Continental AG — Interim / Quarterly Report 2007

Aug 1, 2007

Half-Year Financial Report as of June 30, 2007

Continental's Share Price Performance

In the first quarter of 2007, share performance was positive. The share price closed on March 30 at €96.80, representing an increase of 9.1%. The Continental share price thus outperformed the DAX by 5.6 percentage points, but fell 9.1 percentage points short of the development of the European sector index.

In the second quarter, Continental shares continued the positive performance trend from the first quarter. As a result of the very good trend in earnings in the first three months, the share price reached a then new all-time high of €107.40 when it closed on May 7, 2007.

In light of the strong economic growth, the DAX rose 15.8%, closing near its all-time high at 8,077 points at the end of the second quarter. Ongoing public speculation about the possible purchase of Siemens VDO Automotive AG, however, had a negative impact on the Continental share price. On June 29, 2007, the share price closed at €102.24, up 7.7% over the first quarter 2007, thus underperforming the DAX by 7.9 percentage points and the DJ Euro Stoxx Automobiles & Parts by 6.1 percentage points.

On July 25, the day we announced the acquisition of Siemens VDO Automotive AG, the share price closed at €108.50 after briefly being suspended from trading at a price of €104.65 following the announcement. This demonstrates that the acquisition was received positively by the capital market.

Share Price Performance

Management Report as of June 30, 2007

Change in the Executive Board

The Supervisory Board of Continental AG granted the request of Thomas Sattelberger, Human Resources Director and Director of Labor Relations, for premature termination of his appointment to the Executive Board as of May 2, 2007. Heinz-Gerhard Wente, member of the Executive Board of ContiTech AG, was appointed to the Executive Board of Continental AG as his successor with effect from May 3, 2007. He has assumed responsibility for Human Resources in addition to his current function at ContiTech AG.

Acquisition of Thermopol

On February 1, 2007, ContiTech AG acquired 100% of the shares of the hose manufacturer Thermopol International Ltd., London, and its subsidiaries. Thermopol develops and produces high-performance silicone hoses for cars and commercial vehicles.

Acquisition of 51% of Matador Rubber Group

On April 11, 2007, Continental AG agreed with the Matador Group, Puchov, Slovakia, to acquire a 51% stake in the group's tire and conveyor belt business. Continental has the option to successively purchase a further 49% of the shares, whereas Matador has the option to sell its remaining 49% of the shares to Continental at any time.

Production Facility Closed in Mayfield

As part of our restructuring program in North America, on February 1, 2007, we closed our Mayfield, Kentucky, plant, which had manufactured semi-finished parts for tire production.

Closure of Plant in Haldensleben

On April 19, 2007, it was announced that our plant in Haldensleben, Germany, will be closed by December 31, 2007. The production of electric motors as well as radiator fan modules for the Automotive Systems division will be concentrated at the Berlin plant.

U.S. Regulation Mandating Electronic Stability Control (ESC) on Cars

On April 5, 2007, U.S. safety regulators at the National Highway Traffic Safety Administration (NHTSA) announced that ESC will be required on nearly all new cars and light trucks sold in the U.S. starting September 1, 2011. Continental praised this regulation, as ESC can save thousands of lives.

Investigations by Antitrust Authorities

On May 2, 2007, Continental learned that the antitrust authorities of the European Union, the U.S.A. and the UK as well as Japan, Australia and Canada had started investigations into alleged violations of antitrust laws, in particular price-fixing in connection with off-shore hoses by employees of Dunlop Oil & Marine Ltd., UK, a ContiTech AG company in the Oil & Marine product/market segment. Investigations are ongoing. It cannot be ruled out that fines will be imposed and damage claims will be asserted in this matter. Class action lawsuits for damages have also been filed in U.S. courts. The amount of this financial burden is not foreseeable based upon the information available at present.

New Plant for Hydraulic Brake Systems in China

On June 12, 2007, ground was broken for the construction of a plant for hydraulic brake systems in China. The new plant is being built on a 70,000-square-meter site in Changshu City, 100 kilometers northwest of China's economic center Shanghai. Production of hydraulic brakes is to start up in fall 2008, with the plant employing 1,000 persons in Changshu City by 2011. Annual production of 2 million brake units and 4.6 million brake calipers is planned by 2011.

Joint Venture for the Creation of New Production Site in India

On June 19, 2007, we signed a joint venture agreement with the Indian company RICO Auto Industries Ltd. for setting up a hydraulic brake systems plant in India. The two partners hold equal shares in the joint venture, whereby Continental heads the industrial management. The plant will start production of hydraulic brake systems in the fourth quarter of 2008, and employ about 450 persons in Gurgaon near New Delhi. One million brake boosters, 2 million calipers, 1.5 million drum brakes and 0.5 million load-sensitive brake pressure regulators are to be produced each year.

New Development Center in Shanghai

In Shanghai, China, we will set up a new development center consisting of two locations: an office complex for design and test labs as the Asian headquarters for the Automotive Systems, Passenger and Light Truck Tires and ContiTech divisions, as well as a testing facility as an expansion of Automotive Systems' existing test center in Jiading. The two facilities will go into full operation at the beginning of 2009. The work force of about 450 can be increased to 600 by 2011.

