KUKA AG — Management Reports 2006

Apr 12, 2006

automation moves.

glossary key figures / divisons

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management report

below last year's levels, but group earnings were weighed on by portfolio streamlining and restructuring. with the finishing of the restructuring program and the consolidation of the business, we are expecting earnings to grow already in 2006 and beyond.

strategy and organization

the iwka group

iwka is a mechanical and plant engineering automation group consisting of 83 consolidated companies. The focus is on automotive, robotics and packaging technology markets. The company combines the flexibility, creativity and speed of medium-size business units with the synergies, economies of scale and financial capacity of a consolidated group. This enables iwka to react quickly in fast-moving markets and be close to its customers throughout the world.

iwka Aktiengesellschaft is a management holding organization. The Group's three divisions and their segments are as follows:

To react quickly in fast-moving markets. 3

• iwka Automotive:
  • body-in-white systems: kuka Schweissanlagen (d) and aro (f)
  • assembly and testing systems: lsw (d), b&k (usa), j.w. Froehlich (d), gsn (d)
• iwka Robotics: kuka Roboter (d) and kuka Robotics Hungaria (Hungary)
• iwka Packaging:
  • dairy: hassia (d), erca (f), gasti (d), Benz+Hilgers (d), a+f (d)
  • pharmaceuticals/cosmetics: iwk vpt (d), Hüttlin (d), Manesty (gb), kp Aerofill (gb),
  • food products: r.a. Jones (usa), Packaging Technologies (usa), Fabrima (bra), hassia-Redatron (d),

All these companies compete with both key global players and medium-size firms. The Automotive division competes mainly with European companies and the carmakers themselves. Robot technology is a competitive market sector targeted by Japanese and European manufacturers. The packaging technology market is served mainly by European manufacturers.

iwka's largest business center is in Augsburg, where the headquarters of kuka Schweissanlagen and kuka Roboter are located. The companies of the Packaging division are located mainly in Europe and the United States.

Worldwide manufacturing and sales organizations representing all divisions, particularly in the United States and Western Europe, round out the internationally active Group's portfolio.

strategy

In the second half of 2005, the iwka Group launched the following initiatives:

• a broad-based repositioning of the company toward the automation of industrial production processes,
• simplification of the Group's organizational structures,
• streamlining of the management organization,
• optimization of business processes.

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Potential to be a market leader.

The initiatives were driven by the corporate goal to focus on sustainably improving shareholder value by strengthening our market positions and substantially growing our core automotive , robotics and packaging businesses. iwka has the potential to be a market leader in these segments. We will generate the necessary growth by focusing the portfolio and concentrating on the parts of the value chain in which we can achieve a leading market position based on technology and cost leadership. The completion of the product and service portfolio will be financed by free cash flow. The strategy will be supported by better penetration of existing customer groups and markets.

Innovations are one of the iwka Group's key growth drivers. In many areas of the company, innovations have already resulted in market leadership. However, for the future, we are aiming for a higher innovation rate in order to shorten the time to market of new products. Our objective is to be a first mover and quickly gain significant market share that will in turn lead to economies of scale.

iwka will also grow as a result of its new increased international orientation. To date, the company has followed its internationally active customers and primarily built new foreign manufacturing facilities in their vicinity. The latest agenda now calls for also acquiring local customers in the new growth regions of China, India and Russia.

automation strengthens competitiveness

In modern production systems, automation is the key to higher productivity and improved product quality, as well as reduced material consumption and careful use of scarce energy resources. Advanced automation solutions contribute substantially to improving the competitiveness of our customers, as proven by our many years of cooperating with leading automotive industry companies.

Automotive technology is an attractive growth market over the long term. Automotive manufacturers will continue to be our most important partners and innovation drivers in the future. In this sector, iwka focuses on car body production and robotics, as well as assembly and testing systems. The Group is in the process of expanding its portfolio of products and services for the automotive value chain. Starting in summer of 2006, we will build and operate a plant to manufacture car bodies for the Jeep® Wrangler for DaimlerChrysler in North America. It will be a pay-on-production contract.

It is impossible to imagine a car manufacturing facility without robots. Here, iwka is a pioneer. The Robotics division is now also making inroads into more and more application areas outside the automotive industry. In addition to applications in the metals processing sector, kuka robots are also being increasingly used in the logistics, medical technology and entertainment growth markets. Prospective users are discovering that robots have the potential to improve productivity significantly. This is why iwka launched a sales drive in the general industry sector. iwka is expanding its presence in lucrative markets that have had little or no use for robots to date by extending its own marketing organization's reach through partnerships with qualified system partners that focus on these specific industries.

The Packaging division's markets are benefiting from increasing consumption driven by the continued growth and higher disposable income of a large part of the world's population. Here iwka dominates some attractive niche markets, such as the packaging of dry and pasty food products. In addition, growth rates in the packaging of pharmaceuticals and cosmetic products will be above average due to the aging population in the industrialized countries and the increasing affluence of the emerging nations. iwka's main goal in the fragmented packaging technology markets is to round out its product portfolio.

new growth regions

The iwka Group's expansion plans target the growth regions of China, India and Russia. Our Automotive division has been supplying production systems for car body manufacturing to automakers in Russia and China on a regular basis for over twenty years. This puts us in an excellent starting position for further expansion. Asia is an important target for the Robotics division's general industry sales drive. In view of the strong competition in this region, our approach will be selective. The Packaging division is already well represented in the rapidly expanding emerging markets. These regions are also becoming more and more interesting from a purchasing perspective. The primary beneficiaries are our manufacturing companies in Western Europe and North America.

Plans target the growth regions of China, India and Russia.

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ambitious profit targets

The new corporate strategy calls for business volume to expand to € 2 billion in the medium term. At the same time, we are aiming for an ebit between 6 and 7 percent and a return on capital employed (roce) of 20 percent. Our goal is to sustainably meet the expectations of the capital markets and our shareholders.

group performance indicators

The Group and its companies are primarily managed on the basis of the following key indicators:

• ebit (Earnings Before Interest and Taxes)
• Capital employed
• Free cash flow

The target values for these key parameters are set for the individual companies throughout the Group. Actual results are continuously monitored and checked by way of the Group's reporting processes. Values that deviate from those budgeted are analyzed during regular management meetings with the companies and agreement is reached on necessary steps to achieve the target values.

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economic environment

global economy on growth course

Economic growth was driven primarily by China.

The world economy continued to expand in 2005. Although pressure from high oil prices slightly dampened the growth, it remained buoyant. The increase in global production was almost 4 percent, again higher than the medium-term trend. Economic growth was driven primarily by China, where expansion rates stayed consistently high, followed by the United States, Russia and India. Even Japan, which has experienced years of stagnation, managed to work its way out of the economic doldrums thanks to its economic reform programs and the robust Chinese growth. There were strong regional differences among the industrialized nations.

The damper on the economies of industrialized nations from higher energy prices stayed within manageable limits. Low interest rates provided protection from a drastic negative impact. Rising inflation did not gain any momentum, although some industrialized countries experienced significantly stronger currency devaluation. However, there was an aboutface in monetary policy, with both the United States and the European Union raising prime lending rates.

Orders received 2005 by division1 (in percent)

1 prior year's figures in brackets

favorable economic climate in the euro zone

Economic revival in the euro zone remained rather weak and was uneven. Although growth in the first half-year was weak because of the higher price of oil and the upward trending euro, there were increasing signs of recovery in the second half. Growth was primarily driven by foreign demand, but also by the domestic economy, where capital spending also accelerated. Overall economic growth in the euro zone last year was 1.7 percent. It then fell to half that in the last quarter of 2005, not least because of stalled growth in Germany and France. Nevertheless, the euro zone's economic climate was on balance more positive, spurred by the slight drop in the value of the euro over the course of the year.

Growth was primarly driven by foreign demand.

export business supports growth revival in germany

Germany's nominal gross domestic product in 2005 was € 2.24 trillion. Excluding the effects of inflation, gdp was up 0.9 percent, the same as the year before.

Germany once again had record exports. Foreign trade contributed 0.7 percent to the 0.9 percent growth rate. This is attributable on the one hand to the dynamic growth in worldwide demand, and on the other hand to the lower euro, which noticeably improved the international competitiveness of German companies.

Domestic demand from individuals, however, remained below expectations. Because of the difficult job market situation and the weak growth in disposable income, consumer spending remained stalled. Nevertheless, towards year-end, economic indicators started to rebound. Both the Ifo business survey of the manufacturing sector and zew economic forecasts reached an annual high in December 2005.

patchy growth in the mechanical engineering sector

The mechanical engineering sector had a good year in 2005. According to industry reports, orders received were at an historic high. Order volume compared to the already strong prior year rose another 8 percent nominally and at least 5 percent in real terms. Sales climbed 4.4 percent, rising to € 144.7 billion.

However, growth in the individual segments was uneven. Not all sectors grew in 2005. For example, orders received boomed for process engineering, turbine and mining machinery companies, while those dependent on the automotive industry, such as the robotics sector, suffered losses.

Business depending on the automotive industry suffered from a decline.

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competition still intense in the automotive markets

In 2005, German carmaking expanded by 3 percent and reached a record 5.4 million vehicles. The growth was primarily driven by new records for car sales in foreign markets. Exports were 3.5 percent higher than last year, reaching 3.8 million cars. But domestic sales were only slightly higher than last year's 3.3 million units. German manufacturers increased their market share around the world. The market continues to be plagued by overcapacity and cost pressure, the effects of which the manufacturers pass on to their suppliers and integrators.

downturn in the robotics market

A major portion of iwka's business involves robotics and automation and in this area, we were unable to match even last year's already weak levels. Sales were 3 percent lower in real terms – the decline in both the German and global robotics market in 2005 was contrary to all expectations.

As late as March 2005, the German Engineering Federation (vdma) was forecasting growth. However, figures for the first six months showed that sales of industrial robots in Germany to the automotive industry and its suppliers plunged 38 percent. In the fall, vdma's robotics sector then had no choice but to predict a decline of 10 percent for the year overall. According to industry experts, the reasons for the downturn are the unrelenting lag in the domestic economy, declining export orders, and above all, the lack of capital spending and, in some cases, drastic cutbacks by the automotive sector. In the general industry outside the automotive industry, the application of robotics continues to increase.

Lack of capital spending in the automotive sector.

packaging machines fared better

The food and packaging machine sector, which includes iwka packaging technology, reported a slight improvement over 2004. Orders received were higher than the same period last year, particularly in the last quarter of 2005. Overall growth for the year was 6 percent. Revenue also improved towards year-end. Overall growth came in at a nominal 1 percent, or minus 2 percent in real terms. In contrast, the year 2006 started on a restrained note. Orders received were lower than the moving 12-month average.

business results

The entire 2005 financial year was marked by extremely difficult market conditions in some areas, particularly in the automotive sector. The iwka Group therefore expedited its restructuring program and pushed ahead with its focusing initiative. Orders received and sales revenue from continuing operations were only slightly below last year's levels, but Group earnings were weighed on by portfolio streamlining and restructuring. With the finishing of the restructuring program and the consolidation of the business, we are expecting earnings to grow already in 2006 and beyond.

orders received below last year's level

Orders received from continuing operations were 2005 € 1,641.2 million, not quite reaching the previous year's level. They fell 2.8 percent or € 46.9 million year-over-year.

The decline in the consolidated Group figures was mainly caused by Robotics. The division's orders received dropped 12.2 percent. This was primarily caused by the restrained spending of the automotive industry and the postponement of investment projects. The growth in orders received from the general industry was not enough to offset the slump.

However, the largest business unit, the Automotive division, reported an increase of 4.2 percent in orders received. This is even more remarkable considering that order volume in 2004 was already high due to a major project order.

Because of the increasing competitive pressure experienced by the Packaging division in the established markets of Europe and the United States, together with ongoing rationalization in the marketplace, orders received were slightly lower than the previous year. They were 3.2 percent lower than a year earlier.

The share of orders received by the Group's foreign subsidiaries rose from 57 percent in 2004 to 58 percent.

iwka was able to increase its share of total orders from the North American market from 19 percent in 2004 to 27 percent. Although the total share of orders from Germany at 41 percent was down from the prior year's 46 percent, the country still represents iwka's largest market. The European Union's share (excluding Germany) declined from the prior year's 24 percent to 21 percent.

Robotics division: 12.2% less orders.

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Order backlog from continuing operations as of December 31, 2005 was € 1,016 million, significantly higher than the previous year's figure of € 764 million.

robot sales downturn

Sales revenue from continuing operations was € 1,613.4 million, versus € 1,680.8 million in 2004. This represents a € 67.4 million or 4.0 percent year-over-year decline. The drop is primarily attributable to weak sales from the Robotics division, which were 23 percent lower than the previous year. But the Automotive division posted an increase of 4.5 percent over the prior year, and the Packaging division's sales revenue was up 2.4 percent.

Sales revenue from discontinued operations reached € 466.7 million, lower than in 2004 on account of the decline in sales from the ex-cell-o Group.

1 prior year's figures in brackets

capital expenditure

The iwka Group spent € 39.4 million on plant and equipment as well as intangible assets for its core business divisions during the 2005 financial year. Last year the figure was € 46.4 million. The drop is due in part to the portfolio-restructuring program, but also the fact that the companies held back their spending in view of the current orders received and earnings situation.

The capital spending focused on expanding the Group's international market presence, improving manufacturing quality and efficiency, as well as advancing our technical expertise.

Expanding the Group's international market presence.

Capital expenditure 2005 by division1 (in percent)

1 prior year's figures in brackets

more emphasis on group-wide purchasing

Like many other companies, iwka was unable to avoid substantial increases in raw material prices in 2005. This applies particularly to purchased steel goods. For the remaining products and services, we achieved some success by bundling our purchasing volumes and increasingly internationalizing our procurement activities. We also accelerated our standardization and modularization programs and continued to align our parts designs. We were also able to expand our purchasing of complete modules instead of individual components.

research and development

innovation will secure our long-term success

Heightened competition in international markets and growing demands from customers to improve productivity, flexibility and quality exert considerable pressure on our companies to innovate. Our purpose- and market-driven research and development enables us to offer the products and services demanded by our customers. It ensures that iwka's companies will maintain their edge by continuing to provide the most productive solution, both now and in the future. Our goal is to achieve technology leadership and ensure we retain that position. During the financial year, we renewed our efforts to achieve this goal and sharpened our focus on associated activities.

Focus on technology leadership.

The iwka Group's development objectives are based on the following principles:

• 1. We develop innovative products to meet specific customer needs.
• 1. We maintain economies of scale and achieve flexibility by standardizing and modularizing the different product variants.
• 1. We strive for cost and time-to-market advantages.
• 1. We minimize the life cycle costs of our products.

In 2005, iwka spent € 43.5 million on research and development: 2.7 percent of sales revenues. If you take into account the numerous new developments and product enhancements that were required during the execution of actual customer orders, which are not included in the r&d budget, the actual spending on research and development was far in excess of this amount.

Although iwka's r&d is mainly financed internally and carried out in-house, to some extent we do collaborate with third parties. This third-party involvement consists partly of research and development alliances with universities and research institutions, which we use to speed up innovative processes. We also use third parties to support design and simulation activities. This ensures that our development processes are efficient and enables us to focus on our core competencies.

Research and development

	2001	2002	2003	2004	2005
Expenses (in € million)	56.7	60.3	59.7	59.3	43.5
Percentage of sales revenues (in %)	2.5	2.6	2.6	2.5	2.7

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innovations in automotive technology

The field of plant engineering continues to turn to new materials such as fiber-reinforced plastics. More and more, customers are asking for new joining and forming processes for lightweight materials. kuka Werkzeugbau Schwarzenberg (kws) redoubled its efforts in the field of rtm one-shot technology, a process by which car body components made of fiberreinforced composites are made on a machine that produces them in a single forming step. No further operations are required.

highly flexible welding stations for robot teams

kuka-Turnflex is a geometric welding station for robot teams. A turntable has four holders and an extension track that enables fast change-out of model-specific tools and simultaneously solves the geometrics issues associated with loading/unloading and welding. While the robots carry out their welding tasks, a new "bite-size" set of parts is positioned. As the table rotates, a handling robot loads a set of parts into the tool that arrives and moves it linearly to the welding position. The welding robots that just finished welding an assembly being held by another handling robot switch to the tool that just arrived and do the geometric welding. After setting down the now joined assembly, and if necessary changing out the handling gripper, the receiving robot takes the assembly and lifts it up for the welding robots to do the welding. The "Geo" tool simultaneously returns to the turntable and the cycle starts again.

Fast change-out of tools.

laser framing

A framing station is at the heart of every car body assembly line. This is where the car body floor, side panels and roof come together and the geometry of the chassis is established. Clamping and holding jigs precisely position the modules within tolerances of tenths of a millimeter and robots quickly join them together with 70 to 100 weld spots to form a car body.

Framing stations are usually very impressive because of their sheer size and the high number of robots that are used. An innovative kuka framing station that uses laser welding and air-cushioned working surfaces to ensure precise workpiece positioning shows that there are other ways to do the same thing. Two robots equipped with so-called kuka Roboscan technology – a remote laser welding package that maintains a distance of up to 1.6 meters from the workpiece – replace up to eight conventional spot-welding robots. Laser beam welding is not only faster, it also makes it possible to model the weld seams. Various seam geometries that meet specific strength and safety specifications can now be welded in a way that was impossible to imagine before.

Innovative kuka framing station.

Short cycle time and high flexibility.

Nowadays, specifications related to model flexibility are tough. A framing station must be able to handle four or more different vehicle models. Customers are demanding that future equipment be suitable for up to twelve fundamentally different models so that they will be able to continuously operate their factories at full capacity. iwka is on the right track with its kuka laser framing system: The short cycle time and high flexibility of the system bring considerable advantages. The focus on high-tech components that reduce the amount of conventional equipment needed and the flexibility offered by the concept in regard to component configuration and the downstream manufacturing process make it extremely cost effective.

Our welding guns group continued to expand its laser activities and recently set up a laser laboratory in France, which is used to conduct customer-specific tests and to manufacture prototype parts.

It is equally important for all kuka companies to continue their digital factory activities. This includes all programs related to end-to-end computer aided planning, design, simulation and optimization of systems throughout their entire life cycle. Both kuka Schweissanlagen and kuka Werkzeugbau in Schwarzenberg are working on integrating cad tools into a continuous process chain.

Most new and ongoing development in assembly engineering is driven by customer

orders. j.w. Froehlich continued with the development of its pc-based leak test process and devices. Here one main area of focus is on mobile test stands. lsw continued its efforts to develop modular assembly systems with standardized conveying components. The main emphasis here is on cost leadership and improving the ergonomics and efficiency of the

systems. gsn is working on a high-priority research project to develop an all-encompassing maintenance concept for car manufacturing plants.

Mobile test stands.

innovations in robot technology

When it comes to innovation, kuka robots are at the cutting edge of robotics and control technology. To ensure that it can continue to make this claim, the group focuses on innovation and on products that can be used to open up lucrative growth markets in general industry and generate a high rate of return.

Products developed for the targeted general industry market include processing and handling robots for food products (e.g., meat processing), logistics (palletizing and commissioning) and plastics (e.g., synchronized unloading of injection molding machines).

The control technology is presently being enhanced to serve as a platform for future innovations. A new generation of robot controls (kuka Robot Control) will be developed over the next few years.

Another key target market is the promising medical technology field. A new concept that enables cooperation between humans and robots is front and center. Its objective is to guarantee the safe control of radiation source movements in relation to the equipment that holds patients in diagnosis and therapy areas.

Promising medical technology field.

robot teams

kuka RoboTeam technology enables several kuka robots to collaborate in fulfilling a task. For example, to reduce cycle times, large payloads can be distributed across several robots or workpieces processed while they are being transported. The movements are synchronized by intelligently networking the individual standard robot controls. Each robot retains its standard controller, but is able to communicate with other "team members" over an Ethernet network. This makes it possible for the robots to exchange relevant data and coordinate their movements. A single operator interface is sufficient to program the robot group and the programming work remains the same – regardless of the size of the robot team.

cameras assist with palletizing

The kuka Robot Group presented new function packages for palletizing and depalletizing solutions at cemat in Hanover, the world's leading trade show for intralogistics. Integrated vision systems assist with reliable recognition and handling of various products. kuka presented its kr 40 pa palletizing robot, a new product specially designed for the logistics market and its diverse application specifications.

Research and development 2005 by division1 (in percent)

1 prior year's figures in brackets

kuka safe robot technology

kuka Safe Robot technology enables excellent teamwork between humans and robots. Thanks to this technology, humans will now be safe in the vicinity of a robot and if necessary, also be able to control it manually. With the help of Safe Robot technology, robots can operate safely in automatic mode within a defined workspace without resorting to mechanical axis monitoring. The speed and acceleration of the robot's axis movements are monitored and the robot is safely shut down if limits are exceeded.

highly flexible tube filler for toothpaste

iwk Packaging introduced the new tfs 80-1 tube filler to the pharmaceutical and cosmetics industry. The machine falls into the 100 tubes-per-minute performance range. Its key features are high flexibility, modularity and its very compact size.

High flexibility and modularity.

To minimize the blending time required to produce a homogeneous product, Hüttlin developed hmg, a high-shear mixer granulator with a Gentlewing agitator that also prevents product build-up on the side of the vessel.

Fabrima presented the new vp120 vertical cartoning machine. It is ideal for cosmetic and pharmaceutical applications, particularly for hard-to-handle products or small lot sizes. The machine can be supplied with a manual feed as well as with automatic transfer.

new machine generation for the dairy and food industries

gasti Verpackungsmaschinen developed a new generation of cup filling and sealing machines for dairies that will replace the entire present-day product range in the medium term. The new aseptic cup filling and sealing machine is capable of processing over 70,000 cups per hour.

