Dürr AG — Annual Report 2005

Apr 4, 2006

2005 Annual Report

Technologies · Systems · Solutions

Key fi gures (IFRS)

(continuing operations)

		2005	2004	Change
Incoming orders	in € m	1,216.9	1,387.4	– 12.3 %
Orders on hand (Dec. 31)	in € m	723.5	859.9	– 15.9 %
Sales revenue	in € m	1,400.6	1,725.8	– 18.8 %
EBIT (earnings before interest and income taxes)
before non-recurring expenses1	in € m	3.5	35.8	– 90.2 %
Consolidated net profi t
(including discontinued operations)	in € m	4.3	4.7	– 8.5 %
Cash fl ow from operating activities	in € m	– 147.6	– 115.5	–
Cash fl ow from investing activities	in € m	282.7	– 19.5	–
Cash fl ow from fi nancing activities	in € m	– 74.7	– 19.4	–
Balance sheet total (Dec. 31) 2	in € m	1,189.1	1,435.8	– 17.2 %
Equity including minority interests 2	in € m	248.1	222.7	11.4 %
Net fi nancial debt 3 (Dec. 31) 2	in € m	84.9	242.8	– 65.0 %
Net working capital (Dec. 31) 2	in € m	171.5	120.5	42.3 %
Employees (Dec. 31)		5,992	4 6,240	– 4.0 %

¹ Before restructuring expenses, impairment losses, and investment income/loss.

² Balance sheet fi gures for 2005 and 2004 are, with the exception of equity, comparable only to a limited extent. The balance sheet for 2005 no longer includes values for Measuring and Process Technologies, but the balance sheet for 2004 does. Thus, we are in compliance with a provision of IFRS 5. 3 Without fi nance leases.

4 Continuing operations (without Measuring and Process Technologies).

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

2005

Honors in China

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

FEBRUARY Heinz Dürr Innovation Award conferred

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

MAY GM considers Dürr

one of the best Dürr receives General Motors'

"Supplier of the Year Award" for the fi fth time.

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

AUGUST FOCUS kick-off

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

Paint and Assembly Systems

		2005	2004	Change
Incoming orders	in € m	931.2	1,086.4	– 14.3 %
Sales revenue	in € m	1,090.0	1,413.8	– 23.0 %
EBIT before non-recurring expenses	in € m	7.1	34.5	– 79.4 %
Employees (Dec. 31)		3,979	4,236	– 6.1 %

Measuring and Process Systems

(continuing operations)

		2005	2004	Change
Incoming orders	in € m	285.7	301.0	– 5.1 %
Sales revenue	in € m	310.6	312.0	– 0.4 %
EBIT before non-recurring expenses	in € m	5.1	– 1.3	–
Employees (Dec. 31)		1,966	1 1,953	0.7 %

1 Continuing operations (without Measuring and Process Technologies).

2006

SEPTEMBER New painting robot presented Dürr unveils the new EcoRP E

painting robot at the 2005 Open House.

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

O C T O B E R

Anniversary celebration in China

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

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

NOVEMBER

Rating outlook improves slightly

Standard & Poor's upgrades its outlook for Dürr's company rating from "credit watch negative" to "stable".

DECEMBER

Successful capital increase

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

Financial restructuring complete

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

Key fi gures

Dürr Group

The Dürr Group operates in the market through two divisions which are divided into six business units. Dürr AG in Stuttgart operates as a pure management holding.

Paint and Assembly Systems division

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

Measuring and Process Systems division

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

Business units

• Paint Systems
• Application Technology
• Environmental and Energy Systems
• Factory Assembly Systems

Business units

• Balancing and Diagnostic Systems
• Cleaning and Filtration Systems

Title: In BMW Group's Oxford factory, the MINI is painted with Dürr technology. Roof painting is pictured here.

Strategy

Dürr is one of the world's leading suppliers of equipment, systems, and services mainly for automobile manufacturing. We offer innovative, environmentally friendly solutions that help our customers achieve lower costs, higher quality, and greater flexibility in production and assembly.

Our range of products and services covers important stages of vehicle production and assembly. As a systems supplier, we plan and build paint shops and final assembly facilities. We also deliver cleaning, filtration, and balancing systems for the manufacture of engine, transmission, and vehicle components.

We are working to increase our profitability for the long term. In doing so, we are focusing on our strengths: Innovative power, turnkey expertise, a global presence, particularly in growth markets, and the experience, dedication, and expertise of our employees.

We have installed many plants and systems at our customer over the years, and they serve as the basis for a steadily growing modernization and service business, which we continue to intensify.

Contents

• 2 Letter from the Board of Management
• 4 Report of the Supervisory Board
• 7 FOCUS
• 12 Project report "Precision work required"
• 14 Paint and Assembly Systems division
• 16 Measuring and Process Systems division
• 18 Dürr on the capital market
• 21 Corporate governance

Group management report for the 2005 reporting period

• 23 Organizational and legal structure
• 25 Economic environment
• 26 Business development
• 31 Financial development
• 35 Research and development
• 36 Purchasing
• 37 Employees
• 38 Risk report
• 42 Events subsequent
• to the reporting date
• 42 Outlook

Consolidated financial statements for the 2005 reporting period

• 47 Independent auditors' report
• 48 Consolidated income statement
• 49 Consolidated balance sheet
• 50 Consolidated statement of changes in shareholders' equity
• 50 Statement of recognized income and expense in the consolidated financial statements
• 51 Consolidated cash flow statement
• 52 Notes to the consolidated financial statements for the 2005 reporting period
• 101 Dürr worldwide
• 102 Glossary

Letter from the Board of Management

Dear shareholders, customers, business partners, and staff,

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

• Focusing on our core expertise as machinery and industrial equipment manufacturers and thus essentially on our business with the automotive industry.
• Adapting our business processes and resources to this key sales market which is currently undergoing dramatic changes. While the volume of orders for new plant construction is shrinking, particularly in the traditional automotive markets, our customers' needs in terms of modernizing existing plants and making them more flexible are growing. We are responding to rising demand in Eastern Europe and Asia by further expanding our presence in these regions.
• Increasing profitability by focusing our activities, adjusting capacities and structures, improving our business processes and infrastructure, and creating an efficient organizational and management structure.

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

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

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

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

Ralf Dieter (44) Chairman

• Paint and Assembly Systems
• Measuring and Process Systems
• Quality
  • Research and Development
  • Patents
• Information Technology

Martin Hollenhorst (47)

• Finance/Taxes
• Controlling
• Organization
• Investor Relations/ Corporate Communications
• Legal Affairs/Insurance
• Risk Management
• Human Resources
• Internal Auditing

(from left to right)

Due to the even profit available for distribution of Dürr AG, the Supervisory Board and Board of Management will propose to the annual shareholders' meeting that no dividend be paid for 2005. However, FOCUS has us on the right track to put Dürr in a position to pay dividends again soon. At the end of 2005, the stock markets were already rewarding the FOCUS strategy and the measures that had been implemented thus far. The price of Dürr stock has risen by around 50% since the end of October, giving our shareholders a gain of 34% for the year as a whole.

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

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

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

Sincerely,

Ralf Dieter Chairman of the Board of Management

Stuttgart, March 2006

Martin Hollenhorst Member of the Board of Management

Report of the Supervisory Board

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

The Supervisory Board held five regular meetings and one special meeting in 2005, on the following dates: February 23, April 20, June 22, August 10 (special meeting), September 28, and December 19. No member of the Supervisory Board participated in less than three of the meetings. The Chairman of the Supervisory Board maintained close contact with the Board of Management outside the meetings in order to analyze the company's situation. He always reported the results of these discussions to the entire Supervisory Board. The Personnel Committee and Audit Committee each met twice in 2005. The Mediation Committee was not convened.

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

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

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

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

The Board of Management reported regularly and in a timely manner to the Supervisory Board about existing risks. The Supervisory Board advised the Board of Management regarding the expansion of risk control and monitoring systems.

Personnel changes

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

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

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

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

Audit and ratification of the annual financial statements

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

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

The Supervisory Board has examined the report prepared by the Board of Management pursuant to Sec. 312 of the German Stock Corporation Act concerning relationships with related enterprises (dependent company report) for 2005. The auditor issued the following unqualified report pursuant to Sec. 313 (3) of the German Stock Corporation Act: "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 consideration paid by the company in connection with the transactions mentioned in the report was not unduly high, and 3. regarding the measures mentioned in the report, no circumstances argue in favor of a materially different judgment than that made by the Board of Management." The Supervisory Board concurs with this result of the review. 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, the employee representatives, and all employees for their dedication in 2005, as well as the shareholders for the confidence they have placed in the company.

Stuttgart, March 29, 2006

Chairman of the Supervisory Board Dr.-Ing. E. h. Heinz Dürr

FOCUS

Improving earning power in our core business

As an equipment supplier to the automotive industry, we see ourselves as a technology leader. Our global presence and the expertise of our employees are the foundation on which we have built our leading position. We launched the Group-wide FOCUS program in August 2005 to secure our strong market position and use it to achieve reasonable margins. The main objective of FOCUS is to increase efficiency for the long term by improving operational process flows and to concentrate on our business with the automotive industry.

FOCUS has four objectives that are key to our future:

• To improve our poor operating profitability
• To reduce financial debt
• To strategically adapt to changes in demand in the automotive industry
• To tap new, high-margin lines of business

The improvements made through FOCUS are being implemented over the long term and continually reviewed. Our focus here is on involving our employees, whom we inform about the goals, measures, motives, and progress of FOCUS on a regular basis. The program entails restructuring expenses of € 45.9 million. In addition, extraordinary writedowns of € 27.9 million have arisen as a result of the realignment. We have planned 18 months for the implementation of the key measures. While 2006 is the year of implementation, the impact of FOCUS is expected to take effect during the course of 2007.

First goals achieved

We have already achieved two major goals of FOCUS:

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

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

"At General Motors in Oshawa, we have just put into service one of the largest paint shops that has ever been built. Dürr relies on professional project management and knowledge transfer to make sure that such big contracts go according to plan in every way. For example, in the framework of our FOCUS program, we have put together a handbook that is the collective know-how of our 50 most experienced project managers."

Ron Downs, Paint Systems Project Manager

Adapting to a changed market environment

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

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

This is why we are stepping up international marketing of our service and conversion services, establishing additional local service bases near our customers, and developing new services such as consulting on process optimization and energy audits in automotive plants.

Increasing operating efficiency

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

Boosting efficiency

To make our work more efficient, we are harmonizing business processes and IT support systems in such areas as project management, risk management, costing, contract drafting, and finance and controlling. In this way, we are creating a framework for smooth internal cooperation, especially for international projects that involve employees from different sites. We have better aligned our sales organization with our customers' structures and needs. For our major customers in the automotive industry, we have established Global Customer Directors, who have been managing these accounts since October 2005 and are responsible for the Group's entire range of products and services. We are also pushing forward the modularization of our products, which will play a key role in our ability to complete orders on budget and on time and will also minimize earnings risks.

FOCUS: Utilizing potential for improvement

Above all, the FOCUS program helps us to improve our structures and processes. In that connection, we are concentrating on five crucial points.

"The FOCUS program is helping Dürr to grow closer together. In the area of information technology, we are in the process of standardizing different systems. That will considerably improve cooperation within the Group. It will also make it easier to carry out international projects."

Heike Steeg, Application Development, SAP

Streamlining our organizational structure

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

Adjusting capacities and reducing costs

By the end of 2006, we will eliminate around 600 jobs net, primarily as part of the restructuring of Paint and Assembly Systems. While some 800 jobs will be cut in Western Europe and North America, around 200 new employees will be hired in Asia's burgeoning markets. The cuts will enable us to achieve annual savings of more than € 50 million beginning in 2007. Around half of the job cuts are due to market-related capacity adjustments. The other half are the result of measures to improve efficiency and the consolidation of locations in Germany and the United States.

More security through better division of labor

Our business as machinery and industrial equipment manufacturers for the automotive industry has many facets, from supplying individual products to converting plants and systems to building complete paint shops and final assembly facilities. We are directly represented in 19 countries and maintain 47 sites, of which 24 have their own production facilities. In such a global network, there have to be clear guidelines about which companies within the Group are responsible for which tasks. As part of FOCUS, we have fundamentally improved this division of labor in our Paint and Assembly Systems division in order to ensure efficient project management for our customers and to avoid earnings risks.

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

• The "system centers" in Stuttgart and Detroit are primarily responsible for managing large-scale orders. The system centers are companies with strong resources and highly qualified employees who have completed more than 80 large orders as project managers in the last 15 years. We are currently establishing a third system center in China/Korea. The system centers divide their responsibilities by region or customer. Stuttgart manages Europe, Africa, and Asia, while Detroit covers the NAFTA countries and Australia.
• All other Paint and Assembly Systems companies function as local business centers. They support the system centers on large-scale orders on site, are responsible for local sales, and are expanding our services business. The business centers ensure customer responsiveness as they are located in all of the automotive industry's manufacturing markets, including France, Spain, the UK, Japan, Brazil, China, India, and Russia.

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

Project report

Precision work required

Increasingly, automotive plants are being converted, made more flexible, or expanded as manufacturers react to rapid model changes and changing customer demands. These "revamps" must be perfectly planned and executed because production in the plant has to continue without major disturbances throughout the conversion. Projects like these require capable partners like Dürr.

PLANNING ORDER ORDER

Planning Order income Technical clarification Construction

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

We are currently handling a particularly challenging conversion project for the BMW Group. Because the new MINI has been selling so well, capacities at the BMW Group's paint shop in Oxford, UK, have to be increased considerably. Having built the paint shop new back in 1997 and 1998, we were predestined for the job. The BMW Group commissioned us to do the planning for the conversion in 2004. The next milestone was to clarify the technical details. In this second planning stage, details were specified that had not yet played a role in the original layout planning. We also consulted with our customer on how future change requests and expansions could be achieved given the limited amount of space available. We drafted a schedule that distributed our construction work across the individual plant holidays to avoid disrupting production. We completed the plans successfully in March 2005. The BMW Group then put out a call for bids on the construction work and awarded the contract to Dürr at the end of June 2005.

Preparation phase

We had six months to prepare for the first major conversion stage in Oxford, which would take place at the turn of the year from 2005 to 2006. Within Dürr, we set up a 10-person core project team consisting of colleagues from Germany and the UK, with

Contrast roof booth at the BMW Group plant in Oxford: Painting robots apply the contrast color to the roof of the MINI.

Production Installation Start of operation Final acceptance

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

First conversion stage goes like clockwork

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

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

Second conversion stage still ahead

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

Paint and Assembly Systems division

Continued expansion of robotics business

• New EcoRP E painting robot unveiled
• Marketing success for new FAStplant ® final assembly concept
• Service: Energy management lowers costs

Paint systems: New plant in China

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

Based on our process and consulting expertise, we are tightening our focus on the optimization of existing plants. And we've been successful. DaimlerChrysler commissioned us to convert several painting lines to more efficient technologies and processes in Germany. We are also helping to significantly increase capacity at the BMW Group's Oxford (UK) plant, where the MINI series is painted. You can read more about this project on pages 12/13.

We further expanded our service activities and opened our test center for SEALING processes in Bietigheim-Bissingen. The center has four robot stations at which we can work with our customers to test and optimize production processes, such as the sealing of weld seams, prior to use.

In APPLICATION TECHNOLOGY, in particular, we benefited from the continuing trend toward process automation. This is reflected not least of all in the record sale of well over 500 painting robots last year. We will continue to expand our robotics business in the future. And the newly developed EcoRP E model, which we unveiled in September 2005, will help us do so. The EcoRP E is especially well suited for conversions of existing painting booths and for replacing older, less flexible painting machines. Short installation and commissioning times and a small footprint make it a clear choice. Because it moves on a rail mounted below the booth ceiling, the EcoRP E is also extremely flexible and has no trouble reaching all the surfaces of a vehicle body.

We are also breaking new ground in the area of software. We use data from three-dimensional MATERIALS FLOW simulations to adjust our standard EcoEMOS SUPERVISORY CONTROL SYSTEMS to our customers' specific production processes as quickly as possible. As a result, the fully programmed supervisory control systems are ready for operation sooner, speeding the start-up of the entire plant.

GLOSSARY: p.102

Final assembly and conveyor systems: New FAStplant ® system used for mass production for the first time

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

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

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

Environmental technology:

New concepts for reducing the amount of energy used for production

Cutting energy consumption will play an increasingly important role in reducing automotive production costs in the years ahead. That is why we have set up a consulting team that advises our customers on energy management. For example, we studied the energy needs and costs of all relevant processes in one large automaker's paint shop in the United States. The suggestions for improvement that were developed based on the outcome of our study resulted in such significant savings that they will offset the expense of converting the system within the first year.

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

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

Measuring and Process Systems division

Innovations strengthen market leadership

• New balance measuring systems CAB 920 and CAB 950
• New P-series machines for high-quality metal cleaning
• Restructuring in cleaning technology is well under way

Balancing systems: Expanding our services business

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

Business outside the automotive industry progressed well. Rising energy consumption led to increased demand for balancing systems for power plant rotors in the emerging markets of Asia. The aviation industry stepped up spending to accommodate rising passenger volumes and the switch to more efficient engines.

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

We have proven our innovative power with the new CAB 920 and CAB 950 BALANCE MEASURING SYSTEMS. They offer not only easier handling and greater operating safety but also shorter changeover times and thus higher productivity. In the area of wheels and tires, we unveiled a new system for assembling and balancing tires equipped with emergency running properties. In the interest of increased safety, more and more automobiles are being equipped with these "run-flat tires" and potential demand for our assembly systems is correspondingly high.

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

Cleaning technology: Efficiency and cooperation improved

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

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

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

In addition to these improvements, we are focusing on innovations to boost our competitiveness. A prime example is the Ecomat 600, a cleaning system with an integrated storage and loading cell that we developed in collaboration with a partner company for use in the production of engines and transmissions. From the storage and loading cell, the workpieces are fed into an attached machine tool, retrieved after processing, and conveyed into the cleaning area, all in accordance with an exact timing sequence. In the cleaning area, as many as three treatment modules take over the washing and drying of the parts. INJECTION FLOOD WASHING and vacuum drying ensure optimal cleaning, even of complex workpieces. Another benefit is that the Ecomat 600 requires as much as 60% less floor space than conventional systems.

We unveiled the innovative P-series of machines for outstanding metal cleaning results using solvents. The series evolved from a development partnership with the cleaning media producer Dow/Safechem and is currently the only series worldwide that is designed for use with the new DOWCLENE 1611 cleaner. The space-saving Compact 80P model and the high-throughput Universal 81P deliver outstanding results with many different types of particles and contaminants. The P-series also features integrated solvent recycling, minimal energy consumption thanks to heat recovery, and virtually emissions-free operation.

GLOSSARY: p.102

Dürr on the capital market

Sustained rise in stock price in the last two months of 2005

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

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

Dürr stock started the year quoting at € 14.85 on the XETRA electronic exchange and then mostly moved within the € 14 to € 16 range. Crucial factors contributing to the stock's weaker performance compared with the market as a whole were the unsatisfactory business development in the first and second quarters and our rising debt level. The stock reached its low, € 13.23, at the end of October. Various measures aimed at the financial restructuring of the Group and more intensive communication with investors about the Group-wide FOCUS program then brought a turnaround in the stock's price trend. The announcement of a 10% capital increase and the fact that the Dürr family subscribed about 60% of the shares as a major shareholder were well received. Dürr stock closed the year at € 20.30, a price increase of 34%, which more or less corresponds to the gains achieved by the market as a whole.

130 120 110 100 90 Dürr stock in XETRA trading DAX MDAX SDAX J FMAMJ J A S OND

Price trend of Dürr stock in XETRA trading from January – December 2005 compared with development of the DAX, MDAX, and SDAX (indexed values) in %

ISIN DE0005565204 140

Reuters symbol DUEG Bloomberg code DUE GY

Key figures for Dürr stock

		2005	2004
Earnings per share, Group	in €	0.30	0.40
Earnings per share, continuing operations	in €	–7.26	0.00
Cash flow per share, continuing operations	in €	–10.25	–8.08
Dividend per share	in €	1 –	–
High	in €	20.35	21.10
Low	in €	13.23	14.50
Close	in €	20.30	15.11
Market capitalization (at Dec. 31)	in € m	319.3	216.0
Number of shares (weighted average)		14,400,050	14,298,200

¹ Dividend proposed to the annual shareholders' meeting.

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

Bond

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

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

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

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

Bond ISIN (Reg S): XS0195957658 ISIN (144a): XS0195957815

Shareholder structure

The Board of Management and Supervisory Board have decided to propose to the annual shareholders' meeting that no dividend be paid for 2005 due to the even result on the balance sheet of Dürr AG.

Capital increase

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

Intensive capital market communication

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

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

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

Corporate governance

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

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

The chairman and members of the committees receive special compensation.

