Dürr AG — Annual Report 2006

Mar 29, 2007

ON TRACK.

2006 ANNUAL REPORT

ON TRACK. Our Group program FOCUS has substantially enhanced Dürr's earning power. We have achieved our earnings targets and have set the course for further earnings improvement.

KEY FIGURES (IFRS)

(CONTINUING OPERATIONS)

		2006	2005	2004	2006 / 2005 Change in %
Incoming orders	in € m	1,459.8	1,216.9	1,387.4	20.0
Orders on hand (Dec. 31)	in € m	805.2	723.5	859.9	11.3
Sales revenue	in € m	1,361.2	1,400.6	1,725.8	–2.8
EBIT before non-recurring expenses	in € m	39.1	3.5	35.8
Net income/net loss	in € m	8.2	–104.5	–1.1
Cash flow from operating activities	in € m	– 9.8	–147.6	–115.5
Cash flow from investing activities	in € m	17.3	283.9	–19.5
Cash flow from financing activities	in € m	–33.8	76.0	–19.4
Balance sheet total (Dec. 31)	in € m	1,040.1	1,189.1	1,435.8	–12.5
Equity (with minority interests) (Dec. 31)	in € m	245.7	248.1	222.7	–1.0
Net financial debt1 (Dec. 31)	in € m	96.5	84.9	242.8	13.7
Net working capital (Dec. 31)	in € m	154.7	171.5	120.5	–9.8
Employees (Dec. 31)		5,650	5,992	6,240	–5.7
Dürr stock ISIN: DE0005565204
High2	in €	26.90	20.35	21.10
Low2	in €	17.14	13.23	14.50
Close2	in €	20.99	20.30	15.11
Number of shares (weighted average)		15,728,020	14,400,050	14,298,200
Earnings per share (continuing operations)	in €	0.50	–7.26	0.00
Earnings per share (Group)	in €	0.45	0.30	0.40	50.0
Paint and Assembly Systems
Incoming orders	in € m	1,155.6	931.2	1,086.4	24.1
Sales revenue	in € m	1,083.9	1,090.0	1,413.8	– 0.6
EBIT before non-recurring expenses	in € m	29.9	7.1	34.5
Employees (Dec. 31)		3,786	3,979	4,236	–4.9
Measuring and Process Systems
Incoming orders	in € m	304.2	285.7	301.0	6.5
Sales revenue	in € m	277.3	310.6	312.0	–10.7
EBIT before non-recurring expenses	in € m	9.8	5.1	–1.3
Employees (Dec. 31)		1,821	1,966	1,953	–7.4

¹ Without finance leases

² XETRA

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

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 COMPANY.

The Paint and Assembly Systems division is the world's leading supplier of paint shops for automobile manufacturers and their suppliers. We are also a leading partner to the automotive industry as a full-range supplier of vehicle final assembly systems. Exhaust-air purification systems round out our range of products and services. Apart from the automotive industry, our systems are also used in the aviation industry and other non-automotive industries.

PAINT AND ASSEMBLY SYSTEMS BUSINESS UNITS

• Paint Systems: Paint shops for automobile manufacturers and their suppliers
• Application Technology: Systems for automated paint application
• Environmental and Energy Systems: Technology for exhaust-air purification and for disposing of liquid residues as well as energy-saving concepts
• Factory Assembly Systems: Final assembly, testing, filling, and conveyor systems

PAINT AND ASSEMBLY SYSTEMS DIVISION MEASURING AND PROCESS SYSTEMS DIVISION

The Measuring and Process Systems division includes two areas of activity: balancing and diagnostic systems and cleaning, automation, and filtration systems. The power to innovate, global presence, and quality 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 enhancing productivity in industries like aerospace, machinery, and electrical equipment.

MEASURING AND PROCESS SYSTEMS BUSINESS UNITS

• Balancing and Diagnostic Systems: Technology for balancing and diagnostic applications
• Cleaning and Filtration Systems: Industrial cleaning technology, automation, and filtration systems

STRATEGY

Dürr is one of the world's leading suppliers of systems, services, and products for automobile manufacturing. We generate around 90% of our sales through business with the automotive industry. The machinery sector and the chemical, pharmaceutical, coating, and aviation industries are also important customer groups. The focus of our activities is on plant engineering, which accounts for around two-thirds of our sales.

We offer innovative, energy-saving, environmentally friendly solutions that help our customers achieve lower costs, higher quality, and greater flexibility in production and assembly. Our product range is based on standardized modules that we then tailor to our customers' specific needs.

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

We are working to increase our profitability for the long term, aiming at rates of return on sales of 4% before taxes and 8% relative to EBITDA. We have set course for that with our Group-wide FOCUS program. We have boosted the efficiency of our business processes and become even more responsive to our customers' needs. The FOCUS strategy also includes expanding our high-margin service business. The basis for that is the widespread use of our products in customers' plants around the world. Some 60 % of all automotive paint shops and around 50 % of all assembly plants employ Dürr technology. We are furthermore focusing on our strengths: innovative power, turnkey expertise, global presence, particularly in growth markets, and the experience and expertise of our 5,650 employees.

To establish the achievements of FOCUS in the company on a permanent basis, in early 2007 we integrated key elements of the program into a continuous improvement process that will yield further optimization and thus contribute to increasing the company's value.

CONTENTS

• 2 BASIC INFORMATION 2 Letter from the Board of Management 4 Report of the Supervisory Board
• 8 Dürr on the capital market
• 11 Corporate governance report
• 16 FROM THE MARKETS
• 16 On the right track with FOCUS
• 18 Dürr Green Paint Shop
• 20 Highlights from 2006

• 22 Dürr Consulting

• 23 GROUP MANAGEMENT REPORT

• 23 Organizational and legal structure
• 27 Economic environment
• 28 Business development
• 35 Financial development
• 40 Research and development
• 43 Purchasing
• 44 Employees
• 45 Risks
• 50 Events subsequent to the reporting date

• 51 Outlook

• 56 CONSOLIDATED FINANCIAL STATEMENTS

• 57 Independent auditor's report
• 58 Consolidated income statement
• 59 Consolidated balance sheet
• 60 Consolidated statement of changes in shareholders' equity
• 60 Statement of recognized income and expense
• 61 Consolidated cash flow statement
• 62 Notes to the consolidated financial statements

117 OTHER

117 Statement by the Board of Management 118 Dürr worldwide 120 Glossary Cover 2006 in review

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LETTER FROM THE BOARD OF MANAGEMENT

DEAR SHAREHOLDERS, CUSTOMERS, BUSINESS ASSOCIATES, AND STAFF,

As previously announced, 2006 was a year of transition in which Dürr reached important milestones. We increased our operating result (EBIT before non-recurring expenses) considerably, from € 3.5 million to € 39.1 million, despite a weaker than expected US market. Cash flow from operating activities also improved. Following a negative cash flow of € 147.6 million in 2005, cash flow for 2006 was only slightly negative, at € –9.8 million. We achieved positive cash flow of € 70.0 million in the fourth quarter of 2006. New orders were up 20%, which was better than expected. This shows not least the great confidence that we enjoy with our customers again after a difficult year in 2005. An order backlog of 7.1 months gives us a good capacity cushion.

The improved earnings development reflects the first benefits feeding through from our Group-wide FOCUS program, with which we made significant progress in 2006. We adjusted our capacities to account for changes in regional demand by reducing personnel in North America and Western Europe and hiring additional employees in the growth markets of Asia. We systematically expanded our high-margin service business, which now accounts for 26% of Group sales. We also made our order handling more efficient by improving processes.

28 of the 47 FOCUS projects have already been completed. Early in 2007, we integrated the remaining projects into a continuous improvement process. It will securely anchor the tools and processes developed under FOCUS in our daily operations. Standardizing our IT systems is a top priority. We will introduce a Group-wide enterprise resource planning system at all of our sites by October 2008 to establish uniform processes and better connect all parts of the Group and thereby reduce order handling risks. The uniform data structure we are creating is essential to our making further progress toward standardizing and modularizing our products. Another focus of the continuous improvement process is to reduce lead and delivery times, which will have a direct positive impact on net working capital and is crucial to optimizing cash flow in the machinery and industrial equipment industry.

We have registered a strong inflow of new orders in the first few weeks of 2007, testimony that this year will provide a challenging, yet promising, environment for our business with the automotive industry. Now more than ever, Asia and Eastern Europe will be a major focus in 2007. In particular, important impetus for our new plant business is coming from China, India, and Russia, where the automotive industry is increasingly investing. By contrast, our customers in Western Europe are increasingly seeking plant conversions and modernizations. For the United States, the world's largest automobile market, we are confident that capital investment will pick up again beginning in 2008.

RALF W. DIETER (46), CHAIRMAN (left)

• Paint and Assembly Systems
• Measuring and Process Systems
• Quality
• Research and Development
• Human Resources (Employee Affairs Director)

MARTIN HOLLENHORST (48)

• Business Administration
• Investor and Public Relations
• Legal Affairs/Patents
• Information Technology
• Risk Management
• Internal Auditing

On the product side, we have the right technologies to offer our customers forward-looking solutions for their manufacturing operations. One example is FAStplant, our modular final assembly system. Two years after its launch, this unique concept has become well established – the most recent proof of which is a large-scale order from a leading carmaker in Mexico. FAStplant is also a prime example of the product strategy with which we intend to boost earnings in our Factory Assembly Systems business unit, where we are increasingly focusing on technologically sophisticated, modular solutions with unique selling points that distinguish us from the competition.

The Dürr team achieved a great deal in 2006. The strong inflow of new orders kept our daily operations running at full speed. At the same time, our team integrated numerous new processes under FOCUS. The Board of Management thanks all Dürr employees for their great dedication, motivation, and creativity.

We know that the improvement of earnings in 2006 was only a first step on a long road. That is why we will continue to gear our business to greater profitability and concentrate fully on implementing the improvements we have introduced. We want to grow under our own steam and take advantage of the opportunities presented by the market.

The new year is off to a good start. We are highly motivated and our order books are full. The positive effects of FOCUS and the continuous improvement process will intensify in 2007 and 2008. For 2007, we expect a considerable improvement of EBIT and net income. We also intend to generate positive cash flow and improve our financial structure. We are standing by our targets for 2008 – a return on sales of 4% before taxes and 8% based on EBITDA.

We wish to thank our shareholders, customers, and business associates for the confidence you have placed in Dürr this past year. We will continue to do everything we can to maintain your trust in 2007.

Sincerely,

RALF W. DIETER CHAIRMAN OF THE BOARD OF MANAGEMENT

Stuttgart, March 2007

MARTIN HOLLENHORST MEMBER OF THE BOARD OF MANAGEMENT

REPORT OF THE SUPERVISORY BOARD

In 2006, 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 and intensively discussed them with the Board of Management before they were reached. These joint discussions often related to critical issues such as the US automotive industry's capital spending restraint, the restructuring of our Cleaning and Filtration Systems business unit, and the effectiveness of various FOCUS measures in the current market environment. Overall, the Supervisory Board has concluded that the process of change initiated under FOCUS is on the right track and will help Dürr make the most of its potential as a market leader.

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 written decision-making materials.

In 2006, the Supervisory Board held five regular meetings and one organizational meeting. The Supervisory Board evaluated its efficiency in the year under review. The Personnel Committee met three times in 2006, the Audit Committee met twice, and the Mediation Committee was not convened. 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. Together with the Board of Management, the Chairman of the Supervisory Board represented the company in the acquisition of orders and in maintaining customer relations, particularly in Asia and South America.

The Board of Management and the Supervisory Board discussed the Group's orders, sales, and earnings situation and its financial position at all meetings. Detailed reports and presentations by the Board of Management and the heads of the business units served as the basis for these discussions. The Supervisory Board obtained information about the implementation of FOCUS at all meetings. With respect to the FOCUS aim of enhancing the quality of our business processes, the Supervisory Board obtained reports on concepts for personnel development at Dürr on several occasions. In the future, topics such as personnel structure, development, and qualifications will increasingly be discussed with the Board of Management in the context of comprehensive personnel reports. Another focus of discussion was the quality of margins on systems orders. The Supervisory Board discussed with the Board of Management margin expectations on new orders and ways to optimize margins during order processing.

At the meeting on December 20, 2006, the Supervisory Board approved the corporate planning for 2007, acknowledged the planning for 2008 and 2009, and was informed about the intended business policy. At the

DR.-ING. E. H. HEINZ DÜRR

same meeting, the Supervisory Board and the Board of Management discussed the planned relocation of the Stuttgart facility to Bietigheim-Bissingen. The Supervisory Board approved the sale of the site in Stuttgart to Dr.-Ing. h.c. Ferdinand Porsche AG and authorized the Board of Management to purchase land and buildings to expand the Bietigheim-Bissingen site.

Also on December 20, the Supervisory Board approved a new schedule of responsibilities for the Board of Management. Since, under the new schedule, responsibility for personnel was transferred from Mr. Hollenhorst to Mr. Dieter, the Supervisory Board appointed Mr. Dieter Employee Affairs Director. Mr. Hollenhorst took over responsibility for information technology from Mr. Dieter. On December 20, the Supervisory Board expanded its rules of procedure to include additional rules for the Audit Committee. On the same day, the Chairmen of the Supervisory Board and Board of Management signed an updated declaration of compliance pursuant to Sec. 161 of the German Stock Corporation Law. Detailed information on corporate governance and compliance with the recommendations of the Government Commission of the German Corporate Governance Code can be found on pages 11 to 15 and online at www.durr.com/en/investor. 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 the risk control and monitoring system.

German legislation implementing the EU Takeover Directive came into force on July 14, 2006, and places additional disclosure requirements on the management report. These requirements were considered in preparing the Group management report. The relevant information can be found on pages 24 to 26. In this respect, the Supervisory Board issues the following explanatory notes pursuant to Sec. 171 (2), Sentence 2 of the German Stock Corporation Law:

• The shareholders Heinz Dürr GmbH, Heinz und Heide Dürr-Stiftung GmbH, Süd-Kapitalbeteiligungs-Gesellschaft mbH, and BWK GmbH Unternehmensbeteiligungsgesellschaft, which held a combined stake of 58.1% of the shares of Dürr AG as of December 31, 2006, have entered into a pool arrangement that grants the remaining partners a right of first refusal when one or more of the partners sells Dürr AG shares. This ensures that shares from the pool cannot simply be sold to third parties. The partners under the arrangement view their alliance as a strategic partnership aimed at securing consistent industrial leadership and increasing the value of the company.
• The relevant provisions of the law are the only provisions governing the appointment and recall of members of the Board of Management and changes to the articles of incorporation. There are no additional provisions, for example, in the articles of incorporation.
• The authorizations given by the annual shareholders' meeting (on capital increases, warrant bonds, convertible bonds, profit-sharing rights, participating bonds, or any combination of these instruments) are global authorizations that give Dürr greater flexibility in financing as needed.

The rules regarding a possible change in control as set forth in the terms and conditions of the corporate bond we issued in July 2004 are customary and are included in comparable form in other issuers' bond terms and conditions. They safeguard the bondholders' interests.

CHANGES IN THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD ELECTIONS

Ralf Dieter took over as Chairman of the Board of Management of Dürr AG as of January 1, 2006. He succeeded Stephan Rojahn, who had resigned his post as of December 31, 2005. The Supervisory Board thanks Mr. Rojahn for his active service to Dürr since October 2002.

On March 28, 2007, the Supervisory Board appointed Ralph Heuwing a regular member of the Board of Management, effective as of May 14, 2007. Mr. Heuwing succeeds Martin Hollenhorst as Chief Financial Officer, who has expressed the wish not to renew his employment contract, which runs until April 2008. The contract has therefore been ended early by mutual agreement, and Mr. Hollenhorst will leave the company on May 31, 2007. The Supervisory Board thanks him for his successful efforts.

In keeping with the election cycle, elections for the Supervisory Board of Dürr AG were held in 2006. Elections for employee representatives were held on April 24. Bernhard Ackermann, Erich Horst, and Hayo Raich were elected as new members. Benno Eberl, Harald Lambacher, and Günter Lorenz were appointed for another term.

The 17th annual shareholders' meeting on May 24, 2006, elected Dr. Dr. Alexandra Dürr and Prof. Dr.-Ing. Holger Hanselka to the Supervisory Board as new shareholder representatives. Dr.-Ing. E. h. Heinz Dürr, Prof. Dr. Norbert Loos, Joachim Schielke, and Dr. Hans Michael Schmidt-Dencker were reelected to the Board. At the Supervisory Board's organizational meeting on May 24, 2006, Dr.-Ing. E. h. Heinz Dürr was elected Chairman and Prof. Dr. Loos and Mr. Raich were elected Deputy Chairmen of the Supervisory Board.

The Supervisory Board thanks Lieselotte Dedek-Fried, Prof. Jörg Menno Harms, Dr. Tessen von Heydebreck, Werner Kramp, and Peter Weingart, who left the Board as of the close of the 17th annual shareholders' meeting, for their many years of constructive cooperation.

AUDIT AND RATIFICATION OF THE ANNUAL FINANCIAL STATEMENTS

Ernst & Young AG Wirtschaftsprüfungsgesellschaft examined the annual financial statements, the consolidated financial statements, the management report, and the Group management report for Dürr AG, which were prepared by the Board of Management for the period ended December 31, 2006, and issued an unqualified auditor's report. The annual financial statements, the consolidated financial statements, the management

4 REPORT OF THE SUPERVISORY BOARD

report, the Group management report, and 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 28, 2007. The auditors signing the audit report participated in that meeting and in the Audit Committee meeting on March 21, 2007. 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 sets of financial statements and approves the annual financial statements and consolidated financial statements prepared for the period ended December 31, 2006. 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 Law concerning relationships with associated enterprises (dependent company report) for 2006. The auditor issued the following unqualified report pursuant to Sec. 313 (3) of the German Stock Corporation Law:

"After examination and assessment in accordance with our professional duties, we confirm that: 1. the factual information given in the report is correct, 2. the 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 2006, as well as the shareholders for the confidence they have placed in the company.

Stuttgart, March 28, 2007

Chairman of the Supervisory Board

DR.-ING. E. H. HEINZ DÜRR

ISIN DE0005565204 REUTERS SYMBOL DUEG BLOOMBERG CODE DUE GY FIRST CALL THOMSON FINANCIAL DUE.DE

PRICE TREND OF DÜRR STOCK IN XETRA TRADING FROM JANUARY – DECEMBER 2006 COMPARED WITH DEVELOPMENT OF THE DAX, MDAX, AND SDAX (INDEXED VALUES) IN %

DÜRR ON THE CAPITAL MARKET

DÜRR STOCK STABLE IN 2006

After favorable trends in the past years, international stock markets continued to develop well in 2006 despite a renewed rise in raw material prices. Stock prices on the exchanges of emerging markets like Argentina, China, and India rose more than proportionately. In Europe, many stocks benefited from favorable company valuations and relatively low interest rates, although central banks did increase short-term rates sharply. The DAX index registered a plus of 21% in 2006. The MDAX and SDAX second-line indexes gained 27% and 30%, respectively. On average, small and mid-cap stocks were valued higher than the big blue chips.

The bond markets trended downward during the year. Rising key interest rates hurt bonds with shorter maturities. Longer maturities saw price declines as inflation fears set in. However, price declines slowed somewhat at the end of the year as expectations turned toward a more moderate economic trend – and thus moderate inflation – for 2007. Yields on 10-year government bonds rose from 3.4% to 3.8% at the end of 2006.

The volume of Dürr shares traded increased significantly in 2006. Our stock began the year 2006 with a XETRA quotation of € 20.10. The stock price rose sharply following the release of the 2005 financial statements and figures for the first quarter of 2006. During the same period, we also conducted several international roadshows and stepped up our investor relations activities. We were able to gain investors' confidence in the realignment of our operations and the turnaround in our earnings trend. Dürr's stock price topped out for the year at € 26.90 in the second quarter. The stock lost ground over the rest of the year, although we maintained and reached the targets we had set for 2006. One possible reason for this price trend was emerging skepticism regarding the stocks of automobile component suppliers. In the United States, several suppliers filed for Chapter 11 bankruptcy protection and one US competitor in the paint systems business left the market.

KEY FIGURES FOR DÜRR STOCK

	2006	2005	2004
Earnings per share, Group (in €)	0.45	0.30	0.40
Earnings per share, continuing operations (in €)	0.50	–7.26	0.00
Cash flow per share, continuing operations (in €)	–0.63	–10.25	–8.08
Dividend per share (in €)	–1	–	–
High (in €)	26.90	20.35	21.10
Low (in €)	17.14	13.23	14.50
Close (in €)	20.99	20.30	15.11
Average daily trading volume (no. of shares)	19,244	12,726	7,801
Market capitalization at Dec. 31 (in € m)	330.1	319.3	216.0
Number of shares (weighted average)	15,728,020	14,400,050	14,298,200

1 Dividend proposed to the annual shareholders' meeting

DÜRR BACK ON THE SDA X

Dürr stock is listed in Deutsche Börse's Prime Standard segment and is traded on all German stock exchanges. Since the end of January 2007, we are also once again included in the SDAX, Deutsche Börse's index comprising the 50 largest German small caps. Our return to the SDAX was based on our stock's expanded trading volume and on the increased market capitalization of our free float. Our readmission to the index shows that investors acknowledge the progress we are making in our operations and view Dürr's prospects for the future positively.

INTENSIVE CAPITAL MARKET COMMUNICATION

Our corporate bond placement in July 2004 widened the circle of investors and analysts with whom we communicate. In 2006, the number of analysts covering our stock rose. All analysts rated our stock at either "buy" or "neutral" at the end of the year. According to a study by DIRK - Deutscher Investor Relations Verband (German Investor Relations Association), SDAX stocks are actively watched by seven analysts on average. With eight active analysts, we are doing pretty well, especially as we have only been back in the SDAX since the end of January 2007.

We seek to inform our investors as transparently, promptly, and continually as possible. In 2006, the Dürr Board of Management made presentations at numerous investor conferences and roadshows in Germany and across Europe. Key aims were to present the new corporate concept and to establish a broader investor base. Our analyst conferences and conference calls were very popular. We also maintain contact with individual investors by phone, online, and at individual customer events.

Investors can find the latest, comprehensive information at www.durr.com. The investor relations section of the website includes the outlook for 2007 and 2008 as well as information about the company and corporate governance. Information on analyst events, press conferences, and the annual shareholders' meeting are also added in a timely manner so that individual shareholders can obtain simultaneous information. Analysts and investors can download our data as Excel tables. And those interested in receiving our ad-hoc announcements and press releases directly via e-mail can subscribe to our online news service.

The following companies regularly published research reports on Dürr: Bayerische Landesbank Berenberg Bank Deutsche Bank Helaba Trust HSBC Trinkaus & Burkhardt Landesbank Baden-Württemberg Merck Finck & Co. Solventis Wertpapierhandelsbank

SHAREHOLDER STRUCTURE

OUR BOND

Our bond ISIN (Reg S): XS0195957658 ISIN (144a): XS0195957815

Our fixed-rate bond matures in 2011 and has a nominal volume of € 200 million and a coupon of 9.75%. The bond is subordinated to the syndicated loan also arranged in 2004. This is a major reason why the bond carries a higher interest rate than a bank loan.

Like the Dürr share price, the price of our bond rose in the second quarter of 2006 after we released our 2005 figures and reported on the progress of our restructuring efforts. The bond price also declined over the rest of the year, only to recover to the same level at which it had started the year, 108.0%, by the end of December. Our bond thus outperformed comparable German government bonds.

Standard & Poor's (S&P) and Moody's did not change our ratings in 2006. In March 2007, S&P's company rating for Dürr was "B" and the bond's rating "CCC+" with a "stable" outlook. Moody's company rating for Dürr was "B2" and the bond's rating "Caa1" with a "negative" outlook. The agencies' ratings are based almost exclusively on past data and give very little weight to future expectations. The agencies are still particularly skeptical about companies that are in the midst of a turnaround. Although the operating results for 2006 have improved noticeably and the rating agencies recognize this progress, our 2006 earnings are not likely to be enough to prompt an upgrade in the spring 2007 rating review. For 2007 and 2008, we see greatly improved prospects as a result of FOCUS (see Outlook, p. 51) that are not yet reflected in the current ratings. Our aim is to improve our rating by increasing earnings and cash flow.

Our stock's free float, calculated using Deutsche Börse's model, increased to 47% in 2006. It was 36% at the end of 2005. Heinz Dürr GmbH, Heinz und Heide Dürr-Stiftung GmbH, and the two companies belonging to Landesbank Baden-Württemberg, Süd-Kapitalbeteiligungs-Gesellschaft mbH and BWK GmbH Unternehmensbeteiligungsgesellschaft, have a pool arrangement under which the other parties to the arrangement have a right of first refusal when one of the other parties sells Dürr shares. Together, these four shareholders held more than 50% of Dürr stock at the end of 2006. In December 2006, M&G Investment Management Limited, London, informed us that it held 5% of our capital. M&G is part of the Prudential Group and is one of the largest investment firms in London.

In an effort to improve our financial structure further, the Board of Management and Supervisory Board have decided to propose to the annual shareholders' meeting that no dividend be paid for 2006 since the result on the balance sheet of Dürr AG is only slightly positive.

11 CORPORATE GOVERNANCE REPORT

CORPORATE GOVERNANCE REPORT

GERMAN CORPORATE GOVERNANCE CODE LARGELY IMPLEMENTED

We consider the German Corporate Governance Code to be an important contribution toward transparent and responsible corporate management. Thus, we have implemented most of the recommendations because we believe in them. On the other hand, we have also consciously chosen not to implement certain suggestions contained in the Code – partly because of our tradition as a medium-sized company and partly because we have carefully weighed how the recommended disclosures could conflict with our competitive interests. It should be noted that our competitors are subject to far less comprehensive reporting requirements than we are, as most either are not publicly traded companies or operate as divisions of larger groups of companies.

In the declaration of compliance of December 20, 2006, we are non-compliant with only five of the Code's recommendations. One is the new version of Item 4.2.4, which was released on June 12, 2006. The other four recommendations that we have not implemented were not changed in the latest version of the Code, and our position with regard to them likewise remains unchanged.

The following excerpt from our current declaration of compliance lists the divergences from the June 12, 2006, version of the Code and our reasons for not conforming.

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 members of the executive body and employees does not appear appropriate. In addition, a deductible is not usual abroad and would therefore make it difficult to recruit executives from abroad.

ITEM 4.2.4: The total compensation of each member of the Management Board, subdivided according to performance-neutral, performance-related, and long-term incentive components, shall be disclosed together with the name of the respective person unless decided otherwise by a three-fourths majority at the annual meeting.

We report the sum of Board of Management members' salaries in the notes to our consolidated financial statements according to fixed and variable components. Severance benefits and pension provisions are also reported. In the corporate governance report, we refer to the compensation report contained in the notes to the consolidated financial statements.1

In our view, individualized reporting provides no additional benefit to the shareholders. In that spirit, it was also decided at the annual meeting on May 24, 2006, that individualized disclosure of the compensation of Board of Management members is not to be made for a period of five years.

• 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 shall be reported individually in the Corporate Governance Report, 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 Corporate Governance Report.

We report the sum of compensation of the members of our Supervisory Board in the Notes to our consolidated financial statements. In our view a special, individualized disclosure 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.

¹ Contrary to what is stated in the declaration of compliance published in December 2006, the compensation report is not included in the notes to the consolidated financial statements, but rather in the corporate governance report, pages 13 and 14.The compensation report constitutes a part of the group management report.

11 CORPORATE GOVERNANCE REPORT

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 company's headquarters. We do not make additional information public for reasons relating to competition.

MORE ON CORPORATE GOVERNANCE AT DÜRR

COMMUNICATION WITH SHAREHOLDERS

Quarterly reports, the financial and technical press releases published at www.durr.com, and the extensive Investor Relations section of our website enable our shareholders to keep abreast of the latest developments relating to Dürr. Our Investor Relations department is also available for one-on-one and e-mail consultations.

THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD

In accordance with German Stock Corporation Law, the Board of Management of Dürr AG is monitored by the Supervisory Board. In accordance with the German Codetermination Act, the Supervisory Board of Dürr AG consists of equal numbers of shareholder and employee representatives. The report of the Supervisory Board on pages 4 to 7 discusses the cooperation between the Supervisory Board and the Board of Management.

COMPENSATION OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD

The current version of the German Corporate Governance Code recommends that companies report on the compensation of members of the Supervisory Board and Board of Management in the corporate governance report. The German Commercial Code requires that information on the compensation of both boards be disclosed in the management report and in the notes to the consolidated financial statements (Secs. 315 and 314 of the German Commercial Code). Thus, in addition to the information provided in the two paragraphs below, we refer readers to the corresponding information in the notes to the consolidated financial statements (Item 35), which shall be deemed part of this corporate governance report. The information provided in the two para-

graphs below fulfills the disclosure requirements pursuant to Sec. 315 of the German Commercial Code. These disclosures constitute part of the consolidated management report.

Total expenses for the compensation paid to the members of the Board of Management of Dürr AG in 2006 were € 2,478 thousand (2005: € 4,117 thousand). This includes compensation of € 700 thousand related to the termination of a contract of employment. Furthermore, € 899 thousand was paid to former members of the Board of Management (2005: € 820 thousand). The structure of the compensation system for the Board of Management is discussed and reviewed by the Supervisory Board on a regular basis at the suggestion of the Personnel Committee. Compensation for the members of the Board of Management comprises performance-related and non-performance-related components. The non-performance-related components consist of a fixed amount and non-cash compensation, and the performance-related component is a profit share bonus. Criteria for determining the appropriateness of the compensation particularly include but are not limited to the tasks of the respective member of the Board of Management, his personal performance, the performance of the Board of Management, and the economic situation, performance and outlook of the enterprise, taking into account its peer companies. The fixed amount, which is the non-performance-related base pay, is paid out monthly as a salary. This salary is reviewed at regular intervals on the basis of factors including general salary trends within the Group and salary trends at comparable companies. The target profit share bonus amounts to 100% of the relevant board member's annual base salary. The actual amount of the bonus depends heavily on the Dürr Group's achievement of its earnings targets (EBT) and on the board member's achievement of his individual goals or targets. In addition, the members of the Board of Management receive non-cash benefits, primarily the use of a company car. The company pays taxes on these non-cash benefits. No loans or advances were granted to members of the Board of Management during 2006.

