Annual Report RENK AG

RENK AG

Gögginger Str. 73 86159 Augsburg, Germany Phone (+49-821) 5700-0

Fax (+49-821) 5700-573 Annual Report RENK AG

www.renk.eu 2010 An MAN Group Company

Innovative Power Transmission

Annual Report 2010 RENK AG At a glance Products and services

• Operating profit of €52 million (down from €66 million) • ROS: 12.9 percent (down from 13.9) Vehicle transmissions • ROCE: 36.9 percent (down from 38.8) Fully automatic power-shift, reverse and steering transmissions with brake systems and final drives for medium and heavy tracked vehicles. • EpS: €5.54 (down from €6.80) • Proposed dividend: €1.80 (unchanged) • Cash flow from operating activities: €81 million (up from €62 million) Industrial gear units Gear units for the cement industry. Spur-wheel and planetary gear units for turbo- machines especially for the petrochemical industry and power generating plants. High- RENK Group speed gear units for the plastics industry. Gear units for wind turbines. € million 2010) 2009) Change in % Marine gear units Order intake 525) 294) +79 Gear units for merchant vessels, ferries, cruise liners and naval craft with diesel engine Sales 403) 474) –15 and/or turbine as well as electric propulsion, marine reversing gear units, reduction gear Order backlog1) 522) 415) +26 units and variable-speed gears for ship generators. Headcount1) 1,882) 1,903) –1 thereof temporary employees1) 68) 35) +94 Slide bearings Change Standard and special versions of horizontal and vertical slide bearings for electrical in € mill. machines, air blowers/fans, compressors, pumps, turbines, and general mechanical Operating profit 52) 66) –14 engineering. Slide bearings for transmissions. Marine shaft bearings and thrust bearings. EBT 52) 65) –13 EAT (net income) 38) 46) –8 Earnings per share (EpS) in € 5.54) 6.80) –1.26 Clutches and couplings Dividend per share in € 1.80) 1.80) –) Curved-tooth couplings for industry, marine and ocean technology, as well as for rail- Return on sales (ROS) in % 12.9) 13.9) –) bound vehicles; multidisk steel clutches for slow- and high-speed industrial duties, dia- Return on capital employed (ROCE) in % 36.9) 38.8) –) phragm couplings for high-speed machinery, safety couplings. Torsionally elastic couplings. Capital expenditures 23) 20) +3 Amortization and depreciation 13) 11) +2 Internally funded R&D expenditures 4) 4) – Testing systems Cash earnings 53) 59) –6 Testing rigs for development and quality assurance in the motor vehicle and aviation Cash flow from operating activities 81) 62) +19 industries as well as for railroad engineering. Cash flow from investing activities (23) (20) –3 Free cash flow 58) 42) +16 Net liquid assets 99) 53) +46 Equity1) 217) 192) +25

1) as of December 31, 2010 vs. 2009

Financial diary Fiscal 2010 annual general meeting April 14, 2011 Q1/2011 interim report May 3, 2011 Semiannual financial report 2011 July 28, 2011 Q3/2011 interim report November 2, 2011 Press release on financial information 2011 February 27, 2012 Fiscal 2011 annual general meeting April 26, 2012

RENK—an MAN Group Company Contents

04 Supervisory Board 05 Executive Board 06 Report of the Supervisory Board 10 Corporate governance at RENK 16 Board compensation report for fiscal 2010 23 RENK stock

24 RENK Group Management Report for fiscal 2010 25 The RENK Group’s business focus 26 Economic environment 30 Business trend and performance 36 Income statement 37 Reconciliation to net income (EAT) 38 Controlling system and shareholder value management 40 Financial position 41 Asset and capital structure 44 Capital-related disclosures 46 Research and development 50 Capital expenditures 52 Employees 56 The situation at the divisions 70 Risk report 81 Corporate governance statement 84 Outlook

89 RENK consolidated financial statements for the fiscal year ended December 31, 2010 90 Consolidated income statement 90 Statement of comprehensive income 91 Consolidated balance sheet as of December 31, 2010 92 Statement of changes in equity 93 Consolidated statement of cash flows for fiscal 2010 95 Notes to RENK’s consolidated financial statements 95 Accounting principles 107 Notes to the consolidated income statement 112 Notes to the consolidated balance sheet 123 Other information 138 Supervisory and Executive Board memberships in other statutory boards or equivalent 141 RENK AG’s shareholdings 142 Management representation 143 Independent auditor’s report and opinion

145 Six-year overview

03 RENK Annual Report 2010 Supervisory Board

Dipl.-Kfm. Frank H. Lutz Dr.-Ing. Hans-O. Jeske Munich Wesel Supervisory Board member as from Supervisory Board member as from Feb. 16, 2010 Mar. 11, 2010 Supervisory Board Chairman as from Executive Board member of Mar. 11, 2010 MAN Diesel & Turbo SE Executive Board member of MAN SE

Dipl.-Ök. Anton Weinmann Dr.-Ing. Georg Pachta-Reyhofen Landensberg Niederpöcking Supervisory Board member up to Supervisory Board member and Chairman Jan. 25, 2010 up to Mar. 11, 2010 Former Executive Board member of Executive Board Spokesman of MAN SE MAN SE Executive Board Spokesman of Former CEO of MAN Nutzfahrzeuge AG MAN Truck & Bus AG

Klaus Ketterle*) Dipl.-Wirtsch.-Ing. Klaus Stahlmann Neusäss Kempen Technical clerk, RENK AG Supervisory Board member from Feb. 16, 2010, to Feb. 22, 2011 Supervisory Board Vice-Chairman from Mar. 11, 2010, to Feb. 22, 2011 Herbert Köhler*) Augsburg Executive Board member of MAN SE Supervisory Board member as from Executive Board Spokesman of Apr. 1, 2010 MAN Diesel & Turbo SE Foreman, RENK AG

Prof. Dipl.-Ing. (FH) Gerd Finkbeiner Neusäss Robert Strixner*) Augsburg CEO of manroland AG Supervisory Board member up to Mar. 31, 2010

Foreman, RENK AG

*) elected by the employees As of March 3, 2011

Executive Board

Ulrich Sauter Dipl.-Ing. (FH) Florian Hofbauer Wertingen Landsberg Spokesman

05 RENK Annual Report 2010 Report of the Supervisory Board

Frank H. Lutz

Ladies and Gentlemen:

In fiscal 2010, the Supervisory Board periodically and thoroughly dealt with RENK’s situation and development and throughout performed the tasks and duties incumbent on it under law and the Company’s bylaws. We provided the Executive Board members with advice on the conduct of business and oversaw their activities.

The Supervisory Board convened in 2010 at six scheduled meetings (including two conference calls), attendance averaging 92 percent. Detailed Executive Board reports (oral and written) informed the Supervisory Board on business trends, transactions of relevance, the corporate plan and any variances and their causes, RENK’s performance and financial trends, as well as on the present risk situation and strategic focus. Another key subject: efforts to reduce in the long-term certain warranty risks associated with the manufacture of large gear units.

In August 2010, the Supervisory Board redefined the compensation system for Execu- tive Board members, aligning it with the recommendations of the German Corporate Governance Code.

The Supervisory Board’s Presidential Committee met once in fiscal 2010; no other committees exist within the Supervisory Board.

The Supervisory Board was involved as advisory body in all issues and decisions of import to RENK.

As part of its management monitoring functions, the Supervisory Board satisfied itself of the installation by the Executive Board of an effective and efficient compliance management system for the RENK Group.

German Corporate Governance Code In December 2010, RENK AG’s Executive and Supervisory Boards issued the declaration of conformity on the current recommendations of the German Corporate Governance Code Government Commission (as amended up to May 26, 2010). This declaration is published on RENK AG’s website. The Supervisory Board approved the corporate governance report 2010 at its meeting on March 3, 2011.

Annual audits 2010 The separate financial statements and management report of RENK AG, as well as the consolidated financial statements and group management report, for the fiscal year ended December 31, 2010, were all examined by PricewaterhouseCoopers AG, Wirt- schaftsprüfungsgesellschaft (“PwC”), Munich, the statutory auditor duly elected by the annual general meeting; PwC issued its unqualified opinion on both sets of financial statements. Besides the focal audit areas defined by the Supervisory Board (revenue recognition, transfer pricing, and enactment of the German Act on the Modernization of Accounting Law—“BilMoG”), PwC also examined the early risk identification system (ERIS) and concluded that the Executive Board took appropriate action and, in particular, set up a monitoring system to ensure that trends jeopardizing the Company’s continued existence as a going concern are identified early on, all as required by Art. 91(2) German Stock Corporation Act (“AktG”).

The statutory auditor attended, and reported on its key audit conclusions at, our annual accounts meeting today. We took approving note of the audit results.

According to the final results of our own review of RENK AG's separate and consolidated financial statements and the management reports, we do not raise any objections either. We approve the separate financial statements as prepared by the Execu- tive Board, which are thus adopted, as well as the consolidated financial statements. After thorough discussion of the RENK Group’s financial budget and capital expenditure plan, we agree with the Executive Board's proposal (also reviewed by us) for the appropriation of net earnings.

After reviewing the final results of our own examination, we found no reasons for objections to the Executive Board's concluding statement in the dependency report on affiliations.

Changed Supervisory Board membership At the beginning of 2010, the Supervisory Board had only 5 members. In January 2010, Dipl.-Ök. Anton Weinmann stepped down from this Board.

In February 2010, the Augsburg Local Court appointed Dipl.-Wirtsch.-Ing. Klaus Stahl- mann and me as further Supervisory Board members. Dr.-Ing. Georg Pachta-Reyhofen stated in February 2010 that he would step down from RENK AG’s Supervisory Board (both as chairman and member) with effect from the opening of the March 11, 2010

07 RENK Annual Report 2010 Supervisory Board meeting. MAN SE nominated Dr.-Ing. Hans-O. Jeske to succeed him on RENK AG’s Supervisory Board.

At its March 11, 2010 meeting, the Supervisory Board elected me and Klaus Stahlmann its Chairman and Vice-Chairman, respectively, and appointed Klaus Stahlmann, Dr.-Ing. Hans-O. Jeske and me as members of the Presidential Committee.

After 40 years’ service with RENK, Robert Strixner went as of March 31, 2010, into retirement and thus also stepped down as Supervisory Board member. He was succeeded by Herbert Köhler, a previously nominated alternate.

The annual general meeting of May 6, 2010, endorsed the court appointment and nomination of, by formally electing for the residual term of office, Klaus Stahlmann, Dr.-Ing. Hans-O. Jeske and me as Supervisory Board members. On February 22, 2011, Dipl.-Wirtsch.-Ing. Klaus Stahlmann stepped down from the Supervisory Board; no decision on his successor has yet been made.

Our thanks go to the retired Supervisory Board members, the Executive Board, and the RENK Group’s employees for their efforts and dedicated service. We also thank the employee representatives for the constructive cooperation in RENK’s interests.

Augsburg, March 3, 2011

Frank H. Lutz Supervisory Board Chairman

Corporate governance at RENK

For RENK, corporate governance and control are designed to ensure, in line with social market economy principles, its continuance as a going concern by adding the necessary sustainable shareholder value.

A prime driver of these efforts is the corporate governance system, which is defined by current legislation, RENK’s articles of incorporation (bylaws) and in-house rules, as well as by nationally and internationally accepted standards of sound and responsible corporate management.

The German Corporate Governance Code (the “Code”) describes the regulations applicable to RENK under stock corporation law and provides recommendations and suggestions on how to practice good corporate governance according to generally accepted standards.

RENK AG’s Executive and Supervisory Boards have thoroughly dealt with corporate governance system details and are aware that sound and transparent corporate governance is essential to responsible and far-sighted corporate management.

Declaration of conformity with the Code In December 2010, RENK AG’s Executive and Supervisory Boards issued the following declaration of conformity:

“RENK AG adopted the recommendations of the German Corporate Governance Code Government Commission subject to its declaration of conformity of December 11, 2009, and will implement the recommendations of the Code as amended up to May 26, 2010, with the following exceptions:

Besides the existing Presidential Committee (in charge of Executive Board staffing issues), no further Supervisory Board committees are or will be established (§ 5.3.1–3 of the Code). With a membership of only six, neither efficiency nor any other reasons would support the formation of such additional committees from among the Supervisory Board members.

Presidential Committee chairmanship and membership will not be remunerated (§ 5.4.6 of the Code) since committee work has not and will not within the foreseeable future be of any significant extent.”

We consider it highly important to subject RENK’s corporate governance practice to ongoing reviews and update it wherever required.

Certain significant recommendations and suggestions of the Code are commented on in detail below:

Promotion of stockholder rights On our website at www.renk.eu under Investor Relations, and through published financial reports, we offer our stockholders and other interested parties the opportunity to

obtain anytime an updated and authentic portrayal of RENK and its corporate governance practices. Also published here are ad-hoc notifications and press releases.

Promptly on disclosure (cf. § 6.3 of the Code), RENK AG publishes on its website annual and interim reports, a financial diary with all upcoming events of financial relevance, as well as the Annual Document whose publication is required by the provisions of Sec. 10 German Securities Prospectus Act (“WpPG”) and where all relevant corporate information of the preceding calendar year is compiled.

In line with applicable legislation, we ensure that all our stockholders have equal access to information.

General meeting The (annual) general meeting of stockholders is the platform for all RENK stockholders to exercise their voting rights, obtain information, as well as to dialogue with the Exec- utive and Supervisory Boards.

The law confers upon the annual general meeting as corporate body the right to vote and decide on such matters as the appropriation of net earnings, the official approval of the acts and omissions of the Executive and Supervisory Boards, as well as the elec- tion of Supervisory Board members and of the statutory auditor. Moreover, the general meeting of stockholders votes on amendments of the articles of incorporation, bylaws and capital moves.

Altogether 210 stockholders attended the annual meeting 2010, representing 83.8 percent of RENK AG’s voting stock. For participation, stockholders are required to prove that they are authorized to vote by (i) substantiating as of the commencement of the 21st day prior to the annual general meeting (record date) that they own RENK stock, as well as (ii) registering within the statutory minimum period. The detailed requirements are specified in the invitation to the general meeting. We offer interested stockholders the option of appointing RENK staff as voting proxies; equally acceptable as voting proxy is any bank or stockholders association to which a due power of attorney has been issued.

As a rule, the Supervisory Board Chairman presides over the general meeting and ensures that all business on the agenda is smoothly transacted.

RENK’s annual report (including the full financial statements) is available at the AGM and the Company will also send a copy on request. In addition, we publish on our website the speech of the Executive Board Spokesman (in German language). The individual depositary bank forwards the invitation to the general meeting along with the agenda to each stockholder. This invitation is also published in the digital version of the German Federal Gazette and on our website, as are any AGM-related reports and documents.

Interaction of Executive and Supervisory Boards In accordance with German stock corporation legislation, RENK AG has two boards in addition to the general meeting as corporate body: the Executive and Supervisory

11 RENK Annual Report 2010 Boards closely collaborate in RENK’s best interests and endeavor to add sustainable shareholder value.

The Executive Board is in charge of RENK’s management and conduct of business while the Supervisory Board has overseeing and advisory functions. Both boards pursue their activities in accordance with applicable statutory regulations and their respective rules of procedure. The Executive Board briefs the Supervisory Board timely and comprehen- sively on all relevant strategic, planning, business trend and risk position issues. Any business subject to Supervisory Board approval is submitted to the Supervisory Board in due course. Moreover, the Executive Board promptly reports any extraordinary event to the Supervisory Board Chairman.

Executive Board The Executive Board is RENK AG’s top management body and has two members (as of December 31, 2010) who conduct RENK’s business under their joint responsibility. Executive Board members are appointed by the Supervisory Board. The Executive Board’s work is governed by rules of procedure.

The Executive Board determines the business goals and aims for the entire RENK Group and is accountable not only for compliance with the law, official regulations and in-house policies but also for open, fair and transparent corporate communication. A directors & officers (D&O) insurance policy has been taken out to cover liability claims, the deductible for RENK AG Executive Board members being capped at a reasonable ceiling as required by the law. The risk management system is designed to assist the Executive Board in early identifying any business and financial risks.

The Executive Board duly complies with its reporting obligations to the Supervisory Board. The acceptance by an Executive Board member of any sideline activity (including the membership in another corporation’s supervisory board) is subject to Supervisory Board approval. Moreover, Executive Board members are obligated to report any conflicts of interests promptly to the Supervisory Board and to their peers on the Executive Board. In the year under review, no company of the RENK Group transacted any business with RENK AG’s Executive Board members or parties related to these.

In the year under review, no clashing interests of Executive Board members were reported.

Supervisory Board As another corporate body, the Supervisory Board performs monitoring and advisory functions at RENK AG and is generally composed of four stockholder and two employee representatives. Stockholder representatives are elected by the general meeting (according to our bylaws MAN SE has the right to appoint one of them), employee representatives by the workforce. Supervisory Board members are elected individually (i.e., not by collective slate). For details of Supervisory Board membership and its changes in 2010, see also the Supervisory Board report and the notes to the consolidated financial statements.

In the year under review, neither were any clashing interests reported by Supervisory Board members, nor did any consultancy agreement or other contract for work or services exist between a Supervisory Board member and the Company.

Memberships of Supervisory Board members in boards of other enterprises are listed in the notes to the consolidated financial statements. No Supervisory Board member holds any office on a board of, or provides any consultancy services to, major RENK competitors.

Supervisory Board members are answerable for the due and proper performance of their functions. A D&O insurance policy has been taken out to cover liability claims, the deductible for RENK AG Supervisory Board members corresponding to a reasonable amount in accordance with the recommendations of the Code (§ 3.8).

Regulatory compliance/risk management Law abidance and compliance with in-house guidelines and policies are of paramount importance for management, control and supervision purposes, as recommended by the Code. Accordingly, the Executive Board ensures the continual fine-tuning of the related control system and is also responsible for enforcing corporate compliance.

The Chief Compliance Officer (CCO) and the Compliance Board (consisting of the CCO and the heads of key functional areas of RENK AG) assist the Executive Board. Major efforts in 2010 centered on systematically briefing and training employees in prevent- ing corruption and bribery and in adhering to antitrust regulations. For details, see the management report.

Reportable securities transactions Sec. 15a German Securities Trading Act (“WpHG”) and the applicable provisions of the Code require any board members and equivalent individuals, as well as parties related to these (whether closely related family members, legal entities or other institutions) to report to the issuer as well as the German Federal Financial Supervisory Authority (“BaFin”) on the purchase and sale of RENK shares and financial instruments based thereon. Such reported related-party transactions (so-called directors’ dealings) are published on our website at www.renk.eu under Investor Relations. In the year under review, no such transactions were reported to RENK AG.

Accounting The Executive Board prepares RENK’s consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS), and RENK AG’s separate financial statements in conformity with German GAAP, i.e., the provisions of the Ger- man Commercial Code (“HGB”). The financial statements are reviewed and approved by the Supervisory Board. In fiscal 2010, all deadlines for publication of the consolidated financial statements and the interim reports were duly kept.

Statutory audit In the year under review, the Supervisory Board proposed that PricewaterhouseCoopers AG, Wirtschaftsprüfungsgesellschaft (PwC), Munich, be elected as statutory auditor. The annual general meeting endorsed this proposal.

13 RENK Annual Report 2010

Board compensation report for fiscal 20101)

Remuneration of the Executive Board

Responsibilities The Supervisory Board’s Presidential Committee is responsible for dealing with Execu- tive Board employment contracts and hence, in particular, for fixing the remuneration of Executive Board members. As and when proposed by this Committee, the plenary Supervisory Board periodically deliberates on the Executive Board remuneration structure and—in accordance with the Code recommendation in § 4.2.2—decides on, and periodically reviews, this compensation system and the key employment contract provisions.

The aim is to stipulate a reasonable compensation, based on criteria such as each Exec- utive Board member’s responsibilities, personal performance and performance of the Executive Board as such, as well as on the economic situation, the success and the future prospects of RENK and the MAN Group.

Compensation structure and components The remuneration of Executive Board members is made up of performance-unrelated fixed salaries and payments in kind, plus pension entitlements, as well as of performance-linked components. The latter, variable, amounts comprise annually recurring components hinging on corporate performance and long-term incentives that involve a certain risk.

• The fixed compensation is paid as monthly salary. Additional are benefits in kind, such as the provision of a company car and the payment of insurance premiums. The fixed compensation is periodically reviewed and, where appropriate, revised after accounting for the general pay trend and the respective Executive Board member’s responsibilities.

• The business performance-related annual bonus is predicated on the incremental ROCE earned over and above the MAN Group’s WACC, as well as on the RENK Group’s ROS (EBIT returned on sales, a.k.a. EBIT margin).

This increment is calculated as the differential between the operating profit returned on capital employed (ROCE) and the weighted average cost of capital (WACC), all elements being based on the 2-year average of the current and the succeeding year. This percentage increment is compared to the benchmark previously fixed by MAN SE’s Supervisory Board, thus determining the target achievement degree.

The RENK Group’s ROS equals its EBIT margin (EBIT returned on net sales) for the fiscal year. RENK AG’s Supervisory Board defines a ceiling for the ROS-based portion of the annual bonus.

1) Integral part of the group management report under the terms of Art. 315 HGB

As a general rule, only after the MAN Group’s ROS has crossed above a 2-percent threshold will the Executive Board at all be entitled to an annual bonus. The total annual bonus is capped by RENK’s Supervisory Board and paid out cash.

• The component pegged to long-term successful performance has since 2005 been granted in the form of the MAN stock program (MSP). Under this program, Executive Board members receive annual taxable cash compensation of 50 percent of their fixed remuneration, one-half of the incentive being earmarked for purchasing MAN common stock. Such shares are acquired and held in custody centrally by MAN SE in the name and for the account of the Executive Board members, who may freely dispose of the stock after a 4-year qualifying period. During this freeze period, the shares may not be sold, assigned, pledged or hedged. When an MSP participant goes into retirement or separates from the MAN Group, the period is shortened to one year as from the date of retirement or separation.