Item 7.1.2, Sentence 3: The consolidated financial statements shall be publicly accessible within 90 days of the end of the financial year. Dürr will publish its consolidated financial statements within 90 days of the end of the financial year.

According to Sec. 161 of the German Stock Corporation Act, the Board of Management and the Supervisory Board of listed stock corporations 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 fulfills most of the mandatory provisions of the Code in its June 2, 2005, version. The deviations from the Code are specified below with the corresponding reasons. In accordance with Sec. 161 of the German Stock Corporation Act, the Board of Management and the Supervisory Board of Dürr AG declare:

"Dürr AG complies with the recommendations of the Government Commission German Corporate Governance Code with the following exceptions:

Item 3.8, Paragraph 2: 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.

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 board members 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.

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

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

Item 5.4.1 Sentence 2: Furthermore, ... an age limit to be specified for the members of its Supervisory Board shall be taken into account. Dürr sees no necessity for defining an age limit for members of its Supervisory Board.

Item 5.4.7, Paragraph 3: The compensation of the members of the Supervisory Board should be reported in the notes of the consolidated financial statements individualized, subdivided according to components. 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.

We report the sum of compensation of the members of our Supervisory Board in the notes of our consolidated financial statements. In our view, a special, individualized item broken down by components would not provide any additional benefit for the shareholders. 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.

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

Management and supervisory structure

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

Director's dealings

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

Implementation

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

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

Documents regarding corporate governance, such as the articles of incorporation of Dürr AG and our declarations of compliance, are available online under "Corporate Governance" in our "Investor Relations" section.

"We sold over 500 painting robots in 2005, more than ever before. To support the auto industry even better in automating their factories, we have now developed a second generation of robots, the EcoRP E. The "E" stands for "elevated." The new robot moves at a height of 190 centimeters, and that makes it much more flexible." Bekim Maxharraj, Product Manager, Painting Robot Technology

Group management report for the 2005 reporting period Organizational and legal structure

Dürr is one of the world's leading suppliers of equipment, systems, and services for automobile manufacturing. Concentrating on our core business, we now generate more than 90% of our sales with the automotive industry. Painting systems make up our largest individual activity, accounting for 55% of sales. Our leadership in the global market for painting systems is based on our system, process, and service expertise combined with the leading technology we put into products in such areas as robotics, controls, and atomizer technology. We are also global leaders in balancing and diagnostic systems and industrial CLEANING TECHNOLOGY. We are among the top three suppliers of final assembly and conveyor systems in the world and offer both complete systems and individual products. Environmental and energy systems round out our range of products and services. In this fragmented market, our focus is on planning and installing exhaust-air purification systems.

GLOSSARY: p.102

• Paint Systems
• Application Technology
• Environmental and Energy Systems
• Factory Assembly Systems

Measuring and Process Systems division

• Balancing and Diagnostic Systems
• Cleaning and Filtration Systems

BUSINESS UNITS

A clear Group structure

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

Legal structure

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

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

Divestments: Concentrating on our core business

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

• We sold the Premier Group, which offers production support services, to the Voith Group effective May 31, 2005. Premier generated sales of € 158.6 million in fiscal 2004.
• We sold the Development Test Systems (DTS) business unit to the Japanese company HORIBA Ltd. effective September 30, 2005. DTS provides testing equipment for automotive development and generated sales of € 74.5 million in 2004.
• We sold the Measuring and Process Technologies unit to HgCapital Ltd. effective December 30, 2005. Measuring and Process Technologies supplies systems for weighing, feeding, automation, and screening in industrial processes, primarily for the mining, cement, steel, and chemical industries. In fiscal 2004, Measuring and Process Technologies generated sales of € 177.5 million.

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

Control and profit-and-loss transfer agreements

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

Report on relationships with related companies

In conformity with Sec. 312 of the German Stock Corporation Act, the Board of Management of Dürr AG prepared a report on relationships with related 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."

Economic environment

GDP growth

	2005	2004
Amounts in %
World	4.3	5.2
Germany	0.8	1.6
EU	1.5	2.4
USA	3.5	4.2
China	9.3	9.5
Japan	2.5	2.7

Source: European Commission

Production of passenger cars and commercial vehicles in million units

	2005	%*
World	64.7	3.0
Germany	5.8	3.4
EU 15	16.6	–2.1
New EU countries	1.6	7.5
Eastern Europe	2.6	3.6
USA	11.9	–0.1
Mercosur	2.8	12.1
Asia	23.9	7.0
China	5.3	15.1
Japan	10.7	2.0

* Change versus previous year

Source: German Association of the Automotive Industry (VDA)

2005: Robust growth of the global economy

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

Automobile production up 3% worldwide

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

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

Business development

Consolidated incoming orders

Consolidated orders on hand (December 31)

	2005	2004
Amounts in € m
Paint and Assembly Systems	612.1	730.9
Measuring and Process Systems	111.4	129.0
Continuing operations	723.5	859.9
15.4%
		84.6%

Consolidated sales

	2005	2004
Amounts in € m
Paint and
Assembly Systems	1,090.0	1,413.8
Measuring and
Process Systems	310.6	312.0
Continuing
operations	1,400.6	1,725.8

Unless indicated otherwise, all figures in this management report are for the Dürr Group's continuing operations. Any figures cited as "Group" figures relate to both continuing operations and discontinued operations.

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

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

New orders and orders on hand fall short of previous year

At € 1,216.9 million, new orders in continuing operations were 12.3% below the previous year's figure of € 1,387.4 million. New orders were affected by weak demand for plant engineering (painting and assembly systems) and for cleaning machines. By contrast, demand in our systems and machinery business (including painting robots, application technology, and balancing technology) and for environmental and energy systems was considerably higher.

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

Sales down from higher-than-average previous year

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

We increased sales considerably in the countries of the EU (excluding Germany). Major contributions came from business in the Eastern European member states, while business with the automotive industry also developed well in Spain. Sales in Asia declined as the Chinese market slowed temporarily. In Germany, we lost some momentum due to reduced capital expenditures by our customers there. The decline in sales was more pronounced in the United States where the comparable pre-year figure had been exceptionally high.

"At Dürr, the virtual factory has become a reality. For every systems contract, we prepare a three-dimensional layout of the entire paint shop. That speeds up planning and technical clearance, and prevents interface problems in linking individual process stations. Our customers have an overview of everything before breaking ground. On a virtual tour, they can take a close look at their new paint shop, from a single screw to an entire painting robot, in life-size images on the power wall."

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

Consolidated sales by region

	2005	2004
Amounts in € m
Germany	310.1	436.5
Other European countries	502.4	391.6
North and Central America	397.7	654.7
South America	15.3	5.2
Asia/Africa/ Australia	175.1	237.8
Continuing operations	1,400.6	1,725.8

Development of earnings

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

Gross margin improved

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

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

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

EBIT (before non-recurring expenses)

	2005			2004
Amounts in € m	EBIT	Margin	EBIT	Margin
Paint and Assembly Systems	7.1	0.7%	34.5	2.4%
Measuring and Process Systems	5.1	1.6%	–1.3	–0.4%
Corporate Center	–8.7	–	2.6	–
Continuing operations	3.5	0.2%	35.8	2.1%

Capital expenditures on property, plant and equipment and intangible assets

Depreciation and amortization*

	2005	2004
Amounts in € m
Paint and Assembly Systems	14.6	14.0
Measuring and
Process Systems	7.0	6.0
Corporate Center	2.0	1.1
Continuing
operations	23.6	21.1

* Excluding impairment losses

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

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

Operating result marked by setbacks in Paint and Assembly Systems

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

Investment in property, plant and equipment up slightly

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

Higher net interest expense

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

The higher interest expense has two causes:

1. Annual interest payments of € 19.5 million for the corporate bond we issued in July 2004. We also incurred interest-related expenses in connection with the bond, including the amortization of transaction costs as well as the discount on the bond and the syndicated loan that was taken out parallel to the bond. In fiscal 2005, these expenses amounted to € 2.0 million (previous year: € 0.8 million).

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

High non-recurring expenses

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

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

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

Positive consolidated earnings figure

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

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

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

The management will propose to the shareholders' meeting that no dividend be paid for 2005. Earnings per share were € –7.26 (previous year: € 0.00) in continuing operations and € 0.30 (previous year: € 0.40) for the Group.

"Time is money, especially in the auto industry. That's why we develop products that can be put into operation fast. For example, the modular FAStplant ® final assembly system. It allows us to cut the time it takes to install a final assembly line for our customers by up to 30%."

Gino Caparelli, Sales, Factory Assembly Systems

Paint and Assembly Systems

	2005	2004
Amounts in € m
New orders	931.2	1,086.4
Sales	1,090.0	1,413.8
EBIT1	7.1	34.5
Capital
expenditures2	16.8	15.4
Employees (Dec.31)	3,979	4,236

¹ Before non-recurring expenses

2 On property, plant and equipment

and intangible assets

Paint and Assembly Systems division

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

Measuring and Process Systems1

	2005	2004
Amounts in € m
New orders	285.7	301.0
Sales	310.6	312.0
EBIT2	5.1	–1.3
Capital
expenditures3	8.3	6.3
Employees (Dec.31)	1,966	1,953

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

² Before non-recurring expenses

3 On property, plant and equipment

and intangible assets

Discontinued operations1

	2005	2004
Amounts in € m
New orders	399.6	461.4
Sales	379.3	410.5
EBIT2	24.6	13.3
Employees (Dec.31)	3	7,055

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

2 Before non-recurring items

Measuring and Process Systems division

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

Corporate Center

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

Performance yardsticks: EBIT and cash flow from operating activities

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

Financial development

Cash flow positive overall

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

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

GLOSSARY: p.102

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

Cash flow from operating activities

	2005	2004
Amounts in € m
EBIT	–71.5	29.0
Amortization and depreciation of non-current assets	54.2	21.3
Income taxes paid	–4.6	0.8
Changes in provisions	–25.1	–21.8
Changes in net working capital	–82.1	–110.8
Other	–18.5	–34.0
Total	–147.6	–115.5

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

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

Debt reduced at year's end

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

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

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

Balance sheet: Equity ratio increased

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

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

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

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

Cash and cash equivalents increased by € 78.2 million to € 124.7 million as a result of the divestments and the capital increase. Thus, current assets for continuing operations were down only slightly, from € 728.4 million to € 700.4 million. Trade receivables declined 14.9% to € 479.7 million (December 31, 2004: € 563.5 million). The usefulness of a yearon-year comparison of current assets is also limited due to the inclusion of Measuring and Process Technologies on the balance sheet in 2004.

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

Balance sheet structure (December 31)

	2005	2004
Amounts in %
Non-current assets	40.8	39.1
Current assets	59.2	60.9
Assets, Group	100.0	100.0
of which continuing operations	99.7	89.8
Equity, incl. minority interests	20.9	15.5
Non-current liabilities	27.3	23.6
Current liabilities	51.8	60.9
Equity and liabilities, Group	100.0	100.0
of which continuing operations	99.8	95.2

Current and non-current liabilities (December 31)

	2005	2004
Amounts in € m
Financial liabilities	30.0	112.0
of which current	17.4	85.3
of which non-current1	12.6	26.7
Bond	187.9	186.5
Trade payables	347.8	492.7
of which prepayments received	112.4	207.5
Income tax liabilities	27.8	6.1
Other liabilities	138.9	117.6
Continuing operations	732.4	914.9

¹ Excluding the bond

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

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

Value drivers

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

575,000

"A balancing system must cope with huge numbers of units in mass production. For example, two KBTK systems enable a customer in England to balance up to 575,000 crankshafts a year. The quality and reliability of the machines are therefore key factors for Schenck. And that requires precision craftsmanship and technological expertise in the installation process."

Nicola La Rosa, Electrical Technician, Balancing and Diagnostics Systems

Research and development

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

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

In fiscal 2005, the focus of our R&D work was on increasing quality and reducing production costs per vehicle, for example, by cutting the amount of energy used in automobile production and by developing new manufacturing processes. A good example of a costoriented innovation is the "wet-on-wet" application process, which we developed in collaboration with automobile manufacturers and paint producers. In this process, the top coat is applied immediately after the surfacer, without the surfacer first being allowed to dry. The elimination of surfacer drying reduces throughput times and energy consumption. We also developed new energy-saving concepts for controlling air volumes in painting booths. These concepts open up considerable potential for our customers to reduce costs since no less than two-thirds of the energy used in paint shops is expended in the painting booth.

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

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

Purchasing

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

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

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

Employees by division (December 31)

Employees by region (December 31)

	2005	20041
Germany	3,205	3,311
Other European countries	1,303	1,332
North and Central America	886	1,036
South America	83	84
Asia/Africa/ Australia	515	477
Continuing operations	5,992	6,240
1.4%		8.6%
14.8%		53.5%

21.7%

Employees

Number of employees reduced by capacity adjustments

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

As part of the Group-wide FOCUS program, 332 jobs out of the total of around 800 slated were cut by the end of 2005. The regional focus of the cuts was on the mature markets of North America and Western Europe, while we added jobs in Asia to expand our business there. The number of employees in Asia increased by 8.8% within one year to 495 (previous year: 455).

FOCUS: Targeted employee development

Although FOCUS does involve reducing capacities, it is primarily a program aimed at improving our operational process flows. With FOCUS, we are promoting our employees in a targeted manner and giving them tools with which they can work more effectively. In cooperation with a consulting firm, our employees are examining existing processes and developing more efficient alternatives wherever necessary. We are conducting comprehensive training for the ERP(Enterprise Resource Planning) applications that we will be using throughout the Group in the future. We have also stepped up our foreign language education offerings for our employees. We have developed a new, multistage training module for our project managers, and our center of excellence for project management has launched the Corporate Project Management Manual throughout the Group. The manual is based on the expertise of our 50 most experienced project managers and describes standardized project stages and milestones, project organization, change management, and project management tools.

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

Attractive options for young talent

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

At December 31, 2005, Dürr employed 155 trainees (December 31, 2004: 170). In collaboration with universities of cooperative education, we also offer young people opportunities to study mechanical engineering, electrical engineering, IT, mechatronics, and business administration.

¹ Continuing operations (without Measuring and ProcessTechnologies)

GLOSSARY: p.102

"Our cleaning systems get at even the smallest contaminants. In the final stage of cleaning an injector nozzle, the magic number is 100 micrometers – a residue particle may not be bigger than that. By comparison, a grain of fine sand is easily twice as large. We meet this challenge with innovative treatment processes and customized designs for a very wide variety of workpieces and cleanness requirements."

Julia Lamparter, Process Developer, Cleaning and Filtration Systems

Risk report

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

General economic development

Our business performance depends heavily on general economic development and, in particular, trends in the automotive business. In our planning, we have assumed that global economic growth will be modest. With respect to the capital markets, current interest rates and the legal and tax situation, no negative deviations from our forecast are expected.

Automotive business and customers

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

Our business with the automotive industry is subject to continued price pressures. To counteract this, we improved our cost position in the years from 2003 to 2005 with our program. Cost reduction is also a priority under FOCUS. In addition, we are addressing price pressures by comparing our customers' capital cost analyses with the medium and long-term overall cost benefits of a higher quality plant. Consequently, we are also orienting our R&D work toward new developments with measurable added value and quick return on investment.

Our customers include nearly all automobile manufacturers and parts suppliers around the world. However, since the automotive industry is dominated by a relatively small number of large companies, the majority of our sales revenues come from a small number of customers. In 2005, we generated 52% of our sales revenues with our five biggest customers. However, the composition of the "top five" group depends on the individual automobile manufacturers' investment cycles and therefore changes constantly. In order to prevent payment defaults in general, we seek to make our orders cash positive at all times, that is, to receive prepayments from customers which at least cover the costs we have incurred for a project up to a given time.

Competitors

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

Order handling

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

Purchasing

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

Currency and interest rate risks

We use financial derivatives to reduce the negative effects of foreign exchange rate and interest rate changes on cash flows and on the value of receivables and liabilities. The use of derivative financial instruments is restricted to the economic hedging of our operating activities.

For us, the primary risks associated with differences in foreign exchange rates arise when we convert business figures into euros (translation risk). The currency risk from product exports (transaction risk) is relatively low since a large portion of our added value is generated in our national companies. We use forward exchange contracts to protect ourselves against any remaining currency risks. We use interest rate swaps to counter interest rate risks. We reduced our interest rate swap positions as of the end of 2005. All financial derivatives and related underlyings are regularly monitored and evaluated within the framework of a Board of Management directive. We enter into derivative contracts only with banks that have a strong credit standing. All interest swaps are transacted through German banks. Further information regarding hedging activities can be found under item 32 of the notes to the consolidated financial statements.

Information technology

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

Legal risks

One of our competitors in the United States has filed two suits against us. One is a patent infringement action before the US District Court for the Eastern District of Michigan and the other is an action before the International Trade Commission (ITC), a US competition authority. The plaintiff claims that our robotics unit violated its US patents and is in violation of US competition law. In December 2005, the ITC ruled that Dürr had not infringed on the patents. For this reason, and because we use a technological solution that differs from the competitor's and for which we hold a US patent, we anticipate that the patent action before the US District Court for the Eastern District of Michigan will also fail.

Liquidity and financing

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

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

Summary

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

Events subsequent to the reporting date

Ralf Dieter is new Chairman of the Board of Management

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

Legal dispute with Alstom settled successfully

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

Outlook

Global economy: Continued growth expected

The world's gross domestic product (GDP) is expected to increase by around 4.3% in 2006. Driven by the momentum of China and India, Asia will make a significant contribution to global economic growth. The United States is also expected to contribute important momentum for growth with higher capital expenditures and a continued strong level of private consumption. The Eastern European economies will continue their vigorous expansion. For the European Union, GDP growth of 2.1% is expected, assuming that the exchange rate between the euro and the US dollar remains stable and the euro zone economy improves slightly. In Germany, the economy is expected to gain only slight momentum due to weak domestic demand.

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

Automotive industry: Stronger demand expected for modernization and services business

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

We estimate the automotive industry's demand as follows: New plants will continue to be built primarily in Asia and Eastern Europe, with a decline in the number of new plants being built worldwide. By contrast, capital spending on boosting the productivity and flexibility of existing plants will continue to increase, particularly in the traditional automobile manufacturing centers of Western Europe and the United States.

GDP growth Change versus 2005

	2006*
Amounts in %
World	4.3
Germany	1.2
EU	2.1
USA	3.2
China	8.7
Japan	2.2

* Forecast

Source: European Commission

"Saving energy is a top concern of our customers. We therefore offer an economical combination technology in the area of exhaust-air purification. In thermal oxidation, we heat exhaust air to more than 750 degrees centigrade to oxidize pollutants. Then, the clean hot air is fed into the production process and used again as thermal energy. The result is reliable pollution control and less energy consumption."

Osman Sözeri, Head of Department, Environmental and Energy Systems

The biggest factors driving investment will be shorter model cycles, a growing variety of models, and high cost pressures in the automotive industry. In addition, capital expenditures aimed at reducing energy consumption in production will play an increasingly important role. Demand for services in all aspects of production technology will also rise. We see good opportunities in this area and in spare parts business due to the large amount of production equipment we have installed. Worldwide, some 60% of all paint shops and some 50% of the final assembly facilities in the automotive industry are equipped with Dürr technology. Automobile component suppliers will continue to gain importance as a customer group for us as they take over more and more stages of the value chain for automobile manufacturers and need the corresponding production technologies. We should benefit from these trends as a supplier of equipment and capital goods to the automotive industry.

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

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

Purchasing

We expect raw materials prices to drop only slightly, if at all, in 2006 and 2007. We will respond to the high prices by optimizing our process costs and pushing forward the standardization of components in order to bundle larger purchasing volumes. We will further intensify our purchasing management and bundling of orders by increasing cooperation between our smaller companies and the system centers in Stuttgart and Detroit.

Employees

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

New orders, sales, and earnings

Given the existing capacities in the automotive industry, we expect demand for the construction of new plants to remain subdued in 2006 and beyond. Nevertheless, due to the positive demand trend in the modernization and services business, we expect new orders volume to increase in 2006. Sales revenues are unlikely to change significantly both for the Group as a whole and in the two divisions due to the smaller order backlog. For fiscal 2007, we anticipate a slight increase in incoming orders and sales in the Group and in the divisions.

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

FOCUS should develop its full effects during 2007. We expect to achieve annual savings of more than € 50 million over 2005 in personnel costs alone. The improvements in productivity that we are seeking to achieve with FOCUS hold even greater potential for improving our bottom line. We also face stiff price competition. Our target margins are 4% for earnings before taxes and 8% at the EBITDA level. Margins may still fall short of these targets for 2007 as a whole because the effects of FOCUS will only feed through fully in the course of the year.