Total compensation paid to the Supervisory Board in 2006 amounted to € 374 thousand (2005: € 298 thousand). The members of the Supervisory Board receive annual fixed compensation in the amount of € 15,000 and an attendance fee of € 500 for each meeting attended in addition to reimbursement for their expenses. Furthermore, they receive variable compensation equal to 0.4‰ of the reported consolidated earnings before taxes (EBT). This variable compensation cannot exceed € 25,000. The Chairman receives three times the total compensation paid to a regular member; the Deputy Chairmen of the Supervisory Board receive one and a half times the total compensation paid to a regular member. Compensation of the Supervisory Board is governed by Article 15 of the articles of incorporation, which can be found online at www.durr.com/en/investor/corporate-governance/articles-of-incorporation.

11 CORPORATE GOVERNANCE REPORT

SIDELINE ACTIVITIES

The members of the Board of Management do not carry out sideline activities other than those listed under Item 35 of the notes to the consolidated financial statements. Moreover, they hold no significant stakes in other companies.

SECURITIES TRANSACTIONS THAT MUST BE REPORTED (DIRECTORS' DEALINGS)

Under Sec. 15a of the German Securities Trading Act, members of the Supervisory Board and Board of Management and management-level employees must report transactions in which they buy or sell Dürr AG shares (including any related financial instruments) if the value of the transactions equals or exceeds € 5,000 within a calendar year. An overview of the directors' dealings that have been reported to us can be found online at www.durr.com/en/investor/corporate-governance/directors-dealings. In 2006, all of the securities transactions subject to the reporting requirement were carried out by Heinz Dürr GmbH.

COMPLIANCE

Within the Board of Management, the Chief Financial Officer is responsible for matters relating to corporate governance. In addition, Dürr AG has a compliance officer who ensures compliance with the rules governing capital market behavior.

RISK MANAGEMENT

Our risk management system is oriented toward the special demands of mechanical and plant engineering business. It provides tools for early detection and assessment of risks and is designed to enable rapid action to counteract risks. Details can be found on pages 45 to 50.

AUDITOR

The annual shareholders' meeting on May 24, 2006, voted to appoint Ernst & Young AG Wirtschaftsprüfungsgesellschaft, Stuttgart, as the independent auditor for fiscal 2006. Before the Supervisory Board proposed Ernst & Young for election, Ernst & Young submitted a statement to the Supervisory Board stating that no relationships exist between the auditor, its bodies, and its head auditor, on the one hand, and Dürr or members of Dürr's bodies, on the other hand, which could cast doubt on Ernst & Young's independence. The auditor is required to inform the Supervisory Board if it finds any divergences from the declaration of compliance provided by the Supervisory Board and the Board of Management.

FROM THE MARKETS

ON THE RIGHT TRACK WITH FOCUS

At Dürr, the year 2006 was largely shaped by the Groupwide program FOCUS. We launched 47 individual projects aimed at improving profitability, increasing the efficiency of our processes, and establishing a strong position in our business with the automotive industry. Implementation of FOCUS is progressing on schedule. We have successfully completed 28 projects and have been pursuing all the other projects in a continuous improvement process since the start of 2007.

IT STANDARDIZATION TOPS THE LIST OF PRIORITIES

The continuous improvement process is aimed at securely anchoring the processes and tools developed under FOCUS in our daily operations and making further improvements. Three managers are dedicated exclusively to implementing this process. Harmonizing the IT structures at all our sites is a top priority. We have begun to establish a Group-wide ENTERPRISE RESOURCE PLANNING (ERP) system so that all data can be processed in a uniform manner and the same functions are available at every site. The system will cover all operational processes, from design to logistics. It will go into operation in Germany and the United States in 2007, and the IT standardization at all sites should be completed by the end of 2008. This effort will improve international collaboration within the Group, make our core process – project execution – more systematic and secure, and reduce both costs and risk of errors.

We are also pushing ahead with other projects in 2007 besides IT standardization. As we expand our service activities, we are focusing particularly on revamp business, which involves plant conversions and modernization. Other major projects in 2007 are aimed at improving our marketing, innovation management, and contract management.

FOCUS: LOOKING GOOD

With FOCUS, we have already gotten many important improvements off the ground. We achieved the first of our main goals at the end of 2005, when we substantially reduced our financial debt through a capital increase and the sale of non-core businesses. This has placed the Group on a solid financial footing.

With FOCUS, we have laid the foundation for increasing the operating earning power of our business units. In the photo, you see the heads of our six business units (from left to right): HARALD RÜBER, Paint Systems DR. HANS SCHUMACHER, Application Technology SATPAL BHATNAGAR, Environmental and Energy Systems GERHARD MOGCK, Factory Assembly Systems DR . FRITZ DORNER, Cleaning and Filtration Systems DR. RALF-MICHAEL FUCHS, Balancing and Diagnostic Systems

FOCUS really took off in 2006. We have reached major milestones in all areas of the program. The following examples illustrate the potential we are leveraging:

Growth in services: With our service growth strategy, we increased the share of sales generated through our service business from less than 20% to 26%. Under this strategy, we established a new service organization and developed new service products such as remote plant diagnostics, software upgrades, and faster access to spare parts. We also expanded our network of service points located on-site at customers' plants. These "antennas" enable us to recognize customers' needs and offer corresponding products and services faster. New antennas have been established in Germany, Spain, Great Britain, Malaysia, Turkey, and Slovakia.

Process improvements: We improved processes at many sites and reorganized some sites. For example, in Bietigheim-Bissingen, our center of expertise for robotics, we are converting robot assembly over to flow production. This will reduce lead times and costs while improving product quality. In Mexico, we moved to a location that puts us closer to our customers and improves the logistics chain between Mexico and the Plymouth plant in the United States. At our final assembly systems plant in Püttlingen, we shifted the focus of the product mix more heavily toward technologically sophisticated TEST SYS-TEMS and assembly stations. We also merged locations in Germany, France, Italy, and the United States to lower costs and speed processes.

Moving capacities to match demand: We reduced capacities in declining markets and expanded in growth markets. We cut 479 jobs mainly in Western Europe and North America in 2006, following 332 cuts in 2005. By comparison, we increased staff in China by 28% to 347 employees and in India by 14% to 168 employees in 2006.

Innovation process and product standardization: We introduced a uniform innovation process that applies throughout the Group and will result in greater efficiency in the development of new products. More information can be found on page 40. By standardizing our products, we are lowering costs and making order processing more reliable. Our aim is to standardize more than 80% of our paint systems products – a very good figure for an industrial equipment manufacturer. A high level of standardization means more rationalized order processing and serves as the basis on which we can quickly design different system variants for our customers during the offer stage.

DÜRR GREEN PAINT SHOP

Automotive paint systems: Intelligent energy concept lowers costs per unit

Painting is the most energy-intensive process in automobile manufacturing. In a single year, a large paint shop uses as much power as a city with 50,000 inhabitants, including its commercial areas. In view of the sharp rise in energy and raw material prices, experts at Dürr Consulting systematically worked on developing more energy-efficient plant concepts in 2006. The fruit of their labors is the Dürr Green Paint Shop, a model paint shop designed to make optimal use of energy resources and thus benefit our customers twofold – by considerably lowering costs per unit and reducing the impact of their operations on the environment.

Real-life operating conditions informed our development of the Green Paint Shop. We examined a typical paint shop based on an inquiry from one of our Asian customers, carefully analyzing the specifications for potential to improve efficiency in every process step – from body PRETREATMENT and DIP-PAINTING to the spray booths

and drying zones. With this approach, we developed more than 20 measures to improve energy consumption and reduce the environmental impact of automotive painting. Three of these measures are described below.

1. PRETREATMENT AND DIP-PAINTING

Instead of conventional power & free or pendulum conveyor systems, we use our proprietary RoDip process, in which the vehicle body is rotated 360 degrees within the tank. RoDip cuts plant lengths by as much as 25%. But it does more than shorten the tanks. It also allows for smaller pump capacities, lowers heat loss and heating energy consumption, and reduces the amount of material used and the volume of waste water generated. As our customers' operating data shows, the savings are considerable, with water and energy consumption down as much as 50% and the amount of chemicals used reduced by up to 30%.

2. CLIMATE CONTROL IN THE PAINTING BOOTHS

A second measure relates to managing temperature and humidity in the painting booths. Our EcoAirControl TH (Temperature & Humidity) software enables paint shop operators to control temperature and humidity during paint application within a temperature range of 21°C to 29°C and a humidity range of 62% to 68% for optimal energy use. This control yields painting to be done at the "warmer" upper end of the temperature range in summer and at the "cooler" lower end in winter. This way, outside air brought into the system requires less heating, cooling, or humidification – and the amount of energy used is reduced by around 12%.

3. DRYING

The process of drying freshly applied paint consumes a lot of energy. So we looked for ways to harness and use the exhaust air from the dryer heating system. Rather than allowing the hot (200°C to 300°C) air to escape through the roof of the paint shop, as is customary, we funnel the air into a heat exchanger where it heats the water that is to be used for pretreatment. This reduces the amount of natural gas used for water heating by around 30%.

With the Green Paint Shop, we have developed more than 20 measures to improve energy consumption and reduce the environmental impact of automotive painting.

CONSIDERABLE COST SAVINGS

The measures that make up our Green Paint Shop concept can be implemented with limited capital expenditure. And the results are impressive. For example, we have reduced carbon dioxide emissions by more than 30%. The greatest impact we achieved was in natural gas consumption, saving considerably more than 50% over conventional paint shops. The combined savings achieved with the Green Paint Shop – in terms of gas, power, and water consumption – yield impressive reductions in consumption and costs. For example, a typical paint shop in Asia with total unit costs of € 285 per painted body and a throughput of 35 bodies per hour can save up to € 16 per unit. That is more than € 17 million over a model life cycle of seven years.

PAINT AND ASSEMBLY HIGHLIGHTS FROM 2006

Paint and Assembly Systems

PAINT SYSTEMS

wismod dolobor senim volor in vel ist magnaalis system." Paint Systems leveraged its position as the market and technology leader to acquire several large-scale orders in 2006. In China, automakers Chery, Dongfeng Peugeot Citroën, Kia, and Hyundai contracted us to build paint shops. In India, we received large-scale orders from Hyundai and Tata. Another two TURNKEY PROJECTS are underway for Fiat in Italy and Turkey. We worked hard to cultivate our business with Japanese automakers' plants outside Japan. For example, we are equipping a vehicle parts paint shop for Honda in the UK. We completed major modernization orders for DaimlerChrysler and the BMW Group in Oxford, where we increased capacity in the MINI paint shop by 40% – without halting production. As we continue to expand our service business, one of our most challenging projects to date involved moving a complete paint shop from Germany to Russia. We strengthened our position in the growing business with automobile component suppliers and general industry, landing contracts from Faurecia, John Deere, and Montaplast.

APPLICATION TECHNOLOGY

"Loremspret heniat, sed tat at aut Sanutem quipit – Application Technology had another record-breaking year in 2006, selling some 570 painting robots. We supplied components for all of the Paint Systems business unit's large-scale projects, and our own stand-alone business also did very well. DaimlerChrysler contracted us to convert several painting lines in Sindelfingen, Germany. Marketing of the new EcoRP E generation of robots got off to a successful start. For example, the new painting robot is in use at DaimlerChrysler plants in Saltillo, Mexico, and at the Evobus plant in Ulm, Germany. We completed a plant conversion for the joint venture GM-Daewoo in Changwon, South Korea, in exceptional time. It took us just ten days to assemble, install, program, and test 21 painting robots there. Full automation will save the customer several million euros each year.

FACTORY ASSEMBLY SYSTEMS

Factory Assembly Systems stepped up its sales activities in the BRIC countries (Brazil, Russia, India, China) in 2006 – with excellent results. Around 24% of new orders came from these markets (2005: 11%). FAStplant, our modular final assembly system, has established itself on the market. After having supplied several smaller systems to Toyota, DaimlerChrysler, BMW, and AUDI, we received a large order for mass production from yet another automobile manufacturer, this one in Mexico. Russian Severstaal also

chose FAStplant for its production. Another order is sending important signals within the industry. In Dürr's first contract from a Japanese customer in North America, Nissan has commissioned us to install a new conveyor system for its final assembly plant in Smyrna, Tennessee – and other Japanese automakers are watching this project closely. We expanded our business in assembly systems for the aviation industry and are currently executing projects for Airbus in Stade and Hamburg, Germany. To build our strength as a partner to the aviation industry, we are concentrating our expertise in this area in Stuttgart.

ENVIRONMENTAL AND ENERGY SYSTEMS

Environmental and Energy Systems is pursuing a strategy of tapping new customer groups for its exhaust air purification technologies beyond the automotive industry. And we've been successful. In 2006, new orders from the pharmaceutical and chemical industries were up by around 30%. Major orders came from Pfizer in the UK, Schwarz Pharma in Ireland, and Jilin Chemical Industries in China. Overall, around 80% of our new orders came from outside the automotive industry.

Measuring and Process Systems

BALANCING AND DIAGNOSTIC SYSTEMS

Balancing and Diagnostic Systems boosted its order intake considerably in 2006. Asia performed especially well with a plus of 38%. Our two largest orders came from customers in China. With energy consumption on

the rise in Asia, this business unit benefited considerably from strong demand for balancing systems for the power plant industry. But other product lines were also successful in 2006. New orders for turbo-supercharger balancing machines were up sharply and we generated record sales of crankshaft balancing machines with one major Japanese automaker. Our Service business continued to grow, increasing its share of sales to 30%.

CLEANING AND FILTRATION SYSTEMS

By far the largest contract for Cleaning and Filtration Systems in 2006 came from General Motors. We are supplying a total of 16 TRANSFER SYSTEMS and 13 robot cells for cleaning engine and transmission parts to several GM plants. This order illustrates our special expertise as one of the few partners for cleaning, FILTRATION, and automation systems who can execute large-scale international projects, rapidly equipping several engine and transmission plants around the globe with uniform technology – something that is becoming increasingly critical as international standardization of manufacturing processes in the automotive industry continues. Our restructuring has us well positioned for continued success in acquiring future orders. In November 2006, we unveiled the first machine in our new generation of products, the EcoCBelt BELT CLEANING SYSTEM, at the parts2clean trade fair in Friedrichshafen, Germany.

PAINT AND ASSEMBLY DÜRR CONSULTING

Expert factory planning thanks to years of experience

wismod dolobor senim volor in vel ist magnaalis system." Cost pressure, productivity increases, and reducing energy consumption and emissions in production are critical factors for our customers today. When it comes to optimizing production processes, the die is already cast in the planning stage. We take on such planning tasks for our customers, whose operations are mainly in the automotive sector but also in other industrial areas. Our experience and process engineering expertise derived from many planning and consulting projects worldwide were combined to form Dürr Consulting at the beginning of 2006.

In the automotive sector, we develop concepts for our customers, perform feasibility studies, and offer innovative complete solutions, not only in planning new factories, but also in re-tooling existing ones. We also take care of restructuring issues. That includes optimizing use of resources such as space, technology, and personnel. We also assist customers in actually starting up production, when requested. Besides planning, support in realizing projects is also among our services. Helping our customers identify energy-saving potential is also becoming increasingly important. Dürr Consulting offers solution concepts that reduce costs per vehicle and improve the environmental balance sheet, for example, by cutting CO2 emissions.

Dürr Consulting has a team of more than 100 employees and operates at locations in Europe, Asia, and the Americas. Promoting further internationalization is one of our goals. The fastest-growing regions include India and Russia, where many international automakers are setting up and existing plants are being restructured. One of our reference projects last year was a job for Tata, an Indian truck manufacturer. For that customer, we did the planning of a complete truck factory including supplier park. Another important customer is Kamaz, a Russian truck manufacturer. To modernize its plant in Chelny, we developed an integrated restructuring approach based on international profitability standards. In terms of space, it is one of the automobile industry's largest plants worldwide.

GROUP STRUCTURE

GROUP MANAGEMENT REPORT 2006

ORGANIZATIONAL AND LEGAL STRUCTURE

Dürr is one of the world's leading suppliers of systems, services and products for automobile manufacturing. We generate more than 90% of our sales with automobile manufacturers and their suppliers. Other important customer groups are the mechanical engineering sector and the chemical, pharmaceutical, coating, and aviation industries. Dürr has a strong international focus: we have 45 locations, 24 of which are production sites, in 21 countries; we are therefore in close proximity to our customers in all the automotive industry's production markets around the globe. 47% of our 5,650 employees are located outside Germany.

Painting technology (Paint Systems and Application Technology) is our largest individual activity, accounting for 58% of sales. Dürr is the world market leader in complete painting systems as well as in modular products for automated paint application (e.g. painting robots, ATOMIZER TECH-NOLOGY, paint delivery systems, software). We are also global leaders in balancing and diagnostic systems and industrial CLEANING TECHNOLOGY, and are among the top three suppliers of final assembly and conveyor systems, our second largest activity, accounting for 17% of sales. We also rank among the top three players in the fragmented market for environmental technology, where we plan and install systems for waste-air purification and the disposal of liquid residues. finance, controlling, legal affairs and communication. BUSINESS UNITS

All business units offer extensive services for the equipment and systems we supply. The spectrum ranges from plant planning and design (Dürr Consulting), maintenance, servicing, repairs and conversion, through to training and energy consulting. We expanded our services business strongly in 2006. The number of service employees was increased by 8.0% to 498, and the services business contributed 26% of our consolidated sales.

GROUP STRUCTURE

The operative business is conducted by the two divisions Paint and Assembly Systems and Measuring and Process Systems, with a total of six business units. Dürr AG, Stuttgart, functions as a management holding company and performs corporate functions in areas such as

RESPONSIBILITIES WITHIN THE BOARD OF MANAGEMENT

DIVISIONS	R ALF W. DIETER (CHAIRMAN) Paint and Assembly Systems Measuring and Process Systems	MARTIN HOLLENHORST (CFO)
CORPORATE FUNCTIONS	Quality Research and Development Human Resources (Employee Affairs Director)	Business Administration Investor and Public Relations Legal Affairs/Patents Information Technology Risk Management Internal Auditing

LEGAL STRUCTURE

The capital stock of Dürr AG amounts to € 40.3 million (December 31, 2005: € 40.3 million) and is divided into 15,728,020 ordinary shares. The Dürr Group consisted of 50 consolidated companies (excluding Dürr AG) in fiscal 2006. This was 13 fewer than in 2005 and is largely due to the merging of companies in order to streamline the structure of the Group. Further information on this and on a new company established in Slovakia can be found in Item 4 in the notes to the consolidated financial statements. There were no acquisitions in 2006.

SALE OF SRH SYSTEMS LTD.

We sold SRH Systems Ltd. to the Japanese company Horiba Ltd. effective March 10, 2006. The net proceeds came to € 1.7 million. This transaction marked the last step in the divestment of the former Development Test Systems (DTS) business unit. All the other DTS companies had already been sold to Horiba effective September 30, 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: "Our company and the companies affiliated to our company received fair and reasonable consideration in each transaction listed in the report on relationships with related companies. No measures placing any of the companies at a disadvantage were implemented or refrained from at the initiative of or in the interest of the controlling company or the companies affiliated to it. This assessment is based on circumstances known to us at the time the reportable events took place."

DISCLOSURES PURSUANT TO THE GERMAN EU TAKEOVER DIRECTIVE IMPLEMENTING ACT

The Takeover Directive Implementing Act of July 14, 2006, introduces new requirements with regard to the disclosures in the management report. The following statements are made in compliance with these new disclosure requirements as formulated in Sec. 289 (4) and Sec. 315 (4) of the German Commercial Code (HGB):

STRUCTURE OF SUBSCRIBED CAPITAL: Dürr AG's subscribed capital is divided into 15,728,020 ordinary bearer shares with full voting rights. The rights and obligations arising from the ownership of ordinary shares are regulated in the German Stock Corporation Act (Aktiengesetz).

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• RESTRICTIONS ON THE TRANSFER OF SHARES/VOTING RIGHTS AND RELATED AGREEMENTS: There is a pool arrangement between the shareholders Heinz Dürr GmbH, Heinz und Heide Dürr-Stiftung GmbH, Süd-Kapitalbeteiligungs-Gesellschaft mbH and BWK GmbH Unternehmensbeteiligungsgesellschaft. It grants the parties to this agreement, which together held 58.1% of the shares of Dürr AG as of December 31, 2006, a right of first refusal when one or more of the parties sells Dürr AG shares. Further, the parties seek to pursue a concerted voting policy at shareholders' meetings.
• SHAREHOLDINGS WHICH EXCEED 10 %: Heinz Dürr GmbH holds 37.89% and Süd-Kapitalbeteiligungs-Gesellschaft mbH 10.04% of Dürr AG's capital stock.
• SHARES CONFERRING SPECIAL RIGHTS: There are no shares of Dürr AG which confer special rights.
• VOTING RIGHT CONTROL OF ANY EMPLOYEE STOCK OWNERSHIP PLAN WHERE THE CONTROL RIGHTS ARE NOT EXERCISED DIRECTLY BY THE EMPLOYEES: There are no employee stock ownership plans where the control rights are not exercised directly by the employees.
• RULES GOVERNING THE APPOINTMENT AND REPLACEMENT OF MEMBERS OF THE BOARD OF MANAGEMENT: The relevant statutory rules are regulated in Sections 84 and 85 of the German Stock Corporation Act (AktG). Dürr AG's articles of incorporation do not provide for any other rules in this regard.
• RULES GOVERNING THE AMENDMENT OF THE ARTICLES OF INCORPORATION: We refer to Sec. 179 of the German Stock Corporation Act (AktG) which requires the consent of the shareholders' meeting to amendments of the articles of incorporation. Dürr AG's articles of incorporation do not provide for any other rules in this regard.
• POWERS OF THE BOARD OF MANAGEMENT TO ISSUE OR BUY BACK SHARES: The annual shareholders' meeting on May 24, 2006, authorized the Board of Management
• to acquire on one or more occasions on or before October 31, 2007, own bearer shares of Dürr AG and to resell them subject to the consent of the Supervisory Board. The total shares acquired may not exceed 10% of the capital stock;

"Dürr recently built a new paint shop for our new Sprinter van in Ludwigsfelde. We are very satisfied with the result. The plant went into operation on time and very quickly produced the desired quality. That is the result of professional project execution and excellent teamwork between DaimlerChrysler and Dürr."

DIETMAR BACHER, CENTER HE AD, DAIMLERCHRYSLER LUDWIGSFELDE GMBH

• to increase the capital stock, subject to the consent of the Supervisory Board, by up to € 20,131,840 by the issuance of up to 7,864,000 bearer shares on one or more occasions on or before May 23, 2011 (Authorized Capital);
• to issue, subject to the consent of the Supervisory Board, on one or more occasions on or before May 23, 2011, bearer or registered convertible bonds, warrant bonds, profit participation rights or participating bonds (or combinations of these instruments), with a finite or indefinite life, in a total nominal amount of up to € 175,718,400. For this purpose, the capital stock is increased conditionally by up to € 17,571,840 for the issuance of up to 6,864,000 new bearer shares in the form of ordinary shares (Conditional Capital I).
• The Dürr International Stock Option Plan (DISOP) resolved by the shareholders' meeting in 2001 allows a further conditional capital increase by up to € 2,560,000. For this purpose, up to one million shares can be issued in the form of bearer shares, each representing a pro rata portion of the capital stock of € 2.56 per share (Conditional Capital II). The Conditional Capital II has no actual relevance since the Dürr International Stock Option Plan for which this conditional capital was authorized expired in June 2006.
• AGREEMENTS IN THE EVENT OF A CHANGE OF CONTROL FOLLOWING A TAKEOVER BID:
• The terms of our corporate bond issued in July 2004 include a covenant which obligates us, in the event of a change of control, to make an offer to the holders of the bond to redeem the bond at 101% of its nominal value plus the accrued interest. A change of control is deemed to take place if one or more persons, acting in unison, acquire at least 35% of the voting shares of Dürr AG while, simultaneously, members of the Dürr family who were shareholders of the company at the time the bond was issued hold less than 35% of the voting shares.
• AGREEMENTS PROVIDING FOR COMPENSATION IN THE EVENT OF TAKEOVER BIDS: In the event of a takeover, the Chairman of the Board of Management (CEO) has an option either to remain with the company or to leave the company in return for compensation. There are no other agreements in this regard.

DISCLOSURES ON THE COMPENSATION OF

THE SUPERVISORY BOARD AND THE BOARD OF MANAGEMENT

The corporate governance report on pages 11 to 15 discloses information on the compensation of the Supervisory Board and the Board of Management of Dürr AG. The compensation report reproduced there is an integral part of this management report.

ECONOMIC ENVIRONMENT

GDP GROWTH

in %	2006	2005
World	5.1	4.9
Germany	2.4	0.9
EU 25	2.8	1.7
USA	3.4	3.2
China	10.4	10.2
Japan	2.7	2.6

Source: European Commission

PRODUCTION OF LIGHT VEHICLES

in million units	20061	%2
World	66.2	3.8
Western Europe	16.1	–
Germany	5.4	1.9
Eastern Europe	5.0	19.0
North America3	15.2	–3.8
USA	10.9	–6.0
Mercosur	2.7	8.0
Asia	24.8	8.3
China	6.3	23.5
Japan	10.4	2.0

Sources: J.D. Power, PwC, CSM,

own estimates ¹ Forecast

² Change yearonyear

³ Incl. Mexico

GLOBAL ECONOMIC GROWTH STRONGER THAN EXPECTED

At 5.1%, world economic growth in 2006 was stronger than forecast despite further, in part pronounced, rises in commodity and energy prices. The emerging economies in Asia, Latin America, and Central and Eastern Europe were the main growth drivers. The strong dynamic in China continued. Japan sustained the previous year's moderate growth trend thanks to rising domestic demand. The United States also saw further GDP growth. However, the economy slowed in the course of the year as interest rates and gasoline prices rose and the property market cooled off. In the European Union, the positive trend continued, with robust growth of 2.8%. Germany also did well. The main driver was investment in plant and equipment.

AUTOMOBILE PRODUCTION WELL UP

World production of light vehicles (passenger cars and light commercial vehicles) was up 3.8% in 2006 despite the high oil price. Much of this growth was due to the ongoing expansion of production in Eastern Europe, South America, and Asia. The US market continued to be marked by considerable overcapacity and deep sales discounts on domestic brands. Demand for light trucks (such as off-road utility vehicles and pickups) declined and there was a drop in production at the three big US automakers.

We received significantly more project inquiries from customers in 2006 than the year before. This is partly due to a catch-up effect after a number of investment projects in the industry had been shelved in the past years. Demand differed widely from region to region: while the volume of projects in the United States and Western Europe remained at a low level, it continued to rise in Asia and Eastern Europe. There were also shifts in the type of project: currently, new factories are being built almost only in the emerging markets, while in the traditional markets, the focus is on revamps to convert and modernize existing plants.

CONSOLIDATED INCOMING ORDERS BY REGION

in € million	2006	2005	2004
Germany	237.8	249.3	374.5
Rest of Europe	509.4	453.2	501.3
North and Central America	263.8	254.2	292.6
South America	26.3	20.3	13.0
Asia, Africa, Australia	422.5	239.9	206.0
Total	1,459.8	1,216.9	1,387.4

CONSOLIDATED INCOMING ORDERS

in € million	2006	2005	2004
Paint and Assembly Systems	1,155.6	931.2	1,086.4
Measuring and Process Systems	304.2	285.7	301.0
Total	1,459.8	1,216.9	1,387.4

BUSINESS DEVELOPMENT

The annual financial statements for 2006 contain information on continuing and discontinued operations. Discontinued operations consist mainly of SRH Systems Ltd., which was sold to Horiba effective March 10, 2006. The continuing operations therefore comprise all Group operations except SRH Systems. Unless indicated otherwise, all the details in this management report refer to the continuing operations. In a few cases, such as net profit for the year, we also refer to the Group as a whole, in other words continuing as well as discontinued operations. The figures for the continuing operations for 2005 and 2006 are fully comparable. Reference is made in this report, among other things, to EBIT before non-recurring expenses. This represents EBIT before restructuring costs, impairment losses, and investment income/loss. The tables in this management report contain figures for the years 2004 to 2006. We have refrained from including figures for years before 2004 as their comparability is limited owing to changes in the circle of consolidated companies.

NEW ORDERS AND ORDERS ON HAND WELL ABOVE THE PREVIOUS YEAR'S LEVELS

Order intake by the Dürr Group was at a very good level in fiscal 2006. New orders were up 20.0% year on year to € 1,459.8 million (2005: € 1,216.9 million). Our growing services business, which we are expanding in all regions, made an important contribution to this positive development. In addition, we profited from systems orders from the growth markets of China, India, and Eastern Europe, as well as from Italy.

In regional terms, we witnessed the strongest growth in Asia, where incoming orders were up 75.4%. Asia's share of total order intake increased strongly, too. This market accounted for 28.0% of our new orders, while North and Central America contributed only 18.1%. At € 263.8 million, order intake in North and Central America remained at an unsatisfactory level also in absolute terms.

Orders on hand at December 31, 2006, amounted to € 805.2 million, as compared with € 723.5 million at the end of 2005. The order backlog was 7.1 months, which is above the average for the German machinery and industrial equipment sector (5.6 months). However, there are sig-

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CONSOLIDATED ORDERS ON HAND (DECEMBER 31)

in € million	2006	2005	2004	2006
Paint and Assembly Systems	671.9	612.1	730.9
Measuring and Process Systems	133.3	111.4	129.0	16.6% 83.4%
Total	805.2	723.5	859.9
CONSOLIDATED SALES

in € million	2006	2005	2004
Paint and Assembly Systems	1,083.9	1,090.0	1,413.8
Measuring and Process Systems	277.3	310.6	312.0
Total	1,361.2	1,400.6	1,725.8

nificant differences between the two divisions: Paint and Assembly Systems had a backlog of 7.4 months due to its high share of plant engineering business, while Measuring and Process Systems, where the focus is on mechanical engineering, had a backlog of 5.8 months. The Group's book-to-bill ratio, in other words the ratio of new orders to sales, improved in 2006 to 1.1 (2005: 0.9). We are therefore starting out from a much better situation in 2007.

