2.0 MB
Transcription
2.0 MB
28.04.2004 18:35 Uhr Seite 1 2003 Annual Report Dürr AG Paint Systems Technologies · Systems · Solutions is the world’s leading provider of mass-production paint shops for automobile manufacturers and their suppliers. Final Assembly Systems plans and supplies products and complete systems for final vehicle assembly. Services supports the automotive industry worldwide with production-related services. Ecoclean provides systems for parts cleaning, coolant recycling, and automation in workpiece machining. Measuring Systems combines all of the Schenck Group’s activities in measuring technology. Design: 3st kommunikation, Mainz, Germany Setting: Knecht, Ockenheim, Germany Printing: Societätsdruck, Walldorf, Germany Binding: Thalhofer, Schönaich, Germany “ethabind” jacket, patented Dürr 2003 Annual Report 240645_Duerr_Umschlag_E Key figures for the Dürr Group (US-GAAP) 2003 Changes 2002 2001 8.8 % 2,082,137 2,196,169 89,136 127,837 Paint Systems Sales and earnings Sales in € k 2,264,508 EBITDA in € k 48,392 (earnings before interest expense, taxes, depreciation and amortization) 2003 Changes 2002 2001 Total sales in € m 1,243.2 17.9 % 1,054.3 1,094.5 Total incoming orders in € m 1,400.1 8.8 % 1,286.8 1,036.5 EBITDA in € m 40.3 39.2 61.7 in € m 45.3 39.2 61.7 2,837 2,952 before restructuring expenses EBITDA before restructuring expenses in € k 72,720 89,136 127,837 EBIT (earnings before interest expense and taxes) in € k 17,862 55,070 83,675 EBIT before restructuring expenses in € k 43,456 55,070 83,675 Final Assembly Total sales in € m 436.6 7.9 % 404.7 425.2 EBT (earnings before taxes) in € k – 6,947 22,620 39,790 Systems Total incoming orders in € m 405.4 – 14.9 % 476.2 351.3 EBT before restructuring expenses in € k 18,647 22,620 39,790 EBITDA in € m 15.6 15.4 Consolidated net loss (income) in € k – 31,270 12,018 20,003 Employees at year’s end – 1.0 % 1,609 1,631 Fixed assets in € k 569,110 – 5.9 % 604,890 646,093 Non-fixed assets in € k 1,037,345 – 7.0 % 1,115,355 1,130,823 Equity in € k 215,211 – 18.0 % 262,296 292,982 14.65 15.96 in € k 36,603 – 36,603 36,603 in € k 53,607 0.9 % 53,142 51,692 Other accruals in € k 272,026 5.5 % 257,782 Financial debt in € k 296,828 – 16.1 % 353,774 Net financial debt on annual average in € k 221,488 – 33.5 % 333,207 443,806 before restructuring expenses Net financial debt at year’s end in € k 96,969 – 21.2 % 123,067 289,758 Employees at year’s end Total assets in € k 1,665,821 – 7.0 % 1,790,301 1,835,684 Capital expenditures in € k 16,645 – 43.4 % 29,402 40,424 Measuring Total sales Depreciation and amortization in € k 30,530 – 10.4 % 34,066 44,162 Systems Total incoming orders EBITDA Services Financial and capital structure In % of total assets Of which capital stock Pension accruals Employees at year’s end 12.92 2,808 11.4 1,593 Total sales in € m 146.5 1.8 % 143.9 134.0 Total incoming orders in € m 146.5 2.4 % 143.1 134.3 EBITDA in € m 11.2 10.8 5.3 % 4,272 3,727 Employees at year’s end Ecoclean – 1.0 % 10.3 4,499 Total sales in € m 215.5 – 2.9 % 221.9 277.3 Total incoming orders in € m 176.9 – 25.3 % 236.7 243.2 279,746 EBITDA in € m 10.1 15.0 22.2 439,639 EBITDA in € m 11.6 Statements of cash flows 15.0 22.2 932 – 13.6 % 1,079 1,084 364.9 – 5.4 % 385.9 428.9 in € m 369.7 – 3.0 % 381.2 411.3 in € m – 16.2 10.4 17.4 in € m EBITDA Net cash provided by operating activities in € k 56,415 198,659 188,444 before restructuring expenses Net cash used in investing activities in € k – 29,472 – 40,417 – 44,799 Employees at year’s end Net cash used in financing activities in € k – 47,424 – 74,237 – 40,028 in € m 1.6 2,861 – 6.1 % 10.4 17.4 3,046 3,224 The Corporate Center (see p. 57) had 54 employees on December 31, 2003 (2002: 59); the Corporate Center’s EBITDA amounted to € – 7.5 million (2002: € – 2.3 million). Personnel Employees (average for the year) 12,957 2.7 % 12,620 12,561 Employees at year’s end 12,747 – 1.2 % 12,902 12,675 608,313 – 6.0 % 647,080 647,404 Personnel expenses in € k 1,224 Key figures of interest to the capital markets in € Dividend per share in € – 2.19 –* 0.84 1.40 0.80 1.10 2,196 2,082 2,265 65.4 115.3 127.8 89.1 48.4 72.7 99 00 01 02 03 03* 140 120 2,000 100 Market price of Dürr shares High in € 19.30 26.00 29.00 Low in € 13.15 14.80 17.10 Close in € 19.30 16.00 24.30 in k 14,298 14,298 14,298 in € m 276 229 347 Market capitalization at year’s end 2,042 Consolidated EBITDA in € m 2,500 Earnings per share No. of shares at year’s end Consolidated sales in € m 1,500 80 1,000 60 40 500 20 0 0 99 00 01 02 03 * Dividend proposed to the annual shareholders’ meeting * Before restructuring expenses Immaterial variances may occur in this report due to roundings in the computation of sums and percentages. Key figures for the Dürr Group EBITDA 240645_Duerr_Umschlag_E 28.04.2004 18:35 Uhr Seite 2 Key figures for the Dürr Group (US-GAAP) 2003 Changes 2002 2001 in € k 2,264,508 8.8 % 2,082,137 2,196,169 in € k 48,392 Paint Systems Sales and earnings EBITDA 89,136 127,837 (earnings before interest expense, taxes, depreciation and amortization) EBITDA before restructuring expenses Changes 2002 2001 Total sales in € m 1,243.2 17.9 % 1,054.3 1,094.5 Total incoming orders in € m 1,400.1 8.8 % 1,286.8 1,036.5 EBITDA in € m 40.3 39.2 61.7 EBITDA before restructuring expenses 89,136 127,837 39.2 61.7 2,808 – 1.0 % 2,837 2,952 in € m 436.6 7.9 % 404.7 425.2 Total incoming orders in € m 405.4 – 14.9 % 476.2 351.3 EBITDA in € m 11.4 in € k 72,720 EBIT (earnings before interest expense and taxes) in € k 17,862 55,070 83,675 EBIT before restructuring expenses in € k 43,456 55,070 83,675 Final Assembly Total sales EBT (earnings before taxes) in € k – 6,947 22,620 39,790 Systems EBT before restructuring expenses in € k 18,647 22,620 39,790 Consolidated net loss (income) in € k – 31,270 12,018 20,003 Employees at year’s end Services Financial and capital structure in € m Employees at year’s end 45.3 15.6 15.4 1,593 – 1.0 % 1,609 1,631 Total sales in € m 146.5 1.8 % 143.9 134.0 Total incoming orders in € m 146.5 2.4 % 143.1 134.3 EBITDA in € m 10.3 Fixed assets in € k 569,110 – 5.9 % 604,890 646,093 Non-fixed assets in € k 1,037,345 – 7.0 % 1,115,355 1,130,823 Equity in € k 215,211 – 18.0 % 262,296 292,982 14.65 15.96 in € k 36,603 – 36,603 36,603 Pension accruals in € k 53,607 0.9 % 53,142 51,692 Other accruals in € k 272,026 5.5 % 257,782 Financial debt in € k 296,828 – 16.1 % 353,774 Net financial debt on annual average in € k 221,488 – 33.5 % 333,207 443,806 before restructuring expenses Net financial debt at year’s end in € k 96,969 – 21.2 % 123,067 289,758 Employees at year’s end Total assets in € k 1,665,821 – 7.0 % 1,790,301 1,835,684 Capital expenditures (without operator models) in € k 16,645 – 43.4 % 29,402 40,424 Measuring Total sales in € m 364.9 – 5.4 % 385.9 428.9 Depreciation and amortization in € k 30,530 – 10.4 % 34,066 44,162 Systems Total incoming orders in € m 369.7 – 3.0 % 381.2 411.3 EBITDA in € m – 16.2 10.4 17.4 in € m 1.6 10.4 17.4 3,046 3,224 In % of total assets Of which capital stock 12.92 Employees at year’s end Ecoclean 4,499 11.2 10.8 5.3 % 4,272 3,727 Total sales in € m 215.5 – 2.9 % 221.9 277.3 Total incoming orders in € m 176.9 – 25.3 % 236.7 243.2 279,746 EBITDA in € m 10.1 15.0 22.2 439,639 EBITDA in € m 11.6 Statements of cash flows 932 – 13.6 % 15.0 22.2 1,079 1,084 EBITDA Net cash provided by operating activities in € k 56,415 198,659 188,444 before restructuring expenses Net cash used in investing activities in € k – 29,472 – 40,417 – 44,799 Employees at year’s end Net cash used in financing activities in € k – 47,424 – 74,237 – 40,028 12,620 12,561 2,861 – 6.1 % The Corporate Center (see p. 57) had 54 employees on December 31, 2003 (2002: 59); the Corporate Center’s EBITDA amounted to € – 7.5 million (2002: € – 2.3 million). Personnel Employees (average for the year) Employees at year’s end Personnel expenses in € k 12,957 2.7 % 12,747 – 1.2 % 12,902 12,675 608,313 – 6.0 % 647,080 647,404 1,224 Key figures of interest to the capital markets in € Dividend per share in € – 2.19 –* 0.84 1.40 0.80 1.10 2,196 2,082 2,265 65.4 115.3 127.8 89.1 48.4 72.7 99 00 01 02 03 03* 140 120 2,000 100 Market price of Dürr shares High in € 19.30 26.00 29.00 Low in € 13.15 14.80 17.10 Close in € 19.30 16.00 24.30 in k 14,298 14,298 14,298 in € m 276 229 347 Market capitalization at year’s end 2,042 Consolidated EBITDA in € m 2,500 Earnings per share No. of shares at year’s end Consolidated sales in € m 1,500 80 1,000 60 40 500 20 0 0 99 00 01 02 03 * Dividend proposed to the annual shareholders’ meeting * Before restructuring expenses Immaterial variances may occur in this report due to roundings in the computation of sums and percentages. Key figures for the Dürr Group Sales 2003 28.04.2004 18:35 Uhr Seite 1 2003 Annual Report Dürr AG Paint Systems Technologies · Systems · Solutions is the world’s leading provider of mass-production paint shops for automobile manufacturers and their suppliers. Final Assembly Systems plans and supplies products and complete systems for final vehicle assembly. Services supports the automotive industry worldwide with production-related services. Ecoclean provides systems for parts cleaning, coolant recycling, and automation in workpiece machining. Measuring Systems combines all of the Schenck Group’s activities in measuring technology. Design: 3st kommunikation, Mainz, Germany Setting: Knecht, Ockenheim, Germany Printing: Societätsdruck, Walldorf, Germany Binding: Thalhofer, Schönaich, Germany “ethabind” jacket, patented Dürr 2003 Annual Report 240645_Duerr_Umschlag_E 1 Technologies · Systems · Solutions The Dürr Group is one of the world’s leading suppliers of production systems and manufacturing support services for the automotive industry. Our customers include all significant automobile manufacturers and many parts and components suppliers. We offer innovative and environmentally sound solutions that contribute substantially to lower costs, higher quality, and greater flexibility in the development and production of vehicles. Our range of products and services covers the entire life cycle of production systems: planning, realization, modernization, and services during operation. We enhance our customers’ competitiveness with trend-setting solutions. Our strengths include motivated and customer-oriented employees, global presence, and outstanding innovating power. On this basis, we will increase our profitability and the value of the company. 2 4 Enhancing profitability “The year 2004 is a crucial one for Dürr on its way to more profitability. The program will be vigorously implemented with the aim of improving the Dürr Group’s efficiency.” Stephan Rojahn, Chairman of the Board of Management 48 2003 at a glance The year’s important events at a glance. 61 Securing technological leadership We will continue to pursue intensive R&D work in the future to maintain our position as technological leader. We plan to raise R&D spending in fiscal 2004. 3 Contents 4 8 12 Letter from the Chairman of the Board of Management Report of the Supervisory Board Dürr stock Reports from the business units 18 24 30 36 42 Paint Systems Final Assembly Systems Services Ecoclean Measuring Systems 48 2003 at a glance Consolidated management report 50 51 52 58 61 62 Economic environment Strategy Business development Financial position Development and innovation Purchasing management 62 64 64 66 67 Employees Environmental protection Risk management Events subsequent to the reporting date Outlook Consolidated financial statements 71 72 73 74 75 76 Independent auditors’ report Consolidated statements of income Consolidated balance sheets Consolidated statements of equity Consolidated statements of cash flows Notes to the consolidated financial statements 112 Dürr worldwide 115 Glossary Letter from the Chairman of the Board of Management Board of Management of Dürr AG Stephan Rojahn (55), Chairman Kay Bönisch (43) Ecoclean, Measuring Systems Finance, Public & Investor Relations, Controlling, Global Sourcing, Human Resources, Corporate Audit, Legal Dr. Reinhold Grau (50) Dr. Norbert Klapper (41) Paint Systems Final Assembly Systems, R&D, Information Technology, Services Sales & Marketing Quality Management Letter from the Chairman of the Board of Management 5 Groundwork laid for earnings enhancement High sales in 2003 Earnings burdened by restructuring and allowances earnings enhancement program under way Share price up by 21 % No dividend planned for 2003 Significant earnings improvement expected in 2004 Dear Stakeholders, Fiscal 2003 was a year of light and shade for Dürr. On the one hand, we achieved considerable successes. We managed to raise sales by almost 9 % to a record level of € 2,264.5 million and register strong order intake of € 2,356.2, despite a very difficult market environment. We may also be quite proud of winning the largest single contract in our history. In spring 2003, General Motors awarded us an order to build three large paint shops in North America. On the other hand, for the first time since going public in 1990, we showed negative earnings before taxes in the amount of € 6.9 million (2002: positive result of € 22.6 million). Besides margin pressure and exchange rate effects, the main reason for that was restructuring expenses in the amount of € 25.6 million. With special burdens caused by necessary restructuring measures left out of account, earnings before taxes come to a positive € 18.7 million, and EBITDA to € 72.7 million. Furthermore, a valuation allowance of € 23.0 million was taken on deferred tax assets loss carryforwards, which led to a net loss for 2003 of € 31.3 million. Main goal: Earnings enhancement with Our main goal is to improve the Dürr Group’s operating profitability on a lasting basis. We set out resolutely to achieve that by starting the earnings enhancement program in spring 2003. With strict discipline, we are pursuing four main lines of attack in this connection: cutting costs, reducing risk, improving net working capital, and streamlining our portfolio of locations and products. The program consists of over 200 individual measures throughout the Group. We already successfully set some of them in motion last year. But 2003 was mainly devoted to laying the groundwork, while 2004 is the first year of full implementation. We have set ourselves correspondingly ambitious rate-of-return targets for the medium term. We intend to raise the return on sales (ROS) to 5 %, the return on capital employed (ROCE) to 15 %, and the return on equity (ROE) to 25 %. will help us create the basis for meeting these targets. 6 Attractive range of products and services Dürr is on the right path not only with . We also have all the necessary means at our disposal to consistently expand our position among leading providers of production systems and production-related services to the automotive industry. Dürr’s range of products and services deals with all key stages of automobile production. We are represented in the painting and final assembly of vehicles, modules, and components. We also supply testing systems for vehicle development and quality assurance as well as measuring and balancing systems for the production of rotating parts. In the production of engine and transmission components, we support our customers with innovative cleaning and filtration technologies. In the framework of our life cycle concept, we offer solutions for the entire service life of production systems, from planning and realization to services during operation to technological upgrading. Our focus is not only on automobile manufacturers, but also increasingly on their suppliers. There are good business opportunities in the latter segment, since the major suppliers are taking over more and more functions from the automobile manufacturers and therefore need appropriate production and testing systems. We offer our customers technologies, systems, and solutions to improve their competitive position in a closely contested market. Our products and services are therefore aimed at cutting costs, increasing flexibility and quality, and improving the environmental compatibility of the production process. We occupy leading market positions in all our areas of operation, which we have achieved by means of innovative technology and competitive prices. About 6 % of our sales flow annually into developing new solutions. We also do not intend to cut our R&D spending in the future despite all the attention focused on costs. Last, but not least, Dürr is an international company that is represented in all automobile manufacturing regions of the world. That enables us to utilize business opportunities that arise from our customers’ expansion into low-wage countries and new markets. In particular, we are greatly increasing our capacities in China. Our global positioning helps us to balance fluctuations in demand among customers, regions, and business units to a large extent. Competitiveness improved The mentioned restructuring expenses were related to measures to improve competitiveness in the Paint Systems, Ecoclean, and especially Measuring Systems business units. An important single project is the closing of a loss-making premanufacturing operation in Darmstadt, Germany, which incurred charges totaling € 18.4 million. That step is necessary to enable us to cultivate price advantages in attractive procurement markets and substantially reduce costs in Measuring Systems. Another accomplishment on the path to more competitiveness is the squeeze-out at Carl Schenck AG that we initiated in February 2004 to increase our shareholding to 100 %. That will help to synchronize organization and management throughout the Dürr Group. Internal cooperation will also improve, for example, in the areas of purchasing, development, and financial management. The squeeze-out will also relieve Schenck of the costs of fulfilling disclosure requirements and of being listed on the stock exchange as well as a large part of the expenses for annual shareholders’ meetings. Letter from the Chairman of the Board of Management 7 Positive stock performance – omission of dividend planned for 2003 After a weak start, Dürr stock showed clear rallying tendencies in 2003 and an advance of 21 % by year’s end. Because of negative earnings, however, the Board of Management and the Supervisory Board will propose to shareholders at their annual meeting to omit the dividend payment for fiscal 2003. With a view to the initiated earnings enhancement measures, we are confident, however, that we will be able to resume dividend payments in the future and our shareholders will participate appropriately in the company’s success. Outlook for the Dürr Group The year 2004 is a crucial one for Dürr on its way to more profitability. The program will be vigorously implemented with the aim of improving the Dürr Group’s efficiency. Against that background, we expect significantly positive earnings for the current fiscal year. Sales will probably be slightly below the high figure reached in 2003. With this Annual Report we hope to give you an informative insight into our company. Not only the texts and figures are meant to serve that purpose, but also the largesize pictures. They capture moments in the working world of our business units and clearly illustrate the basis of our ability to perform, which is the daily dedication of Dürr employees. On behalf of my colleagues and myself, I would like to thank all our employees for the creative and motivated efforts that they again made in the past year. We also extend thanks to our customers and business partners for their good cooperation and to our shareholders for the trust that they have shown in us. Stuttgart, April 2004 Stephan Rojahn Chairman of the Board of Management Report of the Supervisory Board Dr.-Ing. E. h. Heinz Dürr In 2003, the Supervisory Board performed the duties assigned to it by law and the articles of association. It advised the Board of Management, and regularly and diligently monitored that body’s management of the company. The Supervisory Board was involved in all decisions of fundamental importance for the Dürr Group. The Board of Management informed the Supervisory Board in a timely and comprehensive manner about the economic situation and development of the company, about company planning, including financial, investment and personnel planning, and about transactions requiring Supervisory Board consent and substantial business occurrences. The Supervisory Board adopted its resolutions after thorough review on the basis of detailed written and oral reports. The Supervisory Board came together at five regular meetings in 2003. No member of the Supervisory Board attended less than three meetings. The Personnel Committee met three times, while the Mediation Committee was not convened. The Audit Committee met on April 22, 2004, to discuss the 2003 financial statements. The composition of the Supervisory Board remained unchanged in 2003. Mr. Peter Krüger, the representative of our executive personnel, left the Supervisory Board as of December 31, 2003. Mr. Harald Rüber has taken his place. The Supervisory Board thanks Mr. Krüger for his constructive cooperation and dedicated efforts on behalf of the company and its employees. Also outside the meetings, the Chairman of the Supervisory Board maintained close contact with the Board of Management and obtained timely reports on current developments and important events, primarily from the Chairman of the Board of Management. He furthermore discussed the company’s business policy, strategic orientation, and financial situation with the Chairman of the Board of Management and reported the results of these discussions to the entire Supervisory Board, either immediately or at its next meeting. The Board of Management and the Supervisory Board regularly discussed the situation with respect to orders, sales and earnings as well as the financial position of the Group and the individual business units. The Supervisory Board paid special attention to the handling of major orders and the associated opportunities and risks. Above all, Report of the Supervisory Board 9 it sought and obtained information on several occasions regarding the major Paint Systems order placed by General Motors in the first quarter of 2003, the largest single order in the company’s history. In common with the Board of Management, the Supervisory Board considers substantially improving the Dürr Group’s profitability as the most important management task. In that connection, it was extensively informed about the goals, measures and status of the earnings enhancement program, which was initiated in spring 2003. Implementing will continue to be a focus of deliberations in the future. In the meeting on October 6, 2003, the Supervisory Board appointed Mr. Kay Bönisch as a regular member of Dürr AG’s Board of Management, effective as of November 1, 2003. In the framework of the Board of Management’s new assignment of duties, adopted by the Supervisory Board at its meeting on December 12, 2003, Mr. Bönisch has assumed responsibility for the areas of finance and controlling, taxes, legal affairs, personnel, and risk management as of February 1, 2004. At the meeting on February 19, 2004, Mr. Bönisch was furthermore appointed Employee Affairs Director of Dürr AG. In all the above-mentioned functions, he follows Dr. Wolfgang Baur, who left the company as of January 31, 2004, to take up a new position. The Supervisory Board thanks Dr. Baur for the great personal dedication with which he worked on behalf of the Dürr Group as a member of the Board of Management since 1999. In its meeting on April 9, 2003, the Supervisory Board decided that a new tranche of the DISOP stock option plan would not be issued in 2003. It will consider and decide the question of a further DISOP tranche again in the current fiscal year. Another object of deliberations was the German Corporate Governance Code. In December 2003, the Supervisory Board and the Board of Management jointly issued for the second time – pursuant to Sec. 161 of the German Stock Corporation Law – a declaration of compliance to the effect that Dürr is largely following the recommendations of the Government Commission German Corporate Governance Code. Please refer to pages 15 and 16 for details concerning corporate governance at Dürr AG. The Board of Management reported regularly and in a timely manner to the Supervisory Board about existing risks. The Supervisory Board advised the Board of Management regarding the expansion of risk control and monitoring systems. The annual financial statements and management report prepared by the Board of Management as of December 31, 2003, together with the consolidated financial statements and consolidated management report of Dürr AG, were examined by the auditors engaged by the Supervisory Board after appointment by the annual shareholders’ meeting, and have received an unqualified audit report. The annual financial statements and consolidated financial statements, the management report and consolidated management report, the proposal for the use of unappropriated profit of Dürr AG, and the auditors’ reports concerning the auditing of the annual financial statements and of the consolidated financial statements were submitted to all members of the Supervisory Board in good time before the meeting held to approve the financial statements, and were discussed in detail with the Board of Management at that meeting of the Supervisory Board on April 28, 2004. The auditors who signed the audit reports for the annual financial statements and the consolidated financial statements of Dürr AG also participated in that meeting with regard to the relevant points on the agenda, and reported concerning their audit. The Supervisory Board took approving note of the audit result. 10 The Supervisory Board examined the annual financial statements and consolidated financial statements and the management report and consolidated management report. This examination by the Supervisory Board revealed no cause for objection. The Supervisory Board concurs in the assessment of the business situation and future development of the consolidated Group as presented in the consolidated management report. The Supervisory Board approves the annual financial statements prepared by the Board of Management, which are hereby ratified. The Supervisory Board approves the Board of Management’s proposal for the use of the unappropriated profit of Dürr AG. The Supervisory Board also approves the consolidated financial statements. The Supervisory Board has examined the report prepared by the Board of Management pursuant to Sec. 312 of the German Stock Corporation Law concerning relationships with associated enterprises for the period from January 1 to December 31, 2003 (dependent company report). The dependent company report was also examined by the auditors appointed by the annual shareholders’ meeting, and has been issued the following unqualified audit report pursuant to Sec. 313 (3) of the German Stock Corporation Law: “After examination and assessment in accordance with our professional duties, we confirm that: 1. the factual information given in the report is correct, 2. the performance rendered by the company in connection with the transactions mentioned in the report was not unduly high, 3. regarding the measures mentioned in the report, no circumstances argue in favor of a materially different judgment than that made by the Board of Management.” The examination of the dependent company report by the Supervisory Board revealed no cause for objection. The Supervisory Board concurs in the results of the examination of the dependent company report by the auditors. According to the final results of the examination by the Supervisory Board, there are no objections to be raised against the declaration by the Board of Management at the end of the dependent company report. The Supervisory Board thanks the Board of Management, all employees, and the representatives of the staff for their dedication in the past year, as well as the shareholders for the confidence they have placed in the company. Stuttgart, April 28, 2004 The Chairman Dr.-Ing. E. h. Heinz Dürr 11 Report of the Supervisory Board Members of the Supervisory Board Dr.-Ing. E. h. Heinz Dürr1 Werner Kramp 3 Entrepreneur, Berlin Chairman Chairman of the Works Council of Schenck Final Assembly Products GmbH, Püttlingen Peter Weingart1, 3 Chairman of the Group Works Council of Dürr AG, Stuttgart Deputy Chairman Prof. Dr. Norbert Loos1, 2 Managing Partner of Loos Beteiligungs-GmbH, Stuttgart Deputy Chairman Peter Krüger3 Manager of Commercial Order Processing of Dürr Systems GmbH, Stuttgart (until December 31, 2003) Günter Lorenz1, 3 Lieselotte Dedek-Fried 2, 3 Principal Authorized Representative of IG Metall administrative offices, Darmstadt Member of the Works Council of Schenck RoTec GmbH, Darmstadt Harald Rüber 3 Benno Eberl 2, 3 Trade Union Secretary of IG Metall administrative offices, Stuttgart Head of Project Development at Dürr Systems GmbH, Stuttgart (since January 1, 2004) Joachim Schielke Prof. Dipl.