Cash flow

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

Capital expenditures

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

Net financial debt and equity

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

Stuttgart, March 14, 2006 Dürr Aktiengesellschaft The Board of Management

Consolidated financial statements for the 2005 reporting period

• 47 Independent auditors' report
• 48 Consolidated income statement
• 49 Consolidated balance sheet
• 50 Consolidated statement of changes in shareholders' equity
• 50 Statement of recognized income and expense in the consolidated financial statements
• 51 Consolidated cash flow statement
• 52 Notes to the consolidated financial statements for the 2005 reporting period

Independent auditors' report

We have issued the following opinion on the consolidated financial statements and Group management report:

"We have audited the consolidated financial statements prepared by Dürr Aktiengesellschaft, Stuttgart, comprising the balance sheet, the income statement, statement of recognized income and expense, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the Group management report for the fiscal year from January 1, 2005, to December 31, 2005. The preparation of the consolidated financial statements and the Group management report in accordance with IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB are the responsibility of the parent company's management. Our responsibility is to express an opinion on the consolidated financial statements and on the Group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development."

Stuttgart, March 14, 2006 Ernst & Young AG Wirtschaftsprüfungsgesellschaft

Elkart Wirtschaftsprüfer (German Public Auditor)

Baierl Wirtschaftsprüfer (German Public Auditor)

Consolidated income statement

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

		2004
Amounts in € k		restated
Continuing operations
Sales revenues (8)	1,400,602	1,725,817
Cost of sales	–1,180,407	–1,485,205
Gross profit on sales	220,195	240,612
Selling expenses	–97,635	–96,855
General and administrative expenses	–92,761	–90,716
Research and development costs	–21,055	–20,295
Other operating income and expenses (10)	–5,260	3,103
	3,484	35,849
Restructuring expenses/onerous contracts (11)	–45,903	–6,692
Impairment losses (11)	–27,874	–141
Earnings before investment income,
other interest and similar income, interest
and similar expenses and income taxes	–70,293	29,016
Result of associates (12)	–1,159	532
Other investment income (loss)	–	–563
Other interest and similar income	2,189	1,594
Interest and similar expenses (13)	–37,357	–26,085
Earnings before taxes of continuing operations	–106,620	4,494
Income taxes (14)	2,073	–5,609
Earnings of continuing operations	–104,547	–1,115
Earnings of discontinued operations	108,855	5,822
Net income of the Dürr Group	4,308	4,707
Profit/loss share of minority interests
Continuing operations	3	–1,049
Discontinued operations	–40	33
Dürr Group	–37	–1,016
Profit/loss share of shareholders of Dürr Aktiengesellschaft
Continuing operations	–104,550	–66
Discontinued operations	108,895	5,789
Dürr Group	4,345	5,723
Earnings per share in € (basic and diluted) (7)
Continuing operations	–7.26	0.00
Discontinued operations	7.56	0.40
Dürr Group	0.30	0.40

Consolidated balance sheet

of Dürr Aktiengesellschaft, Stuttgart, as of December 31, 2005

Note	2005	20041
Amounts in € k		restated
Assets
Goodwill (15, 35)	267,377	308,801
Other intangible assets (15, 35)	20,777	36,335
Property, plant and equipment (15, 35)	121,671	148,170
Investment property (15)	13,068	–
Investments in associates (16, 36)	12,892	15,762
Other financial assets (35)	4,950	5,263
Income tax receivables	–	100
Deferred taxes (14)	43,170	45,729
Prepaid expenses	960	735
Non-current assets	484,865	560,895
Inventories and prepayments (17)	43,716	52,683
Trade receivables (18)	479,705	563,532
Income tax receivables	6,158	5,022
Other receivables and other assets (19)	43,171	57,783
Cash and cash equivalents	124,658	46,448
Prepaid expenses	3,010	2,903
Current assets	700,418	728,371
For information purposes:Total assets of continuing operations	1,185,283	1,289,266
Assets of a disposal group classified as held for sale (discontinued operations) (6)	3,832	146,524
	704,250	874,895
Total assets Dürr Group	1,189,115	1,435,790
Equity and liabilities
Subscribed capital (20)	40,264	36,603
Capital reserve (20)	160,459	159,000
Revenue reserves (20)	65,967	44,937
Other comprehensive income (20)	–20,140	–19,670
Equity without minority interests	246,550	220,870
Minority interests (21)	1,517	1,875
Equity with minority interests	248,067	222,745
Provisions for pension obligations (22)	67,818	53,556
Other provisions (23)	9,753	18,717
Bonds (24)	187,901	186,471
Other financial liabilities (24)	12,602	26,706
Income tax liabilities (25)	443	288
Deferred taxes (14)	44,408	51,694
Deferred income	1,632	1,811
Non-current liabilities	324,557	339,243
Other provisions (23)	81,979	101,716
Trade payables (25)	347,833	492,705
Financial liabilities (24)	17,410	85,279
Income tax liabilities (25)	27,332	5,813
Other liabilities (25)	138,896	117,551
Deferred income	1,241	1,777
Current liabilities	614,691	804,841
For information purposes:Total equity and liabilities of continuing operations	1,187,315	1,366,829
Liabilities in direct connection with assets classified
as held for sale (discontinued operations) (6)	1,800	68,961
	616,491	873,802
Total equity and liabilities Dürr Group	1,189,115	1,435,790

1 The amount comprises the liabilities of discontinued operations pursuant to IAS 35 reported in a separate column in the prior year. For editorial reasons, the presentation is in compliance with IFRS 5. A detailed classification as in the presentation of the prior year can be found in note 6 of the notes to the consolidated financial statements.

Consolidated statement of changes in shareholders' equity

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

				Other comprehensive income
Note	Sub scribed capital (20)	Capital reserve (20)	Revenue reserves	Unrealized gains/ losses from cash flow hedges (20)	Unrealized actuarial gains/ losses (20)	Currency translation (20)	Total accu mulated other compre hensive income (20)	Equity without minority interests	Minority interests (21)	Equity with minority interests
Amounts in € k
January 1, 2004 (before adjustment)	36,603	159,000	39,214	–3,069	–	–12,880	–15,949	218,868	5,248	224,116
Adjustment from IAS 19 (revised)	–	–	–	–	137	–	137	137	–	137
January 1, 2004 (after adjustment)	36,603	159,000	39,214	–3,069	137	–12,880	–15,812	219,005	5,248	224,253
Other changes	–	–	–	–	–	–	–	–	–2,516	–2,516
Other comprehensive income	–	–	–	1,260	–1,642	–3,476	–3,858	–3,858	159	–3,699
Profit/loss from continuing operations	–	–	–66	–	–	–	–	–66	–1,049	–1,115
Profit/loss from discontinued operations	–	–	5,789	–	–	–	–	5,789	33	5,822
December 31, 2004	36,603	159,000	44,937	–1,809	–1,505	–16,356	–19,670	220,870	1,875	222,745
Capital increase Dürr Aktiengesellschaft	3,661	18,144	–	–	–	–	–	21,805	–	21,805
Other changes	–	–16,685	16,685	–	–	–	–	–	–366	–366
Other comprehensive income	–	–	–	1,123	–13,348	11,755	–470	–470	45	–425
Profit/loss from continuing operations	–	–	–104,550	–	–	–	–	–104,550	3	–104,547
Profit/loss from discontinued operations	–	–	108,895	–	–	–	–	108,895	–40	108,855
December 31, 2005	40,264	160,459	65,967	–686	–14,853	–4,601	–20,140	246,550	1,517	248,067

Statement of recognized income and expense in the consolidated financial statements

of Dürr Aktiengesellschaft, Stuttgart, as of December 31, 2005

	2005	2004
Amounts in € k
Change in fair value recorded in equity of financial instruments used for hedging purposes	1,800	2,123
Adjustment item for currency translation of foreign subsidiaries	11,800	–3,317
Actuarial gains/losses from defined benefit obligations and similar obligations	–18,150	–2,486
Deferred taxes on revaluations recognized directly in equity	4,125	–19
Revaluations recognized directly in equity	–425	–3,699
Profit after tax	4,308	4,707
Total profit for the period and revaluations recognized directly in equity in the period	3,883	1,008

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

	2005	2004
Amounts in € k
Continuing operations
Earnings before interest and taxes (EBIT)	–71,452	28,985
Income taxes paid	–4,553	841
Result of associates	–1,585	–532
Dividends from associates	741	168
Amortization and depreciation of non-current assets	54,181	21,322
Net gain on the disposal of property, plant and equipment	–1,658	–2,012
Non-cash expenses and income	38	287
Changes in operating assets and liabilities
Inventories	206	9,039
Trade receivables	50,589	55,099
Other receivables and assets	–23,326	6,305
Provisions	–25,099	–21,776
Trade payables	–132,907	–174,913
Other liabilities (other than bank)	8,243	–35,107
Other assets and liabilities	–979	–3,172
Cash flow from operating activities of continuing operations	–147,561	–115,466
Cash flow from operating activities of discontinued operations	34,365	11,999
Cash flow from operating activities	–113,196	–103,467
Purchase of intangible assets	–7,212	–7,730
Purchase of property, plant and equipment	–18,492	–13,629
Purchase of other financial assets	–220	–1,005
Acquisitions, net of cash acquired	–925	–5,446
Proceeds from the disposal of non-current assets	11,907	8,303
Disposal of discontinued operations, net of cash disposed of	297,599	–
Cash flow from investing activities of continuing operations	282,657	–19,507
Cash flow from investing activities of discontinued operations	–3,502	–8,132
Cash flow from investing activities	279,155	–27,639
Change in current bank liabilities	–83,442	–52,724
Repayment of long-term borrowings	–847	–141,260
Bond issue	–	186,899
Payment of finance lease liabilities	–920	–924
Change in financial liabilities to associates	–15	631
Internal financing	21,450	1,976
Increase in subscribed capital	3,661	–
Additions to capital reserve	18,144	–
Interest received	1,268	1,267
Interest paid	–34,027	–15,255
Cash flow from financing activities of continuing operations	–74,728	–19,390
Cash flow from financing activities of discontinued operations	–20,328	–3,752
Cash flow from financing activities	–95,056	–23,142
Effects of exchange rate changes	2,483	5,860
Change in cash and cash equivalents	73,386	148,388
Cash and cash equivalents
At the beginning of the period	51,471	199,859
At the end of the period	124,857	51,471
Of continuing operations	124,658	39,468
Of discontinued operations	199	12,003
Dürr Group	124,857	51,471

Notes to the consolidated financial statements for the 2005 reporting period

Basis of presentation

1. Summary of significant accounting policies

The Company

Dürr Aktiengesellschaft ("Dürr AG" of the "Company") is headquartered at Otto-Dürr-Strasse 8 in 70435 Stuttgart. Dürr AG and its subsidiaries ("Dürr" or the "Group") are a worldwide leading supplier of plants, systems and services for automotive production. The offering covers all the main production and assembly stages of a vehicle. As a system supplier, Dürr designs and constructs paint shops and final assembly plants. Dürr also supplies cleaning systems, filtration systems and balancing machines for the manufacture of engines, transmission and vehicle components. Dürr's main customers are the major companies in the automobile industry worldwide.

The consolidated financial statements are prepared as of the balance sheet date in accordance with IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB ["Handelsgesetzbuch": German Commercial Code]. The consolidated financial statements are in line with all IFRSs that have to be adopted by the balance sheet date.

The accounting policies used generally correspond to the methods applied in the prior year. In addition, the Group has applied the new and/or revised standards that are binding for fiscal years beginning on or after January 1, 2005.

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

IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations": Dürr has applied IFRS 5 prospectively in accordance with the transitional provisions of IFRS 5, which led to a change in accounting policies for discontinued operations. Pursuant to IAS 35, the initial disclosure event is the occurrence of one of the following, whichever occurs earlier:

• the date on which the Group enters into a binding purchase agreement; or
• the date on which management approves and announces a formal plan of sale.

Pursuant to IFRS 5, a component of an entity is classified as a discontinued operation at the point in time from which this component of an entity satisfies the criteria for classification as held for sale or is actually sold. An asset classifies as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Such a component of an entity represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with an intent to resell. In effect, the change in accounting policies means that the Group has accounted for a discontinued operation at a later date than required according to IAS 35 due to the stricter criteria in IFRS 5.

IAS 19 "Employee Benefits": The Group adopted IAS 19 (revised) for the first time as of January 1, 2005. According to this, actuarial gains and losses are recorded without effect on income directly in equity. Furthermore, additional disclosures are made on developments of assets and liabilities in the defined benefit plans and on the assumptions underlying the components of the costs for defined benefit plans. The change in accounting policies means that the consolidated financial statements as of December 31, 2005, and December 31, 2004, contain additional disclosures.

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

IAS 21 "The Effects of Changes in Foreign Exchange Rates": The changes in the revised IAS 21 became binding during the fiscal year. As a result, any goodwill arising on the acquisition of a foreign entity and any fair value adjustments to the carrying amounts of assets and liabilities arising on

the acquisition of that foreign entity are recognized as assets and liabilities of the foreign entity and translated at the closing rate. The change is applied prospectively in accordance with the transitional provisions of IAS 21. Furthermore, goodwill acquired in the course of a business combination prior to January 1, 2005 and fair value adjustments arising from the business combination are treated as assets and liabilities of the parent. This change in accounting policies has no material effects either as of December 31, 2005 or as of December 31, 2004.

The Group decided not to early adopt the following standards and IFRIC interpretations which have already been issued but have not entered into force yet. Generally speaking, Dürr intends to adopt all standards when their adoption becomes mandatory for the first time.

IFRSs and IFRIC interpretations adopted by the EU in the comitology procedures which have not yet entered into force are:

Amendments to IAS 1 "Presentation of Financial Statements": The additional disclosure requirements resulting from the amendment of IAS 1 "Presentation of Financial Statements" were not observed in the consolidated financial statements. The amendments are applicable for fiscal years beginning on or after January 1, 2007.

Amendments to IAS 39 "Fair Value Option and Cash Flow Hedge Accounting": The amendments are applicable for fiscal years beginning on or after January 1, 2006. Management had not completed the analysis of the effects of this amendment by the time the consolidated financial statements were prepared.

Amendments of IAS 39 and IFRS 4 "Financial Guarantee Contracts": Following the revision of IAS 39 and IFRS 4, financial guarantees fall under the scope of IAS 39 only. In the past, financial guarantees were either subject to IAS 39 or to IFRS 4, depending on their structure. The amendments are applicable for fiscal years beginning on or after January 1, 2006. Management had not completed the analysis of the effects of this amendment by the time the consolidated financial statements were prepared.

IFRS 6 "Exploration for and Evaluation of Mineral Resources": This standard is not relevant for the business operations of the Group.

IFRS 7 "Financial Instruments: Disclosures": IFRS 7 governs the disclosure requirements for financial instruments for industrial entities as well as banks and similar financial institutions. IFRS 7 replaces IAS 30 "Disclosures in the Financial Statements of Banks and Similar Financial Institutions" as well as the disclosure requirements contained in IAS 32 "Financial Instruments: Disclosure and Presentation". IFRS 7 is applicable for fiscal years beginning on or after January 1, 2007. Management had not completed the analysis of the effects of this standard by the time the consolidated financial statements were prepared.

IFRIC 4 "Determining whether an Arrangement contains a Lease" and IFRIC 5 "Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds": These interpretations are applicable for the first time for fiscal years beginning on or after January 1, 2006. They are not expected to have any material effects on the consolidated financial statements.

IFRSs and IFRIC interpretations which have not yet entered into force and have not been adopted by the EU in the comitology procedures:

IFRIC 7 "Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies": This interpretation is applicable for the first time for fiscal years beginning on or after January 1, 2007. It is not expected to apply for the consolidated financial statements.

IFRIC 8 "Scope of IFRS 2": The amendments are applicable for the first time for fiscal years beginning on or after May 1, 2006. They are not expected to have any effects on the consolidated financial statements.

The requirements of the standards applied were satisfied in full. The financial statements thus give a true and fair view of the net assets, financial position and results of operations and cash flows of the Company.

The reporting year of Dürr is the calendar year. The consolidated financial statements are prepared in thousands of euros (€ thousand or € k), unless stated otherwise.

All assets and liabilities are measured at historical or amortized cost. The only exceptions are derivative financial instruments and available-for-sale securities which are measured at fair value.

Approval of the consolidated financial statements as of December 31, 2005

The consolidated financial statements and Group management report of Dürr Aktiengesellschaft prepared by the Board of Management as of December 31, 2005, were approved at the meeting of the Board of Management on March 14, 2006, for submission to the Supervisory Board.

2. Basis of consolidation

The consolidated financial statements of Dürr are based on the IFRS financial statements of Dürr AG and the subsidiaries and associates included in the consolidation as of December 31, 2005, prepared in accordance with uniform rules and audited by independent auditors.

For subsidiaries included in the consolidated financial statements for the first time, capital consolidation is performed according to the purchase method of accounting (IFRS 3 "Business Combinations"). Thereby the purchase costs of the acquired shares are offset against pro rata equity of the subsidiary. All purchased assets and liabilities are included in the consolidated balance sheet at the acquisition date, taking hidden reserves and encumbrances into account. Any remaining debit difference is shown as goodwill or under intangible assets. When the entity is removed from consolidation, the goodwill is released to profit and loss. Negative differences are posted immediately to income.

Entities over which the Company exercises significant influence (associates) are measured using the equity method; this is generally the case with a share of voting rights of 20% to 50%. Any goodwill is disclosed under investments in associates. All other investments are accounted for at amortized cost because market values are not available or determinable and fair values cannot be reliably determined.

Intercompany sales, other income and expenses and all intercompany receivables and liabilities and contingencies are eliminated. Intercompany profits which are not realized by sale to third parties are eliminated.

Besides Dürr AG, the consolidated financial statements as of December 31, 2005, contain all domestic and foreign entities which Dürr AG can control, directly or indirectly (control concept). The entities are included in the consolidated financial statements from the date when the possibility of control was obtained. 3. Consolidated group

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

	2005	2004
Number of fully consolidated entities
Germany	17	25
Other countries	46	85
	63	110

	2005	2004
Number of entities accounted for at equity
Germany	1	1
Other countries	5	6
	6	7

The consolidated financial statements contain two (2004: nine) entities in which minority shareholders hold interests.

In the reporting year, three entities were formed in connection with the sale of the MPT business unit and deconsolidated effective as of December 30, 2005.

A further six entities were wound up during the reporting period. They were deconsolidated and have left the consolidated group.

In Germany, the following entities were merged into Dürr Systems GmbH, Stuttgart, with economic effect as of January 1, 2005: Dürr Automotion GmbH, Dürr Environmental GmbH and DSEngineering GmbH. In the USA, the entities Acco Systems Inc., Behr Systems Inc., Dürr Environmental Inc. and Dürr Production Systems Inc. were merged into Dürr Systems Inc. (formerly Dürr Industries Inc.), Plymouth, with economic effect as of January 1, 2005. All entities were already fully consolidated even before the merger. This, therefore, did not impact the consolidated financial statements.

The subsidiaries sold in the reporting year were part of the discontinued operations. Reference is made to note 6. A full list of the Group's shareholdings is filed with the commercial register at the Stuttgart district court.

Financial statements denominated in foreign currency of the subsidiaries included in the consolidation are translated into euros on the basis of the functional currency concept pursuant to IAS 21 (The Effects of Changes in Foreign Exchange Rates). The functional currency is the local currency for all foreign subsidiaries of the Group, since these entities operate independently from a financial, economic and organizational viewpoint. According to this concept, assets and liabilities are thus translated at the exchange rate as of balance sheet date, while income and expenses are generally translated at average rates. Any currency translation differences are recorded without effect on income in other comprehensive income. 5. Currency translation

4. Changes in the consolidated group

In the separate financial statements of Dürr AG and its subsidiaries, receivables and liabilities in a currency other than the euro are measured at purchase cost; current transactions are translated at the current exchange rate. Any exchange rate gains and losses are included in the income statement under other operating income and other operating expenses. For further explanations of the exchange rate gains and losses with effect on income, reference is made to note 10 to the income statement.

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

		Closing rate		Average rate
	Dec.31, 2005	Dec.31, 2004	2005	2004
US dollar	1.1834	1.3640	1.2380	1.2456
Pound sterling	0.6870	0.7071	0.6832	0.6797
Australian dollar	1.6145	1.7489	1.6261	1.6927
Canadian dollar	1.3769	1.6430	1.4988	1.6157
Brazilian real	2.7567	3.6206	3.0021	3.6016
Renminbi yuan	9.5515	11.2891	10.1344	10.1563
Korean won	1,191.0000	1,412.2900	1,265.8208	1,406.0242
Polish zloty	3.8686	4.0877	4.0329	4.5168

In the separate financial statements of the foreign subsidiaries, goodwill is translated at the rate prevailing on the Group balance sheet date. Applying the transitional ruling of IAS 21.59, goodwill that is not accounted for in the separate financial statements of the subsidiaries is accounted for at the historical exchange rate (at the time of acquisition) as of the Group balance sheet date. Hidden reserves disclosed in the course of business combinations are accounted for in euros as these were only incurred at entities whose local currency is the euro.