SALES DOWN SLIGHTLY OWING TO LOWER

ORDERS ON HAND AT THE BEGINNING OF THE YEAR

At € 1,361.2 million, consolidated sales were down 2.8% from the previous year (€ 1,400.6 million). This was mainly due to the weak order intake in the second half of 2005, which fed through to sales in the first half of 2006.

Sales in the EU countries (excl. Germany) were level with 2005; strong increases were witnessed in Italy. Business in China picked up after the market had cooled off the year before. We also increased sales significantly in other Asian markets, such as India. Sales in Germany were down slightly. An unexpectedly strong downturn was witnessed in the United States, where the investment restraint among US automakers made itself felt. For further information about the distribution of sales by region, please see Item 28 in the notes to the consolidated financial statements.

DEVELOPMENT OF EARNINGS

Earnings at the operating level (EBIT before non-recurring expenses) rose to € 39.1 million, an increase of € 35.6 million versus 2005. EBIT after non-recurring expenses came to € 33.1 million (2005: € –70.3 million). Our net interest position improved due to the lower average level of debt during the year and as a result of one-off effects. We achieved a net profit both at the Group level and at the continuing operations level. In 2005, this was only achieved at the Group level and only thanks to non-recurring income from the sale of discontinued activities.

GROSS MARGIN IMPROVED

We increased our gross margin, which is the difference between sales and the cost of sales expressed as a percentage of sales, to 16.2% in fiscal 2006 (2005: 15.7%). However, after a strong improvement in the first six months, the gross margin declined in the second half, es-

EBIT (BEFORE NON-RECURRING EXPENSES)

	2006		2005		2004
in € million	EBIT	Margin	EBIT	Margin	EBIT	Margin
Paint and Assembly Systems	29.9	2.8%	7.1	0.7%	34.5	2.4%
Measuring and Process Systems	9.8	3.5%	5.1	1.6%	–1.3	–0.4%
Corporate Center	–0.6	–	–8.7	–	2.6	–
Total	39.1	2.9%	3.5	0.2%	35.8	2.1%

pecially in the third quarter. This was due to the stronger than expected weakness of the US market, which was not fully compensated by the efficiency enhancement measures we had already initiated and the growing services business. We responded to this situation immediately by stepping up the adjustment measures at the Cleaning and Filtration Systems, Factory Assembly Systems and Application Technology business units in the United States. Set against this, there was relief from measures such as restrictions on pension commitments in the United States (pension freeze) and amounts released from provisions which were no longer needed. Overall, the operative burdens in the United States were largely offset by cost reductions.

We kept our marketing activities at a high level in 2006, so selling expenses fell only marginally to € 94.7 million (2005: € 97.6 million). We strengthened our sales organization especially in Asia. General administrative expenses declined significantly in 2006 from € 92.8 million to € 83.1 million due to a marked reduction in overheads and more efficient processes. At € 21.1 million, direct research and development costs were exactly level with the previous year. We inform you about our most important innovations on pages 40 to 43.

Other operating income and expenses show a positive net balance of € 17.8 million (2005: € –5.3 million). Expenses fell significantly after the burdens in 2005 in connection with the refocusing of the Group. Income remained at the previous year's level and stemmed among other things from sales of real estate, income from the liquidation of companies, a payment received in connection with an out-of-court settlement, amounts written back from provisions that were no longer needed, and the retirement of liabilities which had lapsed. The biggest single items under other operating income and expenses were the effects from exchange rate movements. However, these more or less cancelled each other out.

At the Corporate Center (Dürr AG), EBIT improved mainly as a result of cost savings. The development of earnings at the two divisions is discussed in detail beginning on page 33.

2 BASIC INFORMATION 16 FROM THE MARKETS 23 MANAGEMENT REPORT 56 CONSOLIDATED FINANCIAL STATEMENTS 117 OTHER 31 28 BUSINESS DEVELOPMENT

DISCONTINUED OPERATIONS

in € million	2006	2005	2004
New orders	0.1	399.6	461.4
Sales	0.1	379.3	410.5
Net loss/profit	–0.7	108.9	5.8
Employees (December 31)	–	3	7,055

NON-RECURRING EXPENSES SUBSTANTIALLY REDUCED

The item "Restructuring expense/onerous contracts" includes the costs for the implementation of FOCUS for which provisions could not be recognized in the 2005 financial statements. In particular, this includes consulting fees and remanent costs. In all, restructuring expense amounted to € 5.4 million in fiscal 2006. In 2005, restructuring expenses of € 45.9 million had been incurred.

The yearly impairment test of our assets in 2006 led to a write-down on a property at the Paint and Assembly Systems division in Wixom in the United States. A further write-down was necessary as the result of a fire at a building in São Paulo in Brazil (Paint and Assembly Systems and Measuring and Process Systems). The write-downs amounted to € 0.5 million. In the income statement, the write-down on the building in Brazil was netted with the expected insurance compensation. In 2005, the realignment under the FOCUS program had resulted in impairments of € 27.9 million.

SUSTAINABLE IMPROVEMENT IN NET INTEREST POSITION

The growth in earnings was due not only to the better performance at the operating level, but also to improvements in our net interest position. This was reduced by € 14.2 million compared with the previous year to € –21.0 million. There were two reasons for this: firstly, the Group's improved financial position and, secondly, two special effects which led to additional interest income of approximately € 2 million.

Much of the interest expense in the amount of € 27.6 million (2005: € 37.4 million) resulted from the € 200 million corporate bond with a coupon of 9.75% which we issued in 2004. The annual interest payments on this bond amount to € 19.5 million. Another € 2.3 million was incurred in the form of interest-related expenses (2005: € 2.0 million). This includes the amortization of transaction costs and the discount on the bond.

DEPRECIATION AND AMORTIZATION

in € million	2006	2005	2004	2006
Paint and Assembly Systems	10.4	14.6	14.0
Measuring and Process Systems	4.8	7.0	6.0	20.4%
Corporate Center	3.9	2.0	1.1	25.1% 54.5%
Total	19.1	23.6	21.1

¹ Excluding impairment losses

CAPITAL EXPENDITURE ON PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS

in € million	2006	2005	2004	2006
Paint and Assembly Systems	12.1	16.8	15.4
Measuring and Process Systems	5.4	8.3	6.3	2.8%
Corporate Center	0.5	0.9	5.7	30.0% 67.2%
Total	18.0	26.0	27.4

NET PROFIT FROM CONTINUING OPERATIONS AND AT GROUP LEVEL

Earnings before income taxes reached € 14.8 million (2005: € –106.6 million) and provide the clearest indication of the earnings swing achieved in fiscal 2006. Taxes on income amounted to € 6.6 million and are attributable, among other things, to income at foreign companies which have no tax loss carry-forwards. The continuing operations made a net profit of € 8.2 million after a loss of € 104.5 million in 2005. There was a loss of € 0.7 million from discontinued operations. In 2005, book gains on divestments had led to a net profit of € 108.9 million from discontinued operations. At the Group level, net income for 2006 came to € 7.5 million after € 4.3 million in 2005.

The Board of Management and the Supervisory Board will propose to the annual shareholders' meeting that no dividend be paid for fiscal 2006. Earnings per share amounted to € 0.50 (2005: € –7.26) for the continuing operations and to € 0.45 (2005: € 0.30) at the Group level.

OVERALL ASSESSMENT OF BUSINESS DEVELOPMENT

As a whole, business developed as planned in 2006. Business in Asia and Eastern Europe was above expectations, which even enabled us to just more than offset the weaker performance in the United States. New orders were higher than we had budgeted; earnings were also slightly above target. The Board of Management rates the Dürr Group's economic situation, measured in terms of the progress achieved with the FOCUS realignment, as good; the refocusing is proceeding as planned. Changes in the International Financial Reporting Standards (IFRS) did not give rise to any significant effects and therefore had no impact on the presentation of the Group's position. For information on the accounting principles used, please see Item 7 in the notes to the consolidated financial statements.

INVESTMENT IN PROPERT Y, PL ANT AND EQUIPMENT ADJUSTED TO REQUIREMENTS

At € 18.0 million, capital expenditure on property, plant and equipment, and on intangible assets was much lower in 2006 than in 2005 (€ 26.0 million). The focus of our investments was on painting technology, and here especially on robotics and conveyor systems, as well as on oven technology and software development. Depreciation and amortization amounted to € 19.1 million (2005: € 23.6 million); this puts the reinvestment ratio at 106% (2005: 91%).

PAINT AND ASSEMBLY SYSTEMS DIVISION

in € million	2006	2005	2004
New orders	1,155.6	931.2	1,086.4
Sales	1,083.9	1,090.0	1,413.8
EBIT (before non-recurring expenses)	29.9	7.1	34.5
Capital expenditure1	12.1	16.8	15.4
Employees (December 31)	3,786	3,979	4,236

¹ On property, plant and equipment, and intangible assets

The decline in capital expenditure was chiefly due to our strict focus on future needs. Basically, our investment requirements are comparatively low owing to our value added structure. Compared with other companies, our manufacturing input is low and outsourced content is high. The expansion of our position in Asia and Eastern Europe is not all that capital-intensive either. There, the focus is on expenditures for the recruitment, training, and coaching of new employees.

PAINT AND ASSEMBLY SYSTEMS DIVISION

Paint and Assembly Systems improved its order intake in 2006 by 24.1%. At Paint Systems, we received a number of fairly large system orders, for instance from India, China, and Italy. In the United States, we won a sizeable modernization order, but overall demand remained modest. The system orders received secure a good level of employment at the business units Paint Systems, Application Technology, and Environmental and Energy Systems, especially in Germany and Asia. The Factory Assembly Systems business unit faced fierce competition for orders.

With steadily rising sales, operating earnings (EBIT before non-recurring expenses) at Paint and Assembly Systems also improved successively over the year. Earnings performance was mainly driven by strong increases at the Paint Systems business unit. However, the earnings situation at Application Technology and Environmental and Energy Systems also continued to improve. Factory Assembly Systems, on the other hand, suffered marked setbacks as a result of the difficult competitive situation, on top of which there were added burdens from the settlement of old orders in conveyor and final assembly technology. Application Technology was the biggest earnings contributor. Paint Systems made a strong contribution, too. The Environmental and Energy Systems business unit achieved a reasonable return on sales and delivered its best ever result. Factory Assembly Systems, on the other hand, made a loss.

MEASURING AND PROCESS SYSTEMS DIVISION

Measuring and Process Systems increased its order intake in fiscal 2006 by 6.5%. The biggest single order was booked by the Cleaning and Filtration Systems business unit, which received a block order for several cleaning systems from General Motors. In spite of this, Cleaning and Filtration Systems only increased its overall order intake marginally, which illustrates the diffi-

MEASURING AND PROCESS SYSTEMS DIVISION

in € million	2006	2005	2004
New orders	304.2	285.7	301.0
Sales	277.3	310.6	312.0
EBIT (before non-recurring expenses)	9.8	5.1	–1.3
Capital expenditure1	5.4	8.3	6.3
Employees (December 31)	1,821	1,966	1,953

¹ On property, plant and equipment, and intangible assets

SCHENCK TECHNOLOGIE- UND INDUSTRIEPARK GMBH

in € million	2006	2005	2004
External sales	13.7	6.5	4.5
Rental income	9.6	9.7	11.0

cult operating environment in this business. Still, after a weak start, demand picked up steadily in the course of the year. Business at Balancing and Diagnostic Systems continued to revive; new orders were up 17.4%. There was stronger demand especially in the power plant equipment business.

Measuring and Process Systems improved its EBIT before non-recurring expenses compared with the previous year, to which Balancing and Diagnostic Systems as well as Cleaning and Filtration Systems contributed. However, restructuring expenses in the mid-single-digit millions were incurred at Cleaning and Filtration Systems.

SCHENCK TECHNOLOGIE- UND INDUSTRIEPARK GMBH

Schenck Technologie- und Industriepark GmbH is part of the Measuring and Process Systems division. It is based in Darmstadt and provides property services in the areas of facility management, logistics, financial services, and training. The portfolio comprises 105,000 m2 of land and 134,000 m² of rentable space. 53% of the rentable area is office space; the remainder is warehouse space and production buildings. The vacancy rate in 2006 was 13% (2005: 13%).

Schenck Technologie- und Industriepark GmbH's external sales rose in 2006 for structural reasons. We sold a number of companies in 2005 which continue to use the services of Schenck Technologie- und Industriepark GmbH or are tenants of the buildings. A positive earnings contribution was achieved in 2006, with a substantial improvement over 2005.

PERFORMANCE YARDSTICKS: EBIT AND CASH FLOW FROM OPERATING ACTIVITIES

Operating earnings, defined as EBIT (earnings before interest and income taxes), serve as an important benchmark for managing our business units. Aside from EBIT, cash flow from operating activities has central importance for managing both the business units and projects. The targets for 2008 are EBIT of over 5% of sales and cash flow from operating activities of over 4% of sales.

CASH FLOW FROM OPERATING ACTIVITIES

in € million	2006	2005	2004
Earnings before interest and income taxes	35.8	–71.5	29.0
Amortization and depreciation of non-current assets	19.1	54.2	21.3
Income taxes paid	–5.6	–4.6	0.8
Change in provisions	–20.2	–25.1	–21.8
Change in net working capital	8.8	–82.1	–110.8
Other	–47.7	–18.5	–34.0
Total	–9.8	–147.6	–115.5

FINANCIAL DEVELOPMENT

CASH FLOW IMPROVED¹

Cash flow from operating activities improved significantly in fiscal 2006: it was only slightly negative at € –9.8 million as compared with € –147.6 million in 2005. The development in the fourth quarter was particularly notable when we achieved a positive operating cash flow of € 70.0 million, while € –79.8 million was posted for the period January through September.

Key factors for the negative cash flow in the first three quarters were outflows for personnel adjustments and other restructuring measures, amounts used from provisions for projects, and growth in net working capital, which rose to € 223.1 million as of September 30 (December 31, 2005: € 171.5 million). This increase mostly arose in the third quarter and was largely due to the fact that a number of project sign-offs, and thus the final settlement payments, had been postponed to the fourth quarter. The positive cash flow in the fourth quarter was due to much higher sales revenues and cash inflows compared with the preceding quarters.

By the end of the year, net working capital had fallen appreciably to € 154.7 million. This was due, on the one hand, to higher prepayments received on the back of the improved order situation and, on the other, to the completion of the project sign offs which had been delayed. In 2005 and 2004, there had been a sharp decline in prepayments received, and the resulting rise in net working capital was mainly responsible for the negative cash flow from operating activities in those two years.

CASH FLOW FROM INVESTING ACTIVITIES

Cash flow from investing activities was positive to the tune of € 17.3 million (2005: € 283.9 million). This was largely due to an inflow of € 20.0 million not recognized in the income statement which we received in connection with an out-of-court settlement. In 2005, cash flow from investing activities had been influenced by divestments.

¹ Exchange rate effects have been eliminated in the cash flow statement, so the changes in balance sheet items shown there cannot be matched directly with the balance sheet.

BALANCE SHEET STRUCTURE

in %	2006	2005	2004
Non-current assets	43.0	40.8	39.1
Current assets	57.0	59.2	60.9
Total assets	100	100	100
Equity with minority interests	23.6	20.9	15.5
Non-current liabilities	30.9	27.3	23.6
Current liabilities	45.5	51.8	60.9
Total equity and liabilities	100	100	100

CASH FLOW FROM FINANCING ACTIVITIES

Cash flow from financing activities amounted to € –33.8 million (2005: € –76.0 million), due primarily to interest payments of € 23.3 million (2005: € 34.0 million). We repaid € 83.4 million of bank liabilities in 2005.

DEBT REDUCED SUBSTANTIALLY BY YEAR-END

After rising to € 164.4 million at the end of September, net financial debt (excluding finance leases) amounted to € 96.5 million at December 31, 2006. This is an increase of € 11.6 million versus the end of 2005 and is due to the cash outflow in connection with the restructuring measures. Cash and cash equivalents decreased by € 23.2 million compared with December 31, 2005, to € 101.5 million.

Dürr AG's central funding and liquidity management helps to reduce financing costs and to assure sufficient liquidity at all times. Dürr AG raises the overwhelming majority of the debt needed within the Group and distributes this to the companies as required. For the purposes of liquidity management, the Treasury department of Dürr AG organizes a cash pool with the principal Group companies. Surplus cash is taken over from Group companies and made available to other companies. The two core elements of our debt financing are the syndicated loan facility which we arranged in 2004 and the corporate bond we issued in the same year. For detailed information on these two instruments, please see Item 25 in the notes to the consolidated financial statements.

A credit line in the amount of € 100 million was available to us as of December 31, 2006, under the syndicated loan facility; it was not drawn at the end of 2006. We also have several bilateral credit lines in a total amount of € 20.7 million at our disposal. Our guarantee lines have been increased owing to the expansion of our business in Asia and Eastern Europe; they amounted to € 368.3 million at December 31, 2006. Together with cash and cash equivalents, our available credit and guarantee lines will cover our financing needs in 2007, especially as we expect to generate a net cash surplus from operating activities (for more details, please see the Outlook section, page 54).

CURRENT AND NON-CURRENT LIABILITIES

in € million	2006	2005	2004
Financial liabilities	20.5	30.0	112.0
of which current	9.9	17.4	85.3
of which non-current1	10.6	12.6	26.7
Bond	189.8	187.9	186.5
Trade payables	303.6	347.8	492.7
of which prepayments received	126.2	118.7	207.5
Income tax liabilities	25.7	27.8	6.1
Other liabilities	90.8	138.9	117.6
Total	630.4	732.4	914.9

¹ Excluding the bond

The corporate bond is subordinated in relation to the syndicated loan, which explains, among other things, the higher rate of interest compared to a bank loan. The medium and long-term portion of our financial liabilities was 95.3% at December 31, 2006 (December 31, 2005: 92.0%).

BALANCE SHEET: EQUITY RATIO IMPROVED, TIED-UP FUNDS REDUCED

The balance sheet for the continuing operations was leaner compared with the end of 2005, with the balance sheet total falling to € 1,040.1 million at December 31, 2006 (December 31, 2005: € 1,189.1 million). The most important change on the assets side was the reduction in current assets. Aside from the decrease in cash and cash equivalents, this was mainly due to a reduction in trade receivables (€ 408.6 million versus € 479.7 million at December 31, 2005).

Liquidity on the strict acid test measure (cash and cash equivalents to current liabilities) improved slightly to 21.5% from 20.3% at the end of 2005. The broader current ratio (accounts receivable plus cash and cash equivalents to current liabilities) was 107.9% at December 31, 2006 (December 31, 2005: 98.3%).

At € 262.3 million, goodwill was more or less unchanged versus the end of 2005 (€ 267.4 million). The annual impairment test did not give rise to the need for any write-downs of goodwill in the Group, as operating performance at the business units is on target. For details of write-downs on property, plant and equipment, please see page 31. Other intangible assets amounted to € 22.4 million at December 31, 2006 (December 31, 2005: € 20.8 million). They were amortized at the ordinary annual rate; no additional write-downs for impairment were required.

On the equity and liabilities side, trade payables declined to € 303.6 million (December 31, 2005: € 347.8 million) and other liabilities to € 90.8 million (December 31, 2005: € 138.9 million). At € 245.7 million, equity was little changed compared with the end of 2005 (€ 248.1 million). The equity ratio rose to 23.6% at December 31, 2006 (December 31, 2005: 20.9%).

The provisions for pensions amounted to € 60.7 million, which was a decrease of € 7.1 million versus the end of 2005; a main reason for this was the pension freeze in the United States. Current liabilities dropped by 23.1% to € 472.7 million (December 31, 2005: € 614.7 million). This was chiefly due to a decline in trade payables (€ 303.6 million as compared with € 347.8 million on December 31, 2005) and lower other liabilities (€ 77.5 million versus € 138.9 million on December 31, 2005) following the cash outflow for restructuring measures. However, other provisions decreased, too, by € 18.2 million to € 73.5 million. On the one hand, this reflects the lower volume of business and, on the other, we won orders of better quality which require fewer provisions.

Our debt is rated by the two rating agencies Standard & Poor's and Moody's. Details on the ratings can be found in the chapter "Dürr on the capital market" on page 10. Our principal cash obligations in our operating activities are the repayment of financial debt, purchasing obligations and obligations under operating leases. These are listed in Item 31 in the notes to the consolidated financial statements.

With regard to off-balance sheet financing instruments, operating leases are the largest single item, amounting to € 73.3 million (December 31, 2005: € 79.8 million). The volume of off-balance sheet financing stands in reasonable relation to our business volume.

NON-FINANCIAL PERFORMANCE INDICATORS

We implemented a large part of our Group-wide FOCUS program in fiscal 2006. With this program, we are pursuing four goals: to reduce debt, to improve operating profitability, to adjust strategically to the changed pattern of demand in the automobile industry, and to develop new, high-margin areas of activity.

FOCUS is largely oriented to optimizing non-financial performance indicators. Among other things, this means improving business processes, expanding our offering in line with market needs and intensifying customer relationships. Furthermore, through FOCUS, we are creating "Dürr has done an excellent job in building up our facility at ZiIina. We entrusted the construction of both paint shop and final assembly shop to Dürr. Dürr has fully lived up to our confidence and trust. Both projects were completed reliably and on schedule. We are very satisfied indeed with the production performance." ˘

IN-KYU BAE, PRESIDENT & CEO, KIA MOTORS SLOVAKIA

structures which allow our employees to develop their full potential. This is particularly important since our success as an engineering company depends to a very large extent on the skills of our employees.

One important example of optimization is the new, standardized R&D process which we describe on page 40. This helps our employees to do what our customers mainly want from us: to develop manufacturing equipment and systems that increase productivity. In addition, the new R&D process will contribute towards securing our technology leadership in many fields.

Project execution is another non-financial performance indicator which we are optimizing. This is of crucial importance for the profitability of our orders, especially in the plant engineering business. Improvements in project management have therefore been a central element of FOCUS. We have developed an extensive project management manual and new training programs.

We improved our offering and customer proximity in fiscal 2006 with the creation of a new service organization. One example is the number of new, so-called "antennas" set up as service points at our customers' factories.

VALUE DRIVERS

Dürr is mostly engaged in plant engineering business, so our value drivers are the projects we realize for our customers. To improve margins, one emphasis of FOCUS was to refine our project management and project execution. Larger projects are now handled exclusively by the system centers in Stuttgart and Detroit which have the necessary know-how. Project selection has been optimized by placing the focus on margin considerations and risk avoidance. Projects are managed on the basis of profitability and cash flow.

R&D COSTS AND R&D RATIO¹

		2006	2005		2004
in € million	Costs	Ratio	Costs	Ratio	Costs	Ratio
Paint and Assembly Systems	17.6	1.6%	17.5	1.6%	16.2	1.1%
Measuring and Process Systems	3.5	1.3%	3.6	1.2%	4.1	1.3%
Total	21.1	1.6%	21.1	1.5%	20.3	1.2%

¹ R&D costs to sales

RESEARCH AND DEVELOPMENT

Research and development (R&D) costs shown in the income statement for 2006 amounted to € 21.1 million, the same as in 2005. At 1.6%, the R&D ratio was up slightly from 2005 (1.5%). Dürr also incurred expenses for project-related development done to customer orders. These expenses are treated as cost of sales. Additionally, € 4.8 million of development costs were capitalized (2005: € 4.5 million). Detailed information regarding the recognition of development costs can be found under Item 7 of the notes to the consolidated financial statements. External R&D services were purchased only to a small extent.

R&D PROCESS STANDARDIZED GROUP-WIDE

The Innovation Management project under FOCUS has improved and standardized the research and development process across the entire Dürr Group. All R&D projects are now handled according to a uniform system that comprises the following stages: ideas gathering, project selection, project implementation, and product release. Important components of the new R&D process include a uniform R&D reporting system and uniform methods that are applied across the Group such as innovation circles and business cases. This new approach enables us to filter out the right – most promising – R&D projects early on. The new R&D process is also aimed at better coordinating the six business units' innovation management, using resources more efficiently, and making the R&D results generated in the individual centers of expertise available to the entire Group faster. Major R&D projects that involve multiple business units include the DIGITAL FACTORY and SUPERVISORY CONTROL SYSTEMS.

GLOSSARY: page 120

We have also boosted management resources for R&D. The head of R&D, who previously divided his attention between R&D and Environmental and Energy Systems, is now focusing exclusively on R&D. At the end of 2006, our R&D departments employed 101 people – most of them engineers – in applied and experimental R&D work. We also had many other employees working on developing new solutions as part of customer orders. We maintain contact with more than 50 research institutions and universities in Germany and abroad, which gives us rapid access to new knowledge. Our most important cooperation partners from the academic sector are the universities in Darmstadt and Stuttgart, Germany, and various Fraunhofer Institutes. In fiscal 2006, we applied for 44 patents. The Dürr Group currently holds more than 500 patents.

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CUTTING COSTS WITH EFFICIENT ENERGY CONCEPTS

The primary aim of our R&D work in 2006 was once again to develop products and processes that improve quality while reducing costs in automobile manufacturing. In the field of painting technology, our focus was more sharply on lowering energy costs than in previous years. The Green Paint Shop model, which we describe in detail on pages 18 and 19, is a comprehensive concept for reducing energy and materials consumption in automobile painting. In another pioneering project, we developed paint shop equipment that operates on renewable fuel for the BMW Group's plant in Spartanburg, South Carolina. Instead of natural gas, this plant uses methane gas that is extracted cheaply from a nearby landfill.

PAINT- SAVING BELL- BELL PROCESS

In APPLICATION TECHNOLOGY, we have been working on further developing paint-saving processes. One example is the "bell-bell" process, which is already in use in China and Spain. The process completely eliminates the use of air atomizers. Instead, paint is applied exclusively using EcoBell 2 high-speed electrostatic rotating atomizers. The bell-bell process improves transfer efficiency by around 75%, which translates to paint savings and lower emissions from solventbased paints.

NEW TOOL FOR CALCULATING UNIT COSTS IN THE PAINT SHOP

Paint and Assembly Systems developed a software program for calculating the cost per unit (CPU) in production. The heart of the program is a database that processes all central cost factors (capital expenditure for buildings, plant and equipment, materials, energy, personnel, maintenance) and their determinants. Based on these calculations, we can develop customized solutions for each paint shop, taking into account not only initial investment costs, but also total CPU-optimized costs.

NEW RODIP GENERATION UNVEILED

In dip-painting and pretreatment, we made the new generation of our successful RoDip rotational painting system ready for market. RoDip4 is an optimized version of our proven technology, featuring additional layout options as well as new technical features like a single-side drive system and a space-saving CARRIER DESIGN.

INCREASING COMPETITIVENESS WITH THE COST-EFFECTIVE ECOPAINT LEANLINE CONCEPT

RoDip is also an important component of our LeanLine program, which we developed further in 2006. LeanLine stands for an inexpensive plant concept that provides a basic functional setup based on three principles: compact layout, standardized products, and simple processes. Compared to a traditional paint shop, LeanLine entails up to 30% lower investment costs while still meeting the basic qualitative demands of automotive painting. This concept improves our competitiveness considerably because it puts us in a strong position to win contracts that are awarded solely on the basis of cost, not just those that are geared toward high-quality, highend solutions. This is particularly important for our growing business in Asia where demand is often for simpler, lower-priced technology.

X-3DPROFILE – HIGH TECH FOR MEASURING WHEEL GEOMETRY

In the field of final vehicle assembly, we unveiled a completely new process for measuring wheel geometry. x-3Dprofile offers a far larger measurement range than existing measuring processes. For our customers, this means more flexibility when producing different vehicle types. The x-3Dprofile probe uses stereophotogrammetry, in which reference points on the wheel are illuminated by laser lines and images are taken by two cameras. The position and orientation of the wheel are calculated on the basis of these images. Compared to other measuring systems, x-3Dprofile is far less sensitive to ambient light and offers triple the measuring frequency.

NEW UNIVERSAL BALANCING MACHINE – PASIO

In balancing technology, we launched PASIO, a new, compact generation of machines that is inexpensive and can be used universally for balancing rotors weighing up to 50 kilograms. PASIO features a smaller footprint (up to 60% smaller), installs and starts up quickly, and is easy to operate. Our new CAB 920 measuring unit provides precise measurements and is standard equipment on all PASIO machines. Another product development focus was on reducing residual imbalance in turbo-superchargers. With the fully automatic 020 FBLS balancing machine, we have developed a solution that enables im balance tolerances of less than 0.7 micrometers – one-fifth the tolerances that could be achieved previously.

43 PURCHASING

CLEANING AND FILTR ATION SYSTEMS

UNVEILS FIRST MACHINE IN ITS NEW PRODUCT LINE

Cleaning and Filtration Systems pushed ahead with the development of its new, standardized product line for industrial cleaning. And the first machine to hit the market was the EcoCBelt belt cleaning system, whose outstanding cost-benefit ratio also makes it appeal to customers in the mid-range price segment. A modular design makes it possible to tailor the system to each customer's individual needs and, depending on the configuration, the system can be delivered in as little as eight weeks. Customers can configure the system themselves online at www.beltwasher.de.

Cleaning and Filtration Systems also developed Ecoclean MAS 491, the world's first automatic inline magnetic separator that can be incorporated directly into the cleaning or filtration systems of different manufacturers rather than being tacked on downstream. The MAS 491 removes ferriferous filings from liquid cleaning media. It is the first system of its kind to use magnetic plates mounted on the outside of the pipes through which the cleaning liquid flows to "hold" the filings back firmly on the inside of the pipes. When it is time to remove the filings from the pipe, the fluid flow is interrupted and the magnetic plates are swung away from the pipe, so that the filings fall into a disposal chute. Compared to conventional systems, which require manual operations, the MAS 491 is not only faster and more reliable, but also requires less maintenance. The MAS 491 can be retrofitted to existing cleaning installations, significantly increasing BATH LIFE and reducing the costs associated with downstream filters.