-Ing. Jörg Menno Harms Chairman of the Managing Board of Hewlett Packard GmbH and Holding GmbH, Böblingen Member of the Board of Management of Landesbank Baden-Württemberg, Stuttgart Dr. Heinz Gerd Stein 2 Dr. Tessen von Heydebreck Member of the Board of Management of Deutsche Bank AG, Frankfurt/Main 1 Member of the Mediation Committee and Personnel Committee Member of the Audit Committee 3 Representative of the employees 2 Business Consultant, Duisburg Dürr stock Now drawing great attention in the SDAX 2003: 21 % share price increase Capital market communication strengthened Corporate Governance Code largely implemented The negative trend on the stock markets continued at the beginning of 2003. It hit bottom in March, when the DAX fell significantly below 2,500 points. In addition to weak economic development, huge political uncertainties, arising particularly from the Iraq War, were mainly responsible for the deep decline of prices on a broad front. At the end of the first quarter, the markets started advancing again significantly. At year’s end, the DAX was up 37 %, and the MDAX 47 %. The TecDAX and SDAX each rose by 51 % from January to December 2003. Dürr's stock followed the general downward trend on the markets at the beginning of the year. It reached its lowest point in the XETRA electronic trading system on March 13, 2003, at € 13.15. It subsequently advanced and reached its high for the year on December 30, 2003, closing at € 19.30. That yields a price increase of 21 % for 2003. Dürr ensured liquidity in XETRA with a designated sponsor. 2003: Forty-three analyses written about Dürr Dürr was admitted to Deutsche Börse’s new Prime Standard segment in January 2003, where the Dürr stock belongs to the Prime Industrial Index. Since March 24, 2003, our stock is no longer quoted in the MDAX, but rather in the SDAX, an index of 50 selected small caps. The reason for this change was the reduction of the MDAX from 70 to 50 stocks. Despite the change, we were able to increase the interest taken in our company by banks and analyst firms: In fiscal 2003, 15 institutions wrote a total of 43 analyses about Dürr, which is eight more than in the previous year. Most of the recommendations were “buy” or “hold.” The analyses can be called up on the Investor Relations pages of our website, www.durr.com. 13 Dürr stock No dividend payment planned for 2003 Earnings per share declined in fiscal 2003 to € – 2.19, after € 0.84 in the previous year. Given the negative earnings, the Board of Management and the Supervisory Board will propose to the annual shareholders’ meeting that no dividend be paid for fiscal 2003 (previous year: € 0.80). We are making every effort, however, to substantially improve our profitability so that we will be able to pay our shareholders an attractive dividend in the future. We have embarked on the right path to that end with our earnings enhancement program. Changes in shareholder structure Our shareholder structure changed in fiscal 2003 as follows: Süd-Kapitalbeteiligungsgesellschaft mbH, a holding of Landesbank Baden-Württemberg (LBBW), acquired the 11.0 % of Dürr AG’s capital stock previously held by its associated company LBBW Trust GmbH on September 30, 2003. Kreissparkasse Biberach has held 5.6 % of the capital stock since April 15, 2003. The shares held by Heinz Dürr GmbH and BWK GmbH Unternehmensbeteiligungsgesellschaft remain unchanged at 48.9 % and 7.0 %, respectively. The free float amounts to 27.5 % of the capital stock; Heinz und Heide DürrStiftung GmbH accounts for 4.5 %, institutional and private investors for 23.0 %. Dürr stock price development in the XETRA from January to December 2003 compared with indexed development of the DAX, MDAX, SDAX*, and Prime Industrial Index** in € 25 ISIN DE0005565204 Reuters symbol DUEG 20 Bloomberg code DUE GY 15 10 5 J F M Dürr stock in the XETRA A M DAX ** Since recalculation on March 24, 2003 ** Since initial calculation on March 24, 2003 J J MDAX A S SDAX O N D Prime Industrial Index 14 Key figures 2003 2002 2001 No. of shares at year’s end in k 14,298 14,298 14,298 Earnings per share in € – 2.19 0.84 1.40 Cash flow per share in € – 0.02 3.32 5.20 Dividend per share in € 0.80 1.10 Share price high in € 26.00 29.00 –* 19.30 Share price low in € 13.15 14.80 17.10 Share price close in € 19.30 16.00 24.30 Price-earnings ratio at year’s end – 19.0 17.4 Price-cash flow ratio at year’s end – 4.8 4.7 276 229 347 Market capitalization at year’s end in € m * Dividend proposed to the annual shareholders’ meeting Capital market communication strengthened further At road shows in Europe and the United States and at conferences with banks and investors, the Board of Management provided information about Dürr’s key financial data, strategy, and potential opportunities. Furthermore, when announcing business figures and other important events, we invited the financial community to participate in conference calls and analyst meetings. A highlight in our financial calendar was the second Dürr Capital Markets Day, which took place on October 13, 2003, at our technology center for cleaning systems in Monschau, Germany. Analysts, investors and bank representatives were able to communicate directly with the Board of Management there and become acquainted with new technologies and products. Dürr is also present at numerous road shows and investor events during the current fiscal year. The most important dates are presented on page 17. Dürr regularly provides detailed information about the company’s development. We keep analysts, journalists, and investors abreast of current events on equal terms and in a timely manner. The Internet is a quick and convenient communication channel. On our website (www.durr.com), we offer information for shareholders, including financial reports, key figures, data regarding our stock, and company press releases. Dürr has broadcast its annual shareholders’ meeting live on the Internet since 2001. Corporate Governance Code: Declaration of compliance submitted Since its introduction in February 2002, the German Corporate Governance Code has quickly become the yardstick for transparency and the responsible management and control of listed stock corporations. The Code is based on statutory guidelines, mainly from the Stock Corporation Act, and contains comprehensive recommendations for the cooperation of management and supervisory boards, for open communication with the capital markets, and for the protection of shareholders’ interests. The Code’s goal is to strengthen the confidence of domestic and foreign investors in German companies. Dürr stock 15 According to Sec. 161 of the German Stock Corporation Law, the board of management and the supervisory board of a listed stock corporation are obliged to declare once every year that the recommendations of the Government Commission German Corporate Governance Code were and are being complied with, or which recommendations were or are not being applied. Dürr AG fulfills most of the mandatory provisions of the Code, in the meantime also Items 2.3.3 and 6.6. The implementation of further provisions is planned. The deviations from the Code are specified below with the corresponding reasons. They are also presented on the Investor Relations pages (Corporate Governance) of our website (www.durr.com). In accordance with Sec. 161 of the German Stock Corporation Law, the Board of Management and the Supervisory Board of Dürr AG declare: “Dürr AG complies with the recommendations of the Government Commission German Corporate Governance Code with the following exceptions: Item 3.8 Paragraph 2 If the company takes out a D&O (directors and officers’ liability insurance) policy for the Management Board and Supervisory Board, a suitable deductible shall be agreed. A D&O insurance policy with no deductibles exists for the members of the Board of Management and the Supervisory Board. This is a group insurance policy for executives at home and abroad, although a differentiation between members of the executive body and employees does not appear appropriate. In addition, a deductible is not usual abroad and would therefore make it difficult to recruit executives from abroad. Item 4.2.4 Compensation of the members of the Management Board shall be reported in the Notes to the Consolidated Financial Statements, subdivided according to fixed, performance-related, and long-term incentive components. The figures shall be individualized. We report the sum of salaries of the members of our Board of Management in the Notes to our consolidated financial statements. In our view a separate, individualized item broken down into fixed and performance-related components would not provide any additional benefit for the shareholders. As Dürr AG Board of Management operates according to the principle of collective responsibility, the decisive factor is the incentives provided for the Board of Management as a whole. In other respects, there is a risk that listing these figures separately will lead to a leveling of performance-related and task-related differences in pay. Item 5.4.1 Sentence 2 Furthermore, ... an age limit to be specified for the members of its Supervisory Board shall be taken into account. Dürr sees no necessity for defining an age limit for members of its Supervisory Board. 16 Item 5.4.5 Paragraph 1 Sentence 3 Also to be considered [for specifying the compensation of the members of the Supervisory Board] shall be … the chair and memberships in committees. Because of the success-related compensation of the members of our Supervisory Board, there is no separate remuneration for the chair or for membership in committees. Item 5.4.5 Paragraph 3 The compensation of the members of the Supervisory Board shall be reported separately in the Notes to the Consolidated Financial Statements, subdivided according to components. Also payments made by the enterprise to the members of the Supervisory Board or advantages extended for services provided individually, in particular, advisory or agency services shall be listed separately in the Notes to the Consolidated Financial Statements. We report the sum of salaries of the members of our Supervisory Board in the Notes to our consolidated financial statements. A separate, individualized statement of salaries subdivided according to components would, in our view, not provide any additional benefit for the shareholders. The possibility of obtaining the expertise of individual members of our Supervisory Board for special topics at any time represents a special advantage for Dürr. Cooperation is based on the conditions that are usual in the industry, which are also maintained in comparable transactions with third parties. Hence, we see no necessity for individualized publication. Item 7.1.2 Sentence 2 The Consolidated Financial Statements shall be publicly accessible within 90 days of the end of the financial year; interim reports shall be publicly accessible within 45 days of the end of the reporting period. At present we are unable to comply with all the recommended deadlines. However, in the medium term we plan to comply in full with this recommendation. Our consolidated financial statements are published within four months of the end of the fiscal year. Our half-year report is publicly accessible within 60 days; the interim reports for the first quarter and for the first nine months of the fiscal year are accessible within 45 days of the end of the reporting period.” Dürr AG Public & Investor Relations Otto-Dürr-Strasse 8 70435 Stuttgart Germany Phone: +49-7 11-1 36-17 85 Fax: +49-7 11-1 36-10 34 [email protected] www.durr.com 17 Dürr stock Financial calendar for 2004 Financial press conference April 29, 2004, Stuttgart Publication of the 2003 Annual Report DVFA analysts’ conference April 29, 2004, Frankfurt/Main Interim report on first quarter of 2004 May 14, 2004 Road show in Germany and Great Britain May 2004 Third Dürr Capital Markets Day October 13, 2004 Road show in Great Britain October 2004 Interim report on first nine months of 2004 and conference call November 12, 2004 Road show in USA November 2004 German Equity Forum and road show in France November 2004 Annual shareholders’ meeting June 9, 2004, Stuttgart Interim report on first half of 2004 and conference call August 25, 2004 Road show in Germany September 2004 Analysts’ conference End of November or beginning of December 2004 Paint Systems business unit Automobiles around the world are painted using Dürr systems. Innovative technologies that stand for unparalleled quality, efficiency, and environmental compatibility plus reliable project handling and global expertise are the basis of the Paint Systems business unit’s market leadership. Paint Systems generated about half of the Group’s sales again in 2003. 21 Paint Systems business unit Paint Systems Biggest order in Dürr’s history makes for higher order intake General Motors orders package of three paint shops Order completion shortened Ecopaint painting robot on the path of success 2003 Changes 2002 2001 Amounts in € m Total sales 1,243.2 17.9 % 1,054.3 1,094.5 Total incoming orders 1,400.1 8.8 % 1,286.8 1,036.5 39.2 61.7 EBITDA 40.3 EBITDA before restructuring expenses Employees at year’s end 45.3 2,808 – 1.0 % 39.2 61.7 2,837 2,952 The Paint Systems business unit achieved above-average total incoming orders in fiscal 2003 despite sluggish conditions in the automotive industry and a declining market volume. The crucial factor driving this positive trend was a large project from General Motors (GM). The US automobile manufacturer ordered three uniformly equipped paint shops from Dürr for different sites in North America. This project is unique in its scope – and it is the largest individual order in Dürr’s history. Besides the technology we offer, our expertise in handling large projects proven on earlier large-scale projects and our close collaboration with GM during the planning stage made Dürr GM’s partner of choice. Additional factors were the standardization and modularization of our products, which we have advanced in recent years and which allow not only lower costs through economies of scale in purchasing, but also shorter processing times and greater fail-safeness during start-up and routine production. For our reliable project handling in connection with this and other contracts, General Motors honored us in April 2004 with its renowned “Supplier of the Year Award.” Continued positive development in Asia In Asia, we benefited from the dynamic development of added manufacturing capacities in the automotive industry. Earnings in China doubled, primarily as a result of the completion of large orders. About 10 % of the business unit’s total sales were in the Chinese market. In South Korea, where Dürr has been represented by its own company since 1995, demand increased considerably as a result of local automobile manufacturers’ growth strategies. We were able to capitalize on our solid market position to win orders for capacity expansion, plant modernization, and improvement of environmental standards in paint shops. We are building a new paint shop in the USA for our South Korean customer Hyundai. 22 In Europe, the automotive industry placed mostly smaller orders for modernization and conversion projects following several high-volume years. We continued our successful cooperation with the BMW Group in the areas of robot painting equipment and powder painting. BMW ordered additional fully automated lines for primer and top coat application for its Regensburg plant in Germany. In France, we reacted to the unsatisfactory utilization situation and initiated an adjustment of capacity. With several new orders, we successfully continued the worldwide marketing of our innovative RoDip dip-painting system. Its quality and cost advantages have made RoDip one of the leading processes in the last three years. Start-ups in every significant market Paint Systems We underscored our market and technological leadership again in 2003 by completing a number of trend-setting, showcase projects. In Europe, for example, complete Dürr paint shops were started up at Ferrari (Maranello, Italy), Peugeot Citroën (Mulhouse, France), and BMW (Dingolfing, Germany). All three systems feature powder-painting technology and meet high environmental standards. In Changchun (China), we completed a top-coat application line for the FAW-VW joint venture. In Wuhu, in Southern China, we handed over a complete paint shop to the domestic manufacturer SAIC Chery Automobile. For the motorcycle manufacturer Harley-Davidson, we quickly built two painting systems at its Tomahawk, Wisconsin, and York, Pennsylvania, sites in the USA. Product lines Line simulation shortens order processing times Paint Systems Automotive Complete automotive paint shops, including buildings, materials flow and process systems, and control and supervisory control systems Application Technology Systems for automated application of paint and highviscosity materials To allow Dürr customers to put new vehicle models on the market faster, we have again shortened the planning and construction times for our systems. A key focus of this effort was on the further development of virtual reality programs with which complete paint shops can be planned, designed three-dimensionally, and simulated on the computer. This does not only shorten the planning stage of projects, but it also allows the engineers to identify interfacing problems early that might occur when the individual processing stations of the paint shop are linked. At the same time we changed our assembly processes. As part of our new pre-assembly strategy, our line modules will no longer be assembled at the customer’s site. Instead, they are pre-assembled at Dürr’s or the subcontractor’s manufacturing sites. This saves time and cuts costs, allows for better quality control, and simplifies our work at the customer’s site. Paint Systems Industrial Complete paint shops for auto- Application technology: Dürr’s painting robots in demand worldwide mobile component suppliers We also further strengthened our market-leading position in the field of automated paint application. The decisive factor here was the market success of the Dürr Ecopaint painting robot – a technology leader. In fiscal 2003, we celebrated not only the delivery of our 1,000th painting robot, but also a new sales record of almost 500 orders. Ecopaint painting robots – the most successful technology of its kind in the world – are now in operation in 24 countries. Advantages in terms of quality, efficiency, and environmental compatibility have enabled the Ecopaint painting robot to oust conventional painting machines almost entirely from the market, in new business since it was first introduced in 1999. and other industrial sectors Environmental Systems Exhaust-air purification systems for paint shops and other areas of industrial production 23 Paint Systems business unit At our Customer Open House event in Bietigheim-Bissingen, Germany, in May 2003, we presented a series of product innovations. The centerpiece was the new EcoBell 2 generation of high-rotation atomizers for interior and exterior body painting. EcoBell 2 allows maximum paint outputs, speeds up the painting process, and significantly improves material utilization rates for wet paints. In the area of software, we presented our EcoMotionGuard S control system for robot monitoring and the EcoScreen 3-DOn-Site line visualization system. Supplier industry: Potential for continued growth Following its establishment in 2000, the Paint Systems Industrial product line quickly occupied a large market share of the automobile component supply industry. In 2003, we once again achieved a considerable sales plus in this area. In China, we entered into a cooperation with the domestic company Hightech Ltd. Co. to improve our access to the market. Together with our new partner, we were quickly able to land two large orders. The Dürr painting robot achieved a new sales record in 2003 with about 500 new orders. After completing the market cultivation stage and defraying the related expenses, Paint Systems Industrial will focus in the future on improving profitability. We expect demand from the component supply industry to continue to rise in the coming years as increasing modularization of vehicle production and more outsourcing result in parts and module suppliers performing more and more of the painting work. Environmental technology: Gratifying performance Business developed positively last year in the Environmental Systems product line, which specializes in exhaust-air purification systems. Market successes in the automotive industry as well as in our other key sectors, the chemical, pharmaceutical, and semiconductor industries, contributed substantially to that. In light of rising demand in North America, we expanded our range of energy management services. Those involve analyzing how our customers can reduce energy consumption and the costs of operating their exhaust-air purification systems. Final Assembly Systems business unit The Final Assembly Systems business unit realizes intelligent solutions for the final stage of vehicle assembly, whether individual products, systems, or complete plants. The advantages that we rely on in this connection are optimal quality, lower costs, and maximum flexibility. For automobile manufacturers, that means the ability to assemble vehicles with different features in the shortest time, on one and the same line, at low cost, and of high quality. 27 Final Assembly Systems business unit Final Assembly Systems Continued growth Sales increased significantly Goal: Global leadership as a full-range final assembly supplier Two-pronged strategy: Products business and system business 2003 Changes 2002 2001 Amounts in € m Total sales 436.6 7.9 % 404.7 425.2 Total incoming orders 405.4 – 14.9 % 476.2 351.3 EBITDA Employees at year’s end 11.4 1,593 – 1.0 % 15.6 15.4 1,609 1,631 Set up at the beginning of 2002, the Final Assembly Systems business unit significantly raised its total sales in 2003. Despite appreciable capital spending restraint in the automotive industry, we increased our market share as a provider of full-range final assembly systems and strengthened our position as one of the world’s largest suppliers. We are pursuing the goal of growing further and achieving world market leadership in the medium term. Here, we are focusing both on business involving individual machines and units, and on general contractor projects for complete final assembly plants. Initial position is good for further growth. Against the background of stiff competition, automobile manufacturers greatly need to automate and increase the flexibility of their operations. We are well prepared for this: Our fundamental approach in Final Assembly Systems is to offer the widest range of products in the competitive field, relying on our own solutions in assembly, testing, filling, and conveying technologies. We can supply about 70 % of the equipment and software solutions needed for complete final assembly. Systems business: Successful large-scale projects Our capability to handle large-scale projects has been proved again in 2003. For Magna Steyr Fahrzeugtechnik in Graz (Austria), for example, we put a complete final assembly line into operation. For Volkswagen in Germany, we performed an extensive remodeling of its Mosel plant. Ford Motor Company has assigned us a new major project involving the renovation of an entire assembly line, including conveyor systems at its Otosan plant in Turkey. 28 Final Assembly Products: International expansion Final Assembly Products maintained its leading position in the core European market despite a weak economic trend. The main factor responsible for that was our technological leadership, whether in the area of assembly and handling equipment or filling stations dispensing vital operating materials (oil, fuel, air-conditioning refrigerant, etc.) or testing technology for vehicle final inspection. We are consistently intensifying our activities in China. This market already accounted for 20 % of our sales of Final Assembly Products in 2003. We are also going to expand our market position further in North America; the restructuring of the US company Dürr Production Systems is under way. Demand was strong again in 2003 for products with a high degree of automation. A good example is our so-called “marriage station” for the joining of power trains and car bodies. Our innovative robot solution for automatic mounting of windshields and windows also met with a positive response. We expanded our range of products for electronic testing of vehicles by introducing the x-tronic product family. The concept allows numerous electronic tests to be moved up – from a centralized station at the end of line to individual assembly stages. Possible errors can thus be identified and rectified earlier. We see good application prospects for x-tronic, since more and more vehicle functions are becoming electronically controlled. The new automatic guided vehicle system (AGV) from Dürr offers more flexibility in final assembly operations. We presented a new method that makes chassis tuning possible earlier in the assembly line rather than at the end of line. The advantages are greater flexibility in assembly planning, better utilization of tuning robots, and lower engineering expenditure at the end of line. Further growth in conveyor systems for final assembly The Automation and Conveyor Techniques product line contributed substantially to increased sales in Final Assembly Systems. This is due, on the one hand, to extensive intragroup deliveries of conveyor systems to the Paint Systems business unit, mainly for turnkey paint shops in the USA. On the other hand, we also achieved further growth as a supplier of conveyor systems for vehicle final assembly. An important factor for that was our improved competitiveness resulting from cost savings. Moreover, we registered good demand for product innovations, with which we further rounded off our range of conveyor systems for final assembly. That includes, for example, our automatic guided vehicle system (AGV). It is equipped with MOVITRANS, our contactfree power and data transfer system, and therefore does not need an on-board battery or a guide rail with sliding contacts. This allows greater flexibility in operational routing and significantly improved availability. The AGV with MOVITRANS is used, above all, in pre-assembly of the power train and at the marriage stations. Final Assembly Systems business unit 29 We achieved a particular success in China by obtaining an order to supply the conveyor systems for both the paint shop and final assembly section of a new plant being built by Shanghai General Motors (SGM). We are utilizing the Paint Systems business unit’s existing infrastructure as the basis for further expansion of our conveyor systems business in China. We also intend to increase locally based engineering and procurement activities in particular. In the area of body-in-white conveyor systems, we continued the good trend of the previous years thanks primarily to several orders received in the USA. Factory planning: Product range enlarged We enlarged our range of products in the area of factory planning in 2003. Besides planning final assembly lines and testing centers for vehicle development, we also increased our offering of concepts for the production periphery, including logistics, traffic areas, and plant infrastructure. At the same time, we made our internal processes more efficient by introducing a less complex organizational structure. Final Assembly Systems Product lines Assembly Turn Key Turnkey final assembly plants including project management Final Assembly Products Handling and assembly equipment, filling systems, and testing equipment for final vehicle inspection Automation and Conveyor Techniques Conveyor systems for body and paint shops as well as final assembly in automobile production DSEngineering Planning of final assembly plants and testing centers for vehicle and component development Services business unit Global presence, technical expertise, and specialization in the automotive industry are the factors contributing to the success of the Services business unit. Another competitive advantage is our broad range of services. It extends from cleaning, maintaining, and repairing production equipment to logistics and facility management to fleet management and pay-on-production models. We are thus benefiting from the outsourcing trend in the automotive industry. 33 Services business unit Services Prerequisites created for more growth Excluding exchange rate effects: Significant sales growth New business areas expanded further Market success in China 2003 Changes 2002 2001 Amounts in € m Total sales 146.5 1.8 % 143.9 134.0 Total incoming orders 146.5 2.4 % 143.1 134.3 EBITDA Employees at year’s end 10.3 4,499 5.3 % 11.2 10.8 4,272 3,727 The Services business unit – represented by the US-based Premier Group acquired in 1999 – increased its total sales again in 2003. However, Services was particularly affected by the devaluation of the US dollar, since the business unit generates a considerable part of its sales in the USA. At the preceding year’s exchange rates, its total sales would have increased by 19 % instead of by 1.8 % There are good prospects for future growth in the services business. To enable themselves to focus on their core competencies, automobile manufacturers and their suppliers are increasingly outsourcing tasks in all areas of production to highly efficient service partners like Premier. They thus obtain advantages such as lower costs and higher quality. For the Dürr Group, expanding the service business importantly contributes to at least partly offsetting ordering cycles in the plant engineering sector. Moreover, the experience that Premier gathers during operation of production facilities helps us in the technical improvement of our products. Range of services widened To take advantage of existing market opportunities, we systematically expanded our range of services in 2003. That applies primarily to the mature European and North American automobile markets, where Premier is strongly pursuing the strategy of providing innovative business models and technically sophisticated services. That differentiates us from smaller, local suppliers and at the same time supplements the core business of equipment cleaning, which is characterized by growing price pressure. 