• The postretirement benefits of Executive Board members encompass pensions as retirement and invalidity (disability) income and for surviving dependants. The postretirement benefit is a fund-based defined contribution plan. RENK AG pays annual contributions of 20 percent of the fixed salary and the bonus (paid in the period for the prior year) to an MAN pension fund. Additional contributions by deferring gross compensation are optional. The contributions and the return thereon are maintained in individual capital accounts. The accumulated balance of a capital account bears interest in line with the performance of selected capital market indexes whose weighting depends on the beneficiary’s age. The contributions and their yield plus the return on the plan’s (i.e., the pension fund’s) assets correspond to the capital available. Upon retirement, the capital account balance or the aggregate total of contributions paid, whichever is higher, will be paid out either in one sum, in installments (annuities) or as retirement pension, at the beneficiary’s discretion. Upon invalidity or death, the accumulated capital account balance or a capital corresponding to four times the fixed annual salary and the bonus, whichever is higher, will be paid out.

Special employment contract provisions If the appointment of an Executive Board member is revoked early by the Company for reasons other than good cause, the employment contract provisions effective since 2010 stipulate that such dismissed Executive Board member receive his fixed salary, annual bonus, insurance premium allowances and pension plan contributions up to the regular end of his term of office or for two years, whichever is shorter. Any income earned from other activities will be offset, the pensionable pay base underlying plan contributions being the reduced amount. The past fiscal year and the estimated bonus for the current year will underlie the calculation of the annual bonus payable as termination benefit after the Executive Board member’s separation.

If an Executive Board member gives notice of termination and steps down from office at 18 months’ notice (permitted without requiring the statement of any reason), he will receive his pay up to the effective date of his notice. No particular stipulations apply upon a change of control.

17 RENK Annual Report 2010 The new triple-aisle Production Shop 21 Overall size: 5,300 m2

Remuneration of Executive Board members in 2010 The compensation of active Executive Board members in 2010 totaled k€1,693 (up from k€1,518). For an itemized breakdown by fixed, annual variable and long-term incentive components, see the list in Note (32) to the consolidated financial statements.

Remuneration of the Supervisory Board Structure and level of Supervisory Board fees are fixed by the general meeting and governed by Art. 12 of the bylaws. These fees hinge on the functions and responsibilities of the Supervisory Board members and the Group’s economic performance.

Annual compensation breaks down into these components:

• a fixed basic fee of €2,100

• a variable profit-related fee The variable fee corresponds to €200 for each €0.01 of the RENK AG dividend in excess of €0.10 per no-par share and is capped at €6,000 each.

• additional compensation for Supervisory Board (vice-)chairmanship: The Supervisory Board Chairman receives double, the vice-chairman 1.5 times, the fixed and variable fees.

• Moreover, Supervisory Board members are reimbursed for their out-of-pocket expenses.

Remuneration of Supervisory Board members in 2010 The compensation payable to Supervisory Board members for 2010 totals €57,939 (up from €24,300). For an itemized breakdown of the active Supervisory Board members’ remuneration in 2010, see the list in Note (33) to the consolidated financial statements.

20 Hobbing cutter for diameters of up to 1,600 mm

RENK stock

2010: surging share prices

Very good stock market year

The worldwide stock market indexes in 2010 reported uptrends, in some instances steep. This was mostly due to the unexpected and vigorous economic recovery during the period.

Within this congenial economic environment, Germany’s DAX showed a good performance for the year as a whole. It closed the year at 6,914, an improvement of around 16 percent. The year was even better for the mid-caps, the MDAX, which at 10,128 surged 35 percent year-on-year. Both indexes closed the period at almost year-highs.

RENK stock performance

RENK stock performance in 2010 was more or less in synchronism with the MDAX. Closing the year at €69.95, nigh its year-high of €71, it advanced 40 percent. For RENK stockholders this is equivalent to an aggregate yield of 45 percent for 2010. With its price surging 180 percent over the past five years, RENK stock is certainly an attractive investment option both short- and long-term. Excluding dividend payments, the average annual price rise for this period has been 17.9 percent.

RENK stock indicators 2010 2009) ) Earnings per share (EpS) € 5.54) 6.80) ) Cash dividend per share € 1.80) 1.80) ) Market capitalization1) € mill. 490) 350) ) Annual closing price2) € 69.95) 50.00) ) Annual high2) € 71.00) 56.30) ) Annual low2) € 49.50) 37.33) ) Price-earnings ratio (PER) 12.63) 7.35) ) Dividend yield3) % 2.6) 3.6) ) Aggregate yield4) % 44.7) (2.5) Total shares outstanding 6,800,097) 6,800,097)

1) based on 7 million shares 2) daily closing price at the Frankfurt/Main Stock Exchange or Xetra 3) cash dividend related to the annual closing price 4) all-in return if reinvesting the cash dividend at the post-AGM month-end

23 RENK Annual Report 2010 RENK Group Management Report for fiscal 2010

Sales and earnings as yet receding but order intake for the first time topping €500 million

• Operating profit: €52 million (down from €66 million)

• ROS: 12.9 percent (down from 13.9)

• ROCE: 36.9 percent (down from 38.8)

• EpS: €5.54 (down from €6.80)

• Proposed dividend: €1.80 (unchanged)

• Cash flow from operating activities: €81 million (up from €62 million)

2011: prospects

• Another moderate advance in order intake

• Brimming order books in 2010 to translate into rising sales not before 2012

• Sales and EBIT likely to inch down in 2011

The RENK Group’s business focus

RENK AG RENK AG dates back to 1873 when Johann Julius Renk established a small workshop for the mechanical production of gear wheels in Augsburg Lechviertel. In 1879, the successful start-up moved to Gögginger Str., still the Group’s headquarters. The prospering enterprise was transformed into a stock corporation as early as 1897; since 1923, today’s MAN SE has been the Company’s major stockholder.

Nowadays, RENK is primarily a worldwide supplier of high-grade propulsion equipment.

Division overview The Vehicle Transmissions division is foremost manufacturer of fully automatic transmissions built into medium- and heavy-weight tracked vehicles as well as of a broad spectrum of test rigs included in its product range. RENK’s automatic power-shift transmissions are suitable for use with all modern diesel engines, with rear or front installation. Electronically controlled and monitored, the units are built at Augsburg.

The French subsidiary SESM is chiefly involved in providing maintenance services for French army tank transmissions. Assigned to this division is Augsburg-based RENK Test System GmbH (RTS) which manufactures customized test rigs for development, production and quality assurance applications in the car, commercial vehicle, helicopter, rail engineering and wind energy markets.

Based in Hannover, Germany, the Slide Bearings division supplies hydrodynamic lubricated slide bearings for electric motors, generators, pumps, air blowers/fans, water turbines, conveyor plant, and marine uses. For over 10 years we have been leaders in the market for standard slide bearings.

The Special Gear Units division comprises large-gear production at Augsburg and the Swiss subsidiary RENK-MAAG GmbH. The product lineup covers marine gear units for fast craft and naval applications with up to 80-MW power transmission capacity as well as stationary gear units for wide-ranging industrial environments including the cement industry and energy production. Our turbo gear units are rated for capacities of up to 140 MW.

The Standard Gear Units division encompasses large-gear production at Rheine and specializes in marine gear units for ferries, merchant ships, LNG/LPG tankers, and supply vessels. Also manufactured are gear units for turbine plants and couplings for industrial use. The relocation of large-gear units for offshore wind energy plants from Augsburg to Rheine will largely broaden the product lineup starting from 2011.

Working together closely Merging and converging the strengths and product expertise of the various divisions are an opportunity to exploit synergies through close interdivisional cooperation. Selective product allocation allows ongoing optimization of large-gear unit production and assembly capacities.

25 RENK Annual Report 2010 Sharpening the competitive edge The RENK Group’s business growth is being nurtured by an extensive capital expenditure program involving over €100 million for broadening and improving manufacturing structures at the three German locations during the period 2008 to 2011.

Despite slumping demand due to the recession, the infrastructure elements of this program were again pushed ahead in 2010. Augsburg’s new production shop for large- gear units came on stream while at Rheine the infrastructure for the manufacture and assembly of 5-MW wind energy units received the finishing touch in the form of a test rig shortly to go into operation.

At these three German locations RENK now has the production equipment to allow a high degree of flexibility for timely execution of customers contracts.

Economic environment

The recovery in the global economy in 2010 was a lot faster and more vigorous than expected—also in the mechanical engineering sector whose worldwide sales advanced appreciably.

This economic upturn is especially due to the emphatic surge in gross domestic product (GDP) in China, India, and Brazil.

Growth rates in Europe were mixed: faster GDP gains in Germany, Sweden, Slovakia and Poland while France, Italy and Spain, dragged down by their soaring national debts, were only tentatively able to negotiate the turnaround.

Overall economic forecasts for 2011 point to moderate growth in the most important industrial and emerging nations. Accounting for the less dynamic expansion is the phaseout of government stimulus programs in the emerging markets and an ongoing consolidation of public-sector budgets in the industrialized countries. Accordingly, an important factor given the heavy reliance on exports by Germany’s mechanical engineering industry, is still capital spending in the emerging markets, mainly in Asia. The eurozone countries, too, are predicted to augment such spending by around 5 percent and this, in turn, will stoke demand for machinery.

CNC vertical turning and milling machine for parts with a swing of up to 4.20 m Business trend and performance

Sharp rise in order intake The 2010 economic recovery, surprisingly quick and broad-based, was also reflected in new business booked by RENK which at €525 million was around 80 percent up over the recession-battered prior-year intake of €294 million. A star performer was Vehicle Transmissions that more than doubled order influx thanks to the megacontract for the German infantry fighting vehicle PUMA and the order for a wind-energy gear-unit test rig placed by a US research organization. Although shallower, the percentage rises in new orders at Slide Bearings, Special and Standard Gear Units were still double-digit.

A revival in demand compared with order intake in the recession year of 2009 was observable in the markets for grinder and steam turbine gear units, couplings, single- engine gear units for patrol vessels, wind energy gear units and standard slide bearings. Again unsatisfactory was the market environment for merchant shipping.

Order intake: 5-year trend € million

525

439 443 417 Total

294 281 263 240 Abroad 237 197 262 Germany 180 199 162

2006 2007 2008 2009 2010

Subdued sales in 2010 As to sales, there was still no turnaround in sight. Revenue slimmed down by 15 percent from €474 million to €403 million. The reason was the poor order backlog of €415 million at the start of the year, the lowest since fiscal 1998/99. Neither could the bulging order books in 2010 bring any relief since the related delivery dates are mostly timed for 2011 and thereafter.

The only division to boost billings was Vehicle Transmissions; Special and Standard Gear Units as well as Slide Bearings all reported severe reductions over fiscal 2009, a year with sales generated from working off the towering order backlogs.

Sales: 5-year trend € million

527

474 430 403 Total 356 316 301 283 265 Abroad 226 211 173 Germany 165 130 120

2006 2007 2008 2009 2010

31 RENK Annual Report 2010 Order backlog back on track In terms of aggregate volume, year-end 2010 order backlog at €522 million was up by 26 percent. At division level, however, the improvement was solely due to two large contracts booked by Vehicle Transmissions; Slide Bearings, Special and Standard Gear Units are all entering 2011 with an order backlog again slightly shrunk. These circumstances plus the fact that Vehicle Transmissions’ project-related lead times extend over several years mean that sales in 2011 will show no improvement. Current backlogs will keep Slide Bearings busy for 4 months, Special and Standard Gear Units for 13 to 14.

Order backlog: 5-year trend € million

Total 672 684

612

522 418 Abroad 397 379 415

282 287 262 254 Germany 233 240 153

2006 2007 2008 2009 2010

Operating profit under pressure in some areas That the operating profit slipped from €66 million to €52 million in 2010 was largely due to the sales decline. Severe erosions were reported by Special and Standard Gear Units where besides flagging revenue it was the substantial risk provisions that gnawed at the operating profit. Slide Bearings repeated its solid prior-year EBIT and Vehicle Transmissions pushed up EBIT significantly, one reason being the sales hike.

Operating profit (EBIT): 5-year trend € million 80

68 66

2006 2007 2008 2009 2010

33 RENK Annual Report 2010 Milling the turbo pinion gear of an ETAX unit

Income statement

2010 2009 € million % € million % Net sales 403) 100.0) 474) 100.0) Cost of sales (303) (75.2) (355) (74.9) Gross margin 100) 24.8) 119) 25.1) Other operating income 7) 1.7) 4) 0.8) Selling expenses (26) (6.4) (27) (5.7) General administrative expenses (13) (3.2) (13) (2.7) Other operating expenses (16) (4.0) (17) (3.6) Operating profit (EBIT) 52) 12.9) 66) 13.9)

Despite the 15-percent sales dip, the ratio of sales to cost of sales was successfully kept at an unchanged 75 percent, also thanks to easing input market prices. For the same reason, the relative gross margin of 25 percent was a prior-year repeat, too.

Selling expenses inched down from €27 million to €26 million. In spite of heavier demands, general administrative expenses remained at an unchanged €13 million.

Thanks to rising gains from forex transactions and the collection of bad debts previously written down or off, other operating income was boosted from €4 million to €7 million; at the same time, the other operating expenses were trimmed from €17 million to €16 million, basically as the expense for provisions shrank.

Reconciliation to net income (EAT)

€ million 2010)) 2009) Operating profit 52)) 66) Net interest expense 0)) (1) EBT 52)) 65) Income taxes (14)) (19) Net income (EAT) 38)) 46) Earnings per share (EpS) in € 5.54)) 6.80) Cash dividend per share in € 1.80)) 1.80)

The virtual breakeven of interest was ascribable to climbing interest income and a largely unchanged gap between the interest portion of transfers to pension accruals and the expected return on CTA plan assets.

Essentially as EBT receded, income tax did, too (down from €19 million to €14 million), paring the tax load ratio from 29 to 27 percent. This ratio reflects the income tax rates of domestic and foreign group companies, as well as nonperiod and deferred taxes.

Net income (earnings after taxes) slipped from €46 million to €38 million, downscaling EpS from €6.80 to €5.54.

37 RENK Annual Report 2010 Controlling system and shareholder value management

The most important controlling benchmarks are return on sales (ROS) and return on capital employed (ROCE). ROS and ROCE mirror the percentage operating profit returns on sales and annual average capital employed, respectively.

These benchmarks are applied both at RENK Group level and for the purpose of controlling the performance of each division. They are also the yardsticks for calculating major portions of the performance-related pay awarded to management and staff.

Operating profit Operating profit is the key parameter for calculating ROS and hence assessing and controlling a division’s performance, and substantially equals EBIT, except that for operating profit accounting, EBIT is adjusted for the effects on income of purchase price allocations and nonrecurring items. “Nonrecurring items” refers to major losses or gains that do not originate in operating activities. RENK had no nonrecurring items to report in either 2010 or 2009.

ROS For the MAN Group’s Power Engineering business area and hence also RENK, ROS is targeted at 9.0 percent as an average for an economic cycle, with a bandwidth of ±2 percentage points.

With an ROS of 12.9 percent (down from 13.9), RENK not only achieved but significantly and once again outperformed its benchmark in 2010; while the Vehicle Transmissions and Slide Bearings divisions repeated an above-average performance, sales volume and risk profile meant that the Special and Standard Gear Units divisions reported single- digit ROS.

Return ratios: 5-year trend %

48.3 47.2

38.8 36.9

28.9 ROCE

15.7 15.1 13.9 12.9 10.5 ROS

2006 2007 2008 2009 2010

ROCE ROCE relates operating profit to the weighted annual average capital employed (CE), defined as total assets excluding financial funds and tax assets, less all accruals and liabilities other than financial debts, pension accruals and taxes. Additionally eliminated from CE are any M&A-related effects produced by finite-lived tangible and intangible assets. Prepayments received are not deducted unless they have already been applied to contract work. RENK’s performance target is to outstrip the WACC benchmark of 10 percent. In fiscal 2010, we achieved 36.9 percent (down from 38.8). The insignificantly lower ROCE is mainly due to the slashed average CE (whittled down from €170 million in 2009 to €140 million in 2010); this CE downscaling offset most of the effect of the EBIT decrease.

WACC The weighted average cost of capital (or WACC for short) is the minimum return inves- tors expect to receive for the capital they have invested and the investment risk they have incurred. WACC is composed—for the equity portion of CE—of the yield of long- term risk-free securities in line with a capital asset pricing model (CAPM) plus a specific investment risk premium, and—for the debt portion of CE—of the rate of return on risk-free investments plus a risk premium applicable to long-term industrial securities.

For the determination of controlling indicators, WACC is used as basis for defining minimum ROCE requirements and has been set at 10 percent for fiscal 2010.

39 RENK Annual Report 2010 Financial position

Financial management In 2010 as in prior years, RENK’s funding has been ensured through MAN SE’s central finance system, the latter guaranteeing the availability of the cash needed for business operations, capital expenditures and strategic growth as well as for hedging against currency risks. RENK AG is integrated with the MAN central cash management system, as are its five consolidated subsidiaries.

Aim and purpose of the centralized financial management are to ensure sufficient cash at all times, contain financial risks, and enhance shareholder value.

€ million 2010) 2009 Opening net liquid assets 53) 23) Net cash provided by operating activities 81) 62) Net cash used in investing activities (23) (20) Free cash flow 58) 42) Net cash used in financing activities (12) (12) Net change in net liquid assets 46) 30) Closing net liquid assets* 99) 53)

*including long-term cash investments of €15 million

Cash flows The net cash of €81 million provided in 2010 by operating activities surged 31 percent from the prior-year €62 million. With business substantially unchanged, RENK’s sustained working capital management helped again level down the capital employed and tied up in inventories and receivables. Moreover, the net cash provided by operating activities benefited from an increase in other accruals whereas shrinking customer prepayments had an adverse effect.

The net cash used in investing activities climbed to €23 million (from €20 million). The net cash used in financing activities reflects the dividend payout of €12 million. All these movements combined to considerably boost closing net liquid assets (up from €53 million to €99 million)

Asset and capital structure

€ million 2010) 2009 Tangibles and intangibles 116) 104 Investments 1) 1 Deferred tax assets 13) 10 Inventories 110) 122 Trade receivables 73) 93 All other current and noncurrent assets 6) 10 Cash and cash equivalents* 100) 53 Total assets 419) 393

Equity 217) 192 Pension accruals 14) 11 Other accruals 63) 54 Prepayments received 46) 55 Tax liabilities 22) 20 Trade payables 35) 38 All other current and noncurrent liabilities 22) 23 Total capital 419) 393

*including long-term cash investments of €15 million

Pushed by capital expenditures that easily outgrew depreciation and amortization, tangible and intangible assets rose in 2010 by €12 million. Above all, our proactive working capital management enabled us to downsize inventories and trade receivables by another €32 million.

The equity ratio improved further, from 48.9 to 51.8 percent, and has now attained a level that provides the economic and financial basis for future growth. The shrinkage in new orders with prepayments continued in 2010. Since the order intake during the year failed to compensate for this shrinkage, total prepayments received were slimmed down by another €9 million to €46 million. Our own purchase orders were scaled back accordingly, with the result that trade payables receded from €38 million to €35 million.

Unchanged dividend proposed Our dividend policy aims at allowing our stockholders to commensurately share in RENK’s success. According to German GAAP (i.e., Commercial Code principles), RENK AG earned net income of €21.1 million (down from €35.7 million) for fiscal 2010 of which €8.5 million (down from €17.9 million) was transferred to the reserves retained from earnings. Adding the profit carryover, the Company’s net earnings totaled €31.4 million (up from €31.1 million) from which the Executive Board, subject to the Supervisory Board’s approval, will propose to the annual general meeting to distribute an unchanged dividend of €1.80 per share—despite the lower bottom line. Measured against the year-end 2010 stock price of €69.95, this represents a yield of 2.6 percent (down from 3.6).

41 RENK Annual Report 2010 Assembling a NAVY gear unit for a frigate

Capital-related disclosures

The provisions of Art. 315(4) HGB require the disclosures itemized below.

(1) Capital stock breakdown: RENK AG’s capital stock of €17.9 million is divided into 7 million no-par shares of common stock, excluding any other stock classes.

(2) Restraints on voting rights or share transfer: One share entitles to one vote. No restrictions or restraints on voting rights or share transfer/assignment exist at RENK AG.

(3) Direct or indirect shareholdings of 10+ percent: In fiscal 2010, Munich-based MAN SE has owned 76 percent of RENK AG’s capital stock. Prior to March 16, 2010, when the merger into MAN SE of MAN Maschinen- und Anlagenbau GmbH, a subsidiary wholly owned by MAN SE and also based in Munich, became effective, the 76-percent stake in RENK AG’s capital stock had been held by the mergee and thus only indirectly by MAN SE. We have received no further WpHG-related notifications of any voting interest of 10+ percent.

(4) Shares with controlling rights, etc.: No special-right shares exist that would entitle stockholders to exercise any controlling powers.

(5) Voting control of employee shareholdings: No controlling-vote interests attaching to employee-held shares exist either.

(6) Appointment/removal of Executive Board members and other bylaw provisions: The appointment and removal of Executive Board members are subject to the provisions of Art. 84 German Stock Corporation Act (“AktG”), according to which an Executive Board member is appointed by the Supervisory Board for a maximum 5-year term. Art. 5 of the bylaws specifies a minimum of two members on the Executive Board, the actual number of members being determined by the Supervisory Board. According to Art. 179(2) AktG, amendments to the bylaws (articles of incorporation) require a special vote (i.e., 75 percent or more of the capital repre- sented) by the general meeting.

(7) Stock repurchase or issuance authority of the Executive Board: The Executive Board’s authority to repurchase treasury stock expired Novem- ber 8, 2007; up to that date, 199,903 treasury shares (2.9 percent of the total) had been reacquired.