Pursuant to IFRS 5 ("Assets Held for Sale and Discontinued Operations"), a component of an entity is classified as a discontinued operation at the point in time from which this component of an entity satisfies the criteria for classification as held for sale or is actually discontinued. An asset is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Such an operation represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with an intent to resell. 6. Discontinued operations

On February 23, 2005, and October 31, 2005, the Supervisory Board approved the resolutions of the Board of Management to discontinue certain activities in future (Services, Development Test Systems, Measuring and Process Technologies).

Based on this, Dürr sold the Services business unit to the Voith group effective May 31, 2005. Services consisted of the Premier group with the core company Premier Manufacturing Support Services Inc., USA. As of September 30, 2005, the Development Test Systems business unit was sold to HORIBA, Japan. The Measuring and Process Technologies business unit was sold to HgCapital, United Kingdom, as of December 30, 2005. Where necessary, the antitrust authorities have given their approval.

The current earnings from discontinued operations break down as follows:

	2005	2004
Amounts in € k
Discontinued operations
Income	386,440	416,931
Expenses	362,926	409,612
Current earnings before taxes	23,514	7,319
Income taxes	6,147	1,498
Current earnings after taxes	17,367	5,821
Profit from sale before taxes	116,090
Income tax expense from sale	24,602
Profit from sale after taxes	91,488

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

	2005	2004
Amounts in € k
Discontinued operations
Cash flow from operating activities	34,365	11,999
Cash flow from investing activities	–3,502	–8,132
Cash flow from financing activities	–20,328	–3,752
Exchange rate changes on cash and cash equivalents	–5,824	1,499
Change in cash and cash equivalents	4,711	1,614

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

	2005
Amounts in € k
Discontinued operations
Non-current assets	128,922
Current assets without bank balances and cash	209,380
Bank balances and cash	17,094
Non-current liabilities	17,464
Current liabilities	139,329
	198,603
Total consideration:	314,693
Net inflow of cash and cash equivalents from the sale
Cash consideration in the reporting period	314,693
less bank balances and cash sold	17,094
	297,599

All sales were made for a consideration.

To ensure comparability with the prior-year figures, the assets and liabilities as of December 31, 2004, that stem from discontinued operations (Services and DTS) are presented below:

	2004
Amounts in € k	(adjusted)
Assets
Non-current assets
Goodwill	44,955
Other intangible assets	2,229
Property, plant and equipment	13,375
Other non-current assets	3,501
Current assets
Inventories and prepayments	5,178
Trade receivables	66,288
Cash and cash equivalents	5,023
Other current assets	5,975
	146,524
Equity and liabilities
Equity with minority interests	31,518
Non-current liabilities
Provisions for pension obligations	364
Other provisions	3,870
Internal financing	46,045
Other non-current liabilities	8,620
Current liabilities	56,107
	146,524

7. Accounting policies

Intangible assets

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

Purchased and internally generated intangible assets are capitalized pursuant to IAS 38 (Intangible Assets) if it is probable that a future economic benefit will flow to the entity from the use of the asset and the cost of the asset can be reliably determined.

Intangible assets with a finite useful life are carried at cost and amortized systematically over their useful life using the straight-line method provided there is no impairment loss. Goodwill and indefinite-lived intangible assets are not amortized systematically.

In the Group, development costs are only recognized as internally generated intangible assets if the conditions set forth in IAS 38 are satisfied. This includes the following criteria: Technical feasibility of completion for use or sale, it is probable that future economic benefit will flow to the entity from the use of the asset, ability to reliably assess the expenditure during the development. Cost is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria. Development costs which do not meet these criteria as well as research costs are recognized as an expense immediately.

The useful life of intangible assets is estimated as follows:

Amounts in years
Franchises, industrial rights and similar rights	1 to10
Capitalized development costs	3 to 8

Property, plant and equipment

Property, plant and equipment are accounted for at cost less scheduled straight-line depreciation over the useful life. Production cost comprises all costs that can be allocated to the production process, directly or indirectly.

The useful life of intangible assets is estimated as follows:

Amounts in years
IT hardware	3 to 5
Furniture and fixtures	5 to10
Machines and equipment	5 to15
Buildings and leasehold improvements	5 to 50

The cost of property, plant and equipment includes major expenditures and replacements which extend useful lives or increase capacity. The historical cost of assets that are either sold or scrapped is eliminated after deduction of accumulated depreciation. Any gains and losses from the disposal of assets are disclosed as other operating income or expenses. Costs of ongoing repairs and maintenance are expensed immediately.

Investment property

An investment property is measured initially at its cost including incidental costs. The carrying amount contains the costs for investments to replace an existing investment property at the time these costs are incurred provided the recognition criteria are satisfied. The carrying amount does not contain the costs of day-to-day maintenance of these properties. In the course of subsequent measurement, the investment property is carried at fair value. Fair value reflects the market conditions on the balance sheet date. Gains and losses from changes in fair value of investment property are recorded in the income statement in the year they occur.

Investment property is derecognized when it is sold or retired from active use and no future economic benefit is expected upon its disposal. Gains or losses arising from the retirement or disposal of investment property are recognized in the year of retirement or disposal.

Properties are allocated to investment property if a change in use has occurred which is substantiated by being occupied by another party after the end of owner occupation or the inception of an operating lease with another party.

Impairment test

All intangible assets with an indefinite useful life and goodwill are tested for impairment at the end of each reporting period. Other intangible assets and property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Investment property that is largely rented to third parties is also subjected to an impairment test by external valuers.

An impairment loss is recognized if the recoverable amount of the asset falls short of the carrying amount. The recoverable amount is the higher of an asset's net selling price and its value in use. The net selling price is the amount recoverable from the disposal of an asset at customary market conditions less costs to sell. Value in use is the fair value of estimated future cash flows expected

	to arise from the continuing use of an asset and from its disposal at the end of its useful life. The recoverable amount is determined for each asset individually or, if that is not possible, for the cash generating unit to which the asset belongs. As regards goodwill acquired in business combina tions, the relevant cash-generating units correspond to the business units of the Dürr Group based on internal reporting structures. To determine the estimated cash flow of each cash-generating unit, basic assumptions have to be made. These include assumptions regarding financial planning and the interest rates used for discounting.
	Impairments recorded in prior periods are revised with profit and loss effect if they no longer exist or have decreased. The increase in value or the reduction of an impairment loss of an asset is, however, only recorded to the extent that it does not exceed the carrying amount that would have existed if the regular amortization or depreciation had been recorded and no impairment losses had been recognized. Impairments on goodwill may not be recorded.
Government grants	According to IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance) government grants are only recorded if it is reasonably certain that the conditions attached to the grants will be fulfilled and the grants actually awarded. Grants are deducted from the carrying amount of the subsidized asset.
Leases	The entities in the Dürr Group are lessees of land, buildings, office and operating equipment. The majority of leases are classified as operating leases.
	When the leases meet the definition of finance leases, the leased asset is capitalized at acquisition cost. Acquisition cost is the net present value of future minimum lease payments less costs incurred for insurance, maintenance and taxes on any profit thereon. A liability is also established at that time for the same amount. The upper limit for the recognition of a leased asset and the liability is the fair value. The leased asset is depreciated over the shorter of the lease term and its estimated use ful life. Interest is imputed on the obligation using the effective interest method over the lease term.
	Lease payments on operating leases are recorded as an expense in the income statement over the term of the lease.
Investments in associates	Entities on which Dürr does not exert a significant influence are recorded as investments in asso ciates. The Group's share of profits and losses is shown in the consolidated balance sheet as a change in the carrying amount and recognized in the consolidated income statement under result of associates. Dividends received are deducted from the carrying amount.
Financial instruments	Pursuant to IAS 39, financial instruments are classified in the following categories:
	Financial assets held for trading Held-to-maturity investments Loans and receivables originated by the entity and Available-for-sale financial assets.
	Financial assets with fixed or determinable payments and fixed maturity that the entity intends and has the ability to hold to maturity other than loans and receivables originated by the entity pursuant to IAS 39 are classified as held-to-maturity financial assets. Financial assets that are acquired principally for the purpose of generating a profit from short-term fluctuations in price or dealer's margins are classified as held-for-trading financial assets. All other financial assets apart from loans and receivables originated by the entity pursuant to IAS 39 are classified as available-for-sale financial assets.

Held-to-maturity investments are disclosed under non-current assets unless they are due within 12 months of the balance sheet date. Held-for-trading financial assets are disclosed under current assets. Available-for-sale financial assets are disclosed under current assets if management intends to sell them within 12 months of balance sheet date.

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

The initial recognition of a financial asset is at cost which corresponds to the fair value of the consideration given or received; transaction costs are included.

Changes in the fair value of held-for-trading financial assets are recorded in the net profit or loss. For this purpose, the fair value of a financial instrument is the amount that can be generated for the asset in an arm's length transaction between knowledgeable and willing parties, under current market conditions.

Held-to-maturity investments are measured at amortized cost using the effective interest rate method. If it is more likely than not that the value of financial assets measured at amortized cost is impaired, the impairment is recorded against earnings. If an impairment loss recorded in a prior period decreases and the decrease in the impairment (or a reversal) can be objectively related to an event occurring after the impairment loss, the reversal is included in net profit and loss. A write-up cannot, however, exceed the carrying amount that would have been recognized without the impairment.

Loans and receivables originated by an entity and not held for trading are measured at amortized cost or the lower net realizable value on the balance sheet date.

Available-for-sale financial assets are accounted for at market value. Unrealized gains and losses are disclosed in other comprehensive income, net of a tax portion. The reserve is released to profit and loss either upon disposal or if it is impaired.

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

Derivative financial instruments and hedging

For hedge accounting purposes, hedges are designed to:

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

• hedge the exposure to changes in the fair value of a recognized asset or liability;
• hedge the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction; or
• hedge the net investment in a foreign entity.

A hedge of the currency risk of a firm commitment is accounted for as a cash flow hedge. At the inception of the hedge, the hedging relationship and the entity's risk management objective and strategy for undertaking the hedge are formally documented. This documentation contains identification of the hedging instrument, the related hedged item or transaction, the nature of the risk being hedged, and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or the hedged transaction's cash flows that is attributable to the hedged risk. Such hedges are considered to be highly effective in offsetting the risks from changes in the fair value or in the cash flow. They are continuously assessed whether they were in fact highly effective for the whole reporting period for which the hedge is designated. Hedges which satisfy the strict criteria for hedge accounting are accounted for as follows:

Fair value hedge accounting

By hedging against changes in fair value, the Group secures itself against the risk of a change in fair value of a recognized asset or recognized liability or an unrecognized firm commitment or a precisely defined part of such an asset, such a liability or such a firm commitment that is attributable to a certain risk and which could have an effect on the profit or loss of the period. To hedge the fair value, a gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item, the derivative financial instrument is revalued at its fair value and the resulting gain or loss is recognized immediately in net profit or loss. For fair value hedges which relate to hedged items carried at amortized cost, the adjustments of the carrying amount are released to profit and loss over their term until maturity. If an unrecognized firm commitment is designated as a hedged item, the subsequent accumulated change in fair value of the firm commitment that is attributable to the hedged risk is recognized as asset or liability and in the profit or loss of the period. Changes in the fair value of a hedged item are also reported in net profit. A fair value hedge has to be reversed when the hedging instrument expires, is sold, ended or exercised or the criteria for the use of hedge accounting are no longer satisfied. Every adjustment of the carrying amount of a hedged financial instrument is released to income using the effective interest method. As soon as there is an adjustment, the reversal can begin, but no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

Cash flow hedge accounting

Hedges qualify as cash flow hedges if they hedge exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction and that can have an effect on the profit or loss of the period. The portion of the gain or loss on a hedging instrument that is determined to be an effective hedge should be recognized directly in equity, while the ineffective part is recorded in profit and loss. Amounts that are recognized directly in equity are recognized in profit or loss in the period in which the hedged transaction affects the net profit or loss of the period. If the hedged item is the acquisition costs of a non-financial asset or non-financial liability, the amounts recorded in equity are added back to the carrying amount of the non-financial asset or non-financial liability originally recorded. If the forecasted transaction is no longer expected to occur, any related net cumulative gain or loss that has been reported directly in equity is reported in net profit or loss for the period. When the hedge expires or is sold, terminated without replacement or rolled over into another hedge or if the Group retracts the designation of a hedge, the previously disclosed amounts remain as a separate item in equity until the forecasted transaction occurs. If the forecast transaction is no longer expected, the amount is recorded in profit and loss.

Other financial assets	The marketable securities disclosed under other financial assets are classified as available-for-sale securities and therefore measured at market value on the balance sheet date.
Inventories and prepayments	Inventories of raw materials, consumables and supplies, work in process from non-contract pro duction and finished goods are carried at the lower of cost or market on the balance sheet date. Valuation allowances are recorded for obsolete and slow-moving inventories.
	Cost of conversion comprises direct materials costs, direct labor costs as well as all production related overheads including production-related depreciation. Borrowing costs are not included.
Construction contracts	Dürr generates most of its sales revenues from long-term construction contracts. Contract revenue is recognized according to the percentage-of-completion method based on costs incurred relative to total estimated costs. The zero-profit method is used in situations where estimated costs to com plete cannot be reliably determined.
	Progress billings issued to customers and cash received from customers are not recorded as sales but deducted, without effect on income, from cost and estimated earnings in excess of billings on

uncompleted contracts or added to advances received.

	To the extent that costs have been incurred on contracts, but the amounts cannot yet be billed under the terms of the contracts, they are reported together with the corresponding partial earnings as "cost and estimated earnings in excess of billings on uncompleted contracts." The invoicing of such amounts is dependent on certain contractually defined milestones being reached. Cost and esti mated earnings in excess of billings on uncompleted contracts includes directly allocable costs (material, labor cost and cost of services provided by third parties) as well as the appropriate portion of production overheads and estimated earnings. Shipping costs are included in the cost of sales.
	Also included in cost and estimated earnings in excess of billings on uncompleted contracts are amounts that Dürr seeks to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs, claims and pend ing change orders. These are carried at the estimated amount provided their realization is probable and can be reliably estimated. No profits in addition to these accumulated costs are reported. Pending change orders involve the use of estimates. Therefore, it is possible that revisions to the estimated recoverable amounts of recorded pending change orders will be made in the future.
	The POC method and ZP method are based on estimates. Due to the uncertainties prevailing in this respect, estimates of the cost to complete, including expenses for contractual penalties and war ranties, may have to be adjusted subsequently. Such revisions to costs and income are recognized in the period in which the revisions are determined. Provisions for potential losses from pending transactions are recognized in the period in which losses are identified.
Trade receivables	Receivables are carried at the lower of amortized cost or net realizable amount.
	The Group assesses the recoverability of its receivables by referring to a number of factors. Should Dürr become aware of any issues which would impinge on the ability of certain customers to meet their financial obligations, it posts a specific valuation allowance to write down the net receivable due to the Group to the reasonably expected recoverable amount. The appraisals of the separate debtor accounts which are either overdue or in default are performed by management. For all other customers, the Group records specific valuation allowances on a portfolio basis based on the period overdue, current business circumstances and past experience. A local collection manage ment system takes account of the commercial and political risks of bad debts. The collection manage ment system consists of: Carrying out regular credit rating, entering into credit insurance policies and – particularly in the export business – issuing letters of credit.
Cash and cash equivalents	All short-term liquid financial assets with an original term of up to three months are carried as cash and cash equivalents at face value.
Borrowing costs in connection with the refinancing of the Group	Pursuant to IAS 23, borrowing costs incurred due to the issue of a bond are deducted from the bond in the consolidated balance sheet. Calculated using the effective interest method, borrowing costs are amortized over the term of the bond.
	Costs in connection with the syndicated loan are shown in the consolidated balance sheet as other intangible assets and amortized over the term of the syndicated loan.
Provisions	The Group's post-employment benefits include both defined contribution plans and defined benefit plans.
	In the case of defined contribution plans, the Company pays voluntary contributions to state or private pension funds based on legal or contractual provisions. No further payment obligations arise for the Company from the payment of contributions.

The large majority of the Company post-employment benefit systems are based on defined benefit plans which guarantee the beneficiary a monthly old-age pension for life. These are funded by the Company and by the employees.

In accordance with IAS 19, provisions for pension commitments are measured using the projected unit credit method. For this purpose, the future commitments are measured on the basis of the pro rata employee benefit obligations as of the balance sheet date. Pension provisions are calculated taking into account development assumptions (e.g. salary developments) for those factors which affect the benefit amount.

In the reporting year, Dürr decided to apply IAS 19 (revised) to measure the benefit obligations. According to this, actuarial gains and losses are recorded without effect on income directly in equity. Comparability with the prior-year figures is ensured by adjusting the balance sheet positions concerned. The effects in terms of amount can be seen from the statement of changes in Group equity as of January 1, 2004, and December 31, 2004 (adjusted).

Provisions for reinsured benefit obligations are netted against plan assets in accordance with the criteria of IAS 19 (revised).

Other provisions are recorded if the obligation to a third party results from a past event which is expected to lead to an outflow of economic benefits and can be reliably determined. They represent uncertain obligations which are stated in that amount which, in the best possible estimate, is necessary to cover them. Provisions with a residual term of more than one year are discounted at market interest rates which reflect the risk and period until the obligation is met.

Liabilities from finance leases are carried at the present value of the lease payments or the lower market value of the capitalized leased asset; all other liabilities are accounted for at amortized cost.

Deferred taxes

Liabilities

Deferred taxes are accounted for using the balance sheet-oriented liability method according to IAS 12 (Income Taxes).

This involves creating deferred tax items for all temporary accounting and measurement differences between IFRS and tax carrying amounts. They are not created if the temporary difference arises from goodwill or the initial recognition of other assets and liabilities in a transaction (not a business combination) which impacts neither the tax nor the commercial profit or loss. A deferred tax asset is set up for all taxable temporary differences arising from shares in subsidiaries or associates, and interests in joint ventures, unless the parent company can control the reversal of the temporary difference and the temporary difference will probably not reverse in the foreseeable future. Further, deferred tax assets for future economic benefits from unused tax losses must be taken into account if it is highly probable that they will be used.

Deferred taxes are measured taking into account the respective local income tax rates which apply in the individual countries at the time of realization or which are expected (basis: Applicable tax law). Valuation allowances are only recorded on deferred tax assets if the loss of the tax benefit is more probable than its use.

Deferred tax assets and deferred tax liabilities are netted if, and only if, the entity has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied on the same taxable entity by the same taxation authority. Deferred taxes are recorded as tax income or expense in the income statement unless they relate to items recorded directly in equity; in this case, the deferred taxes are also recorded directly in equity.

Contingent liabilities	Liabilities are disclosed in the notes to the financial statements as contingent liabilities for a possible obligation that arises from past events and whose existence will be confirmed only by the occur rence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Contingent liabilities can arise from a present obligation that results from past events but is not recognized because: it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability. A contingent liability is not disclosed if the possibility of an outflow of resources embodying eco nomic benefits is remote.
Research and non-capitalizable development costs	Research and non-capitalizable development costs are recorded with effect on income when they are incurred.
Earnings per share	Earnings per share are determined pursuant to IAS 33 (Earnings Per Share).
	If there are dilutive effects present, two different ratios for earnings per share must be disclosed. The ratio "Earnings per share" does not take account of dilutive effects; the earnings share of the shareholders of Dürr Aktiengesellschaft is divided by the weighted average number of shares outstanding. The ratio "Earnings per share (diluted)" accounts not only for the shares outstanding, but also for shares potentially available on the basis of options. The calculation is presented below (all amounts in thousands of euros, except earnings per share). In the reporting periods 2005 and 2004, there were no dilutive effects as no option rights were issued and all existing option rights have expired.
			2005	2004
	Profit/loss allocable to shareholders of Dürr Aktiengesellschaft	in € k	4,345	5,723
	of which continuing operations	in € k	–104,550	–66
	of which discontinued operations	in € k	108,895	5,789
	Number of shares outstanding (weighted average)		14,400.0	14,298.2
	Earnings per share (basic and diluted)	in €	0.30	0.40
	of which continuing operations	in €	–7.26	0.00
	of which discontinued operations	in €	7.56	0.40
Dependence on a few customers	The development of Dürr hinges on the willingness of the automotive industry to invest. A significant portion of the Group's revenues is generated with a limited number of customers because the world wide market for automobiles is dominated by a small number of corporations.
Use of estimates	The preparation of the consolidated financial statements pursuant to IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual figures may diverge from these estimates.

Issues requiring assumptions and estimates include the recognition and measurement of cost and estimated earnings in excess of billings on uncompleted contracts, for bad debt allowances as well as for contingent liabilities and other provisions; the same applies to determining the fair value of long-lived items of property, plant and equipment and intangible assets and for the impairment testing of goodwill and the recognition of deferred taxes on unused tax losses.

