 that were of material importance for the Dürr Group or that might alter the assessment of its financial position, results of operations and cash flows. 64

69 Outlook No economic improvement expected in 2003 Although important leading indicators make a turnaround in economic growth seem possible in 2003, there is little prospect of an improvement, especially in the euro region and Germany, given the geopolitical and economic risks. For the time being, we do not expect the economy to be strengthened by private consumption. The world economy is projected to grow 3.1% above 2002; this projection is based on an average oil price of around US$ 25 per barrel. Growth in the United States is supposed to be slightly higher than the year before, at 2.6%; similarly, the figure for Europe is expected to be roughly 1.6%. Germany, with projected 0.4% growth in GDP, will once again be among those bringing up the rear in the European Union. Growth well above 5% is expected only in Asia, especially in China and South Korea. The performance of the international automotive industry is a vital parameter for Dürr, since automobile manufacturers and their suppliers are the Group s largest client group by far, accounting for more than 80% of sales. Worldwide car sales volumes are expected to be stagnant again in Intensive financing efforts to boost sales led buyers to purchase new cars ahead of schedule in 2002; ongoing demand will lag as a result. Especially in Germany, this situation could well be exacerbated further by tax increases. However, the automotive industry s spending that is of relevance to Dürr depends on more than the short or medium term performance of the economy. Strategic investments, which arise for example when models are changed, tend to be independent of the current market situation. A growing variety of vehicles, ever shorter product life cycles, and outsourcing more added value toward automotive suppliers will generate a further need for capital expenditures, and thus growth potential for Dürr. Paint Systems: Profitability to expand The Paint Systems business unit s strategy is focused on building profitability and value. Here, the standardization of our products plays an important role. At the end of 2002, we profited from the award of many large projects. But these successes reduced the potential for new orders in Consequently, we expect incoming orders for 2003 to be lower than the year before. Management report 65

70 Simulation: New processes are modeled quickly and efficiently on the computer. Final Assembly Systems: Growth in the US The Final Assembly Systems business unit anticipates that both sales and incoming orders will be weaker in 2003, since we assume our clients will reduce capital spending. The further expansion of our position in the United States is especially important. The project situation here is quite promising. In Europe, we will pursue a cost-cutting program that will help us to improve our competitive position still further. Additionally, the business unit will expand its international presence while organizing its global processes more efficiently. Services: Sales expected to rise The Services business unit expects sales to increase in The prerequisites will be further structural measures in North America, further growth in new service segments, and the continuation of our global expansion. Although demand for operator models has receded, we certainly still foresee opportunities in this segment. One risk lies in the further weakening of the US dollar against the euro, since we generate a large share of our sales and earnings in the dollar region. Ecoclean: Product standardization a leading edge Engine and transmission technology continues to evolve dynamically. Hence, Ecoclean plans to expand its market lead in cleaning systems for power train component production, and to increase its market share. This year, we expect the competitive environment to consolidate further. By standardizing our products, we expect to gain additional competitive advantages and enhance the potential for cost cuts. Measuring Systems: Business in Asia to expand Building on the FoCus restructuring program inaugurated in 2002, we began our successor program at the start of We will especially expand our business in Asia, to make the most of the growth potential there. Outlook for the Group We do not expect any great impetus for the world economy in The business environment remains subject to many political imponderables. Accordingly, the capital spending behavior of our principal customer group the automotive industry will be guided by caution. Against this background, we have not assumed any improvement of general conditions in our planning for Because of the high order intake in 2002, the good level of orders on hand and the restructuring measures implemented last year, we expect our sales and earnings situation to stabilize in However, reliable forecasts are not possible at present in view of the economic and political uncertainties. We have started our program to continue and accelerate our successful cost-cutting measures. will primarily enhance our productivity, besides improving our processes and quality. Thus, we are fulfilling all the prerequisites to be able to profit above average on an economic upswing. 66

71 Risks to our outlook This outlook and other portions of the Annual Report include forward-looking statements about future developments. As is the case for any business activity conducted in a global environment, such forward-looking statements are always subject to uncertainty. Our information is based on the conviction and assumptions of the Board of Management of Dürr AG, as developed from the information currently available. However, the following factors may affect the success of our strategic and operating measures: geopolitical risks, changes in general economic conditions (especially a prolonged recession in Europe or North America), exchange rate fluctuations and changes in interest rates, new products launched by competitors, and a lack of customer acceptance for new Dürr products or services, including growing competitive pressure. Should any of these factors or other imponderable circumstances arise, or should the assumptions underlying the forward-looking statements prove incorrect, actual results may differ from those projected. Dürr AG undertakes no obligation to provide continuous updates of forward-looking statements and information. Such statements and information are based upon the circumstances as of the date of their publication. Stuttgart, April 2003 Dürr Aktiengesellschaft The Board of Management Management report 67

72 Annual financial statements Report of independent auditors Consolidated statements of income Consolidated balance sheets Consolidated statements of equity Consolidated statements of cash flows Notes to the consolidated financial statements

73 Report of independent auditors We have audited the consolidated financial statements of Dürr Aktiengesellschaft, Stuttgart, consisting of the balance sheet, statement of income, statement of cash flow, statement of shareholders equity and notes, for the fiscal year from January 1, 2002 to December 31, The Company corrected the consolidated financial statements for the prior year; we refer to the description under 1. Summary of significant accounting policies in the notes to the consolidated financial statements. The legal representatives of the Company are responsible for the preparation and content of the consolidated financial statements. Our responsibility is to assess based on our audits whether the consolidated financial statements are in line with accounting principles generally accepted in the United States (US-GAAP). We conducted our audit in accordance with the German Auditing Rules and in compliance with the general accepted standards of auditing prescribed by the German Institute of Certified Public Accountants (Institut der Wirtschaftsprüfer). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. In establishing the audit procedures we considered our knowledge about the Group s business operations, its economic and legal environment, and expectations of possible errors. In the course of the audit the documentation supporting the carrying amounts and disclosures in the consolidated financial statements is examined on a test basis. The audit also includes assessing the accounting principles used and significant estimates made by the legal representatives, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position, results of operations and cash flows of the Group for the fiscal year in accordance with US-GAAP. Our audit, which also extended to the group management report prepared by the Board of Management for the fiscal year from January 1, 2002 to December 31, 2002 did not give rise to any objections. In our opinion, the group management report accurately presents the situation of the Group and the risks arising from future developments. Furthermore, we can confirm that the consolidated financial statements and the group management report for the fiscal year from January 1, 2002 to December 31, 2002 fulfill the prerequisites under German law for exemption from the legal necessity of preparing consolidated financial statements and a group management report. We have audited the compliance of the group accounting with the 7th EC Directive, required for exemption from the duty to prepare group accounts in accordance with German commercial law, on the basis of the interpretation of German Accounting Standard No.1/1a. Stuttgart, April 7, 2003 Ernst & Young Deutsche Allgemeine Treuhand AG Wirtschaftsprüfungsgesellschaft Prof. Dr. Langenbucher Wirtschaftsprüfer Hochrein Wirtschaftsprüferin Report of independent auditors 69

74 Consolidated statements of income for Dürr Aktiengesellschaft, Stuttgart, for the years ended December 31, 2002 and 2001 Amounts in k Note Net sales 2,082,137 2,196,169 Cost of sales 1,700,957 1,768,970 Gross margin 381, ,199 Selling, administrative and other operating expenses (5) 326, ,505 Research and development expenses 35,335 36,524 Other operating income (6) 27,984 25,310 Income before financial income, income taxes and minority interests 47,790 75,480 Financial income (expense), net (7) 25,170 35,690 Income before income taxes and minority interests 22,620 39,790 Income taxes (8) 9,352 19,697 Income before minority interests 13,268 20,093 Minority interests 1, Net income 12,018 20,003 Basic and diluted earnings per share in The accompanying notes are an integral part of these consolidated financial statements. 70

75 Consolidated balance sheets for Dürr Aktiengesellschaft, Stuttgart, as of December 31, 2002 and 2001 Amounts in k Note Assets Fixed assets Goodwill (9) 355, ,547 Other intangible assets, net (9) 34,910 32,161 Property, plant and equipment, net (9) 198, ,912 Investments (10) 22,467 23, , ,093 Non-fixed assets Inventory, net (11) 107, ,847 Receivables and other assets, net (12) 771, ,092 Short-term investments 3 3 Cash and cash equivalents 230, ,881 1,109,158 1,130,823 Deferred taxes (8) 64,744 53,273 Prepaid expenses 5,312 5,495 Total assets 1,790,301 1,835,684 (thereof short-term 2002: 1,146,932 thousand; 2001: 1,180,727 thousand) Liabilities and shareholders equity Capital stock (13) 36,603 36,603 Additional paid-in capital (13) 159, ,048 Retained earnings (13) 55,586 59,296 Deferred compensation 44 Accumulated other comprehensive income (13) 11,107 38, , ,982 Minority interest 8,199 8,440 Accruals (15) 310, ,438 Liabilities (17) 1,152,425 1,157,528 Deferred taxes (8) 49,874 40,152 Deferred income 6,583 5,144 Total liabilities and shareholders equity 1,790,301 1,835,684 (thereof short-term 2002: 1,129,326 thousand; 2001: 1,079,309 thousand) The accompanying notes are an integral part of these consolidated financial statements. Consolidated financial statements for Dürr AG 71

76 Consolidated statements of equity for Dürr Aktiengesellschaft, Stuttgart, for the years ended December 31, 2002 and 2001 Accumulated other comprehensive income Amounts in k Minimum Additional Deferred pension Net Cumulative Compre- Capital paid-in Retained compen- liability derivative translation hensive stock capital earnings sation adjustment losses adjustment Total income Balance at January 1, , ,000 55, , ,999 Net income ,003 20,003 20,003 Other comprehensive income (loss) 40 6,784 4,448 2,296 2,296 Comprehensive income 17,707 Issuance of stock options Amortization of deferred compensation expense 4 4 Dividends 15,728 15,728 Balance at December 31, , ,048 59, ,784 44, ,982 Net income ,018 12,018 12,018 Other comprehensive income (loss) 74 4,668 22,230 26,972 26,972 Comprehensive income (loss) 14,954 Adjustment of deferred compensation Amortization of deferred compensation expense 4 4 Dividends 15,728 15,728 Balance at December 31, , ,000 55, ,452 22, ,296 The accompanying notes are an integral part of these consolidated financial statements. 72

77 Consolidated statements of cash flows for Dürr Aktiengesellschaft, Stuttgart, for the years ended December 31, 2002 and 2001 Amounts in k Net income 12,018 20,003 Minority interests 1, Dividends paid to minority shareholders Depreciation and amortization 34,066 44,162 Net gain on disposal of property, plant and equipment 180 1,716 Deferred income taxes Non-cash income from associated companies Non-cash (income) expenses from stock option program 4 4 Changes in operating assets and liabilities Inventory 12,134 73,807 Receivables 54, ,509 Short-term investments 1,770 Accruals ,896 Liabilities (other than bank) 108,843 5,996 Other assets and liabilities 1,264 1,062 Net cash provided by operating activities 198, ,444 Purchases of other intangible assets 12,693 25,006 Purchases of property, plant and equipment 29,402 40,424 Purchases of other investments 230 1,731 Acquisitions, net of cash acquired ,432 Proceeds from the disposal of fixed assets 2,832 7,930 Net cash used in investing activities 40,417 44,799 Net change in short-term debt 11,129 11,366 Proceeds from long-term debt to banks 4, ,586 Redemption of long-term debt to banks 52, ,252 Dividends paid 15,728 15,728 Net cash used in financing activities 74,237 40,028 Effect of exchange rates on cash and cash equivalents 3,179 2,493 Increase in cash and cash equivalents 80, ,124 Cash and cash equivalents At the beginning of the year 149,881 48,757 At the end of the year 230, ,881 Cash paid for: Interest 34,475 37,169 Income taxes 12,932 29,936 Capital lease obligations of 8,576 thousand were incurred in 2001 when the Group entered into a lease for new land and buildings. The accompanying notes are an integral part of these consolidated financial statements. Consolidated financial statements for Dürr AG 73