Benz & Hilgers successfully brought to market the machine for filling pasty products like butter and margarine it acquired from Packaging Technologies Inc.. a+f Automation + Fördertechnik developed an innovative palletizer called "Slimline", which generated considerable customer interest because it uses very little cardboard.

hassia Verpackungsmaschinen presented the recently developed Polyflex 8/48. The machine is used to form, fill, and seal microwave-safe polypropylene (pp) cups, decorate them with sleeves and then case pack the finished goods at the end of the line. Other Polyflex 8/48 distinctions include its particular ease of handling, attractive price and low operating costs.

Microwave-safe polypropylene cups.

The iwka Packaging Group developed an innovative continuous, conductive sealing system for the food industry in response to the trend to replace glass and metal containers with cost-effective plastic packaging. The continuous process makes it possible to gently transport products. It prevents swashing and makes it easier to switch between different size containers. The system is easily able to seal up to 300 containers per minute of products such as coffee, baby food, snacks, beverages and liquids.

employees

On December 31, 2005, the iwka Group's continuing operations payroll consisted of 8,974 employees around the world, 179 fewer that at the same time a year earlier. The job cuts were required primarily in the Packaging and Robotics divisions. The total workforce consists of 3,568 blue-collar and 5,099 white-collar workers.

The iwka Group had 11,354 employees on December 31, 2005 including those working in discontinued operations.

1 prior year's figures in brackets

performance-based pay for managing directors and business managers

Annual salary is linked to the success of the company.

Since January 1, 2005, a significant part of the income of managing directors of iwka's German companies has been based on their ability to achieve their ebit, roce and other individual performance targets. The annual salary of these managers is therefore directly linked to the success of the company for which they are responsible and to the success of the business area to which the company belongs. By reaching consensus on appropriate target incentives, the executive to whom the respective managing directors report also has the ability to set specific goals and focus the managers on special assignments.

Starting in 2006, iwka has extended the system to cover the business managers reporting to the managing directors. This is intended to make all managers even more aware of the targets of the individual companies and the work to be done, so that the necessary programs and measures will be implemented sooner and faster.

Under the contractual terms of this new arrangement, the variable portion of annual income was increased by mutual agreement with the employees. In many cases, fixed income was converted to variable income.

The iwka Group plans to extend this system to all of its major foreign companies and their managers in 2006, so that there is a uniform compensation plan throughout the Group from 2007 onwards.

This innovative compensation system will contribute significantly to narrowing the focus of all managers on improving the Group's business results. Variable salary components will only be paid at the agreed levels when important revenue-generating targets such as increasing ebit or reducing capital employed have been achieved.

new programs for retirement benefits

The problem of continuously increasing personnel benefit costs in German industry has been a thorny topic for many years. Numerous modifications and changes have brought no longterm relief for companies. For example, while employees in Germany, supported by their employers, have paid into statutory retirement plans for decades to establish defined monthly pension benefits, in the United States, employees – sometimes with assistance from employers – contribute to special third-party retirement plans. This is also the case with the iwka Group's 1,400 u.s. employees. The employees decide for themselves how much they want to contribute and how they want to invest the money.

A number of years ago, German employees were given various options by the government to contribute to a privately financed pension plan through salary deductions. The most common of the alternatives introduced are the so-called "Riester-Rente" and "Eichel-Förderung". These legislative changes made it possible to offer employees the opportunity to start contributing to an absolutely essential supplementary employee-financed retirement plan. iwka responded by introducing flexible programs that would enable employees to individually tailor their supplementary retirement plans; e.g., pension fund, relief fund, deferred compensation. This gives employees the control necessary to establish an adequate supplementary plan to access during their post-retirement years. Every employee of the iwka Group in Germany therefore has the opportunity to use of these programs according to their individual capabilities and thereby accelerate retirement benefits.

System to be extended to all major foreign companies in 2006.

Enable employees to individually tailor their supplementary retirement plans.

introduction of the working lifetime account/working time value account

In the past, partial retirement has been a good way for many employers and employees to ease the path to complete retirement from working full-time. This option will only be available for a few more years. This is why establishing a working lifetime model is the way of the future. In some collective-bargaining areas (e.g., in the Südwestmetall area) the collective agreement partners have already established the framework for setting up appropriate working lifetime accounts. From now on, iwka will make this method of individually choosing the way to transition from salaried employment to retirement available to the employees of its German companies.

Individually transition from salaried employment to retirement.

This will be done under the heading of working time value accounts, and will enable workers to earn "working time" that is converted to money and invested in the stock market; e.g., in investment funds. Employees can then access the accumulated balance before retiring from active service. This gives them the opportunity to stop work prior to receiving pension benefits as they see fit. During the transition period, they can draw on the money they accumulated in this account. It is important that the investment options the employer offers be aligned with the phase in life that currently applies to the individual employees.

participation in employee share program (map) almost doubles

As in previous years, iwka offered employees of its German and Swiss companies the opportunity to participate in the company's success in 2005 through the map 2005 program. Employees who participated in the program were able to use their own money to buy iwka shares at a discount and thereby established additional financial reserves, while at the same time acquiring equity in the company and participating in the success of iwka Aktiengesellschaft. map 2005 was designed to issue bonus shares to participants at the close of the first, third and fifth years. It pays to hold the shares, since then the number of shares an employee owns increases by 30 percent over the five-year period. The long-term gain is likely to be higher the quick profit to be made by selling the stocks.

For the first time since 2003, employees also had the opportunity to purchase iwka shares at a discount of 10 percent from the market price. This proved to be a considerable motivator to buy shares under map 2005, as shown by the participation increase of 90 percent

over map 2004.

kuka roboter: human resources – a key success factor

Continuously training its employees, both in the area of personal skills and professionally, is one of the kuka Roboter Group's key management tasks. This includes duties like expediting strategic management development and planning, promoting motivation and identification with the company and breathing life into the concept of corporate culture.

iwka shares at a discount.

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Selecting and fostering potential management resources.

An important part of human resources work is selecting and fostering potential management resources. The qualification program launched in 2004 was therefore modified and optimized. The new program makes it possible to individually develop each participant and is flexible in its implementation. Supervisors play a role and the participants have the opportunity to establish an intercompany network.

At the start of the qualification program, participants are sent to an orientation center to analyze their individual leadership and development potential. Supervisors can recommend employees, or the employees themselves can express their desire for further development by contacting the personnel development department. During the selection process, participants are shown individual development paths and qualification programs. Third-party specialists act as observers. Participants themselves can identify whether they are more suited to a specialist or management career.

This is followed by a series of seminars that focus on finance management, corporate management/strategy, quality, leadership, legal fundamentals, marketing/sales, cultural awareness and engineering/innovation. The employee, supervisor and personnel development department work out a personalized development plan consisting of mandatory and custom-tailored qualification modules together with accompanying programs such as mentoring, coaching and support groups. The program may include planning and executing a project. There is also an "on-the-job" support module that gives the employee access to continuous assistance.

The underlying objective of the entire program is to prepare employees for positions with management responsibility or jobs with equivalent responsibilities in the various specialty areas. The program concludes with an Assessment Center review after 18 months. Employees who then take on a new position are further supervised and supported under the auspices of the program.

kuka schweissanlagen: kuka intranet and continuing education

One of the programs offered by kuka Schweissanlagen is called "Haus der Personalentwicklung" (house of personnel development). The package bundles people skills and professional training courses tailored to the development needs of individual employees.

Employees are able to browse through the available course offerings and options on a clearly structured intranet site. Courses offered span from language classes to technical courses for software or welding certification. The company also provides assistance for attending technical schools, schools for earning a master of a trade or postgraduate studies for a master's degree.

earnings

The depressed economic environment, substantial one-time restructuring expenses and the process of reengineering the portfolio without compromise led to significantly negative earnings after taxes. We consider these results to have been unavoidable in the course of repositioning iwka on the market as an automation group and making the company capable of competing in the future. We expect the iwka Group to return to generating positive earnings from operating activities and positive cash flow as early as the current year.

declining sales revenue

At the close of the 2005 financial year, consolidated sales revenue from the iwka Group's continuing operations was 4.0 percent lower than a year earlier and closed at € 1,613.4 million. The decline was due to the downturn of sales in the Robotics division's automotive business. An additional factor was the deteriorating market price level. As a result of a slight rise in inventories, total output only fell 1.2 percent to € 1,640.5 million.

Cost of materials was 4.4 percent higher than the previous year at € 867.6 million. The material usage ratio rose accordingly, from 50 percent last year to 52.9 percent with a slightly lower total output. This increase is attributable to the following:

• higher material prices, particularly for steel
• reduction in the level of manufacture; i.e., outsourcing of complete modules
• project cost overruns
• changed product mix accompanied by eroding market price levels.

Personnel expense was higher than last year, rising by 2.5 percent to € 522.0 million. The personnel expense ratio thereby rose from 30.7 percent last year to 31.8 percent. Opposing effects influenced the result: There were union wage hikes on the one hand and wage and salary concessions from employees on the other. Personnel expenses also rose due to fine-tuning of staff levels, particularly by our Automotive division's North American companies. Savings resulting from layoffs, especially in the Robotics division and at German packaging technology companies, will not be fully realized until the 2006 financial year.

One-time restructuring costs.

Depreciation on intangible and tangible assets rose, mainly due to goodwill and extraordinary write-offs valued at € 8.9 million, to € 47.6 million. This compares to € 39.6 million in 2004. The year-over-year increase in other operating expenses of € 60.4 million was primarily the result of one-time restructuring costs of € 34 million, which affect all business units. In addition, provisions were made to cover risks related to signed contracts.

• € 18 million for a socially responsible severance plan, expenses related to merging business locations and business write-offs in the Robotics division.
• € 12 million in restructuring costs among the companies in which the Automotive division holds an interest
• € 11 million for company mergers and capacity adjustment programs in the Packaging division.

ebit hit by one-time charges

For the first time the iwka Group's ebit was negative, ending at € -30.7 million. Ignoring the impact of one-time restructuring costs and valuation allowances, operating earnings were € 13 million compared to € 108.1 million a year earlier.

The Packaging division made a positive contribution to earnings in the 2005 financial year. Sales revenue was higher and generated an operating result of € 7.5 million, despite the restructuring measures. The Automotive division's business volume was also higher than a year earlier, but inadequate profit margins on projects and costs for restructuring led to slightly negative earnings of € -2.5 million.

Packaging division made a positive contribution to earnings.

The major changes occurred in the Robotics division. Because of the downturn in the automotive business and the resulting structural changes required, the division posted substantially negative earnings of € -22.8 million. iwka Aktiengesellschaft's earnings including the effects of consolidation were also negative at € -12.9 million.

Net interest expenses changed by € 4.3 million from last year's level and finished at € -17.1 million. It should be noted that the prior year's value included a one-time earnings contribution from the sale of old accounts receivables. The adjusted net interest expense continued to decline as a result of reduced outside financing.

Group income statement	/€million
------------------------	-----------

Group income statement / € million	2005	2004
Sales revenues	1,613.4	1,680.8
Earnings from operating activities	-30.7	108.1
Financial result	-18.0	-11.8
Taxes on income	–	-32.5
Result from discontinued operations	-98.9	-15.0
Annual net loss/profit	-147.5	48.8

high losses from discontinued operations

Discontinued operations in 2005 consisted of the following companies:

• iwka Balg- und Kompensatoren Group, Stutensee (sold on Dec. 22, 2005)
• ex-cell-o Group, Eislingen (sold on Dec. 29, 2005)
• Bopp & Reuther Sicherheits- und Regelarmaturen Group, Mannheim, (sold on Feb. 22, 2006) and the
• Boehringer Group, Göppingen.

Disposal loss of € 64.7 million.

Earnings from discontinued operations fell to € -34.2 million because of high operating losses from the ex-cell-o Group and lower positive after tax earnings contributions from the other companies. In addition, the sale of these companies generated a disposal loss of € 64.7 million, most of which is attributable to the ex-cell-o Group. The result from discontinued operations was therefore € -98.9 million.

The negative operating result, together with the loss from financing activities and the negative earnings from discontinued operations generated a consolidated loss of € 147.5 million for the iwka Group, which compares to a surplus of € 48.8 million a year earlier.

supplementary report

On February 22, 2006, Bopp & Reuther Sicherheits- und Regelarmaturen Group was sold to a private equity investor effective January 1, 2006. This sale concludes the divestment program for the companies of the former Process Technology Division. All have now been sold.

Group capital expenditure and depreciation in € million

financial position

financial management goals and principles

iwka Aktiengesellschaft is responsible for the iwka Group's entire financial management. The essentially centralized financial management organization ensures that the iwka Group has a common approach toward investors and financial partners, maximizes and utilizes the benefits of pooling the financing needs of the Group's companies and that key financial risks are centrally managed.

iwka Aktiengesellschaft manages and, if necessary, hedges against, the risks associated with group-wide credit, liquidity, interest and exchange requirements. Risk hedging is done almost exclusively by actively using standard derivatives to hedge the underlying transaction. iwka Aktiengesellschaft has issued standing orders related to managing financial risks to all of the Group's companies.

group financing and working capital management

The Group's financing department must ensure that the operational and investment financing requirements of the Group's companies are adequately covered at all times. The necessary information is provided by a group-wide, rolling monthly budget with a planning horizon of twelve months.

The iwka Group's external financing requirements are primarily covered by banks and by commercial paper programs. The individual group companies are financed either through participation in a cash pooling system; e.g., in Germany, Great Britain and the United States, or through lines of credit from local banks, which are established centrally by iwka ag's finance department.

To secure adequate working capital, the iwka Group has loans and confirmed credit lines from numerous national and international banks totaling € 450 million. iwka Aktiengesellschaft also has a commercial paper program in the amount of € 200 million.

In fiscal 2005, kuka Toledo Production Operations, llc. (kuka Schweissanlagen Group) signed a pay-on-production contract with DaimlerChrysler Corp. for a body-in-white facility for the Jeep® Wrangler that includes project financing. A leasing agreement was signed with a local agency as well as a bank consortium to finance the building and the assembly systems.

Cash pooling in Germany, Great Britain and the United States.

The iwka Group did not make use of asset-backed securities transactions or sale/leaseback transactions during the 2005 financial year.

For 2006, the company is trying to reach agreement on a line of credit that has a mediumterm maturity of about five years from a bank consortium. This credit line would be able to cover the group's entire financing requirements over the next few years.

Group cash flow statement /in € million	2005	2004
Cash flow	-49.4	115.6
Other operating changes	-2.5	42.6
Cash flow from investing activities	28.4	-63.7
Free cash flow	-23.5	94.5

cash flow turns negative

Because of the shortfall for the financial year, the iwka Group's cash flow, adjusted for the results from the disposal of discontinued operations that do not impact cash flow, turned negative and on December 31, 2005 was € -49.4 million. The previous year's figure was € 115.6 million. Payments-out for capital expenditures were € 52.3 million and stood opposite payments-in from the sale of the rmg and vag Groups of € 75.5 million. As a result, cash flow from investing activities was positive overall at € 28.4 million, and free cash flow was € -23.5 million versus € 94.5 million in 2004.

Payments-in from the sale of the rmg and vag Group.

group consolidated net debt increase

At the end of 2005, the Group's net debt was € 175.9 million, and was therefore higher than the € 141.1 million owed on December 31, 2004. As of the December 31, 2005 period end, the financial liabilities according to currency were as follows: €, 50 percent; us dollar, 34 percent; gbp, 12 percent; other currencies, 4 percent. The Group's average consolidated net debt (short-, medium-, and long-term financial liabilities) minus cash and cash equivalents was however reduced because of the cash flow from disposals during the 2005 business year. It fell € 50 million, to € 247 million.

net worth

balance sheet again impacted by divestments

Divestments once again had a impact on the balance sheet in 2005. The net results of disposals were summarized under intangible assets from discontinued operations, the same as last year. The total amount was € 289.7 million, which breaks down primarily into current assets of € 170.7 million, inventories of € 81.4 million and other non-current assets of € 28.4 million. Intangible assets from continuing operations differed only slightly from the previous year. Overall, total balance sheet assets as of December 31, 2005 were € 106.6 million lower at € 1,553.3 million. The drop in total assets is almost completely attributable to the previous year's disposals in discontinued operations, which amounted to € 115.8 million.

Group assets and financial structure as at Dec. 31

loss for the year reduces equity

The loss of € 147.5 million generated in fiscal 2005, plus the prior year's dividend payment, reduced the iwka Group's equity by € 169.0 million to € 189.1 million.

Equity capital ratio declined.

The equity capital ratio therefore also declined; i.e., the ratio of the iwka Group's equity capital to total balance sheet assets went from 21.6 percent in 2004 to 12.2 percent as of December 31, 2005. Net debts, consisting of short and long-term liabilities towards creditors minus cash and cash equivalents were higher than the previous year's € 141.1 million at € 175.9 million. Gearing (ratio of net debt including pension accruals to equity) at the end of the 2005 financial year increased to 165.9 percent compared to 89.4 percent a year earlier. The increase was mainly due to the significantly lower equity. Liabilities from discontinued operations rose from € 57.0 million in 2004 to € 191.8 million, and break down as follows: other liabilities, € 96.1 million; pension accruals, € 39.4 million, other provisions and accruals, € 35.1 million; financial debt, € 21.2 million.

iwka equity – trend reversal at year-end

Between January 1 and December 31, 2005, iwka's stock lost 9.6 percent of its value. In the first quarter, prospects of an excellent 2004 financial result drove the share price to a brief five-year high of € 23.15. Weakness in the core automotive business then exerted downward pressure on the share price. Thereafter the stock moved sideways in a range of € 17 to 20 and reached a low of € 15.62 on November 30.

The turnaround came as a result of the quick implementation of the announced divestments and restructuring programs towards year-end. Since then, iwka's share price has climbed substantially, and in March 2006 returned to its five-year high. Overall, iwka's stock price has already risen about 35 percent since December 1. The financial markets have thereby endorsed the new Executive Board's uncompromising restructuring program and are expecting a return to positive earnings during the current year.

risk management

The iwka Group conducts business around the globe and participates in a number of market sectors, which exposes the company to a variety of risks. It is impossible to imagine doing business as an entrepreneur without being prepared to accept calculated risks. However, the key is to identify risks that threaten the existence of the company at an early stage and to avoid or mitigate them as much as possible. Unavoidable consequences must be managed or transferred. Our goal is to systematically and continually improve shareholder value and achieve our targets while knowingly accepting unavoidable risks. The key is to keep risks that we can influence manageable.

iwka systematically identifies external and internal risks in all divisions and subsidiaries and evaluates them consistently throughout the Group with respect to potential level of damage and likelihood of the events occurring. The managers of the divisions and subsidiaries are directly responsible for the early identification, control and communication of risks. Risk coordinators in the business units ensure that the reporting process is uniform. The risk management system is coordinated at Group headquarters and is an integral part of the overall budgeting, control and reporting process.

The Group's risk management system makes it possible for executive management to identify risks at an early stage and take appropriate steps to counter them. Regular audits of the risk management process by the internal audit department ensure efficiency and continuous improvement. In addition, the external auditors check that the early risk identification procedure integrated into the risk management system is suitable for identifying risks at an early stage that threaten the existence of the company.

market and business risks

Companies doing business in the mechanical engineering business sector are exposed to a series of risks. Demand depends on the economic cycle, which affects the investment plans of our regular customers in the various market subsectors. Since it conducts business around the globe, iwka is also exposed to country risks, exchange-rate fluctuations, financial and technical risks and the risk of substantial price increases of key raw materials, such as those experienced recently with oil and steel.

During the 2005 financial year, we continued to implement our ongoing cost-cutting and efficiency improvement programs to address the business impact of the general economic conditions. Further activities were also defined and included in a group-wide program.

Restructuring the company's divisions contributes significantly to reducing the Group's business risks. The various operating companies are coordinated by management companies, which are charged with the task of minimizing divisional business risks, identifying opportunities and exploiting them in ways that lead to higher profits. A key element is the integration and cooperation within and between divisions.

Restructuring contributes significantly to reducing the Group's business risks.

plant construction

The key risks associated with plant construction are the high complexity of iwka's products, the long duration of the project-management phase and the infrequency of the orders received. In addition, our revenues and profits are at risk when carmakers' production quantities do not increase, or even decline. Because the value chain is coming apart, carmakers are increasingly attempting to outsource manufacturing activities. This enables subsuppliers to participate in new business opportunities. iwka limits the risks of the new pay-on-production business models by using structured financing and having appropriate contractual agreements.

packaging

Business in the European companies continues to be dominated by high exports, and is thus also particularly sensitive to the value of the us dollar versus the euro. In addition, concentration in the marketplace and the overcapacities that occur as a result always have an impact on the demand for packaging machines. The high price of steel, particularly the stainless steel preferred in the packaging industry, also erodes the margins we are able to achieve with our products.

robotics

The risks in the robotics markets relate primarily to the continuing price pressure in the automotive industry. The tense business situation in some areas is causing capital spending plans to be shelved. This makes it more and more difficult to forecast the project business.

The business situation in some major automotive companies is causing them to extend the service life of their robots, which in turn leads to lower spending on replacements. kuka Roboter will only be able to counter such trends by continuously developing new products and applications that offer customers quantifiable financial advantages and have very fast paybacks.

The risk in developing and implementing applications for new general industry markets is higher in some areas. This has been shown, for example, with product introductions in the medical equipment and entertainment sectors.

corporate strategy risks

The aim of iwka's three business divisions is to be technology leaders in their chosen markets and thereby become the market leader. Enhancing our technologies through coordinated innovation programs is therefore of key importance. To a large extent, this also entails identifying the opportunities and risks of technical innovations in a timely manner and evaluating them with respect to feasibility. This also ensures that the strategic risks are identified at an early stage, so that adequate countermeasures can be quickly implemented.