Expansion of Commercial Vehicle Tire Production in the U.S.A.

The U.S. commercial vehicle tire plant in Mount Vernon, Illinois, is to be expanded with investments totaling some €58 million. Completion of the project is scheduled for the end of 2008, by which time 90% of the tires sold by Continental Tire North America in the U.S.A. will stem from U.S. production. With the expansion of capacity, we are not only addressing the growing demand for our products, but at the same time, freeing up capacity at sites in other regions, especially Europe and Asia, where output was partly used to cover the needs of the U.S. market.

Economic Climate

In the first six months, German economic growth was significantly higher than our original assumptions regarding macroeconomic developments, triggered mainly by exports and equipment spending. Economic development was also better than expected in Western Europe/Eurozone.

As for the automotive industry, the trend in two sales markets was different than originally assumed. Although it was presumed that commercial vehicle production volumes (vehicles >6t) would fall substantially in Europe, volumes were up once again in the first six months compared to the same period in 2006. At the same time, the trend in the replacement market for truck tires in the NAFTA region was much weaker than we expected. In contrast to the anticipated increase, market volumes in the first six months of 2007 were down on the volumes for the first half of 2006.

Work Force Increases

At the end of the first six months of 2007, Continental's employees numbered 89,082, an increase of 3,858 compared with the end of 2006, due on the one hand to the first-time consolidation of Thermopol and, on the other hand, increases in the divisions.

Latin America Reassigned within the Business Units of the Tire Divisions

Retroactively as of January 1, 2007, responsibility for Latin America within the Passenger and Light Truck Tires and Commercial Vehicle Tires divisions was reassigned from their European to their NAFTA operations. In this connection, the respective organizational units were renamed from NAFTA to "The Americas".

Continental Corporation Sales Up 10.8% Adjusted Sales Growth of 6.3% Earnings Improve 26.2% Adjusted EBIT Up 19.2%

Consolidated sales for the first six months of 2007 rose by 10.8% compared with the same period of the previous year to €8,013.9 million (previous year: €7,230.9 million). Motorola's automotive electronics business contributed €558.7 million to sales. Before changes in the scope of consolidation and exchange rate effects, consolidated sales were up 6.3%.

In the first half-year, raw material prices remained stable at a high level compared to the previous year.

EBIT rose by 26.2% to €911.5 million (previous year: €722.0 million), and the return on sales to 11.4% (previous year: 10.0%). Motorola's automotive electronics business contributed €7.4 million to EBIT. Before changes in the scope of consolidation and special effects, EBIT rose by €146.4 million or 19.2% to €909.8 million (previous year: €763.4 million). The adjusted return on sales amounts to 12.3% (previous year: 10.8%).

Special Effects in the First Half of 2007

The ongoing integration of the automotive electronics business of Motorola led to expenses for integration and restructuring of €14.2 million in the first six months, including the expenses in the first quarter from the finalization of the effects-bargaining for the plant shut-down in Angers, France.

To optimize the production organization in Germany and improve the cost structure in the Electric Drives unit, the Haldensleben plant will be closed by the end of this year with operations being transferred to Berlin. This led to restructuring expenses in the amount of €4.8 million in the period under review.

In addition, the ContiTech division incurred restructuring expenses of €2.2 million, primarily for Roulunds, Denmark.

The net expense from special factors totaled €21.2 million for the Corporation.

Special Effects in the First Half of 2006

The restructuring in Charlotte, North Carolina, U.S.A., led to expenses of €45.0 million in the first six months of 2006.

In order to improve the cost structure in the Foundation Brakes unit, production capacity was transferred from the Ebbw Vale, UK, plant to our plant in Zvolen, Slovakia, in 2006. This led to restructuring expenses in the amount of €20.2 million in the first half of 2006.

In the same period in the ContiTech division, there were various minor special effects totaling €3.8 million which impacted earnings. This was off-set by a gain of €13.1 million from the excess interest in the net assets from the first-time consolidation of Roulunds Rubber Group.

The net expense from special factors in the first half of 2006 totaled €55.9 million for the Corporation.

At negative €24.3 million, interest expense improved by €29.8 million in the first six months of 2007 compared with the previous year (negative €54.1 million), mainly due to exchange rate effects.

The net income attributable to the shareholders of the parent increased 35.4% to €573.7 million (previous year: €423.6 million), with earnings per share higher at €3.91 (previous year: €2.90).

At negative €15.5 million, the free cash flow in the first six months of 2007 improved significantly compared with the previous year (negative €342.7 million). A significant factor was the contribution of €300.0 million to the CTA in Germany at the end of June 2006 and no comparable funding in 2007. Another positive contribution was provided by the EBIT, which was up €189.5 million over the figure for the same period of 2006. At negative €733.7 million, the average level of working capital during the period was higher compared with year-end 2006 as a result of seasonal factors, exceeding the value for the previous year by negative €129.1 million and thus impacting free cash flow. This was due primarily to an increase in accounts receivable. Investment activities also led to an increase in cash outflow. Lower capital expenditure on property, plant, equipment and software was off-set in part by increased acquisitions of companies.