78 Notes to the consolidated financial statements for the year Summary of significant accounting policies The Company The legal predecessor of Dürr Aktiengesellschaft ( Dürr AG or the Company ) was Dürr Beteiligungs- GmbH headquartered in Stuttgart. The Company was transformed on November 4, 1989 into Dürr AG, located in Stuttgart. Dürr AG and its subsidiaries ( Dürr or the Group ) develop and manufacture paint finishing plants, automation and conveyor systems, environmental systems as well as industrial cleaning technology, and offer manufacturing support services. In addition, the performance spectrum of Dürr includes the manufacture of systems for process control procedures, the automation of production processes, and balancing of revolving parts and assemblies. Dürr s main customers are the major companies in the automobile industry worldwide. Changes in basis of presentation Effective January 1, 1999, Dürr adopted US Generally Accepted Accounting Principles (US-GAAP) as the basis of its group accounting. The consolidated financial statements of Dürr AG prepared in accordance with US-GAAP are in line with Directive 83/349/EG. On January 1, 2002, the Group adopted SFAS (Statement of Financial Accounting Standards) No. 142 Goodwill and Other Intangible Assets. For this reason, goodwill is no longer subject to scheduled amortization. The consolidated financial statements of Dürr AG have been prepared in thousands of euros, except for per share amounts. Certain prior year balances have been reclassified to conform with the Group s current year presentation of the business units. Corrections of errors in prior year financial statements In conjunction with the transfer of an entity within the consolidated group, the Group discovered that in 2001 project related receivables were overstated and accruals were understated and as a result income before income taxes was misstated. To correct this error, which had a negative effect on income before income taxes in the year ended December 31, 2001 of 7,506 thousand and on the net income of 4,734 thousand, adjustments were made to the corresponding items in the income statement and the balance sheet for The above restatements have the following effects on income before income taxes and minority interests, net income and earnings per share for the year ended December 31, Income before income taxes and minority Net Earnings interests income per share Description for the year ended December 31, 2001 in k in k in Income before restatement 47,296 24, Restatement of prior year at a subsidiary 7,506 4, Income after restatement 39,790 20,

79 Consolidation principles The consolidated financial statements include the accounts of Dürr AG and companies in which Dürr AG has a controlling financial interest. Investments in which the Company exercises significant influence, but which it does not control (generally 20 50% ownership interest) are accounted for using the equity method of accounting (associated companies). All significant intercompany accounts and transactions have been eliminated. All other investments have been accounted for at cost. The item Minority interest represents the separate ownership of seven (2001: eight) subsidiaries as listed in note 24 Schedule of investment holdings. Dürr has accounted for its acquisitions using the purchase method of accounting in accordance with SFAS No. 141 Business Combinations. As such, all acquired assets and liabilities assumed are recorded at fair value. The excess of the purchase price paid over the fair value of the assets acquired and liabilities assumed is capitalized as goodwill. Use of estimates The preparation of the consolidated financial statements pursuant to US-GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at balance sheet date, and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. Areas requiring significant estimates include percentage of completion accounting, the allowance for doubtful accounts, contingencies and other accruals. In addition, significant estimates and assumptions are required in the determination of the fair value of the Group s tangible and intangible long-lived assets, and to assess the impairment of goodwill for the separate business units. Foreign currency translation and transactions The functional currency of each of the subsidiaries of Dürr AG is the local currency of the country in which each subsidiary is located. The assets and liabilities of subsidiaries stated in any currency other than the euro are translated at the spot rate as of each balance sheet date. The statements of income are translated at the average annual rate for the period. Differences arising from the translation of assets and liabilities as compared to their translation in earlier periods and from the translation of income and expenses at average rates are included in Accumulated other comprehensive income. Transaction differences from foreign exchange rate fluctuations are included in the consolidated statement of income under other operating income and other operating expenses. The aggregate foreign currency exchange loss (2001: loss) recognized in the consolidated statement of income for the year ended December 31, 2002 was 311 thousand (2001: 142 thousand). Through its US subsidiaries, the Group holds net assets amounting to 93,698 thousand. These net assets were translated from US dollars into euros as of December 31, 2002, using an exchange rate of Consolidated financial statements for Dürr AG 75

80 Intangible assets and property, plant and equipment Intangible assets are goodwill and licenses, patents and similar rights. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Beginning on January 1, 2002, Dürr amortizes licenses, patents and similar rights with definite useful lives (between three and twenty years) on a straight-line basis over their prospective useful lives to their estimated residual value. Goodwill and other intangible assets with indefinite useful lives are not amortized but are reviewed annually for impairment. In conjunction with the first-time application of SFAS No. 142, the Group has reviewed the useful lives of other intangible assets and determined that it does not possess any other intangible assets which have an indefinite useful life. Dürr reviews the impairment of goodwill using a two-stage test at business unit level. In the first step, the fair value of the goodwill recorded by a business unit is compared to its book value. In the case that the fair value of the business unit is less than its book value, a second step is performed which compares the fair value of the business unit s goodwill to the book value of its goodwill. The fair value of the goodwill is defined as the difference between the fair value of the business unit and the fair value of all assets and liabilities of the business unit. If the fair value of the goodwill is lower than its book value, the difference is recorded as an impairment. As of December 31, 2002, goodwill of 355,538 thousand (2001: 375,547 thousand) was recognized in the accounts. The following summary shows the effects of amortization recognized on goodwill on the net income in thousands of euros and on the earnings per share (basic and diluted) in euros Net income As reported 12,018 20,003 Amortization of goodwill 9,864 Tax effect 1,358 Pro forma 12,018 28,509 Earnings per share (basic and diluted) As reported Amortization of goodwill 0.69 Tax effect 0.09 Pro forma

81 Goodwill recognized on associated companies is no longer amortized. However, associated companies are still reviewed for impairment in line with APB Opinion No. 18 The Equity Method of Accounting for Investments in Common Stock. Prior to January 1, 2002, intangible assets, including goodwill, were amortized on a straight-line basis over the shorter of the contractual term or their useful life. On January 1, 2001, Dürr extended the useful life of goodwill from 20 years to 40 years, as the Board of Management believes, due to the nature of the Group s business, 40 years to be more representative of the economic use. The effect of this change in estimate on income before income taxes and minority interests, net income and earnings per share was 10,236 thousand, 9,009 thousand, and 0.63 respectively for the year ended December 31, Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective classes of assets. The useful lives range from three to five years for computer hardware, five to ten years for furniture and fixtures, five to 15 years for machinery and equipment, and 15 to 50 years for buildings and improvements. Certain low-value items are expensed as incurred in the year of acquisition. This policy does not have a material effect on the consolidated financial statements. The costs of property, plant and equipment include major expenses and replacement parts that extend the useful life of the asset or increase its capacity and interest associated with significant capital additions. When assets are sold or retired, their cost and related accumulated depreciation and amortization are eliminated. Any gains or losses on disposition of such assets are recorded as other operating income or other operating expenses. Maintenance and small repairs are expensed when incurred. Pursuant to SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, the Group also records any impairment losses on the book value of long-lived assets if circumstances indicate that their value is permanently impaired. Impairment is determined by comparison of the book value of the respective assets with the undiscounted cash flows expected to be generated by the asset in future. If recognition of an impairment loss is considered necessary for such assets, the loss corresponds to the difference between the book value and lower fair value. Fair value is generally based on an estimate or the estimated discounted future cash flows expected from the assets. During the year ended December 31, 2002, Dürr did not record any impairment losses on long-lived assets. Moreover, SFAS No. 144 establishes accounting guidance for long-lived assets to be disposed of by sale consistent with the fundamental provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Consolidated financial statements for Dürr AG 77

82 Investments Investments in other unlisted companies in which Dürr does not exercise a significant influence and investments in associated companies are classified as investments. Shares in associated companies are accounted for using the equity method of accounting, while shares in other unlisted companies are accounted for at cost. Impairment losses are recorded if there has been anything other than a temporary decline in value. The securities reported under investments qualify as available for sale securities and are recognized at fair value as of the balance sheet date. Unrealized gains and losses on these securities are reported under Accumulated other comprehensive income taking into account any deferred taxes. There were no adjustments to Accumulated other comprehensive income in the years ended December 31, 2002 and 2001, as the unrealized changes in fair value were immaterial. Leases The companies in the Dürr Group are lessees of land, buildings, office and operating equipment. The majority of leases qualify as operating leases. When the leases meet the definition of capital leases, the leased asset is capitalized at acquisition cost (net present value of future minimum lease payments less costs incurred for insurance, maintenance and taxes, and any profit thereon). An obligation is also established at that time for the same amount. The upper limit for the capitalization of a leased asset and the liability is its fair value. The leased asset is depreciated over the shorter of the estimated useful life or the term of the lease. Interest is imputed on the obligation using the effective interest method over the term of the lease. Sale and lease-back No properties were sold within the scope of sale-and-lease-back agreements during the year ended December 31, During the year ended December 31, 2001, two properties were sold within sale-and-lease-back arrangements. In the first step, the land and building were sold to property management companies and in a second step leased back for further use. The realized gain of 1,453 thousand on the first transaction was deferred and is being recognized in earnings over the fifteen-year lease term. The second transaction did not result in a material gain. The leasebacks have been recorded as capital leases (see note 9 Intangible assets, net and property, plant and equipment, net ). Trade receivables Receivables are recognized at the lower of nominal value or realizable value. Dürr reviews its debtors on a regular basis in order to reduce its credit exposure. Separate debtor accounts are classified as overdue or delinquent based on management s judgment. The Group evaluates the collectability of its accounts receivable based on a combination of factors. In cases where Dürr is aware of circumstances that may impair a specific customer s ability to meet its financial obligations, Dürr records a specific allowance and thereby reduces the net recognized receivable to the amount the Group reasonably believes will be collected. For all other customers, the Group recognizes allowances for doubtful accounts based on the length of time they are overdue, the current business environment, and the Group s historical experience. Hedges against commercial and political risks inherent in receivables are governed by Group policy, if need be, by taking out domestic or foreign credit insurance coverage or involving commercial banks. 78

83 Cash and cash equivalents All short term liquid financial assets with an original term of up to 3 months are classified as cash and cash equivalents. Stock-based compensation SFAS No. 123 and SFAS No. 148 establish accounting and disclosure requirements using a fair valuebased method of accounting for stock-based employee compensation plans. In accordance with the provisions of SFAS No. 123, Dürr has elected to account for stock-based awards issued to employees using the intrinsic value method prescribed in APB Opinion No. 25. Accordingly, compensation cost for stock-based awards granted to employees is measured as the excess of the market value of the Company s stock on the measurement date over the amount the employee must pay to acquire the stock. For stock-based employee compensation awards in which all terms are fixed on the grant date, the intrinsic value of the option is measured on the basis of the estimated fair market value of the Company s common stock on that date. The intrinsic value of awards in which some of the award terms are dependent upon future events (a variable award ) is measured in each reporting period based on the estimated fair market value of the Company s stock at the end of each reporting period until all terms under the award become known. Compensation costs for either type of award are recognized over the employee s service period, which is generally equivalent to the vesting period of the award. Dürr accounted for its stock option plan, DISOP (Dürr International Stock Option Plan), as a variable plan and has recorded compensation costs of 4 thousand during the year ended December 31, 2002 (2001: 4 thousand). As the measurement date for DISOP has not yet been reached, future changes in fair market value of the Company s common shares will lead to future adjustments in the total compensation from this program. The weighted average fair value of options granted during the year ended December 31, 2001 cannot be reasonably estimated due to the dependence of the exercise price on future dividends. Other relevant assumptions for estimating the fair value using the Black-Scholes option pricing model are as follows: Expected term Years 4.5 Volatility in % Risk-free interest rate in % 4.70 Expected dividend yield in % 4.50 Consolidated financial statements for Dürr AG 79

84 Had compensation cost for these grants been determined consistent with SFAS No. 123, Accounting for Stock-Based Compensation, there would have been no change in the net income and earnings per share as the best estimate of fair value is the intrinsic value at December 31, 2001 and Please see note 14 Stock-based compensation for more detail on the Dürr International Stock Option Plan. Accruals/liabilities Accruals for pension obligations are calculated using the projected unit credit method. Current liabilities and short-term accruals are recorded based on reasonable estimates. Contingent liabilities are accrued when it is probable that a liability will be incurred and the amount can be reasonably estimated. Income taxes Dürr computes the income tax burden using the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Under this standard, deferred taxes are determined according to the difference between the US-GAAP carrying value in the balance sheet and the tax law values of assets and liabilities based on the enacted statutory tax rates for those years in which the difference is expected to be reversed. A valuation allowance is calculated on deferred tax assets if it is more likely than not that the tax benefit will lapse rather than be realized. Earnings per share If there are dilutive elements present, two different ratios for earnings per share must be disclosed. Basic earnings per share does not take account of dilutive effects; it is calculated by dividing net income by the weighted average number of common shares outstanding. In addition to the number of common shares outstanding, Earnings per share (diluted) recognizes shares that could be issued on the basis of outstanding options. The calculation is as follows (all amounts in thousands of euros, except per share amounts). No dilutive effects arose in the year ended December 31, Net income 12,018 20,003 Weighted average shares outstanding 14, ,298.2 Dilutive effect of assumed exercise of options Weighted average shares outstanding (diluted) 14, ,299.1 Basic earnings per share Diluted earnings per share Revenue recognition Dürr derives its revenues mainly from long-term construction contracts. Long-term construction contract revenues are recognized on the percentage-of-completion method based on costs incurred relative to total estimated costs. The completed-contract method is used for smaller contracts in which it has been determined that the financial position and results of operations are fairly presented. The completed-contract method is also used in situations where estimated costs to complete cannot be reliably determined. 80