Using efficient quality assurance systems in combination with regular certification programs helps convince our customers that we offer high quality and strengthens our companies' positions in their target markets.

Acquisitions and investments go hand-in-hand with complex risk factors. Acquisitions and integration projects at iwka are therefore managed using documented processes to make sure that material risks are identified and monitored.

Identifying the opportunities and risks of technical innovations in a timely manner.

personnel risks

iwka Aktiengesellschaft relies on qualified specialists and managers to achieve its goals. In today's very competitive marketplace, it is therefore an ongoing challenge to attract these human resources to the Group and ensure they identify with the company long-term. There is a particularly high demand for well educated and motivated employees in growth markets, which is why in-house qualification programs are required. Centralized and decentralized training and continuing education programs for employees at all levels ensure that the Group's people have the indispensable expert skills they require.

High demand for well educated and motivated employees in growth markets.

Human resources management, training and continuing education programs ensure that employees at all levels of the company become entrepreneurial in the way they think and do their day-to-day jobs. This is supported by tying variable incentives to managers' remuneration packages, which are paid according to business performance.

information systems risks

All business processes are modeled on a modern it system. The growing information technology-related risk associated with the rapidly increasing integration of it-supported business processes demands that iwka continuously analyze and optimize its current information technologies in order to ensure the highest possible level of security. The existing methods are continuously updated and improved.

financial risks/exchange rate risks

iwka manages and, if necessary, hedges against the risks associated with group-wide credit, liquidity, interest and exchange requirements. Risk hedging related to interest and currency exchange rates (price change risks) is done almost exclusively by actively using standard derivatives to hedge the underlying transaction. Both the trading and use of derivatives is regulated by internal guidelines and undergoes continuous internal risk analysis. In addition, it is monitored annually by the German public auditors. Transaction-related currency exchange risks are hedged using forward foreign exchange contracts (primarily futures and swap transactions). We reduce the risk associated with the volatility of leading currencies and the resulting exchange risk (competitive risk) by using production facilities in various countries.

We reduce the overall liquidity risk by closely monitoring the Group's companies and controlling the payment flows (receivables as well as working capital management). The iwka Group also has adequate lines of credit with banks. The company also has a number of medium and long-term lending agreements and a commercial paper program that were not fully utilized as of December 31, 2005, thanks to adequate liquidity.

summary

An overall assessment of the risks shows that the iwka Group is primarily exposed to market risks. In particular, this includes the business cycle and the dependence on important major customers in the automotive and consumer goods sector. Risks resulting from value-added processes are controlled by our risk management system, and their potential negative impact is therefore limited.

In summary, there are risks associated with high raw material prices, continued price pressure and exchange rates, which the Group is addressing by implementing numerous performance improvement and cost cutting programs. The iwka Group risks are manageable and transparent, and as far as we are able to foresee, do not threaten the company's survival. Neither do we see any risks that could threaten the company's future business or legal existence.

outlook

The iwka Group currently expects the economic climate for this year and next to be more positive. This matches the expectations of most economic experts, who, after years of seeing only stagnation also in Germany, have finally detected an increasingly favorable investment mood.

improved economic climate in germany

World economic growth continues to be robust, and as an exporting nation, Germany can reap the benefits. Furthermore, German companies seem increasingly prepared to invest in new machinery and equipment in 2006. They had been holding back significantly since 2001.

Growth forecast for 2006 substantially higher.

Against this backdrop, the International Monetary Fund (imf) has revised its growth forecast for Germany in 2006 to a substantially higher 1.5 percent. In February, the Deutsche Industrie- und Handelstag (Association of German Chambers of Industry and Commerce) raised its forecast from 1.5 percent to 2 percent. The Deutsche Institut für Wirtschaftsforschung (German Institute of Economic Research) is estimating 1.7 percent growth. On the other hand, there are some reservations about growth rates for 2007, not least because of the decision to raise taxes.

global general conditions cause for optimism

International economic general conditions for this growth scenario appear favorable: In the United States, the gross domestic product (gdp) could grow 3.4 percent in 2006; 3 percent appears possible for 2007. Overall, experts are forecasting economic growth of 2.7 percent for the industrialized nations. Actual growth in 2005 was 2.6 percent. It is expected that the companies' improved profit and debt situation will ensure that capital investment will continue in all of the industrialized nations. Overall production in these countries will probably also grow at a similar rate in 2006 and 2007. The stimulus from low interest rates will decline noticeably during the forecast timeframe, although despite interest rate increases, monetary policy can still not be considered restrictive. And assuming a stable oil price, the burden resulting from the earlier sharp increase in the price of oil will be lower.

growth stimulus from china and india

The economic boom in the emerging markets will continue to strongly stimulate the economies of the industrialized nations. German experts and the World Bank expect growth in China to decline slightly. This is partly due to the high price of raw materials, but more importantly, to the Chinese government's policy of applying the brakes. However, in spite of all this, a growth rate of 9 percent is still seen as possible for 2006.

Growth in India is almost equally strong. Experts are forecasting average real economic growth of 6 percent between 2006 and 2020 for the subcontinent. This is expected to occur primarily in the process industry and knowledge-based sectors. At the same time, population growth will weaken substantially.

industrialized countries

Despite declining slightly, Russia's buoyant growth is expected to continue without interruption. The eu Commission estimates that the growth rate will decline from 6.6 percent in 2005 to 5.1 percent during the current year. Most experts see 5.7 percent as quite probable. The Russian government still aims to double the country's gross domestic product within ten years. Some experts are quite satisfied that the country can achieve this growth in view of its extensive natural resources and the increasing accessibility of its consumer market, while others see a rise of 50 to 60 percent in gdp within ten years as more realistic.

Although the rate of growth in the United States and emerging countries will slow slightly, in the euro zone, it will ramp up. The euro zone's gross domestic product is expected to grow at least 2 percent in 2006. According to the eu Commission and all other important institutions, the growth of the economy may well continue in 2007.

Rate of growth in the euro zone will ramp up.

mechanical engineering industry more optimistic

The mechanical engineering industry is growing, which will benefit the iwka Group, particularly its Packaging division. Again in 2006, the European mechanical engineering industry will be strongly impacted by exports. The mechanical engineering industry's order books are filled because of demand from abroad. In 2004, foreign orders accounted for over 60 percent of revenues. Although infrastructure investments by German companies will also rise, exports will only expand by 2 percent according to vdma forecasts. Since 2006 domestic orders will also rise by 2 percent, and domestic demand for machinery will slowly grow due to the improving situation in Germany, the gap between exports and domestic demand will not increase further.

automotive sector growth continues

Until 2010 the strongest growth will probably occur in Asia.

The manufacturing of cars and light trucks (less than six tonnes) will continue to increase overall in the medium term. From now until 2010, the strongest growth will probably occur in Asia and, with some exceptions, in Eastern Europe and South America. In India alone, the number of cars manufactured annually will double from 1.5 million in 2005 to 3.0 million in 2010. In the industrialized regions of Western Europe and North America, manufacturing will flatten out at a high level during the same period.

Given this scenario, European and North American carmakers will be primarily investing in streamlining and retrofitting existing assembly systems for new models in 2006. Pay-onproduction contracts will become increasingly important to automotive companies as the value chain comes undone. The iwka Group's robot technology and welding systems business units are continuing to forecast that carmakers will maintain their relatively restrained capital spending policies. On the other hand, opportunities will be emerging for retrofitting existing systems.

new applications boost demand for robots

Unlike the automotive industry, the general industry is expected to have stable growth in the field of robot applications. Mechanical engineering companies and chemical company operators, automotive subsuppliers and the food industry spent above average amounts on additional new robots. The degree of automation of the German industry, which currently operates over 120,000 systems in total, is number two in the world, behind Japan. or every 10,000 workers in this country's manufacturing industry, there are 162 robots. The current size of the global market for industrial robots is 2.2 billion us dollars.

Thanks to the extensive development work it has done in the past number of years, kuka Roboter is in an excellent position to play a leading technological role in advancing the many new fields of application and thereby achieving leadership. In 2006, it will be able to further reduce its previous dependence on orders from the automotive industry.

upturn for food products and packaging machines

After two weak years, the packaging machine industry finally had an adequate order backlog and a good start to the new year. The industry association is expecting manufacturing growth of up to 5 percent for 2006. The revival that started in the past few months and the overall improvement in consumer demand is expected to continue beyond 2006 and will lead to growing revenues at iwka's Packaging division. But 2006 started out on a restrained note. Orders received were significantly below the twelve-month moving average. The anticipated market growth will establish favorable conditions for implementing the restructuring initiatives in iwka Packaging.

iwka capital expenditure plans for 2006

iwka's 2006 capital spending plans are again conservative, but are higher than the amount for 2005 (€ 39.4 million). Any go-aheads for investments will be aligned with business performance. The capital expenditures budgeted are relatively evenly distributed across the three business divisions. Over half of the budget will go toward replacement and upgrade investments. Rationalization and capacity adjustment investments make up about 20 percent of the overall budget. The remainder of the budget comprises investments related to the startup of the pay-on-production contract for the Jeep® Wrangler project in the United States.

iwka group expects positive cash flow and earnings growth

iwka is an automation group with three core business fields: automotive, robotics and packaging. Companies that are not involved in these core competence fields have been and will continue to be uncompromisingly and quickly sold. The renewal of iwka will be completed by the end of 2006.

In parallel, iwka has started to optimize its core business in all subsegments and to make it more competitive. Sales, products and cost structures will be aligned with market conditions. By the end of 2006 or early 2007, we will also have achieved our goals in this area, which will sustainably improve iwka's shareholder value.

We are also working on restructuring the Group's financing. We are aiming to convert the current primarily short-term debt into medium and long-term bank loans. This will secure the planned growth and establish a basis for meaningful strategic acquisitions.

iwka's path is clear. The goals are set, the way to achieve them is defined and the schedule is tight. Capital markets have supported our efforts to date. In the medium term, we expect our business volume to grow by about € 2 billion. At the same time, we are aiming for a return on sales of 6 to 7 percent. We are targeting 20 percent as our return on capital employed (roce). As we proceed down this path, we will be able to announce the first positive results during the course of the year.

The renewal of iwka will be completed by the end of 2006.

financial statements

group financial statements

iwka aktiengesellschaft group income statement

for the period Jan. 1 – Dec. 31, 2005

in € thousands	Note	2005	2004*
Sales revenues	1	1,613,364	1,680,813
Changes in inventories of finished goods and work in process		17,102	-30,643
Own costs capitalized	2	10,052	10,311
Total output		1,640,518	1,660,481
Other operating income	3	49,283	50,638
		1,689,801	1,711,119
Cost of materials	4	-867,571	-830,934
Personnel expense	5	-521,958	-509,523
Amortization of intangible assets	7	-18,615	-12,525
Depreciation of tangible assets	8	-28,932	-27,094
Other operating expenses	9	-283,414	-222,958
		-1,720,490	-1,603,034
Earnings from operating activities		-30,689	108,085
Income from participations in associated companies	10	975	964
Other income from participations	11	253	400
Write-off of financial assets	12	-2,077	-338
Net interest income/expense	13	-17,112	-12,792
		-17,961	-11,766
Earnings before tax		-48,650	96,319
Taxes on income	14	60	-32,451
Earnings from continuing operations		-48,590	63,868
Earnings from operating activities of discontinued operations		-34,238	-9,043
Result from the disposal of discontinued operations		-64,642	-5,997
Result from discontinued operations	15	-98,880	-15,040
Annual net loss/profit		-147,470	48,828
Annual net loss/profit attributable to minority interests		2,370	-32
Annual net loss/profit attributable to iwka		145,100	-48,796
Earnings per share	16	-5.45	1.83
(of that discontinued operations)	16	(-3.72)	(-0.56)

* In accordance with ifrs 5, the amounts for continuing operations in the income statement for 2004 are presented on a comparable basis.

iwka aktiengesellschaft group balance sheet

as at Dec. 31, 2005

in € thousands	Note	Dec. 31, 2005	Dec. 31, 2004
Non-current assets	17
Intangible assets	18	147,955	160,033
Tangible assets	19	192,175	255,316
Participations in associated companies	20	3,045	2,999
Financial investments	20	11,745	14,922
		354,920	433,270
Deferred taxes	14	54,463	39,269
Current assets
Inventories	21	278,005	348,115
Receivables and other assets	22
Trade receivables		292,624	442,618
Receivables from long-term contracts	23	116,547	90,692
Receivables from affilated companies		17,465	17,977
Receivables from companies , in which
participations are held		61	1,050
Other assets, prepaid expenses and
deferred charges		31,150	35,621
		457,847	587,958
Cash and cash equivalents	24	118,429	135,440
		854,281	1,071,513
Assets of discontinued operations	25	289,660	115,839
		1,553,324	1,659,891

equity and liabilities

in € thousands	Note	Dec. 31, 2005	Dec. 31, 2004
Equity	26
Subscribed capital	27	69,160	69.160
Capital reserve	28	99,598	133,387
Revenue reserves	29	19,710	134,744
Net retained earnings		0	17,556
Minority interests	30	603	3,202
		189,071	358,049
Non-current liabilities, provisions and accruals	31
Long-term financial liabilities	32	52,978	136,858
Other long-term liabilities	33	12,166	12,958
Pension provisions and similar obligations	34	137,832	178,992
Deferred taxes	14	8,018	22,695
		210,994	351,503
Current liabilities, provisions and accruals	31
Short-term financial liabilities	32	227,511	131,068
Trade payables		171,975	227,766
Advances received		107,423	96,909
Liabilities from long-term contracts	23	88,547	85,830
Accounts payable to affiliated companies		3,019	2,014
Other short-term liabilities and deferred income	33	126,344	157,310
Provisions for taxes		26,837	52,255
Other provisions	35	209,809	140,156
		961,465	893,308
Liabilities from discontinued operations	25	191,794	57,031
		1,553,324	1,659,891

development of group equity

in € million	Subscribedcapital	Capitalreserve	Otherrevenue	revenue reservesTranslationreserves gains/losses	Marketvaluationhedges	Net retainedearnings	Minorityinterests	Total
Dec. 31, 2003	69.2	133.3	107.5	-4.0	-4.6	17.6	4.1	323.1
iwka Aktiengesellschaft dividend	–	–	–	–	–	-17.6	–	-17.6
Changes in ownership	–	–	1.7	–	–	–	-0.9	0.8
Exchange rate-related differences	–	–	–	0.3	–	–	–	0.3
Other changes	–	–	–	–	2.7	–	–	2.7
Group net income for the year	–	–	31.2	–	–	17.6	–	48.8
Dec. 31, 2004	69.2	133.3	140.4	-3.7	-1.9	17.6	3.2	358.1
iwka Aktiengesellschaft dividend	–	–	–	–	–	-17.6	–	-17.6
Changes in ownership	–	–	-9.6	–	–	–	-0.2	-9.8
Exchange rate-related differences	–	–	–	4.2	–	–	–	4.2
Withdrawal from retainedearnings/capital reserve	–	-33.8	-111.3	–	–	145.1	–	0.0
Other changes	–	–	–	–	1.7	–	–	1.7
Group net loss for the year	–	–	–	–	–	-145.1	-2.4	-147.5
Dec. 31, 2005	69.2	99.5	19.5	0.5	-0.2	0,0	0.6	189.1

iwka group cash flow statement

in € million	2005	2004
Net loss/income for the year	-147.5	48.8
Result from the disposal of discontinued operations	64.6	6.0
Amortization of intangible assets	26.0	14.4
Depreciation of tangible assets	33.7	44.2
Write-off of financial assets	3.0	0.5
Other non-payment related expenses/income	-29.2	1.7
Cash flow	-49.4	115.6
Result on the disposal of assets	-2.8	-5.8
Changes in provisions	50.9	-18.5
Changes in current assets and liabilities:
Changes in inventories	-3.5	46.2
Changes in receivables and deferred charges	-42.0	-46.9
Changes in liabilities and deferred income (excl. financial debt)	-5.1	67.6
Cash flow from operating activities	-51.9	158.2
(of that discontinued operations)	(-61.6)	(8.9)
Payments from disposals of fixed assets	9.1	12.0
Payments for capital expenditures on intangible assets	-15.5	-19.9
Payments for capital expenditures on tangible assets	-36.8	-47.7
Payments for investments in financial assets	-3.9	-5.9
Incoming/outgoing payments in connection with the saleof consolidated companies and other business units	75.5	-2.2
Cash flow from investing activities	28.4	-63.7
(of that discontinued operations)	(62.5)	(-11.1)
Dividends paid	-17.6	-17.6
Incoming/outgoing payments from the proceeds/repayment of liabilitiesdue to banks and liabilities similar to bonds	27.7	-56.6
Cash flow from financing activities	10.1	-74.2
(of that discontinued operations)	(5.2)	(0.9)
Payment-related changes in cash and cash equivalents	-13.4	20.3
(of that discontinued operations)	(6.1)	(-1.3)
Exchange rate-related and other changes in cash and cash equivalents	2.6	1.6
(of that discontinued operations)	(0.1)	(0.1)
Changes in cash and cash equivalents	-10.8	21.9
Cash and cash equivalents at the beginning of the period	136.6	114.7
(of that discontinued operations)	(1.2)	(2.4)
Cash and cash equivalents at the end of the period	125.8	136.6
(of that discontinued operations)	(7.4)	(1.2)
(of that continuing operations )	(118.4)	(135.4)

group segment reporting

segment reporting by division

AutomotiveRobotics2005200420052004929.9886.5276.0394.0as a % of Group sales revenues57.652.817.123.410.112.747.626.5940.0899.2323.6420.5-2.547.3-22.843.9as a % of sales revenues of the division-0.35.3-7.010.4as a % of Group external sales revenues-0.35.3-8.311.1as a % of capital employed (roce)-1.728.3-22.138.6148.7167.1103.3113.6553.6515.6221.3230.9410.0386.6141.1110.814.116.214.420.116.915.418.312.34,4584,2741,9842,013
	in € million
	Group external sales revenues
	Intra-Group sales
	Sales revenues by division
	ebit
	Capital employed (annual average)
	Assets
	Liabilities
	Capital expenditure
	Deprecation/amortization on intangible
	and tangible assets
	Payroll (annual average)

segment reporting by region

		Germany	Rest of Europe
in € million	2005	2004	2005	2004
Group external sales revenues	544.9	642.6	412.8	473.6
as a % of Group sales revenues	33.8	38.2	25.6	28.2
Capital employed (annual average)	129.0	200.8	131.7	144.5
Assets	596.3	612.8	270.2	321.4
Capital expenditure	22.5	35.7	11.0	6.9
Payroll (annual average)	5,222	5,316	2,172	2,285

	Packaging	iwka ag, otherConsolidation items	Companies and Reconciliation/	Continuing Operations (as perBalance Sheet and P&L presentation)
2005	2004	2005	2004	2005	2004
401.1	391.8	6.4	8.5	1,613.4	1,680.8
24.9	23.3	0.4	0.5	100.0	100.0
–	–	-57.7	-39.2	–	–
401.1	391.8	-51.3	-30.7	1,613.4	1,680.8
7.5	15.2	-12.9	1.7	-30.7	108.1
1.9	3.9	–	–	-1.9	6.4
1.9	3.9	–	–	-1.9	6.4
5.0	9.8	–	–	-7.8	23.3
150.7	155.1	-8.3	27.5	394.4	463.3
280.5	285.4	36.9	13.5	1,092.3	1,045.4
181.7	185.0	124.3	58.5	857.1	740.9
10.4	7.8	0.5	2.3	39.4	46.4
9.5	9.2	2.9	2.8	47.6	39.7
2,597	2,751	105	111	9,144	9,149

usa/Canada		Other Regions/Reconciliation		Continuing Operations (as per	Balance Sheet and P&L presentation)
2005	2004	2005	2004	2005	2004
454.6	307.8	201.1	256.8	1,613.4	1,680.8
28.2	18.3	12.4	15.3	100.0	100.0
130.6	114.0	3.1	4.0	394.4	463.3
273.5	210.1	-47.7	-98.9	1,092.3	1,045.4
5.6	3.6	0.3	0.2	39.4	46.4
1,396	1.332	354	216	9,144	9,149

4 4

iwka group notes for the 2005 financial year

general comments

iwka Aktiengesellschaft prepares its Group consolidated financial statements in accordance with the International Accounting Standards (ias) and the International Financial Reporting Standards (ifrs) of the International Accounting Standards Board (iasb), the interpretations of the Standing Interpretations Committee (sic) as well as the International Financial Reporting Interpretations Committee (ifric) as applicable in the European Union. Furthermore, the Group consolidated financial statements also comply with all standards and pronouncements as adopted by the iasb.

The Group consolidated financial statements are in compliance with German law. The numbers for the prior year were prepared according to these same standards.

The Group consolidated financial statements have been prepared in euro. Unless otherwise noted, all amounts are stated in millions of euro (€ million).

The income statement has been prepared according to the total cost method.

consolidation, accounting and valuation policies

consolidation policies

The Group consolidated financial statements are based on the financial statements of the iwka Aktiengesellschaft and those of the consolidated subsidiaries and were prepared according to the uniform accounting and valuation policies for the Group. The consolidation of investments in subsidiaries capital was performed by elimination of the carrying amount of the participation against the proportionate equity in the subsidiary restated as at the date of acquisition. In line with ifrs 3, any positive differences are capitalized as goodwill under intangible assets. Any negative differences must be recognized in the income statement.