At €1,514.7 million, net indebtedness was €333.7 million higher than at year-end 2006 and €572.5 million higher than at June 30, 2006, which was mainly incurred through the financing of the acquisition of the automotive electronics business of Motorola, the doubled dividend and the contributions to the CTA of €330.0 million in December 2006. The gearing ratio rose to 30.5% compared with the same period of 2006 (23.4%).

Compared with the first six months of 2006, research and development expense was up 22.9% to €389.2 million (previous year: €316.7 million), representing 4.9% of sales (previous year: 4.4%). A significant factor was the change in the scope of consolidation resulting from the acquisition of Motorola's automotive electronics business (€59.3 million).

In the first six months of 2007, €336.0 million (previous year: €362.1 million) was invested in property, plant, equipment and software, corresponding to a capital investment ratio of 4.2% (previous year: 5.0%). The capital expenditure ratio for the previous year was affected by the investments in the new tire plant in Camaçari, Brazil.

Automotive Systems invested mainly in new technologies for electronic brake and safety systems, as well as in expanding manufacturing capacity at its low-cost locations. The Tire divisions continued to expand production capacity at their low-cost locations in the Czech Republic, Mexico, Malaysia, Portugal and Slovakia. In addition, investment was made in a new compounding line at the U.S. plant in Mount Vernon, Illinois. ContiTech increased production capacities in Romania, Hungary and Greece, and invested in rationalization measures in Germany.

Key Figures for the Continental Corporation

in € millions		January 1 to June 30	Second Quarter
	2007	2006	2007	2006
Sales	8,013.9	7,230.9	4,049.1	3,619.3
EBIT	911.5	722.0	474.7	369.6
ROS (%)	11.4	10.0	11.7	10.2
Net income attributable to the shareholders of the parent	573.7	423.6	303.2	201.7
Earnings per share (in €)	3.91	2.90	2.07	1.38
Capital expenditure1	336.0	362.1	175.9	162.0
Number of employees at June, 302	89,082	80,306
Net indebtedness at June 30	-1,514.7	-942.2
Gearing ratio in %	30.5	23.4
Adjusted sales3	7,403.3	7,093.5	3,750.7	3,585.9
Adjusted EBIT4	909.8	763.4	477.9	415.1
Adjusted ROS (%)	12.3	10.8	12.7	11.6

1 Capital expenditure on property, plant, equipment and software. 2

Excluding trainees.

3 Before changes in the scope of consolidation.

4 Before changes in the scope of consolidation and special effects.

Sales/EBIT

in € millions		January 1 to June 30		Second Quarter
	2007	2006	2007	2006
Automotive Systems
Sales	3,427.8	2,853.9	1,701.9	1,418.9
EBIT	332.4	316.8	158.8	165.4
in % of sales	9.7	11.1	9.3	11.7
Passenger and Light Truck Tires
Sales	2,390.0	2,243.4	1,242.2	1,154.3
EBIT	356.6	211.9	199.5	103.9
in % of sales	14.9	9.4	16.1	9.0
Commercial Vehicle Tires
Sales	706.4	719.7	361.9	373.5
EBIT	58.3	44.2	30.2	24.5
in % of sales	8.3	6.1	8.3	6.6
ContiTech
Sales	1,561.0	1,475.3	780.1	705.2
EBIT	189.5	175.3	97.5	92.4
in % of sales	12.1	11.9	12.5	13.1
Other/consolidation
Sales	-71.3	-61.4	-37.0	-32.6
EBIT	-25.3	-26.2	-11.3	-16.6
Corporation
Sales	8,013.9	7,230.9	4,049.1	3,619.3
EBIT	911.5	722.0	474.7	369.6
in % of sales	11.4	10.0	11.7	10.2

Adjusted Sales¹ /EBIT²

in € millions		January 1 to June 30		Second Quarter
	2007	2006	2007	2006
Automotive Systems
Sales	2,866.6	2,853.9	1,425.3	1,418.9
EBIT	329.7	337.0	162.1	185.6
in % of sales	11.5	11.8	11.4	13.1
Passenger and Light Truck Tires
Sales	2,380.4	2,243.4	1,237.1	1,154.3
EBIT	356.6	256.9	199.4	148.0
in % of sales	15.0	11.5	16.1	12.8
Commercial Vehicle Tires
Sales	706.4	653.4	362.0	340.0
EBIT	58.3	32.5	30.0	18.0
in % of sales	8.3	5.0	8.3	5.3
ContiTech
Sales	1,521.2	1,404.2	763.3	705.3
EBIT	190.5	163.2	97.7	80.1
in % of sales	12.5	11.6	12.8	11.4
Other/consolidation
Sales	-71.3	-61.4	-37.0	-32.6
EBIT	-25.3	-26.2	-11.3	-16.6
Corporation
Sales	7,403.3	7,093.5	3,750.7	3,585.9
EBIT	909.8	763.4	477.9	415.1
in % of sales	12.3	10.8	12.7	11.6

¹ Before changes in the scope of consolidation.