GLOSSARY: page 120

PURCHASING

In fiscal 2006, our purchasing volume represented roughly two-thirds of Group sales. The world market prices of the raw materials we use, primarily steel, aluminized sheet and copper, saw further rises. Energy and logistics costs increased, too. As a result of these effects, it was not possible for us to hold the price level in material-intensive product areas, such as stainless steel sheet fabrication. However, thanks to our expanded sourcing activities in Asia, mainly in China, India, and South Korea, we were able to moderate the increases to some extent. We also benefited from framework agreements concluded with first-line suppliers.

EMPLOYEES BY DIVISION (DECEMBER 31)

	2006	2005	2004	2006
Paint and Assembly Systems	3,786	3,979	4,236
Measuring and Process Systems	1,821	1,966	1,953	0.8%
Corporate Center	43	47	51	32.2% 67.0%
Total	5,650	5,992	6,240

We expanded our procurement volumes in Asia and, parallel to this, also further increased our staffing levels in supplier management and quality assurance. The expansion of our own production in China also helped us to meet cost targets, delivery deadlines, and quality standards reliably. Last year, we made production at our site in Mexico more flexible and started supplying system components for the South and North American markets.

Our purchasing organization was linked up to the Group-wide sourcing information system (SIS) database. This makes all purchasing data available worldwide. Selective use of e-commerce and competitive bidding platforms on the internet speeds up our purchasing processes. However, face-to-face contacts are important in the ordering process, especially in Asia. In this way, we are also seeking to build more long-term supply relationships with partners. To strengthen our competitiveness in Asia, we are relying on our own expanded production capacities in the region, on the one hand, while increasing our local sourcing of components, on the other. This reduces the level of imported purchased parts and the related logistics costs.

EMPLOYEES

CAPACITIES ADJUSTED TO CHANGED DEMAND

As part of the Group-wide FOCUS program, the workforce was reduced to 5,650 in 2006 as planned; at December 31, 2006, there were 342, or 5.7%, fewer employees in the Dürr Group than at the end of 2005. A total of 811 jobs have been cut in connection with FOCUS; 479 of which were in 2006. The regional focus of the adjustments was on the mature markets of Western Europe and the United States, while the number of employees in the growth markets of Asia was increased by 21% to 601 (December 31, 2005: 495).

HUMAN RESOURCES REORGANIZED

The Human Resources organization was restructured effective November 1, 2006. A centralized management structure with overarching, function-based responsibilities and standardized processes has been put in place to allow closer coordination with the decentralized Human Resources departments at our locations. The new structure helps to avoid duplication of work, makes for greater transparency and efficiency, and improves the level of service for our employees. We are intensifying our efforts in personnel development with the creation of a new organizational unit devoted specially to this area.

44 EMPLOYEES 45 RISKS

EMPLOYEES BY REGION (DECEMBER 31)

2006	2005	2004
2,995	3,205	3,311
1,145	1,303	1,332
801	886	1,036
78	83	84
631	515	477
5,650	5,992	6,240

The global remuneration scheme for managers linking each manager's compensation more closely to the respective division's overall results introduced at the beginning of 2006 has proved successful. We therefore plan to widen the circle of managers covered by the scheme. We concluded the new collectively bargained pay agreement (ERA) in Germany and introduced this at the beginning of 2007. The cooperation with the employee representatives was extremely constructive.

NEW TR AINING PROGR AMS

With FOCUS, we have laid the foundations for improving our internal processes. This includes the provision of selective and continuous training measures for our employees. This furthers the accumulation of know-how within the company and strengthens our competitive position. Special project management training courses have been created to develop professional, intercultural, personal, and social skills. We also organize seminars on job-related issues. Management training will be a focus of our personnel development activities in 2007.

ATTRACTING AND DEVELOPING YOUNG TALENT

As a technology company, Dürr relies on highly qualified employees with innovative ideas. We therefore regard attracting and developing new talent as a central task and have intensified our activities in the area of university marketing. We make a special point of addressing graduates at trade fairs. We have also set up a new international trainee program in which we prepare young people for management positions at Dürr. Further, we offer a great many internships at our locations in Germany and abroad, support degree candidates, and sponsor scholarships for commercial and technical professions in cooperation with various vocational training academies. Last year, we offered employment to all 49 students at vocational training academies after graduating. There were 128 technical and commercial apprentices training at Dürr at December 31, 2006 (December 31, 2005: 155).

RISKS

To achieve the financial targets formulated in our corporate planning, we have to ensure in a systematic way that the company is protected against unforeseen risks. We do this through a risk management process which consists of four steps: identification, assessment, control, and monitoring. For each of these steps, we have developed appropriate tools which cover

both our core processes (planning, engineering, and order execution) as well as the respective support processes. These tools include a risk management manual, a risk map with Dürrspecific risk areas, and risk structure sheets for documenting risk type, possible extent of loss, probability of occurrence, and countermeasures. The controlling systems at Group, division, and business unit level also play a central role. In addition to the institutionalized risk reporting process, the Board of Management is kept abreast of unexpected risks by way of flash reports. The heads of the business units also brief the Board of Management regularly on the respective risk situation. Dürr AG's risk management system is also examined by the external auditors when they audit the annual financial statements. The Corporate Management Systems Assurance department monitors compliance at the Group companies. 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.

Thanks to the improvement in earnings and cash flow, our financial risks have diminished by comparison with 2005. Otherwise, we were mainly exposed to the same risks as in the previous year.

ECONOMIC RISKS

Judged from today's vantage point, it appears unlikely that the development of the capital markets and interest rates will have a strong adverse impact on the world economy. No incisive changes in the political, legal, and tax framework are foreseeable either. The balanced regional distribution of our business reduces our risk since it makes us less dependent on economic developments in individual countries.

INDUSTRY RISKS

We systematically analyze the production and sales figures, and capital spending patterns in the automobile industry. In geographical terms, the focus of investment activity among customers has shifted towards Asia and Eastern Europe in the past years. We have adjusted to this development by reducing our workforce in North America and Western Europe and by continuing to build up our capacities in the emerging markets.

Our business with the automotive industry is subject to continued price pressures. We are counteracting this with the cost reductions and process improvements which we have achieved, and will achieve in the future, with FOCUS. The process improvements will help con-

"The partnership between AUDI and Dürr has proven itself in Ingolstadt for years. We recently worked together during the plant vacation to automate our painting line for colored trim parts, a conversion project with an extremely demanding schedule. Dürr's reliability, ability to meet deadlines, and expertise have once again convinced us. The AUDI-Dürr team did excellent work. All systems were 'go' right on time."

ALFONS DINTNER, AUDI AG PAINT SHOP HE AD, INGOLSTADT

siderably to reduce the risks in order execution and improve the earnings quality of our orders. Additionally, we are adjusting to different demand situations by pursuing a dual-track product policy: for customers whose main focus is on low-cost equipment with minimum functionalities, we offer our technologically simpler LeanLine product spectrum (please see page 42 for more details), while at the same time we are able to supply high-end technology for customers with premium demands. Essentially, we are seeking to match the customers' concern with short-term capital costs with the medium and long-term overall cost benefits of a higher quality plant. Consequently, the focus of our R&D efforts is on new developments which offer measurable value added and a fast return on investment.

Our customers include nearly all automobile manufacturers and numerous parts suppliers. 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 2006, we generated 46% of our sales revenues with our five biggest customers. However, as customers' investment cycles vary, the composition of the group of top five customers changes each year.

In order to avoid the risk of possible payment defaults, we seek to keep our orders cash-positive at all times, in other words to receive prepayments from customers which at least cover the costs we have incurred for a project up to a given time.

COMPETITOR RISKS

Our business units are faced with different competitive situations. In some cases, as in our paint systems business, we compete with just a few other companies. In others, as in environmental and final assembly systems, we operate in fragmented markets. We have adapted our risk management in the individual business units to the respective competitive situations. In the Factory Assembly Systems business unit, for instance, we will be focusing increasingly in the future on technologically sophisticated solutions with unique selling points and high technological market entry barriers in order to set ourselves apart from the competition.

ORDER EXECUTION RISKS

Large projects are especially prone to risks when deadlines and agreements are not met. To avert these risks, we use risk and opportunity checklists; our key project management process is also being continuously optimized. This includes systematic training for our project managers, which we have further intensified (for more information, please see page 45).

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The new division of labor introduced with FOCUS at Paint and Assembly Systems, under which large-scale projects are managed exclusively by the big system centers in Detroit and Stuttgart, also reduces project execution risks. Finally, the progress of complex projects is tracked closely by the Board of Management, by the heads of the business units, and the managements of the Dürr companies involved in the projects.

PROCUREMENT RISKS

Rises in raw material prices, especially steel prices, can present risks for us. We seek to avoid such risks in our sourcing through instruments such as international framework agreements and by bundling procurement volumes between countries. 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 which will remain firm for the entire duration of the project.

CURRENCY AND INTEREST RATE RISKS

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

For us, the risks associated with changes in exchange rates arise primarily when we convert business figures into euros (translation risk). The currency risk from product exports (transaction risk) is relatively low since we export comparatively little and source the bulk of the goods required for executing projects in local currency or manufacture them locally. We use forward exchange contracts to protect ourselves against remaining currency risks. However, there is still the risk that exchange rate movements could place European suppliers at a still greater disadvantage compared with our Japanese competitors. The US dollar, euro, and yen exchange rates already create benefits for companies outside the euro area.

We conduct regular interest rate analyses and use interest rate swaps to counter interest rate risks. Monitoring and evaluating all financial derivatives and related underlyings is an integral part of our risk management system. We enter into derivatives contracts only with banks that have a strong credit standing. All interest rate swaps are transacted through German banks. Further information on our hedging activities can be found under Item 33 in the notes to the consolidated financial statements.

45 RISKS

IT RISKS

We constantly monitor our information technologies and conduct regular updates to ensure that our IT-assisted processes operate reliably. Special emphasis is placed on protecting mission-critical applications.

PERSONNEL RISKS

To maintain our technology and market leadership, it is crucial that we attract highly qualified specialists and management personnel to Dürr. Shortages could arise owing to the comparatively low numbers of technical and science graduates in Germany. We are countering this through proactive university marketing. We are seeking to keep high-potential talent with the company by offering selective development and career planning.

LEGAL RISKS

There are no significant legal risks at present.

LIQUIDITY AND FINANCING RISKS

There are no exceptional liquidity or debt risks. Information on the funds at our disposal can be found on page 36 and under Item 25 in the notes to the consolidated financial statements.

The terms of our syndicated loan require us to adhere to certain balance sheet and earnings ratios (covenants). Owing to the restructuring in connection with the FOCUS program, these ratios were replaced by absolute figures in the first three quarters of 2006. From the fourth quarter of 2006, the calculation has been based on ratios again. We complied with the covenants at December 31, 2006. The covenants are based on a rolling twelve-month review. From today's perspective, we see no risk of failing to comply with the covenants in the next twelve months on the basis of our planning. Our corporate bond imposes certain limitations and obligations upon the company. Failure to adhere to these could result in the bond plus accrued interest being called due.

OTHER RISKS

At present, we see no technological developments and processes among our competitors which could materially impair our expected future development. Within the framework of our R&D process, we continuously evaluate new technical developments and trends in our markets.

"Dürr has long been a partner of Renault and is now becoming a partner of Nissan through the Renault-Nissan Purchasing Organization."

MICHEL TREMET, PURCHASING ORGANIZATION, RENAULT-NISSAN, GUYANCOURT

SUMMARY

No risks are discernible at present or in the foreseeable future that could threaten the continued existence of the Dürr Group as a going concern. For the most part, the risks to which we are exposed relate to the demand behavior of our customers and possible problems in order execution. We are responding to the demand risk by following the automotive industry into the emerging markets of Asia and Eastern Europe and gearing our offering to market needs, especially in terms of capital cost and operating costs. We are making order execution more reliable, for instance through optimized project management and by a better division of labor among the Group companies.

EVENTS SUBSEQUENT TO THE REPORTING DATE

CHANGE IN THE BOARD OF MANAGEMENT

On March 5, 2007, the Personnel Committee of the Supervisory Board of Dürr AG proposed to the Supervisory Board that Ralph Heuwing be appointed as a full member of the Board of Management with effect as of May 14, 2007, to take over the responsibilities of Martin Hollenhorst as Chief Financial Officer. Martin Hollenhorst had previously given notice that he did not wish to renew his contract of employment which expires in April 2008. The Personnel Committee of the Supervisory Board therefore proposed that his contract of employment be dissolved prematurely by mutual agreement. The Supervisory Board plans to appoint Ralph Heuwing at its meeting on March 28, 2007.

READMISSION TO THE SDAX

The Dürr AG share was included in the SDAX again with effect from January 29, 2007. The SDAX is the Deutsche Börse index covering the 50 largest German small caps.

NEW COMPANIES IN TURKEY AND RUSSIA

Dürr Systems Limited ˛Sirketi in Istanbul was established effective January 31, 2007. We are currently setting up another company in Russia under the name OOO Dürr Systems RUS. With these two new companies, we are aiming to expand our market position in Turkey and Russia.

These events which took place subsequent to the reporting date have no significant implications for the results of operations, financial position, and assets and liabilities of the Group.

OUTLOOK

GLOBAL ECONOMY: GROW TH EXPECTED TO CONTINUE – ALBEIT WITH SLOWING DYNAMIC

GDP GROWTH

in %	20071	20081
World	4.6	4.7
EU 25	2.4	2.4
USA	2.3	2.8
China	9.8	9.7
Japan	2.3	2.1

Source: European Commission ¹ Forecast (change year on year in %) The momentum of the world economy is likely to slacken off a little, with growth of around 4.6% forecast for 2007. The main stimulus will continue to come from Asia, especially China and India. However, Eastern Europe and Latin America should also see above-average growth. In the United States, rising short-term interest rates and more moderate consumer spending point to weaker growth. GDP growth of 2.4% is expected for the European Union (EU 25). In Germany, tax hikes and other burdens are likely to dampen the economy, at least in the first half of the year.

Marked risks for the world economy could emerge in the event of more pronounced exchange rate distortions in the course of the year. If the US property market cools off more strongly than expected, this could adversely impact consumer behavior in the United States.

AUTOMOTIVE INDUSTRY: STRONGER DEMAND EXPECTED FOR MODERNIZATION AND SERVICES BUSINESS

We anticipate that global production of light vehicles (passenger cars and light commercial vehicles) will increase by around 3% in 2007, after higher-than-expected growth of 3.8% in 2006. Growth should also be in the region of 3% in 2008 and subsequent years. The strongest rates of growth are expected in China, India, and Eastern Europe. Production in Western Europe and North America is likely to rise only slightly.

We estimate the automotive industry's demand as follows: new plants will continue to be built primarily in Asia and Eastern Europe. Our customers will invest more than hitherto in revamping production facilities in order to increase the productivity and flexibility of existing plants. This applies especially to Western Europe and North America.

OPPORTUNITIES

The biggest factors driving investment in new production systems will be shorter model cycles, growing model diversity, and high cost pressures in the automotive industry. In view of the high energy prices and the concern over CO2 emissions, another focus will be on capital investment to reduce energy consumption and emissions. Demand for services is also rising

since our customers want to lower production costs and their own input and need fast, on-site technical support for their production systems. We are well positioned in the services and spare parts business: worldwide, some 60% of all paint shops and about 50% of final assembly lines in the automotive industry are equipped with our products.

To cut costs, automobile manufacturers are outsourcing parts of their production to their suppliers. By 2015, the supplier industry's share of value added in the automotive industry is expected to rise to 77%, as compared with 65% in 2002. This presents opportunities for us, as suppliers will need to invest in appropriate production technology. All in all, we assume that capital investment by automobile manufacturers and their suppliers will rise on a similar scale as production in the automotive industry. Studies show that capital expenditure per vehicle produced has increased slightly over the long term.

After the restrained level of capital spending in production plants by the three big US automakers (General Motors, Ford, Chrysler) of late, it remains to be seen when the investment logjam will start to unwind. Experts expect the North American automobile market to grow slightly over the longer term; a light vehicle production of nearly 17 million units is forecast for 2012. Foreign automobile manufacturers will expand their production capacities in North America in order to avoid currency risks and trade restrictions. Now that we have adjusted our US capacities in response to the weak demand in 2006, positive surprises are possible if the investment restraint in North America lifts.

RESEARCH AND DEVELOPMENT

We plan to continuously increase our R&D spending in 2007 and 2008. In Paint Systems, we are working on a paint-curing system for volume production which will allow the freshly applied paint to be hardened using a plasma process. This provides benefits such as higher scratch resistance, more uniform paint curing, and lower costs. In APPLICATION TECHNOLOGY, we will be launching a new direct charging system for water-based paints called EcoCharge D; at the Factory Assembly Systems business unit, we will be working to extend the range of applications for our new x-3Dprofile measuring system. In balancing systems, we plan a solution which will enable our customers to feed statistical plant evaluations directly into their ERP SYSTEMS. The Cleaning and Filtration Systems business unit will continue expanding its new generation of standard products for cleaning systems.

51 OUTLOOK

PURCHASING

We expect more moderate increases in raw material prices in 2007 as economic growth slows. However, prices could pick up more strongly again in 2008. We intend to expand our sourcing in new markets so as to leverage benefits in procurement and logistics costs. In addition, we will continue to push ahead with product standardization and the bundling of orders.

EMPLOYEES

The number of employees will not change much in 2007. From today's perspective, we expect to have around 5,650 employees at the end of 2007. We expect the overall number of employees to remain stable in 2008, too.

NEW ORDERS, SALES, AND EARNINGS

Overall, our view of the business environment is positive. Given the existing production capacities in the automotive industry, we expect demand for the construction of new plants to be steady but confined to specific regions. New orders in the modernization and services business should continue to rise in 2007. Judged from today's vantage point, order intake for the Group as a whole should match the high 2006 level. This is supported by the full project pipeline at the end of 2006.

Consolidated sales should see significant growth in fiscal 2007 owing to the high order backlog at the end of 2006. For fiscal 2008, we expect a slight rise in new orders and sales at the Group level.

In 2007, we will be pressing ahead resolutely with the efforts already initiated to enhance earnings. A central task will be the transformation of FOCUS into a continuous improvement process, with emphasis on optimizing internal processes and standardizing our global IT systems. We do not intend to change our strategic focus and want to grow under our own steam. We expect a significant earnings improvement in 2007, driven by higher sales, an improved gross margin thanks to the successes with FOCUS, and more or less unchanged administrative and selling expenses.

Our net interest position will not improve in 2007 as it had benefited from extraordinary income in 2006. Interest expenses for servicing the bond and interest-related expenses such as the accrued discount from the bond will remain unchanged.

The Cleaning and Filtration Systems and Factory Assembly Systems business units, which were loss-making in 2006, and the US business present earnings improvement potential for 2007 in the low double-digit millions.

Overall, we expect net income to be much higher in 2007 than in 2006. This should allow a dividend to be paid to shareholders. From today's perspective, we expect further earnings improvements in 2008, which should be reflected in the level of dividend paid. Our target margins for 2008 are 4% for earnings before income taxes and 8% at the EBITDA level.

DIVISIONS

The Paint and Assembly Systems division expects appreciably higher sales in 2007. New orders will probably be at the same level as in 2006. The Factory Assembly Systems business unit, which reported a loss in 2006, should achieve the turnaround in 2007 as a result of the improvements initiated and rising business volumes. The settlement of still relatively poormargin orders at the Paint Systems business unit will likely stand in the way of a more pronounced earnings rise in 2007. The following year should see the settlement of higher-margin orders.

The Measuring and Process Systems division, which benefited from a large-scale order from GM in 2006, should match the previous year's order intake in 2007. We expect an increase in sales. Earnings should improve in 2007 and 2008, to which the Cleaning and Filtration Systems business unit, which has improved its competitiveness through restructuring and offering a number of new products, should contribute. Balancing and Diagnostic Systems should be able to achieve further margin improvements.

CASH FLOW

We expect a positive cash flow from operating activities in 2007. We expect net working capital to decline slightly despite rising sales and will continue to keep a close focus on improving net working capital management. We also expect free cash flow to be positive, so net financial debt should be reduced and liquidity improved.

"Chery has been working closely with Dürr since 2002. Our fast growing was inseparable with Dürr's contribution. Dürr's high efficiency and low-energy-consumption paint shop system improves the quality of our autos, reduces the unit cost of our products, and makes Chery cars more competitive. Based on our good cooperation and our confidence in the quality of Dürr's products, we cooperated again and signed a new contract worth € 100 million on April 7, 2006. Hopefully Chery can enjoy continued success in the future with Dürr's highquality products. Thank you!"

ZHOU BIREN, E XECUTIVE VICE PRESIDENT, CHERY AUTOMOBILE CO., LTD., WUHU

CAPITAL EXPENDITURE

GLOSSARY: page 120

We plan above-average investments in property, plant and equipment, and intangible assets in 2007. This is due to expenditures on standardizing our IT systems to improve our internal processes. The most important measure is the Group-wide introduction of a standard ERP (ENTERPRISE RESOURCE PLANNING) system. Capital expenditure is expected to total around € 25 million in 2007. In the following years, it is expected to decline again to the region of € 15 to 20 million, with most of the expenditure being on replacements. Basically, capital expenditure within the Group is comparatively low since our main focus is on the less capital-intensive engineering business with limited own manufacturing input.

NET FINANCIAL DEBT AND EQUITY

We expect a reduction in net financial debt in 2007. We believe that we will be able to run off debt from surplus operating cash flow. Equity is expected to rise; the equity ratio should approach our target of around 30%.

SUMMARY

We expect a significant earnings improvement in 2007, which should allow a reasonable dividend to be paid to our shareholders. We assume that the positive earnings trend will continue in 2008.

Stuttgart, March 19, 2007

Dürr Aktiengesellschaft

The Board of Management

CONSOLIDATED FINANCIAL STATEMENTS FOR THE 2006 REPORTING PERIOD

• 57 Independent auditor's report
• 58 Consolidated income statement
• 59 Consolidated balance sheet
• 60 Consolidated statement of changes in shareholders' equity
• 60 Statement of recognized income and expense in the consolidated fi nancial statements
• 61 Consolidated cash fl ow statement
• 62 Notes to the consolidated fi nancial statements

INDEPENDENT AUDITOR'S REPORT

We have issued the following opinion on the consolidated fi nancial statements and group management report:

"We have audited the consolidated fi nancial statements prepared by the Dürr Aktiengesellschaft, Stuttgart, comprising the balance sheet, the income statement, notes to the consolidated fi nancial statements, cash fl ow statement, statement of recognized income and expense and statement of changes in equity, together with the group management report for the fi scal year from January 1, 2006 to December 31, 2006. The preparation of the consolidated fi nancial 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 fi nancial statements and on the group management report based on our audit.

We conducted our audit of the consolidated fi nancial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of fi nancial 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, fi nancial position and results of operations in the consolidated fi nancial statements in accordance with the applicable fi nancial 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 accountingrelated internal control system and the evidence supporting the disclosures in the consolidated fi nancial 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 fi nancial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and signifi cant estimates made by management, as well as evaluating the overall presentation of the consolidated fi nancial 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 fi ndings of our audit, the consolidated fi nancial 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, fi nancial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated fi nancial 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 19, 2007

Ernst & Young AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

ELKART

WIRTSCHAFTSPRÜFER (GERMAN PUBLIC AUDITOR)

BAIERL WIRTSCHAFTSPRÜFER (GERMAN PUBLIC AUDITOR)

CONSOLIDATED INCOME STATEMENT

OF DÜRR AKTIENGESELLSCHAFT, STUTTGART, FOR FISCAL YEAR 2006

in € k	Note	2006	2005
Sales revenues	(8)	1,361,190	1,400,602
Cost of sales		– 1,141,035	– 1,180,407
Gross profi t on sales		220,155	220,195
Selling expenses		– 94,668	– 97,635
General and administrative expenses		– 83,117	– 92,761
Research and development costs		– 21,148	– 21,055
Other operating income and expenses	(11)	17,838	– 5,260
		39,060	3,484
Restructuring expenses/onerous contracts	(12)	– 5,430	– 45,903
Impairment losses less insurance claim	(12)	– 511	– 27,874
Earnings before investment income, interest and similar income, interest and
similar expenses, and income taxes		33,119	– 70,293
Result of associates	(13)	2,694	– 1,159
Other investment income		7	–
Interest and similar income		6,655	2,189
Interest and similar expenses	(14)	– 27,640	– 37,357
Earnings before taxes of continuing operations		14,835	– 106,620
Income taxes	(15)	– 6,634	2,073
Earnings from continuing operations		8,201	– 104,547
Earnings from discontinued operations		– 730	108,855
Net income of the Dürr Group		7,471	4,308
Profi t/loss share of minority interests
Continuing operations		414	3
Discontinued operations		3	– 40
Dürr Group		417	– 37
Profi t/loss share of shareholders of Dürr Aktiengesellschaft
Continuing operations		7,787	– 104,550
Discontinued operations		– 733	108,895
Dürr Group		7,054	4,345
Earnings per share in € (basic and diluted)	(7)
Continuing operations		0.50	– 7.26
Discontinued operations		– 0.05	7.56
Dürr Group		0.45	0.30

58

59 BALANCE SHEET

CONSOLIDATED BALANCE SHEET

OF DÜRR AKTIENGESELLSCHAFT, STUTTGART, AS OF DECEMBER 31, 2006

in € k Note	2006	2005
ASSETS
Goodwill (16, 36)	262,296	267,377
Other intangible assets (16, 36)	22,367	20,777
Property, plant and equipment (16, 36)	106,539	121,671
Investment property (16)	13,269	13,068
Investments in associates (17, 37)	12,981	12,892
Other fi nancial assets (36)	5,221	4,950
Trade receivables (19)	1,701	–
Income tax receivables (15)	319	–
Other receivables and other assets (20)	2,727	–
Deferred taxes (15)	19,151	43,170
Prepaid expenses	573	960
Non-current assets	447,144	484,865
Inventories and prepayments (18)	50,664	43,716
Trade receivables (19)	408,646	479,705
Income tax receivables	7,370	6,158
Other receivables and other assets (20)	21,707	43,171
Cash and cash equivalents	101,482	124,658
Prepaid expenses	1,924	3,010
	591,793	700,418
Assets of a disposal group classifi ed as held for sale (6)	1,129	3,832
Current assets	592,922	704,250
Total assets Dürr Group	1,040,066	1,189,115
EQUITY AND LIABILITIES
Subscribed capital (21)	40,264	40,264
Capital reserve (21)	160,459	160,459
Revenue reserves (21)	73,021	65,967
Other comprehensive income (21)	– 29,257	– 20,140
Amounts recorded directly in equity from assets
of a disposal group classifi ed as held for sale	– 495	–
Equity without minority interests	243,992	246,550
Minority interests (22)	1,708	1,517
Equity with minority interests	245,700	248,067
Provisions for pension obligations (23)	60,739	67,818
Other provisions (24)	7,319	9,753
Bond (25)	189,840	187,901
Other fi nancial liabilities (25)	10,639	12,602
Income tax liabilities (26)	12,585	443
Other liabilities (26)	13,343	–
Deferred taxes (15)	25,725	44,408
Deferred income	1,485	1,632
Non-current liabilities	321,675	324,557
Other provisions (24)	66,197	81,979
Trade payables (26)	303,575	347,833
Financial liabilities (25)	9,869	17,410
Income tax liabilities (26)	13,070	27,332
Other liabilities (26)	77,460	138,896
Deferred income	2,520	1,241
	472,691	614,691
Liabilities directly connected to assets classifi ed as held for sale (6)	–	1,800
Current liabilities	472,691	616,491
Total equity and liabilities Dürr Group	1,040,066	1,189,115

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Accumulated other comprehensive income

OF DÜRR AKTIENGESELLSCHAFT, STUTTGART, FOR FISCAL YEAR 2006

	Sub scribed capi tal	Capital reserve	Revenue reserves	Unre alized gains/ losses from cash fl ow hedges	Unrea - lized gains/ losses from available for-sale securities	Unre alized actuarial gains/ losses	Currency translation	Accu mulated other compre hensive income	Amounts resulting from assets held for sale	Equity without minority interests	Minority interests	Equity with minority interests
in € k	(21)	(21)	(21)	(21)	(21)	(21)	(21)	(21)	(21)		(22)
January 1, 2005	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
Accumulated other comprehensive income	–	–	–	1,099	–	– 12,794	11,225	– 470	–	– 470	45	– 425
Profi t/loss from continuing operations	–		– – 104,550	–	–	–	–	–	–	– 104,550	3	– 104,547
Profi t/loss from discontinued operations	–	–	108,895	–	–	–	–	–	–	108,895	– 40	108,855
December 31, 2005	40,264	160,459	65,967	– 710	–	– 14,299	– 5,131	– 20,140	–	246,550	1,517	248,067
Other changes	–	–	–	–	–	–	–	–	–	–	– 231	– 231
Accumulated other comprehensive income	–	–	–	318	– 9	1,503	– 10,929	– 9,117	– 495	– 9,612	5	– 9,607
Profi t/loss from continuing operations	–	–	7,787	–	–	–	–	–	–	7,787	414	8,201
Profi t/loss from discontinued operations	–	–	– 733	–	–	–	–	–	–	– 733	3	– 730
December 31, 2006	40,264	160,459	73,021	– 392	– 9	– 12,796	– 16,060	– 29,257	– 495	243,992	1,708	245,700

STATEMENT OF RECOGNIZED INCOME AND EXPENSE IN THE CONSOLIDATED FINANCIAL STATEMENTS

OF DÜRR AKTIENGESELLSCHAFT, STUTTGART, FOR FISCAL YEAR 2006

in € k	2006	2005
Changes in fair value of fi nancial instruments used for hedging purposes recorded in equity	525	1,776
Changes in fair value of available-for-sale securities recorded in equity	– 9	–
Adjustment item for currency translation of foreign subsidiaries	– 10,924	11,270
Amounts recorded directly in equity from assets of a disposal group classifi ed as held for sale	– 495	–
Actuarial gains/losses from defi ned benefi t obligations and similar obligations	3,035	– 17,596
Deferred taxes on revaluations recognized directly in equity	– 1,739	4,125
Revaluations recognized directly in equity	– 9,607	– 425
of which attributable to minority interests	5	45
Profi t after tax	7,471	4,308
of which attributable to minority interests	417	– 37
Total profi t for the period and revaluations recognized directly in equity in the period	– 2,136	3,883
of which attributable to minority interests	422	8

CONSOLIDATED CASH FLOW STATEMENT

OF DÜRR AKTIENGESELLSCHAFT, STUTTGART, FOR FISCAL YEAR 2006

in € k	2006	2005
Earnings before interest and taxes	35,820	– 71,452
Income taxes paid	– 5,621	– 4,553
Result of associates	– 2,694	– 1,585
Dividends from associates	810	741
Amortization and depreciation of non-current assets	19,073	54,181
Net gain on the disposal of non-current assets	– 2,798	– 1,658
Non-cash expenses and income	– 112	38
Changes in operating assets and liabilities
Inventories	– 8,783	206
Trade receivables	54,067	50,589
Other receivables and other assets	1,661	– 23,326
Provisions	– 20,217	– 25,099
Trade payables	– 36,504	– 132,907
Other liabilities (other than bank)	– 48,867	8,243
Other assets and liabilities	4,333	– 979
Cash fl ow from operating activities of continuing operations	– 9,832	– 147,561
Cash fl ow from operating activities of discontinued operations	1,383	34,365
Cash fl ow from operating activities	– 8,449	– 113,196
Purchase of intangible assets	– 9,178	– 7,212
Purchase of property, plant and equipment	– 8,831	– 18,492
Purchase of other fi nancial assets	– 1,644	– 220
Cash received from out-of-court agreement	20,000	–
Acquisitions, net of cash acquired	–	– 925
Proceeds from the sale of non-current assets	10,660	11,907
Disposal of discontinued operations, net of cash disposed of	1,745	297,599
Interest received	4,579	1,268
Cash fl ow from investing activities of continuing operations	17,331	283,925
Cash fl ow from investing activities of discontinued operations	– 3	– 3,502
Cash fl ow from investing activities	17,328	280,423
Change in current bank liabilities	– 10,764	– 83,442
Repayment of long-term borrowings	–	– 847
Payment of fi nance lease liabilities	– 908	– 920
Change in fi nancial liabilities to associates	– 33	– 15
Internal fi nancing	1,227	21,450
Increase in subscribed capital	–	3,661
Additions to capital reserve	–	18,144
Interest paid	– 23,308	– 34,027
Cash fl ow from fi nancing activities of continuing operations	– 33,786	– 75,996
Cash fl ow from fi nancing activities of discontinued operations	– 1,245	– 20,328
Cash fl ow from fi nancing activities	– 35,031	– 96,324
Effects of exchange rate changes	2,777	2,483
Change in cash and cash equivalents	– 23,375	73,386
Cash and cash equivalents
At the beginning of the period	124,857	51,471
At the end of the period	101,482	124,857
Of continuing operations	101,482	124,658
Of discontinued operations	–	199
Dürr Group	101,482	124,857

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR 2006

BASIS OF PRESENTATION

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Dürr Aktiengesellschaft ("Dürr AG" or the "Company") is headquartered at Otto-Dürr-Strasse 8 in 70435 Stuttgart, Germany. Dürr AG and its subsidiaries ("Dürr" or the "Group") are a worldwide leading supplier of plants, systems, and services for automotive production. The product portfolio covers all the main production and assembly stages of a vehicle. As a system supplier, Dürr designs and constructs paint shops and fi nal assembly plants. Dürr also supplies cleaning systems, fi ltration systems, and balancing machines for the manufacture of engines, transmissions, and vehicle components. Dürr's main customers include automobile manufacturers and automotive suppliers around the world.