Intra-Group sales, expenses, earnings, as well as receivables and payables are netted, and inter-company profits and losses are eliminated. The deferred tax entries required in connection with the consolidation processes have been recorded.

Guarantees and warranties that iwka Aktiengesellschaft issues on behalf of consolidated subsidiaries are eliminated.

currency translation

Receivables and payables denominated in foreign currency are translated as at the balance sheet date using an average rate. Any associated translation gains or losses are recorded as gains or losses in the income statement.

The annual financial statements of the consolidated foreign subsidiaries are translated from their functional currency (ias 21) into euro. For all foreign companies, this is the respective local currency, since they operate predominantly within their currency area. Accordingly, all assets and liabilities are translated at the rate effective on the balance sheet date. Equity is translated using historical rates. Income and expenses are translated using average rates for the year. The translation of annual profits or losses on the income statement is also done at average rates for the year.

accounting and valuation policies

Within the framework of the rules under ifrs 3, goodwill is recognized using the "impairment only" approach and is tested for impairment at least annually.

The impairment test is performed for the defined cash generating units as per ias 36 rules, using the discounted cash flow method. This was done on the basis of data from the business plan. Since long-term use of the acquired goodwill is assumed, the last planning period was carried forward without additional factor for growth.

A uniform interest rate for the Group is used in principle for the discounting of cash flows, and is adjusted, if necessary, for differences in the base interest rates for the individual currencies. In the reporting year, a rate of 10.2 percent before taxes (prior year 11.0 percent) was used for the business plan horizon (three years). A growth discount of 0.5 percent was applied as perpetuity.

The major goodwill amounts as well as the underlying assumptions for the impairment tests are provided under item 18.

Self-developed software and other development costs

Development costs for newly developed products or internally generated intangible assets (for instance, software) were capitalized according to the criteria of ias 38 provided that the technical feasibility and commercialization of the newly developed products are assured and that this will result in an inflow of economic benefits to the Group. In this context, the costs of production encompass the costs directly and indirectly attributable to the cost of development. According to ias 38, expenditures on research are recognized as expenses when they are incurred.

Scheduled depreciation commences when the asset is put into use and is recognized over the expected useful life of, as a rule, four to six years, using either the straight-line or unitbased method. Moreover, the value recognized for capitalized development costs is subject to annual impairment tests.

Other intangible assets

Purchased intangible assets, predominantly software, are recognized at their acquisition cost and are amortized as scheduled over their expected useful life of three to five years using the straight-line method.

Tangible assets

Tangible assets for continuing operations are recognized at acquisition or production costs less scheduled depreciation. In addition to directly attributable costs, the costs of production for internally generated assets also include a proportionate share of overhead costs. Interest on borrowed capital is recognized as an expense when it is incurred.

Scheduled depreciation is based predominantly on the following periods of useful life:

Years
Software and other rights	3 – 5
Development costs	3 – 6
Buildings	25 – 50
Property-related facilities	2 – 15
Technical machinery and equipment	2 – 15
Other equipment	2 – 15
Factory and office equipment	2 – 15

Impairment charges of tangible assets are recorded in accordance with ias 36 if the recoverable amount of the asset is less than its carrying amount. In this context, the recoverable amount is the higher of the net realisable value and the value in use of the asset in question. If the reasons for an impairment recorded in prior years no longer apply, the impairment is reversed.

Government grants

In accordance with ias 20, government grants are recognized only if there is reasonable assurance that the conditions attaching to them will be complied with and that the grants will be received.

Government grants related to assets (for instance investment subsidies and allowances) are deducted from the acquisition or production costs of the relevant asset. Grants related to income are recognized in the income statement and reported as reductions to the corresponding expenses.

Finance and operating leases

In connection with finance leases, ownership is attributed to the lessee in cases in which the latter assumes substantially all the risks and rewards incidental to ownership (ias 17). Provided that the ownership is attributable to the iwka Group, such leases are capitalized as at the date of the lease agreement at their fair value or at the lower present value of the minimum lease payments. Depreciation is recognized by the straight-line method over the useful life or over the lease term if it is shorter. The discounted value of payment commitments in connection with the lease payments is recognized as a liability and disclosed under other liabilities.

To the extent that the iwka Group has entered into operating leases according to ias 17, lease or rent payments are directly recognized as expense in the income statement. Relevant total future costs are reported in item 19.

Financial instruments

Financial instruments are contracts that simultaneously give rise to a financial asset of one entity and a financial liability of another entity. These include both originated financial assets (for instance, trade receivables or trade payables) as well as derivative financial instruments (transactions to hedge the risk of a change in value).

ias 39 differentiates between the following categories of financial instruments:

• financial assets at fair value through profit or loss (held for trading)
• held-to-maturity investments
• loans and receivables
• available-for-sale financial assets

Unless otherwise noted, financial instruments are recognized at fair value. The fair value of an originated financial instrument is the price that could be obtained in the market; i.e., the price at which the financial instrument could be freely traded between parties.

In the iwka Group, participations in continuing entities that are of minor significance to the net worth, financial position and earnings of the Group are treated as financial investments and carried at amortized cost or at fair value, since specific market values are not available.

Originated financial instruments that represent liabilities are carried at amortised cost.

Derivative financial instruments are financial contracts whose value is derived from the price of an underlying asset (for instance, stocks, bonds, money market instruments or commodities) or a reference rate (such as currencies, indices or interest rates). They require little or no initial investment and are settled at a future date. Examples of derivative financial instruments include options, forward contracts and interest rate swap transactions.

According to ias 39, the iwka Group recognizes all derivative financial instruments at fair value by the settlement date accounting method. Fair values are determined with the aid of standard financial mathematical techniques (mark-to-market-method) or quoted prices.

Gains and losses arising from a change in the fair value of derivative financial instruments that do not fall within the scope of hedge accounting are recognized immediately in the income statement, as are the changes in the value of the underlying transactions.

Accounting for hedging instruments within the restrictive framework of the hedge accounting rules must differentiate between fair value hedges and cash flow hedges.

Fair value hedges are used to hedge the risk of changes in the value of a recognized asset or liability. Changes in the fair value of the underlying transactions and the associated hedging instruments are immediately recognized as profit or loss.

Cash flow hedges are used to hedge the risk of changes in the value of future cash flows. Until it is realized, the change in fair value is retained in equity as a reserve and is reclassified as gains or losses on the income statement in the same periods in which the underlying transaction affects profit or loss.

Inventories

According to ias 2, inventories are valued at average cost of acquisition or production. In addition to the direct unit costs, production costs also include appropriate costs for indirect materials and production overheads. Interest on borrowed capital is not capitalized. Writedowns to lower net realizable value have been taken to the extent required. In addition to valuation allowing disposal at no net loss, these write-downs also cover all other inventory risks. If and when the circumstances that previously caused the inventories to be written down no longer exist, the amount of the write-down is reversed.

Long-term contracts

Contracts that meet the criteria of ias 11 are recognized according to the percentage-ofcompletion method (POC method). As a rule, the percentage of completion to be recognized by contract is determined by the cost of work to date as a percentage of the estimated total costs (cost-to-cost method). The corresponding earnings from the contract are recognized on the basis of the percentage of completion thus determined. These contracts are presented as receivables respectively liabilities from long-term contracts. To the extent that services performed to date exceed advances received, the contracts are recorded on the balance sheet as receivables arising from long-term contracts. If there is a negative balance after deduction of advances, this is recognized as liabilities from long-term contracts. If necessary, provisions are recognized for impending losses.

Receivables and other assets

Receivables and other assets are recognized at costs of acquisition with appropriate discounts applied for all identified individual risks. General credit risk, to the extent that it can be documented, is also accounted for by appropriate valuation allowances.

Deferred taxes

According to ias 12, deferred taxes have been recorded for all temporary differences between the carrying values of assets and liabilities on the Group consolidated balance sheet and their recognized value for tax purposes (liability method) as well as for tax loss carry-forwards. Deferred tax assets for accounting and valuation differences as well as for tax loss carryforwards are only recognized to the extent that there is a sufficiently probable expectation that the corresponding benefit will be realized in the future. Deferred tax assets and liabilities are not discounted. Deferred tax assets are netted against deferred tax liabilities if the tax creditor and periodicity are the same.

Pension provisions and similar obligations

The measurement of pension liabilities and similar obligations is performed according to ias 19. Pensions and similar obligations comprise obligations of the Group to pay benefits under defined benefit plans. The pension obligations are determined according to the socalled projected-unit-credit method. In addition to known pensions and vested benefits as at the balance sheet date, this method also takes expected future increases in salaries and pensions into account. The calculations are based on actuarial reports that must be prepared annually and must be based on biometric data. Actuarial gains and losses are only recognized when they exceed a range of ten percent of defined benefit obligations. In that case, they are distributed over the average remaining working life of the beneficiaries. Service costs are recognized as personnel expense, the interest portion of the addition to provisions as well as the return on the fund assets are recognized as financing activities.

Pension obligations are by definition considered long-term.

Other provisions are recognized in the event that there is a current obligation to third parties arising from a past event. It must be possible to estimate the amount reliably and it must, more likely than not, lead to an outflow of future resources. Provisions are only recognized for legal and constructive obligations to third parties.

No provisions were recognized for future expenses, since the latter do not represent an external obligation.

Liabilities in the personnel area, such as vacation pay, accrued overtime and the statutory German early retirement scheme (Altersteilzeit), which were previously reported as provisions, are recognized for the first time under other liabilities.

Liabilities for outstanding vendor invoices are recognized under trade payables. Long-term provisions with a term of more than one year are discounted to the balance sheet date on the basis of appropriate interest rates where the interest effect is material.

Other provisions are in principle classified as short-term liabilities and provisions.

Liabilities are recognized on the balance sheet at their depreciated/amortized cost of purchase. Payables arising from finance leases are recognized at the present value of future lease payments.

Revenue recognition

Aside from long-term contracts (ias 11), all other sales revenues are recognized according to the completed-contract method in adherence to ias 18. Sales revenues are booked in the period in which the products or goods were delivered or the services were rendered. Any reductions to the proceeds, contract penalties and cash discounts are deducted from this. At this time, the amount of revenues can be reliably measured and the inflow of economic benefits from the transaction is sufficiently probable.

Assumptions and estimates

The preparation of the Group consolidated financial statements requires management to make assumptions and estimates that affect the recognition and amount of assets and liabilities on the balance sheet, revenues and expenses, as well as the disclosure of contingent liabilities. Actual amounts may differ from these assumptions and estimates on a case-by-case basis.

5 1

New Accounting Standards

The following new and amended standards and interpretations had been adopted by the preparation date of the Group consolidated financial statements. However, they will only become effective at a later date and were not applied to the present Group consolidated financial statements under early adoption. Their impact on the Group consolidated financial statements of the iwka Aktiengesellschaft has not yet been completely analyzed. Consequently, the anticipated effects as described in the footnotes to the table only represent a first estimate.

Standard / Interpretation		Effective date	Planned adoptionby iwka ag
Amendment of ias 19 – Employee Benefits
Actuarial gains and losses, Group plans and disclosures	***	January 1, 2006	2006 Fiscal year
Amendment of ias 39 – Financial instruments:
Recognition and measurement:
Hedging of cash flows from intra-group transactions	*	January 1, 2006	2006 Fiscal year
Fair-value option	*	January 1, 2006	2006 Fiscal year
Financial guarantee contracts (applies also for ifrs 4)	*	January 1, 2006	2006 Fiscal year
ifrs 6 – Exploration and evaluation of mineral resources	*	January 1, 2006	2006 Fiscal year
ifric 4 – Determining whether an arrangement contains a lease	***	January 1, 2006	2006 Fiscal year
ifric 6 – Liabilities arising from participating in a specific market –
waste electrical and electronic equipment	*	December 1, 2005	2006 Fiscal year
ifric 7 – Applying the restatement approach under ias 29 –
Reporting in hyperinflationary economies	*	March 1, 2006	2007 Fiscal year
ifric 8 – Scope of ifrs 2	*	May 1, 2006	2007 Fiscal year
ifrs 7 – Financial instruments: disclosure	*	January 1, 2007	2007 Fiscal year
Amendment of ias 1 – Presentation of financial statements:
disclosures about equity capital	**	January 1, 2007	2007 Fiscal year

• * No significant effects on the Group consolidated financial statements of iwka ag are expected.
• ** This is expected to result primarily in additional disclosures to the Group consolidated financial statements of iwka ag.
• *** The effects on the Group consolidated financial statements of iwka ag cannot yet be sufficiently reliably estimated.

scope of consolidation

In addition to iwka Aktiengesellschaft, the Group consolidated financial statements include 36 companies registered in Germany (prior year 43) as well as 46 companies domiciled outside of Germany (prior year 51) on whose behalf iwka Aktiengesellschaft exercises directly or indirectly uniform control. The following changes to the scope of consolidation occurred in 2005:

first-time consolidations

• kuka Toledo Production Operations, llc., Toledo/usa (100%). The company was formed in late 2004 and was previously not included because it was of minor significance.
• ln Manufacturing (Pty.) Ltd., Port Elizabeth/South Africa (50.1%). Effective January 1, 2005, the percentage of participation was raised by 14.1%. The purchase price for this was € 0.4 million.

As part of the concentration on the core business and the associated streamlining of the portfolio, the following consolidated companies were disposed of:

• heinrichs Messtechnik GmbH, Cologne: The company was sold to its management by contract dated July 2, 2004, effective as at January 1, 2005.
• vag-Armaturen GmbH, Mannheim, and Jihomoravska armaturka spol. s.r.o., Hodonin/Czech Republic: The two consolidated companies were sold to the financial investor equita with participation of their management by contract dated December 10, 2004, effective as at January 1, 2005.
• rmg Group:
  • rmg Regel + Meßtechnik GmbH, Kassel,
  • rmg Meßtechnik GmbH, Butzbach,
  • rmg- gaselan Regel + Meßtechnik GmbH, Fürstenwalde,
  • Karl Wieser GmbH, Ebersberg,
  • wäga Wärme-Gastechnik GmbH, Kassel,
  • Bryan Donkin rmg Gas Controls Ltd., Chesterfield/Great Britain,
  • Bryan Donkin rmg Canada Ltd., Woodstock/Canada,
  • Zaklad Urzadzen Gazowniczych gazomet Sp. z.o.o., Rawicz/Poland.

The rmg Group was sold to the financial investor Triton and to its Management by contract dated December 23, 2004, effective as at January 1, 2005.

In addition, Autoprod Inc., Clearwater, was merged effective April 1, 2005 into Packaging Technologies Inc., Davenport, and kuka Development Laboratories Inc. was merged effective January 1, 2005 into kuka Robotics Corp., Sterling Heights. The shell company Xeni Inc., Clearwater, which had remained after the sale of inex Vision Systems Inc. in the previous year, was shut down.

The incorporation of the first-time consolidations had no material effect on the net worth, financial position and earnings of the Group. All deconsolidated entities are part of discontinued operations and, to that extent, are disclosed separately.

Companies that are, as a whole, of minor significance as regards the presentation of a true and fair view of the Group's net worth, financial position and earnings are not consolidated. They are reported in the Group consolidated financial statements at their respective cost or at fair value if lower.

associated companies

Companies in which it is possible for iwka Aktiengesellschaft, directly or indirectly, to exercise a significant influence (associated companies), are recorded on the balance sheet by the equity method.

This applies to the associated companies iwka Regler und Kompensatoren Vertriebsgesellschaft m.b.H., Vienna, and pam-pac Machines Private Ltd., Mumbai/India.

ifrs 5 requires a separate disclosure of assets (companies) that are no longer intended to remain as part of continuing operations but are intended for disposal.

The following criteria, which are intended to ascertain that the sale of these companies is highly probable, were adhered to, and companies to which they applied were classified as discontinued operations:

• The management level authorized to make the necessary decisions must be committed to the planned sale. Additionally, active efforts to identify a buyer must have been initiated. The companies intended for sale must be actively marketed for sale at a price that approximately corresponds to their current fair value.
• These companies must be available for immediate sale in their present condition.
• The likelihood must be strong that the execution and closing of this sale can be expected within twelve months from the date of reclassification.

As of the date of the classification as discontinued operations, the long term assets of these companies are no longer subject to scheduled depreciation. The assets and liabilities are recognized at the lower of their carrying amount or fair value less costs to sell.

The prior year numbers for the discontinued operations have been separately disclosed in the income statement with no valuation adjustment. No prior-period adjustment has been made on the balance sheet.

5 4

On the basis of the criteria in ifrs 5, the following companies were classified as discontinued operations as at the dates stated:

• Flexible Solution Group (as at December 31, 2005)
  • iwka Balg- und Kompensatoren-Technologie GmbH, Stutensee
  • American boa Inc., Cumming/usa
  • boa ag, Rothenburg/Switzerland
  • sas Souplesse Fonctionnelle Systematique, Chassieu/France
  • Tubest Flexible Solutions s.a., Fere en Tardenois/France

as well as 11 non-consolidated or associated companies.

The Flexible Solution Group was sold to the financial investor Odewald & Compagnie by contract of December 22, 2005, effective as at December 31, 2005/January 1, 2006.

• ex-cell-o-Gruppe (as at September 30, 2005)
  • ex-cell-o GmbH, Eislingen/Fils
  • ex-cell-o Machine Tools, Inc., Sterling Heights/usa
  • ex-cell-o Machines s.a.s., Paris/France

as well as two non-consolidated participations were sold to the maxcor Inc. Group, New York by contract dated December 29, 2005, effective as at December 31, 2005/ January 1, 2006.

• Bopp & Reuther Sicherheits- und Regelarmaturen GmbH, Mannheim and c.h. Zikesch Armaturen GmbH, Essen as well as two non-consolidated participations (as at December 31, 2005).
  • Negotiations were conducted prior to the financial statement date, and were concluded on February 22, 2006 with the sale of the companies to the financial investor Tequity retroactive to January 1, 2006.
• Boehringer-Group (as at December 31, 2005)
  • Boehringer Werkzeugmaschinen GmbH, Göppingen
  • Boehringer Werkzeugmaschinen Vertriebsgesellschaft mbH, Göppingen
  • fms Drehtechnik Schaffhausen ag, Schaffhausen/Switzerland
  • George Fischer-Boehringer Corp., Farmington Hills/usa
  • ubj-Boehringer Inc., Mississauga/Canada

Since specific negotiations for the sale have already been initiated and there is a letter of intent, the above were classified as discontinued operations.

Except for the ex-cell-o Group, the companies in the discontinued operations segment were classified to the non-core business segment in the previous year. The ex-cell-o Group was reclassified from the Automotive division, with a corresponding adjustment made to the figures for the prior year in the segment reporting.

notes on the group income statement

The income statement gives priority to the presentation of continuing operations as they would appear after the disposal of discontinued operations. Discontinued operations have been treated accordingly, with profit/loss presented in a single line in the income statement and further detailed under item 15.

1 sales revenues

Sales revenues include fees and charges billed to customers for goods and services – less any reductions to the proceeds, contract penalties and cash discounts.

The breakdown of sales revenues by business divisions and regions is shown in segment reporting.

In connection with long-term contracts, sales revenues in the amount of € 612.3 million were recognized in the reporting year for customer-specific construction contracts according to the percentage of completion method. This compares to the prior year's figure of € 542.6 million.

2 own costs capitalized

Own costs capitalized primarily represent the capitalization of development costs according to ias 38 "Intangible Assets".

3 other operating income

Other operating income breaks down as follows:

in € million	2005	2004
Income from the reduction of provisions	19.2	14.0
Income from cost allocations	5.4	7.9
Lease and rental income	3.5	2.5
Income from foreign currency transactions	3.4	5.4
Income from the disposal of assets	3.2	3.7
Income from the reversal of bad debt allowances	2.9	7.8
Income from subsidies and grants	2.8	1.4
Income from reimbursements	2.2	0.8
Other income	6.7	7.1
	49.3	50.6

4 cost of materials

in € million	2005	2004
Cost of raw materials, supplies and goods purchased	695.8	624.3
Cost of purchased services	171.8	206.6
	867.6	830.9

5 personnel expense and payroll

in € million	2005	2004
Wages and salaries	425.9	415.1
Social security payments and contributions for retirement
benefits and provident funds	96.1	94.4
(of that for retirement benefits)	(4.8)	(5.3)
	522.0	509.5

On average for the year the iwka payroll was (incl. discontinued operations):

	InsideGermany	OutsideGermany	total2005	total2004
Wage earners	2,542	2,294	4,836	5,982
Salaried employees	3,885	2,458	6,343	6,977
Trainees/apprentices	285	73	358	352
	6,712	4,825	11,537	13,311
(of that in newly consolidated companies)	(0)	(158)	(158)	(194)

6 total emoluments of executive board and supervisory board members

The members of the Executive Board are listed on page 165. Emoluments for active Executive Board members for the 2005 financial year totaled € 1.4 million (prior year € 2.5 million). Of this total, the current Executive Board Chairman received € 0.3 million. In 2005, the Executive Board members received no payments for the variable component of their compensation, compared to € 1.2 million in the prior year. As of December 31, 2005, provisions recognized for salary and bonus payments to Executive Board members that are no longer active totaled € 3.4 million.

Former members of the Executive Board and their surviving dependents received € 0.8 million, up from the prior year's € 0.7 million.

Statutory compensation of the Supervisory Board members totaled € 0.6 million in 2005. Of this amount, the variable component of the compensation represents € 0.4 million. The members of the Supervisory Board are listed on page 163/164.

Neither the members of the Executive Board nor of the Supervisory Board have been granted stock options or similar components as part of their compensation.

Accruals for pension obligations to former members of the iwka Executive Board and their surviving dependents total € 10.1 million.