85 Billings issued to customers and cash received from customers are not recorded as sales but deducted without effect on income from cost in excess of billings on uncompleted contracts or added to billings in excess of costs on uncompleted contracts. To the extent that costs have been incurred on contracts, but the amounts cannot be billed under the terms of the contracts, they are reported together with the corresponding proportion of income as cost and estimated earnings on uncompleted contracts. The invoicing of such amounts is dependent on certain contractually defined milestones being reached. Cost and estimated earnings includes directly allocable costs (cost of materials, labor cost, and cost of services provided by third parties) as well as the appropriate portion of production overheads and the estimated earnings. Also included in cost and estimated earnings on uncompleted contracts are amounts that Dürr seeks or will seek 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 customerrelated causes of unanticipated additional contract costs, claims and pending change orders. These amounts are recorded at their estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the costs in connection with these amounts. Pending change orders involve the use of estimates. Therefore, it is reasonably possible that revisions to the estimated recoverable amounts of recorded pending change orders will be made in the future. Any litigation costs incurred in this respect are expensed as incurred. The percentage-of-completion method is based on the use of estimates. Due to the uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will need to be subsequently revised. Such revisions to costs and income are recognized in the period in which the revisions are determined. Pending losses are recognized in the period in which they are first identified. Project revenues due to delays, specification or design faults caused by the customer, cancellations, pending changes in contract in terms of scope or price as well as other unforeseen costs are recognized when it is likely that these receivables will result in additional project revenues, and the amount can be reliably estimated. Such additional project revenues are shown in the amount in which project costs are incurred. Shipping costs are included in the cost of sales. Research and development expenses Research and development costs which are not incurred in connection with current long-term contracts are expensed as incurred. Advertising costs Advertising costs amounted to 5,101 thousand for the year ended December 31, 2002 (2001: 5,238 thousand) and were expensed as incurred. Concentrations of credit risk Sales of the Group s products are dependent on the economic conditions of the automotive industry. A significant portion of the Group s revenues is concentrated with a limited number of customers because the worldwide market for automobiles is dominated by a small number of large corporations. Consolidated financial statements for Dürr AG 81

86 New accounting provisions In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including (1) the timing of the liability recognition, (2) the initial measurement of the liability, (3) the allocation of asset retirement cost to expense, (4) the subsequent measurement of the liability, and (5) the financial statement disclosures. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 with early application encouraged. Dürr will adopt SFAS No. 143 on January 1, However, it does not anticipate that adoption of SFAS No. 143 will have a material impact on its net assets, its financial position or its results of operations. In April 2002, FASB released SFAS No. 145 Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement 13 and Technical Corrections. SFAS No. 145 requires that profits and losses arising from the extinguishment of debt be recognized in operating income and no longer be recognized as extraordinary items as previously required by SFAS No. 4, unless the profits and losses meet the criteria of extraordinary items defined by APB Opinion No. 30. In addition, SFAS No. 145 supplements SFAS No. 13 Accounting for leases to the extent that any inconsistencies in the recognition and measurement of sale-and-lease-back transactions and other contractual changes which have a similar commercial effect to sale and lease back transactions should be treated similarly. With regard to the rescission of SFAS No. 4, SFAS 145 must be applied to financial statements prepared after May 15, Where it refers to SFAS No. 13, SFAS No. 145 must be applied to any transactions occurring after May 15, The application of this statement does not have any impact on the consolidated financial statements of Dürr. Furthermore, in June 2002, FASB released SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities which rescinds Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that expenses resulting from the discontinuation or sale of operations must not be recorded in income until there is a legal commitment to the third party concerned and not on the date management decide on a plan for discontinuation or sale. These expenses include certain severance payments to employees, costs for terminating contracts prematurely, and expenses related to the merger or closure of operations or relocation of employees. SFAS No. 146 also requires that the liability is measured at fair value and adjusted to accommodate estimated future cash flows. The new standard is oriented to the future discontinuation or sale of operations occurring after December 31, The Group adopted SFAS No. 146 on January 1, In January 2003, FASB released Interpretation (FIN) No. 46 Consolidation of Variable Interest Entities an interpretation of ARB No. 51 which clarifies the application of the consolidation requirement for variable interest entities. After a preliminary review, Dürr found that FIN No. 46 does not have any significant impact on the consolidated financial statements. However, it is not possible to make a conclusive assessment of this issue at this stage owing to the complexity of the new standard. 82

87 2. Consolidation group The Group is comprised of Dürr Aktiengesellschaft and 104 foreign and domestic subsidiaries (2001: 104). The consolidated financial statements include seven companies in which minority interests are held (2001: eight). Eight entities (2001: eight) are consolidated using the equity method. Five entities (2001: five) are accounted for under the cost method of accounting. In the year ended December 31, 2002 four companies were included in the consolidated financial statements for the first time. Two entities have been removed from the consolidation group. Two companies were no longer included in the consolidation group, as they were merged with other entities in the consolidation group. On January 1, 2002, Schenck Pegasus GmbH, Darmstadt (Germany) was split into two independent entities allocated to the Measuring Systems business unit and Final Assembly Systems business unit respectively. As all companies were under the common control of Dürr AG, this split has been presented as a reorganization under common control. For this reason, the historical values for net assets, financial position and results of operations have been presented as if the pooling of interests method had been applied. During the year ended December 31, 2002, the Final Assembly Systems business unit established Dürr Production Systems Inc., Farmington, Michigan (USA), which is active in the fields of assembly technology, transmission checking technology and injector pumps checking technology as well as in wheel assembly systems. During the year ended December 31, 2002, the Services business unit founded Premier Manufacturing Support Services B.V. in Born (Netherlands), which offers services to accompany manufacturing processes such as plant maintenance and service. The financial statements of the consolidated companies are prepared as of December 31, Three associated companies have different balance sheet dates. In these cases, the most recent financial statements available as of December 31, 2001, March 31, 2002 and September 30, 2002 were considered. The time lag in reporting is consistent from period to period. Dürr does not anticipate any material impact on the net assets, financial position and results of operations as a result of the inclusion of more recent financial statements. Consolidated financial statements for Dürr AG 83

88 3. Mergers and acquisitions The following acquisitions were recognized in the year ended December 31, 2001 using the purchase method in accordance with APB Opinion No. 16 or SFAS No Assets and liabilities were accounted for at fair values. The excess of the purchase price over the fair value of net assets acquired was capitalized as goodwill. In the year ended December 31, 2002, Dürr stopped amortizing goodwill on a scheduled basis pursuant to SFAS No. 142 (up to December 31, 2001, Dürr amortized goodwill over a useful life of 40 years using the straight-line method). The consolidated statements of income contain the results of the acquired companies from the date of acquisition. Dürr AIS S.A.S. On February 17, 2000, Dürr acquired a 50% investment in Alstom Automation S.A., Courbevoie (France) (since belonging to Dürr AG, it was initially renamed Dürr AIS S.A. and then Dürr AIS S.A.S. in the year ended December 31, 2002) for a price of 7,000 thousand from Alstom S.A. The purpose of the company is the planning and erection of entire paint shops for automobile manufacturers and automotive suppliers. Dürr Systems GmbH, a 100% subsidiary of Dürr AG, exercised the option granted in the purchase agreement on April 30, 2001, and increased its ownership to 100% by purchasing the remaining 50% of Dürr AIS S.A.S for a purchase price of 7,000 thousand. The total purchase price including direct acquisition costs was 14,279 thousand. In the agreement underlying this transaction, the parties agreed on both an amount of guaranteed equity for Dürr AIS S.A.S. (including its subsidiaries) and a guaranteed gross margin for selected projects. The actual amount of these guarantees is disputed by the parties Alstom S.A. on the one hand and Dürr AG and Dürr Systems GmbH on the other. An arbitration hearing at the International Chamber of Commerce (ICC), Paris, has been pending since May The final decision has not yet been reached. As of December 31, 2002 and 2001, Dürr has recorded a receivable based on its claim against Alstom S.A. Depending on the result of arbitration, the receivable may have to be adjusted with an effect on income in further years. The valuation of the net assets acquired from Alstom S.A. as of April 30, 2001 has not yet been completed. The allocation of the purchase price to the purchased net assets was based on preliminary assumptions, which have yet to be finalized. The following table presents the sum of the value of the assets and liabilities acquired on February 17, 2000 accounted for through April 30, 2001 using the equity method of accounting for investments and the fair market value of the remaining 50% of the acquired assets and liabilities as of April 30, Amounts in k Goodwill 94,003 Other fixed assets 5,030 Non-fixed assets 216,244 Liabilities assumed 294,497 Deferred taxes 7,859 12,921 84

89 Dürr AIS GmbH Through its subsidiary Dürr Systems GmbH, Stuttgart (Germany), Dürr took over the development center for the RoDip painting process in Butzbach (Germany) from ABB Ltd. as of January 1, 2001 with an asset deal. This transaction resulted in 6,483 thousand goodwill. Dürr also acquired a worldwide license for RoDip from ABB Ltd. for US$ 18,000 thousand. Schenck Test Automation Ltd. On February 20, 2001, Dürr acquired Ricardo Test Automation Ltd., Worcester (Great Britain) through its subsidiary Schenck Pegasus GmbH, Darmstadt (Germany) in exchange for 5,497 thousand. Thereafter, the company was renamed Schenck Test Automation Ltd. The resulting goodwill amounted to 4,222 thousand. The company designs testing systems for power train development. Carl Schenck AG During the year ended December 31, 2002, Dürr AG acquired a further 6,488 (approximately 0.42%) no-par value shares of Carl Schenck AG for 924 thousand. As a result, Dürr held 95.95% of the shares in Carl Schenck AG as of December 31, During the year ended December 31, 2001, Dürr AG had acquired a further 31,501 (approximately 2.03%) no-par value shares of Carl Schenck AG for 5,347 thousand. Carl Schenck AG and its subsidiaries are a global leader in the manufacture of systems and plants for process control procedures, the automation of production processes and balancing of revolving parts and assemblies. Dürr Korea Inc. On July 12, 2001, Dürr purchased further shares in Shinhang Dürr Inc., Seoul (South Korea), for KRW 1.6 billion and renamed the company Dürr Korea Inc. As of December 31, 2001, Dürr AG held 90% of the shares. The company produces and sells industrial painting equipment. Pro forma amounts The following unaudited pro forma summarized statements for the year ended December 31, 2001 represent the Group as if Dürr AIS S.A.S. had already been acquired by companies of the Dürr Group at the beginning of the year ended December 31, No presentation of the effects of other acquisitions has been made on grounds of immateriality. The pro forma amounts for the year ended December 31, 2001 include amortization of the goodwill arising on acquisition and the interest expenses on acquisition debt. The pro forma amounts do not include any possible synergies from mergers and acquisitions. The pro forma information is provided for comparative purposes only, whereby the comparability is limited, as the structures of the acquired entities have changed since acquisition. The pro forma information does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined companies. Amounts in k (unaudited) 2001 Pro forma net sales 2,275,527 Pro forma income before income taxes and minority interests 35,505 Pro forma net income 15,015 Pro forma basic earnings per share in 1.05 Pro forma diluted earnings per share in 1.05 Consolidated financial statements for Dürr AG 85