2 Before changes in the scope of consolidation and special effects.

Capital Expenditure on Property, Plant, Equipment and Software

in € millions		January 1 to June 30	Second Quarter
	2007	2006	2007	2006
Automotive Systems	154.5	124.2	82.2	66.9
in % of sales	4.5	4.4	4.8	4.7
Passenger and Light Truck Tires	100.7	131.1	51.6	49.0
in % of sales	4.2	5.8	4.2	4.2
Commercial Vehicle Tires	35.0	54.9	18.2	16.9
in % of sales	5.0	7.6	5.0	4.5
ContiTech	44.9	50.7	23.2	28.5
in % of sales	2.9	3.4	3.0	4.0
Other/consolidation	0.9	1.2	0.7	0.7
Corporation	336.0	362.1	175.9	162.0
in % of sales	4.2	5.0	4.3	4.5

Automotive Systems Sales Up 20.1% Adjusted Sales Growth of 2.7% Earnings Improve 4.9% Adjusted EBIT Down 2.2%

Sales by the Automotive Systems division rose in the first half of 2007 to €3,427.8 million, up 20.1% compared with the same period of 2006 (€2,853.9 million). Motorola's automotive electronics business contributed €558.7 million to sales. Before changes in the scope of consolidation and exchange rate effects, sales were up 2.7%.

Sales volumes for electronic brake systems rose significantly, while those for hydraulic brake systems were up slightly on the previous year's level.

Automotive Systems increased its EBIT by 4.9% to €332.4 million (previous year: €316.8 million). The return on sales fell to 9.7% (previous year: 11.1%). Motorola's automotive electronics business contributed €7.4 million to EBIT. Before changes in the scope of consolidation and special effects, EBIT was down by €7.3 million or 2.2% to €329.7 million (previous year: €337.0 million). The adjusted return on sales amounts to 11.5% (previous year: 11.8%).

The ongoing integration of the automotive electronics business of Motorola led to expenses for integration and restructuring of €14.2 million in the first six months, including the expenses in the first quarter from the finalization of the effects-bargaining for the plant shut-down in Angers, France.

To optimize the production organization in Germany and improve the cost structure in the Electric Drives unit, the Haldensleben plant will be closed by the end of this year with operations being transferred to Berlin. This led to restructuring expenses in the amount of €4.8 million in the period under review.

In order to improve the cost structure in the Foundation Brakes unit, production capacity was transferred from the Ebbw Vale, UK, plant to our plant in Zvolen, Slovakia, in 2006. This led to restructuring expenses in the amount of €20.2 million in the first half of 2006.

Passenger and Light Truck Tires Sales Up 6.5% Adjusted Sales Growth of 8.4% Earnings Improve 68.3% Adjusted EBIT Up 38.8%

The Passenger and Light Truck Tires division increased sales in the first half of 2007 compared with the same period of 2006 by 6.5% to €2,390.0 million (previous year: €2,243.4 million). Before changes in the scope of consolidation and exchange rate effects, sales were up 8.4%.

In the replacement business units, volumes increased and EBIT improved substantially in Europe and The Americas. Sales volumes in the original equipment sector were slightly below the previous year's level on a worldwide basis, and EBIT was up considerably in both Europe and the NAFTA region.

The Passenger and Light Truck Tires division reported a 68.3% increase in EBIT to €356.6 million (previous year: €211.9 million). The return on sales rose to 14.9% (previous year: 9.4%). Before changes in the scope of consolidation and special effects from 2006, EBIT rose by €99.7 million or 38.8% to €356.6 million (previous year: €256.9 million). The adjusted return on sales amounts to 15.0% (previous year: 11.5%).

The restructuring in Charlotte, North Carolina, U.S.A., led to expenses of €45.0 million in the first six months of 2006.

Commercial Vehicle Tires Sales Down 1.8% Adjusted Sales Growth of 11.3% Earnings Improve 31.9% Adjusted EBIT Up 79.4%

The Commercial Vehicle Tires division recorded a decrease in sales in the first half of 2007 to €706.4 million, down 1.8% compared with the same period in 2006 (€719.7 million). Before changes in the scope of consolidation and exchange rate effects, sales increased by 11.3%.

European sales rose significantly in the replacement and original equipment sectors. Sales figures in The Americas region were roughly on par with the previous year's level.

The Commercial Vehicle Tires division increased its EBIT to €58.3 million, up 31.9% (previous year: €44.2 million). The return on sales rose to 8.3% (previous year: 6.1%). Before changes in the scope of consolidation, EBIT rose by €25.8 million or 79.4% to €58.3 million (previous year: €32.5 million). The adjusted return on sales amounts to 8.3% (previous year: 5.0%).

ContiTech Sales Up 5.8% Adjusted Sales Growth of 8.4% Earnings Improve 8.1% Adjusted EBIT Up 16.7%

Sales by the ContiTech division increased in the first six months of 2007 to €1,561.0 million, up 5.8% compared with the same period of 2006 (€1,475.3 million). Before changes in the scope of consolidation and exchange rate effects, sales were up 8.4%.

Nearly all business units recorded increases in sales compared to the previous year, with the share of sales to the automotive OE sector falling slightly.

ContiTech raised EBIT by 8.1% to €189.5 million (previous year: €175.3 million). The return on sales increased to 12.1% (previous year: 11.9%). Before changes in the scope of consolidation and special effects, EBIT rose by €27.3 million or 16.7% to €190.5 million (previous year: €163.2 million). The adjusted return on sales amounts to 12.5% (previous year: 11.6%).

In the first half of 2007, the ContiTech division incurred restructuring expenses of €2.2 million, primarily for Roulunds, Denmark.