7 amortization of intangible assets

in € million	2005	2004
Amortization of intangible assets
scheduled	10.9	12.5
non-scheduled	7.7	–
	18.6	12.5

In the reporting period, impairment losses totaling € 7.0 million were recognized primarily in relation to goodwill. Of these write-downs, € 6.0 million are related to goodwill from companies in the kuka Roboter Group. At ln Manufacturing (Pty.) Ltd. a goodwill impairment loss (€ 1.0 million) was recognized as part of the first-time consolidation. No impairment losses were recognized in the prior year.

8 depreciation of tangible assets

in € million	2005	2004
Depreciation of tangible assets
scheduled	27.7	27.1
non-scheduled	1,2	–
	28.9	27.1

The impairment losses are primarily related to machinery in the Automotive division that is no longer being used, as well as the write-off of test equipment at a packaging company.

9 other operating expenses

Other operating expenses break down as follows:

	283.4	223.0
Other expenses	10.7	15.0
Expenses from foreign currency transactions	4.1	6.4
Bad-debt allowances for receivables	4.3	4.6
Other taxes	5.7	5.3
Other personnel expenses	36.1	14.1
Lease and rental payments	20.4	19.6
Operating expenses	28.3	32.4
Additions to provisions	47.5	-2.9
Administrative expenses	47.7	43.5
Sales expenses	78.6	85.0
in € million	2005	2004

The additions to provisions and other personnel expenses include especially restructuring and closing costs of approximately € 34 million.

10 income from participations in associated companies

Participation income from equity investments breaks down into € 0.4 million (prior year € 0.5 million) from pam-pac Machines Private Ltd., Mumbai/India, as well as the profit distribution of € 0.5 million (prior year € 0.4 million) from Muffenrohr GmbH, which was sold last year.

11 other income from participations

Income from affiliated companies relates primarily to a non-consolidated subsidiary of Societe Anonyme des Usines Farman, St. Cloud/France at € 0.1 million compared to € 0.2 million in 2004 as well as non-consolidated distribution companies in the aro Group at € 0.2 million , up from € 0.1 million the year prior.

12 write-offs of financial assets

The write-offs of financial assets are related to two non-consolidated equity investments of kuka Schweissanlagen and one equity investment of kuka Roboter, where the percentage of participation was adjusted due to the poor earnings prospects.

in € million	2005	2004
Income from loaned financial assets	0.0	0.2
(of that related to affiliated companies)	(0.0)	(0.2)
Other interest and similar income	10.4	18.7
(of that related to affiliated companies)	(3.2)	(4.1)
	10.4	18.9
Interest and similar expenses	27.5	31.7
(of that related to affiliated companies)	(0.0)	(0.1)
	-17.1	-12.8

Other interest and similar income includes interest income on the assets of the pension funds in the amount of € 4.7 million, which compares to € 4.7 million a year earlier. Interest expense includes interest expense for pension obligations in the amount of € 10.7 million versus € 11.1 million in 2004.

Net interest income for the prior year was affected by one-time income from the sale of old accounts receivable, which included a significant interest component.

14 taxes on income/deferred taxes

Tax expense

Income tax expense breaks down by origin as follows:

in € million	2005	2004
Current taxes	12.7	35.2
Deferred taxes
from temporary differences	-12.4	-0.7
from loss carry-forwards	-0.4	-2.0
	-0.1	32.5

Tax expense calculated on the basis of net earnings before taxes in the amount of € -48.6 million (prior year € 96.3 million) and the applicable tax rate of 39.0 percent (prior year 39.0 percent) for iwka companies in Germany are reconciled to actual tax expenses as follows:

in € million	2005	2004
Theoretical tax expense	-19.0	37.6
Tax rate-related differences	0.5	-1.5
Tax reductions due to tax-exempt income	-2.4	-2.9
Tax increases due to non-deductible expenses	3.9	3.6
Back taxes paid (+) and tax credits received (-) for prior years	7.5	-2.0
Non-deductible goodwill amortization	2.4	-0.9
Changes to allowance on deferred taxes	9.9	0.1
Other differences	-2.9	-1.5
Taxes on income (actual tax expense)	-0.1	32.5

In principle, deferred taxes were recognized on the basis of the applicable tax rate for each company in question. By way of simplification, the calculation of deferred taxes for consolidation measures that have an effect of profit or loss, was based on a uniform underlying tax rate of 39 percent, compared to 39 percent in the prior year.

As of the reporting date, potential claims for corporation tax relief in connection with corporation tax credits carry-forwards was € 11.4 million compared to € 11.4 million a year earlier, and will be realized in future years subject to the provision of tax regulations.

Deferred tax assets and deferred tax liabilities

The value of deferred tax assets and deferred tax liabilities due to temporary differences and tax loss carry-forwards in the Group is associated with the following items:

		Deferred tax assets	Deferred tax liabilities
in € million	Dec. 31, 2005	Dec. 31, 2004	Dec. 31, 2005	Dec. 31, 2004
Fixed assets	2.4	2.7	19.3	22.2
Current assets	5.3	9.7	5.4	9.7
Provisions	50.3	42.8	1.7	4.1
Liabilities	6.4	9.0	0.4	0.3
	64.4	64.2	26.8	36.3
Balancing item	-18.8	-13.6	-18.8	-13.6
Valuation allowance	-15.7	-16.3	–	–
	29.9	34.3	8.0	22.7
Deferred taxes on temporary differences	29.9	34.3	8.0	22.7
Deferred taxes on tax loss carry-forwards	24.5	5.0	–	–
	54.4	39.3	8.0	22.7

Valuation allowance to the carrying value of deferred tax assets are recognized if the realization of the expected benefit of the deferred taxes is not sufficiently probable. The estimates made are subject to changes over time, which may result in the reversal of valuation allowance in subsequent periods.

The impact on tax expense of changes to the valuation allowance for temporary valuation differences and loss carry-forwards is € -9,9 million, which compares to € -0.1 million in 2004.

The recognized values on the balance sheet were written off in the event that the tax benefits that they represent are no longer expected to be realized. In the amount recognized as at December 31, 2005, valuation allowances were recorded in the amounts of € 15.7 million for temporary valuation differences and € 40.9 million for loss carry-forwards. These figures compare to € 16.3 million and € 33.7 million respectively in 2004. To the extent that loss carry-forwards were not written off, it is expected that the potential tax benefits will be realized in future years as a result of taxable earnings that are deemed probable on the basis of the companies' business plans. As at December 31, 2005, the amount for tax loss carry-forwards not yet used was € 189.1 million, compared to € 114.7 million in 2004.

Deferred tax liabilities

The amount of € 8.0 million for deferred taxes as at December 31, 2005 is related to temporary valuation differences compared to the amounts recognized in the financial statements for tax purposes. The prior year's figure was € 22.7 million.

15 result from discontinued operations

The following table shows a breakdown of the current portion of earnings from discontinued operations:

in € million	2005	2004
Sales revenues	456.6	683.4
Changes in inventories of finished goods and work in process	-11.9	-30.3
Own costs capitalized	0.6	3.0
Total output	445.3	656.1
Other operating income	3.9	16.2
	449.2	672.3
Cost of materials	-266.8	-348.5
Personnel expense	-141.1	-197.5
Depreciation/amortization of intangible assets and tangible assets	-12.2	-19.0
Other operating expenses	-65.5	-103.6
	-485.6	-668.6
Earnings from operating activities	-36.4	3.7
Earnings from financing activities	-6.9	-8.0
Earnings before taxes	-43.3	-4.3
Taxes on income	9.1	-4.7
Operating earnings from discontinued operations	-34.2	-9.0
Result recognized on disposal	-72.1	-8.6
Tax impact of result on disposal	7.4	2.6
Result from the disposal of discontinued operations	-64.7	-6.0
Result from discontinued operations	-98.9	-15.0

Results from the disposal of discontinued operations include € 17.6 million in earnings from the sale of the rmg Group and € 2.3 million in earnings from the sale of the vag-Armaturen Group. In addition, a loss of € 67.7 million was recognized on the sale of the ex-cell-o Group, which had already been contractually sold as of the balance sheet date, together with a loss of € 1.0 million for the iwka bkt Group. A loss of € 4.4 million was recognized for the Bopp & Reuther Sicherheits- und Regelarmaturen Group, which was sold in February of 2006. The Boehringer Group, which is still up for disposal, was taken accounted for by the recognition of € 11.4 million as an expense for the write-down of non-current assets. This expense is recognized in partial anticipation of a probable accounting loss on disposal. Losses on the disposal of discontinued operations for the prior year include losses on disposal of € 2.4 million for Bopp & Reuther Messtechnik GmbH, € 0.7 million for marcon Ingenieurgesellschaft mbH, € 3.8 million for heinrichs Messtechnik GmbH, € 0.6 million on the sale of the inex operations, as well as consulting and sales expenses for the rmg Group and the vag Group.

16 earnings per share

in € million	2005	2004
Net income for the year after minority interests	-145.1	48.8
(of that discontinued operations)	(-98.9)	(-15.0)
Weighted average number of shares outstanding	26,600,000	26,600,000
Earnings per share (in €)	-5.45	1.83
(of that discontinued operations)	(-3.72)	(-0.56)

According to ias 33, earnings per share were calculated on the basis of Group consolidated earnings after taxes and the average number of shares outstanding for the year.

Undiluted earnings per share are identical to diluted earnings per share.

notes on the group balance sheet

17 non-current assets

Schedule of changes in non-current assets of the iwka Group 2005

	32,681	-6,305	83	-892	2,988	606	0	27,949
5. Other loans	912	-53	82	0	270	50	0	1,161
4. Loans to companies in whichparticipations are held	131	-131	0	0	0	0	0	0
3. Other participations	1,455	-162	0	-892	0	81	0	320
2. Participations in associated companies	5,159	-2,275	0	0	853	475	0	3,262
III. Financial investments1. Participations in affiliated companies	25,024	-3,684	1	0	1,865	0	0	23,206
	691,275	-224,914	13,358	2,083	25,937	22,339	-744	484,656
4. Advances paid andconstruction in progress	3,775	-2,195	-8	0	1,125	0	-1,690	1,007
office equipment	166,157	-47,619	2,940	527	12,823	10,580	-136	124,112
3. Other equipment, factory and
2. Technical plant and equipment	225,635	-108,755	2,871	780	8,201	6,309	-244	122,179
1. Land, similar rights and buildingsincluding buildings on land ownedby third parties	295,708	-66,345	7,555	776	3,788	5,450	1,326	237,358
II. Tangible assets
	218,410	-18,564	852	996	13,509	1,943	744	214,004
4. Advances paid	945	-137	8	0	422	130	-626	482
3. Goodwill	127,445	-2,502	0	996	1,406	0	0	127,345
2. Self-developed software andother development costs	32,538	-2,104	0	0	7,581	0	0	38,015
1. Rights and similar assets	57,482	-13,821	844	0	4,100	1,813	1,370	48,162
I.Intangible assets
in € thousands	Jan. 1, 2005	ReclassificationsStatus as at as discontinued Exchange rateoperations		Changes toscope ofdifferences consolidation	Additions	Disposals	Reclassi-	Status as atfications Dec. 31, 2005

ReclassificationsChanges toStatus as at as discontinued Exchange ratescope ofReclassi-Status as atStatus as atStatus as atWrite-ups Dec. 31, 2005Dec. 31, 2005operationsdifferences consolidationAdditionsDisposalsfications41,684-10,50861805,7151,659619036,46911,69315,79816,693-43005,93400022,58415,431003006,9660006,996120,34900000000048258,377-10,551648018,6151,659619066,049147,955-36,3082,352986,7003,296180103,957133,401-84,7682,19445510,0084,774-404092,10330,076132,174-40,3672,30332312,22410,003-233096,42127,69133,983					accumulated depreciation					net carrying amount
	Jan. 1, 2005										Dec. 31, 2004
											15,845
											127,445
											945
											160,033
	134,393										161,315
	169,392										56,243
	0	0	0	0	0	0	0	0	0	1,007	3,775
-161,4436,84987628,93218,073-6190292,481192,175	435,959										255,316
											13,079
11,945-1,689002,07400012,33010,876											2,999
2,160-1,9430000002173,045											1,341
114-2003810034286	0	0	0	0	0	0	0	0	0	0	131
	541	-44	81	0	0	0	0	0	578	583	371
	14,760	-3,678	81	0	2,077	81	0	0	13,159	14,790	17,921
	509,096	-175,672	7,578	876	49,624	19,813	0	0	371,689	354,920	433,270

Schedule of changes in non-current assets of the iwka Group 2004

3. Goodwill128,701-2,126040946100127,4454. Advances paid155-500815200945210,014-9,432-41950619,4551,834120218,410II. Tangible assets1. Land, similar rights and buildingsincluding buildings on land ownedby third parties330,699-33,883-4,266103,6311,362879295,7082. Technical plant and equipment283,367-72,355-2,746018,1127,3906,647225,6353. Other equipment, factory andoffice equipment195,926-32,626-1,2091,83116,62115,250864166,157	2. Self-developed software andother development costs	21,203	0	0	0	11,335	0	0	32,538
construction in progress9,785-757-2003,32750-8,5103,775	4. Advances paid and
819,777-139,621-8,2411,84141,69124,052-120691,275
III. Financial investments
1. Participations in affiliated companies27,777-2,03921-1,3241,9441,355025,024
2. Participations in associated companies11,850-1,776301,1225,839-2015,159		2,220	-1,784	0	0	1,019	0	0	1,455
3. Other participations	participations are held	180	0	2	0	0	51	0	131
4. Loans to companies in which	5. Other loans	63	0	-48	0	710	14	201	912
		42,090	-5,599	-22	-1,324	4,795	7,259	0	32,681
			-154,652	-8,682	1,023	65,941	33,145	0	942,366

	Reclassifications		Changes to	accumulated depreciation					net carrying amount
	Status as at as discontinued Exchange rate		scope of			Reclassi-		Status as at	Status as at	Status as at
Jan. 1, 2004	operations		differences consolidation	Additions	Disposals	fications		Write-ups Dec. 31, 2004	Dec. 31, 2004	Dec. 31, 2003
42,272	-5,554	-323	92	6,863	1,667	1	0	41,684	15,798	17,683
9,749	0	0	0	6,944	0	0	0	16,693	15,845	11,454
518	-518	0	0	0	0	0	0	0	127,445	128,183
0	0	0	0	0	0	0	0	0	945	155
52,539	-6,072	-323	92	13,807	1,667	1	0	58,377	160,033	157,475
222,188159,723	-58,786-29,345	-1,815-1,011	01,401	15,09115,410	6,81814,471	-468467	00	169,392132,174	56,24333,983	61,17936,203
0	0	0	0	0	0	0	0	0	3,775	9,785
528,097	-106,682	-4,119	1,403	38,988	21,712	-1	15	435,959	255,316	291,680
14,1524,447	-1,5970	03	-2570	550	4082,089	0-201	00	11,9452,160	13,0792,999	13,6257,403
1,825	-1,718	0	0	7	0	0	0	114	1,341	395
0	0	0	0	0	0	0	0	0	131	180
36	0	-47	0	351	0	201	0	541	371	27
20,460	-3,315	-44	-257	413	2,497	0	0	14,760	17,921	21,630
601,096	-116,069	-4,486	1,238	53,208	25,876	0	15	509,096	433,270	470,785

18 intangible assets

Changes to the individual items under intangible assets are disclosed in the schedule of changes in non-current assets.

Recognized goodwill in the amount of € 120.3 million compares to € 127.4 million a year earlier and breaks down as follows:

Company/in € million	Dec. 31, 2005	Dec. 31, 2004
kuka Flexible Production Systems Corp., Sterling Heights/usa	33.4	33.4
Packaging Technologies Inc., Davenport/usa	24.1	24.1
erca Formseal s.a., Les Ulis/France	11.5	11.5
bwi plc., Altrincham/Great Britain	8.1	8.1
(of that Aerofill Division)	(5.3)	(5.3)
(of that Manesty Division)	(2.8)	(2.8)
Benz & Hilgers GmbH, Neuss	8.3	8.3
Others less than € 8 million	34.9	42.0
	120.3	127.4

As a rule, the cash generating units that constitute the basis for the goodwill impairment tests correspond to legal entities. As an exception to this, the cash generating unit for kuka Flexible Production Systems is the kuka Schweissanlagen Group. For bwi plc, the cash generating units have been formed on the basis of the business divisions.

With respect to goodwill at kuka Roboter GmbH, which is included under Other, the entire Group was defined as the cash generating unit in the prior year. Due to the strategic realignment and the stronger focus on the general industry area, there was a reclassification of goodwill. The goodwill was allocated to the automotive section of the robot group. At the initial acquisition, the goodwill amounts in question had been created in this sub-segment. Due to the earnings prospects of this sub-segment, a write-down of € 6 million was recognized this year. The remaining goodwill still allocated to the automotive section of the robot group is € 3.8 million.

In the 2004 financial year, no write-downs were taken as a result of impairment tests.

Goodwill in the amount of € 1 million was written off at ln Manufacturing (Pty.) Ltd. as part of the first-time consolidation, since this goodwill no longer existed as a result of the change in earnings prospects.

Out of the purchase of additional interest in hls Ingenieurbüro GmbH & Co. kg, Augsburg, and in amatec Robotics GmbH results an increase of goodwill by € 1.4 million.

Self-developed software and other product development costs

According to ias 38, self-developed software and other development costs must also be capitalized. For the purpose of such capitalization, iwka uses a definition of the costs of production that includes according to ias attributable direct costs as well as an appropriate allocation for overheads and depreciation.

Development costs with a total carrying value of € 15.4 million from the years 1999 to 2005 compared to € 15.8 million the year prior and have been capitalized according to ias 38. Net additions for 2005 totaled € 1.7 million. Scheduled amortization is applied using a unitbased or straight-line method over the respective expected useful life of five years or less.

The development costs of several companies were capitalized within the iwka Group. kuka Roboter GmbH is working on several projects involving performance and control software for robots as well as on applications in the medical and packaging segment. iwk Verpackungstechnik GmbH has continued to pursue the development of new blister packaging machines and tube fillers. gasti Verpackungsmaschinen GmbH has completed the development of a new series of cup filling and sealing machines. These developments predominantly involve medium-term projects, with the respective useful life commencing in year 2006.

At kuka SysTec GmbH (robotics division) capitalized special machine development costs were written down in the amount of € 0.7 million, because the project will not be continued as planned.

Total expenditures for research and development for the reporting period were € 43.5 million compared to € 45.5 million in 2004.

19 tangible assets

The breakdown of the assets aggregated in the balance sheet items of the tangible assets, as well as changes over the reporting year, are shown in the schedule of changes in non-current assets.

The major focus of capital expenditures in the financial year is described in the Management Report.

Subsidies in the amount of € 0.3 million were deducted from the cost of purchase or cost of production for tangible assets during the financial year, compared to € 2.9 million the year prior.

Impairment charges on tangible assets were recorded by € 1.2 million on the basis of ias 36. In 2004 the amount was € 0.0 million.

The following amount has been capitalized for tangible assets in consequence of finance leases, in which the iwka Group acts as the lessee:

in € million	Dec. 31, 2005Net carryingamount	Dec. 31, 2004Net carryingamount
Intangible assets	0.1	0.3
Land and buildings	11.7	12.4
Technical plant and equipment	0.2	0.3
	12.0	13.0

Leases for real estate and other facilities, other equipment, factory and office equipment regularly include a purchase option. The remaining lease terms range between one and fifteen years. The underlying interest rates of the contracts vary from 4.0 percent to 7.8 percent p. a., depending on the time that the contract was entered into. Future payments due under finance leases, the interest component and the present value of future lease payments, for which the corresponding amounts have been recognized as other liabilities, are shown in the following table:

in € million	up toone year	between1 and 5 years	more than5 years	Dec. 31, 2005total	Dec. 31, 2004total
Minimum lease payments	1.5	5.1	7.0	13.6	15.1
Amount discounted	–	-0.8	-2.7	-3.5	-4.0
Present value	1.5	4.3	4.3	10.1	11.1

In addition to leases for passenger cars, office and factory buildings, liabilities from leases and rental agreements in connection with operating leases also include leasing commitments in connection with the financing of a new plant for the production of Jeep® Wrangler car bodies in Toledo/usa.

Liabilities from leases and rental agreements

in € million	Dec. 31, 2005	Dec. 31, 2004
up to one year	12.8	17.6
between one and five years	42.7	37.9
more than five years	19.5	19.6
	75.0	75.1

20 participations in associated companies and other financial investments

The breakdown of the items under financial non-current assets is shown in the schedule of changes in non-current assets.

The complete schedule of participations held by iwka Aktiengesellschaft has been registered in the Commercial Register of the Karlsruhe District Court.

The summary financial information about the associated companies is shown in the following table:

in € million	Dec. 31, 2005	Dec. 31, 2004
Total balance sheet assets	31.2	32.5
Total liabilities	13.9	12.5
Total sales revenues	52.6	41.5
Profit/loss for the period	3.3	1.9

in € million	Dec. 31, 2005	Dec. 31, 2004
Raw materials and supplies	69.5	113.6
Work in process	143.4	160.0
Finished goods	36.2	43.7
Advances paid	28.9	30.8
	278.0	348.1

Total inventories disclosed on the balance sheet in the amount of € 278.0 million compared with € 348.1 million in 2004 and have been recognized at net realizable value. The write-down, relative to gross value, was € 70.2 million versus € 97.0 million the year prior.

The carrying value of inventories subject to restraint on disposal is not material.