The consolidated fi nancial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU as of the balance sheet date, and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB ["Handelsgesetzbuch": German Commercial Code]. The consolidated fi nancial 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 policies applied in the prior year. In addition, the Group has applied the new and/or revised standards that are binding for the fi scal year beginning on January 1, 2006.

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

International Accounting Standard (IAS) 21 "The Effects of Changes in Foreign Exchange Rates": The Group has applied IAS 21 (revised) since January 1, 2006. As a result, all currency differences resulting from monetary items which are part of a net investment of the reporting entity in a foreign operation are recorded in a separate equity item, regardless of the currency of the monetary item. An entity which has such a monetary item in the form of a receivable from or liability to a foreign operation can be any Group subsidiary. The adoption of the revised IAS 21 did not have any effect on the consolidated fi nancial statements as of December 31, 2006.

IAS 39 "Financial Instruments: Recognition and Measurement": There were three amendments to IAS 39 issued in 2005 that became effective for reporting periods beginning on or after January 1, 2006. The changes relate to fi nancial guarantees (after the revision of IAS 39 and IFRS 4 "Insurance Contracts", fi nancial guarantees now fall solely within the scope of IAS 39), the hedging of cash fl ows in anticipated intercompany transactions, and the use of fair value option. The changes of the revised IAS 39 did not have any effect on the consolidated fi nancial statements as of December 31, 2006.

International Financial Reporting Interpretations Committee (IFRIC) 4 "Determining Whether an Arrangement Contains a Lease": IFRIC 4 contains criteria for the identifi cation of lease elements in contracts which in formal terms are not designated as a lease agreement. Elements of contracts which satisfy the criteria of IFRIC 4 have to be accounted for as lease agreements in accordance with the provisions of IAS 17. This amendment did not have any effect on the consolidated fi nancial statements as of December 31, 2006.

IFRIC 5 "Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds" and IFRIC 6 "Liabilities Arising from Participating in a Specifi c Market – Waste Electrical and Electro nic Equipment" do not apply to the business activities of Dürr and have therefore not been adopted.

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 fi rst 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": This amendment requires the Group to make new disclosures to enable users of the fi nancial statements to evaluate the Group's objectives, policies, and processes for managing capital. The additional disclosure requirements resulting from the amendment of IAS 1 were not observed in the consolidated fi nancial statements. The amendments are applicable for fi scal years beginning on or after January 1, 2007.

IFRS 7 "Financial Instruments: Disclosures": IFRS 7 governs the disclosure requirements for fi nancial instruments for industrial entities as well as banks and similar fi nancial institutions. IFRS 7 replaces IAS 30 "Disclosures in the Financial Statements of Banks and Similar Financial Institutions" and IAS 32 "Financial Instruments: Disclosure and Presentation" which require disclosures that enable users to evaluate the signifi cance of the Group's fi nancial instruments for the fi nancial position and earnings power of the Group, and the nature and extent of risks arising from those fi nancial instruments. IFRS 7 is applicable for fi scal years beginning on or after January 1, 2007. The adoption of this standard will lead to signifi cant additions to the disclosures in the notes on fi nancial instruments.

IFRIC 7 "Applying the Restatement Approach" under IAS 29 "Financial Reporting in Hyperinfl ationary Economies": This interpretation contains explanations on IAS 29 on the question of adjusting the fi nancial statements in the event that the functional currency of an entity is qualifi ed as highly infl ationary for the fi rst time. IFRIC 7 is applicable for fi scal years beginning on or after March 1, 2006. It is not expected to be relevant for the consolidated fi nancial statements.

IFRIC 8 "Scope of IFRS 2": The changes apply for fi scal years beginning on or after May 1, 2006. First-time application of IFRIC 8 is not expected to have any material effect on the consolidated fi nancial statements.

IFRIC 9 "Reassessment of Embedded Derivatives": IFRIC 9 deals with special issues surrounding accounting for embedded derivatives pursuant to IAS 39. Pursuant to IFRIC 9, the assessment whether an embedded derivative has to be accounted for separately from the base agreement is generally made when the contract is concluded. A reassessment during the term of the contract is only permitted if the underlying contractual conditions and the associated cash fl ows change signifi cantly. The extent to which the payments from the embedded derivative and/or the host contract have changed compared to the original cash fl ows is taken as the basis here. Adoption of IFRS 9 is mandatory for fi scal years beginning on or after June 1, 2006; earlier adoption is encouraged. IFRIC 9 is not expected to have any material effects on the consolidated fi nancial statements.

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

IFRS 8 "Operating Segments": IFRS 8 replaces IAS 14 "Segment Reporting" and brings the standards of the IASB into line with the provisions of the Statement of Financial Accounting Standards (SFAS) 131. IFRS 8 requires the disclosure of fi nancial and descriptive information on the reportable segments. Reportable segments are either operating segments or aggregations of operating segments that meet specifi ed criteria. An operating segment is a component of an entity for which discrete fi nancial information is available and whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. In general, the fi nancial information has to be reported on the basis of the internal control concept used to assess the operating segments. The standard is applicable for the fi rst time for fi scal years beginning on or after January 1, 2009. Early adoption is permitted. The Group had not completed the analysis of theeffects of this amendment by the time the consolidated fi nancial statements were prepared.

IFRIC 10 "Interim Financial Reporting and Impairment": This interpretation deals with the alleged contradiction between the provisions of IAS 34 "Interim Financial Reporting" and those in other standards pertaining to the recording and repetition of impairment expenses in the fi nancial statements for goodwill and certain fi nancial assets. IFRIC 10 states that an entity must not reverse impairment losses recognized in an interim period on goodwill and investments in equity instruments and in fi nancial assets carried at cost and that a company may not extend this resolution by analogy to other areas where there may be contradictions between IAS 34 and other standards. IFRIC 10 is applicable for fi scal years beginning on or after November 1, 2006. Earlier adoption is encouraged. IFRIC 10 is not expected to have any effects on the consolidated fi nancial statements.

IFRIC 11 "Group and Treasury Share Transactions pursuant to IFRS 2": IFRIC 11 addresses the question of how IFRS 2 "Share-based Payment" applies to share-based payment arrangements involving the entity's own equity instruments or equity instruments of another Group entity. IFRIC 11 is effective for reporting periods beginning on or after March 1, 2007. Early adoption is permitted. IFRIC 11 is not expected to have any effects on the consolidated fi nancial statements.

IFRIC 12 "Service Concession Arrangements": The scope of IFRIC 12 is limited to accounting for public concessions (e.g. for the operation of motorways or hospitals) from the perspective of the licensee and relates solely to arrangements with public licensors. IFRIC 12 is mandatory for the fi rst time for fi scal years beginning on or after January 1, 2008. This interpretation is not relevant for the business operations of the Group.

The requirements of the standards applied were satisfi ed in full. The fi nancial statements thus give a true and fair view of the net assets, fi nancial position, and results of operations and cash fl ows of the Group.

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

All assets and liabilities are measured at historical or amortized cost. Derivative fi nancial instruments and available-for-sale securities which are measured at fair value are the only exception.

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APPROVAL OF THE CON-SOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006

2. BASIS OF CONSOLIDATION The consolidated fi nancial statements and group management report of Dürr Aktiengesellschaft prepared by the Board of Management as of December 31, 2006, were approved at the meeting of the Board of Management on March 19, 2007, for submission to the Supervisory Board.

The consolidated fi nancial statements of Dürr are based on the IFRS fi nancial statements of Dürr AG and the subsidiaries and associates included in the consolidation as of December 31, 2006, prepared in accordance with uniform rules and audited by independent auditors.

For subsidiaries included in the consolidated fi nancial statements for the fi rst time, capital consolidation is performed according to the purchase method of accounting pursuant to IFRS 3 "Business Combinations." This involves offsetting the purchase costs of the shares acquired 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. When the entity is removed from consolidation, the goodwill is released to profi t and loss. Negative differences are posted immediately to income.

Entities over which the Company exercises signifi cant infl uence (associates) are measured using the equity method; this is generally the case with a share of voting rights ranging from 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 operating income and expenses, and all intercompany receivables, liabilities, and provisions are eliminated. Intercompany profi ts which are not realized by sale to third parties are eliminated.

3. CONSOLIDATED GROUP

Besides Dürr AG, the consolidated fi nancial statements as of December 31, 2006, contain all domestic and foreign companies which Dürr AG can control, directly or indirectly (control concept). The entities are included in the consolidated fi nancial statements from the date on which the possibility of control was obtained.

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

Number of fully consolidated entities	2006	2005
Germany	11	17
Other countries	39	46
	50	63

Number of companies accounted for at equity	2006	2005
Germany	–	1
Other countries	4	5
	4	6

The consolidated fi nancial statements contain one (2005: two) entity in which minority shareholders hold interests. An associated entity was reclassifi ed to assets held for sale during the year.

4. CHANGES IN THE CONSOLIDATED GROUP

Effective March 10, 2006, SRH Systems Ltd., Worcester, United Kingdom, which was allocated to the Development Test Systems (DTS) business unit, was sold to Horiba Ltd., Japan. The company was part of discontinued operations. Reference is made to note 6.

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 absorbed by Carl Schenck AG, Darmstadt, with economic effect as of January 1, 2006: INTX AG, Stuttgart, Schenck Fertigungs & Service GmbH, Darmstadt, and Waagen und Maschinen Ed. Schmitt u. Cie. GmbH, Darmstadt. Also effective January 1, 2006, Dürr Beteiligung Alpha GmbH, Stuttgart, was absorbed by Dürr International GmbH, Stuttgart, Dürr Ecoclean International GmbH, Stuttgart, by Dürr AG, Stuttgart, and Dürr Holding GmbH, Stuttgart, by Dürr Systems GmbH, Stuttgart. In the USA, with economic effect as of January 1, 2006, Dürr AIS Inc., Plymouth, was absorbed by Dürr Systems Inc., Plymouth. All entities were already fully consolidated before the mergers. Therefore, there was no impact on the consolidated fi nancial statements.

Dürr Systems Slovakia spol. s r.o., Bratislava, Slovak Republic, was founded in the 2006 reporting period.

5. CURRENCY TRANSLATION

Financial statements denominated in the 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 fi nancial, economic, and organizational viewpoint. According to this concept, assets and liabilities are thus translated at the closing rates as of the balance sheet date, while income and expenses are generally translated at average rates. Any currency translation differences are recorded without effect on income in accumulated other comprehensive income.

In the separate fi nancial 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. For further explanations of the exchange rate gains and losses recognized in profi t or loss, reference is made to note 11 to the income statement.

	Closing rate		Average rate
	Dec. 31, 2006	Dec. 31, 2005	2006	2005
US dollar	1.3181	1.1834	1.2631	1.2380
Pound sterling	0.6714	0.6870	0.6819	0.6832
Australian dollar	1.6681	1.6145	1.6679	1.6261
Canadian dollar	1.5294	1.3769	1.4259	1.4988
Brazilian real	2.8138	2.7567	2.7455	3.0021
Renminbi yuan	10.2915	9.5515	10.0499	10.1344
Korean won	1,226.0000	1,191.0000	1,200.4167	1,265.8208
Polish zloty	3.8413	3.8686	3.9074	4.0329

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

In the separate fi nancial 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 fi nancial statements of the subsidiaries and already existed as of January 1, 2005, 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 recorded by entities whose local currency is the euro.

6. DISCONTINUED OPERATIONS/ASSETS CLASSIFIED AS HELD FOR SALE

An asset is classifi ed as held for sale when the carrying amount of an operation will be recovered principally through a sale transaction and not through continuing use. Pursuant to IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations," a component of an entity is classifi ed as a discontinued operation at the point in time from which this component of an entity satisfi es the criteria for classifi cation as held for sale or is actually discontinued. Such an operation represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with an intent to resell.

On February 23, 2005, and October 31, 2005, the Supervisory Board of Dürr AG 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 Ltd., Japan. The Measuring and Process Technologies business unit was sold to HgCapital, United Kingdom, as of December 30, 2005. Where applicable, the antitrust authorities have given their approval.

In the reporting period, SRH Systems Ltd., Worcester, United Kingdom, which was allocated to the Develop ment Test Systems (DTS) business unit, was sold to Horiba Ltd., Japan, effective March 10, 2006.

The current earnings from discontinued operations break down as follows:

in € k	2006	2005
Discontinued operations
Income	2,071	386,440
Expenses	3,287	362,926
Earnings before taxes	– 1,216	23,514
Income taxes	– 244	6,147
Earnings after taxes	– 972	17,367
Profi t from sale before taxes	242	116,090
Income tax expense from sale	–	24,602
Profi t from sale after taxes	242	91,488

The effect of the discontinued operations on the consolidated cash fl ow statement is shown below:

in € k	2006	2005
Discontinued operations
Cash fl ows from operating activities	1,383	34,365
Cash fl ows from investing activities	– 3	– 3,502
Cash fl ows from fi nancing activities	– 1,245	– 20,328
Effects of exchange rate changes on cash and cash equivalents	6	– 5,824
Change in cash and cash equivalents	141	4,711

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

in € k	2006	2005
Discontinued operations
Non-current assets	2,657	128,922
Current assets without bank balances and cash	588	209,380
Bank balances and cash	340	17,094
Non-current liabilities	669	17,464
Current liabilities	2,385	139,329
	531	198,603
Total consideration	2,031	314,693
Net infl ow of cash and cash equivalents from the sale
Cash consideration in the reporting period	2,031	314,693
less bank balances and cash sold	340	17,094
	1,691	297,599

All sales were made for a consideration.

In the reporting period, the Company also received a payment from a purchase price claim of € 169 thousand resulting from the sale of the Premier group. On the other hand, the Company repaid an amount of € 115 thousand from sales proceeds for the Measuring and Process Technologies business unit. Cash received from the sale of discontinued operations less bank balances and cash sold thus comes to a total of € 1,745 thousand.

As of December 31, 2006, the carrying amount of the equity investment in Schenck Shanghai Testing Machi nery Corporation Ltd., Shanghai, P. R. China, of € 903 thousand was disclosed in the balance sheet item "Assets of a disposal group classifi ed as held for sale." This company was consolidated as an associate in accordance with the provisions of IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations."

In addition, the carrying amount of € 226 thousand of a building of Dürr Ecoclean S.A., Barcelona, Spain, was disclosed in the balance sheet item "Assets of a disposal group classifi ed as held for sale." In connection with the reorganization of this company, the building was put up for sale at short notice.

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 recognized pursuant to IAS 38 "Intangible Assets" if, in addition to other criteria, it is probable that a future economic benefi t will fl ow to the entity from the use of the asset and the cost of the asset can be reliably determined.

Intangible assets with a fi nite 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 intangible assets with indefi nite useful lives 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 satisfi ed. This includes the following criteria:

• technical feasibility of completing the intangible asset so that it will be available for use or sale,
• the use of the asset must generate probable future economic benefi ts,
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Cost is the sum of expenditure incurred from the date when the intangible asset fi rst meets the recognition criteria. Development costs which do not meet these criteria as well as research costs are expensed immediately. Amortization of capitalized development costs are disclosed in the income statement under research and development costs.

The useful life of intangible assets is estimated as follows:

in years Franchises, industrial rights and similar rights and assets	1 to 10
Capitalized development costs	3 to 10

PROPERT Y, PL ANT AND EQUIPMENT

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

The useful life of property, plant and equipment is estimated as follows:

in years
IT hardware	3 to 5
Furniture and fi xtures	2 to 25
Machines and equipment	3 to 21
Buildings and leasehold improvements	5 to 60

Other comments on the balance sheet item property, plant and equipment are to be found in note 16.

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 derecognized after deduction of accumulated depreciation. Any gains or losses from derecognition are determined as the difference between the net disposal proceeds and the carrying amount and recognized in profi t and loss as other operating income or expenses in the period in which the item is derecognized. Costs of ongoing repairs and maintenance are expensed immediately.

INVESTMENT PROPERTY

An investment property is measured initially at its cost including any 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 satisfi ed. The carrying amount does not include the costs of the day-to-day maintenance of these properties. In the course of subsequent measurement, the investment property is carried at amortized cost, i.e. at purchase cost less accumulated depreciation and accumulated impairment losses.

Investment property is derecognized when it is sold or retired from active use and no future economic benefi t 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 their 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 indefi nite useful life, intangible assets which are not yet ready for use, 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 an asset may be impaired, i.e. 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 its 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 fl ows 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. With regard to goodwill acquired in business combinations, the relevant cash-generating units correspond to the business units of the Dürr Group based on internal reporting structures. To determine the estimated cash fl ow of each cash-generating unit, basic assumptions have to be made. These include assumptions regarding fi nancial planning and the interest rates used for discounting.

Impairments recorded in prior periods are reversed against profi t and loss 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 reversed. According to IAS 20 "Accounting for Government Grants and Disclosure of Government Assistance," govern ment grants are only recorded if it is reasonably certain that the conditions attached to the grants will be fulfi lled and the grants actually awarded. Grants are deducted from the carrying amount of the subsidized asset. The entities in the Dürr Group are lessees of land, buildings, offi ce, and operating equipment. The majority of leases are classifi ed as operating leases. Finance leases, which transfer to the Group substantially all the risks and benefi ts incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the fi nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are refl ected in the income statement. A liability is also established at that time for the same amount. The leased asset is depreciated over the shorter of the lease term and its estimated useful life. Lease payments on operating leases are recorded as an expense in the income statement over the term of the lease. Entities on which Dürr does not exert a signifi cant infl uence are recorded as investments in associates. The Group's share of profi ts and losses are shown in the consolidated balance sheet as a change in the carrying amount and recognized in the consolidated income statement under result of associates. Where there has been a change recognized directly in the associate's equity, the Group recognizes its share of any changes and discloses this in the statement of changes in shareholders' equity. Dividends received are deducted from the carrying amount. Pursuant to IAS 39, fi nancial instruments are classifi ed in the following categories: Financial assets held-for-trading Held-to-maturity investments Loans and receivables originated by the entity and Available-for-sale fi nancial assets. Financial assets with fi xed or determinable payments and fi xed 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 classifi ed as held-to-maturity investments. Financial assets that are acquired principally for the purpose of generating a profi t from short-term fl uctuations in price or dealer's margins are classifi ed as held-GOVERNMENT GRANTS LEASES INVESTMENTS IN ASSOCIATES FINANCIAL INSTRUMENTS

for-trading fi nancial assets. All other fi nancial assets apart from loans and receivables originated by the

entity pursuant to IAS 39 are classifi ed as available-for-sale fi nancial assets.

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

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

The initial recognition of a fi nancial 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 fi nancial assets are recorded in the net profi t or loss. For this purpose, the fair value of a fi nancial 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 fi nancial 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 profi t 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 enterprise and not held for trading are measured at amortized cost or the lower net realizable value on the balance sheet date.

Available-for-sale fi nancial 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 profi t and loss either upon disposal or if it is impaired.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGES

The Group uses derivative fi nancial instruments such as forward exchange contracts and interest/currency swaps in order to hedge against interest and currency risks.

For hedge accounting purposes, hedges are designed:

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

A hedge of the currency risk of a fi rm commitment is accounted for as a cash fl ow 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 identifi cation 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 fl ows 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 fl ow.

It is 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 fi rm commitment or a precisely defi ned part of such an asset, such a liability or such a fi rm commitment that is attributable to a certain risk and which could have an effect on the profi t 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 fi nancial instrument is revalued at its fair value and the resulting gain or loss is recognized immediately in net profi t or loss. For fair value hedges which relate to hedged items carried at amortized cost, the adjustments of the carrying amount are released to profi t and loss over their term until maturity. If an unrecognized fi rm commitment is designated as a hedged item, the subsequent accumulated change in fair value of the fi rm commitment that is attributable to the hedged risk is recognized as an asset or liability with a corresponding entry in the profi t or loss of the period. Changes in the fair value of the hedging instrument are also recorded in profi t or loss, unless it is used to hedge the currency risk. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifi es for hedge accounting. Every adjustment of the carrying amount of a hedged fi nancial 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 fl ow hedge accounting

Hedges qualify as cash fl ow hedges if they hedge exposure to variability in cash fl ows that is attributable to a particular risk associated with a recognized asset or liability or a risk associated with a forecasted transaction and that can have an effect on the profi t 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 portion is recorded in profi t and loss. Amounts that are recognized directly in equity are recognized in profi t or loss in the period in which the hedged transaction affects the net profi t or loss of the period. If the hedged item consists of the acquisition costs of a non-fi nancial asset or non-fi nancial liability, the amounts recorded in equity are added back to the carrying amount of the non-fi nancial asset or non-fi nancial 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 profi t or loss for the period. When the hedge expires, is sold or terminated, the amounts previously disclosed remain a separate item in equity until the forecasted transaction occurs. The same applies if the hedging instrument is exercised without replacement or rollover, or if the criteria for cash fl ow hedge accounting are no longer in place. If the forecasted transaction is no longer expected, the amount is recorded in profi t and loss.

The commercial papers disclosed under other fi nancial assets classifi ed as available-for-sale securities are measured at market value on the balance sheet date while the commercial papers classifi ed as held-tomaturity securities are measured at amortized cost. As of the balance sheet date, the available-for-sale securities had a fair value of € 329 thousand (2005: € 338 thousand). OTHER FINANCIAL ASSETS

INVENTORIES AND PREPAYMENTS

CONSTRUCTION CONTRACTS

Inventories of materials and supplies, work in process from small series production, and fi nished goods are carried at the lower of cost or net realizable value on the balance sheet date. Valuation allowances are recorded for obsolete and slow-moving inventories.

Cost of conversion comprises direct material costs, direct labor costs as well as all production-related overheads including production-related depreciation. Borrowing costs are not included.

Dürr generates most of its sales revenues from long-term construction contracts. Contract revenues are generally disclosed using the percentage-of-completion method (POC method). This involves recognizing sales revenues and the planned margin in line with the degree to which the contract has been completed. The degree of completion is calculated on the basis of the costs incurred relative to the total estimated costs. This ensures that both sales revenues and the associated costs are recognized in the period they are incurred. The zero-profi t method (ZP method) is used in situations where estimated costs to complete cannot be reliably determined, but it is probable that the costs incurred will be reimbursed. With the zeroprofi t method, sales revenues and the associated costs are realized in equal amounts until the contract is com pleted. The result is thus not recognized in profi t or loss until the contract is completed.

Progress billings issued to customers and cash received from customers are not recorded as sales, but deducted without effect on income from costs incurred plus recognized profi ts for contract work 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 under receivables 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 defi ned milestones being reached. Cost and estimated 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 an 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 specifi cations or design, contract change orders in dispute or unapproved as to both scope and price, or other customerrelated causes of unanticipated additional contract costs, claims, and pending change orders. These are carried at the estimated amount, provided their realization is probable and can be reliably estimated. No profi ts in addition to these accumulated costs are reported. Pending change orders involve the use of estimates. Therefore, it is possible that adjustments to the estimated recoverable amounts of recorded pending change orders will be made in the future.

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2 BASIC INFORMATION 16 FROM THE MARKETS 23 MANAGEMENT REPORT 56 CONSOLIDATED FINANCIAL STATEMENTS 117 OTHER 75

62 NOTES

The POC method and ZP method are based on estimates. Due to the uncertainties prevailing in this respect, estimates of the expenses required for completion, including expenses for contractual penalties and warranties, may have to be adjusted subsequently. Such adjustments to costs and income are recognized in the period in which the adjustments are determined. Provisions for potential losses from pending transactions are recognized in the period in which losses are identifi ed.

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

The Group assesses the recoverability of its receivables by referring to a number of factors. Should Dürr become aware of any issues which would affect the ability of certain customers to meet their fi nancial obligations, it posts a specifi c 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 specifi c bad debt allowances on a portfolio basis depending on the days in arrears, current business circumstances, and past experience. A local collection management system takes account of the commercial risks of bad debts. The collection management system consists of standard procedures such as carrying out regular credit ratings, entering into credit insurance policies and – particularly in the export business – issuing letters of credit.

All short-term liquid investments with an original term of less than three months are carried at face value as cash and cash equivalents. CASH AND CASH EQUIVALENTS

BORROWING COSTS IN CONNECTION WITH THE REFINANCING OF THE GROUP

Pursuant to IAS 39 "Financial Instruments: Recognition and Measurement," 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 are amortized over the term of the syndicated loan.

The Group's post-employment benefi ts include both defi ned contribution plans and defi ned benefi t plans. PROVISIONS

In the case of defi ned contribution plans, the Group pays voluntary contributions to state or private pension funds based on legal or contractual provisions. No further payment obligations arise for the Group from the payment of contributions.

The large majority of the Group´s post-employment benefi t systems are based on defi ned benefi t plans which guarantee the benefi ciary a monthly old-age pension for life. These are funded by the Group and by the employees.

In the prior year, Dürr had already decided to apply IAS 19 (revised) to measure the benefi t obligations. According to this, actuarial gains and losses are recorded without effect on income directly in equity. Provisions for reinsured pension obligations are netted against plan assets in accordance with the criteria of IAS 19 (revised).

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

Other provisions are recorded if the obligation to a third party results from a past event which is expected to lead to an outfl ow of economic benefi ts 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 refl ect the risk and period until the obligation is met.

At the inception of the lease, liabilities from fi nance leases are carried at the present value of the lease payments or the lower market value of the capitalized leased asset (we refer to the explanations to lease agreements); the other liabilities are accounted for at amortized cost. LIABILITIES

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

amount of the benefi t.

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 profi t and loss. A deferred tax asset is recognized 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 benefi ts from unused tax losses and unused tax credits 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 based on applicable tax law. Valuation allowances are only recorded on deferred tax assets if the loss of the tax benefi t is more probable than its use.

Deferred tax assets and deferred tax liabilities are only netted if, and only if, the entity has a legally enfor ceable right to offset current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied on the same taxable entity by the same taxation authority. Deferred taxes are recorded as tax income or expense in the income statement unless they relate to items recorded directly in equity; in this case, the deferred taxes are also recorded directly in equity. Liabilities are disclosed in the notes to the fi nancial statements as contingent liabilities for a possible obligation that arises from past events and whose existence will be confi rmed only by the occurrence or nonoccurrence 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 outfl ow of resources embodying economic benefi ts will be required to settle the obligation, or the amount of the obligation cannot be measured with suffi cient reliability. A contingent liability is not disclosed if the possibility of an outfl ow of resources embodying economic benefi ts is remote. Research and non-capitalizable development costs are recorded with effect on income when they are incurred. Earnings per share are determined pursuant to IAS 33 "Earnings per Share." If there are dilutive effects present, two different ratios for earnings per share must be disclosed. The ratio "Earnings per share (basic)" does not take account of dilutive effects; the earnings allocable to the shareholders of Dürr Aktiengesellschaft are 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. In the 2006 and 2005 reporting periods, there were no dilutive effects as no option rights were issued and all existing option rights have expired. in € k (with the exception of disclosures per share) 2006 2005 Profi t/loss attributable to the shareholders of Dürr Aktiengesellschaft 7,054 4,345 of which continuing operations 7,787 – 104,550 of which discontinued operations – 733 108,895 Number of shares outstanding (weighted average) 15,728.0 14,400.0 Earnings per share (basic and diluted) 0.45 0.30 of which continuing operations 0.50 – 7.26 of which discontinued operations – 0.05 7.56 CONTINGENT LIABILITIES RESEARCH AND NON-CAPITALIZABLE DEVELOPMENT COSTS EARNINGS PER SHARE

The preparation of the consolidated fi nancial 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 the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual fi gures may diverge from these estimates. USE OF ESTIMATES AND JUDGMENTS

JUDGMENTS

In the process of applying the accounting policies, management made the following judgments which had

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the signifi cant risks and rewards of ownership of these properties and so accounts for them as operating leases.