34 A promising business area that we will expand further in the coming years is the management of transport equipment used by automobile manufacturers and their suppliers in their factories. We achieved an important success in this area in 2003. We entered a contract with a major automotive industry supplier that ensures us preferred status worldwide in the award of service contracts for the management of forklifts, lift trucks, and other transport equipment. In that connection, we take over coordination of vehicle leasing and maintenance as well as management of spare parts. Premier is also increasingly gaining strong status as a technical service provider in the area of maintaining and repairing production equipment. In Poland, where we have greatly expanded our position in recent years, we have received, for example, a demanding order for the maintenance of robots used in bodyin-white production. We have further intensified our consulting activities, especially in North America. The Premier Tech consulting program – under which we advise customers on issues related to plant and equipment maintenance – is an important element here. Services growth market: The automotive industry is outsourcing more and more production-related services. Services Product lines Manufacturing Support Services Technical services in the factories of automobile manufacturers and their suppliers Pay on production Pay-on-production models for automobile manufacturers and their suppliers Wheel fitting is another area in which we are registering growing demand. In Great Britain, which is now the most important Western European market for the Services business unit, we have invested for example in a new system for fitting and balancing complete wheels in the framework of an existing pay-on-production model. It makes significant capacity increases possible and is an important foundation for long-term collaboration with our customer. With our expanded range of services, we are in a position to offer comprehensive service packages in addition to individual services. That considerably improves our initial position when contracts are awarded. In our home market of North America, we are using the additional services to reinforce and expand our leading position. On the one hand, we are putting existing customer relationships on a broader basis, beyond that of plant and equipment cleaning. On the other hand, we are moving forward in the acquisition of new customers. In Europe, we will intensify our efforts to cultivate the market, with the aim of further increasing our market shares. In addition to Great Britain, where we already occupy the leading position, Germany and France are at the forefront in that connection. Services business unit 35 Asia and South America: Market cultivation intensified We successfully intensified our efforts to cultivate markets in South America and the emerging automobile markets of Asia in 2003. Equipment cleaning was the mainstay of our growth there. In these low-cost manufacturing markets of the automotive industry, our consistent orientation to quality gives us a competitive edge. Compared with local competitors, we often have better-trained employees who reliably meet the high international quality standards of manufacturers and their suppliers. We increased our share of the growing Chinese market. An important step in that process was a multiple-year contract for equipment cleaning in a new automobile paint shop. By founding a company in Thailand, Premier has created a platform to cultivate the Southeast Asian market. We expect increasing market volume in this region resulting from international automobile groups locating operations there. We also continued the good development of 2002 in Mexico. Among the most important new contracts is one involving a pay-on-production model for an automotive supplier, in which we have completely taken over operation of a paint shop for vehicle trim parts. Ecoclean business unit To prevent engine and transmission failures, the individual parts must be completely cleaned prior to assembly – preferably with Dürr Ecoclean machines. Our high-tech systems for pre-cleaning, intermediate cleaning, and final cleaning during the production process are leading the way in quality assurance for automobile manufacturers and their suppliers. And that has made us the market and technology leader in this area. 39 Ecoclean business unit Ecoclean Leadership position maintained in a difficult market environment Reduced capital spending in the automotive industry Cost-cutting measures implemented Development of new markets accelerated 2003 Changes 2002 2001 Amounts in € m Total sales 215.5 – 2.9 % 221.9 277.3 Total incoming orders 176.9 – 25.3 % 236.7 243.2 15.0 22.2 EBITDA 10.1 EBITDA before restructuring expenses 11.6 Employees at year’s end 932 – 13.6 % 15.0 22.2 1,079 1,084 In the Ecoclean business unit, the continuing weakness of economic development found expression in fiscal 2003 in declines of total new orders and total sales. Customers from the automotive industry, including especially those in the United States, have postponed planned capital expenditures in the near term. However, in light of the dynamic evolution of engine and transmission technology, we expect demand in Europe and the USA to increase moderately in the second half of the year. The reason is that automobile manufacturers need high-performance systems for parts cleaning, coolant recycling, and workpiece transport and handling if they want to produce new generations of engines and transmissions efficiently and to a high standard of quality. Strengthening our profitability We reacted to the weak market and declining earnings by implementing additional measures to improve profitability. Major projects in the framework of the earnings enhancement program included reducing materials costs and placing more manufacturing orders with low-cost suppliers in Eastern Europe. We also improved the coordination of manufacturing activities at our Monschau (Germany), Loué (France), and Barcelona (Spain) sites, which allowed us to reduce capacities in Barcelona. We also trimmed capacities in North America in an effort to adapt our cost structure to the difficult market situation there. We also continued to differentiate our Ecoclean product range: In addition to our sophisticated high-end systems, we also increasingly provide simpler, less expensive machines. This gives us pricing leverage on top of our technological edge, both of which help us succeed on the market. Intense competitive pressures and the emergence of a growing number of smaller suppliers with aggressive pricing strategies have made technology and pricing crucial factors for maintaining our leadership position on the market. 40 Focusing on growth markets Focusing on growth-driven manufacturing markets in the automotive industry is another way we are working to secure our market position over the long term. For instance, by establishing a sales and service office in China, we have laid the foundations for further developing the market there. The new unit is off to a promising start with a large order from a Chinese automotive joint venture. Further developing crossover concepts and deburring technology Once again in 2003, we concentrated our innovative efforts on developing crossover concepts that unite cleaning, coolant recycling, and workpiece handling in a single system. Such compact systems offer our customers not only reduced operating expenses and investment costs but also greater flexibility in planning their production lines. We also introduced an innovative system for deburring workpieces mechanically. The system uses a robot, which passes each workpiece to a series of deburring tools that are set to precisely match the workpiece’s geometry. The advantages of the process are clear – precision, effectiveness, and lower costs. Major orders from the automotive industry In the past fiscal year, Dürr Ecoclean once again won by far the largest share of the major orders placed by the automotive industry for cleaning systems. An important factor behind this success was our special expertise in handling complex projects in every automobile manufacturing region of the world. We filed extensive orders for General Motors at its US site in Ypsilanti as well as for Volkswagen in Mexico and Audi in Hungary. Our innovative cleaning and coolant recycling system, XINC, was in high demand. Ecoclean systems make maximum precision possible in cleaning and deburring workpieces. Automation technology and coolant recycling held their own despite a weak US market Although weak demand in the core US market affected business development for the Automation product line, we were still able to maintain our leadership position. A major contribution came from two extensive orders placed by a US automobile manufacturer to whom we supplied the conveyor systems for linking machining centers in the production of cylinder heads. We experienced declines in coolant recycling business in North America, but our business development was positive in Germany and in the newly developed Chinese market. We reacted to the continued decline in market volume in Great Britain by closing Henry Filters (Europe) Ltd. Ecoclean business unit 41 Internationalization of our non-automotive business The Cleaning Industrial product line, which primarily delivers to automotive suppliers and machinery builders, kept sales stable despite the weak economy. Demand was down in Germany, the line’s principal market, but we were able to offset this with increased market development abroad. For example, we had first-time orders from India, Israel, and Turkey. We also strengthened our position in the key North American market. In product development, we further optimized our technologies for hydrocarbonbased cleaning and improved the cost-performance ratio of our systems. Dürr Ecoclean received Bosch’s “Supplier Award” for the second year running, in fiscal 2003. With this award, the automobile component supplier recognized top quality, flexibility, and reliability in the delivery of injection-valve cleaning systems. Ecoclean Product lines Cleaning Automotive Cleaning technology for the production of power train components for the automotive industry Cleaning Industrial Cleaning technology for automotive suppliers and other industrial companies Coolant Filtration Coolant recycling systems Automation Automation systems for workpiece transport and handling Measuring Systems business unit Measuring of static and dynamic forces is the Measuring Systems business unit’s core area of expertise. Whether for test systems used in vehicle development, balancing and diagnostics systems, or measuring and process technology, our innovating power, customer orientation and our global presence place us among the top companies in the world in all three areas. 45 Measuring Systems business unit Measuring Systems Additional measures taken to improve earnings Closing pre-manufacturing operation enhances competitiveness Continued growth in Asia High-tech innovations in measuring technology 2003 Changes 2002 2001 Amounts in € m Total sales 364.9 – 5.4 % 385.9 428.9 Total incoming orders 369.7 – 3.0 % 381.2 411.3 EBITDA – 16.2 10.4 17.4 EBITDA before restructuring expenses Employees at year’s end 1.6 2,861 – 6.1 % 10.4 17.4 3,046 3,224 Business development in the Measuring Systems business unit was characterized by an unsatisfactory demand in North America and Europe, which further increased price pressure. We therefore resolutely pushed ahead with measures aimed at improving our cost position. After our fiscal 2002 restructuring effort, which considerably improved the profitability of the Measuring and Process Systems and the Balancing and Diagnostic Systems product lines, we transferred our focus to the other two product lines: Pre-Manufacturing Services A key factor for long-term cost reduction is the October 2003 decision by the management of Carl Schenck AG to close its loss-making pre-manufacturing operation in Darmstadt, Germany. This step will improve the business unit’s competitiveness considerably. Rather than producing parts and components unprofitably internally, Measuring Systems can now work increasingly with less expensive suppliers. The expense of € 18.4 million required for closing the operation was a heavy burden on 2003 earnings, and will pay for itself within two years. Around 350 jobs will be cut before the end of 2004 as a result of the measure. Development Test Systems (Schenck Pegasus) In this product line, our main focus was on improving project management and order processing to safeguard order-related margins. Parallel to this, we introduced a process-oriented organizational structure and we cut around 70 jobs in Darmstadt. In the business unit as a whole, we continued to modularize our products. We also improved international cooperation within the product lines – in both manufacturing and product development, where we established relevant centers of competence covering all regions of the world. 46 Continued growth in Asia In Asia, the Measuring Systems business unit continued its growth of the previous years. Particularly in China, the dynamic development of new production sites resulted in increasing demand. Our strong presence in Asia is an important basis for our successful business there. In addition to our sales and marketing capability, we also have extensive manufacturing capacities in this region, which gives us production cost advantages for our Asian customers as well as for the European and American markets. Development Test Systems: Technical and regional position improved Despite an unsatisfactory business trend, the Development Test Systems product line (Schenck Pegasus) improved its regional and technical position among the leading suppliers of testing systems for automobile development. The newly established joint venture Schenck-TKS Test Systems has improved our access to the Japanese automotive industry considerably. The companies participating in the joint venture are Schenck Pegasus GmbH, testing systems specialist Tokyo Koki Seizosho Ltd., and Horiba Ltd., the market leader in emissions testing systems. Measuring Systems We received a major order from the USA for the supply of two test stands to the EPA (Environmental Protection Agency), which will be used to test diesel truck engines under various conditions. The decisive factor for the customer was the extremely high level of measuring accuracy provided by the system, which is equipped with the STARS software platform. The test results will in part be used in definition of new regulations on permissible levels of diesel engine emissions in the USA. Product lines Development Test Systems (Schenck Pegasus) Engine, power train, vehicle, exhaust, and brake testing systems as well as wind tunnel scales for automobile We proved our innovating power by launching a high-tech testing system used to minimize the noise emission of new transmission models. The heart of the system is a computer-controlled asynchronous machine that perfectly simulates the pulsating torque of a combustion engine and the acceleration of the crankshaft. Transmission noise can then be measured more accurately without interference from engine noise. In addition, replacing the original engine with an electric motor has many advantages for test set-up and execution. development Balancing and Diagnostic Systems: Range of services expanded Balancing and Diagnostic Systems (Schenck RoTec) Balancing and diagnostic systems for rotating and oscillating components Measuring and Process Systems (Schenck Process) Systems and components for weighing, feeding, automation, and screening in industrial processes Pre-Manufacturing Services Manufacture of mechatronic parts and components, primarily for internal use The Balancing and Diagnostic Systems product line (Schenck RoTec) generates around 60 % of its sales in the automotive industry. The rest comes from the machinery and aerospace sectors as well as the power stations and electrical engineering industries. In fiscal 2003, we maintained our leading position in balancing and diagnostic systems worldwide despite difficult market conditions. A major contribution came from the expansion of our service business. For example, we broadened the range of consulting services we offer – whether for product development, production planning, or manufacturing plant optimization – as well as our range of training, leasing, and maintenance services. We are also developing more local centers where we balance workpieces for our customers. Measuring Systems business unit 47 We are systematically adding more and more functions to our balancing machines. For example, in the wheels and tires business area, we delivered the first fully automated line that not only assembles, inflates, and balances automobile wheels, but also installs the equalizing weights. This cuts production time, reduces unit costs, and ensures maximum quality in measuring and execution. Measuring and Process Systems: Global network expanded Our Measuring and Process Systems product line (Schenck Process) is the only global, single-source supplier of systems and components for weighing, feeding, screening, and automation in industrial processes. We are among the top three suppliers in all of these fields. Our customers are primarily from the cement, steel, mining, chemical, plastics, and logistics industries. Business development in 2003 was satisfactory overall, but the Australian and Chinese markets saw the strongest growth. The largest single order of the year came from China, where we supplied a mining company with a modular coal washing plant that reduces the hazardous substances in the coal and thus makes it suitable for global markets. Balancing systems from the Measuring Systems business unit are primarily used by the automotive industry, for example, in the quality control of installationready engines. In an effort to further strengthen our market position in China, we established Schenck Mineral System Co. Ltd., which manufactures processing equipment for the mining industry. In Colombia, too, a new company – Schenck Americas S.A. – started up operations in 2003 with the aim of intensifying market development in Central and South America. The most important innovation in weighing technology in 2003 was the DISOBOX – an “intelligent” analog digital converter that can convert even the smallest analog measuring signals directly into a digital stream of data. This means weight and load information can be transferred simply and reliably, and processed more easily. 2003 at a glance April January July introduced A very special birthday Change in the On April 10, the Dürr Board On July 16, Heinz Dürr celebrates top management of Management presents his 70th birthday together with On January 1, the comprehensive the staff at our Stuttgart head- Stephan Rojahn becomes earnings enhancement quarters. As the high point of the Chairman of Dürr AG’s Board program at the company’s festivities, the staff brass band is of Management. financial press conference. accompanied by “HD” on piano. March May Largest order in the Fourteenth regular annual company’s history shareholders’ meeting Dürr gets the nod from General On May 28, more than 500 Dürr Motors to build three large paint shareholders were informed about shops in North America. the facts and figures and the goals and prospects of their company in Stuttgart. September September November President of the Federal Republic Start of operation in Graz Kay Bönisch on board of Germany Johannes Rau Dürr completes the assembly On November 1, gathers information about Asia’s line for the new BMW X3 at Kay Bönisch joins top growth market at Schenck’s Magna Steyr Fahrzeugtechnik’s the Dürr Board of subsidiary in Shanghai. plant in Graz, Austria. Management. High-level visit in China September October November Opening ceremony in Mulhouse Closing of Schenck’s Robot milestone At its plant in Mulhouse, France, pre-manufacturing operation On November 20, Dürr celebrates Peugeot Citroën opens one of Carl Schenck AG’s Board of delivering its 1,000th painting robot the most innovative and largest Management decides to close in Bietigheim-Bissingen, Germany. paint shops, built by Dürr. its loss-making pre-manufac- The guest of honor is Annette Schavan, turing operation in Darmstadt, Minister for Youth, Education and Germany. A benefits program Sport of the German Federal State of is set up for 350 employees. Baden-Württemberg. Consolidated management report Economic environment Improvement at year’s end The development of the global economy fell short of expectations, particularly in the first half of 2003. The Iraq crisis and the SARS outbreak had a persistent negative impact on the investment climate. Capacity utilization of companies stagnated at a low level while the unemployment rate held steady at a high level. In the euro area, the strong euro also pulled down exports. Expansive economic policy in the USA, Great Britain, and Japan boosted production there considerably at the end of the year. Rising share prices also gave companies greater financial latitude. Worldwide gross domestic product (GDP) increased by 3.7 % in 2003. In the industrialized nations, the growth rate was 2.2 %. The US economy led the way with 3.1 %. While growth in the European Union (including the acceding EU states*) slowed from 1.2 % in 2002 to 0.9 % in 2003, Germany slipped into a shallow recession with – 0.1% growth. China experienced continued strong growth of 9.1 % while Eastern Asia lost some ground, growing just 3.8 %. Japan’s zero-interest-rate policy and corporate restructuring efforts that are now largely complete have put the country’s economy back on track for growth. Japan’s GDP grew 2.7 % in 2003. Regionally varied demand for automobiles Around 56 million automobiles were sold worldwide in 2003. Uncertainty among consumers due to the unstable geopolitical situation and the weak economy resulted in a second consecutive year of declining sales in the USA and Europe. As a result, many automobile manufacturers adjusted their production capacities by reducing staff and/or working hours and cutting their capital spending budgets. * Acceding EU member states as of May 1, 2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia Consolidated management report 51 In the USA, the world’s largest automobile market, sales dropped by 1 % from the previous year, to 16.6 million vehicles. The trend toward light trucks continued, and this vehicle class now accounts for more than 50 % of the passenger vehicle segment. Market development was marked by restraint on the part of consumers and continued discounts and financing offers on the part of automakers. An end to the price battle among manufacturers is currently not in sight. In South America, the unfavorable economic situation resulted in a significant drop in demand. In Brazil, the principle market for automakers, demand was down 3 %. Capacity utilization also remained low. In Western Europe, sales fell to 14.2 million vehicles in 2003. Despite the roll-out of new mass-market models, sales recovered only slightly in the second half of the year. The diesel boom continued, and the share of diesel-fueled vehicles among all new vehicle registrations has tripled since 1990. In Germany, car sales stagnated at 3.2 million units. The trend in Eastern Europe was mixed, but on the whole, sales rose by 6 % to 2.2 million. The Eastern Asian markets continued to grow in importance in 2003. China led the way once again, with automobile sales there surging 74 % on their 2002 levels, to just under 2.0 million vehicles in 2003. With its high growth rates, China is becoming a major growth engine for the entire region and for the global automobile industry. But the Chinese market has also seen a dramatic dip in prices as automobile manufacturers have tried to secure market shares through aggressive pricing policies. At 4.5 million units, vehicle sales in Japan held steady at the previous year’s level. Strategy The Dürr Group is one of the world’s leading suppliers of production systems and manufacturing support services for the automotive industry. Around 85 % of Group sales come from the automotive sector. Automobile manufacturers and their suppliers face intense international competition. In an effort to meet the expectations of as many different customer groups as possible, they are constantly increasing the variety of models they produce. At the same time, model life cycles are becoming shorter and customers’ quality standards are increasing. Price pressures and environmental requirements will also continue to rise in the future. In addition, automobile manufacturers are outsourcing more and more stages of their value chains. Therefore, suppliers and equipment manufacturers still have potential for growth despite the automotive market's stagnation worldwide. Dürr is utilizing this potential. Over the past years, we have systematically expanded our planning, systems, and services offerings and adapted them to our customers’ needs. Dürr provides cutting-edge solutions for the key stages of the automotive value chain. Our products and services are at work in the painting and final assembly of vehicles, modules, and components. We also provide testing systems for vehicle development and quality assurance as well as measuring systems and balancing systems for the manufacture of rotating parts. We assist our customers in the manufacture of engine and transmission components with our innovative cleaning and filtration technology. 52 Our technologies are key prerequisites for more flexible and cost-effective manufacturing. Dürr products and systems solutions allow manufacturers to increase automation and productivity as well as improving quality, and they ensure the highest degree of environmental compatibility – at every stage of a production line’s life. That’s what Dürr’s life cycle concept is all about. It covers everything from planning automotive plants and production processes to supplying individual products and complete systems. It also includes technical modernization. In addition, we provide services for operating installations in the areas of production, spare parts and customer service businesses as well as customized pay-on-production models. As a globally positioned group of companies, Dürr can provide its customers with expert service at all of their automotive manufacturing sites around the world. Besides the established European and American markets, we are increasingly focusing our attention on the regions in Asia that show the greatest potential for growth, particularly China. Our international presence and our broad range of products and services allow us to smooth out many of the cyclical fluctuations in demand among individual regions, customers, and product lines. On the whole, we are well positioned to grow profitably as a key partner to the automotive industry. Business development Incoming orders up once again Despite a continued weak economy, consolidated incoming orders for the Dürr Group in 2003 were € 2,356.2 million, surpassing the previous year’s already high figure by € 9.5 million. Adjusted for exchange rate effects, the 2003 figure even exceeded the previous year’s figure by € 236.7 million or 10 %. In light of the fact that market volume has been shrinking for years, these figures underscore our outstanding market position overall. The very high level of incoming orders resulted primarily from a large-scale painting systems order from General Motors, which the Paint Systems and Final Assembly Systems business units will complete in North America by the end of 2006. The project is the largest individual order in Dürr's history. For more information about this order, please refer to p. 21. The Paint Systems business unit registered incoming orders amounting to € 1,400.1 million in 2003, thus surpassing the previous year’s figure once again (€ 1,286.8 million). This increase is largely attributable to the large order from General Motors. Total incoming orders for the Final Assembly Systems business unit amounted to € 405.4 million. This falls short of the previous year’s very high figure of € 476.2 million, which was due to large-scale final assembly projects. Despite the decline in new orders, Final Assembly Systems was still able to gain new market shares as a provider All amounts are in euros. The terms “previous year” or “previous year’s figure” always refer to fiscal 2002. 