90 4. Personnel expenses The following personnel costs are included in the expense positions of the consolidated statements of income: Amounts in k Wages and salaries 523, ,591 Social security contribution 123, , , ,404 Thereof pension costs 8,574 7, Selling, administrative and other operating expenses Selling, administrative and other operating expenses are comprised of the following: Amounts in k Selling expenses 152, ,599 Administrative expenses 136, ,722 Amortization of goodwill 9,864 Other operating expenses 37,643 21, , ,505 Other operating expenses mainly consist of write-downs of non-fixed assets of 3,064 thousand (2001: 2,307 thousand), foreign currency transaction losses of 6,435 thousand (2001: 3,263 thousand), and additions to other accruals of 686 thousand (2001: 528 thousand). 6. Other operating income Other operating income includes gains on disposal of property, plant and equipment of 395 thousand (2001: 1,966 thousand), income from rental and lease agreements of 343 thousand (2001: 1,211 thousand), income from the release of accruals of 6,326 thousand (2001: 5,804 thousand), income from the release of allowances of 775 thousand (2001: 546 thousand), and foreign currency transaction gains of 6,124 thousand (2001: 3,121 thousand). 7. Financial income (expense), net Amounts in k Investment result Other interest and similar income 6,498 8,018 Interest and similar expenses 32,450 43,885 Net interest 25,952 35,867 Financial income (expense), net 25,170 35,690 86

91 8. Income taxes Income before income taxes and minority interests amounts to 22,620 thousand (2001: 39,790 thousand). Income taxes can be broken down as follows: Amounts in k Current taxes Germany 2,544 3,458 Foreign 6,677 16,034 Deferred taxes Germany 4, Foreign 4, ,352 19,697 The income taxes include the domestic federal corporate income tax including a solidarity surcharge and trade taxes on income. Comparable taxes of foreign legal entities are also shown under this position. Due to the Tax Reduction Act passed in October 2000, the German corporate income tax rate was 25% plus a solidarity surcharge of 5.5% thereon for the year ended December 31, This results in a nominal tax rate of 26.4% on income. Including German trade tax, the total tax burden amounted to 39% (2001: 39%). Deferred taxes have been recognized as of December 31, 2001 at the German companies of the Dürr Group using a total tax rate of 39%. In September 2002, the law to assist flood victims was passed which provides for a one-off increase in the tax rate for fiscal 2003 from 25% to 26.5%. For this reason, as of December 31, 2002, a total tax rate of 40.2% is used related to differences reversing during the year ended December 31, 2003 and 39% for differences reversing in later periods. The following table shows the reconciliation of expected income taxes to the reported tax expense using the German corporate tax rate of 39%. Amounts in k Expected expense for income taxes 8,822 15,518 Foreign tax rate differential 4,809 1,618 Current taxes from prior years 3,646 Non-deductible expenses 2,356 3,063 Changes in valuation allowance on deferred tax assets 3,467 7,096 Non-deductible amortization of goodwill 2,489 Other Actual expense for income taxes 9,352 19,697 Consolidated financial statements for Dürr AG 87

92 Deferred tax assets and liabilities are summarized as follows: As of December 31, amounts in k Intangible assets 1,180 2,041 Property, plant and equipment and investments 2,832 1,645 Inventories and receivables 20,598 20,094 Tax loss carryforwards 31,719 22,179 Accruals 9,550 5,534 Liabilities 15,721 19,239 81,600 70,732 Valuation allowance 7,803 7,078 Deferred tax assets 73,797 63,654 Intangible assets 8,896 4,867 Property, plant and equipment and investments 25,642 23,650 Inventories and receivables 17,729 18,550 Accruals 5,870 3,029 Other Deferred tax liabilities 58,927 50,533 Net deferred tax assets 14,870 13,121 Deferred tax assets and liabilities are shown in the consolidated balance sheets as follows: Amounts in k Total > 1 year Total > 1 year Deferred tax assets 64,744 25,997 53,273 6,236 Deferred tax liabilities 49,874 25,136 40,152 22,670 Net deferred tax assets (liabilites) 14, ,121 16,434 As of December 31, 2002, the tax loss carryforwards amounted to 81,561 thousand (2001: 54,663 thousand), of which 66,776 thousand (2001: 43,263 thousand) do not expire. Loss carryforwards of 8,776 thousand (2001: 3,513 thousand) must be realized by 2007 at the latest and loss carryforwards of 6,009 (2001: 7,887 thousand) by 2012 at the latest. The Group also has German trade tax loss carryforwards totaling 65,028 thousand (2001: 42,793 thousand), which do not expire. As of December 31, 2002, deferred tax assets in the amount of 12,514 thousand (2001: 9,579 thousand) and deferred tax liabilities of 15,858 thousand (2001: 18,305 thousand) were recorded on consolidation entries. 88

93 9. Intangible assets, net and property, plant and equipment, net Details regarding the changes in the Group s intangible assets and property, plant and equipment are presented in the consolidated fixed assets schedule in note 23 Development of fixed assets. Amortization of licenses, patents and similar rights came to 6,666 thousand (2001: 5,851 thousand), and depreciation of property, plant and equipment to 27,347 thousand (2001: 28,391 thousand). No residual book values were assumed when calculating the amortization on licenses, patents, and similar rights acquired during the year ended December 31, The weighted average useful life for licenses, patents, and similar rights acquired in the year ended December 31, 2002 is 5.7 years. The estimated amortization of intangible assets for each of the next five years amounts to 6,877 thousand, 5,551 thousand, 4,517 thousand, 4,428 thousand, and 3,259 thousand. The following table presents the movements in goodwill by business unit for the Dürr Group as of December 31, 2000, 2001 and Amounts in k Final Paint Assembly Measuring Systems Systems Ecoclean Services Systems Dürr Group Book value at 12/31/ ,313 64,718 22,480 68,618 78, ,832 Foreign currency translation adjustment 2,174 1, ,068 1,087 5,828 Additions in ,347 4,694 3, ,751 Amortization in , ,885 3,229 9,864 Book value at 12/31/ ,576 69,843 22,056 67,801 80, ,547 Foreign currency translation adjustment 2,986 3,145 3,223 10,020 1,798 21,172 Adoption of SFAS No Additions in Book value at 12/31/ ,590 66,896 18,833 57,781 79, ,538 Four (2001: four) buildings were capitalized as capital leases. Dürr is not legal proprietor of these buildings. The depreciation expense recorded on these buildings is included in the depreciation of property, plant and equipment, net. The following table shows the acquisition cost and accumulated depreciation for these buildings reported under property, plant and equipment, net. As of December 31, amounts in k Historical cost 20,078 20,518 Accumulated depreciation 6,512 5,362 Net book value 13,566 15,156 Consolidated financial statements for Dürr AG 89

94 10. Investments Associated companies are listed in note 24 Schedule of investment holdings, including the ownership percentage in capital stock, shareholders equity and net sales. 5,760 thousand (2001: 5,760 thousand) of goodwill relating to investments in associated companies is included in investments. In the year ended December 31, 2002, no amortization was recorded on this goodwill (2001: 145 thousand). 11. Inventory, net Inventory is comprised of the following: As of December 31, amounts in k Raw materials and manufacturing supplies 51,090 62,647 Finished goods 6,124 5,635 Prepayments to suppliers 58,932 49,060 Reserve for obsolescence 8,801 9, , ,847 Raw materials and manufacturing supplies and finished goods are stated at the lower of cost or market as of balance sheet date. Raw materials and manufacturing supplies of 33,748 thousand (2001: 38,969 thousand) are recognized at average cost and 8,449 thousand (2001: 13,118 thousand) using the FIFO ( First In, First Out ) method. 12. Receivables and other assets, net Receivables and other assets, net are comprised of the following: As of December 31, amounts in k Trade receivables, net 450, ,221 Trade receivables from associated companies 5,618 6,140 Cost and estimated earnings in excess of billings 231, ,833 Other assets 83,422 83, , ,092 The majority of the Group s trade receivables, net are to automobile manufacturers worldwide. Generally, these receivables are not secured by bank guaranties or other collateral. The receivables for the year ended December 31, 2002 include valuation allowances for doubtful debts of 13,712 thousand (2001: 11,030 thousand). As of December 31, 2002, 49.4% (2001: 45.9%) of the trade receivables, net were due from six (2001: four) customers. Cost and estimated earnings on uncompleted contracts The following table provides a summary of cost and estimated earnings and the related invoiced amounts for all projects. As of December 31, amounts in k Cost and estimated earnings 378, ,176 Less billings 573, , ,854 36,472 90

95 These amounts are offset on a project-by-project basis and are included in either receivables or liabilities (see note 17 Liabilities ). As of December 31, amounts in k Cost and estimated earnings in excess of billings 231, ,833 Billings in excess of cost and estimated earnings 426, , ,854 36,472 Other assets mainly consist of tax receivables, amounts due from suppliers, receivables from employees, and indemnification receivables. 764,818 thousand (2001: 870,464 thousand) of the receivables and other assets, net are due within one year. 13. Shareholders equity Capital stock As of December 31, 2002, the capital stock was 36,603 thousand and divided into 14,298,200 common shares, issued to bearer. Each share represents 2.56 of the capital stock. Authorized capital (Dürr AG) By resolution of the annual shareholders meeting on May 31, 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 voting common stock or nonvoting preferred stock, each representing 2.56 of capital stock, in exchange for cash. Conditional capital (Dürr AG) Furthermore, on May 30, 2001, the shareholders authorized the Board of Management, with the approval of the Supervisory Board, to increase capital stock by a total of up to 10,240 thousand through the issuance of up to 4 million shares of common stock or preferred stock, each representing 2.56 (conditional capital I) of capital stock. 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 up to 15 years. The authorization is granted through May 30, In conjunction with the Dürr International Stock Option Plan, the Board of Management is further authorized to increase capital stock 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. Dividends The amount of dividends available for distribution to shareholders is regulated by German Stock Corporation Law (Aktiengesetz), and is based upon the income of Dürr AG as reported in its statutory financial statements prepared in accordance with German GAAP (HGB). Dürr AG management will propose to the annual shareholders meeting a distribution of 11,439 thousand ( 0.80 per share) of the 2002 income of Dürr AG as a dividend to the shareholders and 5,608 thousand be carried forward. Consolidated financial statements for Dürr AG 91

96 Accumulated other comprehensive income The changes in the components of other comprehensive income (loss) for the year ended December 31, 2002 and the related tax effects are as follows: Amounts in k Pretax Tax effects Net Pretax Tax effects Net Net losses on derivatives hedging variability of cash flows Unrealized derivative losses 14,448 5,729 8,719 12,743 4,970 7,773 Reclassification adjustments for losses included in net income 6,662 2,611 4,051 1, Net derivative losses 7,786 3,118 4,668 11,122 4,338 6,784 Foreign currency translation adjustment 22,230 22,230 4,448 4,448 Additional minimum pension liability Other comprehensive loss 30,137 3,165 26,972 6,608 4,312 2, Stock-based compensation Dürr International Stock Option Plan (DISOP) By resolution dated May 30, 2001, the annual shareholders meeting authorized the Board of Management of Dürr AG to establish and implement a stock option plan. Under this plan, the Company is authorized to issue 1 million shares. Out of this resolution, options were granted to managers of the Company and some affiliated companies (the participants). The option entitles the participants to subscribe for one ordinary share in the Company at a defined exercise price. The defined exercise price is the average closing price ( 23.75) of the shares in Dürr AG on the XETRA of the Frankfurt Stock Exchange on the 10 trading days immediately preceding the grant date, reduced by the aggregate value of dividends per share between the grant date and when the shares are exercised. In order to participate in the plan, the managers invested in the Company s shares. The participants have been granted five options for every two purchased shares. The option will lapse on the earlier of the fifth anniversary of the grant date or when the participant ceases to be employed by the Company or any of its affiliated companies. The option may only be exercised after the expiration of a two year waiting period, and if one of the defined performance targets has been met. The defined performance targets are as follows: 1. Outperformance with regard to the CDAX-Machinery (stock exchange index) between the grant date and the expiry of the waiting period. Outperformance is given when the increase of the Dürr AG share from the beginning to the end of the defined period is higher than the respective increase of the index. 92

97 2. Average increase of 10% of the earnings per share (EPS) in the period beginning at the end of the last fiscal year before the grant date and ending at the end of the last fiscal year before the waiting period expires. The options can only be exercised during the exercise window of 15 German banking days following the publication of the quarterly reports or the annual financial statements by the Board of Management. Dürr did not issue any further options in terms of the stock option program in the year ended December 31, 2002 to participants (2001: 106,195; grant date: November 1, 2001). During the year ended December 31, 2002, 11,400 options were forfeited. The following table summarizes the status of the Group s stock options as of December 31, As of December Outstanding options Number 94, ,195 Weighted average remaining life Years Weighted average exercise price in Exercisable options Number Weighted average exercise price in 15. Accruals Accruals are summarized as follows: As of December 31, amounts in k Pensions 53,142 51,692 Taxes 13,990 20,063 Other accruals 243, , , ,438 Thereof current 241, ,153 Other accruals are mainly comprised of post-contract costs, anticipated losses on transactions, warranties, legal costs and personnel accruals. 16. Pensions and other postemployment benefits Pension entitlements have been granted to the members of the Board of Management of Dürr AG and the members of the Board of Management and general managers of German subsidiaries based on salary and years of service with the Group. Workers who were employed at the German locations in Filderstadt and Wyhlen at the time their companies were acquired were entitled to pension benefits. The pensions are based on years of service. The payments foreseen by the pension plans are calculated on fixed amounts plus an element that is Consolidated financial statements for Dürr AG 93