Subject to Supervisory Board approval, the Executive Board is authorized to dispose of such treasury stock (while excluding stockholders from subscrip- tion) also in a way other than by sale on stock markets or public offering to all stockholders, however, always provided

• that the repurchased treasury shares are sold at a price that is not significantly below market, and/or

• that they are used as consideration in a business combination or for the acquisition of other enterprises or any equity interest therein.

After first obtaining Supervisory Board approval but without further AGM vote, the Executive Board is, moreover, authorized to redeem and withdraw treasury shares.

In fiscal 2010, none of these authorities were exercised. No authorized capital for the issuance of new stock exists.

(8) Arrangements upon any change of control, etc.: No agreements have been made that are contingent on a change of control in the wake of a takeover bid.

(9) Compensation agreements upon change of control: No arrangements for post-takeover indemnification or other compensation of Executive Board members or RENK employees upon a change of control have been made either.

45 RENK Annual Report 2010 Research and development

The accelerating transformation of industry and society caused by globalization is a challenge that companies must get to grips with. Added to this are ambitious environ- mental protection goals whose repercussions are having deep-rooted consequences regarding product innovation and production technology.

In coping with these challenges, R&D plays a lead role. Since most RENK products have a long life-cycle, ongoing refinements and further enhancements in the interests of improved customer benefits are essential ingredients in our innovation management efforts.

Internally funded expenses dedicated to developing new and refining existing products amounted to altogether €3.9 million in 2010 (up from €3.6 million). A share of our development input is commissioned by customers and hence not recognized as functional R&D expenses.

Vehicle Transmissions directed most of its efforts at readying itself for series production of the HSWL 256 transmissions to be installed into the PUMA infantry fighting vehicle; we were awarded the contract in June 2010.

Together with a vehicle builder we developed and installed the prototype of an emer- gency brake as backup for vehicle commanders. Initial basic tests have already proven successful. Work also commenced on a new electronic transmission control.

In teamwork with an institute commissioned for this purpose, we intend to fine-tune processes and practices applied in the development and production of our vehicle transmissions so as to significantly shorten our response and lead times. A project to this effect took off during the period.

Special Gear Units developed the fundamentals of a new drivetrain concept (MULTI- FLOW) for which RENK is assembling a test rig gear unit with an output torque far in excess of present parameters in gear production. Besides the underlying design, calcu- lations were also carried out on the mounting, load distribution, casing rigidity and assembly. The technology is intended for use on wind energy and cement plants much larger than today’s.

Completed were also extensive tests on the behavior of pairs of sliding substances and the suitability of new gearing materials. The outcome of such tests will allow us to resort more accurately and reliably to materials for existing applications.

A new load-sharing solution for torque-splitting gear units was engineered, computed and patented. The system is intended for use on a further series of wind energy gear units being planned.

Efforts were again applied to the employment of multibody simulation programs; together with a program developer and a university, drivetrain models were developed, fine-tuned and computations implemented in actual machines. This should enable

46 vibrations to be identified and eliminated right at the drawing-board stage. The project is due to be completed in the year ahead. As a consequence of this work, even now RENK has amassed considerable knowledge on the subject of multibody simulation.

R&D efforts in the area of marine applications focused on developing the OPAL gear unit series for offshore patrol vessels (OPV) according to strictly standardized criteria. The results will also be applied to all the other, simpler ASL diesel-engine gear units and will significantly sharpen RENK’s competitive edge in this segment.

With the aid of well-founded, practical and theoretical investigations into the vibration resistance of gear units and their add-on components, we pushed ahead in the development of our marine gear units. RENK is thus cementing its claim of being an expert counterpart also in the engineering of solutions for marine applications.

At Standard Gear Units, R&D activities took the following directions:

• On marine gear units, the start-up of a project for a simple gear unit with multidisk clutch;

• On turbo gear units, standardization work to address the needs of key accounts;

• On couplings, the existing range was rounded off with the development of an over- load slip clutch for power plants and railroad applications plus additional Hyguard couplings for slowly rising transmission loads.

The Slide Bearings division applied and lab-tested innovative bearing concepts with attractive additional functions as part of project-related customer contracts. The emphasis was on bearing designs for new vessels. Such close teamwork with customers ensures maximum relevance and a high degree of acceptance for our R&D efforts. In order to minimize slide bearing friction losses, computer simulations were again applied for flow optimization. The aim is to achieve a specific performance enhance- ment on proven products.

47 RENK Annual Report 2010 Illustration of a test rig for a wind energy nacelle. RENK Test System GmbH’s biggest-ever single contract, awarded by Clemson University, USA.

Capital expenditures

Capital spending on tangible and intangible assets in fiscal 2010 climbed from €20 million to €23 million.

Most of the funds went toward replacing/expanding RENK’s core production facilities. Augsburg saw the start-up of a new production shop for large-gear units with the installation of additional machining equipment as planned. Also completed and moved into in 2010 were the related office facilities. This has created the preconditions for significant improvements in throughput times plus cost and productivity enhancements at Special Gear Units.

The Rheine location saw the installation of a 7-MW rig for testing large wind energy gear units in preparation for the future series production of the 5-MW units.

Rising output of the larger bearings called for extension to existing shaft furnace capacity in Hannover. Another item of expenditure was replacement equipment for machining the bearing pads.

As a result, Special Gear Units, Standard Gear Units and Slide Bearings now all possess adequate and efficient production, assembly and testing facilities that to a high degree address present and future market requirements. At Vehicle Transmissions, 2011 and 2012 will see a virtually complete renewal of production equipment in order to ensure cost-efficient manufacturing processes for even small batches and widely differing transmissions.

5-year trend € million 29

17 15 13 11 11

8 8

2006 2007 2008 2009 2010

Amortization/depreciation Capital expenditures

50 Assembly work on a test rig for the main rotor of a helicopter Employees

At the close of the fiscal period, the RENK Group employed 1,882 people (down from 1,903) including 68 temporary (up from 35). The headcount in Germany fell from 1,747 to 1,720; outside of Germany it inched up from 156 to 162.

The changes are chiefly related to adjustments caused by the partly widely varying workloads at the RENK Group’s locations. Whereas workloads almost everywhere and throughout all product segments very quickly recovered following short-time work up to midyear, the Rheine location is still on short-time.

MAN SE’s Profit-Sharing and Pension Plan (MPP) has made a considerable contribution to our employees’ future retirement income. In addition to benefiting from employer contributions, active employees are given the opportunity to make additional provision through deferred compensation.

Letting employees share in business success The hard work by employees was again encouraged in Germany in 2010 by letting them directly share in corporate success. The rewards are based on the RENK Group’s defined profitability targets.

Employee training The periods of short-time and poor workloads were increasingly used for employee training purposes. Parallel to this, the regular HR development and training courses continued.

A mainstay of our programs for youngsters in 2010 continued to be apprenticeship training.

Our domestic plants (Augsburg, Rheine, and Hannover) employed altogether 62 apprentices. RENK is also widening its range of dual training courses for engineering and commercial employees. Another 48 gray- and blue-collar apprentices were inden- tured at the Augsburg-based MAN apprenticeship training center. As in the previous year, the number of apprentices in relation to the workforce was high.

Ongoing training courses centered on foreign languages and one-off training for specific needs besides additional sessions on the subject of corporate compliance.

To make sure we stay successful we need to repeatedly recruit, retain and train young talent; traditionally close contacts with a number of academic institutes assist us in scouting for suitable candidates.

Our thanks to the employees and their representatives Our thanks go to all the employees for their dedicated and hence successful efforts. We also thank the Supervisory Board employee representatives, the Works Councils and the Economic Committee for continuing the constructive cooperation of the past years.

We cherish the memory of those of our present and former employees who passed away during the period under review.

53 RENK Annual Report 2010 Electronic controls on the HSWL 256

The situation at the divisions

Vehicle Transmissions € million 2010 2009 Change Order intake 259 77 +182 Sales 113 110 +3 Operating profit 21 14 +7 ROS (%)* 18.0 12.3 +5.7

* ROS based on k€

Economic parameters Fiscal 2010 saw no fundamental change in the numbers and types of medium- and heavy-duty tracked vehicle programs available on the market and accessible to us given the existing legislative parameters. There is, however, an observable trend back in the direction of the tracked variety as far as new vehicles are concerned. This is driven by the need to afford the necessary protection to soldiers engaged on a variety of missions. In general, the market for medium and heavy tracked vehicles is still dominated by procurement projects that are few in number, long-term in execution, and frequently low in volume. For future business to stay on a stable footing, it is vital that our Vehicle Transmissions division share in the majority of programs accessible to us.

Alongside the aforementioned market for new products there exists a quite sizable secondary market from government sale of used vehicles to second- and even third- hand buyers. This mode of business is linked to the shortage of funds in the respective defense budgets and also encouraged by the possibility of making such products available at short notice. This is a situation that for RENK opens up opportunities in aftermarket business since the resold products are accompanied by reconditioning, man- power training and parts shipments. In the medium-term, however, we expect this market to stagnate or contract since, on the one hand, such transactions appear to have settled at a certain level of saturation and, on the other, the procurers are no longer providing the necessary funds for the aforementioned work.

Regarding the years ahead, we are looking to a sizable intake of orders for new transmissions and stable to slightly receding demand for repair work and parts.

As transmission maintenance provider for the French army, our local subsidiary SESM again benefited from congenial economic conditions.

The business situation at RENK Test System GmbH (RTS) can be considered thoroughly positive, particularly due to ongoing strong demand from abroad and this company’s globally acclaimed test rig expertise.

Business trend The long-awaited contract for 405 transmissions model HSWL 256 to be built into the PUMA infantry fighting vehicle was finally placed in 2010. Still under negotiation is the contract for the related final drive.

We signed the expected contract for prototypes destined for Turkey’s ALTAY program. Such prototype involvement is an essential precondition for the series-production contract we are aiming for on completion of the tests. We were also commissioned with a follow-up batch of parts to be shipped out to a Middle East customer.

No other transmission contracts were booked last year. We did, however, obtain the advance go-ahead for the British project SV (previously, FRES) and have scheduled it accordingly. Other negotiations have progressed to the stage where we may expect in 2011 from Asia and Europe sizable orders for new transmissions.

The contract for HSWL 256 transmissions propelled order intake by 236 percent from €77 million to €259 million.

At €113 million, sales were about as high as the prior-year €110 million. Much was derived from the final shipment of power packs for India’s ARJUN program and the HSWL 354 for Spain’s LEOPARD 2. After-sales business was again a steady source of revenue.

The period saw the phaseout of all the big series-production projects apart from one exception: Some shipments for Spain’s LEOPARD 2 had been postponed to 2011. So, sales are expected to shrink in 2011 and only recover a year later.

For the ESM 500 transmissions, SESM signed at the start of 2010 an important maintenance contract extending over a number of years. Work on the ENC 200 transmissions was in full swing for the first time during the period.

RTS was awarded its biggest-ever individual order in 2010. This comprises two wind- turbine drivetrain testing units for the offshore development center at Clemson Uni- versity, South Carolina, USA. With an input rating of up to 20 MW and torque reaching 25,000 kNm, the bigger of the two is a trailblazer in wind-energy test rig technology. Besides this, the largest share of business at present is accounted for by the rail vehicle market partly due to haulage problems in large countries (presently China, in future also Russia, India and possibly Brazil) and partly to development work on high-speed trains. Technology leaders and hence potential customers of RTS are to be found in Europe and Japan.

57 RENK Annual Report 2010 Still highly significant is the market for helicopter transmission test rigs whose mechanical complexity is very much to the taste of RTS. In the USA, these rigs are mar- keted by RENK Labeco Test Systems; elsewhere (China, India, South Korea, Russia) from inside Germany assisted by local sales and service partners.

It is important for RTS to be part of Vehicle Transmissions since this regularly helps to generate servicing business and contracts for military transmission test rigs.

Earnings Despite only marginally higher sales, the operating profit jumped from €14 million to €21 million, thanks to very strong after-sales business and the fact that the prior year’s EBIT had been pruned by risk provisions prompted by expiring programs.

A large EBIT share came from SESM; RTS also delivered an operating profit and double- digit ROS.

Developments ahead Vehicle procurement programs in our segment are typically low in volume and this in turn leads to model heterogeneity. Moreover, there is a growing insistence on as much local content as possible. The conditions required to fulfill this latter need are frequently associated with the risk of know-how seepage. At the same time, established products are being kept in service longer than originally planned. This may generate after-sales business but it does stifle the prospects of new-product sales. The repercussions of budget consolidation on national defense spending and hence on procurement plans cannot be assessed with any degree of finality at present.

For the core operation located in Augsburg, this means adapting and refocusing personnel and production resources to match market needs and parameters. Dexterity in managing and controlling international cooperation with local production is essential if we are to hold on to our market position.

Our French subsidiary SESM has already successfully pursued this path and thanks to the multiyear maintenance plans of the French army, now has a business model with medium-term stability.

RTS’s business future looks bright, an assessment chiefly founded on procurement programs firmly planned by customers in the aviation and rail vehicle markets. The new wind energy segment is also promising. Given the volume of inquiries, wind energy can be assumed to have growing significance for the RTS product range. Also remark- able is the fact that virtually all RENK product areas and locations are involved in the engineering of wind energy test rigs.

59 RENK Annual Report 2010 RENK tank transmission HSWL 256

Slide Bearings € million 2010 2009 Change Order intake 80 68 +12 Sales 84 95 –11 Operating profit 21 21 0 ROS (%)* 23.9 21.7 +2.2

* ROS based on k€

Economic parameters The end of the first quarter 2010 had already indicated economic recovery and thereafter thanks to strong exports, the trend continued. Dynamic demand abroad for Ger- man mechanical and plant engineering products led to a surge of orders placed by our domestic customers for slide bearings used in electrical machinery. This was also to the benefit of other European manufacturers of electric motors and generators.

Even during the recession, Brazil, India and China had proven to be relatively robust markets for slide bearings. Expanding expenditures on the infrastructures needed for energy production, raw materials extraction and processing in these growth regions form a broad basis for ascending slide bearing demand.

Business trend Business at Slide Bearings suggests that the economic recovery has percolated down to component suppliers. Following a soft start to the year, projects contracted by our OEM customers began to swell our own order books. Standard slide bearing business was strong and, with lead times short, translated into same-year sales.

Still unsatisfactory was the rate of orders related to more complex and high-outlay projects such as slide bearings for rolling mills and ships where contracts were only occasional. However, inquiries have picked up appreciably and a turnaround is in sight.

Under these conditions, order influx jumped from €68 million to €80 million; the downturn in sales, from €95 million to €84 million, was mainly due to tumbling order intake in 2009.

Earnings Despite the significant reduction in revenue, the operating profit remained at €21 million and ROS once more improved, from 21.7 to 23.9 percent. Crucial to this were a strict cost-management program carried out at short notice, early workforce adjustments and, in the latter half of the year, a sales volume that outstripped budget.

Developments ahead The regions of relevance are showing highly mixed developments:

In Asia, Japan is suffering from the uncompetitiveness of customers in its electrical machinery sector partly as a consequence of the sharp yen revaluation. In order for us to share more generously in China’s unabated boom we intend to amplify local presence through a number of measures including the use of MAN’s existing infrastructures. Mid-2011, our plan is to open up an assembly and distribution center in MAN Diesel & Turbo’s production facilities in Changzhou. Just as with previous projects, here in China we expect that local presence in a prospering economic zone close to important customers will help promote business.

RENK’s presence in emerging countries such as India and Brazil will also be extended with a view to accompanying the production relocations on the part of our key accounts.

As world leader in the markets for commodities such as iron ore, soy, meat and sugar, Brazil offers various opportunities for our products. The discovery of large offshore oil deposits close to Brazil’s Atlantic coast and assuming a mastery of the deep-sea technical challenges, could make the country one of the major oil-producing nations and hence open up a new market segment for our slide bearing technology. If the nation’s currency stays strong this would additionally sharpen our competitive edge over local suppliers.

The geographical positioning of the Slide Bearings division in the high-growth emerging countries (BRIC) helps secure our already achieved market shares. As mentioned, there is an unabated trend among our customers, especially the global key players, to relocate production facilities to the nascent sales markets. The slide bearing applications concerned are mostly simple by nature yet of a volume not to be neglected.

The resurgence in world trade will call for additional freight capacities in the medium term and this will lead to contracts for new vessels at the shipyards and their subcon- tractors. A similar scenario is predicted for the iron and steel industry.

Given these favorable prospects we can expect good further growth opportunities in the slide bearing markets.

63 RENK Annual Report 2010 Special Gear Units € million 2010 2009 Change Order intake 114 99 +15 Sales 136 165 –29 Operating profit 6 20 –14 ROS (%)* 4.2 12.0 –7.8

* ROS based on k€

Economic parameters The stationary gear product group at Special Gear Units again had to contend with tough market conditions in 2010. Most of the spending on large industrial complexes was undertaken by the oil and gas plus the downstream chemical industries. Since the spending volumes were limited due to only relatively modest price hikes in 2010 in the oil and gas sector, they were far from enough to fill the order books of the gear unit manufacturers. The outcome: in the market for new projects fierce competition chiefly in the form of discounted prices.

Happily, business in naval products, RENK’s traditional forte, was unperturbed by sinking demand from the shipyards. Besides Europe, the key markets are the USA and the Near, Middle and Far East. The US Congress has given the go-ahead for the Littoral Combat Ship (LCS) program, with the US navy ordering up to 20 vessels as part of an extended procurement project. This will impact directly on RENK since on this project upstream contracts have already been concluded for the supply of sophisticated CODAG gear systems. Other naval contracts should shortly be awarded in Korea and a number of Arab states.

Business at our Swiss subsidiary RENK-MAAG in 2010 was a continuous improvement over the tough prior year. This was especially due to surprisingly strong turbo gear unit demand from China—presently the most important market.

Business trend Orders booked by Special Gear Units added up to €114 million—a gain over the prior year’s meager €99 million. As expected, revenue at €136 million was short of the previous year’s €165 million, a period with abundant invoicing of completed contracts.

The stationary product group booked another contract for extruder gear units. Signifi- cantly higher orders were awarded also by German and international grinder manufacturers. Aftermarket business boomed, too. Aggregate sales of all product groups— industrial, grinder, turbo and power plant gear units—were short of 2009 on account of the paltry order backlog at the start of 2010.

The marine gear units’ Augsburg-based resources—for the large-gear units built into naval and public-authority vessels, megayachts as well as PTO systems for onboard power generation—were mostly devoted to working off the order backlog in fiscal 2010.

Dominating the influx of new orders was business from Indian shipyards with their heavy demand for new corvettes and other ships required by the coastal patrol and

navy. India’s naval defense budget is set to show hefty hikes over the years ahead. The fine reputation enjoyed by RENK gear units should lead to a further inpour of orders.

One prestigious project is the construction of a 185-meter private megayacht—the world’s longest—by a premium German shipyard that commissioned RENK to build the sophisticated driveline comprising four sets of gear units.

A mainstay of revenue was complex gear systems for frigates and corvettes. Three 130-t systems were built, tested and shipped out for the USA, Turkey, and South Korea; in all instances on time and to the full satisfaction of the customer.

Thanks to brisk demand for turbo gear units in China, RENK-MAAG reported a sharp gain in new orders; there was also a slight upturn in revenue.

Earnings Contributing to the unsatisfactory operating profit that slumped from €20 million to €6 million were both drooping sales and the partly-idle capacities in the first half of 2010. The factor with the most telling impact, however, was the risk provisions, mainly for 5-MW offshore gear unit series.

Developments ahead A moderate upturn is forecast for the special gear unit markets.

For grinder and turbo gear units we expect over the years ahead a continuous growth in demand that will trigger the corresponding volumes of orders. This prediction is prompted by the vast need for local infrastructure in the emerging nations of Asia, Africa, and South America.

Many naval units are also in need of rejuvenation in the medium term and so over the coming years we are counting on notable contracts, especially for gear units installed in the larger naval vessels.

For the next few years, the USA has earmarked a billion-dollar budget for adding fast frigates to its naval units. As part of the LCS program, twenty new vessels will be ordered from US shipyards up to 2016; RENK has secured for itself a size of this business through upstream agreements. This means that the next generation of ultramod- ern frigates will set sail with state-of-the-art CODAG gear systems from RENK.

65 RENK Annual Report 2010 End of Line Triple-axle roller dynamometer from RENK Test System GmbH installed at MAN Salzgitter

Standard Gear Units € million 2010 2009 Change Order intake 73 50 +23 Sales 70 104 –34 Operating profit 5 11 –6 ROS (%)* 7.5 10.6 –3.1

* ROS based on k€

Economic parameters Fiscal 2010 brought forth the first signs of an improvement in the economic situation at the shipbuilding sector. An upturn in trade volumes and higher freight rates sparked this cautious optimism.

Most of the inquiries concerned specialty craft (ferries, LNG tankers, offshore and heavy-load vessels). Among the new-build contracts were barely any standard vessels such as container ships.

A slight resurgence in demand was also perceived in steam turbine gear units used in the energy sector and a large number of projects were under way. Together with the standard gear units for the oil and gas sector where demand picked up, the turbo gear unit applications were in growing demand. Other uses such as for pumps, test rigs and hydraulic engineering plant still showed no signs of recovery.

After a tepid start to the year, the industrial coupling market rebounded after several months in the areas of energy production, compressors, and turbines. Toward year-end steel mills and plant engineering companies were sending out invitations to bid for a number of sizable projects. As to the necessary basic workload, this has been and still is ensured by various framework agreements. Particularly our turbo gear units are estab- lishing for us a growing market reputation as systems supplier of customized gear unit and coupling systems.

Business trend Whereas order intake jumped from €50 million to €73 million, sales tumbled from €104 million to €70 million as a consequence of the poor order intake the year before.

Inquiries for marine gear units were relatively strong in all of fiscal 2010 albeit the proportion of securely financed new vessels was very low. The probability of project materialization improved toward the end of 2010, mainly in the form of contracts for dredge and LNG tanker gear units.

Brisk business in turbo gear units was due to the slightly higher share of steam turbine units and, especially, bubbling demand on the part of the oil and gas sector.