53 Consolidated management report of vehicle final assembly systems. For the first time, Dürr received an order for final assembly conveyor systems in China. The Services business unit was hit especially hard by the devaluation of the US dollar since it does a large share of its business in the USA. Nevertheless, at € 146.5 million, total incoming orders were still slightly better than the already high previous year’s figure (€ 143.1 million). Adjusted for currency fluctuations, the figure was 19 % better. Services particularly attracted new orders from the United States, China, Great Britain, the Netherlands, and Eastern Europe. Total incoming orders in the Ecoclean business unit were down to € 176.9 million (previous year: € 236.7 million). This was primarily a consequence of continued lower demand for industrial cleaning technology in the United States. We achieved market successes with our innovative crossover concept, XINC, which combines cleaning and coolant recycling systems and thus reduces capital investment and operating costs. Paint Systems was able to increase its total new orders and total sales in fiscal 2003. At € 369.7 million, total incoming orders in the Measuring Systems business unit fell slightly short of the previous year’s figure (€ 381.2 million). Adjusted for exchange rate fluctuations, new orders were at the same level as in 2002 despite the weak market environment. We posted positive development in China and Australia, which at least partially offset the sluggish business in North America. Total incoming orders by business unit in 2003 Consolidated incoming orders by sales region in 2003 Total: € 2,498.6 million Total: 2,356.2 million Services € 146.5 m (5.9 %) Asia/Africa/Australia € 321.5 m (13.7 %) Ecoclean € 176.9 m (7.1 %) South America € 26.2 m (1.1 %) Measuring Systems € 369.7 m (14.8 %) North/Central America € 1,044.5 m (44.3 %) Final Assembly Systems € 405.4 m (16.2 %) Paint Systems € 1,400.1 m (56.0 %) Total incoming orders: new orders received by business unit, including intragroup orders from other business units. Germany € 429 m (18.2 %) Other EU member states € 421.3 m (17.9 %) Other European countries € 113.7 m (4.8 %) 54 Sales above the previous year The Dürr Group closed fiscal 2003 with consolidated sales of € 2,264.5 million (previous year: € 2,082.1 million). Adjusted for currency effects, sales were up to € 2,437.1 million, which would mean an increase of € 355.0 million or 17 % over the previous year. In light of the difficult market environment, we can consider the high level of sales a particular success. At € 1,243.2 million, total sales in the Paint Systems business unit outperformed the already very high previous year’s figure of € 1,054.3 million. This is largely attributable to a strong orders inflow from the United States in fiscal 2002 and 2003. The Final Assembly Systems business unit increased its total sales considerably, to € 436.6 million (previous year: € 404.7 million). On the one hand, this success was due to growth in Final Assembly Systems business. On the other hand, we were also able to increase conveyor systems sales, for instance through internal deliveries to the Paint Systems business unit. Despite the weak US dollar, total sales in the Services business unit rose slightly to € 146.5 million (previous year: € 143.9 million). Adjusted for currency fluctuations, the total sales figure was 19 % better than the previous year. Total sales in the Ecoclean business unit were down slightly, to € 215.6 million (previous year: € 221.9 million). The primary reason for this decline was weak demand in the United States. The Measuring Systems business unit billed € 364.9 million, down from the previous year’s € 385.9 million. This drop was primarily due to unsatisfactory business development in North America and Europe, which we could not offset despite the positive trend in China and Australia. Total sales by business unit in 2003 Consolidated sales by sales region in 2003 Total: € 2,406.7 million Total: € 2,264.5 million Services € 146.5 m (6.1 %) Asia/Africa/Australia € 287.5 m (12.7 %) Ecoclean € 215.5 m (9.0 %) South America € 29.3 m (1.3 %) Measuring Systems € 364.9 m (15.1 %) North/Central America € 763.5 m (33.7 %) Final Assembly Systems € 436.6 m (18.1 %) Paint Systems € 1,243.2 m (51.7 %) Total sales: sales by business unit, including intragroup sales to other business units. Germany € 571.1 m (25.2 %) Other EU member states € 520.5 m (23.0 %) Other European countries € 92.6 m (4.1 %) 55 Consolidated management report Orders on hand remain high As of December 31, 2003, Dürr had a very large consolidated catalog of orders on hand, which amounted to € 1,386.6 million (previous year: € 1,381.4 million). Adjusted for currency fluctuations, the figure was € 1,523.3 million, which represents a 10 % increase over the previous year. Thus, many parts of the Group have a solid level of capacity utilization for fiscal 2004. Total orders on hand by business unit as of December 31, 2003 Total: € 1,494.2 million Services € 66.3 m (4.4 %) Ecoclean € 99.5 m (6.7 %) Measuring Systems € 126.9 m (8.5 %) Final Assembly Systems € 251.5 m (16.8 %) Paint Systems € 950.0 m (63.6 %) Earnings burdened by restructuring expenses and valuation allowances We posted a negative income before income taxes and minority interests (EBT) of € 6.9 million in 2003 (previous year: positive result of € 22.6 million). Besides continued margin pressure and exchange rate effects, which amounted to a € 4.1 million burden on earnings, restructuring expenses of € 25.6 million were primarily responsible for the decline. Before restructuring expenses, income before income taxes was € 18.7 million, which is € 3.9 million less than the fiscal 2002 figure. The € 25.6 million in restructuring expenses are linked to capacity and location adjustments through which we are improving our competitiveness. Of this, € 16.4 million went toward the closure of the Measuring Systems business unit’s pre-manufacturing operation in Darmstadt, Germany (for further information, see p. 45). The remaining € 9.2 million went to the Paint Systems (€ 5.0 million), Measuring Systems (€ 2.7 million), and Ecoclean (€ 1.5 million) business units, where they were used primarily for personnel measures. 56 Fiscal 2003 was also burdened by one-time charges that do not represent restructuring expenses as defined under US-GAAP. As in the previous year, these one-time charges amounted to about € 20 million and were largely for valuation allowances and writedowns in connection with an unconsolidated subsidiary (€ 5.9 million), spending for interest rate hedges that were no longer needed (€ 5.1 million), and inventory writedowns as a result of the closure of the Measuring Systems business unit’s pre-manufacturing operation in Darmstadt, Germany (€ 2.0 million). Earnings before interest expense, taxes, depreciation, and amortization (EBITDA) amounted to € 48.4 million in fiscal 2003. Before restructuring expenses, EBITDA was € 72.7 million (previous year: € 89.1 million). Earnings before interest expense and taxes (EBIT) amounted to € 17.9 million. Before restructuring expenses, EBIT was € 43.5 million (previous year: € 55.1 million). Depreciation fell from € 34.1 million to € 30.5 million as a result of a drop in capital spending over the past years. With scheduled loan repayments and Group-wide working capital management, we were able to reduce our net debt considerably in fiscal 2003. As a result, our net financial expense improved by € 4.7 million to € – 20.5 million (previous year: € – 25.2 million). This primarily includes scheduled interest expenses on loans taken out to finance our acquisitions in the previous years. The net loss for fiscal 2003 was € 31.3 million, following a net income of € 12.0 million in 2002. The loss was due in part to restructuring and one-time expenses but also to a valuation allowance of € 23.0 million on deferred tax assets for loss carryforwards (for further information, please refer to the notes to the consolidated financial statements, p. 87). Earnings per share fell to € – 2.19 (previous year: € 0.84). The Paint Systems business unit increased its income before income taxes to € 27.3 million despite expenses for structural reductions in France (previous year: € 23.3 million). The increase over the previous year was primarily made possible by systematic product standardization and improvements in order handling. Income before income taxes in the Final Assembly Systems business unit was down from € 10.0 million to € 7.4 million. This was primarily due to expenses connected with the further expansion of our Polish subsidiary Dürrpol Sp. z o.o. and to delays in the restructuring of the US company Dürr Production Systems Inc. In the Services business unit, income before income taxes dipped slightly to € 7.1 million (previous year: € 7.5 million). If exchange rates had remained unchanged, this income would have been up by € 0.9 million, or 12 %, from the previous year. At € 6.2 million, the Ecoclean business unit did not match its previous year’s income before income taxes of € 10.4 million. This was due to the weak US market and the resulting heavy pressure on prices as well as the € 1.5 million in restructuring expenses mentioned above. Income before income taxes in the Measuring Systems business unit was down from € – 4.5 million in 2002 to € – 29.0 million in 2003. This is primarily due to high restructuring expenses with which Measuring Systems laid important groundwork for improved competitiveness and profitability in the future. Another reason for the drop was that earnings were burdened by unsatisfactory business and earnings develop- Consolidated management report 57 ment in the Development Test Systems product line. By contrast, the Balancing and Diagnostic Systems and Measuring and Process Systems product lines posted strong positive results. The pretax result for the Corporate Center was € – 25.9 million (previous year: € – 24.1 million). This includes headquarters costs, special projects, and primarily interest expenses associated with strategic acquisitions made. earnings enhancement program in implementation stage Dürr has increased consolidated sales considerably over the past fiscal years as a result of acquisitions. However, earnings development has not kept pace with sales growth. After many years of expansion, our most important task now is to focus all of our energies on improving the Group’s operating profitability. We laid the groundwork for this when we adopted the earnings enhancement program in the spring of 2003. is a Group-wide program that currently comprises more than 200 individual measures aimed at creating the most important conditions for a turnaround in earnings. The program has four main thrusts: Cost reduction In particular, streamlining in our purchasing organization should achieve a lasting reduction in the cost of sales for the Group. The newly defined “Global Sourcing” unit will take on an important control function in this respect. It will push ahead the bundling of purchasing volumes throughout the Group, the use of less expensive procurement markets, and the expansion of online procurement. Another important point for cost reduction is the systematic standardization and harmonization of our products. We will also further reduce our selling and administrative expenses as part of . Translocational task performance will also allow us to slim down some of our structures. Risk reduction We are systematically streamlining our key order-handling processes in order to keep earnings risks in this area to a minimum. Central measures include improving project controlling and staff qualifications and standardizing the project management process throughout the Group. Reduction of net working capital We have intensified our receivables and inventory management in order to improve our liquidity position. Our objective is to achieve a long-term reduction in all areas of net working capital within the Dürr business units. Location and portfolio consolidation Within the scope of , we will discontinue certain activities, tighten up our structures, and utilize synergies by combining locations. An important measure is the closure of the loss-making pre-manufacturing operation in Darmstadt, Germany (Measuring Systems business unit), which was decided in October 2003 by the Board of Management of Carl Schenck AG and will result in a reduction of 350 jobs by the 58 end of 2004. We also closed operations within the Paint Systems (Angoulême, France) and Ecoclean (Warwick, Great Britain) business units. We combined some US locations in the Paint Systems and Measuring Systems business units. Although the main focus of in fiscal 2003 was on defining goals and planning individual projects, we already posted considerable contributions to earnings. The main year of implementation is 2004. will be implemented swiftly and will penetrate deep into all areas of the Group. Earnings enhancement is a top priority for each and every level of management within the Group. Financial position Total assets decreased further As a result of the reduction of fixed and non-fixed assets, total assets were down in fiscal 2003 to € 1,665.8 million (previous year: € 1,790.3 million). Fixed assets were down by € 35.8 million to € 569.1 million, equivalent to 34.2 % of total assets (previous year: 33.8 %). In line with our restrictive capital spending policy, we reduced our capital expenditures to € 16.6 million (previous year: € 29.4 million). Combined with currency effects, this resulted in a decline in property, plant and equip- Asset position Shareholders’ equity 13 % 34 % Fixed assets 62 % Non-fixed assets 4% Accruals 19 % Liabilities 64 % Deferred taxes and prepaid expenses Deferred taxes and deferred income Assets Liabilities and shareholders’ equity 4% December 31, 2003 Shareholders’ equity 15 % 34 % Fixed assets 62 % Non-fixed assets 4% Accruals 17 % Liabilities 65 % Deferred taxes and prepaid expenses Deferred taxes and deferred income Assets Liabilities and shareholders’ equity 3% December 31, 2002 Consolidated management report 59 ment to € 169.2 million (previous year: € 192.0 million). The largest item in fixed assets is still intangible assets, at € 379.1 million or 22.8 % of total assets (previous year: € 390.4 million or 21.8 %). The goodwill included in this figure declined from € 355.5 million to € 346.1 million as a result of currency effects. The impairment test for this goodwill did not require a valuation allowance. Dürr supplies the handling and assembly systems for the installation of complete vehicle modules. Non-fixed assets were down to € 1,037.3 million (previous year: € 1,115.4 million) and represented 62.3 % of total assets, as at the end of 2002. Whereas receivables and other assets, net, at € 772.4 million, were at the same level as the previous year (€ 777.3 million), we reduced inventories, net, by 39.3 % to € 65.1 million (previous year: € 107.3 million). The principal factor here was that we continued to improve inventory management. On the liabilities side, equity was down € 47.1 million from the previous year to € 215.2 million. The decline results from dividends paid for fiscal 2002, currency translations that had no effect on earnings, and the net loss for fiscal 2003. The equity ratio is 12.9 % (previous year: 14.7 %). Accruals totaled € 325.6 million as of December 31, 2003 (previous year: € 310.9 million). Of this, € 95.7 million (previous year: € 99.6 million) are order-specific accruals for post-contract costs, warranties, and anticipated losses on pending transactions. Tax accruals account for € 10.0 million (previous year: € 14.0 million), and pension accruals account for € 53.6 million (previous year: € 53.1 million). As of December 31, 2003, liabilities were reduced by € 96.8 million to € 1,055.7 million. Net cash provided by operating activities positive once again In fiscal 2003, net cash provided by operating activities was € 56.4 million. This is below the previous year's figure (€ 198.7 million), due to unusually high advance payments by customers. Net cash used in investing activities declined, as expected, to € – 29.5 million (previous year: € – 40.4 million). At € – 47.4 million, net cash used in financing activities was considerably less than the previous year’s figure (€ –74.2 million). The Group’s cash and cash equivalents amounted to € 199.9 million (previous year: € 230.7 million). Taking into account a factoring of € 23.8 million, we were able to reduce our net debt below the already low level from the previous year to € 97.0 million by year’s end (previous year: € 123.1 million). Average net debt for 2003 was € 221.5 million. Once again, this was down by around € 100 million from the previous year (€ 333.2 million). 60 Capital expenditures Dürr cut back its capital expenditures to € 16.6 million in 2003 (previous year: € 29.4 million). The Paint Systems business unit invested € 5.8 million (previous year: € 12.0 million). Around € 2 million of this were for remodeling the painting systems development center in Bietigheim-Bissingen, Germany, and another € 2 million went toward consolidating locations in the USA. Capital expenditures by the Final Assembly Systems business unit amounted to € 3.4 million (previous year: € 2.8 million), of which some € 2 million were used for rationalization measures at assembly plants. The Services business unit invested € 2.3 million (previous year: € 4.3 million) in order to enhance its range of technical services. The Ecoclean business unit reported capital expenditures of € 1.3 million (previous year: € 6.1 million). This spending was primarily for replacement items. Capital expenditures in the Measuring Systems business unit amounted to € 3.8 million (previous year: € 4.2 million) that went toward consolidating two locations in the United States and investments for improving the IT infrastructure. Capital expenditures by business unit in 2003 Total: € 16.6 million Ecoclean € 1.3 m (7.8 %) Services € 2.3 m (13.9 %) Final Assembly Systems € 3.4 m (20.5 %) Paint Systems € 5.8 m (34.9 %) Measuring Systems € 3.8 m (22.9 %) Control and profit-and-loss transfer agreements Dürr AG did not sign any additional control or profit-and-loss transfer agreements in 2003. Report on relationships with associated companies In conformity with Sec. 312 of the German Stock Corporation Law, the Board of Management of Dürr AG prepared a report on relationships with associated companies, in which it issued the following concluding declaration: “We declare that under the circumstances known to us at the time when transactions were carried out or a measure was implemented or refrained from, our company received fair and reasonable consideration in each transaction, and was not placed at a disadvantage by implementing or refraining from the measure in question.” Consolidated management report 61 Development and innovation Dürr invested € 33.1 million directly in research and development (R&D) in fiscal 2003 (previous year: € 35.3 million). This represents 1.5 % of the Group’s sales. If we also consider project-related R&D spending that is included under client orders, the R&D ratio is almost 6 % and thus unchanged from the previous year. As of December 31, 2003, Dürr had a total staff of 209 people employed in R&D. In addition, many other employees also work on innovative solutions as part of orderspecific development projects. Our R&D activities are key factors in our ability to continuously improve the products and services portfolio we offer and strengthen our position in the market and among competitors. With innovative technologies, we create incentive for companies to replace or upgrade existing lines, especially in mature markets. In fiscal 2003, we completed major development projects and presented them to our customers. Among these developments was a new generation of paint atomizers that enables paint savings of up to 70 % in the application of metallic paints. Our automatic guided vehicle (AGV), which runs without batteries, strengthens our position as a provider of final assembly systems. The Measuring Systems business unit designed a new system for transmission and drivetrain testing that simulates the conditions created by a combustion engine. This new development allows us to break new ground in noise optimization. For additional information about these and other Dürr innovations, please read the reports from the individual business units (Paint Systems p. 22/23, Final Assembly Systems p. 28, Ecoclean p. 40, Measuring Systems p. 46/47). We achieved a major marketing success with one of our key customers in the USA with our EMOS-SM (Equipment Monitoring and Operating System -System Management) supervisory control systems software. The customer will be the first to use EMOS-SM throughout an entire automotive plant instead of just in individual manufacturing areas. With this product, we have added a solution for controlling entire factories to our range of supervisory control systems. We will continue to pursue intensive R&D work in the future to maintain our position as technological leader. We plan to raise R&D spending in fiscal 2004. A major focus will be on increasing our development of modular factory concepts. We will also continue to promote the consistent use of virtual reality applications. With both of these initiatives, we are taking a proactive approach to fulfilling the key demands of our customers in the automotive industry. 62 Purchasing management Our purchasing volume represents roughly two-thirds of Group sales. Therefore, our purchasing organization plays a key role, particularly for the swift implementation of our earnings enhancement program. The Global Sourcing unit – which coordinates purchasing on an international level – was established and placed under the direct control of the Chairman of the Board of Management in order to strengthen the demand position of the business units and achieve cost savings. This strategy of coordinating the placement of important orders within the individual business units worldwide has paid off, and we will continue to expand it further. In addition, for selected product groups, Dürr has established purchasing teams that work across the different business units to pool purchasing volumes and achieve savings through volume. We will expand this approach to cover additional high-demand goods and services. In fiscal 2003, we also signed additional worldwide framework agreements with efficient suppliers whom we evaluate periodically. In particular, suppliers whose overall performance in terms of quality, costs, and ability to deliver is strong over the long term will be able to expand their business with Dürr. By stepping up our purchasing activities in Asia, Eastern Europe, and South America, we will tap additional potential for cost savings and procurement that is not affected by exchange rate fluctuations. Employees As of December 31, 2003, Dürr employed 12,747 people, around 1% less than in the previous year (12,902). The number of employees in our personnel-intensive Services business unit increased to 4,499 (previous year: 4,272) as a result of new projects. In contrast, the number of people employed in the Group’s engineering units decreased by 4.4 % to 8,248 as of December 31, 2003 (previous year: 8,630). Flexible working hours and a high level of outsourcing allow us to react quickly to fluctuations in capacity utilization. Training and continuing education at a high level Despite a difficult economic environment, we maintained a high number of trainees (257 as of December 31, 2003). This will allow us to continue to recruit qualified young talent from within the company in the future and fulfill our responsibility to society. Our continuing education program has also helped us secure and further increase the already high level of qualification among our personnel. Continuously adapting our education offerings to meet the needs of our workforce and generate the greatest possible benefit is an essential feature of our human resources development efforts. 63 Consolidated management report Staff and university marketing effort continued We successfully continued our cooperation with technical and business universities and disciplines in fiscal 2003. For example, in a practice-oriented project seminar series on the subject of risk management, students of controlling at the University of Stuttgart, Germany, came up with some interesting results for the further development of the Dürr Group’s risk management system. We also promote interest in engineering disciplines among pupils at schools with a natural sciences focus by providing field trips, job-search coaching, and information. “Prevention First” pilot project attracts numerous participants Well prepared: Training In fiscal 2003, we stepped up our activities to promote healthcare among the members of our staff. A large number of our personnel participated in the “Prevention First” pilot project, which was jointly funded by Dürr, health insurance companies, and the participants themselves. Sports medicine specialists were on hand to assist and evaluate the program, which helped us achieve a demonstrable reduction in illness-related absences. has traditionally had a high status at Dürr. Staff by business unit as of December 31, 2003 Staff by region as of December 31, 2003 Total: 12,747 Total: 12,747 Corporate Center 54 (0.4 %) Asia/Africa/Australia 875 (6.9 %) Ecoclean 932 (7.3 %) South America 842 (6.6 %) Final Assembly Systems 1,593 (12.5 %) Paint Systems 2,808 (22.0 %) Services 4,499 (35.3 %) Measuring Systems 2,861 (22.5 %) North/Central America 3,283 (25.7 %) Other European countries 879 (6.9 %) Germany 4,630 (36.3 %) Other EU member states 2,238 (17.6 %) 64 Environmental protection Environmental risks are low overall at Dürr production sites. The principal emphasis is on assembly processes carried out in a way that keeps energy consumption and waste generation low. Almost all of our locations in Germany and the United States use ISO 14001-certified environmental management systems. When selecting our suppliers, we attach great importance to environmental management and sustainability. Environmental standards in automobile production will increase worldwide in the coming years. And that is why we shall focus our product development even more intensely on criteria such as emission reduction and resource conservation. Risk management Dürr views risk management as a central management task and an important part of the management process. Risk management at Dürr is broken down into four steps: risk identification, assessment, control, and monitoring. We have developed suitable tools for each of these steps and will continue to push forward their implementation in fiscal 2004. These tools include a risk management manual, a Dürr-specific risk profile, and a risk structure sheet for each type of risk. Dürr’s controlling and internal control systems also contribute to consistent, effective risk management. There are no apparent risks that might jeopardize the company’s continuing existence. General economic development Besides the overall economic situation, the situation within the automotive industry in particular has an impact on business developments at Dürr. For this reason, we systematically analyze the development of manufacturers and suppliers on a regular basis. This allows us to identify changes in demand at an early stage and take any necessary measures. Competitors Dürr is faced with a variety of competitive situations. Some are oligopolistic while others are highly differentiated and polypolistic. Our actions within each of our business units must match these different competitive structures appropriately. For this, we employ the generally accepted tools. For instance, we use regular benchmarking to compare our position with that of our competitors. Clients and market Dürr is able to recognize changes in the demands of the automotive industry and the resulting risks at an early stage. This is because, as a key supplier, we maintain ongoing, close cooperation with our customers. Project and development partnerships with manufacturers and suppliers, for example, allow us to coordinate our production systems with any new methods or materials being used in automobile design at an early stage. Consolidated management report 65 Order handling and business processes Dürr completes large-scale projects valued in the millions on a regular basis. These projects are characterized by a high degree of technical complexity and long turnaround times. We use appropriate tools to minimize schedule and earnings risks, including project management manuals and risk and opportunity checklists. The progress of large system projects is analyzed on a regular basis by the Board of Management and other senior executives. The most important of Dürr’s key processes are long-term contract manufacturing and product construction. There is also our Services business unit, which is focused exclusively on providing services. Our risk management system also covers support processes in addition to our key processes. The risk management tools we use to control risks in each of our business processes are as diverse as the processes themselves. Suppliers With respect to procurement, technological aspects and the price/performance ratio are of particular importance to Dürr. We depend on reliable, high-quality, cost-effective supply sources. That is why our experts regularly monitor our suppliers’ quality standards and their reliability. In order to reduce procurement risks, we maintain longterm business relationships, especially with preferred suppliers of technically complex components. Currency risks Because Dürr operates worldwide, we must take exchange rate fluctuations into account. For us, the primary risks associated with differences in foreign exchange rates arise when we convert business figures from our foreign subsidiaries into euros (translation risk). The currency risk (transaction risk) from product exports is relatively low since a large portion of our added value is generated locally in the countries where the orders are fullfilled. We also use financial derivatives (see the notes to the consolidated financial statements, p. 102/3) and centralized foreign currency management to protect ourselves from currency risks. We hedge major goods and services transactions with forward exchange contracts, and smaller orders through macro-hedging. Information technology Information technology is of key importance to Dürr’s business processes. We use the latest security solutions to protect our data and infrastructure against intrusion. We have also continuously increased the availability and fail-safeness of our server and storage systems for business-critical applications. Legal dispute with Alstom Integral parts of the acquisition of the Air Industries Group from Alstom in fiscal 2000 were an equity guarantee for the consolidated Group and a margin guarantee for selected orders. The two parties involved – Alstom S.A. on the one hand, and Dürr AG and Dürr Systems GmbH on the other – disagree on the actual amounts of these 66 guarantees. Since May 2001, arbitration proceedings before the International Chamber of Commerce (ICC) in Paris have been pending. No final decision has yet been issued. A decision against us might have an adverse impact on future earnings. Financing We financed acquisitions in previous years with long-term loans. The terms of these loans require us to maintain certain balance sheet and earnings ratios. If these ratios change, the participating lenders may modify the associated terms of the loans. We use interest swaps to control interest rate risk. Events subsequent to the reporting date New CFO since February 1, 2004 Kay Bönisch, who has been a regular member of the Board of Management of Dürr AG since November 1, 2003, took over responsibility for finance and controlling, tax matters, legal affairs, human resources, and risk management on February 1, 2004. In addition, the Supervisory Board appointed Mr. Bönisch Labor Director of Dürr AG on February 19, 2004. In all of the above-mentioned functions, Mr. Bönisch succeeds Dr. Wolfgang Baur, who left the Dürr Group on January 31, 2004, to pursue a new professional function. Organizational changes in Final Assembly Systems As of the start of 2004, we introduced a leaner organizational structure in the Final Assembly Systems business unit. Final Assembly Systems now comprises two product lines: Final Assembly Products and Automation and Conveyor Techniques. We have reassigned the activities of the former Assembly Turn Key (systems for final assembly) and DSEngineering (factory planning) product lines to the Automation and Conveyor Techniques product line. These activities will be continued to the full extent under their new product line. The organizational change simplifies internal reporting and control of the business unit. Squeeze-out initiated at Carl Schenck AG In its February 19, 2004, meeting, the Supervisory Board of Dürr AG approved the initiation of a process that will force the minority shareholders of Carl Schenck AG to sell their shares to the majority shareholder for cash. Dürr AG currently holds 98.7 % of the shares of Carl Schenck AG. The “squeeze-out” (provided for by German corporate law) will make the organization and management of the Dürr Group more consistent. Thus, it can reduce the cost of Group structures and double reporting. It will also eliminate the costs to Carl Schenck AG of fulfilling disclosure requirements, listing, and a large part of the expenses for annual general meetings. 