Notes to the consolidated income statement

For the composition of the restructuring expenses/encumbered contracts shown separately in the income statement and impairment losses recorded on the individual functional costs, reference is made to note 11.

8. Sales revenues

Sales revenues break down as follows:

	2005	2004
Amounts in € k
Contract revenues	1,145,732	1,489,965
Revenues from services	220,609	222,416
Other sales revenues	34,261	13,436
	1,400,602	1,725,817

9. Personnel expenses

The expense positions of the income statement contain the following personnel expenses:

	2005	2004
Amounts in € k
Wages and salaries	312,757	325,049
Social security contributions	68,535	73,397
	381,292	398,446
of which post-retirement benefits	7,773	7,068

10. Other operating income and expenses

Other operating income and expenses mainly consist of:

	2005	2004
Amounts in € k
Other operating income
Exchange rate gains	21,180	14,448
Reversal of provisions	6,887	5,090
Book gains on the disposal of non-current assets	3,813	2,245
Other	7,492	7,458
Other operating expenses
Exchange rate losses	22,173	14,493
Impairment of receivables and other current assets	2,750	2,152
Book losses on the disposal of non-current assets	2,155	237
Other	17,554	9,256
	–5,260	3,103

11. Restructuring expenses and impairment losses

In the course of the Group-wide program FOCUS, Dürr is restructuring the Paint and Assembly Systems division and the Cleaning and Filtration Systems business unit. The largest part of the restructuring expense pertains to Paint and Assembly Systems.

The total restructuring expenses in the reporting year amount to € 45,903 thousand (2004: € 6,692 thousand). Part of the expenses are allocable to other liabilities. Liabilities for restructuring measures have developed as follows:

	Paint and Assembly	Measuring and Process
	Systems	Systems	Dürr Group
Amounts in € k
January 1, 2004	4,785	15,429	20,214
Currency differences	–32	–8	–40
Utilization	3,264	13,309	16,573
Addition	3,174	452	3,626
December 31, 2004	4,663	2,564	7,227
Currency differences	321	38	359
Utilization	1,180	2,482	3,662
Reversal	2,664	–	2,664
Addition	21,912	12,485	34,397
December 31, 2005	23,052	12,605	35,657

A further € 11,506 thousand relates to restructuring expenses for measures already implemented in the fiscal year 2005.

The restructuring expenses/onerous contracts can be allocated to the individual functional costs as follows: € 23,266 thousand (2004: € 2,447 thousand) relates to cost of sales, € 3,509 thousand (2004: € 777 thousand) relates to selling expenses, € 17,240 thousand (2004: € 3,379 thousand) to administrative expenses and € 1,888 thousand (2004: € 89 thousand) relates to research and development costs.

As part of FOCUS, impairment losses were also allocated to intangible assets (€ 10,588 thousand), property, plant and equipment (€ 11,115 thousand) and to investment property (€ 5,471 thousand). Impairment losses of an additional € 700 thousand were recorded on financial assets.

Impairment losses on intangible assets mainly pertain to licenses and patents which are no longer used at all, or only to a limited extent, in the course of restructuring. The largest portion of impairment losses on intangible assets relates to the Paint and Assembly Systems reporting segment. Generally speaking, the recoverable amount was calculated as value in use. Due to the short residual terms of the assets on which impairment losses have been recorded, discounting in the calculation of values in use was implicitly considered by means of markdowns on the future cash flows.

During the 2005 reporting period, the segment sales, restructuring and reorganization activities in the Dürr Group resulted in shifts in the use of property which made a review of carrying amounts necessary. For the first time, the land and buildings, most of which is let to third parties, was classified as a cash-generating unit pursuant to IAS 40 and disclosed as investment property and also subjected to an impairment test pursuant to IAS 36. An appraisal by an external valuer forms the

	basis of the impairment calculation. The impairment requirement for the land and buildings, most of which is let to third parties, amounts to € 5,471 thousand. The directly recoverable amount for the land and buildings, most of which is let to third parties, is equal to the fair value less costs to sell of this Group; we also refer to note 15.
	An impairment loss was also recorded on a property in the US which has been allocated to the PAS division. Based on an appraisal – prepared by an independent valuer – the value of the property has been written down to market value by € 5,331 thousand. This property is available for sale because, due to the restructuring of the Dürr Group, it is no longer needed for business operations; we refer to the information about land and buildings in note 15.
	The impairment can be allocated to the individual functional costs as follows: € 13,954 thousand (2004: € 85 thousand) relates to cost of sales, € 1,510 thousand (2004: € 0 thousand) relates to selling expenses, € 3,939 thousand (2004: € 56 thousand) to administrative expenses and € 8,471 thousand (2004: € 0 thousand) relates to research and development costs.
12. Result from associates	An impairment loss was recorded on three associates based on future estimated income (€ 2,744 thousand). The residual amount relates to the profit/loss shares from equity consolidation.
	Currency effects within the accumulated other comprehensive income were recorded directly in equity.
13. Interest and similar expenses	Interest and similar expenses consist of:
	2005 2004

Amounts in € k
Amortization of transaction costs/debt discount from the issue of a bond and from a syndicated loan	1,982	825
Other interest expenses	35,375	25,260
Interest and similar expenses	37,357	26,085

For details of the Group financing structure, please refer to note 24.

14. Income taxes

The income taxes include the domestic corporate income tax including a solidarity surcharge and trade taxes on income. Comparable taxes of foreign subsidiaries are also shown under this position. The tax expense for discontinued operations is explained in note 6.

Deferred taxes are computed using an unchanged tax rate of 39.0% (prior year: 39.0%). Besides the corporate income tax rate of 25% and the solidarity surcharge of 5.5%, an average trade tax on income rate was considered. There were no major changes in tax expense due to changes in the respective local tax rates.

The tax expense on income is made up as follows:

	2005	2004
Amounts in € k
Current income taxes
Income tax expenses, reporting year	27,549	3,629
Adjustment of tax expense, prior years	1,729	48
	29,278	3,677
Deferred taxes
Origin and reversal of temporary differences	–602	3,430
Total tax expense	28,676	7,107
Less tax expense from discontinued operations	30,749	1,498
Tax income/expense	–2,077	5,609

As a result of accumulated losses in the past three years in certain tax jurisdictions, Dürr did not record any deferred tax assets on unused tax losses. In addition, deferred tax assets have only been created if it can be assumed that a future taxable profit will be available against which the deferred tax assets can be used. Deferred tax assets have thus initially been carried at the amount equivalent to the existing deferred tax liabilities in terms of the same tax authorities and the same taxpayer, provided the tax credits can be used before they are forfeited. When determining the amount recognized, reverse effects of deferred tax liabilities and additional tax income of up to three years were considered, provided they could be assumed with reasonable certainty.

Dürr assesses the deferred taxes regularly. The ability to recognize tax income from deferred taxes depends on the possibility of generating taxable income in the future and using up unused tax losses before they expire.

The following table shows the reconciliation of theoretical income taxes to the actual income tax expenses using the German corporate tax rate of 39.0% (2004: 39.0%).

	2005	2004
Amounts in € k
Profit/loss before income taxes from continuing operations	–106,620	4,494
Profit before income taxes from discontinued operations	139,604	7,320
Profit before income taxes	32,984	11,814
Theoretical income tax expenses in Germany of 39% (2004: 39%)	12,864	4,607
Adjustments of actual income taxes incurred in prior years	1,729	2,037
Non-deductible operating expenses	3,395	2,370
Taxation difference, foreign tax jurisdictions	–784	–308
Unrecognized deferred taxes, esp. on unused tax losses	25,687	1,708
Change in valuation allowance on deferred tax assets	13,670	2,444
Subsequent recognition of deferred taxes on unused tax losses	–3,402	–2,400
Zero-rated income	–23,607	–2,940
Other	–876	–411
Effective income tax expense of the Group	28,676	7,107
Income tax income/expense disclosed in the
consolidated income statement	–2,073	5,609
Actual income taxes allocable to discontinued operations	24,033	1,498
Deferred income taxes allocable to discontinued operations	6,716	–
Effective income tax expense of the Group	28,676	7,107

The deferred tax assets and liabilities break down as follows:

				Consolidated
	Consolidated balance sheet	Consolidated balance sheet	Offsetting against	income statement
	2005	2004	equity	2005
Amounts in € k
Deferred income tax assets
Accounting for intangible assets	321	408		–87
Revaluation of land and buildings	1,095	633		462
Revaluation of financial assets	2,005	1,654		351
Bad debt allowance	1,987	1,775		212
Interest/currency transactions	438	1,115	677	–
Cost and estimated earnings in excess of billings on uncompleted contracts	1,431	7,478		–6,047
Billings in excess of cost and estimated earnings on uncompleted contracts	7,047	12,094		–5,047
Post-retirement benefits	8,815	3,481	–4,802	532
Restructuring, provisions not
recognized for tax purposes	10,778	12,993		–2,215
Unused tax losses	31,176	24,823		6,353
Total deferred tax assets before valuation allowances	65,093	66,454
Valuation allowances	–16,114	–2,444		–13,670
Total deferred income tax assets	48,979	64,010
Netting	–5,809	–18,281
Discontinued operations	515	2,938
All deferred tax assets	43,685	48,667
Deferred tax liabilities
Accounting for intangible assets	–2,635	–2,008		–627
Capitalized development costs	–1,727	–1,071		–656
Non-deductible goodwill	–8,839	–7,380		–1,459
Revaluation of land and buildings	–15,901	–17,723		1,822
Revaluation of financial assets	–4,557	–4,557		–
Construction contracts	–7,329	–25,981		18,652
Recognition of other assets	–6,666	–7,878		1,212
Amortization of costs related to bond
and syndicated credit costs	–2,563	–3,377		814
Total deferred income tax liabilities	–50,217	–69,975
Netting	5,809	18,281
Discontinued operations	–654	–6,818
All deferred tax liabilities	–45,062	–58,512
Offset directly against equity			–4,125
Deferred income tax income/(expense)				602

In 2004, deferred taxes of € 3,430 thousand were recognized in the income statement and € –19 thousand was recorded directly in equity.

Deferred tax assets and deferred tax liabilities are netted if, and only if, the entity has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

Unused tax losses for which no deferred tax assets were recognized came to € 125,128 thousand (2004: € 78,723 thousand). Of these, unused tax losses of € 8,114 thousand (prior year: € 1,926 thousand by 2008) have to be realized by 2009 at the latest and unused tax losses of € 23,841 thousand (prior year: € 5,744 thousand by 2013) have to be used by 2024.

As of December 31, 2005, the distributable reserves of foreign subsidiaries amounted to around € 116,740 thousand (2004: € 108,352 thousand). As Dürr Aktiengesellschaft intends to reinvest these gains for an indefinite period of time, no tax implications from possible distributions or dividend payments of foreign subsidiaries were considered in the consolidated financial statements.

Notes to the consolidated balance sheet: Assets

15. Intangible assets and property, plant and equipment

Details regarding the changes in the Group's intangible assets and property, plant and equipment are presented in the statement of changes in non-current assets in the Group in note 35.

Prepayments relate exclusively to franchises, industrial rights and similar rights as well as property, plant and equipment. Property, plant and equipment are recognized as assets under construction if costs for own or third-party work have already been incurred for their manufacture but they have not been completed by the balance sheet date.

Scheduled amortization and depreciation is shown in the income statement within the functional costs:

	2005	2004
Amounts in € k
Cost of sales	8,962	8,716
Selling expenses	933	845
General administrative expenses	10,052	9,023
Research and development costs	1,491	1,268
Other operating expenses and income	2,125	1,329
	23,563	21,181

In the reporting period, assets were also written down to the recoverable amount by recording impairment losses. The recoverable amount is generally determined on the basis of the value in use and at the level of the cash-generating unit. To improve the insight into the earnings situation, this was disclosed separately in the income statement. For additional information, we refer to note 11.

Impairment test for goodwill

The goodwill acquired from business combinations was allocated to the cash-generating unit for impairment testing. The divisions Paint and Assembly Systems and Measuring and Process Systems are defined as cash-generating units. The calculation model is used in exactly the same way for both cash-generating units as the main parameters apply equally to the two divisions.

	The net realizable amount of the cash-generating unit is determined on the basis of value in use. This calculation is prepared on the basis of cash flow forecasts which are based on the financial planning approved by management for a period of three years. In the reporting period, the discount rate be fore taxes for the cash flow forecast was within the range of 9.61% to 9.81% (2004: 11.26% to 11.62%). Cash flows after the three-year period are extrapolated using a growth rate of 1.5% (2004: 1.5%) based on the long-term growth rate of the divisions.
Planned gross profit margins	The gross profit margins are determined in the subsidiaries' bottom-up planning. These are based on the figures determined for the previous reporting year taking anticipated efficiency increases into account.
Capital costs (discount rate)	The capital costs are the weighted mean of debt capital and equity costs before tax. Borrowing costs are based both on the credit rating and also the rating for the bond issued in 2004. When calculating the capital costs, a beta factor is also assumed which is derived from the capital market data of comparable entities and the capital structure of Dürr.
Increase in the price of raw materials	Price increases in raw materials are determined from the forecast price indices of the countries from which the raw materials are procured by the respective subsidiaries.
Increase in salary costs	In the three-year plan, the German subsidiaries have assumed annual salary increases of 2%. The foreign subsidiaries have used the applicable local rate of increase for the respective planning period.

The table below shows the development of goodwill, broken down by division:

	Paint and Assembly	Measuring and Process
	Systems	Systems	Services	Dürr Group
Amounts in € k
Carrying amount
as of January 1, 2004	217,458	79,879	48,734	346,071
Currency differences	–1,825	–853	–3,779	–6,457
Additions	1,146	12,996	–	14,142
Carrying amount
as of December 31, 2004	216,779	92,022	44,955	353,756
Currency differences	5,600	3,019	6,551	15,170
Additions	–	638	–	638
Disposals	–	50,681	51,506	102,187
Carrying amount
as of December 31, 2005	222,379	44,998	–	267,377

The additions are explained in note 25.

Land and buildings

Land or buildings of the Group in Mexico and three properties in the USA are to be sold in accordance with a resolution taken by the Board of Management of Dürr Aktiengesellschaft on January 18, 2006. These properties are available for sale as they are no longer needed for ordinary business operations following the restructuring measures implemented in the Group. The Board of Management expects the concrete sales activities of the respective national entities to lead to a sale within the next 12 months. One of the properties in the USA belongs to the MPS division while the other three belong to the PAS division; for further information we refer to note 11.

In the reporting period, three (2004: four, three of which in continuing operations) buildings were capitalized as finance leases; Dürr does not have legal title to these buildings. The depreciation expense recorded on these buildings is included in property, plant and equipment.

The table below shows cost and accumulated depreciation for these buildings which are reported as finance leases under property, plant and equipment.

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Historical cost	17,337	17,229
Accumulated depreciation	8,518	7,100
Net carrying value	8,819	10,129

Investment property

Dürr measures investment property according to the cost model. A distinction is made between property that is largely owner-occupied and property that is let to third parties. A property is considered to be largely used by third parties if more than 90% of it is let to third parties. The properties that are now largely let to third parties used to be owner-occupied. This thus constitutes a change in use.

In the 2005 reporting period, rental income of € 2,136 thousand was generated with these properties; of this amount, € 823 thousand pertains to entities classified during the reporting year as discontinued operations for as long as they belong to the Group. The directly allocable operating expenses came to € 1,294 thousand; € 404 thousand pertains to entities classified during the reporting year as discontinued operations for as long as they belong to the Group. Expenses of € 209 thousand are allocable to vacant property.

The buildings are depreciated systematically using the straight-line method of depreciation over the useful life of the various buildings between 20 and 50 years. In addition, the property that is mainly rented to third parties was subjected to an impairment test by an external valuer. In his report, the valuer estimates that all the buildings have a residual useful life of on average 20 years. He estimates the rent income and rent expenses for this period for the specific buildings and, where contracts exist, adjusts the rent income to the current contractual situation.

The gross book values of the land and buildings as of January 1, 2005, came to € 27,843 thousand. On December 31, 2005, they came to € 28,710 thousand. The accumulated depreciation including all impairments has increased from € 9,443 thousand as of January 1, 2005, to € 15,643 thousand as of December 31, 2005.

The table below presents a reconciliation statement showing the development of the carrying amount of the investment properties (belonging to the MPS division), at the beginning and end of the reporting period.

	Dec.31, 2005
Amounts in € k
As of January 1, 2005 (opening balance)	–
Transfers from portfolio of owner-occupied properties	18,400
Additions from subsequent costs	868
Systematic depreciation	729
Impairment losses pursuant to IAS 36	5,471
As of December 31, 2005	13,068

For additional information, we refer to note 11.

Details of the investments in associates are presented in the table below:

Amounts in € k	2005
Total assets	78,147
Liabilities	55,375
Income	68,663
Profit/loss of the period	3,540

17. Inventories and prepayments

Inventories and prepayments break down as follows:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Raw materials, consumables and supplies	38,660	42,180
less valuation allowances	6,249	5,649
Work in process from non-contract production	1,388	4,186
less valuation allowances	126	2,408
Finished goods	4,502	8,057
less valuation allowances	851	1,466
Prepayments	6,392	7,783
	43,716	52,683

Raw materials, consumables and supplies of € 30,884 thousand (2004: € 27,635 thousand) were measured at average cost and € 7,776 thousand (2004: € 6,074 thousand) using the FIFO method (first in, first out). Changes in valuation allowances of € 2,619 thousand were recorded with effect on income.

18. Trade receivables

Trade receivables are comprised of the following:

	Dec.31, 2005			Dec.31, 2004
Amounts in € k	Total	Current	Non-current	Total	Current	Non-current
Cost and estimated earnings in excess of billings	163,763	163,763	–	207,263	207,263	–
Trade receivables	314,499	313,953	546	348,449	347,333	1,116
Trade receivables from associates	1,443	1,443	–	7,820	7,820	–
	479,705	479,159	546	563,532	562,416	1,116

The majority of Group receivables are due from automobile manufacturers. Generally, these receivables are not secured by bank guarantees or collateral. The receivables are reported net of valuation allowances for doubtful debts of € 17,199 thousand (2004: € 12,345 thousand); the changes in valuation allowances of € 3,882 thousand have been expensed. As of December 31, 2005, 50.4% (2004: 52.9% ) of the trade receivables were due from four (2004: six) customers.

The table below provides a summary of the cost and estimated earnings in excess of billings on uncompleted contracts:

	Dec.31, 2005			Dec.31, 2004
Amounts in € k	Total	Current	Non-current	Total	Current	Non-current
Cost and estimated earnings	356,672	356,672	–	517,142	517,142	–
less billings	305,325	305,325	–	517,333	516,984	349
	51,347	51,347	–	–191	158	349

These amounts are offset on a contract basis and are included in either cost and estimated earnings in excess of billings or billings in excess of cost and estimated earnings (see note 25).

Cost and estimated earnings in excess of billings contain prepayments (asset) of € 192,909 thousand (2004: € 309,879 thousand) net of work in process.

	Dec.31, 2005			Dec.31, 2004
Amounts in € k	Total	Current	Non-current	Total	Current	Non-current
Cost and estimated earnings in excess of billings	163,763	163,763	–	207,263	207,263	–
less billings in excess of cost and estimated earnings	112,416	112,416	–	207,454	207,105	349
	51,347	51,347	–	–191	158	349

19. Other receivables and

Other receivables and other assets break down as follows:

other assets

	Dec.31, 2005			Dec.31, 2004
Amounts in € k	Total	Current	Non-current	Total Current Non-current
Receivables from financing activities due from associates	750	750	–	760	760	–
Other assets	42,421	41,967	454	57,023	55,645	1,378
	43,171	42,717	454	57,783	56,405	1,378

Other assets include in particular tax refund claims not relating to income taxes of € 12,196 thousand (2004: € 18,584 thousand), amounts due from suppliers of € 1,195 thousand (2004: € 958 thousand), receivables from employees of € 845 thousand (2004: € 987 thousand) and forward exchange contracts recorded at fair value of € 1,264 thousand (2004: € 6,835 thousand).