Prices for couplings built into new industrial plant were increasingly under pressure and existing major projects fiercely competed for, in part also due to aggressive pricing practices by some domestic market contenders. Reasons for this: the in some cases

tight order situation and the endeavor to gain a footing in this market. Parts business was largely unaffected and here, again, proved a steady source of profit contributions.

Earnings The operating profit crumbled from €11 million to €5 million, battered by plunging sales and extra risk provisions for marine gear units. With workload poor, short-time continued through 2010.

Developments ahead Given the unsatisfactory marine gear unit order backlog, 2011 will be another difficult period. We expect revenue to once again recede and workloads to remain low throughout the period. Short-time work is therefore once more on the agenda.

Starting from 2012, sales and earnings will then recover through the planned shipments at short intervals of offshore wind energy gear units. Elsewhere at Standard Gear Units we are looking to another moderate hike in order intake but in the case of marine gear units, well short of the surges between 2005 and 2007.

69 RENK Annual Report 2010 Risk report

Risk management Doing business entails repeated risk exposure. RENK defines risk as the threat that events, decisions or actions prevent us from achieving defined goals or successfully pursuing certain strategies. In order to seize the market opportunities we consciously accept risks if we can thereby expect a commensurate addition to shareholder value. Essential for this purpose is an efficient risk management system tailored to the requirements of our business activities.

Risk management at RENK is nested in the MAN Group’s own risk management system and forms an integral constituent of business management, processes and procedures. Strategic corporate planning, internal reporting, the internal control system (ICS) and the corporate compliance management system together make up the core components of the risk management system. Among the purposes of strategic planning are to identify and assess in good time long-term risks and rewards so that suitable structural measures may be seized. Internal reports at all levels are organized to obtain up-to-date and pertinent information on the situation regarding major risks and the effectiveness of the risk containment measures. Based on the risk identification procedures, the internal control system focuses on the monitoring and control of risks. The function of the corporate compliance management system is to assist management in identifying and responding to compliance-related risks in good time. It is based on a compliance organization and various procedures for addressing compliance requirements.

The responsibility for setting-up and maintaining a suitable and purposeful system for the early identification of risks lies with the Executive Board. RENK AG’s Executive Board has assumed responsibility for organizing the risk management and internal control systems to an extent and in a form matching the requirements and circumstances peculiar to RENK. “Industrial governance” is a mode of management that calls for local decision-making processes within the RENK Group and a risk management system correspondingly structured. It is management’s responsibility to make sure that not only RENK AG (by far the most important company) but also the other group companies are included in the risk management and internal control systems to the degrees required.

The groupwide risk management and ICS manual includes binding rules for identifying, recording, analyzing, assessing, controlling and monitoring major risks and opportunities, as well as the internal controls within the RENK Group. Its risk principles and policies ensure a uniform interpretation of the risk management and internal control systems. Functions have been defined for the risk management process and the ICS: risk officers with monitoring duties and defined accountabilities work inside an in- company organization, also for the ongoing development and improvement of the risk management process and the ICS. RENK has set up an interdisciplinary Risk Board for assessing the risk reports submitted by the relevant departments, identifying any additional risks, and initiating and overseeing measures designed to minimize risks. Risks are analyzed according to their probability and the extent of possible loss. Loss, in turn, is graded as “net” and “gross,” in its impact on the operating profit, “net” already taking into account any risk-abatement measures. A distinction is drawn between near-term

risks expected to materialize over the next four quarters and far-term ones possibly taking effect between one and five years from now. With the aid of risk areas, defined uniformly, any risk aggregation can be identified and counteracted in good time. Besides risks, also rewards, major ICS weaknesses (if any) and the measures undertaken are continuously monitored, as well as analyzed, and assessed together with the Execu- tive Board. Where necessary, more extensive risk avoidance/minimization measures are defined and followed up on with the aim of continuously fine-tuning and improving the existing risk management and internal control systems.

Patterned on the MAN Group’s approach, RENK has structured and documented its ICS in accordance with the framework of COSO (Committee of Sponsoring Organizations of the Treadway Commission) in order to systematically assess the effectiveness of its internal controls. The documentation covers all standard business processes, as well as all known specific business risks and all controls required. The control system is regularly checked for completeness, suitability and effectiveness to ensure that the rules for reducing procedural and organizational risks are adhered to throughout the Group. The control mechanisms target the management of risks related to material misstatements in the financial reports, risks associated with regulatory noncompliance or fraud and the minimization of operational/business risks (e.g., asset risks resulting from unauthorized decisions or obligations assumed). The control environment as well as interdisciplinary and across-process controls serving as parameters for a functioning operational ICS are centrally documented and regularly appraised for their appropriateness and workability. Quarterly reports to management deal with the effectiveness of the internal control mechanisms and any weaknesses possibly perceived. A supplement is the documentation of the control structures as part of the MAN Group’s uniform data- base system. The importance and relevance of individual companies are annually reviewed according to quantitative and qualitative criteria.

Additionally, as and when necessary or appropriate, RENK AG’s Executive Board will request MAN’s Corporate Internal Auditing to test the workability of the ICS and propose any improvements. The effectiveness of the internal control system at process level is regularly reviewed by qualified internal testers, at least once a year, and by MAN’s Corporate Internal Auditing taking random samples. Additionally, the Super- visory Board is briefed on the current risk situation and major weaknesses exhibited by the ICS. Despite all this, even a suitable and workable system does not guarantee with absolute certainty that all risks are identified, controlled and managed.

Accounting-related risk management and internal control systems The risk management system (RMS) and the internal control system (ICS) embedded in the RMS and all parts thereof which can materially affect the consolidated financial statements also include the processes, risks and control mechanisms that are related to the accounting system.

The purpose of the accounting-related RMS is to identify and assess any risks which might cause the consolidated financial statements not to comply with statutory regulations. The impact of identified risks on the consolidated financial statements must then be evaluated, where appropriate, even by involving outside specialists. One of the purposes of the accounting-related ICS is, by implementing suitable controls, to provide reasonable assurance that despite the identified risks Corporate Accounting pro-

71 RENK Annual Report 2010 cesses conform with the International Financial Reporting Standards (IFRS), German GAAP and other accounting-related rules and regulations.

Both the RMS and ICS embrace all companies of material significance for, and encompass all accounting-related processes of relevance to, the consolidated financial statements. Accounting-related controls center primarily on the risk of any material misstatement or misrepresentation in financial reporting. When assessing the materiality of any such misstatement or misrepresentation, the focus is on probability of loss, as well as on the financial effect on sales, EBIT or total assets.

Key elements of accounting-related RMS and ICS include the unambiguous allocation of responsibilities and controls for all closing processes, transparent process criteria in the form of guidelines, policies, time schedules and responsibilities for keeping and closing the accounts, clearly defined rules for accessing accounting-related IT systems, as well as precisely described responsibilities for involving outside specialists. Peer reviews and strict segregation of functions/duties are also essential to effective controls along the entire accounting process chain.

Risks identified and counteractions taken are updated in quarterly risk reports and submitted to RENK’s management. The effectiveness of accounting-related internal controls is tested at least once annually, primarily when closing the accounts.

As part of their annual audit, the statutory auditors are obligated to report to the Supervisory Board on any accounting-related risks or control weaknesses, as well as on any material weak points in the RMS or ICS that they may have identified during their due audit.

Risks and rewards In line with the risk management system the following explanations outline the major risks and rewards for the RENK Group with substantial impact on the asset and capital structure, financial position and/or results of operations. They are divided into five categories: market, products, processes, personnel, finances.

Market In all its relevant markets, RENK identifies medium- to long-term opportunities for profitable growth. No significant risks are expected from today’s vantage point. There will be a continuation of the fundamental international economic trend such as ongoing business growth, increased global division of labor and the associated worldwide expanding haulage distances and volumes, capital expenditure needs on the part of the oil and gas industry and innovations driven by the developing global climate policies. Despite such positive growth factors, given the still uncertain environment there does exist the risk of a downturn in global business. Generally higher demand for oil and other commodities is accompanied by the risk of rising prices on the procurement market. Unless RENK is able to download such price hikes for upstream products onto its customers, profit margins will be eroded. Protectionist efforts may also throttle growth. Military markets, in particular, are reliant on political decision-making processes and risk-prone due to cash-strapped public sectors.

72 Large double helical gear being balanced RENK is keeping an eye on and assessing regularly and rigorously its political, legal, social and financial environments in order to take into account in its strategic and operating decisions in good time the related risks and rewards.

Products As a foremost supplier in the technology market the RENK Group’s mission is to develop technologically and economically leading products and launch them onto the market in outstanding quality. Abandoning such a mission would entail irresponsibly risking the Group‘s market position. Still, the rollout of new products is accompanied by conceptual and market risks. These are counteracted by meticulous strategic planning that analyzes developments in the marketplace and RENK’s environment. In making sure that its products are of a continuously high quality, RENK establishes an essential precondition for tapping further worldwide market potentials.

Regarding products already introduced onto the market, quality risks exist. Poor quality can lead to costs for statutory, voluntary and/or goodwill warranties and, in the long term, to loss of market share and lower profit margins. In extreme cases, product liability, loss and damage claims are conceivable. Suppliers and their components must undergo a strict approval procedure so that high quality standards are maintained. Once production has started up, defined in-process quality assurance measures ensure that manufacturing defects or malfunctions are identified and remedied in good time. Later, when the products are in use, together with customers any defects or malfunctions are registered, analyzed, and remedied.

Lengthy customer contracts harbor additional risk potential: changes in the political or business environment within a market can entail additional costs and expenses in the execution of major projects.

Processes Among its top priorities and ongoing tasks and opportunities to retain competitive cost structures, the RENK Group ranks the repeated fine-tuning of its business processes in the areas of Development, Purchasing, Production, Sales, and Administration. Substandard processes may cause excessive costs and expenses and through the additional tied-up funds, also financing risks. What’s more, piled-up inventories regularly result in higher loss risks through technical changes, obsolescence or scrapping. Incom- mensurately high receivables harbor default risks. These risks tend to accelerate the more the economy deteriorates. As a consequence, RENK is especially concerned to trim capital employed by systematically improving the downstream processes.

Among the risks peculiar to the performance of major projects are faults in contract formulation, miscosting, postcontracting changes in the economic and technical conditions, and substandard performance by cooperation or consortium partners. It is with the aid of comprehensive project management and contract controlling mechanisms that the RENK Group minimizes these risks. Major projects are submitted for approval to RENK AG’s Executive Board and, starting from a certain magnitude, MAN SE’s Controlling and Finance departments as well as MAN SE’s Executive Board for eval- uation.

As with any other modern enterprise, the business processes at the RENK Group are largely IT supported. This leads to efficiency gains but also harbors risks. Parts of the IT infrastructure may fail due to accidents, natural disasters or technical malfunctions and hence a wide variety of business processes may be hampered or brought to a complete standstill. Other risks involve unauthorized access, theft or the deletion of business information and data.

By centralizing and outsourcing its IT operations and rigorously introducing IT service management processes according to ITIL (IT Infrastructure Library organizational standard for IT processes) and increasingly organizing the RENK Group’s IT security in line with the internationally recognized security standard ISO 27001, RENK has significantly upgraded the transparency, operational reliability and security of its IT infrastructure. The use of the newest hardware and software is the best way to support business processes and ensure constant data availability and protection from unauthorized access. Regular backups with control mechanisms reduce the risk of total business data loss. To minimize risks to IT systems that are essential, among other things, for financial processes, IT monitoring mechanisms as part of the internal control system (ICS control documentation) and the IT service provider (SAS70 provider control report) are repeatedly fine-tuned. Potential threats (especially from the Inter- net) to system and data security are counteracted by sophisticated and state-of-the-art security measures, e.g., the firewall system certified by the Federal Office for Informa- tion Security (BSI).

The ultimate aim is to organize to perfection and hence successfully minimize any risks to the four chief categories of IT security: availability (ensure usability), integrity (correctness, consistency and completeness of the information), confidentiality (protection from unauthorized access and disclosure) and authenticity (proof and irrebut- table evidence of personal identity).

A pivotal role in process security is played by the ICS whose function is to make sure that in all business processes the relevant rules and procedures are adhered to. In this way, it contributes toward the protection of assets and the reduction of risks. With regard to accounting, the emphasis is on perfecting the annual closing procedures so that all transactions are processed completely, in good time and correctly.

Personnel Highly skilled specialist and managerial staff that set technological standards in the form of RENK products, represent a vital success factor for the Group. HR opportunities are to be found in the skills, international focus and innovative resources of employees developing continuously improved products, services, and processes. Risks exist in an inability to staff key positions according to future requirements. With a wide array of personnel marketing efforts we have succeeded in tying to the Group personnel with the corresponding technical and managerial skills.

Finances As an international player the RENK Group finds itself exposed to financial market risks. These are counteracted through organizational measures combined with appropriate financial instruments. The Group’s and its operating companies’ financing functions are exercised centrally by MAN SE.

75 RENK Annual Report 2010 The RENK Group must have sufficient cash reserves at its disposal for current finance requirements. These requirements for cash and equivalent funds are predicated on a detailed three-tier finance plan for the Group. The corporate plan forecasts the medium-term position of cash and other funds for three years. The liquidity trend is planned on the basis of four-quarter rolling forecasts, the third tier being a three- month current cash requirements plan to fine-tune details.

RENK uses only marketable instruments to manage currency and interest rate risks by hedging existing underlyings and, to some extent, also forecast sales transactions. Derivatives and other hedges are as a rule contracted through MAN’s Corporate Finance and are subject to stringent internal controls. Where forex regulations prevent a hedge from being contracted through MAN’s Corporate Finance, it is transacted in the name and for the account of the subsidiary concerned.

Forex parity fluctuations may affect not only prices for goods or services but also profit margins. The RENK Group generally hedges against currency risks all firm customer contracts, its own purchase orders and other transactions. Moreover, hedges are contracted for forecast transactions in series-manufacture business and high-probability customer projects. Nonetheless, a residual risk remains despite all hedging efforts in that amount or timing of actual revenue differs from budget. For details of risk reporting and the associated use of financial instruments, see the note to financial derivatives in the consolidated financial statements.

Another type of currency risk exists when a customer’s purchasing power is enfeebled by exchange rate fluctuations. Currency debasement can result for us in short-term losses in the regional markets affected. By continuously improving efficiency and diversifying into varied geographical markets, RENK endeavors in the long term to offer products and services at competitive prices which are resistant to prevailing forex trends.

The manufacture of products calls for substantial quantities of commodities. Com- modity market price trends or escalator clauses in supplier contracts may entail EBIT risks. As a matter of policy, these risks are counteracted by long-term supply contracts or escalator clauses in customer contracts.

Changes in the portfolio of shareholdings may result in major strategic risks. While most of the rewards are derived from the consolidation of our own market position, an M&A transaction may also pose risks if, for example, the achievable synergies fail to match the assumptions underlying the price paid for the acquiree.

M&A transactions may also bring about changes to the RENK Group’s required financing structures, with the result of potentially higher financing costs or potentially limited financial latitude.

Counterparty and country risks are contained by carefully weighing business transactions and counterparties, as well as by stipulating appropriate contract and payment terms and conditions. Residual risks are profiled according to customer credit standing and largely shifted to banks or credit default insurers by using documentary credits (LCs) and the guarantee bonds received. However, risks still remain that cannot be

hedged but may only be limited through meticulous prior credit assessment and ongoing monitoring of the current risk position. Guarantee bonds for the RENK Group are centrally furnished by MAN SE. In this context, RENK would use its best efforts to substantially exclude guarantee enforcement without good cause by diligently drafting and processing contracts and agreements.

With a view to reducing the inherent financial risks and, outside of Germany, also complying with statutory regulations, the RENK Group’s defined benefit obligations (DBO) are covered by plan assets which are largely separated from operating assets. With due regard to the cash flow structure of pension liabilities, plan assets are invested by external asset managers in line with the prudence concept yet their fair value is exposed to the general market volatility of interest rates and stock prices. Changes in value due to market rates are partly offset by the mirror-image trend of the DBO’s present value. When measuring pension obligations, biometrical risks (mainly increased life expectancy and invalidity/disablement or death of employees while in service) must be taken into account as well. RENK has responded to the trend toward ever longer life-spans by changing the pension plan for active employees (in Germany) from an annuity to an endowment basis (DCP).

Assessment of the RENK Group’s risk situation On the basis of the risk management system set up by the MAN Group and introduced at RENK, the Executive Board notes that at the present time no risks are identifiable that might have a substantial and sustained adverse impact on the asset and capital structure, financial position and/or results of operations of the RENK Group. The risk management system installed and the related organizational mechanisms allow the Executive Board in good time to become aware of a risk situation and initiate adequate measures.

Risk management is a permanent and unremitting corporate activity and as such is, of course, continuously subject to improvements. For RENK, this means that in future we will again be fine-tuning our risk management and internal control systems to match changed scenarios. Given the still uncertain economic outlook, activities in 2011 will again focus on managing financial, market and product risks. At the same time, any business opportunities in line with our strategic goals will be rigorously pursued.

Compliance management system MAN SE’s Code of Conduct, which is also applied by the RENK Group, clearly centers on an unequivocal commitment to free and fair trade. This obligatory Code of Conduct and its rules (periodically updated in recent years) bind all RENK officers and employees. They prohibit RENK staff from offering or accepting any benefits whatsoever with the intention of unfairly obtaining advantages or contracts for RENK or other entities or persons. RENK’s compliance management system assures abidance by all these rules and regulations. With a view to ensuring transparency, ever more stringent policies have in recent years been applied to commission payments. Examples include the peer review principle, strictly no cash payments, and a code of honor for sales staff.

At the organizational level, RENK’s compliance management system (CMS) comprises besides the Chief Compliance Officer (CCO), a Compliance Board whose members represent all major RENK locations and meet periodically. In addition, a compliance help-

77 RENK Annual Report 2010 Thrust-loaded shaft bearing from Hannover for the Weser power plant. RENK Rheine additionally supplying Raflex multidisk steel clutches. desk has been installed; external ombudspersons are available to employees, also for anonymous contact.

The ICS, RMS and Export Control round off RENK’s efforts toward ensuring regulatory and corporate compliance. Closer scrutiny and compliance audits in the year under review have not uncovered any prosecutable facts or infringements against antitrust legislation.

RENK’s Supervisory and Executive Boards attach great importance to corporate compliance and culture. Abidance by legislative and in-house regulations is and remains a foremost task for all officers and employees and thus represents an integral part of our corporate culture, aiming at creating a solid foundation and infrastructure for due compliance. The ultimate objective is to lastingly consolidate this culture and install an infrastructure that ensures adherence to legislation and policies.

Corporate governance statement

RENK’s corporate governance statement on

• the German Corporate Governance Code,

• corporate governance practices,

• functions, duties, responsibilities and membership of the Executive and Supervisory Boards (including committee work) has been published on the Internet at www.renk.eu within Investor Relations under Corporate Governance Statement.

81 RENK Annual Report 2010 RENK’s fair booth at SMM shipbuilding, machinery and marine technology, Hamburg

Outlook

The growth observable in certain regions of the world in 2010 and in some cases of dynamic proportions, will lose momentum in 2011:

• In the USA, the epicenter of the financial and economic crises and erstwhile motor of the global economy, growth potential is dampened, partly because of consumer spending reluctance.

• This US weakness is not expected to be counterbalanced by other industrial countries. In Europe, efforts to curb public debt will drag down the economy.

• Growth in the emerging markets is chiefly being energized by massive public-sector spending in Asia. As long as this does not spill over into domestic demand, growth rates remain tentative.

For Germany’s export-driven mechanical engineering industry this means having to again focus on non-European markets, especially China, India and Brazil as well as on other emerging countries, mainly Asian. Restrictive monetary and fiscal policies within Europe allow scant scope for capital expenditures.

On the basis of further vehicle transmission projects shortly to be awarded, the RENK Group companies expect for 2011 and 2012 an annual order intake of around €500 million. Sales and operating profit in 2011 will be slightly down despite the tall order backlog since the related shipments will mostly take place in the following years. ROS is again expected to be double-digit. Only starting from 2012 and on the basis of current budgets can we expect a turnaround to higher sales and earnings. The situation for the RENK divisions in 2011 and 2012 is forecast to be as follows:

At Vehicle Transmissions, there are sound prospects of acquiring follow-up and/or new contracts for sizable quantities over the next two years. In some instances, the underlying procurement decisions have already been made by governments. Contrac- tual obstacles are the respective stipulations regarding local content and offset obligations. We are sticking to our objective of securing for RENK a relevant value-adding share in new contracts. Given the long run-up times there is regularly a period of about 18 months between order placement and shipment of the first transmissions. This means that in 2011, new-transmission sales will first sink before significantly resurging.

Maintenance work for the French army over the coming years will continue at the present level at SESM.

Business is seen strong and sustained at RTS and its US sales subsidiary LABECO. The existing order backlog of over €50 million is an all-time high. In the aviation, rail vehicle and new wind energy product groups, procurement projects already planned give rise to optimism for the years ahead. Constraining factors are the human and infrastructure resources already committed by virtue of the tall order backlog. RTS’s response is to hire extra staff and regularly fine-tune all its value-adding production processes.

The market environment at Slide Bearings had already brightened considerably in 2010. It remains our sustained strategic goal for the years to come to develop accompanying logistic facilities to offer the desired short delivery periods for our standard slide bearings to key accounts that are relocating production to emerging countries. Project activities in the iron and steel industry and at shipyards are likely to pick up in the medium term and this will lead to resurging orders and earnings at this division.

The situation at Special Gear Units is viewed with less optimism. Although growing demand is predicted for stationary applications, at the same time new products and improved features are necessary as an economically viable response to the discounted prices that are presently seen as the sole contract-award criterion.

Business in marine gear units is largely governed by our share in major naval procurement projects. This is a market in which RENK is leader with its long menu of complex gear unit systems for frigates and corvettes. A prime target of our sales strategy is the USA, the world’s biggest naval market and an all-important factor is the close cooperation with the big US naval shipyards we have been cultivating for years now.