In the same period in the ContiTech division, there were various minor special effects totaling €3.8 million which impacted earnings. This was off-set by a gain of €13.1 million from the excess interest in the net assets from the first-time consolidation of Roulunds Rubber Group.

Outlook

In general, the assumptions made in the consolidated financial statements as of December 31, 2006, regarding future trends still hold true, although for Germany, we now anticipate GDP growth exceeding 2.5%, and in Western Europe/Eurozone we expect GDP growth to nearly match that of the same period in 2006 (2.7%).

Contrary to our original forecast, we anticipate significant growth in European commercial vehicle production volumes in 2007. We also expect that the truck tire replacement market in the NAFTA region will recover in the second half of 2007 following the slump in the first six months.

We continue to anticipate a rise in consolidated sales for 2007 on the whole, with all divisions contributing to the increase.

Our expectations for EBIT also remain unchanged, with an improvement over the previous year.

For the full year, we anticipate raw material prices to stabilize at their current high level.

Significant Events After June 30, 2007

Continental Acquires Siemens VDO Automotive AG

On July 25, 2007, we announced the acquisition of Siemens VDO Automotive AG, contingent on the approval of the appropriate antitrust authorities, for €11.4 billion. The purchase price includes tax benefits of around €1 billion euros arising from the structure of the transaction. Based on fiscal 2006, Continental and Siemens VDO Automotive AG have combined sales of approximately €25 billion and close to 140,000 employees. At this point in time, it is not possible to reliably estimate the allocation of the purchase price among the individual assets, nor is it possible to estimate the consolidated pro forma sales or net income that would have been reported if the acquisition had been concluded already as of January 1, 2007.

Continental has sufficient financing leeway to maintain solid credit ratings of BBB and Baa2.

Contingent on the approval of the appropriate antitrust authorities, the acquisition should be concluded by the end of the fourth quarter 2007. The integration should be finished by the end of 2009; however, the large part should be completed next year.

With bundled forces, we achieve a leading position in three key market segments in particular:

• The two companies' combined know-how in systems technologies like driver-assistance, environment sensors, telematics and electronic brakes will decisively advance the integration of passive and active vehicular safety and set new standards through innovative systems in the areas of traffic management and accident prevention.
• In close cooperation with customers in the automotive industry, the company will be able to exploit its leading position in the area of powertrain systems – for electric motors and hybrid technology as well as for engine and transmission management systems – to achieve crucial headway in meeting the worldwide goal of a reduction in CO2 emissions.
• Linking the worldwide leading position in telematics with the competence in infotainment systems and instrument panel controls will enable us to offer automotive OE customers and end users new functions and benefits.

The purchase advances Continental to among the top five suppliers in the automotive industry worldwide. At the same time we are significantly expanding our market position in Europe, North America and Asia.

Acquisition of Automotive Products Italia (SV) S.r.l.

On July 19, 2007, we announced the acquisition of Automotive Products Italia (SV) S.r.l. (AP) from the Australian company Pacifica Group Limited, a move which is subject to approval by the appropriate antitrust authorities. AP, founded in 1984, is a manufacturer of drum and parking brakes for passenger and commercial vehicles and has approximately 500 employees. In 2006 the company had sales of about €79 million and produced some 5.8 million drum and parking brakes. Customers include vehicle manufacturers such as Fiat, Ford, Renault/Nissan, Toyota, Land Rover, Mazda and GM. A technical and marketing cooperation agreement between the Automotive Systems division and AP was established already in 1997. AP, the second largest producer of drum brakes in Europe, is to be integrated into the Hydraulic Brake Systems business unit of the Automotive Systems division.

German Corporate Tax Law 2008

On May 25, 2007, the German Parliament (Bundestag) passed the 2008 Corporate Tax Law. On July 6, 2007, the German Federal Council (Bundesrat) passed the resolution required for the law to go into effect. In accordance with IAS 12.48, the provisions of the Corporate Tax Law were therefore not substantially enacted as of June 30, 2007 and had no impact on the interim financial statements. However, the Corporate Tax Law 2008 will affect the valuation of the temporary differences expected between the tax balance sheets and IFRS balance sheets as of December 31, 2007. As a result of the reduction of the federal corporate tax rate from 25% to 15%, the elimination of trade tax deductibility, and the lowering of the basic federal rate, approximately €8 million to €12 million lower deferred tax liabilities will be reported as of December 31, 2007.

Financial Statements as of June 30, 2007

Accounting Principles

This Interim Report, as presented, has been prepared in accordance with International Financial Reporting Standards (IFRS). These accounting principles and basis of valuation are disclosed in detail in the Annual Report 2006. As opposed to the annual financial statements, however, no interim adjustments are made to certain accrued fixed cost items, mainly fixed costs capitalized for finished goods and work-in-progress inventories and provisions for accrued vacation of hourly and salaried employees.

Taxes are calculated based on the estimated, weightedaverage annual tax rate expected for the year as a whole, taking into account the tax impact of specific significant items allotted only to the respective reporting period.

The interim financial statements have not been audited in accordance with section 317 of the Handelsgesetzbuch (HGB - German Commercial Code) or reviewed by an independent auditor.