98 dependent on years of service. In addition, the pension benefits available to the employees of the domestic Dürr subsidiaries include a life insurance program (BZV) of 593 thousand in line with the tariff group. The valuation of German pension obligations uses the 1998 Heubeck mortality tables. The US subsidiaries of Dürr have pension plans covering all non-union employees at these subsidiaries. The plan provides benefits based on a career average earnings formula. The US subsidiaries contribute to pension funds for union employees. The pension expenses for these employees during the year ended December 31, 2002 amounted to approximately 923 thousand (2001: 715 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. The Group s contribution expense during the year ended December 31, 2002 was approximately 2,165 thousand (2001: 1,080 thousand). The following tables present further information on these plans: As of December 31, amounts in k Changes in projected benefit obligation Projected benefit obligation at beginning of year 73,578 62,074 Foreign currency exchange rate differences 3, Business combinations 6,277 Service cost 3,609 4,192 Interest cost 4,220 4,109 Actuarial gains or losses 5, Benefits paid 4,214 2,793 Other Projected benefit obligation at end of year 68,330 73,578 As of December 31, amounts in k Change in plan assets Fair value of plan assets at beginning of year 20,908 19,124 Foreign currency exchange rate differences 2, Business combinations 451 Actual return on plan assets Employer contributions 1,270 1,101 Benefits paid 1, Fair value of plan assets at end of year 18,173 20,908 94

99 As of December 31, amounts in k Funded status* 50,157 52,670 Unrecognized actuarial net gains (losses) 2,148 1,444 Unrecognized prior service costs 934 1,144 Other 351 Net amount recognized 51,020 50,082 * Difference between the projected benefit obligation and the fund s assets For plans which have unfunded accumulated benefit obligations in excess of plan assets at the end of the period, the accumulated benefit obligation is 48,156 thousand and the fair value of plan assets is 461 thousand. The net amount recognized is in the following balance sheet captions: As of December 31, amounts in k Intangible assets 1, Prepaid expenses Other comprehensive income Pension accruals 53,142 51,692 Net amount recognized 51,020 50,082 Components of net periodic pension costs were as follows: Amounts in k Service cost 3,609 4,192 Interest cost 4,220 4,109 Expected return on plan assets 1,575 1,547 Amortization of unrecognized items Other Net periodic pension cost 6,544 7,052 The following averages were used to calculate pension commitments: In % Weighted average assumptions Discount rate Expected long term return on plan assets Rate of compensation increase Consolidated financial statements for Dürr AG 95

100 17. Liabilities Liabilities consist of the following: Total Of which become due Amounts in k < 1 year 1 < x < 5 years > 5 years Liabilities to banks 353, , ,548 5,428 (2001) (439,639) (151,949) (133,071) (154,619) Billings in excess of cost and estimated earnings 426, ,880 14,264 (2001) (298,305) (242,885) (55,420) ( ) Accounts payable 222, , (2001) (267,809) (267,755) (54) ( ) Payables to associated companies 6,086 6,086 (2001) (3,051) (3,051) ( ) ( ) Other liabilities 143, ,651 37,398 5,464 (2001) (148,724) (126,890) (14,607) (7,227) December 31, ,152, , ,287 10,892 (December 31, 2001) (1,157,528) (792,530) (203,152) (161,846) Liabilities to banks In the year ended December 31, 2001, Dürr secured a term loan ( syndicated loan ) with Deutsche Bank AG, Landesbank Baden-Württemberg, Deutsche Bank Luxembourg S.A. and other banks of 200,000 thousand and US$ 50,000 thousand. As of December 31, 2002, 100,000 thousand (2001: 140,000 thousand) and US$ 40,000 thousand (US$ 50,000 thousand) were outstanding. Variable interest based on EURIBOR and LIBOR is payable quarterly or on demand. Further, Dürr has secured a revolving credit facility with Deutsche Bank AG, Landesbank Baden- Württemberg, Deutsche Bank Luxembourg S.A. and other banks in the amount of US$ 50,000 thousand in The credit facility is payable no later than As of December 31, 2002, US$ 50,000 thousand (2001: US$ 35,000 thousand) were outstanding. Variable interest based on EURIBOR and LIBOR is payable quarterly or on demand. The loan and revolving line of credit are secured by pledges of shares in subsidiaries with net assets of 144,404 thousand (2001: 125,687 thousand). The agreements with the consortium of banks contain certain covenants which require the Group to maintain financial ratios at the end of each calendar quarter. If a non-compliance event should occur, the consortium of banks could demand repayment with a two-thirds majority. As of December 31, 2002, all financial ratios had been maintained. At December 31, 2002, Dürr had lines of credit at various banks totaling 999,590 thousand (2001: 1,107,057 thousand). Under the credit arrangements, the Group has the option to borrow amounts at various interest rates. Use of the credit lines is unrestricted, except for 50,000 thousand (2001: 50,000 thousand) which is to be used for acquisitions. 96

101 Aggregate amounts of liabilities to banks maturing during the next five years and thereafter are as follows: Amounts in k Thereafter Liabilities to banks 114,798 22,582 27, ,197 50,544 5,428 All lines of credit can be summarized as follows: As of December 31, amounts in k 2002 Total credit lines available to the Group 999,590 Drawings on lines of credit 353,774 Thereof due within one year 114,798 Thereof due after one year 238, ,746 thousand (2001: 199,534 thousand) of liabilities to banks are payable in US dollars and 5,582 thousand (2001: 14,954 thousand) in pounds sterling. The remaining amounts are generally payable in euros. Loans of 17,838 thousand (2001: 19,048 thousand) are secured by mortgages. Total interest costs for the period amounted to 32,450 thousand (2001: 44,029 thousand), none of which were capitalized (2001: 144 thousand). The weighted average interest rate for short-term liabilities to banks as of December 31, 2002 was 4.19% (2001: 5.10%). In addition to the syndicated loan, Dürr took out a number of loans from various banks. These loans have terms of between one and 18 years, are charged interest once every three or six months (between 3.75% and 6.72% p.a. or the three-month or six-month EURIBOR plus 0.60% / 0.50% respectively) and some are secured by liens on land. Other liabilities Other liabilities primarily contain social security liabilities of 16,165 thousand (2001: 15,153 thousand), tax liabilities of 37,954 thousand (2001: 37,205 thousand), obligations under capital leases of 12,861 thousand (2001: 13,161 thousand), and derivative financial instruments of 27,750 thousand (2001: 19,508 thousand). Consolidated financial statements for Dürr AG 97

102 18. Segment information The Dürr Group is comprised of a strategic management holding and five business units (2001: five), differentiated by products and services. A new business unit, Final Assembly Systems, has been created out of the Automotion business unit reported in the year ended December 31, The business units have global responsibility for their products and results. The Dürr Group is made up of the following business units: Paint Systems The Paint Systems business unit plans and manufactures products and systems for large-scale production line painting for automotive producers and suppliers. Final Assembly Systems The Final Assembly Systems business unit formerly Automotion was established at the beginning of 2002 and organizationally bundles the activities of the Dürr Group as a provider of products and systems for the final assembly of automobiles. The activities of the Development Test Systems product line, formerly allocated to the Automotion business unit until the end of 2001, have been carried under the Measuring Systems business unit since January 1, Certain prior year amounts have been restated, corresponding to the new organizational structure. Services The Services business unit offers manufacturing support services such as plant maintenance for the global automotive industry. Ecoclean The Ecoclean business unit is a specialist for integrated systems for cleaning parts and coolant recycling as well as automation technology used to interlink processes. Measuring Systems The Measuring Systems business unit organizationally bundles the measurement technology activities of the Schenck Group. It comprises the product lines: Balancing (balancing and diagnostic systems), Weighing/Feeding (measuring and process systems) and, since the beginning of 2002, Development Test Systems (testing systems for vehicle development). Development Test Systems was allocated to the former Automotion business unit until the end of Schenck Fertigungs & Service GmbH is the main supplier of components and services for all other divisions of the Schenck Group. Certain prior year amounts have been restated, corresponding to the new organizational structure. Corporate Center comprises other fully consolidated companies. The principles underlying the Group s management reporting and controlling are the same as those in the consolidated financial statements according to US-GAAP. The Group measures the performance of its business units by income before taxes in accordance with the disclosure in the consolidated statements of income. Revenues related to transactions between the business units are generally recorded at values that approximate the prices that would be offered to independent third parties. Revenues are allocated to regions generally based on the location of the customer. Business unit assets and long-lived assets are allocated on the basis of the location of the subsidiary reporting these assets. 98

103 In the following tables, disclosures are made on the business units for the years ended December 31, 2002 and Amounts in k Final Paint Assembly Measuring Corporate Systems Systems Services Ecoclean Systems Center Dürr Group 2002 Revenues with external customers 1,044, , , , ,112 2,082,137 Revenues with other business units 10,057 98, ,685 7, ,602* Total revenues 1,054, , , , ,889 2,210,739 Income before income taxes 23,305 10,001 7,488 10,384 4,527 24,031 22,620 Business unit assets 675, , , , , ,833 1,790,301 Capital expenditures 12,014 2,761 4,340 6,085 4, ,402 Depreciation and amortization 12,763 4,483 3,287 3,154 9, ,066 Employees as of Dec. 31, ,837 1,609 4,272 1,079 3, , Revenues with external customers 1,068, , , , ,624 2,196,169 Revenues with other business units 25,901 99, ,353 14, ,800* Total revenues 1,094, , , , ,932 2,359,969 Income before income taxes 34,607 6,343 7,686 14,665 1,452 24,963 39,790 Business unit assets 760, , , , ,876 43,833 1,835,684 Capital expenditures 10,539 11,462 5,848 2,823 9, ,424 Depreciation and amortization 16,362 5,142 3,071 4,237 10,680 4,670 44,162 Employees as of Dec. 31, ,952 1,631 3,727 1,084 3, ,675 * These sales were eliminated in the Group Sales with third parties and long-lived assets break down by region as follows: Amounts in k Other North/ Asia/ Other EU European Central South Africa/ Germany countries countries America America Australia Dürr Group Revenues with external customers , ,457 75, ,014 70, ,945 2,082, , , , , , ,232 2,196,169 Long-lived assets , ,939 5, ,210 7,603 8, , , ,378 6, ,352 13,024 9, ,248 Consolidated financial statements for Dürr AG 99

104 Sales with a major customer amounted to 12.6% of consolidated net sales in the year ended December 31, 2002 and 20.2% in the year ended December 31, The revenues were reported by the business units Services, Final Assembly Systems, Paint Systems, Ecoclean and Measuring Systems. Another major customer also accounted for 12.6% of consolidated net sales in the year ended December 31, 2002 and 12.9% in the year ended December 31, 2001 allocated among the Paint Systems, Final Assembly Systems, Ecoclean, Measuring Systems and Services business units. Entities known to be under common control are considered as a single customer. 19. Related party transactions Dr.-Ing. E. h. Heinz Dürr is the main shareholder and 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. Joachim Schielke is a member of the Supervisory Board of Dürr AG and a member of the Board of Management of Landesbank Baden-Württemberg. The Group has various loans and lines of credit at Landesbank Baden-Württemberg totaling 97,891 thousand (2001: 102,884 thousand). Drawings on these lines of credit amounted to 10,734 thousand (2001: 25,095 thousand). Dr. Tessen von Heydebreck is a member of the Supervisory Board of Dürr AG and also a member of the Board of Management of Deutsche Bank AG. Dürr has received various loans and lines of credit totaling 118,641 thousand (2001: 123,634 thousand). Drawings on these lines of credit amounted to 17,718 thousand (2001: 35,601 thousand). See note 17 Liabilities for further details regarding the various loans from Landesbank Baden- Württemberg and Deutsche Bank AG. The Group s derivative financial instruments and interest rate swaps are mainly transacted through Deutsche Bank AG and Landesbank Baden-Württemberg. We refer to note 21 Financial instruments for details on the forward exchange transactions and interest rate swaps. The Board of Management confirms that all the above transactions with related parties were performed at arm s length conditions. 20. Other financial obligations Rental and lease agreements The Group companies lease plants, office space and automobiles at a range of locations. The contracts terminate at various dates between 2003 and Future minimum payments up to the earliest possible contractually agreed termination is as follows: Amounts in k Thereafter Total Non-cancellable leases 16,050 17,328 16,036 12,410 9,358 43, ,267 Capital leases 2,162 2,094 2,050 1,917 1,839 8,391 18,453 Total related rent expenses in the year ended December 31, 2002 amount to 34,116 thousand (2001: 27,590 thousand). The interest portion for the total minimum payments for capital leases amounts to 5,592 thousand (2001: 7,144 thousand); the repayment portion amounts to 12,861 thousand (2001: 13,161 thousand), of which 1,561 thousand (2001: 1,632 thousand) are short-term. 100