22 receivables and other assets

			Dec. 31, 2005of that more		Dec. 31, 2004of that more
in € million		total	than one year	total	than one year
Trade receivables		292.6	1.6	442.6	2.1
	Receivables from long-term contracts	116.5	0.0	90.7	0.0
	Receivables from affiliated companies	17.5	0.0	18.0	0.2
	Receivables from companies, in which
participations are held		0.1	0.0	1.1	0.0
	Other receivables and deferred charges	31.1	8.9	35.6	4.9
		457.8	10.5	588.0	7.2

Other receivables include tax refund claims in the amount of € 10.8 million versus 12.9 million in 2004, as well as the fair value of foreign currency and interest rate contracts totaling € 1.0 million, which compares to € 7.5 million for the year prior.

Derivative financial instruments are recognized at fair value according to ias 39. Changes in the value of the latter are offset by opposite changes in the value of the underlying transactions.

The write-downs included in the overall amount for receivables total € 12.1 million.

23 long-term contracts

For receivables from long-term contracts, advances received have been offset against costs incurred in connection with the contract, including contributions to earnings on a per contract basis. As at the balance sheet date, costs incurred and earnings recognized in connection with long-term contracts in the amount of € 352.0 million were offset against advances received in the amount of € 324.0 million. In 2004 these figures were € 212.9 million and € 208.0 million respectively. This resulted in receivables of € 116.5 million compared to € 90.7 million the year prior and liabilities of € 88.5 million versus € 85.8 million a year earlier.

Regarding the liabilities arising from long-term contracts advances received exceed the costs incurred and the earning portion.

24 cash and cash equivalents

In addition to cash with banks, this item includes checks and cash balances.

The iwka Group maintains bank balances exclusively at financial institutions of sound credit worthiness. Furthermore, funds to be invested are distributed across several financial institutions in order to diversify risk.

25 discontinued operations

The items related to discontinued operations on both the asset side and the liability side of the Group balance sheet break down as follows:

in € million	Dec. 31, 2005	Dec. 31, 2004
Goodwill	1.8	1.8
Other non-current assets	28.4	39.5
Inventories	81.4	36.3
Other current assets and deferred taxes	170.7	37.0
Cash and cash equivalents	7.4	1.2
Assets of discontinued operations	289.7	115.8
Pension provisions and similar obligations	39.4	11.5
Other provisions and accruals	35.1	16.7
Financial debt	21.2	9.7
Other liabilities	96.1	19.1
Liabilities from discontinued operations	191.8	57.0

The amount related to discontinued operations that was recognized directly in equity for translation differentials and other components not recognized in profit or loss was € -2.7 million.

26 equity/treasury shares/minority interests

Changes to equity, including changes without effect on profit or loss are disclosed in the development of Group equity on page 110.

Treasury shares

The Executive Board of iwka Aktiengesellschaft was authorized by resolution of the Annual General Meeting of June 3, 2005 to buy back own shares up to a volume of ten percent of share capital through December 1, 2006.

Moreover, the Executive Board was authorized again, subject to the approval of the Supervisory Board, to assign the treasury shares thus acquired to a third party as compensation for the acquisition of an equity interest.

The Executive Board was further authorized, subject to the approval of the Supervisory Board, to withdraw the treasury shares acquired on the basis of this authorization, without such withdrawal or the execution thereof requiring a further resolution of the Annual General Meeting.

The Executive Board did not exercise this authorization during the fiscal year.

In 2005, the company purchased own shares for iwka employees as part of an employee stock ownership program (Article 71, para. 1 no. 2 of the AktG (German Corporation Act)) and resold these to the employees. A total of 49,604 shares of common stock were purchased and resold. A presentation of the employee stock ownership program is included in the Management Report.

27 subscribed capital

The share capital totals € 69,160,000.00, and is divided into 26,600,000 individual no-par value shares issued to bearer.

The capital stock is to be conditionally increased by up to € 19,500,000.00 by issuing up to 7,500,000 new shares. The conditional capital increase shall only be carried out to the extent that option and/or conversion rights are exercised by the holders of option rights and/or conversion rights to be issued by the company or its directly or indirectly majority owned companies in Germany or abroad on or before July 4, 2008. The new shares shall participate in the profits as at the beginning of the financial year in which they arise by the exercise of the option and/or conversion rights.

28 capital reserve

The capital reserve contains the offer premium from the seven increases in share capital since 1980. To offset the net loss for the year, € 33.8 million were withdrawn from the capital reserve in the fiscal year.

29 revenue reserves

The revenue reserves as of the balance sheet date break down as follows:

in € million	Dec. 31, 2005	Dec. 31, 2004
Statutory reserve	0.0	1.0
Other revenue reserves	19.7	133.8
	19.7	134.8

The revenue reserves comprise:

• The accumulated retained earnings of iwka Aktiengesellschaft and its consolidated subsidiaries. Due to the net loss for the 2005 financial year, € 111.3 million were withdrawn from retained earnings, compared to an addition of € 31.2 million in the prior year.
• Consolidation and currency translation effects
• Measurement of financial derivatives (interest rate swaps, etc.) without effect on profit or loss.

30 minority interests

This item primarily comprises the minority stake held by third parties in lsw Machinenfabrik GmbH, kuka Roboter Italia s.p.a. as well as ln Manufacturing (Pty.) Ltd. The changes to this item are detailed in the development of Group equity.

31 maturity of liabilities

	2005

	remaining maturity
		between	more	Dec. 31, 2005
in € million	up to 1 year	1 and 5 years	than 5 years	total
Liabilities due to banks	205.7	40.1	0.9	246.7
Liabilities similar to bonds	21.8	12.0	0.0	33.8
Financial liabilities	227.5	52.1	0.9	280.5
Liabilities from long-term contracts	88.5	0.0	0.0	88.5
Advances received	107.4	0.0	0.0	107.4
Trade payables	172.0	0.0	0.0	172.0
Accounts payable to affiliated companies	3.0	0.0	0.0	3.0
Other liabilities
Liabilities to companies in which participations are held	0.3	0.0	0.0	0.3
Notes payable	7.7	0.0	0.0	7.7
Other liabilities and deferred income	118.5	6.5	5.6	130.6
(of that for taxes)	(19.7)	(0.0)	(0.0)	(19.7)
(of that for social security payments)	(12.6)	(0.0)	(0.0)	(12.6)
(of that liabilities relating to personnel)	(72.9)	(0.0)	(0.0)	(72.9)
(of that for leases)	(1.5)	(4.3)	(4.3)	(10.1)
(of that fair values of foreign exchange and
interest rate contracts)	(2.5)	(0.5)	(0.0)	(3.0)
	724.9	58.6	6.5	790.0

2004

in € million	up to 1 year	between1 and 5 years	morethan 5 years	Dec. 31, 2004total
Liabilities due to banks	113.7	103.9	1.0	218.6
Liabilities similar to bonds	17.4	32.0	0.0	49.4
Financial liabilities	131.1	135.9	1.0	268.0
Liabilities from long-term contracts	85.8	0.0	0.0	85.8
Advances received	96.9	0.0	0.0	96.9
Trade payables	227.8	0.0	0.0	227.8
Accounts payable to affiliated companies	2.0	0.0	0.0	2.0
Other liabilities
Liabilities to companies in which participations are held	0.5	0.0	0.0	0.5
Notes payable	12.0	0.0	0.0	12.0
Other liabilities and deferred income	144.8	7.9	5.0	157.7
(of that for taxes)	(27.4)	(0.0)	(0.0)	(27.4)
(of that for social security payments)	(15.8)	(0.0)	(0.0)	(15.8)
(of that liabilities relating to personnel)	(84.3)	(0.0)	(0.0)	(84.3)
(of that for leases)	(1.7)	(4.4)	(5.0)	(11.1)
(of that fair values of foreign exchange and
interest rate contracts)	(6.3)	(1.6)	(0.0)	(7.9)
	700.9	143.8	6.0	850.7

remaining maturity

Liabilities for vacation pay, accrued overtime and the statutory German early retirement scheme (Altersteilzeit), which were previously reported as provisions, are recognized for the first time under other liabilities. Liabilities for outstanding vendor invoices are recognized for the first time under trade payables. The figures for the prior year have been adjusted accordingly.

32 financial liabilities

Collateral totaling € 1.4 million has been furnished in the form of real estate liens for liabilities of iwka Group due to banks. This figure was € 3.6 million in 2004.

The following tables show major elements of the contractual basis for liabilities to financial institutions existing at the financial statement reporting date for the 2005 financial year:

Fixed interest rate agreements with an original maturity ≥ one year, repayment amount ≥ € 5 million:

Financial instrument/in € million	Net carrying amount	Fair value	Originalmaturity	Notionalinterest rate
Loan againstpromissory notes	20.0	21.2	2000 – 2006	6.30% p.a.
Loan againstpromissory notes	12.0	13.0	2000 – 2007	6.10% p.a.
Accrued interest	1.7	–	–	–
	33.7	34.2
Loan	35.8	36.2	1999 – 2006	4.61% p.a.
Loan	7.0	7.1	2001 – 2006	5.00% p.a.
Loan	5.0	5.2	2002 – 2007	5.81% p.a.
Loan	5.0	5.2	2003 – 2008	4.61% p.a.
Loan	15.0	16.2	2004 – 2009	4.95% p.a.
Loan	6.0	6.2	2005 – 2009	3.99% p.a.
Loan	6.0	6.1	2005 – 2010	3.50% p.a.
Accrued interest	0.5	–	–	–
	80.3	82.2
	114.0	116.4

The market value of fixed-interest loans was determined by the mark-to-market method.

Fixed interest rate agreements with an original maturity ≥ one year, repayment amount < € 5 million:

Financial instrument / in million	Net carrying amount				Ø Originalmaturity	Ø Notionalinterest rate
Loan	6.6	eur	6.6	eur	6.8 years	4.24% p.a.

Variable-rate liabilities due to banks:

	Financial instrument / in million		Net carrying amount			Ø Notionalinterest rate	of that hedgedby payer swap	year of latestmaturity
	Liabilities due to banks	22.5	eur	22.5	eur	3.98% p.a.	15.0 eur	2009
	Liabilities due to banks	128.9	usd	109.3	eur	5.45% p.a.	45.0 usd	2010
	Liabilities due to banks	16.0	gbp	23.3	eur	5.51% p.a.
	Liabilities due to banks	–	others	4.8	eur	6.84% p.a.
				159.9	eur

All averages are calculated as the arithmetic mean of the values of the individual financial instruments as at the financial statement reporting date, weighted by the respective carrying values in €. For the liabilities with underlying payer swaps, the fixed rather than the variable interest rate was used in the calculation of the average interest rate.

The notional interest rate coincides normally with the effective interest rate.

33 other non-current/current liabilities and deferred income

Liabilities arising from finance leases are recognized at the present value of future lease payments and disclosed as other liabilities. Liabilities in the personnel area for vacation pay, flex-time credits and the statutory German early retirement scheme (Altersteilzeit), which were previously reported as provisions, are recognized for the first time under other liabilities. Liabilities for outstanding vendor invoices are recognized for the first time under trade payables. The figures for the prior year have been adjusted accordingly.

34 pension provisions and similar obligations

in €million	Changes to the scope of consoliStatus as at dation, exchange rate differences,Jan. 1, 2005reclassification in disc. operations		Consumption	Reduction	Addition	Status as atDec. 31, 2005
	179.0	-38.1	11.2	0.0	8.1	137.8

Pension provisions include liabilities from vested benefits and from current benefits paid to vested and former employees of the iwka Group as well as their surviving dependents. Depending on the legal, economic and tax situation in each of the countries concerned, various such retirement benefit systems are in place, that are, as a rule, based on employees' length of service and compensation.

Since they are in the nature of a retirement benefit, liabilities of the us Group companies for post-employment medical benefits are also disclosed under pension provisions according to ias 19.

Of the total provisions and accruals, these obligations similar to pensions, calculated according to the rules of ias 19, represent € 7.5 million compared to € 6.5 million in 2004. Liabilities for health insurance coverage in the current financial year generated expenses of € 0.2 million compared to a gain of € 0.2 million as a result of plan curtailments the year prior. In this context, a long-term increase in the cost of medical insurance of 8.6 percent p.a. is taken into account compared to 9.1 percent in 2004.

Company retirement benefit coverage in the Group is provided through both defined contribution and defined benefit plans.

For the defined contribution plans, the company pays contributions to a public or private pension insurance carrier. Upon payment of the contributions, the company has no further obligations. Total payments for pensions under defined contribution plans in the amount of € 33.3 million compare to € 31.2 million in 2004 and are disclosed as expenses in the year in question.

Under defined benefit plans, the company incurs an obligation to provide the benefits promised by the plan to current and former employees.

Funded benefit plans are in place in Great Britain and the usa.

The amount of pension obligations (defined benefit obligation) was calculated by actuarial methods for which estimates are unavoidable. In addition to assumptions related to life expectancy (for benefit commitments in Germany according to the 2005 g Heubeck actuarial tables), this involves assumptions detailed below, which are dependent on the economic environment for each country in question.

		Germany		usa	Others
Dec. 31	2005	2004	2005	2004	2005	2004
Discount factor	4.00%	5.25%	5.53%	5.80%	4.75%	5.30%
Expected rate ofreturn on assets	N/A	N/A	8.08%	8.10%	6.70%	6.90%
Wage dynamics	2.50%	2.50%	4.50%	4.50%	N/A	4.30%
Pension dynamics	2.50%	2.50%	N/A	N/A	2.80%	2.90%

Wage dynamics encompass future increases in wages and salaries that are estimated annually by reference to factors such as inflation and economic conditions, among others.

For funded plans, the pension obligations calculated according to the projected- unitedcredit method are reduced by an amount equal to the fund assets. If the fund assets exceed the defined benefit obligations, an asset is recognized according to ias 19 and disclosed under other assets. To the extent that the fund assets do not cover the commitment, the net obligation is recognized as a liability under pension provisions.

Increases or decreases in either the present value of the defined benefit obligations or the fair value of the plan assets may give rise to actuarial gains or losses. This may be caused by factors such as changes in actuarial parameters, changes to estimates for the risk profile of the pension obligations and differences between the actual and expected returns on the fund assets. Evaluating the need to recognize actuarial gains or losses on the balance sheet is done on the basis of the individual plans according to the corridor method. Under this method, the portions of actuarial gains and losses not yet recognized that exceed ten percent of the higher value of plan assets or defined benefit obligations is recognized according to the expected average remaining working lives of the current employees and distributed accordingly.

Funding status of defined benefit pension obligations

	Germany			usa		Others	Total
in € million	2005	2004	2005	2004	2005	2004	2005	2004
Present value of pension benefitscovered by provisions	111.7	140.3	6.3	4.5	3.3	3.5	121.3	148.3
Present value of fundedpension benefits	–	–	35.6	29.7	65.3	64.8	100.9	94.5
Defined benefit obligation	111.7	140.3	41.9	34.2	68.6	68.3	222.2	242.8
Fair value of plan assets	–	–	31.4	26.9	41.1	33.4	72.5	60.3
Net obligation	111.7	140.3	10.5	7.3	27.5	34.9	149.7	182.5
Adjustment amount due toactuarial gains (+) and losses (-)	-10.5	1.3	-7.2	-4.1	1.1	-4.8	-16.6	-7.6
Unrecognized past service costs	–	–	2.5	2.3	–	–	2.5	2.3
Balance sheet amount as of Dec. 31	101.2	141.6	5.8	5.5	28.6	30.1	135.6	177.2
(of that pension provisions)	(101.2)	(141.6)	(8.0)	(7.3)	(28.6)	(30.1)	(137.8)	(179.0)
(of that asset)	(–)	(–)	(-2.2)	(-1.8)	(–)	(–)	(-2.2)	(-1.8)

Due to the lower discount factor and the new actuarial tables, the defined benefit obligation for German benefit commitments rose by approximately 13 percent.

Changes to net obligations from pension provisions and plan assets recognized on the balance sheet

	Germany		usa			Others		Total
in € million	2005	2004	2005	2004	2005	2004	2005	2004
Status as at Jan. 1	141.6	161.1	5.5	7.4	30.1	33.9	177.2	202.4
Discontinued operations	-39.3	-18.0	–	–	-0.5	-0.2	-39.8	-18.2
Pension expense	6.1	8.3*	0.4	–	1.6	-0.2	8.1	8.1*
Payments for pension benefits and
additions to funds	-7.2	-9.8	-1.0	-1.4	-3.3	-3.4	-11.5	-14.6
Currency adjustments	–	–	0.9	-0.5	0.7	–	1.6	-0.5
Status as at Dec. 31	101.2	141.6	5.8	5.5	28.6	30.1	135.6	177.2
(of that pension provisions)	(101.2)	(141.6)	(8.0)	(7.3)	(28.6)	(30.1)	(137.8)	(179.0)
(of that asset)	(–)	(–)	(-2.2)	(-1.8)	(–)	(–)	(-2.2)	(-1.8)

*) of that discontinued operations 2.1 € million

Pension expense for defined benefit plans

in € million	Germany		usa		Others		Total
Dec. 31	2005	2004	2005	2004	2005	2004	2005	2004
Current service costs	0.9	1.0	0.7	0.8	0.5	1.3	2.1	3.1
Interest expense	5.1	5.2	2.1	2.3	3.5	3.6	10.7	11.1
Expected return on plan assets	–	–	-2.3	-2.4	-2.4	-2.3	-4.7	-4.7
Actuarial gains/losses	0.1	–	0.1	0.1	–	–	0.2	0.1
Plan curtailments	–	–	–	-0.7	–	-2.8	–	-3.5
Past service costs	–	–	-0.2	-0.1	–	–	-0.2	-0.1
Continuing operations	6.1	6.2	0.4	0.0	1.6	-0.2	8.1	6.0

Plan curtailments of the prior year in the form of reduced entitlements to future benefits are related to companies in Great Britain and the usa.

The actual return on assets from the outside pension funds was € 7.3 million compared to € 3.2 million a year earlier.

The large majority of fund assets (fair value) are fixed-interest securities.

35 other provisions

	140.2	-20.0	71.0	12.5	173.1	209.8
Other provisions	75.8	-10.2	42.6	3.8	46.7	65.9
Liabilities from one-time expensesrelated to discontinued operations	0.0	0.0	0.0	0.0	43.3	43.3
Liabilities arising from restructurings	4.5	-2.1	2.4	0.0	26.0	26.0
Warranty commitments and risksfrom pending transactions	59.9	-7.7	26.0	8.7	57.1	74.6
in € million	Status as atJan 1, 2005	Changes to the scope of consolidation, exchange rate differences,reclassification in disc. operations Consumption		Reduction	Addition	Status as atDec. 31, 2005

Liabilities in the personnel area for vacation pay, accrued overtime and the statutory German early retirement scheme (Altersteilzeit), which were previously reported as provisions, are recognized for the first time under other liabilities. Liabilities for outstanding vendor invoices are recognized for the first time under trade payables. The figures for the prior year have been adjusted accordingly.

Other provisions and accruals for warranty commitments and risks from pending transactions include primarily provisions for impending losses from pending transactions and warranty risk.

Other provisions and accruals primarily cover running costs for invoiced orders. A further provision has been recognized under liabilities from one-time expenses for discontinued operations to cover purchase price commitments arising from the sale of the ex-cell-o Group.

other notes

segment reporting

The data for the individual annual financial statements have been segmented by business fields and by region. The structure follows internal reporting (management approach). The segmentation is intended to create transparency with regard to the earning power and the prospects, as well as the opportunities and threats for the various business fields within the Group.

Segment reporting is designed to accommodate the new structure of the iwka Group and comply with the ifrs 5 criteria with regard to accounting for discontinued operations. In the reporting years 2004 and 2005, the iwka Group was engaged in three major business fields: automotive, robotics and packaging divisions. The iwka Aktiengesellschaft and additional participations that are supplementary to the operating activities of the iwka Group have been aggregated in a separate column. In addition, this column also includes the cross-divisional major consolidation and reconciliation items. The attribution of the Group companies to the businessfields is shown in the schedule of major participations. All companies classified as discontinued operations are listed on page 123/124 of these notes.

The breakdown of sales revenues by region is based on customer location. Capital employed and investments are calculated by company head office.

The notional calculations for segment reporting rely on the following principles:

• Group external sales revenues shows the divisions' respective percentage of the Group's consolidated sales revenues for continuing operations of the Group as presented in the income statement.
• Intra-Group sales revenues are related sales to transacted between segments.

In principle, transfer prices for intra-Group sales are determined at the market level.

• Sales revenues for the divisions include revenues from sales to third parties as well as sales to other segments.
• ebit reflects operating earnings; that is, the earnings from ordinary activities including goodwill impairment charges, if any - before result from financing activities.
• roce (return on capital employed) is the ratio of operating earnings ( ebit) to net assets employed in company operations (capital employed). The calculation of roce uses an average figure for capital employed.
• Capital employed comprises:

Intangible assets and tangible assets as well as

Working capital:

• inventories,
• trade receivables,
• other receivables and assets,
• prepaid expenses and deferred changes,
• balance of payables and receivables versus affiliated companies, if not classified as financial transactions.

less

• other provisions,
• trade payables,
• other liabilities except for liabilities similar to bonds,
• deferred income.

Thus capital employed represents the difference between operating assets and operating liabilities.

• Segment assets encompass all assets included in capital employed plus participations. Segment liabilities encompass all liability items included in capital employed plus pensions provisions and similar obligations.
• Capital expenditures are related to additions to property, plant and equipment and intangible assets.
• Amortization/depreciation are related to plant, property and equipment and intangible assets.

cash flow statement

According to ias 7, the cash flow statement reports cash flows separately for incoming and outgoing funds from operating, investing and financing activities. The calculation of cash flows is derived from the Group consolidated financial statements of the iwka Aktiengesellschaft by the indirect method.