Impact on Interim Reports

Although certain elements of the Corporation's business are seasonal, the overall comparability of the interim consolidated financial statements is not compromised. All significant effects in the current period are shown in the financial summaries or in the accompanying explanations. There have been no other major changes in estimates or contingencies between the Annual Report 2006 and comparative interim periods that have led to material adjustments in the current interim period.

in € millions	January 1 to June 30			Second Quarter
	2007	2006	2007	2006
Sales	8,013.9	7,230.9	4,049.1	3,619.3
Cost of sales	-5,987.5	-5,464.5	-3,023.4	-2,692.0
Gross margin on sales	2,026.4	1,766.4	1,025.7	927.3
Research and development expenses	-389.2	-316.7	-204.0	-160.6
Selling and logistics expenses	-440.6	-422.2	-223.1	-211.9
Administrative expenses	-222.3	-224.3	-113.3	-113.5
Other income and expenses	-78.2	-95.1	-15.7	-74.8
At-equity share in earnings of associates	10.0	8.3	5.0	3.3
Other income from investments	5.4	5.6	0.1	-0.2
Earnings before interest and taxes	911.5	722.0	474.7	369.6
Interest income	21.6	15.3	12.0	8.2
Interest expense	-45.9	-69.4	-19.7	-46.3
Net interest expense	-24.3	-54.1	-7.7	-38.1
Earnings before taxes	887.2	667.9	467.0	331.5
Income tax expense	-301.7	-230.8	-158.8	-122.8
Net income	585.5	437.1	308.2	208.7
Minority interests	-11.8	-13.5	-5.0	-7.0
Net income attributable to the shareholders of the parent	573.7	423.6	303.2	201.7
Earnings per share in €	3.91	2.90	2.07	1.38
Diluted earnings per share in €	3.74	2.78	1.98	1.32

Consolidated Income Statements

Consolidated Balance Sheets

Assets in € millions	June 30, 2007 Dec. 31, 2006		June 30, 2006
Goodwill	1,711.8	1,717.8	1,408.4
Other intangible assets	218.3	221.8	117.2
Property, plant, and equipment	3,549.9	3,549.0	3,251.3
Investments in associates	127.9	121.9	127.0
Other investments	15.3	15.4	9.2
Deferred tax assets	138.9	141.4	75.0
Deferred pension charges	49.0	43.0	58.3
Long-term derivative instruments and interest bearing investments	30.1	20.3	11.5
Other long-term financial assets	33.4	46.4	44.5
Other assets	1.5	0.9	0.9
Non-current assets	5,876.1	5,877.9	5,103.3
Inventories	1,810.0	1,597.2	1,593.7
Trade accounts receivable	2,844.7	2,340.3	2,456.4
Other short-term financial assets	131.0	126.9	59.5
Other assets	330.0	283.4	335.7
Income tax receivable	20.5	29.1	19.2
Short-term derivative instruments and interest bearing investments	4.4	12.8	3.1
Cash and cash equivalents	885.7	571.1	1,481.0
Assets held for sale	25.3	14.3	5.9
Current assets	6,051.6	4,975.1	5,954.5
Total assets	11,927.7	10,853.0	11,057.8

Total equity and liabilities in € millions		June 30, 2007 Dec. 31, 2006	June 30, 2006
Common stock	375.3	375.1	373.7
Capital reserves	1,349.0	1,340.1	1,316.6
Retained earnings	3,167.5	2,886.8	2,327.6
Other reserves	-162.5	-131.2	-222.1
Minority interests	236.1	239.1	230.8
Total equity	4,965.4	4,709.9	4,026.6
Provisions for pension liabilities and other post-employment benefits	516.5	525.6	970.6
Deferred tax liabilities	163.0	189.1	183.3
Long-term provisions for other risks	323.8	333.2	335.6
Long-term portion of indebtedness	1,003.5	1,082.1	994.2
Other non-current liabilities	33.3	26.8	27.3
Non-current liabilities	2,040.1	2,156.8	2,511.0
Trade accounts payable	1,447.1	1,465.9	1,263.4
Income tax payable	468.5	381.6	322.4
Short-term provisions for other risks	526.7	533.7	485.0
Indebtedness	1,431.4	703.1	1,443.6
Other short-term financial liabilities	585.9	565.4	555.8
Other liabilities	462.6	336.6	450.0
Current liabilities	4,922.2	3,986.3	4,520.2
Total equity and liabilities	11,927.7	10,853.0	11,057.8
Gearing ratio in %	30.5	25.1	23.4