The key assumptions concerning the future and other key sources of estimation uncertainty as of the balance sheet date that have a risk of causing an adjustment to the carrying amounts of assets and liabilities within the next reporting period are discussed below. ESTIMATES AND ASSUMPTIONS

a signifi cant effect on the amounts recognized in the fi nancial statements:

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating a value in use requires management to make an estimate of the expected future cash fl ows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash fl ows. The carrying amount of goodwill as of December 31, 2006, was € 262,296 thousand (2005: € 267,377 thousand). Reference is made to note 16.

Pensions and other post-employment benefits

Actuarial calculations are used to determine the expense from defi ned benefi t plans. The actuarial valuation involves making assumptions about discount rates, expected rates of return on plan assets, future salary increases, mortality rates, and future pension increases. Due to the long-term nature of these plans, such estimates are subject to signifi cant uncertainty. Pension provisions amounted to € 60,739 thousand as of December 31, 2006 (2005: € 67,818 thousand). Reference is made to note 23.

Development costs

Development costs are capitalized in accordance with the accounting policy presented in note 7. Determining the amounts to be capitalized requires management to make assumptions regarding the expected future cash generation of the assets, interest rates to be applied, and the expected period of benefi ts. The best estimate of the carrying amount of capitalized development costs as of December 31, 2006, was € 13,397 thousand (2005: € 11,055 thousand).

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 the recognition of deferred taxes on unused tax losses (we refer to the explanations on deferred taxes in note 15).

2 BASIC INFORMATION 16 FROM THE MARKETS 23 MANAGEMENT REPORT 56 CONSOLIDATED FINANCIAL STATEMENTS 117 OTHER 79

62 NOTES

NOTES TO THE ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED INCOME STATEMENT

Reference is made to note 12 for the composition of the restructuring expenses/onerous contracts shown separately in the income statement and impairment losses recorded on the individual functional costs.

8. SALES REVENUES

Sales revenues break down as follows:

in € k	2006	2005
Contract revenues	1,017,167	1,145,732
Revenues from services	297,956	220,609
Other sales revenues	46,067	34,261
	1,361,190	1,400,602

9. PERSONNEL

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

EXPENSES

in € k	2006	2005
Wages and salaries	288,920	312,757
Social security contributions	60,846	68,535
	349,766	381,292
of which post-employment benefi ts	4,665	7,773

The expense positions of the income statement contain the cost of materials of € 900,393 thousand (2005: € 977,998 thousand). 10. COST OF MATERIALS

11. OTHER OPERATING INCOME AND

Other operating income and expenses mainly consist of:

EXPENSES

in € k	2006	2005
Other operating income
Exchange rate gains	12,998	21,180
Reversal of provisions	5,277	6,887
Book gains on disposal of non-current assets	3,294	3,813
Income from liquidation of entities	3,346	–
Distribution agreement	3,930	–
Other	9,590	7,492
Other operating expenses
Exchange rate losses	13,103	22,173
Book losses on disposal of non-current assets	496	2,155
Impairment of receivables and other current assets	408	2,750
Other	6,590	17,554
	17,838	– 5,260

12. RESTRUCTURING EXPENSES AND IMPAIRMENT LOSSES

Restructuring expenses

In the course of the groupwide 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 period amount to € 5,430 thousand (2005: € 45,903 thousand). An amount of € 8,825 thousand relates to measures already implemented in the 2006 reporting period; the remaining expenses and income result from changes in other liabilities. Liabilities for restructuring measures have developed as follows:

in € k	Paint and Assembly Systems	Measuring and Process Systems	Dürr Group
As of January 1, 2005	4,663	2,564	7,227
Currency differences	321	38	359
Utilization	1,180	2,482	3,662
Reversals	2,664	–	2,664
Additions	21,912	12,485	34,397
As of December 31, 2005	23,052	12,605	35,657
Currency differences	– 274	– 41	– 315
Utilization	9,790	2,781	12,571
Reversals	6,739	2,404	9,143
Additions	2,432	3,316	5,748
As of December 31, 2006	8,681	10,695	19,376

Restructuring expenses/onerous contracts can be allocated to the individual functional costs as follows: € 353 thousand (2005: € 23,266 thousand) relates to cost of sales, € 671 thousand (2005: € 3,509 thousand) to selling expenses, € 4,311 thousand (2005: € 17,240 thousand) to administrative expenses, and € 95 thousand (2005: € 1,888 thousand) to research and development costs.

Impairment losses

Reporting period 2006

In the 2006 reporting period, a building in the USA was written down to market value by recording an impairment loss of € 511 thousand. The property was sold in the reporting period as it was no longer needed following restructuring.

An impairment loss of € 331 thousand was also recorded on a building in Brazil that had been partially destroyed in a fi re. In the income statement, this impairment loss was netted with the expected insurance compensation.

Reporting period 2005

As part of FOCUS, impairment losses were allocated to intangible assets (€ 10,588 thousand), property, plant and equipment (€ 11,115 thousand) and to investment property (€ 5,471 thousand) in the 2005 reporting period. Impairment losses of an additional € 700 thousand were recorded on fi nancial assets.

Impairment losses on intangible assets mainly pertained to licenses and patents which were no longer used at all, or only to a limited extent, after the restructuring. Generally speaking, the recoverable amount was calculated as value in use.

During the 2005 reporting period, the sale of segments, restructuring, and reorganization activities in the Dürr Group resulted in shifts in the use of property which made a review of carrying amounts necessary. The impairment requirement for the land and buildings, most of which were let to third parties, amounted to € 5,471 thousand. The directly recoverable amount for the land and buildings, most of which were let to third parties, was equal to the fair value less costs to sell of this group; we also refer to note 16.

In the 2005 reporting period, an impairment loss was also recorded within property, plant and equipment on a property in the USA which has been allocated to the Paint and Assembly Systems division. Based on an appraisal prepared by an independent valuer, the value of the property was written down to market value by € 5,331 thousand; the property was sold in the 2006 reporting period.

If the impairment losses were broken down by functional costs, € 511 thousand (2005: € 13,954 thousand) would be allocated to cost of sales. In the 2005 reporting period, the remaining impairment losses split up as follows: € 1,510 thousand relates to selling expenses, € 3,939 thousand to administrative expenses and € 8,471 thousand to research and development costs.

The result from associates amounted to € 2,694 thousand (2005: € –1,159 thousand). It contains the writeup of the shares of one associate of € 950 thousand and profi t/loss shares from accounting using the equity method. In the prior year, this item included an impairment loss of € 2,744 thousand recorded on three associates based on the future estimated income. 13. RESULT FROM ASSOCIATES

Currency effects within the accumulated other comprehensive income were recorded directly in equity.

14. INTEREST AND SIMILAR EXPENSES

Interest and similar expenses consist of:

in € k	2006	2005
Amortization of transaction costs / debt discount from a bond issue
and from a syndicated loan	2,348	1,982
Other interest expenses	25,292	35,375
	27,640	37,357

For details of the Group fi nancing structure, please refer to note 25.

The income taxes include the German 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. 15. INCOME TAXES

Deferred taxes in Germany are computed using a tax rate of 39.0 % (2005: 39.0 %). Besides the corporate income tax rate of 25.0 % and the solidarity surcharge of 5.5 %, an average trade tax on income was considered. There were no major changes in tax expense due to changes in the respective local tax rates.

The tax expense on income comprises the following:

in € k	2006	2005
Current income taxes
Income tax expense for the reporting period	6,559	27,549
Adjustment of tax expense prior years	– 3,766	1,729
	2,793	29,278
Deferred taxes
Origin and reversal of temporary differences	3,597	– 602
Total tax expense	6,390	28,676
less tax income / expense from discontinued operations	– 244	30,749
Tax expense/income	6,634	– 2,073

As a result of accumulated losses in the past three years in certain tax jurisdictions, Dürr did not record deferred tax assets on unused tax losses in the 2006 reporting period. Moreover, deferred tax assets have only been created if it can be assumed that a future taxable profi t 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 to the same tax authorities and from the same taxable entity, provided the tax credits can be used before they are forfeited. In addition, 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 its 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. In Germany, minimum taxation was taken into account when considering the possibilities of using losses.

The following table shows the reconciliation of theoretical income taxes to the actual income tax expense. The reconciliation is based on the total tax burden in Germany of 39.0 % (2005: 39.0 %):

in € k	2006	2005
Profi t/loss before income taxes from continuing operations	14,835	– 106,620
Profi t/loss before income taxes from discontinued operations	– 974	139,604
Profi t before income taxes	13,861	32,984
Theoretical income tax expense in Germany of 39.0 % (2005: 39.0 %)	5,406	12,864
Adjustments of actual income taxes incurred in prior years	– 3,691	1,729
Non-deductible operating expenses	4,247	3,395
Foreign tax rate differential	– 659	– 784
Unrecognized deferred tax assets especially on unused tax losses	17,052	25,687
Change in valuation allowances on deferred tax assets	– 10,769	13,670
Subsequent recognition of deferred taxes on unused tax losses	– 1,817	– 3,402
Zero-rated income	– 2,700	– 23,607
Other	– 679	– 876
Effective income tax expense of the Group	6,390	28,676
Income tax expense/income disclosed in the consolidated income statement	6,634	– 2,073
Actual income taxes attributable to discontinued operations	– 406	24,033
Deferred income taxes attributable to discontinued operations	162	6,716
	6,390	28,676

62 NOTES

in € k	Consolidated balance sheet 2006	Consolidated balance sheet 2005	Offsetting against equity	Consolidated income statement 2006
Deferred tax assets
Accounting for intangible assets	980	321		659
Revaluation of land and buildings	623	1,095		– 472
Revaluation of fi nancial assets	1,409	2,005		– 596
Bad debt allowance	485	1,987		– 1,502
Interest/currency transactions	562	438	– 207	331
Construction contracts	1,989	8,478		– 6,489
Post-employment benefi ts	10,419	8,815	– 1,532	3,136
Restructuring, provisions not recognized for tax purposes	2,547	10,778		– 8,231
Other assets	325	–		325
Unused tax losses	26,125	31,176		– 5,051
Total deferred tax assets before valuation allowances	45,464	65,093
Valuation allowances	– 5,345	– 16,114		10,769
Total deferred tax assets	40,119	48,979
Netting	– 20,968	– 5,809
Discontinued operations	–	515
All deferred tax assets	19,151	43,685
Deferred tax liabilities
Accounting for intangible assets	– 2,473	– 2,635		162
Capitalized development costs	– 3,311	– 1,727		– 1,584
Tax-deductible goodwill	– 7,920	– 8,839		919
Revaluation of land and buildings	– 15,245	– 15,901		656
Revaluation of fi nancial assets	– 4,250	– 4,557		307
Construction contracts	– 11,120	– 7,329		– 3,791
Other assets	–	– 6,666		6,666
Amortization of costs related to bond
and syndicated loan facilities	– 2,374	– 2,563		189
Total deferred tax liabilities	– 46,693	– 50,217
Netting	20,968	5,809
Discontinued operations	–	– 654
All deferred tax liabilities	– 25,725	– 45,062
Offset directly against equity			– 1,739
Deferred tax expense				– 3,597

In the 2005 reporting period, deferred taxes of € 4,125 thousand were recognized 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 € 204,325 thousand (2005: € 125,128 thousand). This increase mainly resulted from the subsequent adjustments of foreign tax balance sheets. Of these, unused tax losses of € 12,560 thousand have to be used by 2010 (prior year: € 8,114 thousand by 2009) at the latest, unused tax losses of € 23,841 thousand have to be used by 2024, and unused tax losses of € 34,058 thousand have to be used by 2025 (prior year: € 23,841 thousand by 2024) at the latest.

As of December 31, 2006, the distributable reserves of foreign subsidiaries amounted to around € 98,085 thousand (2005: € 116,740 thousand). As Dürr AG intends to reinvest these gains for an indefi nite period of time, no tax implications from possible distributions or dividend payments of foreign subsidiaries were considered in the consolidated fi nancial statements.

As a result of the act on tax measures accompanying the introduction of the European company and the amendment of other tax law provisions (SEStEG), the corporate income tax credit of subsidiaries of Dürr AG of € 407 thousand has to be paid out in ten equal annual installments as of September 30 each year beginning in 2008; the payment is no longer dependent on distributions. As of December 31, 2006, this claim was recognized at the present value of € 319 thousand and thus resulted in special income. EFFECTS OF THE ACT ON TAX MEASURES ACCOMPA-NYING THE INTRODUCTION OF THE EUROPEAN COM-PANY AND THE AMENDMENT OF OTHER TAX LAW

NOTES TO THE CONSOLIDATED BALANCE SHEET: ASSETS

16. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT

PROVISIONS (SESTEG)

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 36.

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.

Amortization and depreciation is shown in the income statement under the respective functional costs:

in € k	2006	2005
Cost of sales	8,499	8,962
Selling expenses	945	933
General and administrative expenses	7,269	10,052
Research and development costs	2,266	1,491
Other operating income and expenses	88	2,125
	19,067	23,563

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. The recoverable amount was only determined on the basis of fair values

	when determining the impairment requirement for investment property. To improve insight into the earn ings situation, this was disclosed separately in the income statement. For additional information, we refer to note 12.
IMPAIRMENT TEST FOR GOODWILL	The goodwill acquired from business combinations was allocated to the cash-generating units for impair ment testing. The business units within the Paint and Assembly Systems and Measuring and Process Systems divisions are defi ned as cash-generating units. In the 2006 reporting period, Dürr decided to de fi ne the cash-generating units for the impairment test of the purchased goodwill at business unit level. In previous years, the divisions were defi ned as cash-generating units. The calculation model is used in ex actly the same way for all cash-generating units (for the business units of the Paint and Assembly Systems division, the division balance sheet was split between the business units in a pro forma statement) as the key parameters pertain equally to all business units.
	The net realizable amount of the cash-generating unit is determined on the basis of value in use. This cal culation is prepared on the basis of cash fl ow forecasts which are based on the fi nancial planning ap proved by management for a period of three years. In the reporting period, the discount rate before taxes for the cash fl ow forecast was within the range of 9.63 % to 9.80 % (2005: 9.61 % to 9.81 %). Cash fl ows after the three-year period are extrapolated using a growth rate of 1.5 % (2005: 1.5 %) based on the long-term growth rate of the business units.
PL ANNED GROSS PROFIT MARGINS	The gross profi t margins are determined in the subsidiaries' bottom-up planning. These are based on the fi gures determined for the previous reporting period, taking anticipated effi ciency increases into account.
CAPITAL COST (DISCOUNT RATE)	The capital costs are the weighted mean of debt capital and equity costs before tax. Debt capital costs are based both on the credit rating and also the rating for the bond issued in 2004. When calculating the capi tal costs, a beta factor is also assumed which is derived from the capital market data of comparable com panies 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 SAL ARY COSTS	In the three-year plan, the German subsidiaries have assumed annual salary increases of 3 % (2005: 2 %). The foreign subsidiaries have used the applicable local rate of increase for the respective planning period.

in € k	Carrying amount as of January 1, 2005	Currency differences	Additions	Disposals	Carrying amount as of December 31, 2005	Currency differences	Carrying amount as of December 31, 2006
Paint Systems	80,633	3,779	–	–	84,412	– 2,425	81,987
Application Technology	55,022	884	–	–	55,906	– 434	55,472
Environmental and Energy Systems	5,307	811	–	–	6,118	– 625	5,493
Factory Assembly Systems	75,817	126	–	–	75,943	– 4	75,939
Paint and Assembly Systems	216,779	5,600	–	–	222,379	– 3,488	218,891
Balancing and Diagnostic Systems	27,688	–	263	218	27,733	–	27,733
Cleaning and Filtration Systems	15,467	1,798	–	–	17,265	– 1,593	15,672
Measuring and Process Technologies	48,867	1,221	375	50,463	–	–	–
Measuring and Process Systems	92,022	3,019	638	50,681	44,998	– 1,593	43,405
Services	44,955	6,551	–	51,506	–	–	–
Dürr Group	353,756	15,170	638	102,187	267,377	– 5,081	262,296

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

The additions of the previous year are explained in note 27.

LAND AND BUILDINGS

One plot of land and building in Mexico and three in the USA were sold in the 2006 reporting period in accordance with a resolution taken by the Board of Management of Dürr AG on January 18, 2006. These properties were sold in the reporting period as they were no longer needed following restructuring. One of the properties in the USA belongs to the Measuring and Process Systems division while the other three belong to the Paint and Assembly Systems division; for further information we refer to note 12.

As in the prior year, three buildings in the United Kingdom, Germany and Poland were capitalized as fi nance leases; Dürr does not have legal title to these buildings. The depreciation expense recorded on these buildings is included in depreciation of property, plant and equipment.

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

in € k	Dec. 31, 2006	Dec. 31, 2005
Historical cost	17,425	17,337
Accumulated depreciation	9,129	8,518
Net carrying value	8,296	8,819

INVESTMENT PROPERTY

Dürr uses the cost model to measure investment property. 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 concerned are a group of buildings as well as part of the infrastructure area on the factory premises in Darmstadt. The composition of the cash-generating unit that was formed for this reason in the 2005 reporting period is unchanged as there were only minor changes in use in the 2006 reporting period.

In the 2006 reporting period, rental income of € 2,065 thousand was generated with these properties (2005: € 2,136 thousand); in the prior year € 823 thousand of this amount pertained to entities classifi ed during the 2005 reporting period as discontinued operations. The directly attributable expenses came to € 1,239 thousand (2005: € 1,294 thousand); in the prior year, an amount of € 404 thousand pertained to entities classifi ed during the 2005 reporting period as discontinued operations. Expenses of € 248 thousand (2005: € 209 thousand) are attributable to vacant property.

Buildings are depreciated using the straight-line method of depreciation over their useful life ranging between 20 and 50 years. In addition, 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 an average of 20 years. For each building, the valuer estimates the rental income and expenses for this period and, where contracts exist, adjusts the rental income in the appraisal to refl ect the current contractual situation. Based on this expert appraisal, an impairment loss of € 5,471 thousand to fair value was recorded in the 2005 reporting period. The Group assumes that the fair value as of December 31, 2006 has not changed materially and is thus unchanged at around € 13 million.

The historical cost of land and buildings as of January 1, 2006 came to € 28,710 thousand. On December 31, 2006 it came to € 29,387 thousand. The accumulated depreciation including all impairment losses has increased from € 15,642 thousand as of January 1, 2006 to € 16,118 thousand as of December 31, 2006.

The table below presents a reconciliation of the development of the carrying amount of the investment property belonging to the Measuring and Process Systems division at the beginning and end of the reporting period.

in € k	2006	2005
As of January 1	13,068	–
Transfers from portfolio of owner-occupied properties	–	18,400
Additions resulting from subsequent costs	677	868
Depreciation	476	729
Impairment losses pursuant to IAS 36	–	5,471
As of December 31	13,269	13,068

For additional information, we refer to note 12.

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17. INVESTMENTS IN ASSOCIATES

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

Inventories and prepayments break down as follows:

in € k	2006	2005
Total assets	67,526	78,147
Liabilities	47,373	55,375
Sales revenues	71,800	68,663
Profi t or loss of the period	3,994	3,540

The balance sheet date of one associate is September 30; it is included at equity on the basis of the fi gures contained in the fi nancial statements from that date.

During the reporting period, Schenck Shanghai Testing Machinery Corporation Ltd., Shanghai, P. R. China, was reclassifi ed to "Assets of a disposal group classifi ed as held for sale". That is why the summary does not contain the fi gures of this company for the 2006 reporting period.

18. INVENTORIES AND PREPAYMENTS

in € k Dec. 31, 2006 Dec. 31, 2005 Raw materials, consumables and supplies 39,313 38,660 less valuation allowances – 6,190 – 6,249 Work in process from small series production 3,345 1,388 less valuation allowances – 41 – 126 Finished goods 6,980 4,502 less valuation allowances – 760 – 851 Prepayments 8,017 6,392 50,664 43,716

Raw materials, consumables and supplies of € 34,361 thousand (2005: € 30,884 thousand) were measured at average cost and € 4,952 thousand (2005: € 7,776 thousand) using the FIFO method ("fi rst in, fi rst out"). The balance of additions and reversals of valuation allowances of € 235 thousand (2005: € 2,619 thousand) was recognized in profi t and loss.

Trade receivables break down as follows: 19. TRADE RECEIVABLES

	Dec. 31, 2006			Dec. 31, 2005
in € k	Total	Current	Non-current	Total	Current	Non-current
Cost and estimated earnings in excess of billings	150,877	150,877	–	163,763	163,763	–
Trade receivables	254,711	253,071	1,640	314,499	314,499	–
Trade receivables due from associates	4,759	4,698	61	1,443	1,443	–
	410,347	408,646	1,701	479,705	479,705	–

62 NOTES

LIMITED NUMBER OF CUSTOMERS

The development of Dürr hinges on the willingness of the automotive industry to invest. A signifi cant portion of the Group's revenues is generated with a limited number of customers because the worldwide market for automobiles is dominated by a small number of corporations. 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 € 10,173 thousand (2005: € 17,199 thousand); reversals of valuation allowances of € 2,011 thousand and the addition of new valuation allowances of € 3,460 thousand (2005: aggregated € 3,882 thousand) are recognized in profi t and loss. As of December 31, 2006, 50.3 % (2005: 50.4 %) of the trade receivables were due from six (2005: four) customers.

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

	Dec. 31, 2006			Dec. 31, 2005
in € k	Total	Current	Non-current	Total	Current	Non-current
Cost and estimated earnings	330,456	330,456	–	356,672	356,672	–
less billings	288,919	288,919	–	305,325	305,325	–
	41,537	41,537	–	51,347	51,347	–

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 26).

Cost and estimated earnings in excess of billings contain prepayments (assets) of € 179,579 thousand (2005: € 192,909 thousand) offset against contracts in process.

	Dec. 31, 2006			Dec. 31, 2005
in € k	Total	Current	Non-current	Total	Current	Non-current
Cost and estimated earnings in excess of billings	150,877	150,877	–	163,763	163,763	–
less billings in excess of
cost and estimated earnings	109,340	109,340	–	112,416	112,416	–
	41,537	41,537	–	51,347	51,347	–

20. OTHER RECEIVABLES

Other receivables and other assets break down as follows:

AND OTHER ASSETS

	Dec. 31, 2006			Dec. 31, 2005
in € k	Total	Current	Non-current	Total	Current	Non-current
Receivables from fi nancing provided to associates	750	750	–	750	750	–
Other assets	23,684	20,957	2,727	42,421	42,421	–
	24,434	21,707	2,727	43,171	43,171	–

Other assets include in particular tax refund claims not relating to income taxes of € 10,447 thousand (2005: € 12,196 thousand), amounts due from suppliers of € 1,825 thousand (2005: € 1,195 thousand), receivables from employees of € 857 thousand (2005: € 845 thousand) and derivative fi nancial instruments recorded at fair value of € 1,793 thousand (2005: € 1,264 thousand).

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NOTES TO THE CONSOLIDATED BALANCE SHEET:

EQUITY AND LIABILITIES

21. EQUITY WITHOUT MINORITY INTERESTS

SUBSCRIBED CAPITAL	As of December 31, 2006, the capital stock of Dürr AG was unchanged compared to the prior year balance sheet date at € 40,264 thousand and was made up of 15,728,020 shares. Each share represents € 2.56 of the subscribed capital and is made out to the bearer.
	In December 2005, Dürr Aktiengesellschaft carried out a capital increase of 10 %, precluding the subscrip tion right. By issuing 1,429,820 new no-par value shares as of December 20, 2005, the number of shares increased from 14,298,200 to 15,728,020 as of December 31, 2005 and the capital stock from € 36,603 thou sand as of December 20, 2005 to € 40,264 thousand as of December 31, 2005. The capital increase resulted in an infl ow of funds to Dürr AG of € 21,805 thousand. The shares issued were fully paid in as of each bal ance sheet date.
AUTHORIZED CAPITAL (DÜRR AG)	The annual shareholders' meeting on May 24, 2006 authorized the Board of Management to purchase no par value bearer shares of Dürr AG once or several times until October 31, 2007 and to sell them subject to the approval of the Supervisory Board. The Board of Management was also authorized, subject to the ap proval of the Supervisory Board, to increase the capital stock once or several times until May 31, 2011 up to an amount of € 20,132 thousand by issuing up to 7,864,000 no-par value shares made out to the bearer (authorized capital).
CONDITIONAL CAPITAL (DÜRR AG)	The annual shareholders' meeting on May 24, 2006 authorized the Board of Management, subject to the approval of the Supervisory Board, to issue once or several times until May 23, 2011 bearer or registered convertible bonds, warrant-linked bonds, participation rights or income bonds (or combinations of these instruments) with or without fi xed maturity with a total nominal value of up to € 175,718 thousand. For this purpose, the capital stock has been conditionally increased by a maximum of € 17,572 thousand through the issue of up to 6,864,000 new no-par value bearer shares in the form of common stock (conditional capital I).
	Under the Dürr International Stock Option Plan (DISOP) passed by the annual shareholders' meeting in 2001, the Board of Management is further authorized to increase capital stock conditionally by up to € 2,560 thousand by issuing up to 1 million no-par value shares, each representing € 2.56 of capital stock (conditional capital II). In fact, the conditional capital II is of no relevance because the Dürr International Stock Option Plan associated with it expired in May 2006.
	In the 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 prior year.
CAPITAL RESERVE	As of December 31, 2006 the capital reserve came to € 160,459 thousand, unchanged to the prior year balance sheet date.
	The capital reserve is subject to the restrictions of Sec. 150 AktG ["Aktiengesetz": German Stock Corporations Act].
DIVIDENDS	The amount of dividends available for distribution to shareholders is regulated by German stock corpora tion law, and is based upon the retained earnings of Dürr Aktiengesellschaft as reported in its statutory fi nancial statements prepared in accordance with HGB. The annual shareholders' meeting will propose to carry forward the retained earnings to new account.

ACCUMUL ATED OTHER

COMPREHENSIVE INCOME

The table below presents the development of accumulated other comprehensive income and the associated tax effects taking into account the changes of the positions "Amounts resulting from assets held for sale" and "Minority interests".

	2006			2005
in € k	Before tax	Tax effect	Net	Before tax	Tax effect	Net
Net losses from derivatives used to hedge cash fl ows
Change in unrealized gains / losses (–)	381	– 151	230	– 1,454	559	– 895
Realized losses	144	– 56	88	3,230	– 1,236	1,994
Net gains/net losses (–) from derivatives, total	525	– 207	318	1,776	– 677	1,099
Additional post-employment benefi t obligations
Changes in consolidated group	–	–	–	289	– 112	177
Change in actuarial gains and losses	3,035	– 1,532	1,503	– 17,885	7,394	– 10,491
Adjustment of deferred taxes	–	–	–	–	– 2,480	– 2,480
Net change from post-employment benefit obligations	3,035	– 1,532	1,503	– 17,596	4,802	– 12,794
Change in unrealized gains/losses (–)
from available-for-sale securities	– 9	–	– 9	–	–	–
Currency translation differences	– 10,924	–	– 10,924	11,270	–	11,270
Amounts from assets of a disposal group of assets
classifi ed as held for sale recorded directly in equity	– 495	–	– 495	–	–	–
Changes in accumulated other comprehensive income	– 7,868	– 1,739	– 9,607	– 4,550	4,125	– 425

In the prior year, currency differences from events recorded directly in equity were disclosed in the appropriate positions. In the 2006 reporting period, these amounts were reclassifi ed to "Currency translation differences"; the prior year disclosure was adjusted accordingly.

• Minority interests contain adjustment items from the capital consolidation for minority interests in capital required to be consolidated and the profi ts and losses attributable to them. The consolidated fi nancial statements contain one (2005: two) entity in which minority shareholders hold interests. 22. MINORITY INTERESTS
• 23. PROVISIONS FOR POST-EMPLOYMENT BENEFIT OBLIGATIONS

DEFINED CONTRIBU- TION PL ANS

The post-employment benefi ts available to the employees of Dürr's German subsidiaries include a life insurance program (BZV) in line with the respective tariff group for which the Company recorded contributions of € 689 thousand (2005: € 687 thousand) as an expense. The US subsidiaries contribute to external pension funds for union employees. In the reporting period, pension expenses for these employees amounted to approximately € 2,432 thousand (2005: € 1,240 thousand).

The Group's post-employment benefi ts include both defi ned contribution plans and defi ned benefi t plans.

In addition, Dürr's US subsidiaries have a "401(k)" profi t-sharing plan for certain employees. Profi t-sharing is based on years of service and the employees' compensation. The Group's contribution is discretionary and is determined annually by management. In the reporting period, expenses came to € 89 thousand (2005: € 829 thousand).

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Pension entitlements have been granted to individual former members of the Board of Management of Dürr AG and the members of the Board of Management and general managers of German subsidiaries based on their recent fi xed salary and years of service.

At Dürr subsidiaries, those workers who were employed at the German locations in Filderstadt and Wyhlen and at the Schenck entities at the time their entities were acquired were entitled to post-employment benefi ts. The post-employment benefi ts 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 benefi ts based on the average salaries earned in the past fi ve years.