Swiss RENK-MAAG GmbH sees China again as the major turbine gear unit market over the next two years. Other areas of attention will be markets which are already heavily populated with MAAG gear units.

Altogether, Special Gear Units is budgeting a rise in order intake, still modest in 2011 but more ambitious in 2012. Given the partly protracted lead times, any sales or earnings improvements will materialize not before 2012.

2011 will be tough for Standard Gear Units, an assessment based on the poor order backlog and clouded climate in merchant shipping. The definite improvement in all performance indicators expected in 2012 will be largely attributable to the start-up of 5-MW offshore wind energy gear unit series production scheduled for late 2011. Most of the infrastructure is already in place.

85 RENK Annual Report 2010 The new gear-unit assembly shop at Rheine

The above statements and information regarding future trends are founded on present expectations and specific assumptions and, as such, are accompanied by a string of risks and uncertainties. There are a host of factors—many beyond our control—that impact on our business operations and results. Such factors might mean that the actual results and performance on the part of the RENK Group significantly deviate from those made in the foregoing forward-looking comments.

Augsburg, January 27, 2011

RENK AG The Executive Board

Florian Hofbauer Ulrich Sauter

88 RENK consolidated financial statements for the fiscal year ended December 31, 2010

90 Consolidated income statement 90 Statement of comprehensive income 91 Consolidated balance sheet as of December 31, 2010 92 Statement of changes in equity 93 Consolidated statement of cash flows for fiscal 2010 95 Notes to RENK’s consolidated financial statements 95 Accounting principles 107 Notes to the consolidated income statement 112 Notes to the consolidated balance sheet 123 Other information 138 Supervisory and Executive Board memberships in other statutory boards or equivalent 141 RENK AG’s shareholdings 142 Management representation 143 Independent auditor’s report and opinion

89 RENK Annual Report 2010 Consolidated income statement for fiscal 2010

k€ Note 2010 2009) Net sales (6) 402,766) 474,073) Cost of sales (302,712) (355,495) Gross margin 100,054) 118,578)

Other operating income (7) 6,519) 3,714) Selling expenses (25,900) (26,503) General administrative expenses (13,279) (12,621) Other operating expenses (8) (16,051) (17,339) Sundry investment income 446) 139) EBIT 51,789) 65,968)

Interest income (9) 664) 233) Interest expense (9) (791) (1,132) EBT 51,662) 65,069)

Income taxes (10) (14,005) (18,863) Net income (EAT) 37,657) 46,206)

Earnings per share (EpS) in € (11) 5.54) 6.80)

Statement of comprehensive income

k€ 2010) 2009) Net income (EAT) 37,657) 46,206) Currency translation differences 2,167) (61) Change in fair value of financial derivatives (1,547) 492) Change in actuarial gains/losses on pensions (1,957) (3,381) Deferred taxes on OCI 1,176) 1,342) OCI (161) (1,608)

Comprehensive income 37,496) 44,598)

Deferred taxes on OCI break down into k€483 (up from a red k€185) on OCI from the change in fair value of financial derivatives and k€693 (down from k€1,527) on OCI from the change in actuarial gains/losses on pensions.

Consolidated balance sheet as of December 31, 2010

Assets k€ Note 12/31/2010) 12/31/2009) Intangible assets (14) 7,364) 6,799) Tangible assets (15) 108,389) 97,163) Sundry investments 1,493) 1,493) Deferred tax assets (10) 13,455) 9,583) Trade receivables (17) 4,027) 4,280) Other noncurrent assets (18) 15,205) 859) Total noncurrent assets 149,933) 120,177)

Inventories (16) 110,250) 121,467) Trade receivables (17) 68,703) 89,023) Income tax assets 1,755) 4,763) Other current assets (18) 3,496) 4,207) Cash and cash equivalents (19) 85,170) 52,967) Total current assets 269,374) 272,427) 419,307) 392,604)

Equity & liabilities k€ 12/31/2010) 12/31/2009) Capital stock 17,920) 17,920) Additional paid-in capital 10,669) 10,669) Reserves retained from earnings 123,497) 114,972) Net earnings 72,427) 55,535) Accumulated OCI (7,658) (7,497) Total equity (20) 216,855) 191,599)

Noncurrent financial liabilities (23) 953) –) Pension accruals (21) 14,466) 11,079) Deferred tax liabilities (10) 14,982) 11,065) Other noncurrent accruals (22) 18,281) 15,801) Other noncurrent liabilities (26) 588) 588) Total noncurrent liabilities and accruals 49,270) 38,533)

Trade payables (24) 35,484) 38,095) Prepayments received (25) 46,225) 55,131) Current income tax liabilities 6,568) 8,707) Other current accruals (22) 44,286) 38,576) Other current liabilities (26) 20,619) 21,963) Total current liabilities and accruals 153,182) 162,472) 419,307) 392,604)

91 RENK Annual Report 2010 Statement of changes in equity

k€ Capital Additional Reserves Net) Accumu-) Total) stock paid-in retained earnings) lated OCI) capital fr. earnings

Balance at Dec. 31, 2008 17,920 10,669 97,116 39,425) (5,889) 159,241) Net income (EAT) – – 17,856 28,350) –) 46,206) Accumulated OCI – – – –) (1,608) (1,608) Comprehensive income – – 17,856 28,350) (1,608) 44,598) Dividend payout – – – (12,240) –) (12,240) Balance at Dec. 31, 2009 17,920 10,669 114,972 55,535) (7,497) 191,599) Net income (EAT) – – 8,525 29,132) –) 37,657) Accumulated OCI – – – –) (161) (161) Comprehensive income – – 8,525 29,132) (161) 37,496) Dividend payout – – – (12,240) –) (12,240) Balance at Dec. 31, 2010 17,920 10,669 123,497 72,427) (7,658) 216,855)

For details see Note (20).

Consolidated statement of cash flows for fiscal 2010

k€ Note 2010) 2009) EBT 51,662) 65,069) Current taxes (12,923) (19,797) Depreciation/amortization/write-down of tangibles, intangibles and investments (14, 15) 12,826) 11,389) Change in pension accruals 1,113) 2,279) Cash earnings 52,678) 58,940)

Change in inventories 12,768) 32,973) Change in prepayments received (9,532) (28,276) Change in trade receivables 21,278) 22,755) Change in trade payables (2,940) (12,699) Change in other accruals 7,686) (320) Change in other assets 374) 1,312) Change in other liabilities (1,291) (471) Elimination of the net gain/loss from the disposal of tangibles, intangibles and investments (253) (171) Other changes in working capital 352) (11,994) Net cash provided by operating activities 81,120) 62,049)

Cash outflow for additions to tangibles and intangibles (14, 15) (23,154) (20,075) Cash outflow for additions to investments – ) (339) Cash inflow from the disposal of tangibles, intangibles and investments 608) 217) Net cash used in investing activities (22,546) (20,197)

Dividend payout (20) (12,240) (12,240) Financial liabilities redeemed –) (136) Change in financial liabilities 864) –) Net cash used in financing activities (11,376) (12,376)

Net change in cash and cash equivalents 47,198) 29,476) Parity-related change in cash and cash equivalents 5) (2) Consolidation group-related change in cash and cash equivalents (2) –) 115) Opening cash and cash equivalents 52,967) 23.378) Noncash change in cash and cash equivalents (18) (15,000) –) Closing and cash equivalents (19) 85,170) 52,967)

The cash flow from operating activities includes interest received at k€664 (up from k€233), interest paid at k€67 (down from k€360), and income taxes paid at k€12,083 (down from k€32,033).

The noncash change in cash and cash equivalents was due to long-range credit term extensions of MAN Group financial receivables.

93 RENK Annual Report 2010

Notes to RENK’s consolidated financial statements

Accounting principles

(1) General

RENK AG is a German listed company with business domicile at Gögginger Strasse 73 in Augsburg. RENK develops, manufactures and markets worldwide upscale drive technology products. The RENK Group breaks down into the Vehicle Transmissions, Slide Bear- ings, Special Gear Units and Standard Gear Units divisions. As 76-percent subsidiary of Munich-based MAN SE, RENK is included in its parent’s consolidated financial statements. The subject consolidated financial statements of RENK AG for the fiscal year ended December 31, 2010, conform with Art. 315a(1) German Commercial Code (“HGB”) and hence with the International Financial Reporting Standards (IFRS, which include the IAS) of the International Accounting Standards Board (IASB), London, UK, as endorsed by Regulation (EC) No. 1606/2002 of the European Parliament and Council on the application of international accounting standards in the European Union (EU). As resolved by the Executive Board, the consolidated financial statements were released on January 27, 2011, for submittal to the Supervisory Board.

The consolidated financial statements are prepared in euros (€), the Group’s functional currency, and presented in € ’000 (“k€”) unless expressly otherwise stated.

(2) Consolidation

(a) Consolidation group RENK’s consolidation group includes, besides RENK AG as parent, the wholly-owned subsidiaries, viz. Société d'Équipements, Systèmes et Mécanismes (SESM), Saint-Ouen- l'Aumône, France; RENK Corporation (RC), Duncan, SC, USA; RENK Test System GmbH (RTS), Augsburg; RENK-MAAG GmbH (RMCH), Winterthur, Switzerland; and RENK LABECO Test Systems Corporation (LABECO), Mooresville, IN, USA.

The subsidiaries not included in the consolidated financial statements are, even in the aggregate, of minor significance for the RENK Group's asset and capital structure, financial position, and results of operations.

A complete listing of the RENK Group's shareholdings has been appended to these notes.

(b) Business combinations and consolidation principles The acquisition method is used for capital consolidation in business combinations. For initial consolidation, all identifiable assets and (effective and contingent) liabilities in the acquiree’s accounts are stated at their fair value. Any positive difference between the cost (purchase price) of the acquiree and the prorated equity is allocated to the appropriate RENK division as cash-generating unit (CGU) and capitalized as goodwill.

95 RENK Annual Report 2010 The division (CGU) including the assigned goodwill is tested for impairment at least once annually and, if found impaired, written down to its current fair value.

Intercompany accounts (profits, gains, losses, income, expenses, receivables and payables) among companies included in the consolidated financial statements, as well as intercompany profits/losses from intragroup transfers of inventories and noncurrent assets, are all eliminated. Taxes are deferred for consolidation transactions recognized in net income.

(c) Currency translation Foreign-currency transactions are first translated at the applicable historical rate. In subsequent periods, monetary assets and liabilities are translated at the current (closing) rate, the resulting translation differences being recognized in the income statement. Nonmonetary items valued at historical cost in a foreign currency are translated at the historical rate.

The functional-currency concept is used to translate the financial statements of non-Euroland companies. Since it is the primary business environment that governs functional currency, that of RENK’s consolidated subsidiaries corresponds to the local currency. The financial statements are translated according to the modified closing- rate method, using the current rate for balance sheet lines (except for equity, which is translated at historical rates) and the annual average rate for the income statement. The annual average rates are derived from the monthly means.

In the movement analyses of assets, accruals and equity, the fiscal year's opening and closing balances as well as consolidation group changes are translated at the applicable current rates, while for the remaining balance sheet lines, the annual average rates are used. Differences from the prior-year currency translation of balance sheet captions are recognized in equity only (OCI) but, upon divestment of a subsidiary, recycled to the income statement.

The euro (€) exchange rates of major currencies are as follows:

Current rate of €1 at Average rate of €1 in 12/31/2010 12/31/2009 2010 2009 US dollar 1.33620 1.44060 1.32503 1.39430 Swiss franc 1.25040 1.48360 1.37968 1.50770 Japanese yen 108.650 133.160 116.280 130.340

(3) Accounting and valuation Except for certain financial instruments carried at fair value, the consolidated financial statements are based on cost, as well as on the financial statements of RENK AG and consolidated RENK subsidiaries as prepared in accordance with MAN’s groupwide uniform accounting and valuation principles.

(a) Sales recognition Sales are recognized as and when the underlying products or goods have been delivered or the services rendered and after risk has passed to the customer, always net after all such sales deductions as cash and other discounts, allowances granted to customers, etc. Sales are not recognized unless the amount is reliably determinable and the receiv- able’s collection reasonably certain.

Revenue from dedicated contracts for customized manufacture (or construction) is recognized according to the percentage-of-completion (PoC) method. For details see Note 3(h) below.

(b) Operating income/expenses Operating expenses are recognized when the underlying products or services are utilized, whereas expenses for advertising and sales promotion and other sales-related expenses are recognized when incurred. Cost of sales breaks down into the production cost of goods sold and the purchase cost of merchandise sold. In addition to direct materials and direct labor, production cost also comprises production-related overheads, including the depreciation of production plant and equipment.

Warranty obligations are accrued when the products are delivered. Research expenses, as well as interest and other costs of debt are directly expensed in the period, unless such borrowing costs are capitalized as part of the cost of qualifying assets.

(c) Intangible assets Separately acquired intangible assets are capitalized at cost. Intangibles acquired in a business combination or M&A transaction are capitalized at fair value as of the acquisition date. Finite-lived intangibles are amortized on a straight-line basis over their useful lives. The amortization period for software is mostly three years, while licenses and similar rights or assets are amortized over the agreed or contractual term of use. Indefinite-lived intangible assets (i.e., whose useful life cannot be determined) are not amortized but tested at least once annually for impairment. If found impaired, they are written down. As of December 31, 2010, no goodwill or other indefinite-lived intangibles were capitalized.

Expenses incurred for developing new products or series are capitalized (i) when the new products or series are found technically and economically feasible, (ii) when they have been scheduled for internal use or for marketing, (iii) if the expenses can be reliably determined, and (iv) if sufficient resources are available for development project completion, any other development and all research expenses being directly expensed. Capitalized development costs are amortized as from the date of market rollout. For finite-lived assets, amortization is charged on a straight-line basis, as a rule over five to seven years. As long as a development project is still in progress, its accu-

97 RENK Annual Report 2010 mulated capitalized costs are tested at least once annually for impairment. No development costs were capitalized as of December 31, 2010.

(d) Tangible assets Tangible assets (a.k.a. property, plant and equipment) are carried at historical (purchase or production) cost, less accumulated depreciation and, where appropriate, write-down. The production cost of internally manufactured tangibles includes all direct costs (labor and materials), prorated indirect materials and indirect labor, as well as interest cost proratable to the manufacturing period. If tangible assets consist of significant identifiable components with different useful lives, these components are capitalized and depreciated separately.

Unless subject to capitalization, maintenance and repair (M&R) costs are expensed.

Tangible assets are depreciated according to the straight-line method over their estimated useful lives. The groupwide uniform asset depreciation ranges are based on the following useful lives:

Buildings 10 to 50 years Land improvements 5 to 33 years Production plant and machinery 3 to 33 years Factory and office equipment 3 to 25 years

(e) Leases According to IAS 17, leases for tangible assets (investment leases) may either be capital or operating leases. Contracts where substantially all the risks and rewards incidental to beneficial ownership of the leased asset are transferred to any RENK company as lessee are capitalized and therefore treated as capital leases (a.k.a. finance leases). In these cases, the lessee capitalizes the leased asset at the present value of the minimum lease payments or the leased asset’s fair value, whichever is lower, and then depreciates it over the shorter of the estimated useful life or the lease term. Concurrently, the lessee recognizes a corresponding financial liability, the latter being amortized in subsequent periods on the basis of the effective interest method. All other leases where companies of the RENK Group are lessees, are accounted for as operating leases, the lease payments being expensed.

(f) Write-down for impairment losses If anything indicates that the book value of an intangible or tangible asset or an investment may be impaired, it is tested accordingly by determining the asset’s recoverable amount, which is the higher of the asset’s value in use or net fair value (NFV: fair value less costs to sell). The value in use, in turn, corresponds to the value of expected cash flows, which is then discounted at a fair market rate. Where an individual asset’s recoverable amount cannot be determined, that for the smallest identifiable asset group (a so-called cash-generating unit, or CGU for short) to which the asset can be assigned is determined instead. Where the book value exceeds an asset’s (or CGU’s) recoverable amount, such excess is directly recognized as write-down within other operating expenses. No indications existed in fiscal 2010 that would have required an impairment test.

If the fair value of an asset (or CGU) previously written down rebounds in full or in part, the asset other than goodwill (or the CGU excluding goodwill) is written up accordingly, the contra being other operating income. This write-up is capped at the amortized or depreciated cost (excluding a CGU’s goodwill) which would have resulted had the asset not been written down.

(g) Inventories Inventories are stated at the lower of (purchase or production) cost or net realizable value. Production cost includes all manufacturing-related direct costs (material and labor), as well as proratable fixed and variable indirect materials and indirect labor. The allocable overheads are mostly determined on a normal workload basis. General administrative and selling (GAS) expenses are not capitalized. Raw materials and merchandise are generally priced at average purchase cost.

(h) Customized manufacturing contracts Dedicated contracts for customized manufacture (or construction) are recognized according to the percentage-of-completion (PoC) method: Based on agreed revenues and expected contract costs, sales and cost of sales are recognized by prorating them at the PoC achieved by the balance sheet date. The contract progress, or PoC, is as a rule determined on a cost-to-cost basis (i.e., from the ratio the costs incurred by the balance sheet date bear to the expected total contract costs). If the profit or loss from a PoC contract is not yet reliably determinable, revenue is recognized according to the zero- profit method, i.e., only at the amount of contract costs incurred to date. In the balance sheet, the contract portions proratable according to such PoC are shown as trade receivables net after deducting customer prepayments.

Expected losses on customized manufacturing contracts (so-called onerous contracts) are immediately and fully recognized by writing down the affected capitalized assets and providing for any additional loss.

99 RENK Annual Report 2010 (i) Straight financial instruments Straight financial instruments primarily include trade receivables from customers, loans, (financial) investments, securities, cash and cash equivalents, as well as financial liabilities and trade payables. Straight financial instruments are initially capitalized or recognized as of the transaction date at fair value, which generally equals the transaction price (value of the consideration given or received). Thereafter straight financial instruments are carried at fair value or amortized cost, depending on the category to which they are assigned.

Loans and receivables held for purposes other than trading are generally carried at amortized cost (less any write-down). Within the RENK Group, this category primarily includes trade receivables from customers, the remaining receivables, and loans. Non- or low-interest receivables with a remaining term above twelve months are discounted. Write-down is charged wherever evidence of an impairment loss exists. Receivables expected to be uncollectible are fully written off (specific bad-debt allowance). A (flat) portfolio allowance for doubtful accounts provides for the general collection risk and is charged to the remaining receivables portfolio, substantially on the basis of empirical data.

Financial assets available for sale are carried at fair value and, within the RENK Group, include mainly securities and (financial) investments. The difference between cost and fair value is recognized in, and only in, other comprehensive income (OCI) within equity after duly deferring taxes thereon. Wherever the book value exceeds fair value long-term or substantially, such excess is recognized as write-down in the income statement.

The fair value of securities is as a rule their quoted market price. Investments not quoted in an active market and whose fair value is not reliably determinable are carried at cost. Where considered potentially impaired, such assets are tested accordingly, any write-down for an impairment loss being recognized in expense.

Financial liabilities are initially recognized at cost and thereafter carried at amortized cost, except for financial derivatives.

(j) Derivative financial instruments The MAN Group uses various financial derivatives to hedge underlyings against currency, interest rate and other price risks, mainly from ordinary business. Major financial derivatives of relevance to the RENK Group are currency forwards and forex options.

100

Financial derivatives are (re)measured at fair (market) value upon first-time recognition (as of the trading date) and at each succeeding balance sheet date. The fair value of exchange-listed derivatives is their quoted positive or negative market value. Where no market prices are quoted, fair value is determined on the basis of the terms and conditions current at the balance sheet date (such as interest or exchange rates) and by using generally accepted option pricing models or DCF techniques.

The recognition of the resulting unrealized gains/losses depends on the category to which the derivative is assigned.

Any financial derivatives failing to meet, or no longer meeting, the IAS 39 requirements for a hedging relationship are considered instruments held for trading, and for these, any gains/losses from fair value remeasurement are immediately recognized in the income statement.

If and when the IAS 39 hedge accounting criteria are met, RENK accounts as from such date for this hedge as either fair value or cash flow hedge.

A fair value hedge (FVH) secures recognized assets or liabilities or unrecognized firm commitments against potential fair value variations, and these changes in the derivative’s (= hedge’s) and its underlying’s fair values are recognized in net income. There- fore, any upward change in a perfect hedge’s fair value is virtually offset by the down- ward movement of the underlying’s fair value, and vice-versa.

Cash flow hedges (CFHs) secure recognized assets or liabilities, or unrecognized firm commitments or high-probability customer projects (forecast transactions), against the risk of cash flow variations. In a CFH, the effective portion of the change in the derivative’s fair value is initially recognized in a separate equity line (OCI) after deducting deferred taxes. When the hedged underlying (if a sales transaction) is recognized in the income statement, the proratable OCI is recycled to net sales. If a purchasing transaction resulting in the future recognition of a nonfinancial asset, the gains/losses from the statement at fair value of the financial derivative that have been accumulated as OCI change the hedged nonfinancial asset’s value. The ineffective portion of such gains/losses on fair value remeasurement is directly recognized in the income statement. If the hedging instrument expires, or is sold, terminated or exercised or if the hedge ceases to exist although the forecast transaction is expected to materialize nonetheless, the unrealized gains/losses by then accumulated in OCI continue to be carried as OCI and are recycled (as described above) to, once the hedged underlying is recognized in, the income statement. If and when the originally hedged underlying is no longer expected to materialize, the proratable accumulated OCI is released to the income statement, too.

See Note (30) for the RENK Group’s hedging strategy and the current notional volumes.

101 RENK Annual Report 2010 (k) Deferred taxes Deferred tax assets and liabilities are recognized for temporary differences between tax bases and book values, as well as for consolidation transactions recognized in net income and for tax loss carryforwards.