Consolidated Cash Flow Statements

in € millions	January 1 to June 30		Second Quarter
	2007	2006	2007	2006
EBIT	911.5	722.0	474.7	369.6
Interest paid	-51.1	-32.4	-32.1	-10.9
Interest received	20.7	14.9	12.0	8.2
Income tax paid	-229.5	-186.2	-120.2	-121.9
Dividends received	8.5	7.6	0.3	0.4
Depreciation and amortization	352.1	311.0	175.3	155.3
At-equity share in earnings of associates and accrued dividend income from other investments	-15.3	-13.9	-5.0	-3.1
Gains from the disposal of assets, subsidiaries and business units	-3.4	-2.3	-1.5	-0.1
Other non-cash changes	0.0	-13.1	0.0	-13.1
Changes in
inventories	-216.4	-208.4	-62.2	-72.5
trade accounts receivable	-509.1	-383.0	2.4	34.6
other assets	-59.8	-75.3	-37.5	45.6
trade accounts payable	-17.0	-28.9	-105.7	-78.4
pension and post-employment provisions	-5.1	-306.0	-1.4	-316.1
provisions for other risks	-14.9	21.8	-32.9	10.1
other liabilities	174.7	136.5	13.1	5.8
Cash flow provided by/used for operating activities	345.9	-35.7	279.3	13.5
Proceeds on disposal of property, plant, equipment and intangible assets	9.0	20.9	4.4	6.2
Capital expenditure on property, plant, equipment and software	-336.0	-362.1	-175.9	-162.0
Capital expenditure on intangible assets from development projects	-3.9	0.0	-3.5	0.0
Proceeds on disposal of subsidiaries and business units, including surrendered cash and cash equivalents	1.0	34.6	1.0	34.6
Acquisition of subsidiaries and other financial investments, incl. acquired cash and cash equivalents	-40.9	-6.8	-0.9	-4.8
Interest bearing advances	9.4	6.4	-0.1	0.0
Cash used for investing activities	-361.4	-307.0	-175.0	-126.0
Cash flow before financing activities	-15.5	-342.7	104.3	-112.5
Change in indebtedness	628.3	715.8	271.7	765.7
Proceeds from the issuance of shares	0.4	0.1	0.3	0.1
Dividends paid to minority interests	-7.0	-3.7	-5.1	-1.8
Dividends paid	-293.1	-145.9	-293.1	-145.9
Cash flow provided by/used for financing activities	328.6	566.3	-26.2	618.1
Change in cash and cash equivalents	313.1	223.6	78.1	505.6
Cash and cash equivalents at the beginning of the reporting period	571.1	1,273.8	803.9	989.3
Effect of exchange rate changes on cash and cash equivalents	1.5	-16.4	3.7	-13.9
Cash and cash equivalents at the end of the period	885.7	1,481.0	885.7	1,481.0

Reconciliation of Free Cash Flow to the Change in Net Indebtedness

		January 1 to June 30	Second Quarter
in € millions	2007	2006	2007	2006
Cash flow before financing activities (free cash flow)	-15.5	-342.7	104.3	-112.5
Dividends paid	-293.1	-145.9	-293.1	-145.9
Dividends paid to minority interests	-7.0	-3.7	-5.1	-1.8
Proceeds from the issuance of shares	0.4	0.1	0.3	0.1
Non-cash changes	-19.0	-21.5	-2.2	-18.5
Other	-1.4	31.0	0.4	-20.6
Foreign exchange effects	1.9	33.7	3.0	27.1
Change in net indebtedness	-333.7	-449.0	-192.4	-272.1

Consolidated Statements of Changes in Total Equity

	Number of shares	Common stock	Capital reserves	Retained earnings			Other reserves		Subtotal Minority interest	Total
in € millions	(thousands)				Successive share purchases	Difference from currency translation	financial instru ments2
As of Jan. 1, 2006	145,865	373.4	1,307.8	2,049.7	-24.8	-131.6	-0.3	3,574.2	220.8	3,795.0
Net income	—	—	—	423.6	—	—	—	423.6	13.5	437.1
Comprehensive income	—	—	—	—	—	-65.5	0.1	-65.4	-6.2	-71.6
Net profit for the period	—	—	—	423.6	—	-65.5	0.1	358.2	7.3	365.5
Dividends paid	—	—	—	-145.9	—	—	—	-145.9	-3.7	-149.6
Issuance of shares1	102	0.3	8.8	0.2	—	—	—	9.3	—	9.3
Changes in minority interests from consolidation changes or capital increases	—	—	—	—	—	—	—	0.0	6.4	6.4
As of June 30, 2006 145,967		373.7	1,316.6	2,327.6	-24.8	-197.1	-0.2	3,795.8	230.8	4,026.6
As of Jan. 1, 2007	146,529	375.1	1,340.1	2,886.8	-22.9	-107.5	-0.8	4,470.8	239.1	4,709.9
Net income	—	—	—	573.7	—	—	—	573.7	11.8	585.5
Comprehensive income	—	—	—	—	—	-31.7	0.3	-31.4	-7.1	-38.5
Net profit for the period	—	—	—	573.7	—	-31.7	0.3	542.3	4.7	547.0
Dividends paid	—	—	—	-293.1	—	—	—	-293.1	-7.0	-300.1
Issuance of shares1	57	0.2	9.0	—	—	—	—	9.2	—	9.2
Reclassification of equity component on the conversion of convertible bonds	—	—	-0.1	0.1	—	—	—	—	—	—
Successive acquisitions of shares of fully consolidated companies	—	—	—	—	0.1	—	—	0.1	-0.7	-0.6
As of June 30, 2007 146,586		375.3	1,349.0	3,167.5	-22.8	-139.2	-0.5	4,729.3	236.1	4,965.4