The following table presents further information on these pension plans:

in € k	Dec. 31, 2006	Dec. 31, 2005
Changes in the present value of defi ned benefi t obligations
Defi ned benefi t obligation at beginning of year	88,296	67,784
Reclassifi cation pursuant to IFRS 5	–	– 2,075
Currency differences	– 2,371	2,854
Service cost	3,535	3,706
Interest cost	3,541	3,814
Actuarial gains and losses	– 2,998	16,532
Benefi ts paid	– 4,951	– 4,841
Curtailments	– 3,459	–
Other	255	522
Defi ned benefi t obligation at the end of the year	81,848	88,296

in € k	Dec. 31, 2006	Dec. 31, 2005
Change in plan assets
Fair value of plan assets at beginning of year	20,558	14,228
Currency differences	– 1,668	2,022
Expected return on plan assets	1,279	2,158
Actuarial gains and losses	37	– 1,353
Employer contributions	1,207	1,033
Benefi ts paid	– 1,843	– 1,375
Plan assets from reinsurance	1,615	2,946
Other	–	899
Fair value of plan assets at end of the year	21,185	20,558
Funded status1	60,663	67,738

1 Difference between the defi ned benefi t obligation and the plan assets

in € k	Dec. 31, 2006	Dec. 31, 2005
Present value of funded obligations	26,302	28,167
Plan assets at fair value	21,185	20,558
Defi ned benefi t obligation in excess of plan assets	5,117	7,609
Present value of non-funded obligations	55,546	60,129
Funded status1	60,663	67,738

1 Difference between the defi ned benefi t obligation and the plan assets

The following balance sheet items are affected by the accounting for post-employment benefi t obligations:

in € k	Dec. 31, 2006	Dec. 31, 2005
Prepaid expenses	– 76	– 80
Accumulated other comprehensive income	– 16,636	– 20,429
Provisions for pension obligations	60,739	67,818

At the end of the reporting period, plan assets break down as follows:

in € k	Dec. 31, 2006	Dec. 31, 2005
Shares	8,211	10,065
Fixed-interest securities	12,452	10,300
Property	522	193
	21,185	20,558

Total return expected on plan assets is calculated on the basis of the market prices at this point in time. These apply for the period of time over which the obligation is settled. The aim of the investment strategy is long-term capital accumulation on the one hand, and ongoing interest receipts on the other. This strategy leads to somewhat more volatility. As part of a balanced approach, the portfolio mix gives priority to debt and equity securities. The long-term accumulation of capital is to be achieved above all by equity investments. Fixed-interest securities intended to secure ongoing interest receivables are an equally important part of the investment portfolio. These two categories account for a 40 to 60 % share of the portfolio.

Experience adjustments of the post-employment benefi t obligations and the plan assets are presented below:

in € k	2006	2005
Post-employment benefi t obligations	1,416	– 2,735
Plan assets	158	– 518

For the 2007 reporting period, employer contributions to the plans of € 1,323 thousand are expected.

Composition of net periodic pension cost:

in € k	2006	2005
Service cost	3,535	3,706
Interest cost	3,541	3,814
Expected return on plan assets	– 1,279	– 2,158
Curtailments	– 3,459	–
Other	133	793
	2,471	6,155

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

in € k	2006	2005
Cost of sales	– 860	1,475
Selling expenses	– 13	526
General and administrative expenses	3,297	4,108
Research and development costs	16	16
Other operating income and expenses	31	– 19
Interest and similar expenses	–	49
	2,471	6,155

The cut-off date for the measurement of benefi t obligations and plan assets is December 31 of each year; the measurement date for pension cost is January 1 of each year.

The following averages were used to calculate benefi t obligations:

in %	2006	2005
Discount rate	4.70	4.33
Long-term salary increases	2.29	2.09

The following averages were used to calculate pension cost:

in %	2006	2005
Discount rate	4.33	5.58
Expected long-term return on plan assets	7.76	7.55
Long-term salary increases	2.09	2.46

The estimated long-term return on plan assets is based on historical and projected returns for current and planned asset categories of the portfolio of fund assets. After an analysis of historical fi gures and future estimated returns and volatilities of the individual categories of plan assets, assumed returns are defi ned for current and planned asset categories, taking the customary benchmarks into account.

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Amounts for the current and previous reporting periods are as follows:

in € k	Dec. 31, 2006	Dec. 31, 2005	Dec. 31, 2004
Defi ned benefi t obligation	81,848	88,296	67,784
Plan assets at fair value	21,185	20,558	14,228
Surplus/defi cit (-)	– 60,663	– 67,738	– 53,556
Experience adjustments on post-employment benefi t obligations	1,416	– 2,735	–
Experience adjustments on plan assets	158	– 518	–

24. OTHER PROVISIONS

Other provisions break down as follows:

62 NOTES

	Dec. 31, 2006			Dec. 31, 2005
in € k	Total	Current	Non-current	Total	Current	Non-current
Contract-related provisions	57,725	54,710	3,015	70,045	65,830	4,215
Personnel provisions	8,560	4,256	4,304	9,970	4,457	5,513
Other provisions	7,231	7,231	–	11,717	11,692	25
	73,516	66,197	7,319	91,732	81,979	9,753

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

Those other provisions that are expected to be used within the next twelve months are classifi ed as current. The payments for non-current provisions are expected to be incurred within the next two to fi ve years.

Other provisions developed as follows in the reporting period:

in € k	Contract-related provisions	Personnel provisions	Other provisions
As of January 1, 2006	70,045	9,970	11,717
Currency differences	– 1,348	– 74	– 215
Utilization	– 53,001	– 3,338	– 2,445
Reversals	– 7,851	– 450	– 5,491
Additions	49,880	2,452	3,665
As of December 31, 2006	57,725	8,560	7,231

25. BOND AND FINANCIAL LIABILITIES

All interest-bearing liabilities of the Group are shown under the items bond and other fi nancial liabilities. They break down as follows:

in € k	Total	Short	Total	Medium	Long
Bond	189,840	–	189,840	189,840	–
(2005)	(187,901)	(–)	(187,901)	(–)	(187,901)
Liabilities to banks	13,050	8,569	4,481	2,152	2,329
(2005)	(21,692)	(16,001)	(5,691)	(2,770)	(2,921)
Payables to associates	1,035	115	920	920	–
(2005)	(1,068)	(148)	(920)	(920)	(–)
Liabilities from fi nance leases	6,423	1,185	5,238	4,186	1,052
(2005)	(7,252)	(1,261)	(5,991)	(4,797)	(1,194)
December 31, 2006	210,348	9,869	200,479	197,098	3,381
(December 31, 2005)	(217,913)	(17,410)	(200,503)	(8,487)	(192,016)

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

On July 6, 2004, Dürr AG placed a fi xed-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 fi nancing of the Group.

A syndicated loan facility of € 271,000 thousand is also in place with a bank syndicate, consisting of a revolving cash line and bank guarantee line. While the cash line was not used as of the balance sheet date, € 100,430 thousand of the guarantee line was used. The loan expires in 2009. Premature termination by the bank syndicate is only possible if the covenants are infringed and with a two-third majority of the lending banks. To take account of the restructuring measures initiated, it was agreed in 2005 to adjust the covenants for the period until December 31, 2006. Based on the calculations of the Board of Management, the agreed covenants were complied with as of the balance sheet date. Depending on the currency, the interest is based on the refi nancing rate with the same maturity (EURIBOR or LIBOR) plus a margin determined in relation to the fi nancial ratio of total net debt to EBITDA.

Shares in subsidiaries have been pledged as collateral for the bond issue and the syndicated loan facility.

Besides the syndicated loan facility, the Group has lines of credit (€ 19.9 million) for working capital, bank guarantees (€ 186.9 million) as well as smaller loans with various banks and insurance fi rms. These loans have terms of between one and 14 years, are charged interest once every three or six months (between 3.75 % and 4.80 % p.a. or the three-month EURIBOR or 1-week LIBOR-USD plus a customary bank margin) and are secured by mortgages of € 1,235 thousand (2005: € 14,259 thousand).

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

in € k	2007	2008	2009	2010	2011	Thereafter
Bank loans	8,569	946	402	402	402	2,329

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

in € k	Dec. 31, 2006	Dec. 31, 2005
Total amount of lines of credit and bank guarantees	489,016	508,890
Total amount of credit lines/guarantees utilized	232,109	304,335
of which due within one year	197,061	233,764
of which due in more than one year	35,048	70,571

€ 2,277 thousand (2005: € 2,704 thousand) of the liabilities to banks are payable in US dollars. The remaining share is generally payable in euro. In the prior year an amount of € 84 thousand had been payable in pound sterling.

The weighted average interest rate for short-term liabilities to banks in 2006 was 5.55 % (2005: 6.18 %) and for long-term liabilities to banks 3.63 % (2005: 2.84 %).

Trade payables, tax liabilities and other liabilities break down as follows: 26. TRADE PAYABLES, TAX

LIABILITIES AND

OTHER LIABILITIES

Total	Short	Total	Medium	Long
16,872	16,872	–	–	–
(6,253)	(6,253)	(–)	(–)	(–)
109,340	109,340	–	–	–
(112,416)	(112,416)	(–)	(–)	(–)
171,541	171,541	–	–	–
(227,212)	(227,212)	(–)	(–)	(–)
25,655	13,070	12,585	12,475	110
(27,775)	(27,332)	(443)	(322)	(121)
5,822	5,822	–	–	–
(1,952)	(1,952)	(–)	(–)	(–)
90,803	77,460	13,343	13,136	207
(138,896)	(138,896)	(–)	(–)	(–)
420,033	394,105	25,928	25,611	317
(514,504)	(514,061)	(443)	(322)	(121)

Those liabilities with a residual term of between one and fi ve years are disclosed as medium term; all others as short or long-term. Other liabilities include the following material items: tax liabilities not relating to income taxes of € 14,902 thousand (2005: € 18,422 thousand), liabilities relating to social security of € 4,328 thousand (2005: € 10,628 thousand), liabilities to employees of € 31,893 thousand (2005: € 39,577 thousand) and derivative fi nancial instruments of € 1,438 thousand (2005: € 4,572 thousand). There are also obligations from restructuring measures of € 19,376 thousand (2005: € 35,657 thousand) which are explained in note 12. The cash fl ow statement shows how the cash and cash equivalents of the Group changed in the course of the reporting period as a result of cash received and paid. In accordance with IAS 7 "Cash Flow Statements" a distinction is made between cash received from operating activities and that received from investing and fi nancing activities. The cash and cash equivalents presented in the cash fl ow statement contain all liquid assets shown in the balance sheet, i.e. cash in hand, checks and bank balances with an original term of less than three months. The cash fl ows from investing and fi nancing activities are determined on the basis of payments made or received. The cash fl ow from operating activities, on the other hand, is derived indirectly from the earnings before interest and taxes. When performing the indirect calculation, changes in balance sheet items considered in connection with ordinary activities are adjusted for effects from currency translation and changes in the consolidated group. Therefore, there are differences related to changes in the balance sheet items concerned in the published consolidated fi nancial statements. No entities or shares in entities were acquired in the reporting period. In the 2005 reporting period, the remaining shares (26 %) in Schenck Avery Ltd., Noida (India) (renamed to Schenck RoTec India Ltd.) of € 297 thousand were acquired in cash. The successive share purchase resulted in additional goodwill of € 263 thousand. The goodwill was calculated as the difference between the 27. NOTES TO THE CON-SOLIDATED CASH FLOW STATEMENT ACQUISITIONS

the acquisition was however resold in the same year and reported as a disposal.

purchase price and the pro rata equity acquired. Another purchase resulted in goodwill of € 375 thousand;

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62 NOTES

OTHER NOTES

28. 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 fi nancial statement data is presented by division and region. The segmentation aims to make the earnings power and the net assets and fi nancial situation and the regional spread of the activities more transparent.

The primary reporting is based on the divisions of the Group. The Dürr Group consists of a management holding and two divisions differentiated by product and performance spectrum, each with global responsibility for their products and results.

PAINT AND ASSEMBLY SYSTEMS DIVISION

MEASURING AND PROCESS SYSTEMS DIVISION

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

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

The principles underlying the Group's management reporting and controlling are substantially the same as those described in these consolidated fi nancial statements according to IFRS. Dürr measures the performance of its divisions by earnings before interest and taxes (EBIT) in accordance with the disclosure in the consolidated income statement.

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

in € k	Paint and Assembly Systems	Measuring and Process Systems	Corporate Center	Consoli- dation	Continuing operations	Disconti- nued operations	Total divisions
2006
External sales revenues	1,083,846	277,344	–	–	1,361,190	144	1,361,334
Sales revenues with
other divisions	347	4,104	–	– 4,451	–	–	–
Total sales revenues	1,084,193	281,448	–	– 4,451	1,361,190	144	1,361,334
Operating EBIT	29,887	9,772	– 662	63	39,060	– 1,899	37,161
Restructuring expenses / onerous
contracts	– 17	– 5,187	– 226	–	–5,430	740	– 4,690
Impairment losses	– 511	–	–	–	–511	–	– 511
Profi t/loss from sale
of discontinued operations	–	–	–	–	–	242	242
Earnings before interest and taxes (EBIT)	29,359	4,585	– 888	63	33,119	– 917	32,202
Profi t/loss from associates	1,629	1,065	–	–	2,694	–	2,694
Amortization and depreciation	– 11,341	– 4,771	– 3,911	–	– 20,023	–	– 20,023
Capital expenditures	5,779	2,969	83	–	8,831	3	8,834
Investments in associates	5,752	7,229	–	–	12,981	–	12,981
Assets	653,447	294,463	501,193	– 551,469	897,634	–	897,634
Liabilities	396,636	126,432	22,921	– 15,385	530,604	–	530,604
Employees (as of December 31)	3,786	1,821	43	–	5,650	–	5,650

in € k	Paint and Assembly Systems	Measuring and Process Systems	Corporate Center	Consoli- dation	Continuing operations	Disconti- nued operations	Total divisions
2005
External sales revenues	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 expenses/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
Profi t/loss from sale
of discontinued operations	–	–	–	–	–	116,090	116,090
Earnings before interest and taxes (EBIT)	– 41,377	– 19,148	– 9,527	– 241	– 70,293	139,327	69,034
Profi t/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
Investments in associates	4,667	8,225	–	–	12,892	–	12,892
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 December 31)	3,979	1,966	47	–	5,992	3	5,995

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

in € k	2006	2005
Operating EBIT from continuing operations	39,060	3,484
Restructuring expenses/onerous contracts	– 5,430	– 45,903
Impairment losses less insurance claim	– 511	– 27,874
Earnings before interest and taxes (EBIT) from continuing operations	33,119	– 70,293
Profi t/loss from associates	2,694	– 1,159
Other investment income	7	–
Interest and similar income	6,655	2,189
Interest and similar expenses	– 27,640	– 37,357
Income taxes	– 6,634	2,073
Profi t/loss from continuing operations	8,201	– 104,547

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

in € k	Dec. 31, 2006	Dec. 31, 2005
Segment assets of continuing operations	897,634	998,405
Cash and cash equivalents	101,482	124,658
Income tax receivables	7,689	6,158
Investments in associates	12,981	12,892
Deferred tax assets	19,151	43,170
Assets of a disposal group classifi ed as held for sale	1,129	–
Gross assets of continuing operations	1,040,066	1,185,283

in € k	Dec. 31, 2006	Dec. 31, 2005
Segment liabilities of continuing operations	530,604	644,545
Bond	189,840	187,901
Liabilities to banks	13,050	21,692
Liabilities from fi nance lease	6,423	7,252
Tax liabilities including other taxes	28,724	33,450
Deferred tax liabilities	25,725	44,408
Gross liabilities of continuing operations 1	794,366	939,248

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

in € k	Germany	Other European countries	North/ Central America	South America	Asia/ Africa/ Australia	Continuing operations
2006
External sales revenues	281,382	513,546	258,832	27,235	280,195	1,361,190
Capital expenditures	5,114	1,084	1,793	84	756	8,831
Assets	396,708	250,872	192,196	20,668	37,190	897,634
Employees (as of December 31)	2,995	1,145	801	78	631	5,650
2005
External sales revenues	310,073	502,475	397,740	15,250	175,064	1,400,602
Capital expenditures	10,200	1,028	5,621	695	948	18,492
Assets	682,507	192,357	96,279	5,398	21,864	998,405
Employees (as of December 31)	3,205	1,303	886	83	515	5,992

In the 2006 reporting period, sales with one customer accounted for 15.1 % of consolidated net sales revenues compared to 14.1 % in the 2005 reporting period. Another customer accounted for 9.9 % of consolidated net sales revenues in the 2006 reporting period compared to 3.8 % in 2005. In the 2006 reporting period, sales with a third customer accounted for 8.7 % of consolidated net sales revenues compared to 20.2 % in the 2005 reporting period. Entities that are known to be under common control are considered together as one customer.

29. 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. Expenses of € 377 thousand (2005: € 522 thousand for offi ce and travel expenses, other cost reimbursements and consulting activities) were payable to Heinz Dürr GmbH, Berlin, of which Dr.-Ing. E. h. Heinz Dürr is general manager, for the reimbursement of offi ce and travel expenses relating to supervisory board activities and for cost reimbursements for the Dürr offi ce in the German capital, Berlin. For his former activity as managing director, Dr.-Ing. E. h. Heinz Dürr also received benefi ts from the pension pledge of April 2, 1978 (supplemented December 21, 1988) of € 212 thousand (2005: € 212 thousand). In the reporting period a car was purchased from Heinz Dürr GmbH for € 81 thousand.

Mr. Joachim Schielke is a Supervisory Board member of Dürr AG, member of the Board of Management of Landesbank Baden-Württemberg and Chairman of the Board of Management of Baden-Württembergische Bank. From the current business relationship, there was a balance at Baden-Württembergische Bank of € 49,607 thousand (2005: € 78,835 thousand). From transactions with Baden-Württembergische Bank there are interest expenses in the reporting period of € 375 thousand (2005: € 2,191 thousand). The warranties and guarantees issued by Baden-Württembergische Bank on behalf of Dürr amounted to € 24,206 thousand as of the balance sheet date (2005: € 29,209 thousand).

Dr. Tessen von Heydebreck was a Supervisory Board member of Dürr AG until May 24, 2006 and is a member of the Board of Management of Deutsche Bank AG. From the current business relationship, there was a balance at Deutsche Bank AG of € 12,294 thousand (2005: € 14,676 thousand). From the transactions with Deutsche Bank AG there are interest expenses in the reporting period of € 387 thousand (2005: € 2,194 thousand). The warranties and guarantees issued by Deutsche Bank AG on behalf of Dürr amounted to € 23,039 thousand as of the balance sheet date (2005: € 34,062 thousand).

For additional information about the fi nancial liabilities, we refer to note 25.

For further information about members of the Supervisory Board of Dürr AG, please refer to note 35.

2 BASIC INFORMATION 16 FROM THE MARKETS 23 MANAGEMENT REPORT 56 CONSOLIDATED FINANCIAL STATEMENTS 117 OTHER 103

The forward exchange transactions and interest hedges are mainly processed by Baden-Württembergische Bank and Deutsche Bank AG. For details of the forward exchange transactions and interest hedges, please refer to note 33.

The Board of Management confi rms that all the related-party transactions described above were carried out at arm's length conditions. For further information about members of the Board of Management of Dürr AG, please refer to note 35.

30. CONTINGENT LIABILITIES

As of the balance sheet date contingent liabilities were as follows:

in € k	Dec. 31, 2006	Dec. 31, 2005
Contingent liabilities from guarantees, notes and check guarantees	17,524	10,333
Other	11,614	4,594
	29,138	14,927

The Company assumes that these contingent liabilities will not lead to any liabilities and thus cash outfl ows.

31. OTHER FINANCIAL OBLIGATIONS

RENTAL AND LEASE AGREEMENTS (OPER ATING LEASES) Besides liabilities, provisions and contingent liabilities, the Group has other fi nancial obligations, in particular from rental and lease agreements for buildings, furniture and fi xtures, offi ce space and vehicles. Future minimum payments up to the fi rst contractually agreed termination date are as follows:

in € k	Dec. 31, 2006	Dec. 31, 2005
Within one year	15,048	14,364
Between one and fi ve years	35,054	33,444
More than fi ve years	23,206	32,023
	73,308	79,831

In the 2006 reporting period, expenses of € 19,196 thousand (2005: € 20,594 thousand) were recorded in the income statement for operating leases.

FINANCE LEASES

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

in € k	Dec. 31, 2006	Dec. 31, 2005
Within one year	1,691	1,839
Between one and fi ve years	5,601	6,481
More than fi ve years	1,507	1,843
Total minimum lease payments	8,799	10,163
less interest expense from discounting	– 2,376	– 2,911
Present value of the minimum lease payments	6,423	7,252

OTHER FINANCIAL

OBLIGATIONS

The other fi nancial obligations that do not result from rental and lease agreements are listed below.

in € k	2007	2008	2009	2010	2011	Thereafter	Total
Other continuous obligations	15,641	4,846	4,817	4,812	4,829	1,471	36,416

32. RISKS	The Group operates in countries in which there are political and commercial risks. From a current perspec tive, the Group is not aware of any effects of such risks for the Group and they are therefore not included in these consolidated fi nancial 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 fi nancial position. Provision has been made for litigation costs.
	There is litigation pending related to a tax fi eld audit conducted in reporting period 2000. A claim for back-tax of € 900 thousand plus possible interest is currently being heard. The Board of Management estimates the chances of the Group winning the litigation as more likely than not. Fees for legal counsel and consulting associated with the case have been posted against earnings.
33. FINANCIAL INSTRUMENTS	Due to its international operations, Dürr is exposed to currency, interest rate, liquidity and credit risks. The general regulations for a group-wide risk policy are laid out in the group guidelines.
USE OF DERIVATIVE FINANCIAL INSTRUMENTS	Derivative fi nancial instruments are used in the Group to minimize the risks concerning changes in ex change rates, interest rates or cash fl ows 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 fi nancial instru ments described below. All fi nancial derivatives as well as their underlyings are subject to regular internal control and measurement in accordance with the directive of the Board of Management. Derivative con tracts are only entered into with banks with a good credit standing. Derivative fi nancial instruments are only entered into to hedge the operating business.
CREDIT RISK	The credit risk results from the danger that business partners may fail to perform their obligation with pri mary and derivative fi nancial instruments and that capital losses could be incurred as a result. Credit rat ings are performed for all new customers. The payment patterns of regular customers are 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 are carried or will arise in the ordinary course of business in a currency other than the functional currency of the entity. Forward exchange trans actions are entered into to hedge against exchange rate fl uctuations from cash fl ows relating to anticipated

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2 BASIC INFORMATION 16 FROM THE MARKETS 23 MANAGEMENT REPORT 56 CONSOLIDATED FINANCIAL STATEMENTS 117 OTHER 105

purchasing and sales transactions with terms of up to 26 months (2005: 23 months). Within the next twelve months, forward exchange transactions will lead to cash fl ows with a cash price equivalent of € 103,919 thousand, and in the 14 months thereafter to cash fl ows with a cash price equivalent of € 5,556 thousand. 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 fi ve years. Interest rate risks result from interest rate changes that have a negative effect on the Group's net assets, fi nancial position and results of operations. Interest rate fl uctuations lead to changes in the interest income and in the carrying amounts of the assets subject to interest. Liabilities with fl oating interest rates are counterbalanced by bank balances with fl oating interest rates of a similar amount. This functions like a natural hedge so that no other derivative instruments are used to hedge interest risks. Unused lines of credit available to the Group ensure that it has suffi cient funds. The fi nancial instruments of the Group which are not accounted for at fair value mainly consist of cash and cash equivalents, trade receivables, trade payables and other liabilities, overdraft facilities and longterm loans. The carrying amount of cash and cash equivalents and of overdraft facilities approximates fair value due to the high liquidity of the instruments. Receivables and payables subject to normal trade credit terms and carried at historical cost also approximate fair value. 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 29, 2006, the bond was listed at 108.00 % which is equal to a fair value of € 216,000 thousand (2005: 107.25 %; € 214,500 thousand). Depending on their fair value at the balance sheet date, derivative fi nancial instruments are reported under other assets (positive fair value) or other liabilities (negative fair value) respectively. The scope and fair value of the fi nancial instruments as of December 31, 2006 are shown below: INTEREST RATE RISK LIQUIDITY RISK FAIR VALUES

		Nominal value		Positive market value	Negative market value
in € k	2006	2005	2006	2005	2006	2005
Interest/currency swaps	27,127	27,127	–	–	205	3,441
Interest rate swaps	–	20,000	–	–	–	124
Forward exchange contracts	109,475	184,469	1,793	1,264	1,233	1,007

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

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

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 fulfi lled, the changes in fair value are accounted for as cash fl ow 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 classifi ed as cash fl ow hedges is recorded through accumulated other comprehensive income. Upon realization, the values recorded in equity are transferred to the interest result (interest swaps), the cost of sales (forward exchange contracts) or other operating expenses (interest/currency swaps) in the income statement. For the changes in gains and losses recorded in equity we refer to note 21. In the reporting periods 2006 and 2005 there was no net loss in the interest result from interest rate swaps due to ineffectiveness. It is anticipated that through the occurrence of the underlying € 112 thousand of net gains (2005: net losses of € 554 thousand) included in accumulated other comprehensive income will be reclassifi ed to income during the next twelve months.

34. ADDITIONAL DISCLOSURE REQUIREMENTS

EXEMPTION PURSUANT TO SEC. 264 (3) HGB	With reference to Sec. 264 (3) HGB, the fi nancial statements of the following German subsidiaries will not be published:
	Dürr Systems GmbH, Stuttgart
	Dürr Ecoclean GmbH, Filderstadt
	Dürr International GmbH, Stuttgart
	Dürr Special Material Handling GmbH, Wyhlen
	Dürr Somac GmbH, Stollberg
35. OTHER NOTES
SUBSEQUENT EVENTS	On March 5, 2007, the personnel committee of the Supervisory Board of Dürr AG proposed to the Super visory Board that Ralph Heuwing be appointed as a regular member of the Board of Management as of May 14, 2007. Ralph Heuwing will take over the responsibilities of Martin Hollenhorst as Chief Financial Offi cer. Martin Hollenhorst had requested that his employment agreement that ends in April 2008 will not be extended. The personnel committee of the Supervisory Board therefore suggested that the contract be terminated prematurely in mutual agreement. The appointment of Ralph Heuwing will be made at the Supervisory Board meeting on March 28, 2007.
GERMAN CORPORATE GOV	The declaration of compliance prescribed by Sec. 161 AktG was submitted by the Board of Management

GERMAN CORPORATE GOV-ERNANCE CODE: DECLARA-TION OF COMPLIANCE PUR-SUANT TO SEC. 161 AKTG

and the Supervisory Board of Dürr AG on December 20, 2006 and made accessible to the shareholders on the Company's website.

AVERAGE HEADCOUNT

Annual average number of employees:

	2006	2005
Wage earners	1,998	4,643
Salaried employees	3,434	5,107
Trainees/apprentices	300	186
	5,732	9,936

As of December 31, 2006, Dürr had 5,650 employees (2005: 5,992) in continuing operations. There were no employees in discontinued operations (2005: 3).

The audit fees of the auditors of the consolidated fi nancial statements recorded as an expense for the reporting period break down as follows:

FEES OF THE AUDITORS OF THE CONSOLIDATED FINANCIAL STATEMENTS

in € k	2006	2005
Statutory audit	457	838
Other advisory services	–	312
Tax advisory services	235	108
Other services rendered for the parent
company or subsidiaries	260	237
	952	1,495

108

RALF W. DIETER

Chairman

Chairman of the Board of Management of Carl Schenck AG

• Employee affairs director (since January 1, 2007)
• Paint and Assembly Systems
• Measuring and Process Systems
• Research and development, information technology (until December 31, 2006), quality management, human resources (since January 1, 2007)
• Dürr Inc.* (since January 19, 2006, Chairman)
• Schenck Test Automation Ltd.* (until January 31, 2006)

MARTIN HOLLENHORST

• Employee affairs director (until December 31, 2006)
• Commercial areas, law/patents, human resources (until December 31, 2006), risk management, corporate communication and investor relations, internal audit, information technology (from January 1, 2007)
• Olpidürr S.p.A.*
• Verind S.p.A.*

In the reporting period total expense for the Board of Management can be broken down as follows: Current employee benefi ts € 1,720 thousand (2005: € 2,551 thousand) and termination benefi ts of € 700 thousand (2005: 1,026 thousand).

The addition to the pension provisions for this group of persons in the 2006 reporting period amounted to € 58 thousand (2005: € 540 thousand).

The former members of the Board of Management received remuneration of € 899 thousand (2005: € 820 thousand). Provisions for pension obligations for this group of persons amounted to € 14,523 thousand as of December 31, 2006 (2005: € 15,400 thousand).