Deferred tax assets are recognized only to the extent that taxable income for the utilization of deductible temporary differences will be available.

Any changes in deferred taxes recognized in the balance sheet generally result in deferred tax expense or income. However, if the deferred taxes have directly been recognized in OCI, their changes are, too.

(l) Pension obligations Pension obligations arising from defined benefit plans are determined according to the projected unit credit (PUC) method by measuring the defined benefit obligations (DBO) on the basis of the prorated entitlements acquired by the balance sheet date, discounting them to their present value and duly taking into account assumptions of the future trend of certain parameters that impact on future pension levels. Differ- ences between assumptions and actual trends or changed actuarial parameters may produce actuarial gains or losses, these being recognized (after duly accounting for deferred taxes) in, and only in, OCI and shown in the statement of comprehensive income (SOCI).

The fair value of plan assets (which are used to cover pension obligations) is deducted from pension accruals. For measurement details, see Note (21). A defined benefit asset (DBA: excess of plan assets over pension obligations) is capitalized as such only to the extent that it results in a refund from the plan or reduces future contributions.

The current service cost, which represents the increase in a DBO’s present value as active employees have acquired additional entitlements in the period, is shown in the appropriate functional expense category. The interest cost included in net pension expense, as well as the expected return on plan assets, are recognized within the net interest result.

(m) Other accruals The other accruals provide for all identifiable risks and uncertain commitments which arise from past events, are likely to result in an outflow of economic resources, and whose amount can be reliably determined. An accrual is measured at the best estimate of the amount required for settling the obligation. Where the effect of interest is material, the accrual is discounted by applying a current market rate. Any accrual-related reimbursement or refund expected from a third party, if virtually certain to be received, is capitalized as a separate asset.

102

The recognition of accruals is periodically reviewed for appropriateness and adjusted accordingly when newly established facts or changed circumstances require so. If a reassessment reduces the obligation, the accrual portion proratable to such reduction is released by crediting it to the same functional expense category to which the provision had originally been debited.

Warranty accruals provide for the obligations on the basis of previously incurred warranty expenses, the warranty period and the sales of warranted products, as well as for specific warranties for known claims. Costs yet to be billed and other business obligations are provided for at the value of the payment or work/service to be performed, as a rule the future production cost thereof. Impending losses on onerous contracts in progress are accrued wherever the expected economic benefit from the contract is below the unavoidable costs required to perform the contract.

(n) Financial statement presentation In the balance sheet, assets and liabilities are grouped into noncurrent and current ones. Items are deemed current if due within one year or any longer business cycle. Deferred tax assets and liabilities, as well as assets and accruals relating to defined benefit pension plans, are all classified as noncurrent. The cost-of-sales format is used for consolidated income statement presentation.

RENK makes use of the MAN Group’s central finance management system. The resulting financial assets are generally capitalized as cash equivalents while any financial liabilities originating from this finance management system are shown as such.

(o) Estimates and latitude Preparing the consolidated financial statements requires certain judgment, estimates and discretionary decisions. RENK’s estimates are based on empirical data and other relevant factors, as well as on a going concern. Accounting estimates and assumptions are all made to the best of RENK’s knowledge and belief, with a true and fair view of the Group’s asset and capital structure, financial position and results of operations in mind. Although valuation reasonably allows for identifiable uncertainties, future events may differ from such estimates. Accounting estimates and assumptions are periodically reviewed.

The following accounting estimates as of the closing date are of particular significance:

103 RENK Annual Report 2010 The test for goodwill impairment, required at least once annually, calls inter alia for the forecast of future cash flows and their discounting. Forecasts predicated on financial budgets or plans approved by management underlie such cash flow projections. Fur- ther material assumptions are needed for WACC (weighted average cost of capital) and tax rates. If the book value of tangible or intangible assets is tested for impairment, management’s judgment and estimates are again inevitable to determine recoverable amounts.

Certain manufacturing contracts are accounted for according to the percentage- of-completion (PoC) method, which requires the degree of contract progress to be estimated with great care. Revenue is recognized according to contract progress, measured as PoC. Depending on the PoC measurement method used, total contract costs, costs to completion, contract risks and other judgmental factors are among the key parameters of estimates. Each operating division’s management regularly reviews such PoC estimates and, where required, restates or adjusts the values or parameters accordingly.

Pension and similar obligations are measured using actuarial methods which, in turn, hinge on assumptions of discount rates, expected returns on plan assets, pay and pension trends, and mortality. A changed market or business environment may considerably impact on these actuarial assumptions, actual pension and similar obligations thus differing substantially.

Since the Group operates in quite a number of countries it is also subject to a multitude of tax laws and regulations. Actually expected income taxes as well as deferred tax assets/liabilities must be predicted for each corporate taxpayer, and this also calls for assumptions (such as the interpretation of complex tax regulations and the ability to earn sufficient taxable income, depending on tax type and jurisdiction). Any depar- ture of assumed factors from the actual taxation outcome may affect tax expense or deferred taxes.

Depending on the underlying transaction, the measurement of certain other accrued liabilities and similar obligations may be complex and largely hinge on judgment and a number of estimates. Management estimates of the probability and amounts required for the settlement are, inter alia, predicated on empirical and currently available technical data, cost trend predictions, potential warranty claims, and the cash inflow from realization.

104

(4) Cash flow statement The cash flow statement breaks down cash flows into those from operating, investing and financing activities. Effects of changes in the consolidation group and exchange rates are eliminated in the lines concerned. The net (forex) parity-related change in cash and cash equivalents is shown in a separate line. The indirect method is used to determine the cash flow from operating activities.

In the cash flow from operating activities, the noncash operating expenses and income, as well as the net gain/loss from the disposal of intangibles, tangibles and investments are all eliminated.

The cash flow from investing activities reflects the cash outflow for, which is offset against the cash inflow from the disposal of, tangible/intangible assets and investments.

The cash flow from financing activities mirrors the cash dividend payout, cash inflow from and outflow for (i) securities transactions and (ii) financial liabilities redeemed or newly raised, as well as endowments of pension funds or plans.

Cash and cash equivalents comprise cash on hand and in bank (including highly liquid, temporarily invested funds readily convertible into cash and subject to only insignificant volatility risks), as well as the short-term receivables from MAN’s intragroup finance transactions.

(5) Changed accounting policies, methods and rules

(a) Newly applied rules On January 10, 2008, the IASB issued a revised IFRS 3, Business Combinations. This Standard, which supersedes IFRS 3 (2004), provides new guidance for applying the acquisition method (previously called purchase method) to business combinations. Highlights of the revised rules are the valuation of minority (a.k.a. noncontrolling) interests, the accounting for business combinations achieved in stages, and the treatment of contingent price components and of acquisition incidentals. Also new is the application of the full-goodwill method (measurement of minority interests at fair value) or the partial-goodwill alternative (measurement at fair value of the prorated identifiable net assets). For business combinations achieved in stages, the revised Standard requires that the shares held at the date at which control passes be remeasured and the resulting gain or loss recognized in the income statement.

105 RENK Annual Report 2010 Payments of contingent consideration that are shown as liabilities at the date of acquisition should now be remeasured at fair value and the resultant gain/loss recognized as income/expense, as appropriate. Acquisition incidentals are henceforth expensed when incurred. Absent any transactions covered by, the application as from fiscal 2010 of, IFRS 3 (2008) has no impact on the RENK Group’s accounts. Likewise on January 10, 2008, the IASB issued the amended IAS 27, Consolidated and Separate Financial State- ments. The Standard’s amendments primarily deal with the accounting for transactions where the company (i) retains control of subsidiaries and (ii) holds a minority (noncontrolling) interest in equity. Transactions not resulting in a loss of control are recognized in, and only in, equity. Residual interests retained when control is lost are remeasured at fair value. Total comprehensive income is now strictly and fully prorated to minority interests even if resulting in the minority interests having a deficit balance. Absent any transactions covered by, the application as from fiscal 2010 of, IAS 27 (2008) has no impact on the RENK Group’s accounts.

The IASB issued further publications to be applied by RENK as from January 1, 2010, but which, though duly adopted by RENK, have no significant effect on its consolidated financial statements.

(b) Newly issued rules endorsed by the EU but not applied early In November 2009, the IASB revised IAS 24, Related Party Disclosures. On the one hand, the revised Standard provides a partial exemption from the disclosure requirements for transactions of government-related entities inter se; on the other, the definition of a related party has been simplified by clarifying its intended meaning and eliminating inconsistencies from the definition. For RENK, which will apply the revised IAS 24 (2009) as from fiscal 2011, the group of related parties has been extended by the redefinition.

The IASB issued a number of further publications, their potential effects on the consolidated financial statements being currently assessed and analyzed. However, no significant effect will ensue for RENK’s consolidated financial statements from the new accounting pronouncements.

106

Notes to the consolidated income statement

(6) Net sales

Sales by geographical markets k€ 2010 2009 Germany 120,021 172,606 Other EU 120,075 158,547 Other Europe 13,718 17,909 Asia 110,801 91,182 Americas 35,272 29,271 Africa 1,958 1,626 Australia and Oceania 921 2,932 402,766 474,073

Sales by operating divisions k€ 2010 2009 Vehicle Transmissions 113,051 110,097 Slide Bearings 84,360 94,881 Special Gear Units 135,510 165,514 Standard Gear Units 69,845 103,581 402,766 474,073

(7) Other operating income k€ 2010 2009 Income from the release of accruals 1,147 285 Gains from the disposal of tangible/intangible assets 415 212 Income from other trade business 806 212 Gains from foreign exchange and derivatives 3,326 1,209 Miscellaneous 825 1,796 6,519 3,714

107 RENK Annual Report 2010 (8) Other operating expenses k€ 2010 2009 R&D 3,925 3,590 Provisions in the year 704 2,527 Write-down of current assets 3,350 6,078 Losses on foreign exchange and derivatives 3,463 2,093 Miscellaneous 4,609 3,051 16,051 17,339

The other operating expenses comprise the expenses not assigned to any of the functional expense categories (primarily to cost of sales); R&D expenses reflect only such portion as is contract-unrelated production cost. The miscellaneous other operating expenses include functionally unallocable personnel expenses, as well as a multitude of single items.

(9) Net interest expense k€ 2010) 2009) Interest and similar income 664) 233) Interest and similar expenses (67) (360) Interest portion of addition to pension accruals (4,220) (4,163) Expected return on plan assets 3,496) 3,391) (127) (899)

k€609 (up from k€232) of interest income was earned from MAN SE.

(10) Income taxes

The recognized income tax expense breaks down as follows:

k€ 2010) 2009) Current taxes Germany 8,296) 18,488) abroad 4,627) 1,309) Deferred taxes Germany 2,153) (2,115) abroad (1,071) 1,181) 14,005) 18,863)

The income tax expense expected for 2010 was calculated by applying a total 31.58 percent (unchanged) to EBT for the assessment period 2010, this percentage being the combined result of municipal trade income tax at 15.75 percent, corporate income tax at 15.0 percent, plus solidarity surtax of 5.5 percent of corporate income tax.

108

Reconciliation of expected to actual income tax expense:

k€ 2010 %) 2009) % EBT 51,662) 100.0) 65,069) 100.0) Expected income tax 16,315) 31.6) 20,548) 31.6) Tax rate differential (331) (0.6) (424) (0.7) Tax-exempt income/gains (144) (0.3) (76) (0.1) Nondeductible business expenses 17) 0.0) 301) 0.5) Loss carryforwards not capitalized 122) 0.2) (923) (1.4) Taxes for previous years and sundry (1,974) (3.8) (563) (0.9) Actual tax expense 14,005) 27.1) 18,863) 29.0)

The actual tax expense includes nonperiod income taxes of k€1,478. Taxes of k€1,501 were deferred for actuarial gains/losses.

Allocation of deferred taxes to balance sheet lines:

k€ 12/31/2010 12/31/2009 Deferred tax assets Pension accruals 4,320 3,020 Inventories and receivables 5,644 3,201 Other accruals 1,604 1,783 Sundry 1,887 1,579 13,455 9,583

Deferred tax liabilities Noncurrent assets 6,946 6,084 Inventories and receivables 4,340 2,777 Sundry 3,696 2,204 14,982 11,065

(11) Earnings per share 2010 2009 Net income (k€) 37,657 46,206 Weighted average number of shares outstanding (1,000) 6,800 6,800 Earnings per share in € 5.54 6.80

In accordance with IAS 33, the number of shares outstanding is divided into the Group’s net income (EAT) to obtain earnings per share (EpS). No unexercised stock options existed to dilute earnings per share, at either December 31, 2010 or 2009.

109 RENK Annual Report 2010 (12) Additional notes to the income statement

Cost of sales includes the following cost of materials:

k€ 2010 2009 Cost of raw materials, supplies, and merchandise purchased 110,378 156,555 Cost of services purchased 35,430 24,908 145,808 181,463

Personnel expenses break down as follows:

k€ 2010 2009 Wages and salaries 99,919 109,098 Social security taxes and pension expense 22,515 23,146 122,434 132,244

Including statutory Social Security taxes of k€8,382 (down from k€8,779), pension expense for 2010 totals k€11,720 (down from k€12,100) and has been allocated to the appropriate functional categories but it does not reflect the interest portion contained in the period’s pension provision at k€4,220 (up from k€4,163).

In fiscal 2010, the RENK Group’s headcount averaged 1,823 employees (down from 1,911), including 1,110 (down from 1,207) directly and 713 (up from 704) indirectly working in Production.

110

Breakdown of amortization/depreciation:

k€ 2010 2009 Amortization of intangible assets 1,365 1,259 Depreciation of tangible assets 11,461 10,130 12,826 11,389

Lease payments expensed:

k€ 2010 2009 Minimum operating lease payments 129 79 129 79

(13) Total fees of statutory auditor

In the year under review, the Supervisory Board proposed Munich-based Pricewater- houseCoopers AG Wirtschaftsprüfungsgesellschaft (PwC) to be engaged as statutory auditor, and the AGM of May 6, 2010, endorsed this proposal. PwC has thus succeeded KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG).

The table below specifies the fees charged by (i) PwC and auditing firms of the international PwC network in fiscal 2010, and (ii) KPMG and its affiliates in fiscal 2009.

k€ 2010 2009 (a) Fee for statutory audit 144 232 Incidentals – 14 (b) Other certification/assurance and valuation services 12 9 (c) Tax accounting 9 18 (d) Other services – 22 Total fees of statutory auditor 165 295

The fees charged by the Munich-based statutory auditor PwC in 2010 totaled k€122, including k€110 for the statutory audit and k€12 for other certification, assurance and valuation services.

111 RENK Annual Report 2010 Notes to the consolidated balance sheet

(14) Intangible assets k€ Licenses, Technologies Customer Total software, purchased relations similar rights and assets Gross book value at 1/1/2009 8,826) 1,516) 2,763) 13,105) Accumulated amortization (4,918) (168) (461) (5,547) Balance at 1/1/2009 3,908) 1,348) 2,302) 7,558) Consolidation group changes 16) –) –) 16) Additions 425) –) –) 425) Book transfers 63) –) –) 63) Disposals (1) –) –) (1) Amortization (888) (99) (272) (1,259) Currency translation differences (1) (1) (1) (3) Balance at 12/31/2009 3,522) 1,248) 2,029) 6,799)

Gross book value at 1/1/2010 9,353) 1,518) 2,766) 13,637) Accumulated amortization (5,831) (270) (737) (6,838) Balance at 1/1/2010 3,522) 1,248) 2,029) 6,799) Additions 913) –) –) 913) Book transfers 37) –) –) 37) Amortization (959) (109) (297) (1,365) Currency translation differences 412) 222) 346) 980) Balance at 12/31/2010 3,925) 1,361) 2,078) 7,364)

Gross book value at 12/31/2010 10,975) 1,801) 3,281) 16,057) Accumulated amortization (7,050) (440) (1,203) (8,693)

The amortization charged to capitalized intangibles is included in the appropriate functional expense categories, mainly cost of sales.

112

(15) Tangible assets k€ Land Production Other plant, Prepayments Tangible and plant and factory and on tangibles, assets buildings machinery office construction equipment in progress

Gross book value at 1/1/2009 54,490) 115,131) 24,980) 14,343) 208,944) Accumulated depreciation (28,854) (73,498) (18,853) –) (121,205) Balance at 1/1/2009 25,636) 41,633) 6,127) 14,343) 87,739) Consolidation group changes –) –) 13) –) 13) Additions 2,017) 6,963) 1,236) 9,434) 19,650) Book transfers 8,315) 5,279) 130) (13,787) (63) Disposals (4) (1) (40) –) (45) Depreciation (1,614) (6,994) (1,522) –) (10,130) Currency translation differences (3) (11) (3) 16) (1) Balance at 12/31/2009 34,347) 46,869) 5,941) 10,006) 97,163)

Gross book value at 1/1/2010 64,644) 124,406) 25,997) 10,006) 225,053) Accumulated depreciation (30,297) (77,537) (20,056) –) (127,890) Balance at 1/1/2010 34,347) 46,869) 5,941) 10,006) 97,163) Additions 2,363) 8,097) 1,721) 10,060) 22,241) Book transfers 5,460) 3,189) 13) (8,699) (37) Disposals (29) (306) (20) –) (355) Depreciation (1,926) (7,856) (1,679) –) (11,461) Currency translation differences 8) 700) 54) 76) 838) Balance at 12/31/2010 40,223) 50,693) 6,030) 11,443) 108,389)

Gross book value at 12/31/2010 72,365) 133,726) 26,604) 11,443) 244,138) Accumulated depreciation (32,142) (83,033) (20,574) –) (135,749)

The depreciation charged to tangible assets is included in the appropriate functional expense categories, mainly cost of sales. No write-down was charged in either 2010 or 2009.

113 RENK Annual Report 2010 (16) Inventories k€ 12/31/2010 12/31/2009 Raw materials and supplies 21,883 24,222 Work in process and finished products 87,795 94,870 Prepayments made 572 2,375 110,250 121,467

Inventories valued at k€247,202 (down from k€299,660) were in 2010 recognized as cost of sales. Inventories of a gross k€23,419 were written down (up from k€20,518), the write-down expensed in 2010 totaling k€3,161 (down from k€4,940).

(17) Trade receivables k€ 12/31/2010 12/31/2009 Due from customers 66,555 86,784 Due from nonconsolidated group companies 848 1,079 Due from investees 1,739 5,248 PoC receivables 3,588 192 72,730 93,303

k€4,027 (down from k€4,280) of trade receivables has a remaining term above one but below five years. The remaining k€68,703 (down from k€89,023) now falls due in less than one year.

Analysis and breakdown of PoC receivables:

k€ 12/31/2010) 12/31/2009) PoC contract costs and prorated profits 16,843) 4,861) Currency translation differences (64) –) Prepayments received (13,191) (4,669) 3,588) 192)

While in 2009, k€725 prepaid by customers on account of PoC contracts for which no production cost had as yet been incurred was shown on the liabilities side, no such upstream prepayments were received and recognized as liabilities in 2010.

Revenue from PoC contracts amounted to k€11,982 in 2010 (up from k€4,861).

114

Movement analysis of specific allowances for bad debts among trade receivables:

k€ 2010) 2009) Balance at January 1 1,309) 287) Added 353) 1,023) Utilized (347) (1) Reversed (639) –) Exchange rate effects 31) –) Balance at December 31 707) 1,309)

A specific allowance for bad debts was charged to receivables of k€707 gross book value (down from k€1,309).

Movement analysis of the specific portfolio allowances for trade receivables:

k€ 2010) 2009) Balance at January 1 680) 563) Added 27) 121) Reversed (149) (42) Exchange rate effects 7) –) Other changes –) 38) Balance at December 31 565) 680)

The table below breaks down overdue receivables not written down:

k€ Past due for 2010 2009) ≤30 days 7,071 8,567) 31–90 days 3,342 6,521) 91–180 days 1,120 1,224) 181–360 days 2,757 688) >1 year 1,336 17) Balance at December 31 15,626 17,017)

A portfolio allowance accounts for the default risks in these receivables. As of the balance sheet date, there was no indication that any of the receivables neither impaired nor past due would go bad.

We make credit insurance contracts to manage the default risk inherent in trade receivables from customers, mainly by obtaining Hermes cover for export receivables.

115 RENK Annual Report 2010 (18) Other assets k€ 12/31/2010 12/31/2009 Financial derivatives 540 894 Loans and other receivables from third parties 202 289 Noncurrent receivables from MAN intragroup financing 15,000 – VAT assets 1,075 427 Other non-income tax assets 34 46 Reserve from employer’s pension liability insurance – 482 Advances, clearing account balances 797 1,600 Prepaid expenses and deferred charges 860 944 Sundry assets 193 384 18,701 5,066

The other assets are disclosed in these balance sheet lines:

k€ 12/31/2010 12/31/2009 Other noncurrent assets 15,205 859 Other current assets 3,496 4,207

Pursuant to IAS 39, financial derivatives are stated at fair value; most of them are hedges against either currency risks in customer contracts or other forex risks.

(19) Cash and cash equivalents k€ 12/31/2010 12/31/2009 Cash on hand and in bank 159 112 Due from MAN intragroup financing 85,011 52,855 85,170 52,967

The accounts due from MAN intragroup financing reflect receivables under the central cash-pooling system of, and short-term investments with, MAN companies.

(20) Stockholders’ equity

RENK AG’s capital stock of €17,920,000 is divided into 7 million fully paid-up no-par shares of common stock. During the year under review, 76 percent of RENK AG’s capital stock has been owned directly by Munich-based MAN SE. Up to the merger on March 16, 2010, into MAN SE of MAN Maschinen- und Anlagenbau GmbH, Munich, a wholly- owned MAN subsidiary, the stake in RENK AG had been held by the mergee and thus only indirectly by MAN SE.

As of December 31, 2010, RENK AG held a total 199,903 treasury shares in its portfolio, equivalent to 2.86 percent of the capital stock or a stake of k€512.