Cash and cash equivalents in the cash flow statement comprise all cash and cash equivalents disclosed on the balance sheet; i.e., cash in hand, checks and cash with banks provided they are available within three months. This also includes cash and cash equivalents from discontinued operations. None of the cash and cash equivalents is subject to restraints on disposal.

Cash flow from operating activities is derived indirectly from the earnings after taxes on income.

Under the indirect method, the relevant changes to the balance sheet items associated with operating activities are adjusted for currency translation effects and changes to the scope of consolidation.

Cash inflow from operating activities also includes the following items: Interest paid in the amount of € 15.5 million, interest received in the amount of € 5.1 million, dividends received in the amount of € 1.5 million and income taxes paid in the amount of € 26.3 million.

financial instruments

In the scope of its operating activities, the iwka Group is exposed to interest rate and foreign exchange risks in particular. It is the major aim of the risk management system to hedge against negative consequences for the financial strength of the Group. Standard market instruments such as interest rate and foreign exchange transactions are used for this purpose. The execution of these transactions is regulated by uniform Group policies and procedures, with strict separation of the trading, settlement and control functions.

Because of its international orientation, iwka is exposed to foreign exchange rate risks with regard to various foreign currencies. The exchange rate hedging strategy therefore aims to generally hedge foreign exchange as at the origination date of a receivable/payable denominated in foreign currency by entering into derivative financial instrument contracts with banks or by netting opposite cash flows. Forecast transactions can also be hedged items, for which hedging instruments with a short maturity (< 1 year) are used to hedge against the associated exchange rate risk. Cash flow and fair value hedges are recognized subject to meeting the strict criteria for documentation and effectiveness under hedge accounting. In the 2005 financial year, the fair value of foreign exchange derivatives recognized in equity with no effect on profit or loss was € 0.0 million (prior year € -0.3 million). In addition, firm commitments were recognized in profit or loss according to fair value hedge accounting. Their positive fair values totaled € 0.5 million (prior year € 1.0 million) or a negative € 0.1 million (prior year € 4.3 million).

To provide financing for the Group, iwka enters into credit agreements that are in part subject to variable interest rates. This is intended to take advantage of opportunities to reduce financing costs in the event of declining interest rates on borrowed capital. To that extent, iwka is exposed to an interest rate induced cash flow risk.

The primary instruments used to hedge that risk are interest rate swap transactions. Under hedge accounting, fixed interest rate swap transactions (payer swaps) are recognized as cash flow hedges, with changes in fair value being recognized in a revaluation reserve in equity. In the 2005 financial year, the fair value of derivatives recognized in this manner was € -0.2 million (prior year € -1.6 million).

		notional amounts
in € million	Dec. 31, 2005	Dec. 31, 2004	Maturityup to 1 year	Maturity> 1 year	Maturity> 5 years	TotalDec. 31, 2005	TotalDec. 31, 2004
Forward foreign exchange contracts	239.4	154.8	-4.7	0.0	0.0	-4.7	4.5
Interest rate swap contracts	59.1	40.7	-0.2	0.0	0.0	-0.2	-1.6

The notional amount corresponds to the amount of the underlying hedged items. The fair values given represent the price at which an unrelated third party would assume the rights and obligations arising from the derivative financial instruments.

The maximum default risk to be recognized for derivative financial instruments is the sum of their positive fair values. In the 2005 financial year, the sum of the positive market values of derivative financial instruments was € 1.4 million (prior year € 6.5 million) and the sum of negative market values was € 6.3 million (prior year € 3.6 million). A default can occur when individual transaction counterparties are not able to meet their contractual obligations and the iwka Group thereby suffers a financial loss. To ensure diversification of the default risk, derivative transactions are entered into with various counterparties and only with those of sound creditworthiness.

contingent liabilities

The liabilities under guarantee agreements arise almost exclusively from the collateralization of bank loans and lease agreements to the benefit of non consolidated affiliated companies.

	in € million	2005	2004
	Discounted notes	0.8	3.0
	Liabilities from guarantees	6.4	3.9
	Liabilities from warranty agreements	2.6	1.4
	Other commitments	14.2	11.8
	(of that purchase commitments)	(6.1)	(2.7)
	(of that other financial commitments)	(8.1)	(9.1)

kuka Toledo Production Operations llc., Toledo, which was consolidated for the first time in the 2005 financial year, produces for the Jeep® Wrangler for DaimlerChrysler under a pay-onproduction model. Starting in July 2006, it will supply unpainted car bodies to Chrysler as part of this project.

To finance this project, a lease was agreed with a local municipality and a bank syndicate providing the financing. Under this framework, significant portions of the necessary investments in buildings and equipment are leased. The total volume of investments to be financed by the lessor on the basis of the operating lease is planned at an amount of us$ 126 million. A major portion of the equipment will be supplied by kuka Flexible Production Systems Corp., Sterling Heights. The operating lease will start in early 2007. During the construction phase, kuka Toledo Production and kuka Schweissanlagen GmbH, Augsburg, will guarantee the cumulative investments (us$ 84 million as of December 31, 2005) that have been financed by the banking syndicate.

iwka Aktiengesellschaft and its Group companies are not party to any court or arbitration proceedings that could have a material impact on the financial position of the companies or of the Group or did have such material impact in the preceding two years.

Financial costs arising from other court or arbitration proceedings have been recognized through a sufficient level of provisions at the Group companies in question or there is an adequate amount of insurance or similar coverage and they have been taken into account at the Group level.

related party disclosures

In accordance with International Accounting Standard ias 24 persons or companies that may be influenced by or have influence on the reporting company must be disclosed, insofar as they have not already been included as consolidated companies in the financial statements.

Parties related to the iwka Group include mainly members of the Executive and Supervisory Boards as well as non-consolidated and associated iwka Group companies.

The following table summarizes the product- and services-related business activities transacted between companies included in the iwka Group consolidation and related companies:

	Interest		Products and services pro-vided by the iwka Groupto related companies	Products and services provided by related companiesto the iwka Group
in € million	in %	2005	2004	2005	2004
aro Espanola S.A., Barcelona/Spain	100	5.2	3.0	0.0	0.0
aro Welding Ltd., Verwood/Great Britain	100	2.3	2.1	0.0	0.0
Autoplan GmbH & Co. kg, Augsburg	63	0.2	0.3	0.9	1.2
Changchun ex-cell-o faw Special MachineTool Co. Ltd, Changchun/China	100	0.7	0.0	3.5	0.0
Flexible Solutions Group France s.a.s.,Massy/France	100	0.0	1.4	0.0	0.0
Gazinox s.a., Paris/France	39	4.4	3.4	0.0	0.0
gecom-Societe Groupement Etudes CarroserieOutillage Mecanique s.a., Plaisir/France	100	0.0	0.1	1.0	1.0
hls Espanola Ingenieria Tecnica s.l.u.,Vilanova/Spain	100	0.3	0.0	1.4	1.5
iwk Packaging Machinery Ltd., Bangkok/Thailand	100	0.4	0.4	1.7	1.0
iwka Automotive South Africa (Pty) Ltd.,Greenacres/South Africa	100	0.5	0.0	1.3	0.0
iwka Packaging Systems GmbH, Kirchlegern	100	0.0	2.8	0.0	0.0
kuka Automation Equipment, Shanghai/China	100	3.2	3.2	0.2	0.2
kuka Automotive n.v., Houthalen/Belgium	100	1.3	0.0	0.0	0.0
kuka de Mexico s.de r.l.de c.v.,Mexico City/Mexico	100	1.1	1.8	0.2	0.0
kuka Enco Werkzeugbau spol. s.r.o.,Trencin/Slovak Republic	65	0.8	0.6	3.3	4.7
kuka Konstruktion Köln GmbH, Cologne	100	0.0	0.0	1.8	1.2
kuka Robot Automation (Malaysia) Sdn BhD,Kuala Lumpur/Malaysia	100	1.1	1.3	0.4	0.0
kuka Robot Automation Korea Co. Ltd.,
Kyunggi Kunpo Sanbon (Seoul)/South Korea	100	2.7	1.7	0.2	0.0
Kuka Robot Automation Taiwan Co. Ltd.,Chung-Li City/ Taiwan	100	1.0	1.5	0.2	0.3
kuka Roboter do Brasil Ltda., Sao Paulo/Brazil	100	2.0	1.2	0.2	0.5
kuka Roboter Schweiz ag, Dietikon/Switzerland	100	2.4	2.5	0.0	0.1
ra Jones Europack Limited,
East Parade,Leeds/Great Britain	100	0.0	1.3	0.0	0.1
Others less than € 1 million		1.5	3.5	6.3	3.8
		31.1	32.1	22.6	15.6
(of that discontinued operations)		(7.4)	(0.8)	(5.4)	(0.1)

Intra-Group purchases and sales are transacted under the "dealing at arm's length" principle at transfer prices that correspond to market conditions.

Services provided to related companies primarily comprise commissions and sales to non-consolidated sales and service organizations. Services provided to the Group by nonconsolidated related and associated companies consist primarily of preparatory work that is subject to subsequent processing by the iwka Group's consolidated companies.

The following table lists the material amounts owing by related parties to fully consolidated iwka Group companies.

	Group receivables
in € million	Interestin %	Dec. 31, 2005	from related companiesDec. 31, 2004
aro Espanola s.a., Barcelona/Spain	100	2.2	1.1
Gazinox s.a., Paris/France	39	1.5	0.0
iwka Automotive South Africa (Pty) Ltd., Greenacres/South Africa	100	1.8	0.0
kuka Automacao do Brasil Ltda., Sao Bernardo do Campo sp/Brazil	100	1.0	0.0
kuka Automotive n.v., Houthalen/Belgium	100	1.7	0.0
kuka Automation Equipment, Shanghai/China	100	1.0	0.0
kuka de Mexico s.de r.l.de c.v., Mexico City/Mexico	100	0.0	1.1
kuka Robot Automation (Malaysia) sdn bkd, Puchong/Malaysia	100	3.1	2.8
kuka Robot Automation Taiwan Co. Ltd., Taipei/ Taiwan	100	2.0	1.9
kuka Roboter do Brasil Ltda., Sao Paulo/Brazil	100	1.2	1.7
Others less than € 1 million		5.3	11.6
		20.8	20.2
(of that discontinued operations)		(0.5)	(4.5)

Current liabilities are € 3.4 million compared to € 2.5 million the year before and are not considered material either on an individual basis or from an overall Group perspective.

Interest income and expense arising on transactions entered into with related companies relate primarily to iwka Aktiengesellschaft and result from loans granted to consolidated affiliated companies. The loans are granted at prevailing market rates.

No business subject to reporting rules was conducted between any iwka Group companies and members of the iwka Aktiengesellschaft's Executive or Supervisory Boards.

audit fees

The fee for the Auditors Ernst & Young ag recognized as expense in 2005 totals € 1.3 million. A total of € 1.0 million was recognized as financial statement audit fees. € 0.1 million represented expenses for tax advisory services. An amount of € 0.1 million was recognized as expenses for certifications, valuations and other services provided by the Auditor.

iwka aktiengesellschaft dividend

On June 3, 2005 the Annual General Meeting resolved to distribute net retained earnings of € 17.6 million to the shareholders. This corresponds to a dividend of € 0.66 per no-par value unit share. The distribution for financial 2004 of € 17.6 million amounts to 25.4 percent of the total share capital of € 69.16 million bearing full dividend rights.

Due to the net loss for the 2005 financial year, the Executive Board and the Supervisory Board will not propose any dividend distribution to the Annual General Meeting.

declaration regarding the corporate governance code

The combined Declaration of Compliance issued by the Executive Board as at April 14, 2005 and by the Supervisory Board as at April 15, 2005 in accordance with Article 161 of the AktG (German Corporation Act) can be viewed by any interested party on the company's home page at www.iwka.de.

announcements in accordance with article 25 para. 1 of the german securities trading act (wphg)

Attorneys Wilmer Cutler Pickering Hale and Dorr llp, Maximilianstraße 31, D-80539 Munich, in a fax message dated May 6, 2005, presenting their power of attorney notified us as follows in the name and on behalf of K Capital Partners, llc, 75 Park Plaza, Box 11, Boston, ma 02116, usa: "We represent K Capital Partners, llc, 75 Park Plaza, Box 11, Boston, ma 02116, usa ("K Capital Partners"). Copy of a power of attorney made out to us is enclosed with this message. We herewith notify you in accordance with article 21 para. 1 wphg that on May 4, 2005, the share of K Capital Partners in the voting rights in iwka Aktiengesellschaft exceeded the threshold of 5% and is now 5.29%. This corresponds to 1,407,043 votes. Of the above, 5.29% of voting rights are allocated to K Capital Partners in accordance with Article 22 para. 1 sentence 1 item 6 wphg."

Fidelity International, Kingswood Fields, Millfield Lane, Lower Kingswood, Tadworth, Surrey kt20 6rb, United Kingdom, notified us on October 5, 2005 by fax message as follows: "We herewith notify you pursuant to article 21 para. 1 wphg that on September 30, 2005, the share of the voting rights in iwka Aktiengesellschaft of fmr Corp., 82 Devonshire Street, Boston, Massachusetts 02109, usa, exceeded the threshold of 5% and is now 5.61%. The voting rights are allocated to fmr Corp pursuant to article 22 para. 1 sentence 2 wphg conjunction with article 22 para. 1 sentence 1 item 6 wphg."

Hermes Focus Asset Management Europe Limited, Lloyds Chambers, 1 Portsoken Street, London e1 8hz, United Kingdom, notified us of the following in a fax message dated October 10, 2005: We herewith notify that Hermes Focus Asset Management Europe Limited is entitled to voting rights with respect to the above listed joint stock company, and has the duty to provide information in accordance with article 21, para. 1 in conjunction with article 22, para. 1, sentence 1, item 6 wphg: threshold fallen below: 5%, interest held: 1,323,263 shares (4.98%), date of the shortfall: October 4, 2005. Hermes Focus Asset Management Europe Limited is majority owned by the bt Pension Scheme – same address – and this notification simultaneously serves as a notification from bt Pension Scheme in accordance with article 21 para. 1 in conjunction with article 22 para. 1, sentence 1, item 1 wphg (German Securities Trading Act).

Hermes Focus Asset Management Europe Limited, Lloyds Chambers, 1 Portsoken Street, London e1 8hz, United Kingdom, notified us pursuant to article § 21 para. 1 wphg that on October 4, 2005, its share of voting rights in our company fell below the threshold of 5% and is now 4.98%. Of the above, 4.98% of voting rights are allocated to it in accordance with Article 22 para. 1 sentence 1 item 6 wphg.

Hermes Administration Services Limited, Lloyds Chambers, 1 Portsoken Street, London e1 8hz, United Kingdom, informs us in the name and on behalf of bt Pension Scheme, Lloyds Chambers, 1 Portsoken Street, London e1 8hz, United Kingdom pursuant to article 21 para. 1 wphg that on October 4, 2005, its share of voting rights in our company fell below the threshold of 5% and is now 4.98%. Of the above 4.98% of voting rights are allocated to it in accordance with Article 22 para. 1 sentence 1 item 1 wphg.

Attorney Dr. Anselm, presenting a power of attorney from K Capital Partners dated July 6, 2004, sent us the following notice via fax on January 2, 2006: "We represent K Capital Partners, llc, 75 Park Plaza, Box 11, Boston, ma 02116, usa ("K Capital Partners"). Copy of a power of attorney made out to us is enclosed with this message. We herewith notify you in accordance with article 21 para. 1 wphg, that on December 28, 2005, the share of K Capital Partners in the voting rights in iwka Aktiengesellschaft, Karlsruhe, fell below the threshold of 5% and is now 4.019%. This corresponds to 1,069,103 votes. Of the above, 4.019% of voting rights are allocated to K Capital Partners in accordance with Article 22 para. 1 sentence 1item 6 wphg.

events after the balance sheet date

No significant events occurred between the balance sheet date and the date of publication.

Karlsruhe, March 8, 2006 iwka Aktiengesellschaft

the executive board Hein Schäfer

key participations

Status: December 31, 2005

thousands	Country	Currency	Nominalcapital	Interest	cons.	pta
kuka Schweissanlagen GmbH, Augsburg	Germany	eur	20,000	100.00%	c	x
d.v. Automation Ltd., Surrey	Great Britain	gbp	50	100.00%	c
hls Ingenieurbüro GmbH & Co. kg, Augsburg	Germany	eur	1,025	100.00%	c
kuka Automacao do Brasil Ltda., Sao Bernardo do Campo sp	Brazil	brl	2,478	100.00%
kuka Automatisering + Robots n.v., Houthalen	Belgium	eur	1,100	100.00%	c
kuka Enco Werkzeugbau spol. s.r.o., Trencin	Slovakia	skk	32,000	64.60%
kuka Flex de Mexico, s. de r.l. de c.v., Toluca	Mexico	mxn	100	100.00%	c
kuka Flexible Production Systems Corp., Sterling Heights	usa	usd	1	100.00%	c
kuka Service Solutions GmbH, Augsburg	Germany	eur	130	100.00%	c	x
kuka Sistemas de Automatizacion s.a., Vilanova i La Geltru	Spain	eur	800	100.00%	c
kuka Sventsanläggningar + Robotar ab., Västra Frölunda	Sweden	sek	350	100.00%	c
kuka Toledo Production Operations, llc., Michigan	usa	usd	17,000	100.00%	c
kuka Werkzeugbau Schwarzenberg GmbH, Schwarzenberg	Germany	eur	5,100	100.00%	c	x
ln Manufacturing (Pty.) Ltd., Port Elizabeth	South Africa	zar	100	50.10%	c
Societe Anonyme des Usines Farman, St. Cloud	France	eur	1,373	100.00%	c
Thompson Friction Welding Ltd., Halesowen	Great Britain	gbp	1,250	100.00%	c
aro s.a.s., Chateau-du-Loir	France	eur	5,940	100.00%	c
aro Controls s.a.s., Chateau-du-Loir	France	eur	40	100.00%	c
aro Espanola s.a., Barcelona	Spain	eur	180	100.00%
aro Schweißmaschinen GmbH, Augsburg	Germany	eur	300	100.00%	c
aro Soudometal Resistance Welding s.a n.v., Brüssel	Belgium	eur	198	100.00%	c
Savair Inc., Chesterfield	usa	usd	740	100.00%	c
iwka Produktionstechnik GmbH, Eislingen	Germany	eur	5,000	100.00%	c
b & c Corp., Saginaw	usa	usd	5,001	100.00%	c
gsn Maschinen-Anlagen-Service GmbH, Rottenburg	Germany	eur	2,000	100.00%	c
iwka-pt Engineering GmbH, Eislingen	Germany	eur	512	100.00%
j.w. Froehlich Maschinenfabrik GmbH, Leinfelden-Echterdingen	Germany	eur	3,600	100,00%	c
jw Froehlich (uk) Ltd., Laindon	Great Britain	gbp	500	100.00%	c
kuka Automation + Robotics Ltd., Halesowen	Great Britain	gbp	0	100.00%	c
lsw Maschinenfabrik GmbH, Bremen	Germany	eur	3,000	90.00%	c
lsw uk Ltd., Harlow	Great Britain	gbp	0	100.00%	c
iwka Holding Corp., Sterling Heights	usa	usd	58,819	100.00%	c
kuka Dienstleistungs-GmbH, Augsburg	Germany	eur	40	100.00%	c

key participations

Status: December 31, 2005

thousands	Country	Currency	Nominalcapital	Interest	cons.	pta
kuka Roboter GmbH, Augsburg	Germany	eur	10,100	100.00%	c	x
amatec Robotics GmbH, Germering	Germany	eur	480	100.00%	c
kuka Automatisme + Robotique s.a.s., Villebon-sur-Yvette	France	eur	1,500	100.00%	c
kuka Controls GmbH, Weingarten	Germany	eur	500	100.00%	c	x
kuka Industrietechnik GmbH, Augsburg	Germany	eur	520	100.00%	c	x
kuka ProTec GmbH, Augsburg	Germany	eur	1,950	100.00%	c	x
kuka Robot Automation Korea Co. Ltd.,Kyunggi Kunpo Sanbon (Seoul)	South Corea	krw	450,000	100.00%
kuka Roboter do Brasil Ltda., Sao Paulo	Brazil	brl	566	100.00%
kuka Roboter Italia s.p.a., Turin	Italy	eur	1,400	85.00%	c
kuka Robotics Corp., Sterling Heights	usa	usd	13,500	100.00%	c
kuka Robotics Hungaria Ipari Kft., Taksony	Hungary	huf	220	100.00%	c
kuka SysTec GmbH, Günzburg	Germany	eur	1,500	100.00%	c

packaging division

thousands	Country	Currency	Nominalcapital	Interest	cons.	pta
iwka Packaging GmbH, Karlsruhe	Germany	eur	20,100	100.00%	c	x
a + f Automation + Fördertechnik GmbH, Kirchlengern	Germany	eur	500	100.00%	c	x
Benz & Hilgers GmbH, Neuss	Germany	eur	5,500	100.00%	c
bwi plc, Altrincham	Great Britain	gbp	5,229	100.00%	c
erca Formseal Iberica s.a., Barcelona	Spain	eur	60	100.00%	c
erca Formseal s.a., Les Ulis	France	eur	2,594	100.00%	c
Fabrima Maquinas Automaticas Ltda., Sao Paulo	Brazil	brl	1,497	100.00%	c
gasti Verpackungsmaschinen GmbH, Schwäbisch Hall	Germany	eur	25	100.00%	c	x
Hassia Redatron Packaging Machinery Pvt. Ltd., Pune	India	inr	42	100.00%
Hassia usa Inc., Morgenville	usa	usd	250	100.00%	c
hassia Verpackungsmaschinen GmbH, Ranstadt	Germany	eur	2,100	100.00%	c	x
hassia-Redatron GmbH, Butzbach	Germany	eur	320	100.00%	c	x
Hüttlin GmbH, Steinen	Germany	eur	1,280	100.00%	c	x
iwk Verpackungstechnik GmbH, Stutensee	Germany	eur	3,000	100.00%	c	x
iwka pacsystems Inc., Fairfield	usa	usd	10	100.00%	c
Packaging Technologies Inc., Davenport	usa	usd	1,000	100.00%	c
pam-pac Machines Private Limited, Mumbai	India	inr	17,600	40.00%	e
r.a. Jones Inc., Covington	usa	usd	243	100.00%	c
Tecmar sa, Mar del Plata	Argentina	ars	90	51.00%