Notes to the consolidated balance sheet: Equity and liabilities

In December 2005, Dürr Aktiengesellschaft carried out a capital increase of 10%, precluding the subscription right. By issuing 1,429,820 new no-par value shares, the number of shares increased to 15,728,020 (2004 and 2003: 14,298,200) and the capital stock from € 36,603 thousand to € 40,264 thousand. The capital increase resulted in an inflow of funds of € 21,805 thousand. Each share represents € 2.56 of the subscribed capital and is made out to the bearer. By resolution of the annual shareholders' meeting on May 30, 2001, the Board of Management is authorized through May 30, 2006, to increase capital stock by a total of up to € 16,219,904 through the issuance of up to 6,335,900 shares of common stock and/or non-voting preferred stock, each representing € 2.56 of capital stock, in exchange for cash. As a result of the capital increase carried out in the reporting year, the authorized capital available for further increases in capital decreased to € 12,559,564.80, divided into up to 4,906,080 bearer no-par value shares. By resolution of the annual shareholders' meeting on May 30, 2001, the Board of Management is authorized, with the consent of the Supervisory Board, through May 30, 2006, to increase capital stock by a total of up to € 10,240 thousand through the issuance of up to 4 million new no-par value shares issued to the bearer in the form of common stock and/or preferred stock, each representing € 2.56 of capital stock (conditional capital I). The conditional capital increase can be used to issue convertible bonds with a nominal value of up to € 102,400 thousand, which can have a term of up to 15 years. The authorization is valid until May 30, 2006. To date, no conditional capital increase has been carried out. Under the Dürr International Stock Option Plan (DISOP), the Board of Management is further authorized to increase capital stock conditionally by up to € 2,560 thousand through the issuance of up to 1 million common shares, each representing € 2.56 (conditional capital II) of capital stock. In the 2005 reporting period, Dürr did not issue any further options to participants under the stock option plan (DISOP). All options issued in prior years had already expired at the beginning of the reporting year. The premium received of € 18,144 thousand from the issue of new shares was transferred to the capital reserve. An amount of € 16,685 thousand was withdrawn to offset the net loss for the year of Dürr Aktiengesellschaft. As of December 31, 2005, the capital reserve amounts to € 160,459 thousand (2004: € 159,000 thousand). The capital reserve is subject to the restrictions of Sec. 150 AktG ["Aktiengesetz": German Stock Corporation Act]. The amount of dividends available for distribution to shareholders is regulated by German stock corporation law, and is based upon the earnings of Dürr Aktiengesellschaft as reported in its statutory financial statements prepared in accordance with HGB. In the reporting year, Dürr Aktiengesellschaft recorded a net loss for the year; this was offset by releasing revenue reserves and part of the capital reserves. There were no earnings available for distribution in the reporting year. 20. Equity without minority interests Subscribed capital Authorized capital (Dürr Aktiengesellschaft) Conditional capital (Dürr Aktiengesellschaft) Capital reserve Dividends

Other comprehensive income

The table below shows the development of other comprehensive income and the related tax effect:

	2005		2004
Amounts in € k	Before tax	Tax effect	Net	Before tax	Tax effect	Net
Net losses from derivatives to hedge cash flows
Currency translation	45	–16	29	–	–	–
Change in unrealized gains (–)/losses	–1,475	575	–900	–2,207	821	–1,386
Realized losses	3,230	–1,236	1,994	4,330	–1,684	2,646
Net gains/net losses (–) from derivatives, total	1,800	–677	1,123	2,123	–863	1,260
Additional benefit obligations
Changes in consolidated group	289	–112	177	–	–	–
Change in actuarial gains and losses	–18,439	7,394	–11,045	–2,486	844	–1,642
Adjustment of deferred taxes	–	–2,480	–2,480	–	–	–
Net change from benefit obligations	–18,150	4,802	–13,348	–2,486	844	–1,642
Currency translation difference	11,800	–	11,800	–3,317	–	–3,317
Change in other comprehensive income	–4,550	4,125	–425	–3,680	–19	–3,699

21. Minority interests

Minority interests contain adjustment items from the capital consolidation for minority interests in capital required to be consolidated and the profits and losses allocable to them. The consolidated financial statements contain two (2004: nine) entities in which minority shareholders hold interests.

22. Provisions for benefits obligations	The Group's post-employment benefits include both defined contribution plans and defined benefit plans.
Defined contribution plans	The post-employment benefits available to the employees of Dürr's German subsidiaries include a life insurance program (BZV) of € 687 thousand (2004: € 701 thousand) in line with the respective tariff group. The German pension obligations were measured using the 2005 G Heubeck tables.
	The US subsidiaries contribute to external pension funds for union employees. In the 2005

reporting period, pension expenses for these employees amounted to approx. € 1,240 thousand (2004: € 1,312 thousand).

In addition, Dürr's US subsidiaries have a 401(k) profit-sharing plan for certain employees. The benefits are based on years of service and the employees' compensation. The Group's contribution is discretionary and is determined annually by management. In the 2005 reporting period, expenses came to € 829 thousand (2004: € 2,660 thousand).

Pension entitlements have been granted to individual former members of the Board of Management of Dürr Aktiengesellschaft and the members of the Board of Management and managing directors of German subsidiaries based on their recent fixed salary and years of service. Defined benefit plans

At Dürr subsidiaries, those workers who were employed at the German locations in Filderstadt and Wyhlen and at the Schenck entities at the time their entities were acquired were entitled to pension benefits. The pensions are based on years of service. The payments foreseen by the pension plan are calculated on actual contributions plus an element that is dependent on years of service.

The US subsidiaries of Dürr have pension plans covering all non-union employees at these subsidiaries. The plan provides benefits based on the average salaries earned in the past five years.

The following table presents further information on these pension plans:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Changes in projected benefit obligation
Projected benefit obligation at the beginning of the year	67,784	63,704
Reclassification pursuant to IFRS 5	–2,075	–
Effect of currency translation	2,854	–1,572
Service cost	3,706	2,676
Interest cost	3,814	3,392
Actuarial gains or losses	16,532	2,885
Benefits paid	–4,841	–3,753
Other	522	452
Projected benefit obligation at end of year	88,296	67,784

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Change in plan assets
Fair value of plan assets at beginning of year	14,228	13,807
Effect of currency translation	2,022	–1,176
Actual return on plan assets	805	798
Employer contributions	1,033	715
Benefits paid	–1,375	–915
Plan assets from reinsurance	2,946	946
Other	899	53
Fair value of plan assets at end of year	20,558	14,228
Funded status1	67,738	53,556

¹ Difference between the projected benefit obligation and the plan assets.

The amount of benefit obligations carried in the balance sheet is contained in the following positions:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Prepaid expenses	–80	–
Other comprehensive income	–20,429	–2,288
Pension provisions	67,818	53,556

At year-end, plan assets break down as follows:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Shares	10,065	7,917
Fixed-yield securities	10,300	6,246
Property	193	65
	20,558	14,228

Total income expected from plan assets are calculated on the basis of the market prices of time. These apply for the period of time over which the obligation is settled.

The variance between the estimated and actual amounts of benefit obligations and of the plan assets is presented below.

	2005
Amounts in € k
Benefit obligations	–2,735
Plan assets	–518

For the 2006 reporting period, plan additions of € 1,196 thousand are expected.

Composition of net periodic pension cost:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Service cost	3,706	2,676
Interest cost	3,814	3,392
Expected return on plan assets	–1,300	–562
Other	–65	476
	6,155	5,982

The net periodic pension cost is contained in the following positions of the income statement:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Cost of sales	1,475	1,514
Selling expenses	526	553
General administrative expenses	4,108	3,899
Research and development costs	16	16
Other operating expenses and income	–19	–
Interest and similar expenses	49	–
	6,155	5,982

The cutoff date for the measurement of benefit obligations and plan assets is December 31, 2005; the measurement date for pension cost is January 1, 2005.

The following averages were used to calculate benefit obligations:

	2005	2004
Amounts in %
Average valuation factors
Discount rate	4.33	5.58
Long-term salary increases	2.09	2.46

The following averages were used to calculate pension cost:

	2005	2004
Amounts in %
Average valuation factors
Discount rate	5.58	5.60
Estimated long-term return on plan assets	7.55	7.46
Long-term salary increases	2.46	2.92

23. Other provisions

Other provisions break down as follows:

	Dec.31, 2005				Dec.31, 2004
Amounts in € k	Total	Current	Non-current	Total	Current	Non-current
Contract-related provisions	70,045	65,830	4,215	88,526	82,993	5,533
Personnel provisions	9,970	4,457	5,513	10,754	7,647	3,107
Other provisions	11,717	11,692	25	21,153	11,076	10,077
	91,732	81,979	9,753	120,433	101,716	18,717

The contract-related provisions mainly consist of provisions for potential losses in the order backlog, for after-sales expenses and for warranties. The personnel provisions mainly contain provisions for long-service awards and obligations for phased retirement. Other provisions relate to numerous identifiable specific risks and contingent liabilities.

Those other provisions that are expected to be used within the next 12 months are classified as current. The payments for non-current provisions are expected to be incurred within the next two to five years.

Other provisions developed as follows in the reporting period:

	Contract-related provisions	Personnel provisions	Other provisions
Amounts in € k
As of January 1, 2005	88,526	10,754	21,153
Adjustment pursuant to IFRS 5	–7,019	–990	–1,456
Currency differences	2,945	112	497
Utilization	–67,028	–3,655	–7,879
Reversal	–6,649	–	–8,797
Addition	59,270	3,749	8,199
As of December 31, 2005	70,045	9,970	11,717

24. Bonds and financial liabilities

All interest-bearing liabilities of the Group are shown under the bonds and other financial liabilities item. They break down as follows:

		Term
	Total	Short	Total	Medium	Long
Amounts in € k
Bond	187,901	–	187,901	–	187,901
(2004)	(186,471)	(–)	(186,471)	(–)	(186,471)
Liabilities to banks	21,692	16,001	5,691	2,770	2,921
(2004)	(102,743)	(83,645)	(19,098)	(16,029)	(3,069)
Liabilities to associates	1,068	148	920	920	–
(2004)	(1,083)	(163)	(920)	(920)	(–)
Liabilities from finance leases	7,252	1,261	5,991	4,797	1,194
(2004)	(8,159)	(1,471)	(6,688)	(4,451)	(2,237)
December 31, 2005	217,913	17,410	200,503	8,487	192,016
(December 31, 2004)	(298,456)	(85,279)	(213,177)	(21,400)	(191,777)

Those liabilities with a residual term of between one and five years are disclosed as medium term; otherwise as short or long term.

On July 6, 2004, Dürr AG placed a fixed-interest bond on the capital market. With a total volume of € 200,000 thousand, the bond was placed with a coupon of 9.75% and a term of seven years. The purpose of the bond is the long-term financing of the Group.

A syndicated loan of € 272,119 thousand is also in place with a bank syndicate, consisting of a revolving cash line and a guarantee line. The cash line was not used as of the balance sheet date while the guarantee line of € 123,668 thousand was used. The loan expires in 2009. Premature termination by the bank syndicate is only possible if the covenants are infringed and with a twothird majority of the lending banks. To take account of the restructuring measures initiated, it was agreed in 2005 to adjust the covenants for the period until December 31, 2006. Based on the calculations of the Board of Management, the agreed covenants were complied with as of the balance sheet date. Depending on the currency, the interest is based on the refinancing rate with the same maturity (EURIBOR or LIBOR) plus a margin determined in relation to the financial ratio of total net debt to EBITDA.

Shares in subsidiaries and second-tier subsidiaries have been pledged as collateral for the issued bond and the syndicated loan.

Besides the syndicated loan, the Company has bilateral lines of credit for working capital as well as smaller loans with various banks. These loans have terms of between one and 15 years, are charged interest once every three or six months (between 3.75% and 6.75% p.a. or the three-month or sixmonth EURIBOR plus a customary bank margin) and are secured by mortgages of € 14,259 thousand (2004: € 15,242 thousand).

The total amount of liabilities to banks which are due within the next five years and thereafter breaks down as follows:

	2006	2007	2008	2009	2010	Thereafter
Amounts in € k
Liabilities to banks	16,001	969	963	419	419	2,921

The total lines of credit and bank guarantees can be broken down as follows:

Trade payables, tax liabilities and other liabilities break down as follows:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Total amount of lines of credit and bank guarantees available	508,890	804,448
Total amount of lines of credit and bank guarantees used	304,335	463,682
of which with a residual term of less than one year	233,764	336,917
of which with a residual term of more than one year	70,571	126,765

€ 2,704 thousand (2004: € 45,088 thousand) of the liabilities to banks are in US dollars and € 84 thousand (2004: € 430 thousand) in pounds sterling. The remaining share is generally payable in euros.

The weighted average interest rate for short-term liabilities to banks as of December 31, 2005, was 6.18% (2004: 5.41%) and for long-term liabilities to banks 2.84% (2004: 5.08%).

25. Trade payables, tax liabilities and other liabilities

Billings in excess of costs on uncompleted contracts (not from construction contracts) 6,253 6,179 74 74 – Billings in excess of costs on uncompleted contracts (from construction contracts) 112,416 112,416 – – – (2004) (207,454) (207,105) (349) (349) (–) Trade payables 227,212 227,119 93 93 – (2004) (280,170) (279,984) (186) (185) (1) Tax liabilities 27,775 27,332 443 322 121 (2004) (6,101) (5,813) (288) (288) (–) Payable to associates 1,952 1,920 32 32 – (2004) (5,081) (5,081) (–) (–) (–) Other liabilities 138,896 122,831 16,065 12,616 3,449 (2004) (117,551) (109,943) (7,608) (7,608) (–) December 31, 2005 514,504 497,797 16,707 13,137 3,570 (December 31, 2004) (616,357) (607,926) (8,431) (8,430) (1) Amounts in € k Total Short Total Term Term Medium Long

Those liabilities with a residual term of between one and five years are disclosed as medium term; otherwise as short or long term.

Other notes

27. Segment reporting

The segment reporting was prepared according to IAS 14 (Segment Reporting). Based on the internal reporting and organizational structure of the Group, the consolidated financial statement data is presented by division and region. The segmentation aims to make the earnings power and the net assets and financial situation of the Group's different activities and regions more transparent.

porting year, thus leading to a disposal of the previously recognized goodwill.

The primary reporting is based on the divisions of the Group. The Dürr Group is comprised of a management holding and two divisions (2004: five) differentiated by product and performance spectrum which each have global responsibility for their products and results.

Paint and Assembly Systems division

Paint and Assembly Systems develops and builds paint shops, final assembly lines and conveyor technologies for the automotive industry. The offering also includes exhaust cleaning systems for various branches of industry as well as assembly and conveyor systems for aircraft construction.

Measuring and Process Systems division

Measuring and Process Systems offers balancing or diagnosis technology as well as industrial cleaning and filtration technology. Besides the automotive industry, the division serves industries like machine engineering, the electrical engineering industry or the aerospace industry.

Details of the discontinued operations in the reporting period can be found in note 6.

The Corporate Center mainly consists of Dürr AG.

	Paint and	Measuring			Dis
	Assembly	and Process	Corporate	Consolida	Continuing	continued	Total
	Systems	Systems	Center	tion	operations	operations	divisions
Amounts in € k
2005
Sales revenues with external customers	1,089,990	310,612	–	–	1,400,602	379,293	1,779,895
Sales revenues with other divisions	1,522	8,401	–	–9,923	–	–	–
Total sales revenues	1,091,512	319,013	–	–9,923	1,400,602	379,293	1,779,895
Operating EBIT	7,146	5,067	–8,488	–241	3,484	24,625	28,109
Restructuring expense/onerous contracts	–29,864	–15,130	–909	–	–45,903	–1,104	–47,007
Impairment losses	–18,659	–9,085	–130	–	–27,874	–284	–28,158
Profit from discontinued operations	–	–	–	–	–	116,090	116,090
EBIT	–41,377	–19,148	–9,527	–241	–70,293	139,327	69,034
Profit/loss from associates	–2,560	1,401	–	–	–1,159	269	–890
Amortization and depreciation	–33,209	–16,067	–2,161	–	–51,437	–1,944	–53,381
Capital expenditures	11,591	6,892	9	–	18,492	5,278	23,770
Assets	726,004	282,834	574,584	–585,017	998,405	3,118	1,001,523
Liabilities	469,791	153,367	32,338	–10,951	644,545	1,146	645,691
Employees (as of Dec. 31, 2005)	3,979	1,966	47	–	5,992	3	5,995
2004
Sales revenues with external customers	1,413,913	311,904	–	–	1,725,817	410,545	2,136,362
Sales revenues with other divisions	3,332	4,464	–	–7,796	–	–	–
Total sales revenues	1,417,245	316,368	–	–7,796	1,725,817	410,545	2,136,362
Operating EBIT	34,475	–1,319	1,843	850	35,849	13,278	49,127
Cost of restructuring	–4,137	–2,555	–	–	–6,692	–194	–6,886
Amortization and depreciation	–79	–62	–	–	–141	–6,555	–6,696
EBIT	30,259	–3,936	1,843	850	29,016	6,529	35,545
Profit/loss from associates	–3	535	–	–	532	–4	528
Amortization and depreciation	–14,133	–6,044	–1,145	–	–21,322	–12,770	–34,092
Capital expenditures	10,045	5,401	15	–	15,461	3,047	18,508
Assets	779,212	399,381	550,741	–553,129	1,176,205	138,462	1,314,667
Liabilities	577,683	183,104	28,835	–7,637	781,985	56,374	838,359
Employees (as of Dec. 31, 2004)	4,236	2,971	51	–	7,258	6,037	13,295

The principles underlying the Group's management reporting and controlling are substantially the same as those described in the consolidated financial statements according to IFRS. The Company measures the performance of its divisions by earnings before interest and income tax in accordance with the disclosure in the consolidated income statement.

Transactions between the divisions are carried out at arm's length prices. Revenues are generally allocated to regions based on the location of the customer. Division assets are allocated on the basis of the location of the subsidiary reporting these assets.

The net profit/loss from continuing operations is derived as follows from the earnings before interest and taxes:

	2005	2004
Amounts in € k
Operating EBIT	3,484	35,849
Restructuring expense/onerous contracts	–45,903	–6,692
Impairment losses	–27,874	–141
EBIT of continuing operations	–70,293	29,016
Profit/loss from associates	–1,159	–31
Other interest and similar income	2,189	1,594
Interest and similar expenses	–37,357	–26,085
Income taxes	2,073	–5,609
Net income/loss from continuing operations	–104,547	–1,115

Gross assets and gross liabilities from continuing operations are derived as follows from the segment assets and segment liabilities:

	2005	2004
Amounts in € k
Segment assets from continuing operations	998,405	1,176,205
Cash and cash equivalents	124,658	46,448
Tax claims	6,158	5,122
Investments in associates	12,892	15,762
Deferred tax assets	43,170	45,729
Gross assets from continuing operations	1,185,283	1,289,266

	2005	2004
Amounts in € k
Segment liabilities from continuing operations	644,545	781,985
Bonds	187,901	186,471
Liabilities to banks	21,692	102,865
Liabilities from finance leases	7,252	8,157
Tax liabilities including other taxes	33,450	12,912
Deferred tax liabilities	44,408	51,694
Gross liabilities from continuing operations1	939,248	1,144,084

¹ Consolidated balance sheet total less equity including minority interests, in both cases from continuing operations.

	Other North/			Asia/
	European	Central	South	Africa/	Continuing
Germany	countries	America	America	Australia	operations
310,073	502,475	397,740	15,250	175,064	1,400,602
10,200	1,028	5,621	695	948	18,492
682,507	192,357	96,279	5,398	21,864	998,405
3,205	1,303	886	83	515	5,992
436,457	391,657	654,660	5,243	237,800	1,725,817
7,403	1,722	4,535	124	1,677	15,461
788,354	196,532	136,879	2,009	52,431	1,176,205
3,720	1,493	1,157	149	739	7,258

In contrast to the prior year, in the 2005 reporting period, the figures for other EU countries and other European countries were combined.

In the 2005 reporting period, sales with one customer accounted for 20.2% of consolidated net sales revenue compared to 24.5% in the 2004 reporting period. Another customer accounted for 14.1% of consolidated net sales revenue in the 2005 reporting period compared to 10.0% in 2004.

Entities that are known to be under uniform control are considered to be one customer.

28. Related-party transactions

Dr.-Ing. E. h. Heinz Dürr is Chairman of the Supervisory Board of Dürr AG. Dr.-Ing. E. h. Heinz Dürr is also a member of the Administrative Board of Landesbank Baden-Württemberg. As a result of consulting services provided for Dürr Aktiengesellschaft and its subsidiaries, expenses of € 522 thousand (2004: € 518 thousand) were due to Heinz Dürr GmbH, Berlin, of which Dr.-Ing. E. h. Heinz Dürr is Managing Director. For his former activity as Managing Director, Dr.-Ing. E. h. Heinz Dürr also received benefits from the pension pledge of April 2, 1978, (supplemented December 21, 1988) of € 212 thousand (2004: € 210 thousand).

Mr. Joachim Schielke is a Supervisory Board member of Dürr AG and a member of the Board of Management of Landesbank Baden-Württemberg. From the current business relationship, there was a balance at Baden-Württembergische Bank of € 78,835 thousand (2004: liability € 17,914 thousand). From these transactions, there are interest expenses in the reporting year of € 2,191 thousand (2004: interest expenses € 3,961 thousand). The warranties and guarantees issued by Baden-Württembergische Bank on behalf of Dürr amounted to € 29,209 thousand as of the balance sheet date.