105 Other financial commitments The other financial commitments that do not result from rental and lease agreements are listed below. Amounts in k Thereafter Total Other long term purchase commitments 36,093 19,960 10,458 10,635 10,788 28, ,381 Risks Dürr operates in countries where political and economic commercial risks exist. The effects of such risks are, with today s perspective, not known and are therefore not included in the accompanying 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, financial position, or results of operations. Legal costs are expensed as incurred. There is litigation pending related to a tax field audit conducted in A demand for back-tax of 900 thousand plus possible interest is currently being negotiated. The Board of Management estimates the chances of the Group winning the litigation as more likely than not. The legal fees associated with the case are expensed as incurred. Dürr has litigation before a court of arbitration regarding its acquisition of Dürr AIS S.A.S. Dürr believes it is probable that Dürr will be successful in winning its material claims. At the hearing on March 3, 2003, the court of arbitration appointed an independent expert. 21. Financial instruments Use of financial instruments The Group uses derivative financial instruments to reduce the impact of changes in foreign exchange rates and interest rates on its cash flows and changes in the fair values of assets and liabilities. Interest swaps are also used to optimize the net interest payments. Dürr is exposed to credit loss in the event of non-performance by the other parties (financial institutions) to the financial instruments described below. All derivatives as well as the related transactions are subject to daily internal controls and valuation in line with a policy set by the Board of Management. Derivatives are only entered into with banks with a good credit rating. Interest rate swaps are entered into only with German banks. The use of derivative contracts is limited to the economic hedge of known business risks. Fair values The book values and fair values of the major financial instruments as of December 31, 2002 and 2001 are as follows: As of December 31, amounts in k Book value Fair value Book value Fair value Debt to banks 353, , , ,640 Interest rate swaps 27,363 27,363 18,747 18,747 Foreign currency exchange forward contracts 3,093 3,093 1,891 1,891 Consolidated financial statements for Dürr AG 101

106 The fair value of financial derivatives has been estimated on the basis of the following methods and assumptions: The fair value of cash and cash equivalents, receivables, short term investments and liabilities approximate their book values owing to their short term liquidity. For long term debt, the fair value is estimated based on the current rates offered to the Group for debt with the same or similar remaining maturities and terms. For foreign currency exchange forward contracts, the fair values were estimated on the basis of the difference between the contractually agreed exchange rates and 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. Accounting and disclosure of derivative financial instruments and hedge accounting (SFAS No. 133) Dürr adopted SFAS No. 133 on January 1, The cumulative change in accounting principles recorded in Accumulated other comprehensive income was a loss of 1,021 thousand (net of 652 thousand in tax). The cumulative effect recorded in the consolidated statement of income was immaterial. Foreign currency exchange forward contracts and interest rate swaps are recognized in the consolidated balance sheet at fair value. If the criteria for hedge accounting are fulfilled, the instruments are accounted for as cash flow hedges as described in the following paragraph. Otherwise, the changes in market value are recorded in the consolidated statement of income at each balance sheet date. Cash flow hedges The Group uses interest rate swaps to hedge the effect of the change in market interest rates on interest payments for existing and forecasted debt to banks. In addition, foreign currency exchange forward contracts were entered into in the year ended December 31, 2002 to hedge against exchange rate fluctuations on cash flows from purchase and sales transactions. The effective portion of the change in market value of interest rate swaps and foreign currency exchange forward contracts classified as cash flow hedges is recorded through accumulated other comprehensive income. When the hedged transaction affects income the amount from the interest swaps and forward exchange transactions recorded in Accumulated other comprehensive income is reclassified into interest expense (interest swaps) and cost of sales (foreign currency exchange forward contracts) in the income statement. Due to the ineffectiveness of interest swaps, a net loss of 369 thousand (2001: net loss of 54 thousand) was recorded for the year ended December 31, It is anticipated that 3,813 thousand (2001: 3,087 thousand) of net losses included in Accumulated other comprehensive income at December 31, 2002 will be reclassified into income during the next 12 months due to the realization of the hedged interest payments and purchase and sales transactions. As of December 31, 2002, Dürr had entered into derivative financial instruments with a maximum maturity of 48 (2001: 50) months to hedge its exposure to changes in interest and foreign exchange rates associated with forecasted transactions. 22. Additional local disclosure requirements Conditions for exemption in accordance with Sec. 292a of the German Commercial Code (HGB) As a publicly traded company, Dürr AG makes use of the option to prepare exempting consolidated financial statements according to an internationally recognized set of accounting standards instead of according to German GAAP as set forth in Sec. 292a HGB. Exemption pursuant to Sec. 264b HGB Premier Manufacturing Support Services GmbH & Co. KG, Frankfurt/Main (Germany), has made use of the exemption option from the preparation of financial statements pursuant to Sec. 264b HGB. 102

107 Exemption from the need to prepare consolidated financial statements for a Spanish sub-group The company Ingenieria Agullo S.A., Barcelona (Spain) has made use of the exemption option from the preparation of consolidated financial statements pursuant to Spanish law. Main differences between US-GAAP and German GAAP (HGB) The main differences between US-GAAP and German GAAP (HGB) as these pertain to the consolidated financial statements of Dürr AG are listed below. The German and US accounting systems are based on fundamentally different considerations. While accounting according to HGB emphasizes the principle of prudence and the protection of creditors, the prime objective of US accounting is to provide information of relevance to investors for the decisionmaking process. The comparability of the financial statements, both between fiscal years and between different companies, as well as the determination of profits on an accrual basis are accorded more importance under US-GAAP than under HGB. Accruals (SFAS No. 5, SFAS No. 87 and SFAS No. 88) In US accounting practice, accruals are generally not shown separately but under liabilities. To satisfy the provisions of the corresponding EU directive, Dürr still discloses accruals separately in the balance sheet, contrary to American accounting practice. In US accounting, the possibilities to recognize accruals are far more restricted than under HGB. Accruals have to be recognized when an obligation exists towards a third party, its utilization is probable and the anticipated accrual amount can be reliably estimated. Accruals for future expenses are not permitted under US-GAAP. Under US-GAAP, pension accruals unlike under German accounting principles are determined taking anticipated wage and salary increases into account. For calculation purposes, the US-GAAP figure includes the market interest rates of the countries concerned and not the discount rate of 6% applicable in German tax law. Goodwill (SFAS No. 142) Under US-GAAP, goodwill must be capitalized and reviewed annually for impairment, or whenever there is any indication of impairment. Pursuant to HGB, goodwill can be amortized on a regular basis or offset against equity. These options are not permitted by US-GAAP. Unrecognized profits (SFAS No. 52 and SFAS No. 133) Under HGB, the principle of imparity requires that only unrealized losses are recognized, while under US-GAAP, unrealized gains must also be recognized. This difference is particularly evident in the recognition of unrealized gains from end-of-period valuation of amounts denominated in foreign currencies and derivative financial instruments. Long-term construction contracts (SOP 81-1 and ARB Opinion No. 45) Under German law, revenues and expenses in connection with long-term construction contracts are recorded according to the principle of realization. Under US-GAAP, they are recognized according to the percentage-of-completion method. Consolidated financial statements for Dürr AG 103

108 Leasing (SFAS No. 13 and SFAS No. 98) Under US-GAAP, leased assets are capitalized by the economic owner and not the legal owner. With the capital lease, the risks and rewards from the ownership of the leased asset largely lie with the lessee although the lessee does not have legal title to the asset. Under US-GAAP, such a capital lease is treated similarly to a purchase. This means that the lessee capitalizes the leased asset and shows a liability in the same amount while the lessor posts a receivable from sales financing and revenues from the sale of the leased asset. Deferred taxes (SFAS No. 109) Under US-GAAP, deferred tax assets and liabilities have to be recognized that result from temporary differences between tax carrying values and the carrying values in the consolidated balance sheet. Due to the reduced future tax payments, tax loss carryforwards represent an economic benefit. Therefore, when the loss arises, the future (deferred) tax benefit has to be capitalized subject to its realizability. Derivative financial instruments (SFAS No. 133, SFAS No. 137 and SFAS No. 138) According to US-GAAP, all derivative financial instruments must be recognized at fair value. Special accounting treatment, in which fluctuations in fair values are recognized in Accumulated other comprehensive income rather than directly affecting income, is permitted when specific restrictive criteria are met. The application of hedge accounting depends on the nature of the underlying transactions and financial instruments used for hedging those transactions. If the criteria for hedge accounting are not met, the fluctuations in fair value of the derivatives are posted to income in the period of occurrence. Global macro hedges do not qualify for hedge accounting under US-GAAP. Minority interests HGB follows the entity theory, which requires that minority interests be classified as a part of equity. In addition, the income or loss attributable to minority interest is included in the consolidated entity s net income or loss. Under US-GAAP, in accordance with the parent company theory, minority interests are not considered part of equity but are classified separately between equity and liabilities. The income or loss attributable to minority interests is recorded as expense or income, and is therefore excluded from the consolidated entity s net income or loss. German Corporate Governance Code/Statement pursuant to Sec. 161 AktG The statement required by Sec. 161 of German Stock Corporation Law (AktG) was issued by the Board of Management and the Supervisory Board of Dürr AG and Carl Schenck AG, and made available to shareholders. Other disclosures Annual average number of employees: Industrial employees 5,720 5,658 Office employees 6,572 6,630 Trainees/apprentices ,620 12,561 As of December 31, 2002, Dürr had 12,902 employees (2001: 12,675). 104

109 Members of the Board of Management Stephan Rojahn Chairman (since January 1, 2003, ordinary member since October 1, 2002) Carl Schenck AG* (since December 12, 2002, Chairman since February 1, 2003) Dürr Systems GmbH* (since January 1, 2003, Chairman since January 20, 2003) Dürr Ecoclean Inc.* (since March 5, 2003, Chairman) Dürr Inc.* (since October 22, 2002, Chairman) Olpidürr S.p.A.* (since January 1, 2003) Verind S.p.A.* (since January 1, 2003) Hans Dieter Pötsch Chairman (until December 31, 2002) Bizerba GmbH & Co. KG Carl Schenck AG* (until December 5, 2002, Chairman until June 28, 2002) Dürr Systems GmbH* (until December 31, 2002, Chairman) Gottlieb Gühring OHG (Chairman) Schuler AG Dürr AIS S.A.S.* (until June 28, 2002) Dürr Inc.* (until October 22, 2002, Chairman) Olpidürr S.p.A.* (until December 31, 2002) Verind S.p.A.* (until December 31, 2002) Dr. Wolfgang Baur Frank Haun (until March 31, 2003) Carl Mahr Holding GmbH Carl Schenck Machines en Installaties B.V.* (until December 16, 2002) Dürr Ecoclean Inc.* (until March 4, 2003, Chairman) Ingenieria Agullo S.A.* Interautomation Inc., USA* (until October 31, 2002) Interautomation Inc., CAN* (Chairman) Nagahama Seisakusho Ltd.* Schenck Avery Ltd.* (until September 11, 2002) Schenck Canada Inc.* (until October 31, 2002, Chairman) Schenck Corporation* (Chairman) Schenck Ltd.* (Chairman) Schenck Motorama Inc.* (until March 8, 2002, Chairman) Schenck Pegasus Corporation* (until August 20, 2002, Chairman) Schenck Polska Sp. z o.o* (until September 30, 2002) Schenck Slovakia spol. s r.o.* (until November 27, 2002) Schenck spol. s r.o.* (until November 18, 2002) Schenck Test Automation Ltd.* (until August 19, 2002) SRH Systems Ltd.* (until October 21, 2002) STIC-HAFROY S.A.* Carl Schenck AG* INTX AG* (Chairman) Competence Call Center AG Dürr Systems Spain S.A.* Dürr Inc.* Premier Manufacturing Support Services L.P.* Dr. Norbert Klapper Goodex AG (until March 11, 2002) Premier Manufacturing Support Services L.P.* Dr. Reinhold Grau Dürr AIS S.A.S.* (until June 28, 2002) Dürr Ltd.* Dürr Systems Spain S.A.* Olpidürr S.p.A.* Verind S.p.A.* Total remuneration for members of the Board of Management came to 2,187 thousand in the year ended December 31, Remuneration of 203 thousand was paid to former members of the management. The pension accrual for this group came to 2,183 thousand as of December 31, Member in statutory supervisory boards Member of comparable domestic and foreign boards * Group mandate Consolidated financial statements for Dürr AG 105