key participations

Status: December 31, 2005

non-core businesses division /discontinued operations

thousands	Country	Currency	Nominalcapital	Interest	cons.	pta
Bopp & Reuther Sicherheits- und
Regelarmaturen GmbH, Mannheim	Germany	eur	2,620	100.00%	c
c.h. Zikesch Armaturentechnik GmbH, Essen	Germany	eur	26	100.00%	c
Boehringer Werkzeugmaschinen GmbH, Göppingen	Germany	eur	16,000	100.00%	c
Boehringer Werkzeugmaschinen
Vertriebsgesellschaft mbH, Göppingen	Germany	eur	1,600	100.00%	c
George Fischer-Boehringer Corp., Farmington Hills	usa	usd	50	100.00%	c
ubj-Boehringer Inc., Mississauga	Canada	cad	1,200	100.00%	c
fms Drehtechnik Schaffhausen ag, Schaffhausen	Switzerland	chf	7,000	100.00%	c
iwka Balg- und Kompensatoren
Technologie GmbH, Stutensee	Germany	eur	5,200	100.00%	c
American boa Inc., Cumming	usa	usd	1	92.85%	c
boa ag, Rothenburg	Switzerland	chf	1,000	100.00%	c
iwka Regler u. Kompensatoren Vertriebsges. m.b.H., Wien	Austria	eur	73	49.00%	e
Societe Fonctionnelle Systematique s.a.s., Chassieu	France	eur	500	100.00%	c
Tubest Flexible Solutions s.a., Fere en Tardenois	France	eur	1,768	100.00%	c
ex-cell-o GmbH, Eislingen	Germany	eur	17,000	100.00%	c
ex-cell-o Machine Tools, Inc., Sterling Heights	usa	usd	1	100.00%	c
ex-cell-o Machines s.a.s., Paris	France	eur	1,220	99.99%	c

others

thousands	Country	Currency	Nominalcapital	Interest	cons.	pta
iwka Anlagen-Verwaltungsgesellschaft mbH, Karlsruhe	Germany	eur	2,050	100.00%	c	x
iwka Informationssysteme GmbH, Karlsruhe	Germany	eur	130	100.00%	c
Bopp & Reuther AnlagenVerwaltungsgesellschaft mbH, Mannheim	Germany	eur	19,838	100.00%	c

pta companies, with whom iwka Aktiengesellschaft maintains a profit/loss transfer and control agreement as at December 31, 2005 and that have made use of the exemption option puruant to section 264 para. 3 German Commercial Code (hgb)

c fully consolidated companies as at December 31, 2005

e consolidated by the equity method as at December 31, 2005

a associated companies as at December 31, 2005

balance sheet

of iwka Aktiengesellschaft as at December 31, 2005

in € thousand	Dec. 31, 2005	Dec. 31, 2004
Non-current assets
Intangible assets	1.769	2.169
Tangible assets	32.978	34.726
Financial investments	243.202	251.322
	277.949	288.217
Current assets
Receivables and other assets
Receivables from companies, in which participations are held	156.592	281.732
Other receivables and assets	3.301	1.272
	159.893	283.004
Cash and cash equivalents	46.976	100.059
	206.869	383.063
Prepaid expenses and deferred charges	238	68
	485.056	671.348

in € thousand	Dec. 31, 2005	Dec. 31, 2004
Equity
Subscribed capital	69.160	69.160
Capital reserve	99.598	133.387
Revenue reserves	0	157.643
Net retained earnings	0	17.556
	168.758	377.746
Provisions and accruals
Pension provisions and similar obligations	11.474	10.247
Provision for taxes	16.434	42.337
Other provisions	35.728	14.452
	63.636	67.036
Liabilities
Liabilities due to banks	77.302	71.228
Liabilities similar to bonds	33.745	49.385
Trade payables	3.347	2.785
Accounts payable to affiliated companies	128.272	89.179
Liabilities due to provident funds	2.745	2.843
Other liabilities	7.251	11.146
	252.662	226.566
	485.056	671.348

income statement

of iwka Aktiengesellschaft for the period Jan. 1 – Dec. 31, 2005

in € thousand	2005	2004
Other operating income	19.853	22.810
Personnel expense	-8.451	-8.235
Depreciation/amortisation of intangible and tangible assets	-2.375	-1.954
Other operating expenses	-23.937	-11.714
Net income from participations	-45.313	50.036
Write-downs and write-ups of financial assets	1.074	-27.000
Net interest income/expense	237	-829
Earnings from ordinary activities	-58.912	23.114
Extraordinary expenses	-129.120	0
Tax on income	-3.400	-712
Annual net loss/profit	-191.432	22.402
Withdrawal from capital reserve	33.789	0
Withdrawal from revenue reserves	157.643	0
Allocation to the revenue reserves	0	-4.846
Net retained earnings	0	17.556

The balance sheet and income statement of iwka Aktiengesellschaft are extracts from the complete annual financial statements of iwka Aktiengesellschaft (ag Report)

These annual financial statements were audited by Ernst & Young ag, Stuttgart, and were certified without reservations in an opinion dated March 10, 2005.

The complete annual financial statements of iwka Aktiengesellschaft can be requested from iwka Aktiengesellschaft, Investor Relations, p.o. Box 3409, 76020 Karlsruhe/Germany.

report of the supervisory board

iwka Aktiengesellschaft is in the midst of a major restructuring program that involves all of the Group's divisions. The Supervisory Board and Executive Board were also affected by the structural and associated personnel changes. The changes introduced in 2005 have established the framework required to allow iwka's companies to return to sustainable profitability under the prevailing market conditions. They now focus even more clearly on their core businesses and strictly align themselves with the expectations of the markets and capital investors.

Against this backdrop, the Supervisory Board dealt intensively with the situation of the company during the course of the reporting year. It strove to meet its obligations in regard to proper supervision and consultation with respect to representing the interests of the shareholders and employees. The Executive Board timely informed the Supervisory Board in detail on the company's business situation and financial position. It was continuously involved in decisions of material significance and for particularly important or urgent issues, also outside the normal schedule. In cases of urgency, it also reached decisions by written correspondence.

The Chairman of the Supervisory Board remained in close contact with the Executive Board, particularly with the chairman, so that he could stay informed about important corporate developments and pending decisions and be in a position to support the Executive Board in its deliberations. The Supervisory Board and the Executive Board met several times to jointly discuss important business issues and the evolution of the company. The Executive Board complied with the Supervisory Board's standard rules of procedure, which stipulate that certain transactions require its prior approval.

supervisory board meetings during the reporting period

During the 2005 financial year, the Supervisory Board met nine times, including four extraordinary meetings.

On April 15, 2005, the meeting centered around iwka Aktiengesellschaft's and the iwka Group's financial results for 2004 and the proposals for the resolutions for the June 3, 2005 Annual General Meeting. The Supervisory Board and the Executive Board submitted identical declarations of compliance in accordance with article 161 of the German Stock Corporation Act. The recommendations of the Corporate Governance Code are met with only two exceptions. iwka Aktiengesellschaft has also followed most of the Corporate Governance Code's proposals. And finally, the Supervisory Board gave its approval for a supply agreement between kuka Toledo Production Operations, llc./usa, and DaimlerChrysler Corporation/usa, which had been discussed at length during the course of several meetings. The agreement constitutes a pay-on-production model for the manufacture of the new Jeep® Wrangler.

On May 19, 2005, the Supervisory Board sat in an extraordinary meeting to prepare for the Annual General Meeting. In addition, it discussed strategies to cut loss-generating companies from the portfolio.

At the same meeting, the Supervisory Board Chairman, Reinhard Engel, and Professor Jürgen Hubbert declared that they were prepared to resign before or directly following the Annual General Meeting. The remaining Supervisory Board members (employee and shareholder representatives) unanimously requested that the two gentlemen stay on as members of the Supervisory Board in the interests of the company. As a precautionary measure, the shareholder representatives, in the Supervisory Board decided in advance to step down en masse in the event that shareholders at the Annual General Meeting voted members out of office, as had been proposed in a supplementary motion from shareholder Wyser-Pratte Management Co., Inc. that was added to the Annual General Meeting agenda. Immediately after the shareholder meeting, the Supervisory Board met again and compiled a preliminary analysis of the Annual General Meeting.

On July 15, 2005, the results of the Annual General Meeting caused the Supervisory Board to call an extraordinary meeting because of the vote of no confidence in the Executive and Supervisory Boards. The results of the vote, the criticism that had been voiced and the suggestions were discussed in detail. The Supervisory Board announced that it would call an Extraordinary General Meeting and that it would appoint a new ceo by that date. All six shareholder representatives also declared that they would resign at the end of the Extraordinary General Meeting. The shareholder representatives proposed candidates in the time leading up to the general meeting with due consideration of the shareholders' interests.

The vacancy at the head of the Executive Board led the Supervisory Board to hold another extraordinary meeting on July 29, 2005, during which it appointed Wolfgang-Dietrich Hein as full member of the Executive Board and ceo of iwka Aktiengesellschaft effective September 1, 2005. Wolfgang-Dietrich Hein has many years of experience in mechanical and plant engineering, both in Germany and abroad, and has successfully managed a number of restructuring initiatives.

During a regular meeting of the Supervisory Board on October 20, 2005, the committee reviewed the status of the divestment processes and approved the sale of the ex-cell-o Group. It also finalized preparations for the Extraordinary General Meeting.

The Extraordinary General Meeting of the company was held on November 9, 2005 in Karlsruhe. The shareholder representatives Reinhard Engel, Volker Doppelfeld, Prof. Jürgen Hubbert, Dr.-Ing. Mathias Kammüller, Heinz-Jörg Platzek and Christian L. Vontz resigned as previously announced. The company thanked the departing Supervisory Board members for their – in some case many – years of service on the committee and their dedication to iwka.

The new shareholder representatives voted into office were those that had been proposed by the departing shareholder representatives; namely, Dr. Rolf Bartke, Dr. Reiner Beutel, Dr. Herbert Demel, Pepyn René Dinandt, Dr. Helmut Leube and Dr. Herbert Meyer.

In the constituent session following the Extraordinary General Meeting, the Supervisory Board elected Dr. Rolf Bartke from among its members as Chairman. The Extraordinary General Meeting had been advised that Dr. Bartke would be a candidate for this position if he was elected to the Supervisory Board.

The Supervisory Board held its last regular meeting of the year on December 9, 2005. It discussed and adopted the budget for 2006 as well as the mid-term planning to 2008. It also approved the sale of iwka Balg- und Kompensatoren-Technologie GmbH and its subsidiaries.

Finally, a two-day orientation meeting was held toward the end of 2005, during which the Executive Board provided the new shareholder representatives of the Supervisory Board with detailed information about the iwka Group. The new members of the Supervisory Board discussed the strategy with the Executive Board.

During 2005, the Supervisory Board had to deal with numerous Executive Board issues related to the unsatisfactory business results and the restructuring of the Group's management. After Hans Fahr resigned, Hans Lampert offered the Supervisory Board his resignation on October 28, 2005, which the board accepted.

In iwka's new management organization, the engineering position on the Executive Board has become obsolate. As a result, on December 9, 2005, the Supervisory Board revoked the appointment of Professor Gunther Reinhart effective December 31, 2005.

On December 22, 2005, the Supervisory Board appointed Dr. Jürgen Koch as full member of the Executive Board of iwka Aktiengesellschaft and assigned responsibility for finance and controlling. Dr. Koch was previously on the management board of Pfleiderer ag as its chief finance officer and controller. With the appointment of Dr. Koch effective April 1, 2006, Dieter Schäfer, a full member of the Executive Board of iwka Aktiengesellschaft and previously in charge of controlling, assumed board responsibility for the Packaging division. Finally, effective April 1, 2006, in a meeting held on March 28, 2006, the Supervisory Board appointed Gerhard Wiedemann as full member of the Executive Board of the Company and assigned responsibility for the Automotive division to him, who remains ceo of kuka Schweissanlagen GmbH at the same time, and appointed Bernd Liepert as full member of the Executive Board of the Company and assigned responsibility for the Robotics division to him, who remains ceo of kuka Roboter GmbH. This completes the reorganization at the Executive Board level, and the holding company is now better networked with the business operations.

The Personnel Committee consisting of four Supervisory Board members convened seven times in 2005. The Chairman informed the members of the Supervisory Board about the agenda items and adopted resolutions.

The Audit Committee met once to discuss topics related to the financial statements.

The committee described in paragraph 27, clause 3 of the German Codetermination Act did not meet.

The Supervisory Board members complied with and continue to comply with the armslength provisions outlined in item 5.4.2 of the Corporate Governance Code. There were no conflicts of interest as defined in section 5.5 of the Corporate Governance Code.

work with the auditors

The annual financial statements and management report of iwka Aktiengesellschaft as of December 31, 2005, as well as the consolidated annual financial statements and Group management report as of December 31, 2005, were audited by Ernst & Young ag Wirtschaftsprüfungsgesellschaft, Stuttgart, who issued an unqualified audit opinion on them. As required under the German Act on Corporate Control and Transparency (KonTraG), the iwka Group risk management system was also audited.

Prior to appointing the auditors of the financial statements of the company and the Group, the Chairman of the Supervisory Board conducted in-depth discussions with the auditors regarding audit issues, scope and fees. In December 2005, the auditor gave the Chairman of the Supervisory Board a detailed explanation of the preliminary audit results. Thereafter, the auditor also took care to immediately report any findings and developments that came to his knowledge during the course of the audits that were material to the Supervisory Board's tasks.

On March 20, 2006, the Audit Committee reviewed the two annual financial statements in detail with the auditors, and led them explain significant issues. It recommended that the Supervisory Board approve iwka Aktiengesellschaft's annual financial statements and the iwka Group's consolidated financial statements.

The Supervisory Board also reviewed the draft annual financial statements submitted by the Executive Board. The audit reports provided by Ernst & Young were made available to all members of the Supervisory Board. The auditor took part in the Supervisory Board meeting on March 28, 2006 regarding the annual financial statements in order to report on material findings in the audit and to provide additional information.

annual financial statements for 2005 adopted

Having completed its own review, the Supervisory Board raises no objections and concurs with the findings of the auditor. The Supervisory Board approves the annual financial statements and management report of iwka Aktiengesellschaft for the financial year 2005 as established by the Executive Board. Thus the annual financial statements are adopted.

The Supervisory Board likewise approves the consolidated annual financial statements and the Group management report for the year 2005 established by the Executive Board.

The challenges of the year 2005 were only overcome as a result of the strong commitment in all areas of the company. The Supervisory Board would like to thank all employees, members of the Executive Board, the directors and the elected employee representatives for their efforts. Their achievements serve the interests of the company, its customers and shareholders.

Karlsruhe, March 28, 2006 the supervisory board

Dr. Rolf Bartke chairman

corporate organs

supervisory board

Dr. Rolf Bartke (as from Nov. 9,2005) Esslingen, Chairman Executive Vice President Commercial Vehicle

Division of DaimlerChrysler ag Head of Business Unit Mercedes-Benz Vans of DaimlerChrysler ag

• * DaimlerChrysler Ludwigsfelde GmbH, Ludwigsfelde (Chairman, until March 2006)
• * DaimlerChrysler Manufacturing International llc., Huntersville/usa (until March 2006)
• * DaimlerChrysler Espana s.a., Madrid (until March 2006)
• ** Putsch GmbH & Co. kg (Keiper-Recaro-Gruppe), Kaiserslautern (Advisory Board)

Reinhard Engel (until Nov. 9, 2005) Bruchsal, Chairman Kaufmann

Mirko Geiger ***

Heidelberg, Deputy Chairman 1st Secretary of ig Metall trade union, Heidelberg branch

* Heidelberger Druckmaschinen ag (as from July 19, 2005)

Dr. Reiner Beutel (as from Nov. 9, 2005) Gemmrigheim, cfo Schefenacker ag

** Fischer-Maschinenbau GmbH & Co. kg, Gemmrigheim

Dr. Herbert Demel (as from Nov. 9, 2005)

Vienna, President, ceo Magna Drivetrain ag

* man ag, Munich

Pepyn René Dinandt (as from Nov. 9, 2005) Munich, ceo Mannesmann Plastics

Machinery GmbH

• * Demag Ergotech GmbH, Schwaig (Chairman)
• * Berstorff GmbH, Hanover (Chairman)
• * Krauss-Maffei Kunststofftechnik GmbH, Munich (Chairman)
• ** Netstal Maschinen ag, Näfels/Switzerland (President and ceo)

Volker Doppelfeld (until Nov. 9, 2005) Munich, Member of the Supervisory Board of bmw ag

• * Bayerische Hypo- und Vereinsbank ag, Munich (until Nov. 27, 2005)
• * d.a.s. Deutscher Automobilschutz, Munich
• ** Bizerba GmbH & Co. kg, Balingen

Prof. Jürgen Hubbert (until Nov. 9, 2005) Stuttgart, former Member of the Executive Board of DaimlerChrysler ag

• * Österreichische Industrieholding ag (öiag), Vienna
• * ThyssenKrupp ag, Duisburg and Essen
• * tüv Süddeutschland Holding ag, Munich
• ** Häussler Group, Stuttgart (Chairman of the Advisory Board)

Dr. Ing. Mathias Kammüller

(until Nov. 9, 2005)

Ditzingen, Managing Director trumpf Werkzeugmaschinen GmbH + Co. kg, Ditzingen

• ** aqs ag, Trimmis/Switzerland
• ** Bürkert GmbH & Co., Ingelfingen
• ** Huber Verpackungen GmbH & Co. kg, Öhringen
• ** ikb Deutsche Industriebank ag, Düsseldorf

Jürgen Kerner ***

Augsburg, 1st Secretary of ig Metall trade union, Augsburg branch

• * man b&w Diesel ag, Augsburg
• * man Roland ag, Offenbach
• * sgl Carbon ag, Wiesbaden

Dr. Helmut Leube (as from Nov. 9, 2005) Herrsching, Member of the Excecutive Board of Webasto ag

** Webasto Roof Systems Inc., Rochester Hills/usa (Chairman)

Dr. Herbert Meyer (as from Nov. 9, 2005) Königstein/Taunus, cfo Heidelberger Druckmaschinen ag

• * Heidelberger Druckmaschinen Vertrieb Deutschland GmbH

• ** Heidelberg Graphic Equipment Ltd./uk

• ** Heidelberg Americas Inc./usa

• ** Heidelberger Druckmaschinen Austria Vertriebs-GmbH/Austria (Advisory Board)

• ** Heidelberger Druckmaschinen Osteuropa Vertriebs-GmbH/Austria (Advisory Board)

• * Sektkellerei Schloss Wachenheim ag (as from Feb. 15, 2006)

• ** Verlag Europa Lehrmittel GmbH (Advisory Board)

• ** Goss International Corporation/usa

Dipl.-Ing. (fh) Herbert R. Meyer ***

Augsburg, Chairman of the Works Council of kuka Schweissanlagen GmbH

Heinz-Jörg Platzek (until Nov. 9, 2005) Oberursel, former Member of the Executive Board of Dresdner Bank ag

Walter Prues ***

Augsburg, Chairman of the iwka Group Works Council

Fritz Seifert ***

Schwarzenberg, Chairman of the Works Council of kuka Werkzeugbau Schwarzenberg GmbH

Wilhelm Steinhart ***

Augsburg, Staff member holding commercial power of attorney of kuka Schweissanlagen GmbH, Augsburg

Dipl.-Kfm. Christian L. Vontz

(until Nov. 9, 2005)

Frankfurt/Main, former Member of the Divisional Board of Deutsche Bank ag

* Berlin-Chemie ag, Berlin (Deputy Chairman)

Dr. jur. Wolf Hartmut Prellwitz

Karlsruhe, Honorary Chairman

executive board

Dipl.-Ing. Wolfgang-Dietrich Hein

(as from Sept. 1, 2005) Feldafing, ceo

• ** iwka Holding Corp., Sterling Heights/usa (Chairman as from Nov. 1, 2005)
• * inpro Innovationsgesellschaft für fortgeschrittene Produktionssysteme in der Fahrzeugindustrie mbH, Berlin

Dipl.-Ing. Dipl.-Kfm. Hans Fahr

(until June 3, 2005) Baden-Baden, Chairman

• * Gerling Vertrieb Industrie ag, Cologne
• * Gerling Vertrieb Firmen und Privat ag, Cologne

Dipl.-Kfm. Hans Lampert

(until Oct. 31, 2005) Karlsruhe

Prof. Dr.-Ing. Gunther Reinhart

(until Dec. 31, 2005)

Ettlingen

• * Knorr-Bremse ag, Munich
• * Knorr-Bremse Systeme für Schienenfahrzeuge GmbH, Munich

Dipl.-Kfm. Dieter Schäfer

Karlsruhe

* Supervisory Board member of the following companies

** Membership in comparable German and foreign control bodies of business enterprises

*** Employee Representative

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iwka Aktiengesellschaft p.o. Box 3409 76020 Karlsruhe/Germany www.iwka.de