Dr. Tessen von Heydebreck is a Supervisory Board member of Dürr AG and a member of the Board of Management of Deutsche Bank AG. From the current business relationship, there was a balance at Deutsche Bank of € 14,676 thousand (2004: liability € 17,914 thousand). From these transactions, there are interest expenses in the reporting year of € 2,194 thousand (2004: interest expenses € 4,179 thousand). The warranties and guarantees issued by Deutsche Bank AG on behalf of Dürr amounted to € 34,062 thousand as of the balance sheet date.

For additional information about the financial liabilities, we refer to note 24.

For further information about members of the Supervisory Board of Dürr Aktiengesellschaft, please refer to note 34.

The forward exchange transactions and interest hedges are mainly processed through Baden-Württembergische Bank and Deutsche Bank AG. For details of the forward exchange transactions and interest hedges, please refer to note 32.

The Board of Management confirms that all the related party transactions described below were carried out at arm's length conditions. For further information about members of the Board of Management of Dürr Aktiengesellschaft, please refer to note 34.

As of December 31, 2005, the Company had the following contingent liabilities:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Liabilities from guarantees, notes and check guarantees	10,333	51
Other	4,594	1,475
	14,927	1,526

30. Other financial obligations

Rent and lease agreements (operating leases)

29. Contingent liabilities

Besides liabilities, provisions and contingent liabilities, the Company has other financial obligations, in particular from rent and lease agreements for buildings, furniture and fixtures, office space and vehicles. Future minimum payments up to the first contractually agreed termination date are as follows:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Within one year	14,364	19,034
Between one and five years	33,444	36,810
More than five years	32,023	31,393
	79,831	87,237

Finance leases

The Group has entered into finance leases for various items of property, plant and equipment. The future minimum lease payments from finance leases can be reconciled with their present value as follows:

	Dec.31, 2005	Dec.31, 2004
Amounts in € k
Within one year	1,839	2,000
Between one and five years	6,481	6,397
More than five years	1,843	3,256
Total minimum lease payments	10,163	11,653
Less interest expense due to increase
in discounted amount	–2,911	–3,494
Present value of minimum lease payments	7,252	8,159

Other financial obligations

The other financial obligations that do not result from rental and lease agreements are listed below:

	2006	2007	2008	2009	2010	Thereafter	Total
Amounts in € k
Other continuous obligations	15,118	7,592	7,034	7,033	7,046	7,060	50,883

31. Risks

The Group operates in countries in which there are political and commercial risks. From a current perspective, the Group is not aware of any effects of such risks for the Group and they are therefore not included in the consolidated financial statements.

Dürr may be involved in lawsuits, including product liability, in the normal course of business. There are no such matters pending that the Board of Management expects to be material in relation to the Group's business or financial position. Litigation costs are recognized in the income statement.

There is litigation pending related to a tax field audit conducted in fiscal year 2000. A claim for backtax of € 900 thousand plus possible interest is currently being heard. The Board of Management estimates the chances of the Company winning the litigation as more likely than not. The legal counseling and consulting fees associated with the case have been posted against earnings.

32. Financial instruments

Due to its international operations, Dürr is exposed to currency risks, interest rate, liquidity and credit risks. The general regulations for a Group-wide risk policy are laid out in the Group guidelines.

Derivative financial instruments are used in the Group to minimize the risks concerning changes in exchange rates, interest rates or cash flows and the change in fair value of receivables and liabilities. Dürr is exposed to credit risk in the event of non-performance by counterparties (banks) to the financial instruments described below. Use of derivative financial instruments

All financial derivatives as well as their underlyings are subject to ongoing and regular internal control and measurement in accordance with the directive of the Board of Management. Derivative contracts are only entered into with banks with a good credit standing. Derivative financial instruments are only entered into to hedge the operating business.

Credit risk results from the danger that business partners may fail to perform their obligation with primary and derivative financial instruments and that capital losses could be incurred as a result. Credit risk

Credit ratings are performed for all new customers. The payment behavior of regular customers is analyzed on an ongoing basis.

As we do not conclude any general netting agreements with our customers, the sum of the amounts reported under assets also represents the maximum credit risk. There is no apparent concentration of credit risk from exposures to a single debtor or to groups of debtors.

Currency risk	Currency risks exist in particular where receivables or liabilities exist or will arise in the ordinary course of business in a currency other than the local currency of the Company. Forward exchange transactions are entered into to hedge against exchange rate fluctuations from cash flows relating to anticipated purchasing and sales transactions with terms of up to 23 months (2004: 18). The currency risks from intercompany loans were hedged by forward exchange contracts and interest and currency swaps. They have terms of between one month and six years.
Interest rate risk	To manage the market risk for changes in interest rates of existing and anticipated variable-rate liabilities to banks, the Company entered into interest swaps with residual maturities of up to two months.
Liquidity risk	Unused credit lines at the disposition of the Group ensure that it has sufficient funds.
Fair value	The financial instruments of the Group not accounted for at fair value mainly consist of cash equiva lents, trade receivables, trade payables and other liabilities, overdraft facilities and long-term loans. The carrying amount of cash equivalents and the current account liabilities approximates fair value due to the high liquidity of the instruments. The fair value of receivables and payables based on the customary terms of trade also approximates their carrying amount at historical cost.
	The fair value of non-current liabilities is based on the current interest rate for borrowing at similar terms and conditions with the same due date and credit rating. With the exception of the bond, the fair value of debt capital corresponds closely to the net carrying amount. As of December 30, 2005, the bond is listed at 107.25%, which is equal to a fair value of € 214,500 thousand.

Depending on their fair value on the balance sheet date, derivative financial instruments are reported under other assets or other liabilities respectively.

The scope and fair value of the financial instruments as of December 31, 2005, are shown below:

	Nominal value		Positive fair value		Negative fair value
	2005	2004	2005	2004	2005	2004
Amounts in € k
Interest/currency swaps	27,127	–	–	–	3,441	–
Interest swaps	20,000	34,663	–	–	124	1,315
Forward exchange contracts	184,469	203,656	1,264	6,835	1,007	1,196

The fair value of the financial instruments was estimated using the following methods and assumptions:

The fair value of currency swaps were estimated on the basis of the difference between the contractually agreed exchange rates and the forward rate prevailing on the balance sheet date. The fair values of the interest rate swaps are estimated as the present value of expected future cash flows.

Accounting and disclosure of derivative financial instruments and hedge accounting

Currency swaps, interest/currency swaps and interest rate swaps are recognized in the consolidated balance sheet at fair value. If the criteria for hedge accounting are fulfilled, the changes in fair value are accounted for as cash flow hedges as described in the following paragraph. Otherwise the changes in market value are recorded in the consolidated income statement as of each balance sheet date.

Cash flow hedges

The effective portion of the change in market value of interest swaps, interest/currency swaps and forward exchange transactions classified as cash flow hedges is recorded through accumulated other comprehensive income. Upon realization, the values recorded in equity are taken to the income statement in the interest result (interest swaps), the cost of sales (forward exchange contracts) or in other operating expenses (interest/currency swap). For the changes in gains and losses recorded in equity we refer to note 20. There was no net loss (2004: net loss € 9 thousand) from interest swaps due to the ineffectiveness in net interest. It is anticipated that through the occurrence of the underlying € 554 thousand (2004: € 120 thousand) of net losses included in accumulated other comprehensive income will be reclassified to income during the next twelve months.

33. Additional disclosure requirements

Exemption pursuant to Sec. 264 (3) HGB

34. Other notes

Subsequent events

German corporate governance code: Declaration of compliance pursuant to Sec.161 AktG

With reference to Sec. 264 (3) HGB, the financial statements of the following German subsidiaries are not published: Dürr Systems GmbH, Stuttgart; INTX AG, Stuttgart; Dürr Ecoclean GmbH, Filderstadt; Dürr International GmbH, Stuttgart; Dürr Ecoclean International GmbH, Stuttgart; Dürr Beteiligung Alpha GmbH, Stuttgart; Dürr Holding GmbH, Stuttgart; Dürr Special Material Handling GmbH, Wyhlen; Dürr Somac GmbH, Stollberg.

On January 9, 2006, we reached an extrajudicial composition with Alstom S.A. and ended the arbitration proceedings on the purchase of Dürr Systems S.A.S. and its subsidiaries. The composition required Alstom S.A. to make an additional payment. The amount of the additional payment corresponded to the receivables recognized in the consolidated financial statements; there were no effects on the purchase cost used in purchase accounting.

The declaration of compliance prescribed by Sec. 161 AktG was submitted by the Board of Management and the Supervisory Board of Dürr AG on December 19, 2005, and made accessible to the shareholders on the internet.

Annual average number of employees:

	2005	2004
Manual workers	4,643	6,419
Salaried employees	5,107	6,364
Trainees/apprentices	186	296
	9,936	13,079

As of December 31, 2005, Dürr had 5,992 employees in continuing operations (2004: 7,258) and just three in discontinued operations (2004: 6,037).

Fees of the auditor of the consolidated financial statements

The Group audit fees recorded as an expense for the reporting period break down as follows:

	2005
Amounts in € k
Annual audit	838
Other assurance services	312
Tax advisory	108
Other services rendered for the parent or subsidiaries	237
	1,495

Members of the Board of Management

Ralf W. Dieter

(since January 1, 2005, Chairman since January 1, 2006), Chairman of the Board of Management of Carl Schenck AG

• Paint and Assembly Systems
• Measuring and Process Systems
• Research and development, information technology, quality management
• Dürr Inc.* (since January 19, 2006, Chairman)
• Interautomation Inc.* (until September 30, 2005, Chairman)
• Schenck Canada Inc.* (until September 30, 2005, Chairman)
• Schenck Corporation* (until January 31, 2005)
• Schenck Ltd.* (until January 31, 2005)
• Schenck Pegasus Corporation* (until September 30, 2005)
• Schenck RoTec Corp.* (until January 31, 2005)
• Schenck Test Automation Ltd.* (until January 31, 2006)
• Schenck Trebel Corporation* (until January 31, 2005)

Martin Hollenhorst

(since April 20, 2005)

• Director of labour relations
• Commercial areas, law/patents, human resources, risk management, corporate communications and investor relations, internal audit
• INTX AG* (since January 1, 2005, Chairman since May 30, 2005)
• Olpidürr S.p.A.* (since January 1, 2006)
• Verind S.p.A.* (since January 1, 2006)

Stephan Rojahn

• Chairman (until December 31, 2005)
• Internal audit, upper management
• Carl Schenck AG* (until June 6, 2005, Chairman)
• Dürr Inc.* (until January 18, 2006, Chairman)
• Olpidürr S.p.A.* (until December 31, 2005, Deputy Chairman) Verind S.p.A.* (until December 31, 2005)

Kay Bönisch

(until April 20, 2005)

• Director of labour relations
• Finance/taxes, controlling, law/insurance, human resources
• Carl Schenck AG* (until April 30, 2005)
• Dürr Systems GmbH* (until February 20, 2005)
• INTX AG* (until April 30, 2005, Chairman)
• Dürr Inc.* (until April 30, 2005)
• Premier Manufacturing Support Services Inc.* (until April 13, 2005)

Dr. Norbert Klapper

(until June 30, 2005)

• Services
• Quality, patents, sales & marketing
• Dürr Inc.* (until June 22, 2005)
• Dürr Paintshop Systems Engineering (Shanghai) Co. Ltd.* (until June 30, 2005)
• Dürr Systems Spain S.A.* (until November 11, 2005)

• Premier Manufacturing Support Services Inc.* (until April 30, 2005)

• Offices held by members of the Board of Management.

• Membership in statutory supervisory boards.
• Membership in comparable domestic and foreign control bodies (of business entities).
• * Group boards.

In the reporting year, total remuneration of the Board of Management can be broken down as follows: Current employee benefits € 2,551 thousand (2004: € 1,906 thousand) and payments received at the end of employment of € 1,026 thousand (2004: none). The addition to the pension provisions for this group of persons in the 2005 reporting period amounted to € 540 thousand.

The former members of the Board of Management received payments of € 820 thousand (2004: € 679 thousand). Pension provisions for this group of persons amounted to € 9,339 thousand as of December 31, 2005 (2004: € 9,650 thousand).

Compensation paid to members of the Board of Management of Dürr AG comprises fixed and variable components. When deciding on the fixed components, the Supervisory Board considers not only the economic situation of the Dürr Group, but also the duties and responsibilities of the respective board members. The biannual review considers both the personal performance of each board member as well as the performance of the board as a whole and takes these into account when making any changes. The amount of the variable compensation components depends to a large extent on the success of the Company.

Another component of the variable compensation is the DISOP (Dürr International Stock Option Plan). DISOP is by nature subject to risk and acts as a long-term incentive with a vesting period. The Supervisory Board decides annually on the issue of new DISOP tranches. No new options were issued during the reporting year.

Members of the Supervisory Board

Dr.-Ing. E. h. Heinz Dürr¹

Entrepreneur, Berlin Chairman

• Benteler AG
• Carl Schenck AG (since June 6, 2005, Chairman)
• Dürr Systems GmbH (since February 21, 2005, Chairman)
• Dussmann AG & Co. KGaA
• Krone GmbH (Chairman)
• Landesbank Baden-Württemberg (member of the Administrative Board)

Peter Weingart1, 3

Chairman of the Group Works Council of Dürr AG, Stuttgart, Deputy Chairman

Dürr Systems GmbH (Deputy Chairman)

Prof. Dr. Norbert Loos1, 2

Managing partner of Loos Beteiligungs-GmbH, Stuttgart Deputy Chairman

• BHS-tabletop AG (Chairman)
• Carl Schenck AG
• Hans R. Schmid Holding AG (Chairman)
• LTS Lohmann Therapie-Systeme AG (Chairman)
• MVV-Energie AG
• Trumpf GmbH + Co. KG
• Behr GmbH & Co. (until December 14, 2005)
• LTS Corp., USA (Chairman)
• Mannheimer Kongress- und Touristik GmbH
• Stadt Mannheim Beteiligungsgesellschaft mbH

Lieselotte Dedek-Fried 2, 3

Member of the Works Council of Schenck RoTec GmbH, Darmstadt

Benno Eberl 2, 3

Trade Union Secretary of IG Metall administrative offices, Stuttgart

• ThyssenKrupp Elevator AG (Deputy Chairman)
• ThyssenKrupp Aufzüge GmbH (Deputy Chairman)

Prof. Dipl.-Ing. Jörg Menno Harms

Managing Director of Menno Harms GmbH, Stuttgart

• Heraeus Holding GmbH
• Hewlett-Packard GmbH (Chairman, since November 2005)
• Jenoptik AG
• Württembergische Hypothekenversicherung AG
• CA Leuze GmbH & Co. KG (member of the Administrative Board)
• Groz Beckert KG (Deputy Chairman)
• Management Partner GmbH (member of the Administrative Board)

Dr. Tessen von Heydebreck

Member of the Management Board

of Deutsche Bank AG, Frankfurt am Main

• BASF AG
• BVV Versicherungsverein des Bankgewerbes a.G.
• Deutsche Bank Privat- und Geschäftskunden AG*
• DWS Investment GmbH* (Deputy Chairman)
• Deutsche Bank Luxembourg S.A.* (Chairman)
• Deutsche Bank OOO, Moscow* (Chairman)
• Deutsche Bank Polska S.A.* (Chairman)
• Deutsche Bank Rt., Budapest* (Chairman)
• Deutsche Bank Trust Corp.*
• DB Trust Company America*

Werner Kramp³

Chairman of the Works Council of Dürr Assembly Products GmbH, Püttlingen

Harald Lambacher ³

(since April 22, 2005) Head of Human Resources of Dürr Systems GmbH, Stuttgart

Günter Lorenz1, 3

Principal Authorized Representative of

• IG Metall administrative offices, Darmstadt
• Carl Schenck AG
• Siemens VDO Automotive AG

Harald Rüber 3

(until February 28, 2005) Head of Project Development at Dürr Systems GmbH, Stuttgart (until February 28, 2005) Managing Director of Dürr Systems GmbH, Stuttgart (since March 1, 2005)

• CPM S.p.A.* (since May 6, 2005)
• Dürr Paintshop Systems Engineering (Shanghai) Co. Ltd.* (since January 18, 2005, Chairman)
• Dürr Systems Spain S.A.* (since November 11, 2005, Chairman)
• Olpidürr S.p.A.* (since January 1, 2005)

Joachim Schielke 2

Member of the Management Board of Landesbank Baden-Württemberg, Stuttgart Chairman of the Management Board of Baden-Württembergische Bank AG, Stuttgart

• ICS Informatik Consulting Systems AG
• Internationales Bankhaus Bodensee AG (until February 20, 2006, Chairman)
• Süd Private Equity Management GmbH & Co. KGaA* (Deputy Chairman)
• Wüstenrot & Württembergische AG (since January 1, 2006)
• Behr GmbH & Co. KG
• BWK GmbH Unternehmensbeteiligungsgesellschaft* (Chairman)
• Landesbank Rheinland Pfalz* (deputy member of the Administrative Board)
• Leitz GmbH & Co. KG
• MKB Mittelrheinische Bank GmbH* (Chairman since May 1, 2005)
• MMV Leasing GmbH* (Chairman of the Advisory Board since May 1, 2005)
• Rehabilitationsklinik Bad Wurzach GmbH (until December 31, 2005)

Dr. Hans Michael Schmidt-Dencker

Spokesperson of the management of BWK GmbH Unternehmensbeteiligungsgesellschaft, Stuttgart

• Kunert AG (until August 31, 2005, Chairman)
• Sick AG
• Behr GmbH & Co. KG
• Bizerba GmbH & Co. KG
• BW Mergers & Acquisitions GmbH
• Dr. Haas GmbH
• Mypegasus Beteiligungs-GmbH
• Schmidt Holding GmbH (Chairman)

In the reporting period, remuneration of the Supervisory Board totaled € 298 thousand (2004: € 162 thousand).

1 Member of the Mediation Committee and

• Personnel Committee.
  • ² Member of the Audit Committee. ³ Employee representative.
  • Membership in statutory supervisory boards.
  • Membership in comparable domestic and foreign control
  • bodies (of business entities). * Group boards.