110 Members of the Supervisory Board Dr.-Ing. E. h. Heinz Dürr 1 Entrepreneur, Berlin Chairman Benno Eberl 2 Trade Union Secretary of IG Metall administrative offices, Stuttgart Benteler AG Dussmann AG & Co. KGaA Krone GmbH (Chairman) Stinnes AG Carl-Zeiss-Stiftung (Commissioner) Landesbank Baden-Württemberg (Member of the Administrative Board) ThyssenKrupp Aufzüge GmbH (Deputy Chairman) ThyssenKrupp Elevator AG (Deputy Chairman) Prof. Dipl.-Ing. Jörg Menno Harms Chairman of the Managing Board of Hewlett Packard GmbH and Holding GmbH, Böblingen Peter Weingart 1 Chairman of the Group Works Council of Dürr AG, Stuttgart Deputy Chairman Dürr Systems GmbH* (Deputy Chairman) Heraeus Holding GmbH Jenoptik AG Württembergische Hypothekenversicherung AG CA Leuze GmbH & Co. KG (Member of the Administrative Board) Groz Beckert KG (Deputy Chairman) Prof. Dr. Norbert Loos 1, 2 Managing Partner of Loos Beteiligungs-GmbH, Stuttgart Deputy Chairman Behr GmbH & Co. (Deputy Chairman) BWK GmbH Unternehmensbeteiligungsgesellschaft Carl Schenck AG* (Chairman June 29, 2002 January 31, 2003) Dr. Haas GmbH (Chairman) Hans R. Schmid Holding AG (Chairman) LTS Lohmann Therapie-Systeme AG (Chairman) TDS Informationstechnologie AG Trumpf GmbH + Co. KG LTS AG, USA (Chairman) Dr.Tessen von Heydebreck Member of the Board of Management of Deutsche Bank AG, Frankfurt/Main BASF AG BVV Versicherungsverein des Bankgewerbes a.g. Deutsche Bank Privat- und Geschäftskunden AG* Dt. Euroshop AG* DWS Investment GmbH* Gruner + Jahr AG Deutsche Bank Polska S.A.* (Chairman) Deutsche Bank OOO, Moscow* (Chairman) Deutsche Bank Rt., Budapest* (Chairman) Deutsche Bank Luxembourg S.A.* (Chairman) EFG Eurobank Ergasias S.A. Lieselotte Dedek-Fried 2 Member of the Works Council of Schenck RoTec GmbH, Darmstadt 106

111 Werner Kramp Chairman of the Group Works Council of Carl Schenck AG, Darmstadt Peter Krüger Manager of Commercial Order Processing of Dürr Systems GmbH, Stuttgart Günter Lorenz 1 Principal Authorized Representative of IG Metall administrative offices, Darmstadt Siemens VDO Automotive AG Joachim Schielke Member of the Board of Management of Landesbank Baden-Württemberg, Stuttgart ICS Informatik Consulting Systems AG Internationales Bankhaus Bodensee AG (Chairman) Süd Private Equity Management GmbH & Co. KGaA (Chairman) MKB Mittelrheinische Bank GmbH (Deputy Chairman) MMV Leasing GmbH (Deputy Chairman of the Advisory Board) Rehabilitationsklinik Bad Wurzach GmbH Dr. Heinz Gerd Stein 2 Business consultant, Duisburg Until September 30, 2002, Member of the Board of Management of ThyssenKrupp AG, Duisburg and Essen AXA Versicherung AG Bankgesellschaft Berlin AG Howaldtswerke-Deutsche Werft AG Landesbank Berlin Girozentrale WILO AG Evangelisches und Johanniter Klinikum Duisburg/Dinslaken/Oberhausen gem. GmbH Hülskens Holding GmbH & Co. Institut für Management und Technologie IMT Berlin GmbH INTAC International, Inc. Kunststoffwerk Philippine GmbH & Co. KG (Chairman) Saarpor Klaus Eckhardt GmbH Neunkirchen Kunststoffe KG (Chairman) Thumann & Heitkamp Verwaltungs-GmbH ThyssenKrupp Budd Company ThyssenKrupp Elevator Holding Corp. Total remuneration for members of the Supervisory Board amounted to 392 thousand for the year ended December 31, Member of the Mediation Committee and Personnel Committee 2 Member of the Audit Committee Member in statutory supervisory boards Member of comparable domestic and foreign boards * Group mandate Consolidated financial statements for Dürr AG 107

112 23. Development of fixed assets Intangible assets Amounts in k Licenses, patents and Goodwill similar rights Prepayments Total Acquisition and manufacturing cost at 1/1/ ,375 55, ,339 Changes in consolidation group Additions 12,693 12,693 Disposals 3,033 3,033 Reclassifications Acquisition and manufacturing cost at 12/31/ ,538 64, ,628 Accumulated amortization at 1/1/ , ,732 Changes in consolidation group 3 3 Additions 6, ,719 Disposals 2,450 2,450 Reclassifications Accumulated amortization at 12/31/ , ,180 Net book value at 12/31/ ,538 34, ,448 Net book value at 12/31/ ,547 31, ,708 Property, plant and equipment Amounts in k Other Land and buildings equipment, Prepayments including buildings Machines and furniture and and construction on land of others equipment fixtures in progress Total Acquisition and manufacturing cost at 1/1/ ,798 76, ,521 1, ,926 Changes in consolidation group Additions 4,713 6,098 14,988 3,603 29,402 Disposals 876 3,151 9,842 1,104 14,973 Reclassifications Acquisition and manufacturing cost at 12/31/ ,794 79, ,136 3, ,251 Accumulated depreciation at 1/1/ ,905 54, , ,039 Changes in consolidation group Additions 6,680 6,153 14,514 27,347 Disposals 1,525 2,779 8,838 13,142 Reclassifications Accumulated depreciation at 12/31/ ,139 58, , ,079 Net book value at 12/31/ ,655 21,503 34,498 3, ,172 Net book value at 12/31/ ,967 23,494 38,695 1, ,

113 Investments Amounts in k Investments in associated Other Marketable companies investments securities Other loans Total Acquisition and manufacturing cost at 1/1/ ,001 2, ,005 23,688 Additions Disposals Reclassifications Acquisition and manufacturing cost at 12/31/ ,451 2, ,142 24,276 Accumulated depreciation at 1/1/2002 1, ,809 Additions Disposals Accumulated depreciation at 12/31/2002 1, ,809 Net book value at 12/31/ ,842 1, ,142 22,467 Net book value at 12/31/ ,404 1, ,581 23,473 Consolidated financial statements for Dürr AG 109

114 24. Schedule of investment holdings The schedule of investment holdings of Dürr AG contains selected companies pursuant to Sec. 313 (2) No. 4 HGB. Employees (closing date Shareholders excluding Ownership equity Net sales trainees) Name and headquarters % k k Germany Dürr Systems GmbH, Stuttgart , ,151 1,165 Dürr Automotion GmbH, Stuttgart , , Dürr Environmental GmbH, Stuttgart ,100 24, INTX AG, Stuttgart ,994 4 Dürr Ecoclean GmbH, Filderstadt , , Dürr Ecoclean International GmbH, Stuttgart ,802 Dürr Holding GmbH, Stuttgart Dürr Ecoservice GmbH, Stuttgart Premier Manufacturing Support Services GmbH & Co. KG, Frankfurt/Main , Dürr AIS GmbH, Butzbach ,498 40, Dürr Somac GmbH, Chemnitz , DSEngineering GmbH, Darmstadt , Carl Schenck AG, Darmstadt 96 96, Schenck Pegasus GmbH, Darmstadt ,430 69, Schenck RoTec GmbH, Darmstadt ,225 80, Schenck Process GmbH, Darmstadt ,249 70, Schenck Fertigungs & Service GmbH, Darmstadt ,136 44, Waagen und Maschinen Ed. Schmitt & Cie. GmbH, Darmstadt ,076 Schenck Atis GmbH, Darmstadt Schenck Immobilien & Service GmbH, Darmstadt ,540 18, Schenck Final Assembly Products GmbH, Püttlingen ,981 79,

115 Employees (closing date Shareholders excluding Ownership equity Net sales trainees) Name and headquarters % k k Other EU countries Dürr Anlagenbau GmbH, Zistersdorf/Austria 100 1,327 6, Schenck Ges.m.b.H., Braunau/Austria , Dürr Ltd., Warwick/Great Britain 100 4,898 45, Henry Filters (Europe) Ltd., Warwick/Great Britain 100 1,003 3, Premier Manufacturing Support Services (UK) Ltd., Warwick/Great Britain 100 1,389 21, Schenck Ltd., Banbury/Great Britain 96 4,016 19, Schenck Automation Systems Ltd., Banbury/Great Britain 96 1,225 12, Schenck Test Automation Ltd., Worcester/Great Britain , SRH Systems Ltd., Worcester/Great Britain STIC-HAFROY S.A., Loué/France ,418 49, Dürr Automotion S.A., Massy/France 100 5,858 28, Dürr AIS S.A.S., Courbevoie/France 100 2, , Schenck S.A., Le Pecq/France 96 2,852 24, Dürr Systems Spain S.A., San Sebastian/Spain 100 7,047 55, Ingenieria Agullo S.A., Barcelona/Spain 100 6,674 14, Industrias Schenck S.A., Madrid/Spain 96 2,166 10, Olpidürr S.p.A., Novegro di Segrate/Italy 65 2,595 20, Verind S.p.A., Rodano/Italy 50 4,650 13, Polisistem S.r.l., Turin/Italy 29 1,364 1, CPM S.p.A., Beinasco/Italy , IMPIND S.p.A., Milan/Italy Schenck Italia S.r.l., Paderno Dugnano/Italy , Premier Manufacturing Support Services L.P., Trollhättan/Sweden 100 1,864 3, Schenck Vaegt- og Maskinfabrik A.p.s., Copenhagen/Denmark Carl Schenck Machines en Installaties B.V., Rotterdam/Netherlands , Premier Manufacturing Support Services B.V., Born/Netherlands Profit-and-loss transfer agreement with respective parent company 2 First-time consolidation on January 1, Use of protective clause pursuant to Sec. 286 (3) sentence 1 No. 2 HGB as well as Sec. 313 (3) HGB With reference to Sec. 286 (3) No. 2 HGB and Sec. 313 (3) HGB, no disclosures have been made regarding the subsidiaries of Dürr Inc., Plymouth, Michigan/USA. The schedule of investment holdings contains selected companies pursuant to Sec. 286 (3) No. 1 HGB and Sec. 313 (2) No. 4 HGB. A complete list of investment holdings has been filed with the Commercial Register of the District Court of Stuttgart. Consolidated financial statements for Dürr AG 111