67 Consolidated management report Outlook Economic recovery in 2004 will be moderate at best The geopolitical uncertainties that have curbed the economy have not yet been fully overcome. Nevertheless, we can see a slow relaxation of business and consumer sentiment in the industrialized nations. Monetary policies also remain highly expansive. However, capacity utilization and employment rates have yet to increase significantly. Therefore, at best, it seems only a moderate economic recovery will be possible in the second half of the year. For the global economy, a growth rate of 4.4 % is expected for 2004; the economies of the industrialized nations are expected to grow by 3.2 %. The forecast for the USA is 4.5 %. This will be due primarily to extensive tax cuts, low inflation, and rising defense spending. The US Federal Reserve is likely to raise the extremely low interest rates over the course of the year. The European Union (including acceding states) is likely to be slow in overcoming the current stagnation phase, with growth forecast at just 1.9 %, as the strong euro and high deficits in many national budgets slow down growth. We expect interest rates to remain low in 2004. For Germany, sluggish growth of 1.6 % is forecast. However, domestic demand will suffer from consumer uncertainties about future political reforms. For China, GDP growth is expected to be 8.5 % while Eastern Asia could return to its previous growth rate of 5.0 % if there is a sharp increase in production. Against the background of increasing domestic demand, higher capital spending on the part of companies, and a stabilized labor market, Japan’s economy could grow by 2.8 %. GDP growth 2004* 2003 2002 Germany 1.6 – 0.1 0.2 EU** 1.9 0.9 1.2 USA 4.5 3.1 2.4 Eastern Asia 5.0 3.8 4.5 China 8.5 9.1 8.2 Japan 2.8 2.7 0.1 In % ** Forecast ** Including acceding states Source: German Institute for Economic Research (DIW)/Institute for World Economics 68 A consistent recovery of the automotive sector is not expected in 2004. Therefore, we expect the conservative spending trend in the automotive industry to continue. At best, manufacturers and suppliers may see some potential for growth from a certain need for replacements resulting from consumers’ purchasing reluctance in recent years. In China, the tremendous growth in production will continue during the next two to three years. However, there is a risk that excess capacities will develop that can no longer be absorbed by the domestic market. This would lead to increased price pressure. Paint Systems The incoming orders and sales figures for the Paint Systems business unit experienced a higher-than-average increase in fiscal 2003 following a large system order from General Motors. For fiscal 2004, we expect both of these figures to return to their normal levels. Nevertheless, we expect to see increases in earnings. The personnel capacity adjustments we made in fiscal 2003 should contribute to this increase in profitability. In addition, we shall reduce the large number of our leased employees. Final Assembly Systems The strategy of the Final Assembly Systems business unit is focused on building on profitability, growth, and market leadership. The challenges faced by the business unit vary by market and region. For fiscal 2004, we anticipate an increase in incoming orders and a slightly lower sales figure due to exchange rate effects. We shall continue to improve our cost position through the earnings enhancement program. Therefore, we expect earnings to be higher than in fiscal 2003, although we can also assume that more intense competition will put increased pressure on margins. Services Dürr offers a complete range The Services business unit will continue to push ahead with the development of new lines of business in the future. This will put us in a position to benefit from the continuing outsourcing trend in the automotive industry. We shall increase our presence in Asia, Eastern Europe, and Mexico in particular, since manufacturers and suppliers in these less expensive manufacturing markets are stepping up development of new production capacities. For fiscal 2004, we expect sales and earnings to increase. of products for non-polluting powder painting. Ecoclean The Ecoclean business unit will continue to pursue the standardization of its products. We will also push ahead with our efforts to reduce procurement costs and combine and relocate stages of our value chain to low-wage countries. We expect a slight increase in demand in Europe and the United States in the second half of the year. For this reason, we anticipate that incoming orders, sales, and earnings will grow slightly in the current fiscal year. Consolidated management report 69 Measuring Systems The Measuring Systems business unit expects a slight increase in incoming orders and sales for fiscal 2004, particularly in North America. We shall expand our global presence in a targeted way and concentrate more on selected markets and customer groups. We shall thus create a vital basis for qualitative growth. We shall continue our extensive cost-reduction program in order to improve our earnings situation. We are aiming at a balanced result in fiscal 2004. Group outlook The Dürr Group’s prime objective is to improve profitability. To do so, we will resolutely push ahead with our earnings enhancement program. We expect strong positive results for fiscal 2004. Sales are likely to fall slightly short of the high 2003 figure. Risks to our outlook This outlook and other portions of the Annual Report include forward-looking statements about future developments. As is the case for any business activity conducted in a global environment, such forward-looking statements are always subject to uncertainty. Our information is based on the conviction and assumptions of the Board of Management of Dürr AG, as developed from the information currently available. However, the following factors may affect the success of our strategic and operating measures: geopolitical risks, changes in general economic conditions (especially a prolonged recession in Europe or North America), exchange rate fluctuations and changes in interest rates, new products launched by competitors, and a lack of customer acceptance for new Dürr products or services, including growing competitive pressure. Should any of these factors or other imponderable circumstances arise, or should the assumptions underlying the forward-looking statements prove incorrect, actual results may differ from those projected. Dürr AG undertakes no obligation to provide continuous updates of forward-looking statements and information. Such statements and information are based upon the circumstances as of the date of their publication. Stuttgart, March 2004 Dürr Aktiengesellschaft The Board of Management 70 Consolidated financial statements 71 72 73 74 75 76 Independent auditors’ report Consolidated statements of income Consolidated balance sheets Consolidated statements of equity Consolidated statements of cash flows Notes to the consolidated financial statements 71 Independent auditors’ report Independent auditors’ report (on the full financial statements) We have audited the consolidated financial statements, comprising the balance sheet, statement of income, the statement of changes in shareholders’ equity and cash flows as well as the notes to the consolidated financial statements, prepared by Dürr Aktiengesellschaft, Stuttgart, for the fiscal year from January 1, 2003 to December 31, 2003. The preparation and the content of the consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion whether the consolidated financial statements are in accordance with the United States Generally Accepted Accounting Standards (US-GAAP), based on our audit. We conducted our audit of the consolidated financial statements in accordance with the German audit regulations and the generally accepted German standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that it can be assessed with reasonable assurance whether the consolidated financial statements are free of material misstatement. Knowledge of the business activities and the economic and legal environment of the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position, results of operations and cash flows of the Group for the fiscal year in accordance with US-GAAP. Our audit, which also extends to the group management report prepared by the Management Board for the fiscal year from January 1, 2003 to December 31, 2003, has not led to any reservations. On the whole, the group management report in our opinion provides a suitable understanding of the Group’s position and suitably presents the risks of future development. In addition, we confirm that the consolidated financial statements and the group management report for the fiscal year from January 1, 2003 to December 31, 2003 satisfy the conditions required for the Company’s exemption from its obligation to prepare consolidated financial statements and the group management report in accordance with German law. Stuttgart, March 30, 2004 Ernst & Young AG Wirtschaftsprüfungsgesellschaft Prof. Dr. Langenbucher Wirtschaftsprüfer [German Public Auditor] Hochrein Wirtschaftsprüferin [German Public Auditor] 72 Consolidated statements of income for Dürr Aktiengesellschaft, Stuttgart, for the years ended December 31, 2003 and 2002 Note 2003 2002 2,264,508 2,082,137 – 1,899,156 – 1,700,957 365,352 381,180 – 322,606 – 326,039 – 33,073 – 35,335 Amounts in € k Net sales Cost of sales Gross margin Selling, administrative, and other operating expenses (5) Research and development expenses Other operating income (6) 29,491 27,984 Restructuring expenses and impairment (7) – 25,594 – 13,570 47,790 (8) – 20,517 – 25,170 – 6,947 22,620 – 24,109 – 9,352 Income before financial income, income taxes and minority interests Financial income (expense), net Income before income taxes and minority interests Income taxes (9) Income before minority interests – 31,056 13,268 Minority interests – 214 – 1,250 Net loss (income) – 31,270 12,018 – 2.19 0.84 Basic and diluted earnings per share in € The accompanying notes are an integral part of these consolidated financial statements. 73 Consolidated financial statements for Dürr AG Consolidated balance sheets for Dürr Aktiengesellschaft, Stuttgart, as of December 31, 2003 and 2002 Note 2003 2002 Goodwill (10) 346,091 355,538 Other intangible assets, net (10) 33,042 34,910 Property, plant and equipment, net (10) 169,234 191,975 Investments (11) Amounts in € k Assets Fixed assets 20,743 22,467 569,110 604,890 Non-fixed assets Inventory, net (12) 65,135 107,345 Receivables and other assets, net (13) 772,351 777,300 – 3 Short-term investments Cash and cash equivalents Deferred taxes (9) Prepaid expenses Total assets 199,859 230,707 1,037,345 1,115,355 53,670 64,744 5,696 5,312 1,665,821 1,790,301 (thereof short-term 2003: € 1,060,632 thousand; 2002: € 1,153,129 thousand) Liabilities and shareholders’ equity Capital stock (14) 36,603 36,603 Additional paid-in capital (14) 159,000 159,000 Retained earnings (14) 12,877 55,586 Accumulated other comprehensive income (14) 6,731 11,107 215,211 262,296 Minority interests 5,163 8,199 Accruals (16) 325,633 310,924 Liabilities (18) 1,055,657 1,152,425 (9) 57,810 49,874 6,347 6,583 1,665,821 1,790,301 Deferred taxes Deferred income Total liabilities and shareholders’ equity (thereof short-term 2003: € 1,183,920 thousand; 2002: € 1,129,326 thousand) The accompanying notes are an integral part of these consolidated financial statements. 74 Consolidated statements of equity for Dürr Aktiengesellschaft, Stuttgart, for the years ended December 31, 2003 and 2002 Accumulated other comprehensive income Minimum Additional Deferred pension Net Cumulative compen- liability derivative translation losses adjustment Sub-total Total Capital paid-in Retained stock capital earnings sation adjustment Comprehensive income Amounts in € k Balance at January 1, 2002 36,603 159,048 59,296 – 44 – 119 – 6,784 44,982 38,079 292,982 Net income 2002 – – 12,018 – – – – – 12,018 12,018 Other comprehensive income (loss) – – – – – 74 – 4,668 – 22,230 – 26,972 – 26,972 – 26,972 Comprehensive income – – – – – – – – – – 14,954 Adjustment of stock options – – 48 – 48 – – – – – Amortization of deferred compensation income – – – –4 – – – – –4 Dividends – – – 15,728 – – – – – – 15,728 Balance at December 31, 2002 36,603 159,000 55,586 – – 193 – 11,452 22,752 11,107 262,296 Net loss 2003 – – – 31,270 – – – – – – 31,270 – 31,270 Other comprehensive income (loss) – – – – 43 8,383 – 12,802 – 4,376 – 4,376 – 4,376 – 35,646 Comprehensive income – – – – – – – – – Dividends – – – 11,439 – – – – – – 11,439 36,603 159,000 12,877 – – 150 – 3,069 9,950 6,731 215,211 Balance at December 31, 2003 The accompanying notes are an integral part of these consolidated financial statements. 75 Consolidated financial statements for Dürr AG Consolidated statements of cash flows for Dürr Aktiengesellschaft, Stuttgart, for the years ended December 31, 2003 and 2002 2003 2002 – 31,270 12,018 214 1,250 Amounts in € k Net loss (income) Minority interests Dividends paid to minority shareholders – 418 – 54 Depreciation and amortization 30,530 34,066 Net gain on disposal of property, plant and equipment – 2,637 – 180 Deferred income taxes 12,586 131 – 94 – 782 Non-cash income from associated companies Non-cash expenses (income) from stock option program Non-cash expenses from dedesignation of derivatives – –4 5,084 – 36,110 – 12,134 – 40,459 54,433 Changes in operating assets and liabilities Inventory Receivables Short-term investments 3 – Accruals 28,043 – 192 Liabilities (other than bank) 18,392 108,843 Other assets and liabilities Net cash provided by operating activities Purchases of other intangible assets Purchases of property, plant and equipment Purchases of other investments Acquisitions, net of cash acquired Proceeds from the disposal of fixed assets Net cash used in investing activities Net change in short-term debt 331 1,264 56,415 198,659 – 7,453 – 12,693 – 16,645 – 29,402 – 775 – 230 – 7,187 – 924 2,588 2,832 – 29,472 – 40,417 – 3,681 – 11,129 Proceeds from long-term debt to banks – 4,752 Redemption of long-term debt to banks – 32,304 – 52,132 Dividends paid – 11,439 – 15,728 Net cash used in financing activities – 47,424 – 74,237 Effect of exchange rates on cash and cash equivalents – 10,367 – 3,179 Change in cash and cash equivalents – 30,848 80,826 Cash and cash equivalents At the beginning of the year 230,707 149,881 At the end of the year 199,859 230,707 Cash paid for: Interest 25,133 34,475 Income taxes 12,544 12,932 The accompanying notes are an integral part of these consolidated financial statements. 76 Notes to the consolidated financial statements for the year 2003 1. Summary of significant accounting policies The Company The legal predecessor of Dürr Aktiengesellschaft (“Dürr AG” or “Company”) was Dürr Beteiligungs-GmbH headquartered in Stuttgart. The Company was transformed on November 4, 1989 into Dürr AG, located in Stuttgart. Dürr AG and its subsidiaries (“Dürr” or the “Group”) develop and manufacture paint finishing plants, final assembly, and conveyor systems as well as environmental systems and industrial cleaning technology. In addition, the performance spectrum of Dürr includes manufacturing support services, the manufacture of systems for process control, for the automation of production processes, for the balancing of revolving parts and assemblies, as well as diagnosis technology. Dürr’s main customers are the major companies in the automobile industry worldwide. Basis of presentation The consolidated financial statements of Dürr AG were prepared in accordance with United States Generally Accepted Accounting Principles (US-GAAP) and in line with Directive 83/349/EG. Consolidation principles The consolidated financial statements include the accounts of Dürr AG and companies in which Dürr AG has a controlling financial interest. Investments in which the Company exercises significant influence, but which it does not control (generally 20 – 50 % ownership interest) are accounted for using the equity method of accounting (associated companies). All significant intercompany transactions have been eliminated. All other investments have been accounted for at cost. The item “Minority interest” represents the separate investments in nine subsidiaries (2002: seven). Use of estimates The preparation of the consolidated financial statements pursuant to US-GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at balance sheet date, and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. Areas requiring significant estimates include the treatment and valuation of unbilled work in process using the percentage-of-completion method, allowance for doubtful accounts, contingencies and other accruals. In addition, material estimates and assumptions have been used in determining the fair value of the Group’s tangible and intangible long-lived assets, and for the impairment tests of goodwill conducted at the respective reporting units. Foreign currency translation The functional currency of each of the subsidiaries of Dürr AG is the local currency of the country and transactions in which each subsidiary is located. The assets and liabilities of subsidiaries stated in any currency other than the euro are translated at the spot rate as of each balance sheet date. The statements of income are translated at the average annual rate for the period. Differences arising from the translation of assets and liabilities as compared to their translation in earlier periods and from the translation of income and expenses are included in “Accumulated other comprehensive income.” Consolidated financial statements for Dürr AG 77 Differences from any other currency translations are included in the consolidated statement of income under “Other operating income” and “Other operating expenses.” The aggregate foreign currency exchange gain (2002: loss) recognized in the consolidated statement of income for the year ended December 31, 2003, was € 2,515 thousand net (2002: € – 311 thousand). Through its US subsidiaries, the Group holds net assets amounting to € 76,004 thousand (2002: € 93,698 thousand). These net assets were translated from US dollars into euros as of December 31, 2003, using an exchange rate of 1.2499 (2002: 1.0416). Intangible assets Intangible assets are franchises or licenses, patents and similar rights, and goodwill, respec- and property, tively. plant and equipment Dürr amortizes franchises, patents and similar rights with defined useful lives (between three and 20 years) to their estimated residual book value on a straight-line basis over their prospective useful lives. Goodwill and other intangible assets with indefinite useful lives are not amortized but are reviewed at least annually for impairment. Dürr reviews the impairment of goodwill using a two-stage test at business unit level. In the first step, the fair value of a reporting unit including the goodwill is compared to its carrying amount. If the fair value is lower than the carrying value, in a second step the fair value of the goodwill of the reporting unit is compared with the carrying value of this goodwill. The fair value of the goodwill is defined as the difference between the fair value of the reporting unit and the fair value of all assets and liabilities of the reporting unit. If the fair value of the goodwill is lower than its carrying amount, the difference is recorded as an impairment. As of December 31, 2003, goodwill of € 346,091 thousand (2002: € 355,538 thousand) was recognized in the accounts. Goodwill recognized on associated companies is tested for impairment in accordance with Accounting Principles Board (APB) Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock.” Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective classes of assets. The useful lives range from three to five years for computer hardware, five to ten years for furniture and fixtures, five to 15 years for machinery and equipment, and 15 to 50 years for buildings and improvements. Certain low-value items are expensed as incurred in the year of acquisition. This policy does not have a material effect on the consolidated financial statements. The cost of property, plant and equipment includes major expenses and replacement parts that extend the useful life of the asset or increase its capacity and interest associated with significant capital additions. When assets are either sold or retired, their cost and related accumulated depreciation and amortization are eliminated. Gains and losses on the disposal of such assets are recorded as “Other operating income” or “Other operating expenses.” Maintenance and small repairs are expensed when incurred. Pursuant to the Statement of Financial Accounting Standards (SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” the Group also records any impairment losses on the carrying amount of long-lived assets if circumstances indicate that their value is permanently impaired. Impairment is determined by comparison of the carrying amount of the respective assets with the undiscounted cash flows expected to be generated by the asset in future. If recognition of an impairment loss is considered necessary for such assets, the loss corresponds to the difference between the carrying amount and lower fair value. Fair value is generally 78 based on an estimate or the discounted future cash flows expected from the assets. During the fiscal years 2003 and 2002, Dürr did not record any impairment losses on buildings. In the course of restructuring Schenck Fertigungs & Service GmbH, Darmstadt (Germany), impairment losses were recorded on property, plant and equipment of € 1,266 thousand. As a result of combining the sites used by the subsidiary companies Schenck RoTec Corporation and Schenck Pegasus Corporation at the location in Troy/Michigan (USA), the Schenck RoTec building in Orion/Michigan (USA) is no longer used. There are plans to sell the building in fiscal 2004; sale documents have already been prepared. The anticipated sales proceeds will be allocated to the Measuring Systems business unit. Further, due to the combination of sites used by the subsidiaries Dürr Industries Inc., Plymouth/ Michigan (USA), and Dürr Environmental Inc., Plymouth/Michigan (USA), in a single location, the building of Dürr Environmental Inc. in Wixom/Michigan (USA), is no longer used. The Company plans to sell the building in fiscal 2004. The anticipated sales proceeds will be allocated to the Paint Systems business unit. The carrying amounts of the two buildings of € 5,147 thousand (2002: € 6,197 thousand) are disclosed in current assets, within the category other assets; a reclassification was also made as of December 31, 2002, accordingly from property, plant and equipment to other assets. Investments Investments in associated companies and in other unlisted companies on which Dürr does not exert a significant influence are recorded as investments. The Group’s share of profits and losses is shown as changes in the carrying amount and recognized in the consolidated statement of income under the financial expense. Dividends received are deducted from the carrying amount. Write-downs are made on the lower carrying amount to allow for impairments in value which are expected to be permanent. The marketable securities disclosed in the financial assets are classified as available-for-sale securities and therefore valued at fair value on the balance sheet date. Unrealized gains and losses on these securities are reported under “Accumulated other comprehensive income” taking account of any deferred taxes. There were no adjustments to “Accumulated other comprehensive income” in the year ended December 31, 2003, and the year ended December 31, 2002, as the unrealized changes in fair value were immaterial. Leases The companies in the Dürr Group are lessees of land, buildings, office and operating equipment. The majority of leases are classified as operating leases. When the leases meet the definition of capital leases, the leased asset is capitalized at acquisition cost (net present value of future minimum lease payments less costs incurred for insurance, maintenance and taxes on any profit thereon). An obligation is also established at that time for the same amount. The upper limit for the capitalization of a leased asset and the liability is its fair value. The leased asset is depreciated over the shorter of the estimated useful life or the lease term. Interest is imputed on the obligation using the effective interest method over the lease term. Trade receivables Receivables are recognized at the lower of nominal value or realizable value. Dürr reviews its debtors on a regular basis in order to reduce its credit exposure. The appraisals of the separate debtor accounts which are either overdue or in default are performed by management. Consolidated financial statements for Dürr AG 79 The Group evaluates the recoverability of its receivables based on a combination of factors. Should Dürr become aware of any issues which would impinge on the ability of certain customers to meet their financial obligations, Dürr posts a specific allowance to reduce the amounts due to the Group to the reasonably expected recoverable amount. For all other customers, the Group records doubtful receivables on the basis of the period overdue, current business circumstances and the Group’s historical experience. Hedges against commercial and political risks inherent in receivables are governed by Group policy, if need be, by taking out domestic or foreign credit insurance coverage or involving commercial banks. Cash and cash equivalents All short-term liquid financial assets with an original term of up to three months are recognized as cash and cash equivalents. Stock-based compensation In accordance with the provisions of SFAS No. 123, Dürr has elected to account for stock-based awards issued to employees using the intrinsic value method prescribed in APB Opinion No. 25. Accordingly, compensation cost for stock-based awards granted to employees is measured as the excess of the market value of the Company’s stock on the measurement date over the amount the employee must pay to acquire the stock. For stock-based employee compensation awards in which all terms are fixed on the grant date, the intrinsic value of the option is measured on the basis of the estimated fair market value of the Company’s common stock on that date. The intrinsic value of awards in which some of the award terms are dependent upon future events (a “variable award”) is measured in each reporting period based on the estimated fair market value of the Company’s stock at the end of each reporting period until all terms under the award become known. Compensation costs for either type of award are recognized over the employee’s service period, which is generally equivalent to the vesting period of the award. The Dürr International Stock Option Plan (DISOP) was accounted for as a variable plan under which no amount was recorded as compensation cost for the year ended December 31, 2003 (2002: € – 4 thousand). If the compensation costs for these allocations had been determined in accordance with SFAS No. 123 “Accounting for Stock-Based Compensation,” this would not affect the Group’s net loss for the year and earnings per share because the best estimate of the fair market value corresponds with the intrinsic value as of December 31, 2003, and December 31, 2002, respectively. Accruals/liabilities Accruals for pension obligations are calculated using the projected unit credit method. Current liabilities and short-term accruals are recorded based on reasonable estimates. Contingent liabilities are accrued when it is probable that a liability will be incurred and the amount can be reasonably estimated. Income taxes Dürr computes the income tax burden using the so-called liability method in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under this standard, deferred taxes are determined according to the difference between the US-GAAP carrying value in the balance sheet and the tax law values of assets and liabilities based on the enacted statutory tax rates for those years in which the difference is expected to be reversed. Valuation allowances are only recorded on deferred tax assets if a lapse of the tax benefit is more likely than its realization or if the tax loss carry forwards are larger than tax income in the near future. 