35. Statement of changes in non-current assets

Intangible assets

Amounts in € k	Goodwill	Franchises, industrial rights and similar rights	Recognized development costs	Prepayments for intangible assets	Continuing operations
Accumulated cost as of January 1, 2004	297,337	58,624	5,445	1,120	362,526
Currency differences	–2,678	–926	–564	–16	–4,184
Additions	14,142	6,109	4,376	1,201	25,828
Reclassifications	–	254	–	–101	153
Disposals	–	–752	–	–2	–754
Accumulated cost
as of December 31, 2004	308,801	63,309	9,257	2,202	383,569
Reclassifications pursuant to IFRS 5	–48,870	–4,466	–440	–	–53,776
Currency differences	7,401	1,281	907	206	9,795
Changes in consolidated group	–	–	–	–	–
Additions	263	2,425	4,451	336	7,475
Reclassifications	–	680	–	–677	3
Disposals	–218	–12,759	–664	–179	–13,820
Accumulated cost as of December 31, 2005	267,377	50,470	13,511	1,888	333,246
Accumulated amortization as of January 1, 2004	–	32,365	605	120	33,090
Currency differences	–	–522	–94	–13	–629
Scheduled amortization	–	5,611	712	40	6,363
Impairment losses	–	–	–	–	–
Disposals	–	–391	–	–	–391
Accumulated amortization as of December 31, 2004	–	37,063	1,223	147	38,433
Reclassifications pursuant to IFRS 5	–	–3,211	–39	–	–3,250
Currency differences	–	950	192	203	1,345
Change in consolidated group	–	–	–	–	–
Scheduled amortization	–	7,119	1,379	40	8,538
Impairment losses	–	10,460	128	–	10,588
Reclassifications	–	1	–	–	1
Disposals	–	–9,957	–427	–179	–10,563
Accumulated amortization as of December 31, 2005	–	42,425	2,456	211	45,092
Net carrying amount as of December 31, 2005	267,377	8,045	11,055	1,677	288,154
Net carrying amount as of December 31, 2004	308,801	26,246	8,034	2,055	345,136
Net carrying amount as of January 1, 2004	297,337	26,259	4,840	1,000	329,436

<-- PDF CHUNK SEPARATOR -->

Land, land

Property, plant and equipment

	rights, and buildings including buildings on third party land	Investment property	Technical equipment and machines	Other equipment, furniture and fittings	Prepayments and assets under construction	Continuing operations
Amounts in € k
Accumulated cost as of January 1, 2004	177,816	–	58,432	113,609	860	350,717
Currency differences	–4,374	–	–1,419	–2,206	–39	–8,038
Change in consolidated group	–	–	–	–	–	–
Additions	3,145	–	2,958	6,033	3,324	15,460
Reclassifications	558	–	881	725	–346	1,818
Disposals	–4,166	–	–21,216	–12,546	–181	–38,109
Accumulated cost as of December 31, 2004	172,979	–	39,636	105,615	3,618	321,848
Reclassifications pursuant to IFRS 5	2,705	–	–3,783	–11,937	–2	–13,017
Reclassifications pursuant to IAS 40	–27,842	27,842	–	–	–	–
Currency differences	8,729	–	2,391	4,606	178	15,904
Change in consolidated group	–	–	–	–	–	–
Additions	6,307	868	2,486	6,690	2,141	18,492
Reclassifications	8,831	–	526	2,450	–3,537	8,270
Disposals	–6,777	–	–1,307	–21,823	–37	–29,944
Accumulated cost as of December 31, 2005	164,932	28,710	39,949	85,601	2,361	321,553
Accumulated depreciation as of January 1, 2004	57,300	–	46,859	87,152	–	191,311
Currency differences	–1,653	–	–972	–1,566	–	–4,191
Change in consolidated group	–	–	–	–	–	–
Scheduled depreciation	5,098	–	2,665	8,752	–	16,515
Impairment losses	–	–	–	141	–	141
Reclassifications	442	–	919	609	–	1,970
Disposals	–940	–	–19,191	–11,937	–	–32,068
Accumulated depreciation as of December 31, 2004	60,247	–	30,280	83,151	–	173,678
Reclassifications pursuant to IFRS 5	1,459	–	–2,592	–8,648	–	–9,781
Reclassifications pursuant to IAS 40	–9,442	9,442	–	–	–	–
Currency differences	3,469	–	1,703	3,262	–	8,434
Change in consolidated group	–	–	–	–	–	–
Scheduled depreciation	4,415	729	2,901	6,980	–	15,025
Impairment losses	8,804	5,471	464	1,847	–	16,586
Reclassifications	1,962	–	493	1,580	–	4,035
Disposals	–465	–	–1,146	–19,552	–	–21,163
Accumulated depreciation as of December 31, 2005	70,449	15,642	32,103	68,620	–	186,814
Net carrying amount as of December 31, 2005	94,483	13,068	7,846	16,981	2,361	134,739
Net carrying amount as of December 31, 2004	112,732	–	9,356	22,464	3,618	148,170
Net carrying amount as of January 1, 2004	120,516	–	11,573	26,457	860	159,406

Financial assets

	Investments in associates	Other investments	Long-term investments	Other loans	Continuing operations
Amounts in € k
Accumulated cost
as of January 1, 2004	17,642	2,084	568	2,332	22,626
Currency differences	–484	–	1	76	–407
Additions	214	510	–	499	1,223
Reclassifications	–	–	–	–1	–1
Disposals	–1	–563	–4	–38	–606
Accumulated cost as of December 31, 2004	17,371	2,031	565	2,868	22,835
Reclassifications pursuant to IFRS 5	371	–	–195	–	176
Currency differences	256	–1	7	600	862
Change in consolidated group	–	–	–	–	–
Additions	1,569	–	–	220	1,789
Reclassifications	801	–	–	–	801
Disposals	–3,123	–173	–	–246	–3,542
Accumulated cost as of December 31, 2005	17,245	1,857	377	3,442	22,921
Accumulated write-downs as of January 1, 2004	1,609	200	1	–	1,810
Currency differences	–	–	–	–	–
Impairment losses	–	–	–	–	–
Disposals	–	–	–	–	–
Accumulated write-downs as of December 31, 2004	1,609	200	1	–	1,810
Reclassifications pursuant to IFRS 5	–	–	–1	–	–1
Currency differences	–	–1	–	–	–1
Change in consolidated group	–	–	–	–	–
Impairment losses	2,744	700	–	–	3,444
Reclassifications	–	–	–	–	–
Disposals	–	–173	–	–	–173
Accumulated write-downs as of December 31, 2005	4,353	726	–	–	5,079
Net carrying amount as of December 31, 2005	12,892	1,131	377	3,442	17,842
Net carrying amount as of December 31, 2004	15,762	1,831	564	2,868	21,025
Net carrying amount as of January 1, 2004	16,033	1,884	567	2,332	20,816

36. List of Group shareholdings

	Share of capital
Name and location	in %
Germany
Dürr Systems GmbH, Stuttgart1, 2	100
INTX AG, Stuttgart1, 2	100
Dürr Ecoclean GmbH, Filderstadt1, 2	100
Dürr Grundstücks-GmbH, Stuttgart2	100
Dürr International GmbH, Stuttgart1, 2	100
Dürr Ecoclean International GmbH, Stuttgart1, 2	100
Dürr Holding GmbH, Stuttgart1, 2	100
Dürr Beteiligung Alpha GmbH, Stuttgart1, 2	100
Dürr Somac GmbH, Chemnitz1, 2	100
Dürr Special Material Handling GmbH, Wyhlen1, 2	100
Carl Schenck AG, Darmstadt2	100
Schenck RoTec GmbH, Darmstadt1, 2	100
Schenck Fertigungs & Service GmbH, Darmstadt1, 2	100
Waagen und Maschinen Ed. Schmitt & Cie. GmbH, Darmstadt1, 2	100
Schenck Atis GmbH, Darmstadt1, 2	100
SchenckTechnologie- und IndustriePark GmbH, Darmstadt1, 2
(formerly Schenck Immobilien & Service GmbH)	100
Dürr Assembly Products GmbH, Püttlingen1, 2
(formerly Schenck Final Assembly Products GmbH)	100
Gades Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs KG, Mainz3, 4	100
Fludicon GmbH, Darmstadt5	14
Unterstützungseinrichtung der Carl Schenck AG, Darmstadt, GmbH, Darmstadt5	100
Other EU countries
Dürr Anlagenbau GmbH, Zistersdorf/Austria2	100
Dürr Ltd., Warwick/United Kingdom2	100
Dürr Ecoservice Ltd., Warwick/United Kingdom2	100
Behr Industrial Equipment Ltd., Warwick/United Kingdom2	100
Inlac (UK) Ltd., Warwick/United Kingdom2	100
Schenck Ltd., Banbury/United Kingdom2	100
Schenck Automation Systems Ltd., Warwick/United Kingdom2	100
SchenckTest Automation Ltd., Worcester/United Kingdom2	100
SRH Systems Ltd., Worcester/United Kingdom2	57
Dürr Ecoclean S.A.S., Loué/France2 (formerly STIC-HAFROY S.A.S.)	100
Dürr Systems S.A.S., Montigny le Brettonneux/France2	100
Schenck S.A.S., Cergy-Pontoise/France2	100
Dürr Systems Spain S.A., San Sebastian/Spain2	100
Dürr Ecoclean, S.A., Barcelona/Spain2 (formerly Ingeniera Agullo S.A.)	100
Olpidürr S.p.A., Novegro di Segrate/Italy2	65
Verind S.p.A., Rodano/Italy3	50
Polisistem S.r.l.,Turin/Italy3	29
CPM S.p.A., Beinasco/Italy3	50
Schenck Italia S.r.l., Paderno Dugnano/Italy2	100
Schenck Vaegt- og Maskinfabrik ApS., Copenhagen/Denmark2	100
Carl Schenck Machines en Installaties B.V., Rotterdam/Netherlands2	100
Dürrpol Sp. z o.o., Radom/Poland2	100
Dürr Ecoclean spol. s r.o., Oslavany/Czech Republic2	100

1 Profit-and-loss transfer agreement with respective parent.

² Fully consolidated entity in the Dürr Group.

³ Associate in the Dürr Group.

⁴ Not consolidated as only 10% of voting rights.

⁵ Non-consolidated entity in the Dürr Group.

	capital
Name and location	in %
Other European countries
Schenck Industrie-Beteiligungen AG, Glarus/Switzerland2	100
North America/Central America
Dürr Inc., Plymouth, Michigan/USA2	100
Dürr Systems Inc., Plymouth, Michigan/USA2	100
Dürr Ecoclean Inc., Wixom, Michigan/USA2	100
Behr Robotics Inc., Auburn Hills, Michigan/USA2	100
Dürr Sigma Systems Inc., Plymouth, Michigan/USA2	100
Dürr AIS Inc., Plymouth, Michigan/USA2	100
Schenck Corporation, Deer Park, NewYork/USA2	100
Schenck RoTec Inc., Deer Park, NewYork/USA2	100
Schenck RoTec Corporation,Troy, Michigan/USA2	100
SchenckTrebel Corporation, Deer Park, NewYork/USA2	100
Dürr Canada Corp., Halifax, Nova Scotia/Canada2	100
Dürr Acco Canada Inc., Windsor, Ontario/Canada2	100
Behr Industrial Systems Inc., Windsor, Ontario/Canada2	100
Dürr de México, S.A. de C.V., Naucalpan de Juarez/Mexico2	100
South America
Dürr Brasil Ltda., São Paulo/Brazil2	100
Irigoyen 330 S.A., Cap. Fed. Buenos Aires/Argentina2
(formerly Premier Servicios de Soporte para Manufacturas, Argentina S.A.)	100
Africa/Asia/Australia
Dürr South Africa (Pty.) Ltd., Port Elizabeth/South Africa2	100
Dürr India Private Ltd., Chennai/India2	100
Schenck RoTec India Limited, Noida/India2 (formerly Schenck Avery Ltd.)	100
Dürr Korea Inc., Seoul/South Korea2	100
Dürr Paintshop Equipment and Engineering (Shanghai) Co. Ltd.,
Shanghai/P.R. China2	100
Schenck ShanghaiTesting Machinery Corporation Ltd., Shanghai/P.R. China3	50
Schenck Shanghai Machinery Corporation Ltd., Shanghai/P.R. China2	99
Dürr Paintshop Systems Engineering (Shanghai) Co. Ltd.,
Shanghai/P.R. China2	100
Dürr Japan K.K.,Yokohama/Japan2	100
Nagahama Seisakusho Ltd., Osaka/Japan3	50
Dürr Pty. Ltd., Adelaide/Australia2	100

Share of

1 Profit-and-loss transfer agreement with

respective parent. ² Fully consolidated entity in the Dürr Group.

³ Associate in the Dürr Group.

⁴ Not consolidated as only 10% of voting rights. ⁵ Non-consolidated entity in the Dürr Group.

A complete list of shareholdings has been filed with the commercial register of the District Court of Stuttgart.

Stuttgart, March 14, 2006 Dürr Aktiengesellschaft The Board of Management

Ralf W. Dieter Martin Hollenhorst

Dürr worldwide

Germany

Dürr AG Stuttgart, phone: +49-711-136-0 corpcom@durr.com

Carl Schenck AG Darmstadt, phone: +49-6151-32-0 schenck@schenck.net

Dürr Systems GmbH Stuttgart, phone: +49-711-136-0 corpcom@durr.com

Bietigheim-Bissingen, phone: +49-7142-78-0 durr.apt@durr.com

Butzbach, phone: +49-6033-80-50-0 psi-deu@durr.com

Brunswick, phone: +49-531-2159-0 FAS@durr.com

Darmstadt, phone: +49-6151-32-4201 FAS@durr.com

Ochtrup, phone: +49-2553-927-0 rebekka.paul@durr.com

• Dürr Assembly Products GmbH Püttlingen, phone: +49-6898-692-0 durr-ap@durr.com
• Dürr Somac GmbH Stollberg, phone: +49-3729-6547-0 somac@durr.com
• Dürr Special Material Handling GmbH Grenzach-Wyhlen, phone: +49-7624-310 dsmh@durr.com

Dürr Ecoclean GmbH Filderstadt, phone: +49-711-7006-0 info.filderstadt@ecoclean.durr.com Monschau, phone: +49-2472-83-0

info.monschau@ecoclean.durr.com Schenck RoTec GmbH Darmstadt, phone: +49-6151-32-2311 schenck.rotec@schenck.net

Australia

Dürr Pty. Ltd. Adelaide, phone: +61-8-82383463 chris.kennedy@durr.com.au

Austria

Dürr Anlagenbau Ges.m.b.H. Zistersdorf, phone: +43-2532-2546 duerr.zistersdorf@durr.com

Brazil

Dürr Brasil Ltda. São Paulo, phone: +55-11-56333500 durrbr@durr.com.br

China

• Dürr Paintshop Systems Engineering (Shanghai) Co. Ltd. Shanghai, phone: +86-21-62193719 general@durr.com.cn
• Schenck Shanghai Machinery Corp. Ltd. Shanghai, phone: +86-21-62659663 ssm-rotec@online.sh.cn contact@durr-ecoclean.com.cn
• Paint and Assembly Systems
• Measuring and Process Systems

Schenck Shanghai Testing Machinery Corp. Ltd. Shanghai, phone: +86-21-3064599

Czech Republic

Dürr Ecoclean spol. s.r.o. Oslavany-Padochov, phone: +42-0546-423522-3 info.czechia@ecoclean.durr.com

France

• Dürr Systems S.A.S. Montigny-le-Bretonneux, phone: +33-172-820000 general@durr-ai.com
• Dürr Ecoclean S.A.S. Loué, phone: +33-2-43397800 info.france@ecoclean.durr.com
• Schenck S.A.S. Cergy-Pontoise, phone: +33-1-34329000 ssa@ssa.schenck.net

Great Britain

• Dürr Ltd. Warwick, phone: +44-1926-418800 sales@durr.co.uk
• Schenck Ltd. Warwick, phone: +44-1926-418898 rotec@schenck.co.uk

India

• Dürr India Pvt. Ltd. Chennai, phone: +91-24-323620/21 sgupta10@durrindia.com
• Schenck RoTec India Ltd. Noida (U.P.), phone: +91-120-2563174-179 sal@schenck-ind.com

Italy

• Olpidürr S.p.A. Novegro di Segrate, phone: +39-02-702121 sales@olpidurr.it
• CPM S.p.A. Beinasco, phone: +39-011-3988411 dir@cpm-spa.com
• Polisistem S.r.l. Turin, phone: +39-011-612626 polisistem@polisistem.it
• Verind S.p.A. Rodano, phone: +39-02-9595171 direzione@verind.it
• Schenck Italia S.r.l. Paderno Dugnano (MI), phone: +39-02-91002431 schenck.italia@sit.schenck.net

Japan

• Dürr Japan K.K. Yokohama, phone: +81-45-4753671 s-katayama@durr.co.jp
• Nagahama Seisakusho Ltd. Osaka, phone: +81726-963301 nso@nagahama.co.jp

Mexico

Dürr Systems México Queretaro, phone: +52-442-192-5700 durr.mexico@durrmex.com.mx

Netherlands

Carl Schenck Machines en Installaties B.V. Rotterdam, phone: +31-10-4117540 info@schenck.nl

Poland

Dürrpol Sp. z o.o. Radom, phone: +48-48-3610100 durrpol@durrpol.pl

Russia

Dürr Systems GmbH Moscow, phone: +7-495-7893568 durr@durr.msk.ru

South Africa

Dürr South Africa Ltd. Port Elizabeth, phone: +27-41-3935400 durr@durrsa.co.za

South Korea

Dürr Korea Inc. Seoul, phone: +82-2-5692244 koch@durr.co.kr

Spain

Dürr Systems Spain S.A. Madrid, phone: +34-915-517663 durr-spain@durr-spain.com

San Sebastian, phone: +34-943-317000 durr-spain@durr-spain.com

Valladolid, phone: +34-983-397002 durr-spain@durr-spain.com

Viladecans, phone: +34-93-6472525 durr-spain@durr-spain.com

Dürr Ecoclean S.A. Barcelona, phone: +34-93-2921100 info.spain@ecoclean.durr.com

USA

• Dürr AIS Inc. Plymouth, phone: +1-734-4596800 PSIsales@durrusa.com
• Dürr Inc. Plymouth, phone: +1-734-4596800 jeanie.cotton@durrusa.com
• Dürr Systems Inc. Auburn Hills, phone: +1-248-7458500 APTsales@durrusa.com
  • Plymouth, phone: +1-734-4596800 PSAsales@durrusa.com EESsales@durrusa.com ACTsales@durrusa.com

Warren, phone: +1-586-7557500 FAPsales@durrusa.com

Dürr Ecoclean Inc. Bowling Green, phone: +1-419-3527501 henry@henryfilters.com mail@hrblack.com

Wixom, phone: +1-248-9604630 info.usa@ecoclean.durr.com

• Schenck RoTec Corp. Orion, phone: +1-248-3772100 sales@schenck-turner.com
• Schenck Trebel Corp. Deer Park, phone: +1-631-2424010 sales@schenck-usa.com

Glossary

A

Application technology

General term for all products related to the spray application of paint and high-viscosity materials. Important products that fall under the heading of "application technology" include painting robots, paint atomizers, paint supply systems, and color change systems.

B

Balance measuring system

A balance measuring system detects vibrations of a rotating body that are the result of imbalance and analyzes these signals. On the basis of this analysis, the system determines the extent of the imbalance and calculates a recommendation for balancing.

C

Cavity preservation

An additional protective coating is applied to prevent corrosion on the interior surfaces of cavities in the vehicle body.

Cleaning technology

Dürr cleaning systems remove residual particles resulting from the mechanical tooling process from workpieces. Workpiece cleaning is critical in the construction of engines and transmissions because even the tiniest amounts of residual particles can cause damage.

Coolant recycling (filtration)

Coolants are used in workpiece machining, for instance, for boring and milling. They cool the workpieces and tools, reduce friction and wear, and bind any metal shavings. The recycling systems cool the used coolant and remove the shavings through filtration so the coolant can be reused in the machining process.

D

Dip-painting

Process used for priming the vehicle body. In dip-painting, the body is completely submerged in the paint. The liquid paint adheres to the entire body surface as well as the cavities. After dipping, the paint is dried and cured as in other painting processes.

Drive-by-wire

Drive-by-wire means that commands from the vehicle driver are no longer passed on to the relevant devices mechanically but electronically. The commands (e.g. steering or pushing on the accelerator) are received by sensors, processed by a computer, and then passed on to the relevant assemblies (e.g. the steering system, engine, transmission or brakes) via electric motors. Mechanical linkages like the steering rod and hydraulic brakes are not needed in drive-by-wire vehicles.

E

ERP (Enterprise Resource Planning) system Software used to support resource planning within a company. If possible, ERP systems should cover all business processes, including materials management, production, sales, and controlling.

H

High-viscosity materials

Sprayable materials, often containing PVC, that are applied to car bodies to seal weld seams, to preserve cavities, or as underbody protection. Adhesives and liquid insulation materials also fall under this general term.

I

Injection flood washing

Industrial cleaning process in which workpieces are placed in a closed chamber that is flooded with water and cleaning media. Jets then create currents and turbulences, and the powerful movement of the water washes any particles off the workpieces.

M

Marriage Joining and bolting together of power train, chassis, and body in vehicle final assembly.

Materials flow

The conveyance of vehicle bodies and components in an automobile factory.

S

Sealing

In the paint shop, seams that are made when new vehicle body assemblies are welded are sealed with PVC material to seal the body and prevent corrosion.

Supervisory control systems

Centralized computer system for controlling and supervising control of a complete production plant.

Surfacer

The paint build-up of a vehicle body normally consists of the prime coat (cathodic dip coating), surfacer, base coat and clear coat. The surfacer coat serves to fill and level out any unevennesses in the substrate. Within the overall paint build-up it also helps to improve resistance to stone chipping and protects the prime coat against ultraviolet radiation.

U

Underbody protection

Highly viscous material containing PVC. Applied to the underbody and the lower part of door openings of the vehicle body after dip-painting. Protects the primer layer from impact with rocks.

V

Virtual reality

A three-dimensional, animated environment created by computer through which the user can move with the aid of software or electronic devices (such as a monitor visor). Virtual reality software is used to plan and design automobile factories, for instance. It creates a real-life image of the factory with all the production lines and processes.

Financial calendar for 2006

March 30, 2006
March 30, 2006
May 11, 2006
May 24, 2006
August 10, 2006
November 14, 200

March 30, 2006 Financial press conference, Stuttgart March 30, 2006 Analysts' conference, Stuttgart May 11, 2006 Interim report fi rst quarter 2006 May 24, 2006 Annual shareholders' meeting August 10, 2006 Interim report fi rst half 2006 November 14, 2006 Interim report on fi rst nine months of 2006

Contact

Please contact us for	Dürr AG
further information:	Corporate Communications &
	Investor Relations
	Otto-Dürr-Strasse 8
	70435 Stuttgart, Germany
	Phone: +49-711-136-1785
	Fax: +49-711-136-1034
	corpcom@durr.com

www.durr.com

Published by: Dürr AG, Otto-Dürr-Strasse 8, 70435 Stuttgart, Germany The English translation of our 2005 annual report is based on the German version. The German version shall prevail.

Design: 3st kommunikation, Mainz, Germany Setting: Knecht, Ockenheim, Germany Printing: Koch, Wiesbaden-Nordenstadt, Germany

Technologies · Systems · Solutions

www.durr.com