116

The additional paid-in capital solely comprises stock premiums from increases in RENK AG's capital stock. The accumulated other comprehensive income (OCI) is mostly attributable to the remeasurement of pension accruals at fair value.

The actuarial gains/losses within OCI break down as follows:

k€ 12/31/2010) 12/31/2009) (Gain)/loss on the PV of the DBO 2,379) 6,400) (Gain)/loss on plan assets (422) (3,019) Change in actuarial gains/losses 1,957 3,381) Deferred taxes (693) (1,527) Actuarial gains/losses 1,264) 1,854)

Dividend distribution is subject to the provisions of the German Stock Corporation Act (“AktG”), according to which cash dividends may be distributed from the Group parent’s (RENK AG’s) net earnings; these net earnings according to German GAAP total k€31,431 as of December 31, 2010. The Company's Executive and Supervisory Boards will propose to the annual general meeting on April 14, 2011, to pay a cash dividend of €1.80 per eligible share from said net earnings, corresponding to €12,240,174.60 for 7,000,000 no-par shares after deduction of the dividends proratable to the 199,903 treasury shares (which do not rank for dividend pursuant to Art. 71b AktG).

RENK’s capital management primarily targets the sustainable increase in shareholder value while safeguarding the Group’s liquidity and thus its credit standing. Contribut- ing to these targets are ongoing efforts toward trimming capital costs, improving the cash flow from financing activities, perfecting the capital structure, as well as ensuring an effective risk management system.

For the measurement and direction of business operations and the best-possible allocation of capital within the Group, RENK uses the excess of ROCE over WACC as controlling parameter, i.e., the difference between return on capital employed (ROCE) and the weighted average cost of capital (WACC).

For capital management purposes, the Group’s capital employed (CE) comprises total assets excluding financial funds and tax assets, less all accruals and liabilities other than financial debts, pension accruals and taxes. Additionally eliminated from CE are any M&A-related effects produced by finite-lived tangible and intangible assets. Pre- payments received are not deducted unless they have already been applied to contract work.

The RENK Group’s capital employed as of December 31, 2010, totaled k€151,365 (down from k€158,151).

RENK AG’s articles of incorporation (bylaws) do not require the creation of any statutory reserves.

117 RENK Annual Report 2010 (21) Pension accruals

(a) Pension plans and coverage capital Employees of German RENK subsidiaries benefit from a pension plan to provide additional retirement income including disability (invalidity) and death benefits during their active service life.

Under the current pension plans, active employees receive employer contributions pegged to their pensionable pay and are offered the opportunity to top up their retirement income through deferred compensation to which, where covered by collective agreements, their employers make certain contributions. All these defined contributions (funded by both employers and employees) plus the income earned on the investment on the capital market help accumulate during active service a pension capital to be paid out on retirement in one sum or in installments; capital redemption in the form of annuities is optional in certain cases. When investing the employees’ pension capital, the related investment risks are scaled back with growing age. Pension capital performance is directly linked to the capital market and controlled by a basket of indexes and other suitable parameters.

RENK’s pension plan assets in Germany are managed by MAN Pension Trust e.V., a membership corporation under German law, as well as by MAN Pensionsfonds AG; under irrevocable agreements, these trust assets are exempt from recourse or attach- ment by RENK (trustor) and earmarked solely to fund current pension payments or settle employee claims in the case of employer insolvency. For the purpose of overseeing due and proper management and appropriation of the special pension trust assets, security trustees independent of MAN have been appointed. MAN Pensions- fonds AG is, moreover, subject to the supervision by BaFin, the German Federal Finan- cial Supervisory Authority. The assets held under the CTA (contractual trust agreement) are invested by several professional asset managers in various funds on the capital market in accordance with investment policies specified by an investment board. The acquisition of securities issued or floated by MAN SE or an MAN company is prohib- ited, as is any investment in real estate for internal use.

RMCH in Switzerland has incurred defined benefit obligations which are all plan- funded and managed by an independent pension fund. In addition, France’s SESM is subject to certain statutory payment obligations when employees separate early or go into regular retirement.

The employer contributions to defined benefit plans are expected to amount in 2011 to k€3,535.

118

(b) Funding status

The following actuarial parameters are assumed in order to calculate the DBO’s present value and the plan assets

% Germany Abroad 2010 2009 2010 2009 Discount rate 5.00 5.25 2.40 3.25 Pension rise 2.00 2.00 0.00 0.25 Pay rise 2.75 2.75 1.50 2.00 Expected return on plan assets 4.63 5.00 4.00 4.25

In Germany, the expected return on plan assets is determined on the basis of the rate of Bunds (Federal government bonds) at matching maturities plus risk premiums in line with the portfolio structure.

Breakdown of funding status and pension accruals:

k€ 12/31/2010 12/31/2009) 12/31/2008) 12/31/2007) Plan-unfunded DBO 2,279) 1,928) 1,658) 1,769) Plan-funded DBO 92,221) 84,883) 73,535) 68,355) Total DBO 94,500) 86,811) 75,193) 70,124) Plan assets at fair value (80,024) (75,732) (69,773) (65,598) Pension accruals 14,466 11,079) 5,420) 4,526) thereof Germany 12,448) 8,814) 2,987) 4,198) thereof abroad 2,018) 2,265) 2,433) 328)

Movement analysis of the present value of the DBO:

k€ Germany Abroad 2010) 2009) 2010) 2009) Present value of the DBO at Jan. 1 74,448) 65,289) 12,363) 9,904) Current service cost 2,403) 2,208) 743) 627) Past service cost – ) (28) 37) (135) Interest cost 3,818) 3,816) 402) 347) Actuarial losses/(gains) 3,071) 6,175) (691) 225) Pension payments (3,832) (3,397) (1,149) (10) Contributions by beneficiaries 253) 349) 391) 371) Exchange rate changes, other 2) 36) 2,231) 1,034) Present value of the DBO at Dec. 31 80,163) 74,448) 14,327) 12,363)

119 RENK Annual Report 2010 Movement analysis of plan assets:

k€ Germany Abroad 2010) 2009) 2010) )2009) Plan assets at Jan. 1 65,634) 62,302) 10,098) 7,471) Expected return on plan assets (ROPA) 3,065) 3,064) 431) 327) Difference between expected and actual ROPA 385) 2,805) 37) 214) Current contributions by employers 1,514) 278) 571) 691)) Contributions by beneficiaries 228) 35) 390) 371)) Pension payments (3,114) (2,851) (1,134) (10)) Exchange rate changes, other 3) 1) 1,916) 1,034)) Plan assets at Dec. 31 67,715) 65,634) 12,309) 10,098))

As of December 31, 2010, plan assets returned 5.2 percent in Germany (down from 9.2) and 4.0 percent in Switzerland (down from 6.2).

Breakdown of plan asset portfolio:

k€ Germany Abroad 2010 2009 2010 2009 Fixed-income bonds 34,324 53,596 5,104 4,200 Money market instruments 1,320 1,776 735 – Equities 12,511 10,261 2,660 2,145 Real estate – – 2,698 2,278 Other investments 19,560 1 1,112 1,474 Total plan assets 67,715 65,634 12,309 10,097

Breakdown of pension expense:

k€ 2010) 2009) Current service cost 3,145) 2,834) Past service cost 37) (163) Interest cost 4,220) 4,163) Expected return on plan assets (3,496) (3,391) 3,906) 3,443)

120

(d) Gains and losses recognized as OCI

k€) 2010)) 2009) Actuarial (gains)/losses at Jan. 1 8,636)) 5,253) Changes in fiscal year 1,957) 3,381) Consolidation group changes/other (1) –) Exchange rate changes 42) 2) Actuarial (gains)/losses at Dec. 31 10,634) 8,636)

(e) Empirical adjustments

The empirical adjustments, i.e., the variances between the values calculated on the basis of actuarial assumptions and the actual trend of DBO and plan assets, present the following picture over time:

% 2010 2009 2008 2007 % of the present value of the DBO 0.74 0.72 – 0.37 –1.34 % of the fair value of plan assets 0.53 3.99 – 8.56 – 0.90

(22) Other accruals k€ 12/31/ Currency Utilized) Added Released) 12/31/ 2009 translation, 2010 diff., other Warranties 30,709 239 (4,210) 18,581 (1,963) 43,356 Unbilled costs 8,592 – (3,167) 1,283 (168) 6,540 Other business obligations 6,851 272 (2,161) 1,123 (1,067) 5,018 Obligations to personnel 6,260 61 (2,786) 1,796 (512) 4,819 Remaining accruals 1,965 103 (805) 1,926 (355) 2,834 54,377 675 (13,129) 24,709 (4,065) 62,567

The other accruals are disclosed in these balance sheet lines:

k€ 12/31/2010 12/31/2009 noncurrent current noncurrent current Warranties 15,439 27,917 10,912 19,797 Unbilled costs – 6,540 – 8,592 Other business obligations – 5,018 1,136 5,715 Obligations to personnel 2,264 2,555 3,283 2,977 Remaining accruals 578 2,256 470 1,495 18,281 44,286 15,801 38,576

121 RENK Annual Report 2010 The warranty accruals provide for implied and express warranties, as well as accommo- dation/goodwill warranties voluntarily extended to customers. Warranty accruals are utilized when the warranty claim takes effect, which may be anytime during the warranty period. The accruals for unbilled costs refer to products or services yet to be provided under contracts already invoiced (or parts thereof) and to obligations under maintenance and service contracts. The other business obligations refer to accrued losses on onerous contracts, to default/performance-related penalties, etc. The accruals for obligations to personnel provide for employment anniversary allowances, termination indemnities, preretirement part-time work, and statutory postretirement benefits.

(23) Financial liabilities k€ 12/31/2010 12/31/2009 Payables under capital leases 953 – 953 –

Payables under capital leases are included in noncurrent financial liabilities.

(24) Trade payables k€ 12/31/2010 12/31/2009 Trade payables 35,484 38,095

Trade payables are disclosed within current liabilities and accruals and include k€128 (down from k€154) due to nonconsolidated group companies.

(25) Prepayments received k€ 12/31/2010 12/31/2009 Prepayments received 46,225 55,131

Prepayments received are disclosed within current liabilities and accruals and include k€614 (down from k€2,033) received from nonconsolidated group companies.

122

(26) Other liabilities k€ 12/31/2010 12/31/2009 Personnel-related 16,928 17,847 Statutory Social Security 1,396 1,388 Currency hedges 729 105 Non-income taxes 9 8 Remaining liabilities 2,145 3,203 21,207 22,551

The personnel-related liabilities refer to wages, salaries and social security taxes not yet due at the balance sheet date, as well as to prorated vacation pay and special year-end payments.

As in 2009, the other current liabilities included the negative market values of financial derivatives. Since they mostly served as hedges against currency risks in customer contracts, their negative market values contrasted with increased values in the balance sheet lines of the underlyings.

The other liabilities are disclosed in the following balance sheet lines:

k€ 12/31/2010 12/31/2009 Other noncurrent liabilities 588 588 Other current liabilities 20,619 21,963 21,207 22,551

Other information (27) Contingent liabilities

k€ 12/31/2010 12/31/2009 Guaranties and suretyships 917 850 917 850

In fiscal 2007, RENK AG furnished MAN SE with a non-expiring payment guaranty for the liabilities of RENK subsidiaries from the latter’s business relationship with MAN SE.

123 RENK Annual Report 2010 (28) Other financial obligations

Other financial obligations exist from and under leases. Future rents for the minimum terms of operating leases fall due as follows:

k€ 12/31/2010 12/31/2009 Operating leases Due within 1 year 103 112 Due >1–5 years 54 149 157 261

Financial purchase obligations to third parties from pending capital expenditure projects were within the ordinary scope of business.

(29) Additional disclosures for straight financial instruments

This Note (29) additionally highlights details of straight financial instruments (FI) and discloses further information on FI-related balance sheet and income statement lines.

The table below details according to IFRS 7 the book values, the breakdown into valuation categories, the fair values (FV) and FV hierarchy level of financial instruments, all as of December 31, 2010.

124

k€ Book value thereof IAS 39 Fair value Fair value covered valuation hierarchy by IFRS 7 category*) level Assets Investments 1,493 1,493 AfS 1,493 n/a Other noncurrent/current assets 18,701 16,680 – – – Other financial assets 16,680 16,680 – 16,680 – financial derivatives at FV through IS (no hedge) 383 383 aFV 383 2 financial derivatives in hedges 157 157 n/a 157 2 sundry assets 16,140 16,140 LaR 16,140 – Assets not covered by IFRS 7 2,021 – n/a – – Trade receivables 72,730 72,730 LaR 72,730 – Cash and cash equivalents 85,170 85,170 n/a 85,170 – Liabilities Other noncurrent/current liabilites 21,207 1,685 – – – Noncurrent/current financial liabilities 953 953 aAC 953 – Other financial debts 1,685 1,685 – 1,685 – financial derivatives at FV through IS (no hedge) 202 202 aFV 202 2 financial derivatives in hedges 729 729 n/a 729 2 sundry liabilities 754 754 aAC 754 – Liabilities not covered by IFRS 7 19,522 – n/a – – Trade payables 35,484 35,484 aAC 35,484

* AfS: financial assets available for sale; LaR: loans and receivables aFV: at fair value through income statement aAC: financial payables at amortized cost n/a: not applicable

125 RENK Annual Report 2010 k€ Book value thereof IAS 39 Fair value Fair value covered valuation hierarchy by IFRS 7 category*) level Assets Investments 1,493 1,493 AfS 1,493 n/a Other noncurrent/current assets 5,066 3,044 – – – Other financial assets 3,004 3,004 – 3,004 – financial derivatives at FV through IS (no hedge) 40 40 aFV 40 2 financial derivatives in hedges 854 854 n/a 854 2 sundry assets 2,110 2,110 LaR 2,110 – Assets not covered by IFRS 7 2,062 – n/a – – Trade receivables 93,303 93,303 LaR 93,303 – Cash and cash equivalents 52,967 52,967 n/a 52,967 – Liabilities Other noncurrent/current liabilites 22,551 822 – – – Other financial debts 822 822 – 822 – financial derivatives at FV through IS (no hedge) – – aFV – 2 financial derivatives in hedges 105 105 n/a 105 2 sundry liabilities 717 717 aAC 717 – Liabilities not covered by IFRS 7 21,729 – n/a – – Trade payables 38,095 38,095 aAC 38,095 –

* AfS: financial assets available for sale; LaR: loans and receivables aFV: at fair value through income statement aAC: financial payables at amortized cost n/a: not applicable

Breakdown of the accumulated book values of financial instruments by IAS 39 valuation category:

k€ 12/31/2010 12/31/2009 IAS 39 valuation category Assets Liabilities Assets Liabilities AfS 1,493 – 1,493 – aFV 383 202 40 – LaR 88,870 – 95,413 – aAC – 37,191 – 38,812

126 Fair values have been determined on the basis of market conditions available at the closing date and the valuation techniques described below and reflect the prices at which market participants would exchange the rights and/or obligations arising from the measured financial instruments in a transaction at arm’s length. The valuation techniques used have remained substantially unchanged in comparison with those applied the year before.

Cash, cash equivalents, trade receivables, other financial assets, trade payables and other financial debts all have largely a short remaining term and, therefore, their current book values substantially equal their fair values. Moreover, trade receivables are reasonably written down wherever evidence of their impairment exists.

The financial assets available for sale include equity interests of k€1,493 (virtually unchanged) which are stated at cost. They represent securities and shares in nonlisted companies for whose valuation DCF methods could not be used for lack of reliably determinable cash flows. These nonlisted companies are enterprises for which no quoted market prices are available since no active market exists for their shares. At present, we do not intend to dispose of these shares.

The future cash flows of financial derivatives without option components (mainly currency forwards) are determined by using forward rate trajectories. The fair value of these derivatives corresponds to their discounted cash flows. Options for currency pairs are valued on the basis of generally accepted option-pricing models, such as the Black-Scholes formula or similar generalized closed-form models.

Fair value hierarchy:

A hierarchy that prioritizes the inputs to valuation techniques used to measure fair value of financial instruments into three broad levels helps assess the significance of fair value measurements and related disclosures:

Level 1: Inputs in the form of (unadjusted) quoted prices in active markets for identical assets or liabilities;

Level 2: Direct inputs other than Level 1 quoted prices for identical or similar assets or liabilities or indirect inputs derived from observable market data;

Level 3: Unobservable inputs for an asset or liability that are used to measure fair value in cases where little or no market data is available.

127 RENK Annual Report 2010 Neither in fiscal 2009 nor 2010 were any fair value measurement inputs recategorized between Levels 1 and 2, nor was any fair value measurement transferred to or from Level 3. In both fiscal years, book value equaled fair value.

The interest income/expense earned or incurred in connection with financial assets and debts break down as follows:

k€ 2010) 2009) Interest income 800) 443) Interest expense (169) (171)

Interest income from impaired financial assets is insignificant given the mostly short periods to expected receipt of payment.

The table below lists the net gains/losses from financial instruments:

k€ 2010) 2009) Loans and receivables 257) (1,813) Financial assets available for sale 446) 139) Financial instruments held for trading (61) –) Financial debts at cost 7) (50) Net gain/(net loss) 649) (1,724)

The net gains/losses from loans and receivables mainly reflect changes in allowances, write-down and currency translation differences, as well as income from cash inflows and write-up.

The net gains/losses from financial assets available for sale basically mirror net income/loss from investments.

The net gains/losses from financial assets/debts at fair value recognized in the income statement (IS) represent changes in the fair value of financial derivatives to which no hedge accounting rules are applied.

The net gains/losses from financial debts carried at cost chiefly comprise currency translation differences and income from liabilities charged off.

128

(30) Derivative financial instruments and hedging strategies The MAN Group is exposed to not insignificant an extent to currency and interest rate risks for whose identification, measurement and containment a groupwide risk management system has been set up. RENK has been integrated with this RMS and makes use of the risk-managing tools thereby placed at its disposal.

(a) MAN SE’s risk management system Companies of the MAN Group generally hedge their transactions against currency and interest rate risks through MAN SE’s central Group Treasury, on terms as if at arm’s length and using straight and derivative financial instruments. Financial instruments are recognized at the trading date.

Group Treasury’s risk positions are hedged externally with banks within predeter- mined risk limits. Hedges are contracted according to groupwide uniform directives in compliance with the German Act on Corporate Control & Transparency (“KonTraG”), as well as with the German Minimum Requirements for Bank Trading Business (“MaH”). Moreover, such contracting is subject to stringent monitoring, which is particularly ensured through the strict segregation of contracting, settlement and controlling functions.

The MAN Group’s currency and interest rate risk positions are regularly reported to MAN SE’s Executive and Supervisory Boards. Compliance with guidelines and directives is checked by MAN’s Internal Auditing.

(b) RENK’s currency risks Any future cash flows not transacted in the functional currency of a group company are exposed to currency risks.

Within the RENK Group, generally all firm customer contracts and all purchase orders issued in foreign currency are hedged. Moreover, hedging transactions provide for planned foreign-currency revenues from series-manufacturing business within defined limits and for high-probability customer projects (forecast transactions).

Equity interests or equity-type loans in foreign currency are not subject to any hedging obligation.

The RENK Group’s currency and interest rate risk positions are regularly reported to RENK AG’s Executive and Supervisory Boards.

Currency forwards in US dollar, Swiss franc and Japanese yen existed at December 31, 2010, their recognition being governed partly by CFH, partly by FVH accounting rules.

129 RENK Annual Report 2010 Breakdown of hedging instruments (notional volumes): k€ 12/31/2010 12/31/2009 Fair value hedges (FVH) 4,368 4,052 Cash flow hedges (CFH) 26,781 11,546 No hedge 21,445 4,140

In fiscal 2010, unrealized pretax losses of k€1,113 (comparing with gains of k€644 in 2009) from the measurement at fair value of derivatives in cash flow hedges (CFHs) were recognized in, and only in, OCI.

In connection with fair value hedges (FVHs), the total gain from derivatives, and the mirror-image total loss on underlyings, amounted to k€194 (compared with a k€192 gain and loss in 2009, respectively). The fair value of forex options came to k€233.

(c) Commodity price risks RENK is exposed to the risk of fluctuations in prices and availability of commodities (i.e., commodity sourcing risks), both regarding production materials and energy (power, gas, oil, etc.).

Wherever possible, these risks are counteracted by agreeing on fixed prices with suppliers. Given the wide variety of raw materials in use and the consequently small quantities involved, commodity price hedging through suitable financial market instruments is presently no viable option for RENK. No commodity derivatives existed in 2010 at RENK.

(d) Default risks Default risks are defined as the risk that a counterparty fails to perform its contractual obligations, thus causing a financial loss. The term default risk covers not only the direct nonpayment risk but also the credit risk from a deteriorated credit standing, which may be compounded by an accumulation or aggregation of individual risks.

Given its business operations, the RENK Group is exposed to default risks, which are capped by the aggregate total book value of capitalized financial assets, see Note (29). Mainly the following steps are taken to mitigate, and provide for, such risks:

In business operations, country and counterparty risks are constantly assessed locally; on this basis, risks are mapped and profiled. A/R balances are throughout monitored and tracked locally. Nonpayment risks are adequately allowed for or reflected in write- down. Default risks are contained by means of various forms of collateralization (as appropriate in the country concerned), such as documentary credits, credit insurance, guaranties, suretyships, liens, retention of title, or customer deposits. In project business, nonpayment risks are reduced to a minimum by insisting on downpayments and the provision of collateral security.

130

The collection risks inherent in trade receivables are adequately allowed for within the RENK Group. All receivables are subject to ongoing monitoring, and wherever there is any evidence of potential noncollectibility or other noncontractual performance, a due allowance or write-down is charged. Major individual receivables and potentially bad debts are assessed itemwise.

Regarding receivables neither impaired nor past due, there were no signs of uncollect- ibility at December 31, 2010.

(e) Liquidity risks These refer to the risk that financial obligations can no longer be met to an adequate degree.