1 Includes the expenditure and exercise of rights derived from stock option plans and convertible bonds.

2 Net of deferred tax.

Additional Information

Consolidated net pension expenses can be summarized as follows:

in € millions				January 1 to June 30, 2007					January 1 to June 30, 2006
	Germany	U.S.A.	UK	Others	Total	Germany	U.S.A.	UK	Others	Total
Current service cost	16.3	1.1	2.2	2.0	21.6	14.1	5.1	2.4	1.7	23.3
Interest on defined benefit obligation	30.8	18.4	4.3	2.0	55.4	31.8	19.3	3.9	1.8	56.8
Expected return on plan assets	-17.0	-24.7	-5.1	-0.8	-47.6	-9.3	-26.7	-4.9	-0.7	-41.6
Gain/loss on curtailment	—	—	—	—	—	—	23.3	—	—	23.3
Amortization of actuarial gains and losses as well as other costs	2.0	0.3	0.0	0.2	2.5	2.6	1.1	-0.1	0.2	3.8
Net periodic pension cost	32.0	-4.9	1.4	3.3	31.9	39.2	22.1	1.3	3.0	65.6

Consolidated retirement healthcare and life insurance expenses in the U.S.A. can be summarized as follows:

in € millions	January 1 to June 30, 2007	January 1 to June 30, 2006
Current service cost	0.9	2.1
Interest cost on defined benefit obligation	5.1	8.7
Amortization of actuarial gains and losses as well as other costs	-0.9	-0.9
Gain/loss on curtailment	—	-9.9
Net cost of other post-employment benefits	5.1	0.0

Cash Changes in Post-Employment Obligations

Pension funds exist only for pension obligations, and particularly in Germany, the U.S.A. and UK. The companies of the Continental Corporation contributed €3.8 million (previous year: €3.4 million) into these pension funds for the period of January 1 to June 30, 2007. Furthermore, in 2006 Continental concluded a Contractual Trust Arrangement (CTA) in Germany, effective June 30, 2006, and transferred €300 million in assets to a trustee.

Payments for benefit obligations totaled €77.2 million (previous year: €60.7 million) for the period of January 1 to June 30, 2007. Payments for other post-employment benefits totaled €7.4 million (previous year: €11.2 million) for the same period.

Companies Consolidated

In addition to the parent company, the consolidated financial statements include 282 domestic and foreign companies in which Continental Aktiengesellschaft holds a direct or indirect interest of at least 20% of the voting rights. Of these, 248 are fully consolidated and 34 are carried at equity.

Since December 31, 2006, the total number of consolidated companies has increased by four. Five companies were acquired, a new company was founded and two companies were merged.

Since June 30, 2006, the total number of consolidated companies has increased by fourteen. The principal additions to the companies consolidated related to the acquisition of Motorola's automotive electronics business and the acquisition of Thermopol International Ltd. and its subsidiaries.

Transactions with Related Parties

In the first half of 2007, there were no significant changes in transactions with related parties compared with the same period last year.

Final Purchase Price Allocation for the Automotive Electronics Business of Motorola

The final purchase price allocation for the automotive electronics business of Motorola gave rise to goodwill of €328.7 million that was allocated to the relevant business units. The preliminary purchase price allocation had resulted in goodwill of €332.8 million, and was corrected primarily from adjustments to contingencies. Taking into account currency translation, goodwill amounted to €304.8 million as of June 30, 2007.

Acquisition of Thermopol

On February 1, 2007, ContiTech AG acquired 100% of the shares of the hose manufacturer Thermopol International Ltd., London, and its subsidiaries for a final price of €25.2 million plus direct costs of acquisition totaling €0.3 million. The acquired assets and liabilities were recognized at their estimated fair values. The allocation of the purchase price gave rise to goodwill of €10.9 million, taking into account later adjustments to the purchase price. The goodwill reflects the strengthening of the global market position for high-performance silicone hoses for cars and commercial vehicles.

Since the acquisition, the Thermopol Group has contributed €18.8 million in sales. The acquisition has not led to any material change in the net income attributable to the shareholders of the parent.

EU Commission Approves Majority Holding in the Matador Rubber Group

On June 8, 2007, the EU Commission gave Continental AG the approval for the acquisition of a majority holding in the Slovakian-based Matador Group's tire and conveyor belt operations and its rubber-processing machine business unit. The required spin-off of the respective operations from the Matador Group has begun. Once this has been completed, it is anticipated that the acquisition of the majority holding in the Matador Rubber Group can be concluded in the fourth quarter.

Assurance of the Legal Representatives

We assure to the best of our knowledge that, based on the required principles for the proper presentation of interim consolidated financial statements, the statements give a true and fair view of the Corporation's net assets, financial position, and results of operations. We also assure to the best of our knowledge that the interim management report describes the development of the business and related results and position of the Corporation as well as the significant opportunities and risks for the probable further development for the remainder of the year, to also give a true and fair view.

Financial Calendar

2007
Financials press conference	February 22
Analyst conference	February 22
Annual Shareholders' Meeting	April 24
Interim Report as of March 31, 2007	May 2
Interim Report as of June 30, 2007	August 1
Interim Report as of September 30, 2007	October 31

Continental Vahrenwalder Phone +49 511 Aktiengesellschaft, Straße 93 8-01, 9, 3 Fax 0165 +49 Hanover, P.O.Box 511 9 3 169, Germany 8 -81770, 30001 mailservice@conti.de, Hanover, Germany

Continental AG is an Official Sponsor of UEFA EURO 2008™.