116 Employees (closing date Shareholders excluding Ownership equity Net sales trainees) Name and headquarters % k k Other European countries Schenck Industrie-Beteiligungen AG, Glarus/Switzerland 96 16,331 Dürrpol Sp. z o.o., Warsaw/Poland 100 2,386 19, Premier Manufacturing Support Services Poland Sp. z o.o., Gliwice/Poland 100 1,317 5, Schenck Polska Sp. z o.o., Warsaw/Poland , Agullo Chekia, spol. s r.o., Oslavany/Czech Republic 100 1,101 1, Premier Manufacturing Support Services s r.o., Mladá Boleslav/Czech Republic , Schenck spol. s r.o., Prague/Czech Republic , Schenck Slovakia spol. s r.o., Bratislava/Slovakia Schenck Ukraina TOW, Kiev/Ukraine , North America/Central America Dürr Inc., Plymouth, Michigan/USA , , Dürr Automation Inc., Wixom, Michigan/USA ,118 55, Henry Filters Inc., Bowling Green, Ohio/USA ,486 22, H. R. Black Co. Inc., Warren, Michigan/USA 100 3,561 5, Dürr Ecoclean Inc., Plymouth, Michigan/USA ,749 Behr Robotics Inc., Auburn Hills, Michigan/USA Dürr Sigma Systems Inc., Wixom, Michigan/USA Schenck Corporation, Deer Park, New York/USA 96 28,562 3 Schenck RoTec Inc., Deer Park, New York/USA 96 17,028 Schenck Turner Inc., Orion, Michigan/USA 96 4,092 10, Schenck Trebel Corporation, Deer Park, New York/USA 96 15,185 16, Schenck Pegasus Corporation, Troy, Michigan/USA 96 11,117 12, Schenck AccuRate Inc., Whitewater, Wisconsin/USA 96 19,834 22, Schenck Motorama Inc., Farmington, Michigan/USA Premier Manufacturing Support Services of Canada, Ltd., Alliston/Canada 100 2,222 2, Schenck Canada Inc., Toronto, Ontario/Canada 96 7,076 Interautomation Inc., Oakville, Ontario/Canada 96 1,468 8, Dürr de México, S.A. de C.V., Naucalpan de Juarez/Mexico , Productos Industriales, S.A. de C.V., Naucalpan de Juarez/Mexico

117 Employees (closing date Shareholders excluding Ownership equity Net sales trainees) Name and headquarters % k k South America Dürr Brasil Ltda., São Paulo/Brazil 100 3,732 24, Schenck do Brasil Indùstria e Comercio Ltda., São Paulo/Brazil 96 2,537 8, Africa/Asia/Australia Dürr South Africa (Pty.) Ltd., Port Elizabeth/South Africa , Schenck Africa (Pty.) Ltd., Johannesburg/South Africa , Dürr India Private Ltd., Chennai/India , Schenck Avery Ltd., Noida (U.P.)/India , Schenck Jenson & Nicholson Ltd., Ranchi/India 48 3,197 3, Carl Schenck Singapore Pte., Ltd., Singapore/Singapore Dürr Korea Inc., Seoul/South Korea 90 5,632 15, Schenck Korea Ltd., Seoul/South Korea Dürr Paintshop Equipment and Engineering (Shanghai) Co. Ltd., Shanghai/China 100 3,068 13, Schenck Shanghai Testing Machinery Corporation Ltd., Shanghai/China 48 3,535 6, Schenck Shanghai Machinery Corporation Ltd., Shanghai/China , Dürr Japan K.K., Yokohama/Japan Nagahama Seisakusho Ltd., Osaka/Japan 48 11,802 23, Schenck Australia (Pty.) Ltd., Gladesville/Australia 71 4,762 30, Profit-and-loss transfer agreement with respective parent company 2 First-time consolidation on January 1, Use of protective clause pursuant to Sec. 286 (3) sentence 1 No. 2 HGB as well as Sec. 313 (3) HGB With reference to Sec. 286 (3) No. 2 HGB and Sec. 313 (3) HGB, no disclosures have been made regarding the subsidiaries of Dürr Inc., Plymouth, Michigan/USA. The schedule of investment holdings contains selected companies pursuant to Sec. 286 (3) No. 1 HGB and Sec. 313 (2) No. 4 HGB. A complete list of investment holdings has been filed with the Commercial Register of the District Court of Stuttgart. Consolidated financial statements for Dürr AG 113

118 Dürr worldwide Germany Dürr AG Stuttgart, phone: Carl Schenck AG Darmstadt, phone: Fludicon GmbH Darmstadt, phone: INTX AG Stuttgart, phone: Dürr Systems GmbH Stuttgart, phone: Bietigheim-Bissingen, phone: Ochtrup, phone: Dürr AIS GmbH Butzbach, phone: Dürr Environmental GmbH Stuttgart, phone: Dürr Automotion GmbH Stuttgart, phone: Brunswick, phone: Darmstadt, phone: Grenzach-Wyhlen, phone: DSEngineering GmbH Darmstadt, phone: Dürr Somac GmbH Chemnitz, phone: Schenck Final Assembly Products GmbH Püttlingen, phone: Premier Manufacturing Support Services GmbH & Co. KG Stuttgart, phone: Dürr Ecoclean GmbH Filderstadt, phone: Monschau, phone: Schenck Fertigungs & Service GmbH Darmstadt, phone: Schenck Immobilien & Service GmbH Darmstadt, phone: Schenck Pegasus GmbH Darmstadt, phone: Schenck Process GmbH Darmstadt, phone: Schenck RoTec GmbH Darmstadt, phone: Argentina Premier Servicios de Soporte para Manufacturas Argentina S.A. Cap. Fed. Buenos Aires, phone: Australia Schenck Australia (Pty.) Ltd. Baulkham Hills, phone: Belgrave, phone: Gladesville, phone: Austria Dürr Anlagenbau Ges.m.b.H. Zistersdorf, phone: Schenck Ges.m.b.H. Braunau, phone: Brazil Dürr Brasil Ltda. São Paulo, phone: Premier Brasil Servicos de Suporte para Industria Ltda. São Paulo, phone: Schenck do Brasil Industria e Comercio Ltda. São Paulo, phone: pegasus@schenck.com.br Canada Premier Manufacturing Support Services of Canada Ltd. Alliston, phone: PremierCanada@premiermss.com Interautomation Inc. Oakville, phone: info@iainc.com China Dürr Paintshop Equipment and Engineering Co. Ltd. Shanghai, phone: general@durr.com.cn Premier Automobile Manufacturing Support Services (Shanghai) Co. Ltd. Shanghai, phone: PremierChina@premiermss.com Carl Schenck AG Beijing, phone: csdbj@public3.bta.net.cn Shanghai, phone: csdsha@online.sh.cn Paint Systems Final Assembly Systems Services Ecoclean Measuring Systems 114

119 Schenck (Tianjin) Mineral Systems Ltd. Tianjin, phone: Schenck Shanghai Machinery Corporation Ltd. Shanghai, phone: Schenck Shanghai Testing Machinery Corporation Ltd. Shanghai, phone: Colombia Schenck Americas S.A. Bogota, phone: Czech Republic Premier Manufacturing Support Services s r.o. Mladá Boleslav, phone: PremierCzech@premiermss.com Schenck spol. s r.o. Prague, phone: info@schenck.cz Denmark Schenck Vægt- og Maskinfabrik ApS Bagsvaerd, phone: svm@svm.schenck.net France Dürr AIS S.A.S. Courbevoie, phone: general@durr-ai.com Dürr Automotion S.A. Massy, phone: durrfrancemassy@compuserve.com STIC-HAFROY S.A. Loué, phone: stic-hafroy@stic-hafroy.fr Schenck S.A. Le Pecq, phone: ssa.@ssa.schenck.net Great Britain Dürr Ltd. Warwick, phone: sales@durr.co.uk Premier Manufacturing Support Services (UK) Ltd. Warwick, phone: PremierUK@premiermss.com Henry Filters (Europe) Ltd. Warwick, phone: admin@henryfilters.com Schenck Automation Systems Ltd. Banbury, phone: pegasus@schenck.co.uk Schenck Ltd. Banbury, phone: pegasus@schenck.co.uk rotec@schenck.co.uk Schenck Test Automation Ltd. Worcester, phone: Ggillespie@rta.ricardo.com SRH Systems Ltd. Worcester, phone: srh@srhsystems.com India Dürr India Pvt. Ltd. Chennai, phone: madhavan@durrindia.com Schenck Avery Ltd. Noida, phone: sal@schenck-ind.com Schenck Jenson & Nicholson Ltd. Ranchi, phone: swjnmc@giascl01.vsnl.net.in Italy Olpidürr S.p.A. Novegro di Segrate, phone: sales@olpidurr.it Polisistem S.r.l. Turin, phone: polisistem@polisistem.it Verind S.p.A. Rodano, phone: direzione@verind.it CPM S.p.A. Beinasco, phone: dir@cpm-spa.com Schenck Italia S.r.l. Genoa, phone: schenck@sit.schenck.net Paderno Dugnano, phone: schenck@sit.schenck.net Japan Dürr Japan K.K. Yokohama, phone: s.sakurai@durr.co.jp Nagahama Seisakusho Ltd. Osaka, phone: nso@nagahama.co.jp Schenck-TKS Test Systems Ltd. Kanagawa, phone: stt@tksnet.co.jp Mexico Dürr de Mexico S.A. de C.V. Naucalpan de Juarez, phone: durr.mexico@durrmex.com.mx Premier Manufacturing Support Services de Mexico, S. de R.L. de C.V. Saltillo, phone: PremierMexico@premiermss.com Netherlands Premier Manufacturing Support Services B.V. Born, phone: PremierFrankfurt@premiermss.com Carl Schenck Machines en Installaties B.V. Rotterdam, phone: info@schenck.nl Poland Dürrpol Sp. z o.o. Radom, phone: durrpol@durrpol.pl Warsaw, phone: durrpol@durrpol.pl Paint Systems Final Assembly Systems Services Ecoclean Measuring Systems Dürr worldwide 115

120 Premier Manufacturing Support Services Poland Sp. z o.o Gliwice, phone: PremierPoland@premiermss.com Schenck Polska Sp. z o.o. Warsaw, phone: schenck@schenck.com.pl Russia Dürr Systems GmbH, Moscow Office Moscow, phone: stepanova@duerr.msk.ru Singapore Carl Schenck Singapore Pte., Ltd. Singapore, phone: sing@schenck.net Slovakia Schenck Slovakia spol. s r.o. Bratislava, phone: csb@schenck.sk South Africa Dürr South Africa Ltd. Port Elizabeth, phone: michael.broek@durr.sa.co.za Schenck Africa (Pty.) Ltd. Johannesburg, phone: ashbro@iafrica.com South Korea Dürr Korea Inc. Seoul, phone: koch@durr.co.kr Schenck Korea Ltd. Seoul, phone: sklsale1@chollian.net Spain Dürr Systems Spain S.A. Madrid, phone: ana.cazenave@durr-ai.com San Sebastian, phone: durr-spain@durr-spain.com Valladolid, phone: Technical.va@durr-spain.com Viladecans, phone: administracion.apt@durr-spain.com Ingenieria Agullo S.A. Barcelona, phone: agullo@agullo.com Industrias Schenck S.A. Madrid, phone: info@sme.schenck.net Sweden Premier Manufacturing Support Services A.B. Trollhättan, phone: PremierSchweden@premiermss.com Thailand Premier Manufacturing Support Services (Thailand) Co., Ltd. Bangkok, phone: Ukraine Schenck Ukraina TOW Kiev, phone: csk@schenck.com.ua USA Behr Systems Inc. Auburn Hills/MI, phone: behr@behr.durr-usa.com Dürr AIS Inc. Wixom/MI, phone: durrais@ai.durr-usa.com Dürr Environmental Inc. Plymouth/MI, phone: sales@durrenvironmental.com Somerville/NJ, phone: sales@durrenvironmental.com Dürr Inc. Plymouth/MI, phone: jcotton@durrusa.com Dürr Industries Inc. Plymouth/MI, phone: durr.industries@durrusa.com ACCO Systems Inc. Warren/MI, phone: sales@acco.durr-usa.com Dürr Production Systems Inc. Farmington/MI, phone: sales@dps.durr-usa.com Premier Manufacturing Support Services L.P. Cincinnati/OH, phone: PremierUSA@premiermss.com Dürr Automation Inc. Wixom/MI, phone: durr-ecoclean@da.durr-usa.com Henry Filters Inc. Bowling Green/OH, phone: henry@henryfilters.com H.R. Black Co. Inc. Sterling Heights/MI, phone: scott.kosovec@hrblack.com Schenck AccuRate Inc. Deer Park/NY, phone: sales@schenck-usa.com Whitewater/WI, phone: corp@sarinc.com Schenck Pegasus Corporation Troy/MI, phone: public-relations@schenckpegasus.com Schenck Turner Inc. Orion/MI, phone: info@schenck.turner.com Paint Systems Final Assembly Systems Services Ecoclean Measuring Systems 116

121 Publisher: Dürr Aktiengesellschaft Otto-Dürr-Strasse Stuttgart Germany Please contact us for further information: Dürr AG Public & Investor Relations Phone: Fax: corpcom@durr.com, investor.relations@durr.com The English translation of our 2002 Annual Report is based on the original German version. The German version shall prevail. Design: 3st kommunikation, Mainz Setting: Knecht, Ockenheim Printing: Universitätsdruckerei u. Verlag H. Schmidt GmbH & Co, Mainz Binding: Thalhofer, Schönaich ethabind jacket, patented

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