RENK is integrated with the MAN Group’s liquidity management system. The MAN Group’s effective finance management system with ongoing monitoring and control of cash inflows and outflows and their due dates is an effective tool for liquidity risk management. The primary sources of funds are business operations and external finance. Finance management for business operations is substantially centralized and ensured through a cash-pooling system. By daily netting and pooling cash balances, cash available or required is managed as needed and appropriate. For external finance the sources of funds available on financial market are routinely monitored in order to ensure financial flexibility and contain inappropriate refinancing risks. Management is regularly briefed on the inflow and outflow of funds.

Cash flows within RENK are governed by the (mainly short-term) maturities in the Group’s business operations. Cash inflows and outflows are netted through RENK’s integration with the MAN Group’s central finance management system.

(31) Stock-based payments

RENK AG’s Executive Board members receive stock-based payments under the MSP (MAN Stock Program, first launched in 2005) in the form of taxable cash compensation on condition that they appropriate 50 percent thereof to purchase MAN common stock. Such shares are acquired and held in custody centrally by MAN SE in the name and for the account of the beneficiaries, who may freely dispose of the stock after a 4-year qualifying period. During this freeze period, the shares may not be sold, assigned, pledged or hedged. When an MSP participant goes into retirement or separates from the MAN Group, the period is shortened to one year as from the date of retirement or separation.

Under the MSP 2010, its participants acquired in the year under review a total 1,402 MAN common shares (down from 2,152) at an average price of €69.53 (up from €42.96), the full cash payments amounting to k€195 (up from k€185).

131 RENK Annual Report 2010 (32) Remuneration of the Executive Board

The remuneration of RENK AG’s Executive Board members consists of three components: a fixed compensation, a variable remuneration, and stock-based payments (cf. Note 31 above). In addition, Executive Board members are vested with pension entitlements. The itemized remuneration of Executive Board active in 2010 [2009 in brackets] is shown in this table:

Remuneration components k€ Fixed) Variable) Stock-) Pension) Total salary) annual) based ) expense) bonus) payments) ) (MSP)) Florian Hofbauer 226] 400] 100] 121] 847] [214] [234] [212] [107] [767] Ulrich Sauter 220] 380] 95] 151] 846] [209] [222] [201] [119] [751] Total 446] 780] 195] 272] 1,693] [423] [456] [413] [226] [1,518]

The pre-2010 remuneration terms had included the obligation to purchase MAN common stock also from part of the variable annual bonus.

Pension payments to former Executive Board members and their surviving dependants amounted to k€316 (virtually unchanged), while the accrued pension obligations to such former members and their surviving dependants totaled k€3,410 (up from k€3,409). The Executive Board members including their memberships in other statutory supervisory and comparable boards are disclosed in Note (39).

(33) Supervisory Board

Supervisory Board compensation is subject to the provisions of RENK AG’s bylaws. Accordingly, Supervisory Board members are reimbursed for their official expenses and receive an annual fee which consists of a basic €2,100 and a variable fee of €200 for each €0.01 of the RENK AG dividend in excess of €0.10. The variable portion is capped at €6,000 each. The Supervisory Board Chairman receives double, the vice- chairman 1.5 times, this amount.

132

Supervisory Board remuneration 2010 in € Name Membership Fixed Variable Total period fee fee Dipl.-Kfm Frank H. Lutz 2/16–12/31 3,529 10,084 13,613 Dr.-Ing. Georg Pachta-Reyhofen 1/01–3/11 817 2,333 3,150 Dipl.-Wirtsch.-Ing. Klaus Stahlmann 2/16–12/31 2,684 7,667 10,351 Prof. Dipl.-Ing. (FH) Gerd Finkbeiner all year 2,100 6,000 8,100 Dr.-Ing. Hans O. Jeske 3/11–12/31 1,692 4,833 6,525 Klaus Ketterle all year 2,100 6,000 8,100 Herbert Köhler 4/01–12/31 1,575 4,500 6,075 Robert Strixner 1/01–3/31 525 1,500 2,025 Total 2010 15,022 42,917 57,939 Total 2009 6,300 18,000 24,300

For the Supervisory Board members including their memberships in other statutory supervisory and comparable boards, turn to Note (38).

(34) German Corporate Governance Code

On December 10, 2010, RENK AG’s Executive and Supervisory Boards issued, and disclosed to the stockholders on the Internet at www.renk.eu under Investor Relations, the declaration of conformity pursuant to Art. 161 AktG, which reads as follows:

133 RENK Annual Report 2010 (35) Segment reporting

The RENK Group’s operations are segmented into the Vehicle Transmissions, Slide Bear- ings, Special Gear Units and Standard Gear Units divisions. The management of, as a corporate body accountable for, each segment reports directly to RENK AG’s Executive Board.

The parameter used to assess and control segment performance is operating profit, which as a rule equals EBIT; in exceptional cases EBIT is adjusted for nonrecurring items, these being defined as major gains or losses that do not originate in operating activities. Segment assets comprise all operating assets, i.e., the noncurrent and current assets excluding income tax assets and deferred tax assets.

The segment financial information has been determined in conformity with the disclosure and accounting methods applied to the consolidated financial statements, too. Intersegment transfer prices are based on product cost or cost of sales plus a reasonable markup, or on fair market transfer prices.

For details of the ROS and ROCE formulas, see the management report.

Segment information by operating division k€ Vehicle Transmissions 2010) 2009) Order intake from third parties 258,672) 77,276) Intersegment order intake (325) 30) Total order intake 258,347) 77,306) Sales to third parties 113,051) 110,097) Intersegment transfers 3,689) 13) Total segment sales 116,740) 110,110) Order backlog at Dec. 31 272,304) 135,869) EBIT 21,039) 13,575) Net interest result (53) (302) Segment assets at Dec. 31 120,325) 100,953) Segment debt at Dec. 31 70,570) 63,044) Capex 7,508) 1,778) Amortization/depreciation 3,051) 3,007) ROS 18.0%) 12.3%) ROCE 147.6%) 37.7%)

134

Segment information by region k€ Germany Other Europe Other world Consolidation Total 2010 Segment sales 120,021 133,793 148,952 –) 402,766 Segment assets 378,310 36,378 20,304 (30,895) 404,097 Capex for tangibles/intangibles 22,496 601 57 –) 23,154

2009 Segment sales 172,606 176,456 125,011 –) 474,073 Segment assets 361,044 31,285 11,350 (25,421) 378,258 Capex for tangibles/intangibles 18,671 1,378 26 –) 20,075

Slide Bearings Special Gear Units Standard Gear Units Consolidation Group 2010 2009 2010) 2009) 2010 2009) 2010) 2009) 2010) 2009) 80,326 68,336 113,848) 98,488) 72,651) 49,969) –) –) 525,497) 294,069) 992 1,749 3,450) 2,921) 1,895) 1,640) (6,012) (6,340) – –) 81,318 70,085 117,298) 101,409) 74,546) 51,609) (6,012) (6,340) 525,497) 294,069) 84,360 94,881 135,510) 165,514) 69,845) 103,581) –) –) 402,766) 474,073) 2,332 3,510 224) 96) 1,304) 2,013) (7,549) (5,632) –) –)) 86,692 98,391 135,734) 165,610) 71,149) 105,594) (7,549) (5,632) 402,766) 474,073) 29,605 34,738 154,464) 170,889) 79,075) 82,323) (13,179) (8,616) 522,269) 415,203) 20,683 21,349 5,740) 19,898) 5,355) 11,146) (1,028) – ) 51,789) 65,968) 39 5 (3) (429) (110) (173) – ) –) (127) (899) 78,061 70,329 141,156) 128,891) 71,603) 78,377) (7,048) (292) 404,097 378,258) 13,561 14,855 70,780) 65,455) 32,007) 38,171) (6,016) (292) 180,902 181,233) 1,421 3,934 9,650) 9,879) 4,575) 4,484) –) –) 23,154 20,075) 1,729 1,779 5,441) 4,346) 2,605) 2,257) –) –) 12,826 11,389) 23.9% 21.7% 4.2%) 12.0%) 7.5%) 10.6%) –) –) 12.9% 13.9%) 62.3% 54.4% 9.6%) 35.0%) 17.0%) 29.6%) –) –) 36.9% 38.8%)

135 RENK Annual Report 2010 (36) Notified stakes in RENK AG

In 2002 RENK AG received from MAN SE (then: MAN AG) a notification pursuant to Sec. 21(1) German Securities Trading Act (“WpHG”) to the effect that, although the previously directly held 76-percent voting interest in RENK AG had since October 9, 2002, been held by Munich-based MAN Maschinen- und Anlagenbau GmbH, a subsidiary wholly owned by MAN SE, this stake continued to be assignable to MAN SE under the terms of Sec. 22(1) Clause 1 No. 1 WpHG. In April 2010 MAN SE confirmed to RENK AG that, following the merger of MAN Maschinen- und Anlagenbau GmbH into MAN SE with effect as of March 16, 2010, MAN SE again holds the 76-percent stake in RENK AG’s voting stock directly. Since this voting interest had been assigned to MAN SE according to Sec. 22(1) Clause 1 No. 1 WpHG prior to said merger, the change from indirect to direct ownership did according to MAN SE not require re-notification for WpHG purposes.

Neither has RENK AG received any notification to such effect nor is it aware of any further direct or indirect shareholdings in its capital stock that have crossed above the voting-interest threshold of 10 percent (or any other threshold reportable according to WpHG).

(37) Related-party transactions

Due to its 76-percent stake in RENK AG, MAN SE is parent of, and thus a company related to, RENK AG; therefore, MAN SE’s subsidiaries and its related companies are also companies related to RENK AG.

Trade transactions and other business between RENK and other MAN Group companies are based on terms as if at arm’s length, the type of such legal transactions basically comprising:

• Products delivered to MAN companies, primarily marine and turbine gear units and bearings;

• Products and materials sourced from MAN companies, mainly upstream material for gear/transmission manufacture (such as castings);

• Other reciprocal transfers, such as debit and credit interest for or from MAN SE’s intercompany payment transaction system and cost refunds for sundry services.

136

The table below lists the extent of relations of RENK with MAN Group companies and companies related to MAN SE.

k€ 2010 2009

Outbound transfers (income) 21,222 35,967 Inbound transfers (expense) 4,301 2,740 Receivables (Dec. 31) 106,461 59,127 Payables (Dec. 31) 1,751 3,235

Further legal transactions with MAN SE involve guaranties for borrowings in favor of RENK companies (totaling k€2,493 as of December 31, 2010), as well as derivative currency hedges (totaling k€50,920 as of December 31, 2010). Receivables under the cash management system with MAN SE/MCC amounted to k€100,010 at year-end 2010.

RENK subsidiaries and investees not included in the consolidated financial statements are also companies related to RENK AG. Such intragroup trade transactions among related parties substantially cover the supply of parts and provision of services at terms as if at arm’s length, the extent of the transactions resulting from the table below:

k€ 2010 2009 Outbound transfers (income) 5,224 2,740 Inbound transfers (expense) 407 307 Receivables (Dec. 31) 2,575 1,080 Payables (Dec. 31) 140 115

Trade receivables from, and trade payables to, nonconsolidated group companies are disclosed in Notes (17) and (24).

Unpaid items have neither been collateralized nor were they written down as of December 31, 2010.

For the compensation paid to senior management, etc. (reportable according to IAS 24), see Notes (32) and (33) above.

137 RENK Annual Report 2010 Supervisory and Executive Board memberships in other statutory boards or equivalent

(38) Supervisory Board

Dipl.-Kfm. Frank H. Lutz Munich Supervisory Board member as from Feb. 16, 2010 Supervisory Board Chairman as from Mar. 11, 2010

Executive Board member of MAN SE

Ferrostaal AG1) manroland AG1)

MAN Truck & Bus AGa)2) MAN Diesel & Turbo SEb)2) MAN Pensionsfonds AG (chairm.)2)

Munich Stock Exchange3)

MAN Latin America Indústria e Comércio de Veículos Ltda., Brazil4) MAN Capital Corporation, USA (chairm.)4)

Dr.-Ing. Georg Pachta-Reyhofen Niederpöcking Supervisory Board member and Chairman up to Mar. 11, 2010

Executive Board Spokesman of MAN SE Executive Board Spokesman of MAN Truck & Bus AGa)

MAN Diesel & Turbo SE (chairm.)b)2)

Dipl.-Wirtsch.-Ing. Klaus Stahlmann Kempen Supervisory Board member as from Feb. 16, 2010 Supervisory Board Vice-Chairman as from Mar. 11, 2010

Executive Board member of MAN SE Executive Board Spokesman of MAN Diesel & Turbo SEb)

manroland AG1)

Prof. Dipl.-Ing (FH) Gerd Finkbeiner Neusäss CEO of manroland AG

138

BÖWE SYSTEC AG1)

manroland Vertrieb und Service Süddeutschland GmbH (chairm.)2) manroland Vertrieb und Service GmbH (chairm.)2)

manroland Inc., USA (chairm.)4) manroland Western Europe Group B.V., Netherlands (chairm.)4) manroland CEE AG, Austria (chairm.)4) manroland Japan Co. Ltd., Japan4) manroland Korea Ltd., Korea4)

Dr.-Ing. Hans-O. Jeske Wesel Supervisory Board member as from Mar. 11, 2010

Executive Board member of MAN Diesel & Turbo SEb)

RW TÜV Essen1)

MAN Turbo Trading (Shanghai) Co. Ltd., China4) MAN Turbo (Changzhou) Co. Ltd., China4)

Dipl.-Ök. Anton Weinmann Landensberg Supervisory Board member up to Jan. 25, 2010

Former Executive Board member of MAN SE Former CEO of MAN Nutzfahrzeuge AG

Klaus Ketterle*) Neusäss

Technical clerk, RENK AG

Herbert Köhler *) Augsburg Supervisory Board member as from Apr. 1, 2010

Senior Foreman, RENK AG

Robert Strixner*) Augsburg Supervisory Board member up to Mar. 31, 2010

Foreman, RENK AG

139 RENK Annual Report 2010 (39) Executive Board

Dipl.-Ing. (FH) Florian Hofbauer Landsberg Spokesman

Société d’Équipements, Systèmes et Mécanismes, France (chairm.)4)

Ulrich Sauter Wertingen

Société d’Équipements, Systèmes et Mécanismes, France4)

*) elected by the employees

As of Jan. 27, 2011, or resignation date (if earlier)

1) member of a German company’s supervisory board 2) member of a German group company’s supervisory board 3) member of a comparable foreign board 4) member of a foreign group company’s comparable board

a) up to Dec. 28, 2010: MAN Nutzfahrzeuge AG b) created on Mar. 19, 2010, by merger of MAN Diesel SE and MAN Turbo AG

Augsburg, January 27, 2011

RENK AG The Executive Board

Florian Hofbauer Ulrich Sauter

140

List of RENK AG’s shareholdings as of December 31, 2010 Company’s name and registered office Shareholding Local currency Equity Net income/) in % unit (loss)) (LCU) (1,000 LCU) (1,000 LCU)) Société d’Équipements, Systèmes et Mécanismes, (SESM) 100 EUR (€) 3,905 2,910) Saint-Ouen-l’Aumône, France RENK Corporation, Duncan, SC, USA 100 USD (US $) 6,130 1,388) (EUR 1 = USD 1.3362) RENK Test System GmbH, Augsburg, Germany 100 EUR (€) 1,034 (2.344) RENK Labeco Test Systems Corporation, 100 USD (US $) 854 6) Mooresville, IN, USA (EUR 1 = USD 1.3362) RENK Transmisyon Sanayi A.S¸ ., Istanbul, Turkey1) 55 TRY (TL) 1,186 130) (EUR 1 = TRY 2.1547) RENK UAE LLC, Abu Dhabi, United Arab Emirates1) 49 AED (UAE D) 11,516 (984) (EUR 1 = AED 5.29154) COFICAL RENK MANCAIS DO BRASIL LTDA, 98 BRL (Rs) 7,544 2,290) Guaramirim, Brazil (EUR 1 = BRL 2.2177) RENK-MAAG GmbH, Winterthur, Switzerland 100 CHF (Sfr) 6,976 3,362) (EUR 1 = CHF 1.2504) RENK (UK) Ltd., London, UK (inactive) 100 n/a n/a n/a)

1) As of Dec. 31, 2009

141 RENK Annual Report 2010 Consolidated financial statements/ group management report as of Dec. 31, 2010 Management representation

We represent that, to the best of our knowledge and in accordance with applicable accounting principles, the consolidated financial statements present a true and fair view of the RENK Group’s asset and capital structure, financial position and results of operations, as well as that the group management report describes fairly, in all material respects, the Group’s business trend and performance, the Group’s position, and the significant risks and rewards of the Group’s future development.

January 27, 2011

RENK AG

Florian Hofbauer Ulrich Sauter

142

Independent auditor’s report and opinion

We have audited the consolidated financial statements (consisting of balance sheet, income statement, statement of changes in comprehensive income, statement of changes in equity, cash flow statement, and notes) and the group management report, all as prepared by RENK AG for the fiscal year ended December 31, 2010. The preparation of the consolidated financial statements and group management report in accordance with the IFRS whose application is mandatory in the European Union, and the additional financial-accounting provisions of Art. 315a(1) HGB, as well as with the supplementary provisions of the articles of incorporation and bylaws is the responsibility of the Company’s Executive Board. Our responsibility is, based on our audit, to express an opinion on the consolidated financial statements and group management report.

We have conducted our annual group audit in accordance with Art. 317 HGB and with due regard to generally accepted standards on the audit of financial statements as established by IDW, the Institute of Sworn Public Accountants & Auditors in Germany. Said standards require that we plan and perform the audit to obtain reasonable assurance that any misstatement or fraud which has a material impact on the view of the asset and capital structure, financial position and results of operations as presented by the consolidated financial statements in accordance with applicable accounting principles and by the group management report is identified. When planning the audit procedures, knowledge and understanding of the Group’s business, its economic and legal environment as well as sources of potential errors are given due consideration. An audit includes examining, largely on a test basis, the accounting-related internal control system's effectiveness and the evidence supporting the amounts and disclosures in the consolidated financial statements and group management report. An audit also includes assessing the financial statements of companies included in the consolidated financial statements, the definition of the consolidation group, the accounting and consolidation principles used, and significant estimates made, by the Company’s Executive Board, as well as evaluating the overall presentation of the consolidated financial statements and group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not resulted in any objections or exceptions.

It is our opinion that, based on our audit conclusions, the consolidated financial statements are in conformity with the IFRS whose application is mandatory in the EU, and with the additional financial-accounting provisions of Art. 315a(1) HGB, as well as with the supplementary provisions of the articles of incorporation and bylaws, and with due

143 RENK Annual Report 2010 regard to these standards, regulations and provisions, present a true and fair view of the Group’s asset and capital structure, financial position and results of operations. The group management report is in conformity with the consolidated financial statements and presents fairly, in all material respects, both the Group’s position and the risks and rewards inherent in its future development.

Munich, January 28, 2011

PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft

Petra Justenhoven Andreas Eigel Wirtschaftsprüferin Wirtschaftsprüfer

144 Six-year overview

€ million 2005 2006 2007 2008 2009 2010 Order intake 314 417 439 443 294 525 Germany 124 180 199 162 97 262 Abroad 190 237 240 281 197 263 Sales 307 356 430 527 474 403 Germany 116 130 165 211 173 120 Abroad 191 226 265 316 301 283 Order backlog at Dec. 31 612 672 684 612 415 522 Germany 204 254 287 233 153 282 Abroad 408 418 397 379 262 240 Employees at Dec. 31 Headcount incl. temporary employees 1,559 1,654 1,854 2,041 1,903 1,882 Temporary employees 55 79 126 135 35 68 Regular workforce 1,504 1,575 1,728 1,906 1,868 1,814 Annual average headcount 1,500 1,550 1,695 1,875 1,911 1,823

Capital expenditures and funding Tangible and intangible assets 12 17 15 29 20 23 Amortization/depreciation 8 8 8 11 11 13 Cash earnings 28 30 52 69 59 53 Cash flow from operating activities 25 24 61 68 62 81

Key indicators/ratios in %* ROS 9.5 10.5 15.7 15.1 13.9 12.9 ROCE 26.4 28.9 47.2 48.3 38.8 36.9 Equity ratio 25.7 25.6 34.7 39.8 48.9 51.7

RENK share data Earnings per share (EpS in €, acc. to IAS 33) 2.19 2.97 5.83 8.10 6.80 5.54 Dividend per share (€) 1.20 1.80 2.00 1.80 1.80 1.80 Price-earnings ratio (PER) 14.00 13.00 9.95 6.60 7.35 12.63

Balance sheet data Noncurrent assets 65 72 75 109 120 150 Inventories 122 139 150 154 121 110 Other current assets 71 95 105 114 99 74 Cash and cash equivalents 42 42 10 23 53 85 Equity 77 89 118 159 192 217 Pension accruals 70 72 5 5 11 14 Other noncurrent liabilities and accruals 11 17 12 15 28 35 Prepayments received 57 81 89 78 55 46 Other current liabilities and accruals 85 89 116 143 107 107 Total assets/total capital 300 348 340 400 393 419

Income statement data Net sales 307 356 430 527 474 403 Cost of sales (245) (286) (325) (396) (355) (303) Gross margin 62 70 105 131 119 100 Other operating expenses/income, net (33) (32) (37) (51) (53) (48) Operating profit (EBIT) 29 38 68 80 66 52 Net interest expense (3) (3) (1) 0 (1) 0 Earnings before taxes (EBT) 26 35 67 80 65 52 Income taxes (11) (15) (27) (25) (19) (14) Net income (EAT) 15 20 40 55 46 38

*) Based on k€

At a glance Products and services

1) as of December 31, 2010 vs. 2009

RENK—an MAN Group Company RENK AG

Gögginger Str. 73 86159 Augsburg, Germany Phone (+49-821) 5700-0

Fax (+49-821) 5700-573 Annual Report RENK AG

www.renk.eu 2010 An MAN Group Company

Innovative Power Transmission

Annual Report 2010 RENK AG