80 Earnings per share If there are dilutive elements present, two different ratios for earnings per share must be disclosed. The ratio “Earnings per share” does not take account of dilutive effects; it is calculated by dividing the net loss (income) of the Group by the weighted average number of common shares outstanding. In addition to the number of common shares outstanding, “Earnings per share (diluted)” recognizes shares that could be issued on the basis of outstanding options. The calculation is as follows (all amounts in thousands, or thousands of euros, respectively, except per share amounts which are stated in euros). There were no dilutive effects in the years ended 2003 and 2002. 2003 Revenue recognition 2002 Net loss (income) – 31,270 12,018 Weighted average of shares outstanding 14,298.2 14,298.2 Weighted average of shares outstanding (diluted) 14,298.2 14,298.2 Earnings per share – 2.19 0.84 Earnings per share (diluted) – 2.19 0.84 Dürr derives its revenues mainly from long-term construction contracts. Long-term construction contract revenues are recognized on the percentage-of-completion method based on costs incurred relative to total estimated costs. The completed-contract method is used for smaller contracts in which it has been determined that the financial position and results of operations are fairly presented. The completed-contract method is also used in situations where estimated costs to complete cannot be reliably determined. Billings issued to customers and cash received from customers are not recorded as sales but deducted without effect on income from cost in excess of billings on uncompleted contracts or set against prepayments received in excess of costs on uncompleted contracts. To the extent that costs have been incurred on contracts, but the amounts cannot be billed under the terms of the contracts, they are reported together with the corresponding proportion of income as cost and estimated earnings on uncompleted contracts. The invoicing of such amounts is dependent on certain contractually defined milestones being reached. Cost and estimated earnings includes directly allocable costs (material, labor cost, and cost of services provided by third parties) as well as the appropriate portion of production overheads and the estimated earnings. Also included in cost and estimated earnings on uncompleted contracts are amounts that Dürr seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs, claims and pending change orders. These amounts are recorded at their estimated net realizable value when realization is probable and can be reasonably estimated. No profits in addition to these accumulated costs are reported. Changes to orders that have not been finalized require the use of estimates. Therefore, it is reasonably possible that revisions to the estimated recoverable amounts of recorded pending change orders will be made in the future. Any legal costs incurred in this respect are expensed as incurred. 81 Consolidated financial statements for Dürr AG The percentage-of-completion method is based on the use of estimates. Due to the uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will need to be subsequently revised. Such adjustments of expenses and income are shown in the period in which the need for adjustment is determined. Accruals for potential losses are recognized in the period in which losses are identified. Shipping costs are included in the cost of sales. Research and development Research and development costs which are not incurred in connection with current long-term expenses contracts are expensed as incurred. Advertising costs Advertising costs amounted to € 3,952 thousand for the year ended December 31, 2003, (2002: € 5,101 thousand) and were expensed as incurred. Concentrations of credit risk The development of Dürr as an automotive supplier is dependent on the economic conditions of the automotive industry and in particular its willingness to invest. A significant portion of the Group’s revenues is concentrated with a limited number of customers because the worldwide market for automobiles is dominated by a small number of large corporations. New accounting provisions In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 expands upon existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity (VIE) is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the VIE to support its activities. FIN 46 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss expected from the variable interest entity’s activities, or is entitled to receive a majority of the entity’s residual income, or both. Pursuant to FIN 46, the requirement to consolidate applies immediately for all VIEs founded after January 31, 2003, and for VIEs with which the company enters into business relationships after that point in time. On October 9, 2003, FASB Staff Position Interpretation No. 46-6, “Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities,” was issued, which defers the implementation date for the Group for VIEs formed before February 1, 2003, to December 31, 2003. On December 17, 2003, the FASB modified the reporting date for initial application and the enforcement date of FIN 46. This resulted in a further deferral of FIN 46 for VIEs which are not specialpurpose entities created before February 1, 2003, to no later than the end of reporting periods subsequent to March 15, 2004. For the fiscal year 2003 and in future, FIN 46 will therefore be applied as follows in the Dürr Group: Initial application Type of VIE VIE formed or received after January 31, 2003 February 1, 2003 Variable interest in special-purpose entities before February 1, 2003 December 31, 2003 Variable interest in companies formed before February 1, 2003, with the exception of special-purpose entities March 31, 2004 82 The introduction of FIN 46 to certain VIEs in fiscal 2003 did not have a major impact on the consolidated net assets, financial position, and results of operations of the Group. Nor does the Group expect the introduction of FIN 46 on the other VIEs to have a major effect on the consolidated net assets, financial position, and results of operations of the Group. The initial application of FIN 46 had the following effects on the Dürr consolidated financial statements as of December 31, 2003: In previous years, Dürr had entered into sale-and-lease-back contracts with three companies which qualify as VIEs under FIN 46. In the fiscal years 1998 and 2000, Dürr sold land and buildings for € 35 million to these companies and leased the assets back under sale-and-lease-back contracts. These companies founded by third parties obtained finance by issuing debt and equity capital paper to independent investors in order to acquire land and buildings from Dürr. These fixed assets were leased back by Dürr and used in normal business operations. Dürr confirmed that the Group is not the main beneficiary of these companies and is therefore not required to consolidate them. The maximum risk for Dürr comes to € 5 thousand. 2. Consolidation group The Group consists of Dürr Aktiengesellschaft and 110 foreign and domestic subsidiaries (2002: 104). The consolidated financial statements contain nine companies in which minority shareholders hold interests (2002: seven). Seven companies (2002: eight) are consolidated using the equity method. Three companies (2002: five) are accounted for using the at cost method. In the fiscal year 2003, eight companies were included in the consolidated financial statements for the first time. One company has left the consolidation group. Another company was no longer included because it was merged with another subsidiary. The financial statements of consolidated companies are prepared as of December 31, 2003. Three associated companies have a different balance sheet date. In these cases, the most recent financial statements available, as of December 31, 2002, March 31, 2003, and September 30, 2003, were considered. The time lag in reporting is consistent from period to period. Dürr does not anticipate any material impact on the net assets, financial position and results of operations as a result of the inclusion of more recent financial statements. 83 Consolidated financial statements for Dürr AG 3. Mergers and acquisitions The following acquisitions were recognized using the purchase method in accordance with APB Opinion No. 16 and SFAS No. 141. Assets and liabilities were acquired at fair market value. Goodwill has been recognized where the purchase price exceeds the fair value of the acquired net assets. The statement of income of the Group contains the results of the acquired companies from the time of acquisition. Dürr AIS S.A.S. On February 17, 2000, Dürr acquired a 50 % holding in Alstom Automation S.A., Courbevoie (France) (since being a member of Dürr AG it was initially renamed Dürr AIS S.A. and then in fiscal 2002 became Dürr AIS S.A.S.), for a price of € 7,000 thousand from Alstom S.A. The purpose of the company is the planning and installation of entire paint shops for automobile manufacturers and automotive suppliers. Dürr Systems GmbH, a 100 % subsidiary of Dürr AG, exercised the option agreed in the purchase agreement on April 30, 2001, and increased its ownership to 100 % by purchasing the remaining 50 % of Dürr AIS S.A.S. for a purchase price of € 7,000 thousand, thus increasing the investment to 100 %. The total purchase price paid plus direct acquisition costs amounted to € 14,279 thousand. The following table presents the sum of the value of the first 50 % of the assets and liabilities acquired on February 17, 2000, accounted for through April 30, 2001, using the equity method of accounting for investments and the fair market value of the remaining 50 % of the acquired assets and liabilities as of April 30, 2001. Amounts in € k Goodwill Other fixed assets Non-fixed assets Liabilities assumed Deferred taxes 94,003 5,030 216,244 – 294,497 – 7,859 12,921 Carl Schenck AG During the year ended December 31, 2003, the Dürr Group acquired a further 42,871 (approximately 2.76 %) no-par value shares of Carl Schenck AG, Darmstadt (Germany), for € 5,656 thousand, giving rise to goodwill of € 4,149 thousand. As a result, the Dürr Group held 98.72 % of the shares in Carl Schenck AG as of December 31, 2003. Carl Schenck AG and its associated companies are a global leader in the manufacture of systems and plants for process control procedures, the automation of production processes and balancing of revolving parts and assemblies. Dürr Korea Inc. Effective October 27, 2003, additional shares were taken over in Dürr Korea Inc., Seoul (South Korea), for a purchase price of KRW 1.4 billion; this gave rise to goodwill of € 318 thousand. As of December 31, 2003, 100 % of the shares of Dürr Korea Inc. were held by Dürr. The company produces and sells industrial painting equipment. 84 4. Personnel expenses Personnel expenses included in the consolidated statements of income are as follows: 2003 2002 Wages and salaries 492,946 523,182 Social security contributions 115,367 123,898 608,313 647,080 9,362 8,574 Amounts in € k Thereof pension costs 5. Selling, administrative, Selling, administrative, and other operating expenses are comprised of the following: and other operating expenses 2003 2002 Amounts in € k Selling expenses 146,508 152,122 General and administrative expenses 141,734 136,274 Other operating expenses 34,364 37,643 322,606 326,039 Other operating expenses mainly contain impairment losses of non-fixed assets of € 8,391 thousand (2002: € 3,064 thousand), foreign currency transaction losses of € 7,488 thousand (2002: € 6,435 thousand) as well as additions to other accruals of € 1,408 thousand (2002: € 686 thousand). 6. Other operating income Other operating income contains gains on disposition of property, plant and equipment of € 410 thousand (2002: € 395 thousand), rental and lease income of € 262 thousand (2002: € 343 thousand), income from the release of accruals of € 3,180 thousand (2002: € 6,326 thousand), income from the reversal of valuation allowances of € 1,608 thousand (2002: € 775 thousand) as well as foreign currency transaction gains of € 10,003 thousand (2002: € 6,124 thousand). 7. Restructuring expenses and impairment charges In the fiscal year ended December 31, 2003, restructuring expenses and impairment charges amounting to a total of € 25,594 thousand were recorded. The largest single project was the restructuring of Schenck Fertigungs & Service GmbH, Darmstadt (Germany). By the end of fiscal 2004, 350 jobs will be lost at this company. Schenck Fertigungs & Service GmbH delivers parts and components to product lines within the Measuring Systems business unit and to a lesser extent to external customers. The reason for the closure of the loss-making company is the lack of competitiveness which is reflected in structural cost disadvantages such as inadequate capacity utilization and high personnel costs. Dürr AIS S.A.S., Courbevoie (France), was also restructured during the fiscal year ended December 31, 2003. By the end of fiscal 2004, some 150 jobs will be lost both in the engineering and administration segments. The purpose of the company is the planning and installation of entire paint shops for automobile manufacturers and automotive suppliers. The reasons for the personnel cuts are higher labor costs and capacity underutilization. 85 Consolidated financial statements for Dürr AG A capacity adjustment at Schenck Pegasus GmbH, Darmstadt (Germany), and the associated redundancy scheme also caused restructuring expenses of € 2,387 thousand. The above issues give rise to personnel expenses of € 22,278 thousand and impairment charges on property, plant and equipment of € 1,266 thousand. The remaining restructuring expenses of € 2,050 thousand relate to actions taken at companies in the USA, Spain and Mexico. The table below shows the development of the accrual for restructuring measures by business units: Paint Systems Measuring Ecoclean Systems Dürr Group Amounts in € k Jan. 1, 2003 – – – – Currency effect – – – – Addition 4,987 1,487 17,854 24,328 Utilization – 716 – 1,244 – 1,504 – 3,464 Reversal Dec. 31, 2003 – – – – 4,271 243 16,350 20,864 8. Financial income (expense), net 2003 Investment result 94 782 4,198 6,498 Interest and similar expenses – 24,809 – 32,450 Net interest – 20,611 – 25,952 Financial income (expense), net – 20,517 – 25,170 Other interest and similar income 9. Income taxes 2002 Amounts in € k Income before income taxes and minority interests amounts to € – 6,947 thousand (2002: € 22,620 thousand). Income taxes are broken down as follows: 2003 2002 Amounts in € k Current taxes Germany 2,015 2,544 Foreign 9,508 6,677 10,690 – 4,216 Deferred taxes Germany Foreign 1,896 4,347 24,109 9,352 86 The income taxes include the domestic federal corporate income tax including a solidarity surcharge and trade taxes on income. Comparable taxes of foreign legal entities are also shown under this position. Owing to the Tax Reduction Act passed in October 2000, the corporate income tax rate was 26.5 % plus a solidarity surcharge of 5.5 % thereon for the year ended December 31, 2003. This results in a nominal tax rate of 27.9 % on income. Including German trade tax, the total tax burden amounted to 40.2 % (2002: 39 %). In September 2002, the law to assist flood victims was passed which provides for a one-off increase in the tax rate for fiscal 2003 from 25 % to 26.5 %. For this reason, as of December 31, 2002, a total tax rate of 40.2 % was used for differences reversing during the year ending December 31, 2003, and 39 % for differences reversing in later periods. For fiscal 2003, Dürr has disclosed expenses from taxes on income of € 24,109 thousand. As a result of accumulated losses in the past three years in certain tax jurisdictions, Dürr has increased the valuation allowance for deferred tax assets by € 22,984 thousand; in tax jurisdictions with positive results Dürr has disclosed tax expenses. Dürr evaluates the deferred taxes regularly. The ability to recognize tax income from deferred taxes depends on being able to make the most of taxable income in the future and using up loss carryforwards before they come under the stature of limitation. Based on past experience, only taxable income forecast in the near future is considered in the valuation of deferred tax assets. The following table shows the reconciliation of expected income taxes to the reported tax expense using the German corporate tax rate of 40.2 % (2002: 39 %). 2003 2002 Amounts in € k Expected income (expense) for income taxes – 2,793 8,822 Foreign tax rate differential – 1,433 – 4,809 5,274 2,356 22,984 3,467 Non-deductible expenses Changes in valuation allowance on deferred tax assets Other Actual expense for income taxes 77 – 484 24,109 9,352 87 Consolidated financial statements for Dürr AG Deferred tax assets and liabilities are summarized as follows: 2003 2002 As of December 31, amounts in € k Intangible assets 552 1,180 Property, plant and equipment and investments 2,936 2,832 Inventories and receivables 8,932 20,598 Tax loss carryforwards 52,469 31,719 Accruals 13,170 9,550 Liabilities 17,707 15,721 Valuation allowances Deferred tax assets 95,766 81,600 – 30,112 – 7,803 65,654 73,797 Intangible assets 11,440 8,896 Property, plant and equipment and investments 23,516 25,642 Inventories and receivables 20,198 17,729 Accruals 14,337 5,870 303 790 Other Deferred tax liabilities 69,794 58,927 Deferred tax liabilities (assets), net – 4,140 14,870 Deferred tax assets and liabilities are shown in the consolidated balance sheets as follows: 2003 Amounts in € k Deferred tax assets Total 2002 > 1 year Total > 1 year 53,670 29,477 64,744 25,997 Deferred tax liabilities – 57,810 – 28,193 – 49,874 – 25,136 Deferred tax liabilities (assets), net – 4,140 1,284 14,870 861 As of December 31, 2003, the tax loss carryforwards amounted to € 138,234 thousand (2002: € 81,561 thousand), of which € 132,687 thousand (2002: € 66,776 thousand) can be carried forward indefinitely, € 617 thousand (2002: € 8,776 thousand) have to be realized by 2008 and € 4,930 thousand (2002: € 6,009 thousand) by 2013 at the latest. The Group also has German trade tax loss carryforwards totaling € 104,927 thousand (2002: € 65,028 thousand) which can be carried forward indefinitely. As of December 31, 2003, deferred tax assets amounting to € 3,453 thousand (2002: € 12,514 thousand) and deferred tax liabilities amounting to € 14,093 thousand (2002: € 15,858 thousand) were recorded as a result of consolidation adjustments. 88 10. Intangible assets, Details regarding the changes in the Group’s intangible assets and property, plant and equip- net, and property, plant ment are presented in the consolidated fixed assets schedule in note 24 “Development of fixed and equipment, net assets.” Amortization of licenses, patents, and similar rights came to € 6,098 thousand (2002: € 6,666 thousand), and depreciation of property, plant and equipment to € 23,818 thousand (2002: € 27,347 thousand). No residual book values were assumed when calculating the amortization on additions to licenses, patents, and similar rights. The weighted average useful life for licenses, patents, and similar rights acquired in the year ended December 31, 2003, is 5.1 years. The estimated amortization of intangible assets for each of the next five years amounts to € 6,225 thousand, € 5,791 thousand, € 5,544 thousand, € 5,233 thousand, and € 4,398 thousand. The following table presents the movements in goodwill by business unit for the Dürr Group as of December 31, 2001, December 31, 2002, and December 31, 2003. Final Paint Assembly Systems Systems Ecoclean Services Measuring Systems Dürr Group 135,576 90,150 22,056 67,801 59,964 375,547 – 2,986 – 3,145 – 3,223 – 10,020 – 1,798 – 21,172 Amounts in € k Book value as of Dec. 31, 2001 Foreign currency translation adjustment Initial application of SFAS No. 142 – – – – 724 724 Additions in 2002 – 198 – – 241 439 132,590 87,203 18,833 57,781 59,131 355,538 – 2,239 – 2,271 – 2,172 – 9,047 1,934 – 13,795 Book value as of Dec. 31, 2002 Foreign currency translation adjustment Purchase price adjustment Additions in 2003 Book value as of Dec. 31, 2003 – – – 119 – – – 119 318 1,866 – – 2,283 4,467 130,669 86,798 16,542 48,734 63,348 346,091 In fiscal 2003, four (2002: four) buildings were capitalized as capital leases; Dürr is not legal proprietor of these buildings. The depreciation expense recorded on these buildings is included in the depreciation of property, plant and equipment, net. The following table shows the acquisition cost and accumulated depreciation for these buildings reported under property, plant and equipment, net. 2003 2002 As of December 31, amounts in € k Historical cost 19,582 20,078 Accumulated depreciation – 7,772 – 6,512 Net book value 11,810 13,566 89 Consolidated financial statements for Dürr AG In fiscal 2003, a contract was entered into that provides for the division of the former operating land of the Dürr Group in Darmstadt-Arheilgen (Germany) in two phases. According to the contract, in phase I the buyer takes over the plots in exchange for payment of a purchase price and the development of the whole site and receives an option on the plots of phase II to be exercised by March 31, 2005. If the buyer does not make use of the purchase option for the phase II plots by 2005, Dürr will receive all the development work performed by the buyer for these plots free of charge so that Dürr will then be in possession of fully developed building land. Dürr capitalized the claim to development work under other assets. 11. Investments Goodwill of € 5,760 thousand (2002: € 5,760 thousand) relating to investments in associated companies is included. 12. Inventory, net Inventory is broken down as follows: 2003 2002 48,840 51,090 As of December 31, amounts in € k Raw materials and manufacturing supplies Finished goods Prepayments Valuation allowances 6,993 6,124 19,789 58,932 – 10,487 – 8,801 65,135 107,345 Raw materials and manufacturing supplies and finished goods are stated at the lower of cost or market as of balance sheet date. Raw materials and manufacturing supplies of € 30,532 thousand (2002: € 33,748 thousand) are recognized at average cost and € 7,656 thousand (2002: € 8,449 thousand) using the FIFO (“first in, first out”) method. 13. Receivables and Receivables and other assets, net, are comprised of the following: other assets, net 2003 2002 429,204 450,773 As of December 31, amounts in € k Trade receivables Trade receivables from associated companies Cost and estimated earnings in excess of billings Other assets 4,887 5,618 253,449 231,290 84,811 89,619 772,351 777,300 90 The majority of the Group’s receivables are from automobile manufacturers. Generally, these receivables are not secured by bank guarantees or other collateral. The receivables for the year ended December 31, 2003, are reported net of valuation allowances for doubtful receivables of € 13,512 thousand (2002: € 13,712 thousand). As of December 31, 2003, 56.0 % (2002: 49.4 %) of the trade receivables were due from six (2002: six) customers. Cost and estimated earnings The following table provides a summary of the cost and estimated earnings in excess of billings on uncompleted contracts and for the related invoiced amounts for all projects. 2003 2002 As of December 31, amounts in € k Cost and estimated earnings Less billings 581,419 378,583 – 684,852 – 573,437 – 103,433 – 194,854 These amounts are offset on a project-by-project basis and are included in either receivables or liabilities (see note 18 “Liabilities”). 2003 2002 As of December 31, amounts in € k Cost and estimated earnings in excess of billings 253,449 231,290 Billings in excess of cost and estimated earnings – 356,882 – 426,144 – 103,433 – 194,854 Other assets mainly consist of tax receivables, amounts due from suppliers, receivables from employees and indemnification receivables. In addition, the carrying amount for two buildings of € 5,147 thousand (2002: € 6,197 thousand) is also disclosed under other assets; the amount as of December 31, 2002, was appropriately reclassified from property, plant and equipment. Dürr plans to sell the buildings in 2004. € 765,749 thousand (2002: € 771,015 thousand) of the receivables and other assets, net, are due within one year. 91 Consolidated financial statements for Dürr AG 14. Shareholders’ equity Capital stock As of December 31, 2003, the capital stock came to € 36,603 thousand, divided into 14,298,200 no-par common shares, issued to bearer. Each share represents € 2.56 of the capital stock. Authorized capital By resolution of the annual shareholders’ meeting on May 31, 2001, the Board of Management is (Dürr AG) authorized through May 30, 2006, to increase capital stock by a total of up to € 16,219,904 through the issuance of up to 6,335,900 shares of voting common stock and/or non-voting preferred stock, each representing € 2.56 of capital stock, in exchange for cash. Conditional capital Furthermore, on May 30, 2001, the shareholders authorized the Board of Management, with the (Dürr AG) approval of the Supervisory Board to increase capital stock by a total of up to € 10,240 thousand through the issuance of up to 4 million shares of voting common stock and/or non-voting preferred stock, each representing € 2.56 (conditional capital I) of capital stock. The conditional capital increase can be used to issue convertible bonds with a nominal value of up to € 102,400 thousand, which can have a term of up to 15 years. The authorization is granted through May 30, 2006. In conjunction with the Dürr International Stock Option Plan, the Board of Management is further authorized to increase capital stock by up to € 2,560 thousand through the issuance of up to 1 million common voting stock, each representing € 2.56 (conditional capital II) of capital stock. Dividends The amount of dividends available for distribution to shareholders is regulated by the German Stock Corporation Law (Aktiengesetz), and is based upon the unappropriated net profit of Dürr AG as reported in its statutory financial statements prepared in accordance with German GAAP (HGB). It is to be put to the annual shareholders’ meeting that the unappropriated net profit be carried forward. Accumulated other The changes in the components of other comprehensive income (loss) for the year ended comprehensive income December 31, 2003, and the related tax effects are as follows: 2003 Amounts in € k Pretax 2002 Tax effects Net Pretax Tax effects Net 1,537 – 690 847 – 14,448 5,729 – 8,719 Net losses on derivatives hedging fluctuations in cash flows Change in unrealized derivative gains (losses) 12,324 – 4,788 7,536 6,662 – 2,611 4,051 Net derivative gains (losses) Realized losses 13,861 – 5,478 8,383 – 7,786 3,118 – 4,668 Foreign currency translation adjustment – 12,802 – – 12,802 – 22,230 – – 22,230 70 – 27 43 – 121 47 – 74 1,129 – 5,505 – 4,376 – 30,137 3,165 – 26,972 Additional minimum pension liability Change in other comprehensive income 92 15. Stock-based compensation Dürr International Stock By resolution dated May 30, 2001, the annual shareholders’ meeting authorized the Board of Option Plan (DISOP) Management of Dürr AG to establish and implement a stock option plan. Under this plan the Company is authorized to issue 1 million shares. Based on this resolution, Dürr granted options to managers of Dürr AG and of some legal entities (the participants). The option entitles the participants to subscribe for one ordinary share in the Company at a defined exercise price. The defined exercise price is the average closing price (€ 23.75) of the shares in Dürr AG on the XETRA of the Frankfurt Stock Exchange on the 10 trading days immediately preceding the grant date, reduced by the aggregate value of dividends per share between the grant date and when the shares are exercised. In order to participate in the plan, the managers invested in the Company’s shares. The participants have been granted five options for every two purchased shares. The option will lapse five years after the grant date or when the participant ceases to be employed by the Company or any of its legal entities, whichever is earlier. The option may only be exercised after the expiration of a two-year waiting period, and if one of the defined performance targets has been met. The defined performance targets are as follows: 1. Outperformance with regard to the CDAX Machinery (stock exchange index until March 21, 2003; rolled forward unpublished by Deutsche Börse AG) between the grant date and the expiry of the waiting period. Outperformance is given when the increase of the Dürr AG share from the beginning to the end of the defined period is higher than the respective increase of the index. 