• Offi ces 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

62 NOTES

MEMBERS OF THE SUPERVISORY BOARD

DR.-ING. E. H. HEINZ DÜRR 1, 4

Entrepreneur, Berlin

Chairman

• Benteler AG (until April 26, 2006)
• Carl Schenck AG (until March 19, 2007, Chairman)
• Dürr Systems GmbH (Chairman)
• Dussmann AG & Co. KGaA
• ADC Krone GmbH (Chairman)
• Landesbank Baden-Württemberg (member of the administrative board)

PROF. DR. NORBERT LOOS1, 2, 4

Managing partner of Loos Beteiligungs-GmbH, Stuttgart

Deputy Chairman

• BHS-tabletop AG (Chairman)
• Carl Schenck AG (until March 19, 2007)
• Hans R. Schmid Holding AG (Chairman)
• LTS Lohmann Therapie-Systeme AG (Chairman)
• MVV-Energie AG
• Trumpf GmbH + Co. KG
• LTS Corp., USA (Chairman)
• Mannheimer Kongress- und Touristik GmbH
• Stadt Mannheim Beteiligungs gesell schaft mbH

HAYO RAICH 1, 3, 4

(since May 24, 2006) Chairman of the Group Works Council of Dürr AG, Stuttgart (since June 9, 2006) Deputy Chairman

Dürr Systems GmbH (since March 28, 2006, Deputy Chairman)

PETER WEINGART 1, 3

(until May 24, 2006) Chairman of the Group Works Council of Dürr AG, Stuttgart (until January 19, 2006) Deputy Chairman

Dürr Systems GmbH (until March 28, 2006, Deputy Chairman)

BERNHARD ACKERMANN 2, 3

(since May 24, 2006) Chairman of the Works Council of Dürr Systems GmbH at the Bietigheim-Bissingen site

LIESELOTTE DEDEK-FRIED 2, 3

(until May 24, 2006) Member of the Works Council of Schenck RoTec GmbH, Darmstadt

DR. DR. ALEXANDRA DÜRR

(since May 24, 2006) Senior physician at the Neurogenetic Clinic of Département de Génétique, Hôpital de la Salpêtrière, Paris

BENNO EBERL 1, 3

Trade Union Secretary of IG Metall administrative offi ces, Stuttgart

• ThyssenKrupp Elevator AG (Deputy Chairman)

• ThyssenKrupp Aufzüge GmbH (Deputy Chairman)

• 1 Member of the executive committee and personnel committee

• 2 Member of the audit committee 3 Employee representative
• 4 Member of the mediation committee
• Membership in statutory supervisory boards
• Membership in comparable domestic and foreign control bodies (of business entities)

PROF. DR.-ING. HOLGER HANSELKA

(since May 24, 2006) Professor for System Reliability and Machine Acoustics at the faculty of Mechanical and Process Engineering at Darmstadt Technical University Head of the Fraunhofer-Institute for Structural Durability and System Reliability LBF in Darmstadt

PROF. DIPL.-ING. JÖRG MENNO HARMS (until May 24, 2006)

General manager of Menno Harms GmbH, Stuttgart

• Heraeus Holding GmbH
• Hewlett-Packard GmbH (Chairman)
• Hypo Real Estate Bank International AG
• Jenoptik 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

(until May 24, 2006)

Member of the management board of Deutsche Bank AG, Frankfurt/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

ERICH HORST 3, 4

(since May 24, 2006) Chairman of the Works Council of Dürr Ecoclean GmbH at the Monschau facility Offi cer for quality and environmental management

WERNER KRAMP 3

(until May 24, 2006) Chairman of the Works Council of Dürr Assembly Products GmbH, Püttlingen (until January 1, 2006) Member of the Works Council of Dürr Assembly Products GmbH, Püttlingen (until May 6, 2006)

1 Member of the executive committee and personnel committee

• 2 Member of the audit committee
• 3 Employee representative
• 4 Member of the mediation committee Membership in statutory supervisory boards
• Membership in comparable domestic and foreign control bodies (of business entities)

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2 BASIC INFORMATION 16 FROM THE MARKETS 23 MANAGEMENT REPORT 56 CONSOLIDATED FINANCIAL STATEMENTS 117 OTHER 111

62 NOTES

HARALD LAMBACHER 3

Senior employee at Dürr Systems GmbH, Stuttgart

GÜNTER LORENZ 2, 3

Principal Authorized Representative of IG Metall administrative offi ces, Darmstadt

Carl Schenck AG (until March 19, 2007) Siemens VDO Automotive AG (until April 1, 2006)

JOACHIM SCHIELKE 2

Chairman of the management board of Baden-Württembergische Bank, Stuttgart Member of the management board of Landesbank Baden-Württemberg, Stuttgart

• ICS Informatik Consulting Systems AG
• Internationales Bankhaus Bodensee AG (until February 20, 2006, Chairman)
• Süd Private Equity Management GmbH & Co. KGaA (Deputy Chairman)
• Wüstenrot & Württembergische AG (since January 1, 2006)
• Behr GmbH & Co. KG
• BWK GmbH Unternehmensbeteiligungs gesellschaft (Chairman)
• Landesbank Rheinland Pfalz (deputy member of the administrative board)
• Leitz GmbH & Co. KG
• MKB Mittelrheinische Bank GmbH (Chairman)
• MMV Leasing GmbH (Chairman of the advisory board))

DR. HANS MICHAEL SCHMIDT-DENCKER

Spokesperson of the management of BWK GmbH Unternehmensbeteiligungsgesellschaft, Stuttgart

• Sick AG
• Behr GmbH & Co. KG
• Bizerba GmbH & Co. KG
• BW Mergers & Acquisitions GmbH
• Dr. Haas GmbH
• LOBA GmbH & Co. KG (since September 5, 2006)
• Mypegasus Beteiligungs-GmbH (until September 13, 2006)
• Schmidt Holding GmbH (Chairman)

In the reporting period, total remuneration of the Supervisory Board totaled € 374 thousand (2005: € 298 thousand).

• 1 Mitglied Vermittlungsausschuss und Personalausschuss Member of the executive committee and personnel committee
• 2 Mitglied Bilanzausschuss Member of the audit committee
• 3 Vertreter der Arbeitnehmer Employee representative
• Mitgliedschaft in gesetzlich zu bildenden Aufsichtsräten 4 Member of the mediation committee Membership in statutory supervisory boards
• Mitgliedschaft in vergleichbaren in- und ausländischen Kontrollgremien * Konzernmandat Membership in comparable domestic and foreign control bodies (of business entities)

36. STATEMENT OF CHANGES IN NON-CURRENT ASSETS

INTANGIBLE ASSETS

in € k	Goodwill	Franchises, industrial rights and similar rights	Capitalized development costs	Prepayments for intangible assets	Continuing operations
Accumulated cost
as of January 1, 2005	308,801	63,309	9,257	2,202	383,569
Reclassifi cation pursuant to IFRS 5	– 48,870	– 4,466	– 440	–	– 53,776
Currency differences	7,401	1,281	907	206	9,795
Additions	263	2,425	4,451	336	7,475
Reclassifi cations	–	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
Currency differences	– 5,081	– 508	– 736	– 13	– 6,338
Additions	–	1,344	4,808	3,026	9,178
Reclassifications	–	1,544	– 11	– 1,533	–
Disposals	–	– 2,966	– 257	– 198	– 3,421
Accumulated cost
as of December 31, 2006	262,296	49,884	17,315	3,170	332,665
Accumulated amortization as of January 1, 2005	–	37,063	1,223	147	38,433
Reclassifi cation pursuant to IFRS 5	–	– 3,211	– 39	–	– 3,250
Currency differences Scheduled amortization	– –	950 7,119	192 1,379	203 40	1,345 8,538
Impairment losses	–	10,460	128	–	10,588
Reclassifi cations	–	1	–	–	1
Disposals	–	– 9,957	– 427	–179	– 10,563
Accumulated amortization as of December 31, 2005	–	42,425	2,456	211	45,092
Currency differences	–	– 484	– 256	– 13	– 753
Scheduled amortization	–	5,109	1,933	–	7,042
Disposals	–	– 2,966	– 215	– 198	– 3,379
Accumulated amortization
as of December 31, 2006	–	44,084	3,918	–	48,002
Net carrying amount as of December 31, 2006	262,296	5,800	13,397	3,170	284,663
Net carrying amount as of December 31, 2005	267,377	8,045	11,055	1,677	288,154
Net carrying amount as of January 1, 2005	308,801	26,246	8,034	2,055	345,136

62 NOTES

PROPERTY, PLANT AND EQUIPMENT

in € k	Land, land rights and buildings including buildings on third-party land	Investment property	Technical equipment and machines	Other equipment, furniture and fixtures	Prepayments and assets under construction	Continuing operations
Accumulated cost
as of January 1, 2005	172,979	–	39,636	105,615	3,618	321,848
Reclassifi cation pursuant to IFRS 5	2,705	–	– 3,783	– 11,937	– 2	– 13,017
Reclassifi cation pursuant to IAS 40	– 27,842	27,842	–	–	–	–
Currency differences	8,729	–	2,391	4,606	178	15,904
Additions	6,307	868	2,486	6,690	2,141	18,492
Reclassifi cations	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
Currency differences	– 5,313	–	– 1,815	– 2,687	– 155	– 9,970
Additions	1,723	677	1,662	4,092	680	8,834
Reclassifi cations	113	–	2,280	– 359	– 2,034	–
Disposals	– 18,511	–	– 4,812	– 15,067	– 63	– 38,453
Reclassifi cation to assets held for sale	– 467	–	–	–	–	– 467
Accumulated cost as of December 31, 2006	142,477	29,387	37,264	71,580	789	281,497
Accumulated depreciation as of January 1, 2005	60,247	–	30,280	83,151	–	173,678
Reclassifi cation pursuant to IFRS 5	1,459	–	– 2,592	– 8,648	–	– 9,781
Reclassifi cation pursuant to IAS 40	– 9,442	9,442	–	–	–	–
Currency differences	3,469	–	1,703	3,262	–	8,434
Scheduled depreciation	4,415	729	2,901	6,980	–	15,025
Impairment losses	8,804	5,471	464	1,847	–	16,586
Reclassifications	1,962	–	493	1,580	–	4,035
Disposals	– 465	–	– 1,146	– 19,552	–	– 21,163
Accumulated depreciation as of December 31, 2005	70,449	15,642	32,103	68,620	–	186,814
Currency differences	– 2,665	–	– 1,288	– 2,022	–	– 5,975
Scheduled depreciation	3,745	476	2,223	5,581	–	12,025
Impairment losses	842	–	–	–	–	842
Reclassifications	–	–	406	– 406	–	–
Disposals	– 12,865	–	– 4,634	– 14,277	–	– 31,776
Reclassifi cation to assets held for sale	– 241	–	–	–	–	– 241
Accumulated depreciation as of December 31, 2006	59,265	16,118	28,810	57,496	–	161,689
Net carrying amount as of December 31, 2006	83,212	13,269	8,454	14,084	789	119,808
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 January 1, 2005	112,732	–	9,356	22,464	3,618	148,170

FINANCIAL ASSETS

in € k	Investments in associates	Other investments	Long-term securities	Other loans	Continuing operations
Accumulated cost
as of January 1, 2005	17,371	2,031	565	2,868	22,835
Reclassifi cation pursuant to IFRS 5	371	–	– 195	–	176
Currency differences	256	– 1	7	600	862
Additions	1,569	–	–	220	1,789
Reclassifi cations	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
Reclassifi cation to assets held for sale	– 1,540	–	–	–	– 1,540
Currency differences	– 878	–	– 1	– 115	– 994
Additions	2,329	–	–	1,644	3,973
Disposals	– 772	– 1,828	– 9	– 5	– 2,614
Accumulated cost
as of December 31, 2006	16,384	29	367	4,966	21,746
Accumulated write-downs
as of January 1, 2005	1,609	200	1	–	1,810
Reclassifi cation pursuant to IFRS 5	–	–	– 1	–	– 1
Currency differences	–	– 1	–	–	– 1
Impairment losses	2,744	700	–	–	3,444
Disposals	–	– 173	–	–	– 173
Accumulated write-downs
as of December 31, 2005	4,353	726	–	–	5,079
Impairment losses	–	–	–	114	114
Reversals of impairment losses	– 950	–	–	–	– 950
Disposals	–	– 699	–	–	– 699
Accumulated write-downs
as of December 31, 2006	3,403	27	–	114	3,544
Net carrying amount as of December 31, 2006	12,981	2	367	4,852	18,202
Net carrying amount as of December 31, 2005	12,892	1,131	377	3,442	17,842
Net carrying amount as of January 1, 2005	15,762	1,831	564	2,868	21,025

62 NOTES

37. LIST OF GROUP SHAREHOLDINGS

Name and location	Share of capital in %
Germany
Dürr Systems GmbH, Stuttgart 1, 2	100
Dürr Ecoclean GmbH, Filderstadt 1, 2	100
Dürr Grundstücks-GmbH, Stuttgart 2	100
Dürr International GmbH, Stuttgart 1, 2	100
Dürr Somac GmbH, Stollberg 1, 2	100
Dürr Special Material Handling GmbH, Wyhlen 1, 2	100
Carl Schenck AG, Darmstadt 2	100
Schenck RoTec GmbH, Darmstadt 1, 2	100
Schenck Atis GmbH, Darmstadt 1, 2	100
Schenck Technologie- und IndustriePark GmbH, Darmstadt 1, 2	100
Dürr Assembly Products GmbH, Püttlingen 1, 2	100
Gades Grundstücksverwaltungsgesellschaft mbH & Co.Vermietungs KG, Mainz 4	100
Fludicon GmbH, Darmstadt 5	14
Unterstützungseinrichtung der Carl Schenck AG, Darmstadt, GmbH, Darmstadt 5	100

Other EU countries
Dürr Anlagenbau Ges. m.b.H., Zistersdorf / Austria 2	100
Dürr Ltd., Warwick / United Kingdom 2	100
Schenck Ltd., Warwick / United Kingdom 2	100
Schenck Automation Systems Ltd., Warwick / United Kingdom 2	100
Schenck Test Automation Ltd., Warwick / United Kingdom 2	100
Dürr Ecoclean S.A.S., Loué / France 2	100
Dürr Systems S.A.S., Montigny-le-Bretonneux / France 2	100
Schenck S.A.S., Cergy-Pontoise / France 2	100
Dürr Systems Spain S.A., San Sebastian / Spain 2	100
Dürr Ecoclean S.A., Barcelona / Spain 2	100
Olpidürr S.p.A., Novegro di Segrate / Italy 2	65
Verind S.p.A., Rodano / Italy 3	50
Polisistem S.r.l., Turin / Italy 3	29
CPM S.p.A., Beinasco / Italy 3	50
Schenck Italia S.r.l., Paderno Dugnano / Italy 2	100
Schenck Vaegt- og Maskinfabrik ApS., Copenhagen / Denmark 2	100
Carl Schenck Machines en Installaties B.V., Rotterdam / Netherlands 2	100
Dürr Poland Sp. z o.o., Radom / Poland 2	100
Dürr Ecoclean spol. s r.o., Oslavany / Czech Republic 2	100
Dürr Systems Slovakia spol. s r.o., Bratislava / Slovak Republic 2	100

1 Profi t and loss transfer agreement with the respective parent

2 Fully consolidated entity in the Dürr Group

3 Associate in the Dürr Group

4 Not consolidated because only 10 % of voting rights

5 Non-consolidated entity in the Dürr Group

116

Name and location	capital in %
Other European countries
Schenck Industrie-Beteiligungen AG, Glarus / Switzerland2	100
North / Central America
Dürr Inc., Plymouth, Michigan / USA2	100
Dürr Systems Inc., Plymouth, Michigan / USA2	100
Dürr Ecoclean Inc., Wixom, Michigan / USA2	100
Dürr Energy Management Inc., Plymouth, Michigan / USA2 (formerly Dürr Sigma Systems Inc.)	100
Schenck Corporation, Deer Park, New York / USA2	100
Schenck RoTec Corporation, Troy, Michigan / USA2	100
Schenck Trebel Corporation, Deer Park, New York / 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., Queretaro / Mexico2	100
South America Dürr Brasil Ltda., São Paulo / Brazil 2	100
Irigoyen 330 S.A., Cap. Fed. Buenos Aires / Argentina2	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	100
Dürr Korea Inc., Seoul / South Korea2	100
Schenck Shanghai Testing Machinery Corporation Ltd., Shanghai / P. R. China3	50
Schenck Shanghai Testing 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 the
• respective parent
• 2 Fully consolidated entity in the Dürr Group
• 3 Associate in the Dürr Group
• 4 Not consolidated because only 10% of voting rights
• 5 Non-consolidated entity in the Dürr Group

Stuttgart, March 19, 2007

Dürr Aktiengesellschaft

The Board of Management

RALF W. DIETER MARTIN HOLLENHORST

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OTHER

STATEMENT BY THE BOARD OF MANAGEMENT

As the legal representatives of Dürr AG, we declare, to the best of our knowledge, that the consolidated fi nancial statements, prepared in accordance with the applicable accounting standards, present a true and fair view of the Dürr Group's assets, liabilities, fi nancial position, and profi t or loss. We also declare, to the best of our knowledge, that the Group management report gives a true and fair view of the development of business including the results of operations and the position of the Group and describes the principal opportunities and risks of expected future developments.

RALF W. DIETER, CHAIRMAN OF THE BOARD OF MANAGEMENT

MARTIN HOLLENHORST, MEMBER OF THE BOARD OF MANAGEMENT

GERMANY

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

Carl Schenck AG Darmstadt, Phone: +49 61 51 32-0 schenck@schenck.net

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

Bietigheim-Bissingen, Phone: +49 71 42 78-0 durr.apt@durr.com

Braunschweig, Phone: +49 531 21 59-0 FAS@durr.com

Ochtrup, Phone: +49 25 53 927-0 rebekka.beckmann@durr.com

• Dürr Somac GmbH Stollberg/Erzg., Phone: +49 37 29 65 47-0 somac@durr.com
• Dürr Special Material Handling GmbH Grenzach-Wyhlen, Phone: +49 76 24 31-0 dsmh@durr.com
• Dürr Assembly Products GmbH Püttlingen, Phone: +49 68 98 692-0 durr-ap@durr.com
• Dürr Ecoclean GmbH Filderstadt, Phone: +49 711 70 06-0 info.fi lderstadt@ecoclean.durr.com Monschau, Phone: +49 24 72 83-0

info.monschau@ecoclean.durr.com

Schenck RoTec GmbH Darmstadt, Phone: +49 61 51 32-23 11 schenck.rotec@schenck.net

AUSTRALIA

• Dürr Pty. Ltd. Adelaide, Phone: +61 882 55 43 33
• rcbambury@durr.co.uk

AUSTRIA

Dürr Anlagenbau Ges.m.b.H. Zistersdorf, Phone: +43 25 32 25 46 duerr.zistersdorf@durr.com

BRAZIL

• Dürr Brasil Ltda.
• São Paulo, Phone: +55 11 56 33 35 00 durrbrazil@durr.com.br

CHINA

• Dürr Paintshop Systems Engineering (Shanghai) Corp. Ltd. Shanghai, Phone: +86 21 62 19 37 19 general@durr.com.cn
• Schenck Shanghai Machinery Corp. Ltd. Shanghai, Phone: +86 21 62 65 96 63 ssm-rotec@online.sh.cn
• Schenck Shanghai Testing Machinery Corp. Ltd. Shanghai, Phone: +86 213 06 45 99

CZECH REPUBLIC

Dürr Ecoclean spol. s r.o. Oslavany-Padochov Phone: +42 54 64 23 52 23 info.czechia@ecoclean.durr.com

FRANCE

• Dürr Systems S.A.S. Montigny-le-Bretonneux Phone: +33 172 82 00 00 durr.france@durr.com
• Dürr Ecoclean S.A.S. Loué, Phone: +33 243 39 78 00 info.france@ecoclean.durr.com
• Schenck S.A.S. Cergy-Pontoise, Phone: +33 134 32 90 00 ssa@ssa.schenck.net

INDIA

• Dürr India Pvt. Ltd. Chennai, Phone: +91 24 32 36-20/21 sgupta10@durrindia.com
• Schenck RoTec India Ltd. Noida (U.P.), Phone: +91 120 25 63 17 41 79 sal@schenck-ind.com

ITALY

• Olpidürr S.p.A. Novegro di Segrate (MI), Phone: +39 02 70 21 21 sales@olpidurr.it
• Verind S.p.A. Rodano (MI), Phone: +39 029 59 51 71 direzione@verind.it
• CPM S.p.A. Beinasco (TO), Phone: +39 01 13 98 84 11 dir@cpm-spa.com
• Schenck Italia S.r.l. Paderno Dugnano (MI) Phone: +39 02 91 00 24 31 schenck.italia@sit.schenck.net

JAPAN

• Dürr Japan K.K. Yokohama, Phone: +81 454 75 36 71 apt@durr.co.jp
• Nagahama Seisakusho Ltd. Osaka, Phone: +81 726 96 33 01 nso@nagahama.co.jp

MEXICO

Dürr de Mexico S.A. de C.V. Queretaro, Phone: +52 44 21 92 57 00 durr.mexico@durrmex.com.mx

NETHERLANDS

Carl Schenck Machines en Installaties B.V. Rotterdam, Phone: +31 104 11 75 40 info@schenck.nl

POLAND

Dürr Poland Sp. z o.o. Radom, Phone: +48 483 61 01 00 durr@durr.pl

RUSSIA

Dürr Systems GmbH Moscow, Phone: +7 49 57 89 35 68 durr@durr.msk.ru

SLOVAKIA

Dürr Systems Slovakia spol. s r.o. Bratislava, info.slovakia@durr.com

SOUTH AFRICA

Dürr South Africa Pty. Ltd. Port Elizabeth, Phone: +27 413 93 54 00 durr@durrsa.co.za

SOUTH KOREA

Dürr Korea Inc. Seoul, Phone: +82 25 69 22 44 koch@durr.co.kr

SPAIN

Dürr Systems Spain S.A. Madrid, Phone: +34 915 51 76 63 durr-spain@durr-spain.com

San Sebastian, Phone: +34-9 43-31 70 00 durr-spain@durr-spain.com

Valladolid, Phone: +34 983 39 70 02 durr-spain@durr-spain.com

Viladecans, Phone: +34 936 47 25 25 durr-spain@durr-spain.com

TURKEY

Dürr Systems Ltd. Sti. Istanbul, Phone: +49 171 353 87 08 osman.soezeri@durr.com

UNITED KINGDOM

• Dürr Ltd. Warwick, Phone: +44 19 26 41 88 00 sales@durr.co.uk
• Schenck Ltd. Warwick, Phone: +44 19 26 41 88 98 rotec@schenck.co.uk

USA

• Dürr Systems Inc. Plymouth, Phone: +1 734 459 68 00 PSsales@durrusa.com FASsales@durrusa.com EESsales@durrusa.com
• Dürr Systems Inc. Auburn Hills, Phone: +1 248 745 85 00 APTsales@durrusa.com

Dürr Ecoclean Inc. Bowling Green, Phone: +1 419 352 75 01 henry@henryfi lters.com mail@hrblack.com

Wixom, Phone: +1 248 960 46 30 info.usa@ecoclean.durr.com

• Schenck RoTec Corp. Orion, Phone: +1 248 377 21 00 sales@schenck-turner.com
• Schenck Trebel Corp. Deer Park, Phone: +1 631 242 40 10 sales@schenck-usa.com

Paint and Assembly Systems

Measuring and Process Systems

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 "application technology" include painting robots, paint atomizers, paint supply systems, and color change systems.

B

BATH LIFE

In the context of cleaning technology, bath life describes the useful life of the cleaning agents used. A bath life of two months means that the cleaning agent must be replaced after two months.

BELT CLEANING SYSTEM

In a belt cleaning system, workpieces pass through the system and are cleaned on a belt or similar conveyor (e.g. chain conveyors).

C

CARRIER

In the RoDip rotational painting system, the carrier is a shaft that picks up the unpainted vehicle body on a skid, carries it through the entire length of the process, and rotates it in each of the tanks.

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.

D

DIGITAL FACTORY

The digital factory uses computer modeling to enable forward-looking, consistent planning and securing of production facilities. It makes it possible to test production processes and fl ows long before they are implemented and to fi x any problems that may arise.

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 outer surface as well as the cavities. After dipping, the paint is dried and cured as in other painting processes.

DIRECT ELECTROSTATIC CHARGING OF WATER-BASED PAINTS

High voltage is applied to the paint atomizer to give the paint droplets an electrostatic charge. The result is more effective paint application to the grounded vehicle body, minimal paint loss, and minimal soiling of the atomizer.

E

END OF LINE The area at the end of vehicle fi nal assembly where fully assembled vehicles are tuned, tested, and prepared for shipping.

ERP SYSTEM

(enterprise resource planning)

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.

F

FILLING SYSTEMS

Systems dispensing materials essential for automobile operation (e.g. brake fl uid, engine coolant, and air-conditioning refrigerant) in the fi nal assembly stage of production.

FILTRATION SYSTEMS (coolant recycling)

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 or fi ltration systems cool the used coolant and remove the shavings through fi ltration so the coolant can be reused in the machining process.

PL

PAINT ATOMIZERS

Paint atomizers ensure that paint is applied in an even spray stream. High-rotation atomizers reduce the paint to a fi ne spray mechanically and generate a bell-shaped spray stream. Air atomizers generate an oval-shaped spray stream. Electrostatic attraction is used to ensure a high degree of application effi ciency (paint utilization).

PHOTOGRAMMETRY

Photogrammetry is a process system for measuring objects' spatial positioning and three-dimensional form. Measurements are not taken directly on the objects themselves, but rather indirectly, on the basis of photographs or precise matrixes generated using special cameras. Stereophotogrammetry is used in Dürr wheel alignment test stands.

PLASMACURE

An ultraviolet curing process for drying paint. Instead of using UV lamps, PlasmaCure uses a plasma chamber in which a vacuum is created and a special gas mix is used to generate plasma. The plasma generates a high level of ultraviolet radiation, which cures the paint on all the surfaces of the vehicle body (or other vehicle components) and lends the coating greater resistance to scratching and chemical damage.

PRETREATMENT

Pretreatment is the fi rst of many steps in the painting process. The vehicle body is cleaned, degreased, and prepared, for example with phosphate, for subsequent coating – in a process that corresponds to the vehicle body material (steel, aluminum, etc.). The use of phosphate generates a conversion layer (nonmetallic crystal structure) for outstanding corrosion-prevention and better adhesion.

R

RODIP ROTATION DIP PROCESS

In this process, the vehicle body is rotated 360 degrees while it is in the tank. The rotation yields outstanding cleaning results during pretreatment and excellent painting quality and effi ciency. Because it reduces the amount of chemicals and touch-up work needed, it lowers unit costs. RoDip is used for dip-painting and pretreatment.

SUPERVISORY CONTROL SYSTEMS

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

T

TEST SYSTEMS

End-of-line testing systems test the functions of fully assembled vehicles, e.g. headlights and ABS.

TRANSFER SYSTEMS

High-throughput cleaning systems through which workpieces pass to be cleaned. Transfer systems have several treatment stations, each of which performs a different task (e.g. cleaning or drying). All of the stations are adjusted to suit the workpiece's specifi c geometry, to achieve optimum cleaning results.

TURNKEY PROJECT

Complete construction of a plant or production line by a single general contractor.

W

WATER-BASED PAINTS

General term for paints in which water largely replaces organic solvents. Thus, water-based paints contain less volatile organic components. Other paint types are solvent-based paints (contain only organic solvents) and solvent-free powder paints.

WHEEL GEOMETRY MEASURING SYSTEM

These systems determine the correct alignment of vehicle wheels. The wheels are aligned so that the vehicle's steering wheel is centered when the vehicle is moving straight ahead, to prevent uneven wear on the tires. On high-end vehicles, toe and camber (parallelism between the wheels as viewed from above and vertical tilt of the wheels, respectively) can also be adjusted on the front and rear axles.

2006 IN REVIEW

JA N UA RY

SATISFIED CUSTOMERS

Dürr receives three supplier awards in Asia, from Hyundai, Shanghai General Motors, and JAC. Hyundai orders a paint shop for its plant in Chennai, India.

FEBRUARY

HEINZ DÜRR INNOVATION AWARD Supervisory Board Chairman Heinz Dürr honors five employee teams for outstanding innovations. (Photo)

APRIL

AWARD OF EXCELLENCE

Dürr receives Volvo's Award of Excellence.

AUTOMATION LIVE

Dürr makes an appearance as Volkswagen partner at the Automation Live event at the Hannover Messe (fair).

MAY

NEW SUPERVISORY BOARD

The newly elected Supervisory Board meets for the first time following the annual shareholders' meeting on May 24.

J U N E

VOLKSWAGEN HONORS DÜRR

Dürr receives the Volkswagen Group Award for the conversion of the carmaker's final assembly plant in Mosel, Germany.

J U LY

NEW TRAINING CENTER IN KOREA

Dürr opens its new training center in Seoul, where Asian customers learn how to operate Dürr painting robots.

FIAT PLACES LARGE ORDER

Dürr receives a large order from Fiat in Italy for the construction of a complete paint shop.

LARGE-SCALE ORDER FOR CLEANING SYSTEMS

Our Cleaning and Filtration Systems business unit receives a large-scale order from General Motors for delivery of 16 transfer systems and 13 robot cells for cleaning engine and transmission parts. (Photo)

AUGUST

PAINT SHOP FOR AUTOMAKER DPCA

Dongfeng Peugeot Citroën Automobile (DPCA) places an order for the construction of a paint shop in Wuhan. This is Dürr's first turnkey paint shop for the Chinese-French joint venture. (Photo)

SEPTEMBER

NEW MEASURING SYSTEM: X-3DPROFILE

At an in-house fair in Püttlingen, Dürr Factory Assembly Systems presents its new wheel geometry measuring system, the x-3DProfile, which features a high level of measuring accuracy and flexible applications.

OCTOBER

GREEN PAINT SHOP UNVEILED

CEO Ralf Dieter presents the new Dürr Green Paint Shop concept at the World Automotive Congress in Yokohama. The concept helps reduce unit costs for automobile painting and improve energy consumption (see our report on page 18).

NOVEMBER

KUDOS FOR INNOVATIVE ENERGY CONCEPT

BMW Group's Spartanburg plant operates a Dürr paint shop that is powered by methane gas derived from biodegradable waste. Dürr receives special honors for the development in the PACE competition held by the US magazine Automotive News.

DECEMBER

FOCUS IS WORKING

Dürr achieves € 70 million in positive cash flow from operating activities in the fourth quarter of 2006.

LARGE-SCALE FASTPLANT ORDER

A customer in Mexico places the largest order to date for FAStplant, our modular final assembly system. (Photo)

FINANCIAL CALENDAR 2007

05-10-2007	Interim report on the first quarter of 2007
05-18-2007	Annual shareholders' meeting, Stuttgart
08-09-2007	Interim report on the first half of 2007
11-15-2007	Interim report on the first nine months of 2007

CONTACT

PLEASE CONTACT US FOR FURTHER INFORMATION:

Dürr AG Corporate Communications & Investor Relations Otto-Dürr-Strasse 8 70435 Stuttgart Phone +49 711 136-1785

Published by: Dürr AG, Otto-Dürr-Strasse 8, 70435 Stuttgart, Germany · The English translation of our 2006

Design and setting: 3st kommunikation, Mainz, Germany · Printing: mww.druck GmbH, Mainz-Kastel, Germany

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