2. Average increase of 10 % of the earnings per share (EPS) in the period beginning at the end of the last fiscal year before the grant date and ending at the end of the last fiscal year before the waiting period expires. Further, the options can only be exercised during the exercise window of 15 German banking days following the publication of the quarterly reports or the annual financial statements of the Company by the Board of Management. In the years ended December 31, 2003 and 2002, Dürr did not issue any further options to participants under the stock option plan. In the year ended December 31, 2003, all the 94,795 (2002: 11,400) stock options outstanding expired. The following table summarizes the status of the Company’s stock options as of December 31, 2003 and 2002. 2003 2002 – 94,795 As of December 31 Options outstanding Quantity Weighted average remaining life Years – 3.83 Weighted average exercise price in € – 22.65 – – – – Options exercisable Quantity Weighted average exercise price in € 93 Consolidated financial statements for Dürr AG 16. Accruals Accruals are broken down as follows: 2003 2002 As of December 31, amounts in € k Pensions Taxes Other accruals Thereof current 53,607 53,142 9,955 13,990 262,071 243,792 325,633 310,924 257,933 241,759 Other accruals mainly relate to post-contract costs, anticipated losses on transactions, restructuring expenses, warranties, legal costs, and labor costs. 17. Pensions and other post-employment benefits Pension entitlements have been granted to the members of the Board of Management of Dürr AG and the members of the Board of Management and general managers of German subsidiaries based on salary and years of service with the Group. At Dürr subsidiaries, those workers who were employed at the German locations in Filderstadt and Wyhlen and at the Schenck companies at the time their companies were acquired were entitled to pension benefits. The pensions are based on years of service. The payments foreseen by the pension plans are calculated on actual contributions plus an element that is dependent on years of service. In addition, the pension benefits available to the employees of the domestic Dürr subsidiaries include a life insurance program (BZV) of € 708 thousand (2002: € 593 thousand) in line with the industry tariff group. The 1998 mortality tables published by Dr. Heubeck have been used to calculate the German pension obligations. The US subsidiaries of Dürr have pension plans covering all non-union employees at these subsidiaries. The plans provide benefits based on a career-average earnings formula. The US subsidiaries contribute to external pension funds for union employees. The pension expenses for these employees in 2003 amounted to approximately € 699 thousand (2002: € 923 thousand). In addition, Dürr’s US subsidiaries have a “401(k)” profit sharing plan for certain employees. The benefits are based on years of service and the employees’ compensation. The Group’s contribution is discretionary and is determined annually by management. The pension expenses for these employees in 2003 amounted to approximately € 2,355 thousand (2002: € 2,832 thousand). 94 The following table presents further information on these plans: 2003 2002 As of December 31, amounts in € k Changes in projected benefit obligation Projected benefit obligation at the beginning of the year Foreign currency exchange rate differences 68,330 73,578 – 3,328 – 3,431 Service cost 2,819 3,609 Interest cost 3,778 4,220 Actuarial gains or losses 646 – 5,507 Benefits paid – 4,584 – 4,214 Effect of curtailment – 1,472 – 176 75 66,365 68,330 2003 2002 Others Projected benefit obligation at the end of the year As of December 31, amounts in € k Change in plan assets Fair value of plan assets at the beginning of the year Foreign currency exchange rate differences 18,173 20,908 – 3,116 – 2,633 Actual return on plan assets 1,966 – 233 Employer contributions 1,060 1,270 – 1,783 – 1,139 Benefits paid Other Fair value of plan assets at the end of the year 146 – 16,446 18,173 2003 2002 49,919 50,157 2,748 2,148 As of December 31, amounts € k Funded status* Actuarial unrecognized net gains Unrecognized prior service costs plan changes not yet considered – 783 – 934 Other – 234 – 351 51,650 51,020 Net amount recognized * Difference between the projected benefit obligation and the fund’s assets The accumulated benefit obligation without taking future wage and salary increases into account amounts to € 63,737 thousand at year-end 2003 (2002: € 63,481 thousand). The unfunded accumulated benefit obligation for plans without taking future wage and salary increases into account which have accumulated benefit obligations in excess of plan assets at the end of the period, the accumulated benefit obligation without taking into account future wage and salary increases amounts to € 47,922 thousand as of December 31, 2003 (2002: € 48,156 thousand). The fair value of the plan assets is € 395 thousand (2002: € 461 thousand). 95 Consolidated financial statements for Dürr AG For plans where the projected benefit obligation at the end of the fiscal year exceeds the fair value of the plan assets, the projected benefit obligation as of December 31, 2003, amounted to € 56,671 thousand (2002: € 68,330 thousand). The fair value of the plan assets is € 6,664 thousand (2002: € 18,173 thousand). As of September 1, 2003, Schenck Corporation, Deer Park/New York (USA), curtailed the pension commitments. The resulting curtailment of US$ 1,679 thousand reduces the projected benefit obligation at the end of the fiscal year 2003. The net amount recognized is contained in the following balance sheet captions: 2003 2002 – – 1,699 – 1,712 – 108 As of December 31, amounts in € k Intangible assets Prepaid expenses Other comprehensive income – 245 – 315 Pension accruals 53,607 53,142 Net amount recognized 51,650 51,020 Net periodic pension costs are broken down into the following components: 2003 2002 Amounts in € k Service cost 2,819 3,609 Interest cost 3,778 4,220 – 1,228 – 1,575 49 55 Expected return on plan assets Amortization of unrecognized items Curtailment – 1,472 – 209 235 4,155 6,544 Other pension expenses Net periodic pension costs The cut-off date for the valuation of pension commitments and fund assets is December 31, 2003; the valuation date for pension expenses is January 1, 2003. The following averages were used to calculate pension commitments: 2003 2002 In % Average valuation factors Discount rate 5.60 5.76 Long-term salary increases 2.92 2.98 The following averages were used to calculate net periodic pension costs: 2003 2002 Discount rate 5.76 6.07 Expected long-term return on plan assets 7.25 8.00 Long-term salary increases 2.98 3.48 In % Average valuation factors 96 18. Liabilities Liabilities consists of the following: Total Amounts in € k Liabilities to banks (2002) Billings in excess of cost and estimate earnings (2002) Accounts payable (2002) Liabilities payable to associated companies (2002) 1 < x < 5 years > 5 years 296,828 158,704 126,910 11,214 (353,774) (114,798) (233,548) (5,428) 356,882 349,237 7,645 – (426,144) (411,880) (14,264) – 279,778 279,666 112 – (222,908) (222,831) (77) – 6,919 6,919 – – (6,086) (6,086) – – 115,250 95,497 16,053 3,700 (2002) (143,513) (100,651) (37,398) (5,464) December 31, 2003 1,055,657 890,023 150,720 14,914 (1,152,425) (856,246) (285,287) (10,892) Other liabilities (December 31, 2002) Liabilities due to banks Of which due < 1 year In the year ended December 31, 2001, Dürr secured a contract for a term loan (“syndicated loan”) with Deutsche Bank AG, Landesbank Baden-Württemberg, Deutsche Bank Luxembourg S.A., and other banks of € 200,000 thousand and US$ 50,000 thousand. As of December 31, 2003, € 80,000 thousand (2002: € 100,000 thousand) and US$ 30,000 thousand (2002: US$ 40,000 thousand) of the term loan had been used. Variable interest based on EURIBOR and LIBOR is payable quarterly or on demand. Further, Dürr has entered into a revolving credit facility in fiscal 2001 with Deutsche Bank AG, Landesbank Baden-Württemberg, Deutsche Bank Luxembourg S.A., and other banks of US$ 50,000 thousand. The revolving credit facility is payable no later than 2006. On December 31, 2003, US$ 50,000 thousand of the revolving credit line (2002: US$ 50,000 thousand) had been used. Variable interest based on EURIBOR and LIBOR is payable quarterly or on demand. As security for the loan borrowed in fiscal year 2001, the Group has deposited shares in subsidiaries with net assets totaling € 99,908 thousand (2002: € 144,404 thousand). The agreements with the consortium of banks contain certain covenants which require the Group to maintain financial ratios at the end of each calendar quarter. In the event of noncompliance with these covenants, the consortium of banks could demand repayment with a two-thirds majority. As of December 31, 2003, all these financial ratios had been maintained. 97 Consolidated financial statements for Dürr AG At December 31, 2003, Dürr had lines of credit and lines of guarantee at various banks totaling € 947,148 thousand (2002: € 999,590 thousand). Under the credit arrangements, the Group has the option to borrow amounts at various interest rates. Use of the credit lines is unrestricted, except for € 50,000 thousand (2002: € 50,000 thousand) which is to be used for acquisitions. Aggregate amounts of liabilities to banks maturing during the next five years and thereafter are as follows: 2004 2005 2006 2007 2008 Thereafter 158,704 2,515 120,073 2,124 2,198 11,214 Amounts in € k Liabilities to banks All lines of credit and guarantee can be summarized as follows: 2003 As of December 31, amounts in € k Total lines of credit and guarantee 947,148 Drawings on lines of credit/guarantee 761,677 Thereof due within one year 440,576 Thereof due after one year 321,101 € 104,672 thousand (2002: € 120,746 thousand) of liabilities to banks are payable in US dollars and € 792 thousand (2002: € 5,582 thousand) in pound sterling. The remaining amounts are generally payable in euros. Loans of € 16,570 thousand (2002: € 17,838 thousand) are secured by liens on hand. Total interest costs in fiscal 2003 amounted to € 24,809 thousand (2002: € 32,450 thousand), none of which were capitalized in the years ended December 31, 2003 and 2002. The weighted average interest rate for short-term liabilities to banks as of December 31, 2003, was 4.35 % (2002: 4.19 %). Besides the syndicated loan, Dürr has taken out a number of loans from various banks. These loans have terms of up to 17 years, are charged interest once every three or six months (between 3.75 % and 6.95 % p.a. or the three-month or six-month EURIBOR plus 0.60 % /0.50 % respectively) and some are secured by liens on land. Other liabilities Other liabilities primarily contain social security liabilities of € 13,488 thousand (2002: € 16,165 thousand), tax liabilities of € 31,847 thousand (2002: € 37,954 thousand), obligations under capital leases of € 11,419 thousand (2002: € 12,861 thousand) and derivative financial instruments of € 16,545 thousand (2002: € 27,750 thousand). 98 19. Segment information The Dürr Group is comprised of a strategic management holding and five business units (2002: five), differentiated by product and services, each responsible for their own products and results. Paint Systems The Paint Systems business unit plans and manufactures products and systems for large-scale production line painting for automotive producers and their suppliers. Final Assembly Systems The Final Assembly Systems business unit – formerly Automotion – was established at the beginning of 2002 and organizationally bundles the activities of the Dürr Group as a provider of products and systems for the final assembly of automobiles. Services The Services business unit offers product-related services for the automotive industry. Ecoclean The Ecoclean business unit is a specialist in systems for cleaning parts and coolant recycling as well as automation technology used to interlink processes. Measuring Systems The Measuring Systems business unit comprises activities in measuring technology of the Schenck Group. The business unit includes these product lines: Balancing and Diagnostic Systems, Measuring and Process Systems, Development Test Systems (for vehicle development) and Pre-Manufacturing Services (development and supply of mechanical parts and components). The Corporate Center comprises other fully consolidated companies. The principles underlying the Group’s management reporting and controlling are substantially the same as those described in the consolidated financial statements according to US-GAAP. The Company measures the performance of its business units by income before income taxes in accordance with the disclosure in the consolidated statements of income. Revenues related to transactions between the business units are generally recorded at values that approximate the prices that would be offered to independent third parties. Revenues are allocated to regions generally based on the location of the customer. Business unit assets and long-lived assets are allocated on the basis of the location of the subsidiary reporting these assets. 99 Consolidated financial statements for Dürr AG In the following tables, disclosures are made on the business units for the years ended December 31, 2003 and 2002. Final Paint Assembly Measuring Corporate Systems Systems Services Ecoclean Systems Center Dürr Group 1,237,175 312,564 146,082 209,591 359,096 – 2,264,508 Amounts in € k 2003 Revenues with external customers Revenues with other business units 5,988 124,017 401 5,962 5,829 – 1,243,163 436,581 146,483 215,553 364,925 – 2,406,705 27,267 7,382 7,114 6,183 – 29,036 – 25,857 – 6,947 Business unit assets 693,239 314,704 93,232 149,566 339,850 75,230 1,665,821 Capital expenditures 5,825 3,440 2,346 1,251 3,775 8 16,645 Depreciation and amortization 11,247 3,157 2,797 2,849 9,304 1,176 30,530 Employees as of Dec. 31, 2003 2,808 1,593 4,499 932 2,861 54 12,747 1,044,292 305,960 143,603 210,170 378,112 – 2,082,137 10,057 98,777 306 11,685 7,777 – 1,054,349 404,737 143,909 221,855 385,889 – 23,305 10,001 7,488 10,384 – 4,527 – 24,031 22,620 Business unit assets 675,755 314,103 106,000 156,453 407,157 130,833 1,790,301 Capital expenditures 12,014 2,761 4,340 6,085 4,180 22 29,402 Depreciation and amortization 12,763 4,483 3,287 3,154 9,542 837 34,066 Employees as of Dec. 31, 2002 2,837 1,609 4,272 1,079 3,046 59 12,902 Total revenues Income before income taxes 142,197* 2002 Revenues with external customers Revenues with other business units Total revenues Income before income taxes 128,602* 2,210,739 * These sales were eliminated in the Group. Sales with third parties and long-lived assets break down by region as follows: Other North/ Other EU European Central South Africa/ Asia/ Germany countries countries America America Australia Dürr Group 2003 571,072 527,258 85,892 763,480 29,320 287,486 2,264,508 2002 517,411 592,457 75,701 567,014 70,609 258,945 2,082,137 2003 182,684 152,593 6,924 197,068 7,404 8,296 554,969 2002 188,093 141,939 5,725 237,013 7,603 8,335 588,708 Amounts in € k Revenues with external customers Long-lived assets 100 Sales with one major customer amounted to 18.1 % of consolidated net revenues in the year ended December 31, 2003, and 12.6 % in the year ended December 31, 2002. The revenues were reported by the business units Paint Systems, Services, Final Assembly Systems, Ecoclean, and Measuring Systems. Another major customer accounted for 9.9 % of consolidated net revenues in the year ended December 31, 2003, and 12.6 % in the year ended December 31, 2002, allocated among the Paint Systems, Final Assembly Systems, Ecoclean, Measuring Systems, and Services business units. Entities known to be under common control are considered as a single customer. 20. Related party transactions Dr.-Ing. E. h. Heinz Dürr is Chairman of the Supervisory Board of Dürr AG. Dr.-Ing. E. h. Heinz Dürr is also a member of the Administrative Board of Landesbank Baden-Württemberg. Mr. Joachim Schielke is a member of the Supervisory Board of Dürr AG and a member of the Board of Management of Landesbank Baden-Württemberg. The Group has various loans and lines of credit at Landesbank Baden-Württemberg totaling € 84,401 thousand (2002: € 97,891 thousand). Drawings on these lines of credit amounted to € 10,025 thousand (2002: € 10,734 thousand). Dr. Tessen von Heydebreck is a member of the Supervisory Board of Dürr AG and also a member of the Board of Management of Deutsche Bank AG. Dürr has received various loans and lines of credit totaling € 114,401 thousand (2002: € 118,641 thousand). Drawings on these lines of credit amounted to € 31,578 thousand (2002: € 17,718 thousand). See note 18 “Liabilities” for further details regarding the various loans from Landesbank BadenWürttemberg and Deutsche Bank AG. The Group’s derivative financial instruments and interest rate swaps are mainly transacted through Deutsche Bank AG and Landesbank Baden-Württemberg. We refer to note 22 “Financial instruments” for details on the forward exchange transactions and interest rate swaps. The Board of Management confirms that all the above transactions with related parties were performed at arm’s length conditions. 21. Contingencies and other financial obligations Contingencies As of December 31, 2003, the Company had the following contingencies: 2003 2002 114,905 122,456 Amounts in € k Liabilities from guarantees, notes and check guarantees Other 10,667 5,802 125,572 128,258 101 Consolidated financial statements for Dürr AG Rental and lease agreements The Group companies have concluded lease and rental agreements for buildings, facilities, offices and vehicles at a range of locations. The contracts terminate at various dates between 2004 and 2018. The future minimum payments until the earliest possible contractually agreed termination are as follows: Total 2004 2005 2006 2007 2008 Thereafter 20,684 15,024 10,092 8,378 7,527 35,720 97,425 2,519 2,383 2,169 2,050 1,941 5,144 16,206 Amounts in € k Non-cancelable leases Capital leases Total related rental expenses in the year ended December 31, 2003, amount to € 25,774 thousand (2002: € 27,856 thousand). The interest portion for the total minimum payments for capital leases amounts to € 4,787 thousand (2002: € 5,592 thousand); the repayment portion amounts to € 11,419 thousand (2002: € 12,861 thousand), of which € 1,597 thousand (2002: € 1,561 thousand) are short term. Other financial commitments The other financial commitments that do not result from rental and lease agreements are listed below. 2004 2005 2006 2007 2008 33,629 34,049 7,766 7,836 7,920 Total Thereafter Amounts in € k Other continuous obligations Risks 34,244 125,444 The Group operates in countries where political and commercial risks exist. From a current perspective, the Group is not aware of the effects of such risks for the Group and the risks are therefore not included in the accompanying consolidated financial statements. Dürr may be involved in lawsuits, including product liability, in the normal course of business. Currently, there are no such matters pending that the Board of Management expects to be material in relation to the Group’s business, financial position, or results of operations. Legal costs are expensed as incurred. There is litigation pending related to a tax field audit conducted in fiscal year 2000. A demand for back tax of € 900 thousand plus possible interest is currently being negotiated. The Board of Management estimates the chances of the Group winning the litigation as more likely than not. The legal counseling and consulting fees associated with the case are expensed as incurred. Dürr is currently involved in arbitration proceedings against Alstom S.A. regarding the acquisition of Dürr AIS S.A.S., Courbevoie (France). In the agreement underlying this transaction, Alstom S.A. on the one hand, as well as Dürr AG, and Dürr Systems GmbH respectively on the other, agreed to an equity guarantee for the acquired Dürr AIS S.A.S. and associated companies as well as a gross margin guarantee for certain projects. The parties to the contract cannot agree on the actual amount of these guarantees. Since May 2001, the arbitration proceedings have therefore been pending at the International Chamber of Commerce (ICC), Paris (France). At a hearing on March 3, 2003, the court of arbitration decided to appoint an independent expert. According to the report of this expert from March 2004, both Alstom S.A. and Dürr have raised justifiable claims. The next hearing before the court of arbitration has been scheduled for April 15, 2004. Expert proceedings are expected to be initiated to determine the actual claims. 102 As of December 31, 2003, and December 31, 2002, Dürr has therefore recorded a receivable based on its claim against Alstom S.A. Depending on the result of arbitration, the reported receivable may have an effect on earnings in the coming fiscal years. Dürr considers it to be more probable than not that the main claims of Dürr will be asserted. 22. Financial instruments Use of financial instruments The Group uses derivative financial instruments to reduce the impact of changes in foreign exchange rates and interest rates on its cash flows and changes in the fair values of assets and liabilities. Interest swaps are also used to minimize the net interest payments. Dürr is exposed to credit loss in the event of non-performance by the other parties (financial institutions) to the financial instruments described below. All derivatives as well as the underlying transactions are subject to daily internal controls and valuation in line with a policy set by the Board of Management. Derivatives are only entered into with banks with a good credit rating. Interest rate swaps are entered into only with German banks. Entering into derivative contracts is limited to the economic hedge of known business risks. Fair market values The carrying amounts and fair market values of the major financial instruments as of December 31, 2003 and 2002, are as follows: 2003 As of December 31, amounts in € k 2002 Book value Fair value Book value Fair value Liabilities to banks – 296,828 – 297,789 – 353,774 – 356,185 Interest rate swaps – 14,681 – 14,681 – 27,363 – 27,363 4,456 4,456 3,093 3,093 Forward exchange contracts The fair value of financial derivatives has been estimated on the basis of the following methods and assumptions: The fair value of cash and cash equivalents, receivables, short-term investments and liabilities approximate their carrying amounts owing to their short-term liquidity. For long-term debt the fair value is estimated based on the current rates offered to the Group for debt with the same or similar remaining maturities and terms. For foreign currency exchange forward contracts, the fair values were estimated on the basis of the difference between the contractually agreed exchange rates and forward rate prevailing on the balance sheet date. The fair values of the interest rate swaps are estimated as the present value of expected future cash flows. Accounting and disclosure Foreign currency exchange forward contracts and interest rate swaps are recognized in the of derivative financial consolidated balance sheet at fair value. If the criteria for hedge accounting are fulfilled, the instruments and hedge instruments are accounted for as cash flow hedges as described in the following paragraph. accounting (SFAS No. 133) Otherwise the changes in market value are recorded in the consolidated statement of income at each balance sheet date. Consolidated financial statements for Dürr AG 103 Cash flow hedges The Group uses interest rate swaps to hedge the effect of the change in market interest rates on interest payments for existing and forecasted debt to banks. In addition, foreign currency exchange forward contracts were entered into in the year ended December 31, 2003, to hedge against exchange rate fluctuations on cash flows from purchase and sales transactions. The effective portion of the change in market value of interest swaps and foreign currency exchange forward contracts classified as cash flow hedges is recorded through “Accumulated other comprehensive income.” When the hedged transaction affects income, the amount from the interest swaps and forward exchange transactions recorded in other comprehensive income is reclassified into interest expense (interest swaps) and cost of sales (foreign currency exchange forward contracts) in the income statement. Due to the ineffectiveness of interest swaps, a net loss of € 112 thousand (2002: net loss of € 369 thousand) was recorded for the year ended December 31, 2003. Due to the improved liquidity situation, the interest hedges of a number of expected liabilities to banks were discontinued in fiscal 2003 and limited losses in the amount of € 3,106 thousand were reclassified from equity to the income statement. It is anticipated that € 210 thousand (2002: € 3,813 thousand) of net losses included in “Accumulated other comprehensive income” will be reclassified to income during the next 12 months due to the realization of the hedged interest payments as well as purchase and sales transactions. As of December 31, 2003, Dürr had entered into derivative financial instruments with a maximum maturity of 36 (2002: 48) months to hedge its exposure to interest risks and currency risks of planned transactions. 23. Additional local disclosure requirements Exempting conditions As a publicly traded company, Dürr AG makes use of the option to prepare exempting consoli- pursuant to Sec. 292a of dated financial statements according to an internationally recognized set of accounting standards the German Commercial instead of according to German GAAP as set forth in Sec. 292a HGB. Dürr AG has also applied Code (HGB) the German Accounting Standard (GAS) No. 1/1a to ensure the requisite compliance of group accounting with the 7th EU Directive. Exemption pursuant to Premier Manufacturing Support Services GmbH & Co. KG, Frankfurt/Main (Germany), has Sec. 264b HGB made use of the exemption option from the preparation of financial statements pursuant to Sec. 264b HGB. Exemption from the require- The company Ingeniería Agullo S.A., Barcelona (Spain), has made use of the exemption option ment to prepare consolidated from the preparation of consolidated financial statements pursuant to Spanish law. financial statements for a Spanish sub-group Main differences between The main differences between US-GAAP and German GAAP (HGB), as these pertain to the con- US-GAAP and German GAAP solidated financial statements of Dürr AG, are presented below. (HGB) The German and US accounting systems are based on fundamentally different considerations. While accounting according to HGB emphasizes the principle of prudence and the protection of creditors, the prime objective of US accounting is to provide information of relevance to investors for the decision-making process. The comparability of the financial statements, both between fiscal years and between different companies, as well as the determination of profits on an accrual basis are accorded more importance under US-GAAP than under HGB. 104 Accruals (SFAS No. 5, SFAS No. 87 and SFAS No. 88) In US accounting practice, accruals are generally not shown separately but under liabilities. To satisfy the provisions of the corresponding EU directive, Dürr still discloses accruals separately in the balance sheet, contrary to American accounting practice. In US accounting, the possibilities to recognize accruals are far more restricted than under HGB. Accruals have to be recognized when an obligation exists towards a third party, when its utilization is probable, and when the anticipated accrual amount can be reliably estimated. Accruals for future expenses are not permitted under US-GAAP. Under US-GAAP, pension accruals – unlike under German accounting principles – are determined taking anticipated wage and salary increases into account. For calculation purposes, the US-GAAP figure includes the market interest rates of the countries concerned and not the discount rate of 6 % applicable in German tax law. Pursuant to US accounting standards, accruals for restructuring measures may only be recorded if all the following criteria are satisfied cumulatively: (1) the preparation of a formal plan and its binding approval by the management before the balance sheet date, (2) the obligation to inform the employees concerned in such a way that the individual person can determine his claim, (3) the determination within the plan of the number of employees concerned, including the nature or function of their activities as well as their locations, and (4) the preclusion of material changes to the plan within the implementation phase. Under HGB, the general prerequisites apply as regards the recognition and valuation of accrued liabilities. An accrual for payments on account of a redundancy scheme pursuant to Sections 111, 112 BetrVG (Labor Management Relations Act) is only recognized for tax purposes if the company has informed the works council before the balance sheet date of the planned substantial alteration to the establishment, or if the substantial alteration to the establishment had been decided or was economically unavoidable and the works council was informed during the preparation of the financial statements before the balance sheet date (Rule No. 31c Sec. 6 EStR [German income tax regulations]). Goodwill (SFAS No. 142) Under US-GAAP, goodwill must be capitalized and reviewed annually for impairment or whenever there is any indication for impairment. Pursuant to HGB, goodwill can be amortized on a regular basis or offset against equity. These options are not permitted by US-GAAP. Unrealized gains (SFAS No. 52 and SFAS No. 133) Under HGB, the principle of imparity requires that only unrealized losses are recognized, while under US-GAAP, unrealized gains must also be recognized. This difference is particularly evident in the recognition of unrealized gains from end-of-period valuation of amounts denominated in foreign currencies and derivative financial instruments. Long-term construction contracts (SOP 81-1 and ARB Opinion No. 45) Under German law, revenues and expenses in connection with long-term construction contracts are recorded according to the principle of realization. Under US-GAAP, they are recognized according to the percentage-of-completion method. 105 Consolidated financial statements for Dürr AG Leases (SFAS No. 13 and SFAS No. 98) Under US-GAAP, leased assets are capitalized by the economic owner and not the legal owner. With the capital lease, the risks and rewards from the ownership of the leased asset largely lie with the lessee although the lessee does not have legal title to the asset. Under US-GAAP, such a capital lease is treated similarly to a purchase. This means that the lessee capitalizes the leased asset and shows a liability in the same amount while the lessor posts a receivable from sales financing and revenues from the sale of the leased asset. Deferred taxes (SFAS No. 109) Under US-GAAP, deferred tax assets and liabilities have to be recognized that result from temporary differences between tax carrying values and the carrying values in the consolidated balance sheet. Due to the reduced future tax payments, tax loss carryforwards represent an economic benefit. Therefore, when the loss arises, the future (deferred) tax benefit has to be capitalized subject to its realizability. Derivative financial instruments (SFAS No. 133, SFAS No. 137, and SFAS No. 138) According to US-GAAP, all derivative financial instruments must be recognized at fair value. Special accounting treatment, in which fluctuations in fair values are recognized in “Accumulated other comprehensive income” rather than directly affecting income, is permitted when specific restrictive criteria are met. The application of hedge accounting depends on the nature of the underlying transactions and financial instruments used for hedging those transactions. If the criteria for hedge accounting are not met, the fluctuations in fair value of the derivatives are posted to income in the period of occurrence. Global macro hedges do not qualify for hedge accounting under US-GAAP. Minority interests HGB follows the entity theory, which requires that minority interests be classified as a part of equity. In addition, the income or loss attributable to minority interests is included in the consolidated entity’s net income or loss. Under US-GAAP, in accordance with the parent company theory, minority interests are not considered part of equity but are classified separately between equity and liabilities. The income or loss attributable to minority interests is recorded as income or expense and is therefore excluded from the consolidated entity’s net income or loss. German Corporate The statement required by Sec. 161 of the German Stock Corporation Law (AktG) was issued by Governance Code/statement the Board of Management and the Supervisory Board of Dürr AG and Carl Schenck AG and made pursuant to Sec. 161 AktG available to shareholders. Other disclosures Annual average labor force: 2003 2002 Manual workers 6,127 5,720 Salaried employees 6,500 6,572 Trainees/apprentices 330 328 12,957 12,620 As of December 31, 2003, Dürr employed 12,747 people (2002: 12,902). 106 Members of the Board of Management Stephan Rojahn Kay Bönisch Chairman (since January 1, 2003) (since November 1, 2003) Ecoclean, Measuring Systems Finance, Controlling, Human Resources, Global Sourcing, Internal Auditing, Legal Public & Investor Relations, Carl Schenck AG* (Chairman since February 1, 2003) Dürr Systems GmbH* (since January 1, 2003, Chairman since January 20, 2003) Carl Schenck AG* (since February 2, 2004) INTX AG* (since February 1, 2004, Chairman) Dürr Inc.* (since February 1, 2004) Premier Manufacturing Support Services Inc.* (since February 1, 2004) Dürr Ecoclean Inc.* (since March 5, 2003, Chairman) Dürr Inc.* (Chairman) Olpidürr S.p.A.* (since January 1, 2003) Verind S.p.A.* (since January 1, 2003) Dr. Reinhold Grau Paint Systems Research & Development, Information Technology, Sales & Marketing Dr. Wolfgang Baur (until January 31, 2004) INTX AG* Dürr Inc.* (since October 14, 2003) Finance, Controlling, Human Resources, Dürr Japan K.K.* Legal, Information Technology Dürr Ltd.* Carl Schenck AG* (until January 31, 2004) INTX AG* (until January 31, 2004, Chairman) Dürr Paintshop Equipment and Engineering (Shanghai) Co. Ltd.* Dürr Paintshop Systems Engineering Competence Call Center AG (Shanghai) Co. Ltd.* (since March 1, 2004) Dürr Systems Spain S.A.* Dürr Systems Spain S.A.* (until January 31, 2004) Olpidürr S.p.A.* Dürr Inc.* (until January 31, 2004) Verind S.p.A.* Premier Manufacturing Support Services Inc.* (until January 31, 2004) 107 Consolidated financial statements for Dürr AG Frank Haun (until March 31, 2003) Dr. Norbert Klapper Final Assembly Systems, Services Ecoclean, Measuring Systems Quality Management Carl Mahr Holding GmbH Dürr Inc.* (since October 14, 2003) Dürr Ecoclean Inc.* (until April 3, 2003, Chairman) Ingeniería Agullo S.A.* (until March 31, 2003) Interautomation Inc., CAN* (until March 31, 2003, Chairman) Nagahama Seisakusho Ltd.* (until March 31, 2003) Dürr Paintshop Systems Engineering (Shanghai) Co. Ltd.* (since March 1, 2004) Dürr Production Systems Inc.* Dürr Systems Spain S.A.* (since February 1, 2004) Premier Manufacturing Support Services Inc.* Schenck Corporation* (until March 31, 2003, Chairman) Schenck Ltd.* (until March 31, 2003, Chairman) STIC-HAFROY S.A.* (until March 31, 2003) Portfolio distribution of board members Membership in statutory supervisory boards Membership in comparable domestic or foreign control bodies of business enterprises * Group mandate Total remuneration for members of the Board of Management came to € 1,912 thousand in the year ended December 31, 2003. Remuneration of € 669 thousand was paid to former members of the management. The pension accruals for this group came to € 8,861 thousand for the year ended December 31, 2003. The remuneration of the members of the Board of Management of Dürr AG comprised fixed and variable components. When assessing the fixed component, the Supervisory Board takes into account the economic situation of the Dürr Group and also the duties and responsibilities of the respective board members. The biannual review considers both the personal performance of each board member as well as the performance of the board as a whole and takes these into account when making any adjustments. The amount of the variable remuneration components depends to a large extent on the success of the company. Another component of the variable remuneration is DISOP (Dürr International Stock Option Plan). DISOP is characterized by risks and acts as a long-term incentive and has a vesting period. The Supervisory Board decides annually on the issue of new DISOP tranches. In fiscal 2003, there were no securities transactions that have to be reported in accordance with Sec. 15a of the German Securities Trading Act (WpHG), nor did the members of the Board of Management possess any securities on December 31, 2003, which had to be reported in accordance with Fig. 6.6 of the German Corporate Governance Code. 108 Members of the Supervisory Board Dr.-Ing. E. h. Heinz Dürr1 Benno Eberl 2, 3 Entrepreneur, Berlin Trade Union Secretary of IG Metall Chairman administrative offices, Stuttgart Benteler AG ThyssenKrupp Aufzüge GmbH Dussmann AG & Co. KGaA (Deputy Chairman) Krone GmbH (Chairman) ThyssenKrupp Elevator AG Stinnes AG (until November 4, 2003) (Deputy Chairman) Carl-Zeiss-Stiftung (until December 31, 2003, Trust Commissioner) Landesbank Baden-Württemberg (Member of the Administrative Board) Prof. Dipl.-Ing. Jörg Menno Harms Chairman of the Board of Management of Hewlett Packard GmbH and Holding GmbH, Böblingen Peter Weingart1, 3 Heraeus Holding GmbH Chairman of the Group Works Council Jenoptik AG of Dürr AG, Stuttgart Württembergische Deputy Chairman Hypothekenversicherung AG Dürr Systems GmbH* (Deputy Chairman) CA Leuze GmbH & Co. KG (Member of the Administrative Board) Groz Beckert KG (Deputy Chairman) Prof. Dr. Norbert Loos1, 2 Managing Partner of Loos Beteiligungs-GmbH, Stuttgart Dr. Tessen von Heydebreck Deputy Chairman Member of the Board of Management of Behr GmbH & Co. Deutsche Bank AG, Frankfurt/Main BWK GmbH Unternehmensbeteiligungs- BASF AG gesellschaft BVV Versicherungsverein des Carl Schenck AG* Bankgewerbes a.G. (Chairman until January 31, 2003) Deutsche Bank Privat- und Dr. Haas GmbH (Chairman) Geschäftskunden AG* Hans R. Schmidt Holding AG Dt. Euroshop AG (Chairman) DWS Investment GmbH* LTS Lohmann Therapie-Systeme AG Gruner + Jahr AG (Chairman) Trumpf GmbH + Co. KG LTS AG, USA (Chairman) Deutsche Bank Luxembourg S.A.* (Chairman) Deutsche Bank OOO, Moscow* (Chairman) Deutsche Bank Polska S.A.* (Chairman) Deutsche Bank Rt., Budapest* (Chairman) Lieselotte Dedek-Fried2, 3 Deutsche Bank Trust Corp.* Member of the Works Council of DB Trust Company America* Schenck RoTec GmbH, Darmstadt EFG Eurobank Ergasias S.A. 109 Consolidated financial statements for Dürr AG Werner Kramp 3 Dr. Heinz Gerd Stein2 Chairman of the Works Council of Schenck Business Consultant, Duisburg Final Assembly Products GmbH, Püttlingen AXA Versicherung AG Chairman of the Group Works Council, Bankgesellschaft Berlin AG Carl Schenck AG, Darmstadt Howaldtswerke-Deutsche Werft AG until February 28, 2003 Landesbank Berlin – Girozentrale – WILO AG Peter Krüger 3 Manager Commercial Order Processing of Dürr Systems GmbH, Stuttgart (until December 31, 2003) Evangelisches und Johanniter Klinikum Duisburg/Dinslaken/Oberhausen gem. GmbH Hülskens Holding GmbH & Co. INTAC International, Inc. Kunststoffwerk Philippine GmbH & Co. KG Günter Lorenz1, 3 Principal Authorized Representative of IG Metall administrative offices, Darmstadt Siemens VDO Automotive AG (Chairman) Saarpor Klaus Eckhardt GmbH Neunkirchen Kunststoffe KG (Chairman) Thumann & Heitkamp Verwaltungs-GmbH ThyssenKrupp Budd Company ThyssenKrupp Elevator Holding Corp. Harald Rüber 3 Manager Commercial Project Processing of Dürr Systems GmbH, Stuttgart (since January 1, 2004) Total remuneration for members of the Supervisory Board amounted to € 406 thousand in the year ended December 31, 2003. Joachim Schielke In fiscal 2003, there were no securities trans- Member of the Board of Management of actions that have to be reported in accordance Landesbank Baden-Württemberg, Stuttgart with Sec. 15a of the German Securities Trading ICS Informatik Consulting Systems AG Internationales Bankhaus Bodensee AG* (Chairman) Süd Private Equity Management GmbH & Co. KGaA* (Deputy Chairman) MKB Mittelrheinische Bank GmbH* (Deputy Chairman) MMV Leasing GmbH (Deputy Chairman of the Advisory Board) Rehabilitationsklinik Bad Wurzach GmbH 1 Member of the Mediation Committee and Personnel Committee Member of the Audit Committee 3 Employee representative Membership in statutory supervisory boards Membership in comparable domestic or foreign control bodies of business enterprises * Group mandate 2 Act (WpHG), nor did the members of the Supervisory Board possess any securities on December 31, 2003, which had to be reported in accordance with Fig. 6.6 of the German Corporate Governance Code. 110 24. Development of fixed assets Intangible assets Licenses, patents and Goodwill similar rights Prepayments Total 341,743 61,996 200 403,939 Amounts in € k Acquisition and manufacturing cost at Jan. 1, 2003 Changes in consolidation group 4,467 – – 4,467 Additions – 6,533 920 7,453 Disposals 119 3,573 – 3,692 – 19 – 19 1,120 412,186 Reclassifications Acquisition and manufacturing cost at Dec. 31, 2003 346,091 64,975 Accumulated amortization at Jan. 1, 2003 – 28,882 76 28,958 Additions – 6,054 44 6,098 Disposals – 2,003 – 2,003 Accumulated amortization at Dec. 31, 2003 – 32,933 120 33,053 Net book value at Dec. 31, 2003 346,091 32,042 1,000 379,133 Net book value at Dec. 31, 2002 355,538 34,766 144 390,448 Property, plant and equipment Land, land rights Other and buildings equipment, Prepayments including buildings Machines and furniture and and construction on third-party land equipment fixtures in progress Total Amounts in € k Acquisition and manufacturing cost at Jan. 1, 2003 183,108 74,653 134,896 3,384 396,041 Additions 3,183 3,976 8,594 892 16,645 Disposals 6,394 3,192 19,958 106 29,650 Reclassifications 2,081 818 364 – 3,282 – 19 181,978 76,255 123,896 888 383,017 57,993 54,815 102,886 – 215,694 Acquisition and manufacturing cost at Dec. 31, 2003 Accumulated depreciation at Jan. 1, 2003 Additions 5,441 7,085 11,292 – 23,818 Disposals 3,523 2,881 19,325 – 25,729 – 31 – 18 49 – – 59,880 59,001 94,902 – 213,783 Net book value at Dec. 31, 2003 122,098 17,254 28,994 888 169,234 Net book value at Dec. 31, 2002 132,458 21,503 34,498 3,516 191,975 Reclassifications Accumulated depreciation at Dec. 31, 2003 111 Consolidated financial statements for Dürr AG Investments Investments in associated Other Marketable companies investments securities Other loans Total 18,274 2,105 578 1,957 22,914 Amounts in € k Acquisition and manufacturing cost at Jan. 1, 2003 Additions 476 – 17 758 1,251 Disposals 1,181 – 27 383 1,591 17,569 2,105 568 2,332 22,574 Acquisition and manufacturing cost at Dec. 31, 2003 Accumulated depreciation at Jan. 1, 2003 1,609 200 – – 1,809 Additions 592 21 1 – 614 Disposals 592 – – – 592 1,609 221 1 – 1,831 Net book value at Dec. 31, 2003 15,960 1,884 567 2,332 20,743 Net book value at Dec. 31, 2002 17,842 1,904 579 2,142 22,467 Accumulated depreciation at Dec. 31, 2003 Stuttgart, March 30, 2004 Dürr Aktiengesellschaft The Board of Management Stephan Rojahn Kay Bönisch Dr. Reinhold Grau Dr. Norbert Klapper 112 Dürr worldwide Germany Dürr AG Stuttgart, phone: +49-7 11-136-0 [email protected] INTX AG Stuttgart, phone: +49-7 11-136-0 [email protected] Carl Schenck AG Darmstadt, phone: +49-61 51- 32-0 [email protected] Dürr AIS GmbH Butzbach, phone: +49-60 33-80-5 00 [email protected] Dürr Environmental GmbH Stuttgart, phone: +49-7 11-136-0 [email protected] Dürr Systems GmbH Stuttgart, phone: +49-7 11-136-0 [email protected] Bietigheim-Bissingen, phone: +49-71 42-78-0 [email protected] Premier Manufacturing Support Services GmbH & Co. KG Stuttgart, phone: +49-7 11-1 36-26 46 [email protected] Premier Brasil Serviços de Suporte para Indústria Ltda. São Paulo, phone: +55-11-56 33 36 84 [email protected] Dürr Ecoclean GmbH Filderstadt, phone: +49-7 11-70 06-0 [email protected] Schenck do Brasil Indústria e Comérçio Ltda. São Paulo, phone: +55-11-56 33 35 00 [email protected] Monschau, phone: +49-24 72-83-0 [email protected] Schenck Fertigungs & Service GmbH Darmstadt, phone: +49-61 51-32-20 61 [email protected] Schenck Pegasus GmbH Darmstadt, phone: +49-61 51-32-30 98 [email protected] Schenck Process GmbH Darmstadt, phone: +49-61 51-32-10 28 [email protected] Schenck RoTec GmbH Darmstadt, phone: +49-61 51-32-23 11 [email protected] Dürr Canada Inc. Windsor, phone: +1-7 34-4 59 68 00 [email protected] Dürr Acco Canada Inc. Windsor, phone: +1-5 86-7 55 75 00 [email protected] Premier Manufacturing Support Services of Canada Ltd. Alliston, phone: +1-7 05-4 35 50 77 [email protected] Interautomation Inc. Oakville, phone: +1-9 05-8 27 77 55 [email protected] Ochtrup, phone: +49 -25 53-9 27-0 [email protected] DSEngineering GmbH Darmstadt, phone: +49-61 51-32-39 43 [email protected] Dürr Automotion GmbH Stuttgart, phone: +49-7 11-136-0 [email protected] Brunswick, phone: +49-5 31-21 59-0 [email protected] Darmstadt, phone: +49-61 51-32-42 01 [email protected] Dürr Somac GmbH Chemnitz, phone: +49-37 18-1 22-0 [email protected] Australia Dürr Pty. Ltd. Adelaide, phone: +61-8-82 38 34 63 [email protected] Schenck Australia Pty. Ltd. North Ryde, phone: +61-2-98 78 41 00 [email protected] Austria Dürr Anlagenbau Ges.m.b.H. Zistersdorf, phone: +43-25 32-25 46 [email protected] Schenck Ges.m.b.H. Braunau, phone: +43-77 22-62 38 70 [email protected] Brazil Schenck Final Assembly Products GmbH Püttlingen, phone: +49-68 98-6 92-0 [email protected] Dürr Brasil Ltda. São Paulo, phone: +55-11-56 33 35 00 [email protected] Final Assembly Systems China Dürr Paintshop Systems Engineering (Shanghai) Co. Ltd. Shanghai, phone: +86-21-62 19 37 19 [email protected] Premier Automobile Manufacturing Support Services (Shanghai) Co. Ltd. Shanghai, phone: +86-21-50 64 32 04 [email protected] Dürr Special Material Handling GmbH Grenzach-Wyhlen, phone: +49-76 24-3 10 [email protected] Paint Systems Canada Services Schenck Shanghai Machinery Corp. Ltd. Shanghai, phone: +86-21-62 65 96 63 [email protected] [email protected] Schenck Shanghai Testing Machinery Corp. Ltd. Shanghai, phone: +86-21-3 06 45 99 Schenck (Tianjin) Mineral System Co. Ltd. Tianjin, phone: +86-22-83 96 37 20 [email protected] Ecoclean Measuring Systems 113 Dürr worldwide Colombia Schenck Américas S.A. Bogotá, phone: +57-1-3 60 33 70 [email protected] Premier Manufacturing Support Services (UK) Ltd. Warwick, phone: +44-19 26-41 89 26 [email protected] Schenck Ltd. Banbury, phone: +44-12 95-25 11 22 [email protected] Czech Republic Premier Manufacturing Support Services s r.o. Mladá Boleslav, phone: +42-03-2 63 02 15 [email protected] Schenck spol. s r.o. Prague, phone: +42-02-33 09 41 11 [email protected] Schenck Test Automation Ltd. Worcester, phone: +44-19 05-61 33 61 [email protected] Schenck Vægt- og Maskinfabrik ApS Bagsværd, phone: +45-44-98 22 55 [email protected] France Dürr AIS S.A.S. Courbevoie, phone: +33-1-43 34 74 00 [email protected] Dürr Automotion S.A. Massy, phone: +33-1-69 93 29 00 [email protected] STIC-HAFROY S.A. Loué, phone: +33-2-43 39 78 00 [email protected] Schenck S.A.S. Le Pecq, phone: +33-1-30 09 13 00 [email protected] Dürr Japan K.K. Yokohama, phone: +81-45-4 75 36 71 [email protected] Nagahama Seisakusho Ltd. Osaka, phone: +81-72-6 96 33 01 [email protected] Schenck-TKS Test Systems Ltd. Kanagawa, phone: +81-42-7 80 53 81 [email protected] SRH Systems Ltd. Worcester, phone: +44-19 05-61 33 61 [email protected] Mexico India Denmark Japan Dürr India Pvt. Ltd. Chennai, phone: +91-44-4 32 36 20 [email protected] Schenck Avery Ltd. Noida, phone: +91-120-2 56 31 74 [email protected] Schenck Jenson & Nicholson Ltd. Ranchi, phone: +91-651-2 29 07 35 [email protected] Dürr de México S.A. de C.V. Naucalpan de Juarez, phone: +52-55-53 29 11 88 [email protected] Premier Manufacturing Support Services de México, S. de R.L. de C.V. Saltillo, phone: +52-84-44 16 86 87 [email protected] Netherlands Premier Manufacturing Support Services B.V. Born, phone: +31-46-4 89 42 87 [email protected] Italy Olpidürr S.p.A Novegro di Segrate, phone: +39-02-70 21 21 [email protected] Polisistem S.r.l. Turin, phone: +39-011-61 26 26 [email protected] Carl Schenck Machines en Installaties B.V. Rotterdam, phone: +31-10-4 11 75 40 [email protected] Poland Verind S.p.A. Rodano, phone: +39-02-95 32 09 74 [email protected] Dürrpol Sp. z o.o. Radom, phone: +48-48-3 61 01 00 [email protected] CPM S.p.A. Beinasco, phone: +39-0 11-3 98 84 11 [email protected] Premier Manufacturing Support Services Poland Sp. z o.o. Gliwice, phone: +48-32-2 70 98 33 [email protected] Great Britain Dürr Ltd. Warwick, phone: +44-19 26-41 88 00 [email protected] Schenck Automation Systems Ltd. Warwick, phone: +44-19 26-41 88 55 [email protected] Paint Systems Schenck Italia S.r.l. Paderno Dugnano, phone: +39-02-91 00 24 41 [email protected] Final Assembly Systems Services Schenck Polska Sp. z o.o. Warsaw, phone: +48-22-6 65 40 11 [email protected] Ecoclean Measuring Systems 114 Russia Dürr Systems GmbH Moscow, phone: +7-095-9 26 06 26 [email protected] Ingeniería Agullo S.A. Barcelona, phone: +34-93-2 92 11 00 [email protected] Acco Systems Inc. Warren/MI, phone: +1-5 86-7 55 75 00 [email protected] Industrias Schenck S.A. Madrid, phone: +34-91-7 46 19 80 [email protected] Dürr Production Systems Inc. Farmington/MI, phone: +1-2 48-4 78 35 00 [email protected] Singapore Carl Schenck Singapore Pte. Ltd. Singapore, phone: +65-7 75 80 98 [email protected] Premier Manufacturing Support Services Inc. Cincinnati/OH, phone: +1-5 13-7 31 35 90 [email protected] Sweden Premier Manufacturing Support Services A.B. Trollhättan, phone: +46-52-08 48 74 [email protected] Slovakia Schenck Slovakia spol. s r.o. Bratislava, phone: +42-12-55 56 34 70 [email protected] Dürr Automation Inc. Wixom/MI, phone: +1-2 48-9 60 46 30 [email protected] Thailand Premier Manufacturing Support Services (Thailand) Co., Ltd. Bangkok, phone: +66-26-73 31 08 [email protected] South Africa Dürr South Africa Ltd. Port Elizabeth, phone: +27-41-3 63 58 88 [email protected] Schenck Africa (Pty.) Ltd. Johannesburg, phone: +27-11-4 93 53 40 [email protected] South Korea Auburn Hills/MI, phone: +1-2 48-7 45 81 50 [email protected] Henry Filters Inc. Bowling Green/OH, phone: +1-4 19-3 52 75 01 [email protected] H.R. Black Co. Inc. Sterling Heights/MI, phone: +1-5 86-2 64 20 20 [email protected] Ukraine Schenck Ukraina TOW Kiev, phone: +38-044-4 90 26 96 [email protected] Schenck AccuRate Inc. Whitewater/MI, phone: +1-2 62-4 73 24 41 [email protected] Schenck Pegasus Corporation Troy/MI, phone: +1-2 48-6 89 90 00 [email protected] USA Dürr Korea Inc. Seoul, phone: +82-2-5 69 22 44 [email protected] Behr Systems Inc. Auburn Hills/MI, phone: +1-2 48-7 45 85 00 [email protected] Schenck RoTec Corporation Troy/MI, phone: +1-2 48-6 89 90 00 [email protected] Schenck Korea Ltd. Seoul, phone: +82-2-5 62 77 06 [email protected] Dürr AIS Inc. Wixom/MI, phone: +1-2 48-6 68 21 00 [email protected] Schenck Trebel Corporation Deer Park/NY, phone: +1-5 16-2 42 40 10 [email protected] Dürr Environmental Inc. Plymouth/MI, phone: +1-7 34-4 59 68 00 [email protected] Spain Dürr Systems Spain S.A. Madrid, phone: +34-91-5 5176 63 [email protected] San Sebastián, phone: +34-94-3 3170 00 [email protected] Valladolid, phone: +34-98-3 39 70 02 [email protected] Somerville/NJ, phone: +1-9 08-6 85 46 00 [email protected] Dürr Inc. Plymouth/MI, phone: +1-7 34-4 59 68 00 [email protected] Dürr Industries Inc. Plymouth/MI, phone: +1-7 34-4 59 68 00 [email protected] Viladecans, phone: +34-93-6 47 25 25 [email protected] Paint Systems Final Assembly Systems Services Ecoclean Measuring Systems 115 Glossary Glossary A F Application technology General term for all products related to the spray application of paint and high-viscosity materials. Important products that fall under the heading of “application technology” include painting robots, paint atomizers, paint supply systems, and color change systems. Filling systems Systems dispensing materials essential for automobile operation (fuel, brake fluid, engine oil and coolant, transmission oil or fluid, airconditioning refrigerant, windshield washer fluid, power steering fluid, and air for air suspension systems) in the final assembly stage of production. Asynchronous machine A driving and loading device used in engine and transmission test stands. B Body-in-white Manufacturing, joining and welding, gluing or riveting of all body parts to produce the basic unfinished car body. C Chassis tuning For optimal vehicle handling, the position of the wheels must be perfectly oriented to the road. The chassis is therefore measured and manually or automatically tuned to the correct values in the final assembly stage. Coolant recycling Coolants are used in workpiece machining operations such as boring and milling. They cool the workpieces and tools, reduce friction and wear, and bind any metal shavings. The recycling systems cool the used coolant and remove the shavings through a filtration process so the coolant can be reused in the machining process. Fleet management Management of transport equipment fleets (forklifts, lift trucks, etc.) includes, for example, coordination of leasing and maintenance as well as management of spare parts. H High-viscosity materials Sprayable materials, often containing PVC, that are applied to car bodies to seal weld seams or as cavities or as underbody protection. Adhesives and liquid insulation materials also fall under this general term. L Light trucks Lightweight commercial vehicles. The category of light trucks includes pick-ups, vans, and sport utility vehicles. M Power train All components involved in propelling an automobile: engine, clutch, transmission, differential, and drive shafts, as well as propshaft for rear axle drive. Products business Business with machines and stand-alone products or units. Compared with systems business (total plant or line business), products business (machine business) is characterized by shorter order processing times and lower order values. S Supervisory control systems Centralized computer system for controlling and supervising control of a complete production plant. Systems business Realization of complete lines or plants comprising multiple individual products or equipment. Examples include paint shops and final assembly lines. Systems business (total plant or line business) is characterized by high order values and processing times that sometimes extend over several years. T Test systems Dürr supplies testing systems for two stages in the automobile value chain: Marriage Joining and bolting together of power train, chassis, and body in vehicle final assembly. Vehicle development: functions and features of future car models and components are tested, for example fuel consumption, exhaust emission, wind resistance, and braking effectiveness. Prototypes are usually used for the tests. P D Deburring This is the process of removing from workpieces thin ridges (“burrs”) left during boring or milling operations, for instance. If these burrs are not removed, they could break off later and cause damage to or even the failure of the engine or transmission. Dip painting Process used for priming vehicle bodies. In dip painting, the bodies are completely immersed in the paint. The liquid paint adheres to the entire outer surface as well as the cavities. After dipping, the paint is dried and cured as in other painting processes. E End of line The area in the process of vehicle final assembly where fully assembled vehicles are tuned, tested, and prepared for shipping. Paint atomizers Paint atomizers ensure that paint is applied in an even spray stream. High-rotation atomizers reduce the paint to a fine spray mechanically and generate a bell-shaped spray stream. Air atomizers generate an oval spray stream. Electrostatic attraction is used to ensure a high degree of application efficiency (paint utilization). Powder painting Instead of wet paint, this process applies powder paint using spray guns or highrotation atomizers. The paint is then baked on (i.e. melted and fused) in an oven. The advantages of powder painting are a solventfree process and lower energy consumption. In addition, it is possible to achieve almost 100 % utilization efficiency of powder paint if overspray is captured and recycled into the painting process. End of line: functions of fully assembled vehicles are tested, for example headlights and ABS. V Vehicle final assembly Final assembly of the body and all subassemblies and components of an automobile, including inspection and tuning at the end of line. Virtual reality (VR) A three-dimensional, animated environment that is generated on a computer and through which users can “move” with the help of software or electronic devices such as headmounted displays (HMD). VR software is used, for instance, in planning automobile manufacturing plants. It provides an image that looks and runs just like a real plant, including all production lines and processes. 116 Publisher: Dürr AG Otto-Dürr-Strasse 8 70435 Stuttgart Germany Please contact us for further information: Dürr AG Public & Investor Relations Phone: + 49-7 11-1 36 -0 Fax: + 49-7 11-1 36 -17 16 [email protected] [email protected] www.durr.com The English translation of our 2003 Annual Report is based on the original German version. The German version shall prevail. 28.04.2004 18:35 Uhr Seite 1 2003 Annual Report Dürr AG Paint Systems Technologies · Systems · Solutions is the world’s leading provider of mass-production paint shops for automobile manufacturers and their suppliers. Final Assembly Systems plans and supplies products and complete systems for final vehicle assembly. Services supports the automotive industry worldwide with production-related services. Ecoclean provides systems for parts cleaning, coolant recycling, and automation in workpiece machining. Measuring Systems combines all of the Schenck Group’s activities in measuring technology. Design: 3st kommunikation, Mainz, Germany Setting: Knecht, Ockenheim, Germany Printing: Societätsdruck, Walldorf, Germany Binding: Thalhofer, Schönaich, Germany “ethabind” jacket, patented Dürr 2003 Annual Report 240645_Duerr_Umschlag_E 28.04.2004 18:35 Uhr Seite 1 2003 Annual Report Dürr AG Paint Systems Technologies · Systems · Solutions is the world’s leading provider of mass-production paint shops for automobile manufacturers and their suppliers. Final Assembly Systems plans and supplies products and complete systems for final vehicle assembly. Services supports the automotive industry worldwide with production-related services. Ecoclean provides systems for parts cleaning, coolant recycling, and automation in workpiece machining. Measuring Systems combines all of the Schenck Group’s activities in measuring technology. Design: 3st kommunikation, Mainz, Germany Setting: Knecht, Ockenheim, Germany Printing: Societätsdruck, Walldorf, Germany Binding: Thalhofer, Schönaich, Germany “ethabind” jacket, patented Dürr 2003 Annual Report 240645_Duerr_Umschlag_E
Similar documents
Complete Paint Shops for the Automotive Industry and its Suppliers
• Material logistics Ecopaint Supply • Quality measurement Ecopaint Quality
More information