25 Years of ALTANA Strategy Creates Values

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Contact Contents

2 Foreword by the Chairman: Strategy creates values

4 The Management Board of ALTANA AG

5 Executive Bodies

6 25 Years: Leading figures of ALTANA

7 Interview with Nikolaus Schweickart

12 ALTANA share: Going for growth

20 Pharmaceuticals: Exploiting creativity This Group Annual Report is also available Dr. Thomas Gauly Financial Calendar 2002 in German. General Representative 34 Chemicals: Overcoming limitations The annual financial statement of ALTANA AG Head of Corporate Communications & Report on Q4 2001 Tuesday, January 29 can be obtained separately (German only): Investor Relations 46 Culture: Promoting dialogue Press Conference on 2001 Annual Results, Bad Homburg Tuesday, March 26 Günther-Quandt-Haus Analysts' Meeting, Frankfurt Tuesday, March 26 56 Management Report fax: +49 6172/404-448 Seedammweg 55 Annual General Meeting, Frankfurt Wednesday, May 8 e-mail: [email protected] D-61352 Bad Homburg v.d.H. 69 Consolidated Financial Statements Report on Q1 2002 / Conference Call Wednesday, May 8 Germany Roadshow United States May 9 – 17 Visit our Web site www.altana.com for up-to-date phone: +49 6172/404-266 109 Major Consolidated Companies Report on Q2 2002 Friday, August 2 news and background information on the fax: +49 6172/404-430 R&D Day Pharmaceuticals Wednesday, September 11 110 Report of the Supervisory Board ALTANA Group. 25 Years of ALTANA Investors' Conference Chemicals Wednesday, October 16 Dr. Elke Krämer 112 Ten-year Review Report on Q3 2002 Wednesday, November 13 Strategy creates values For information on and brochures published by Corporate Publications Autumn Press Conference, Bad Homburg Wednesday, November 13 114 Glossary the Herbert Quandt Foundation please visit: phone: +49 6172/404-393 Analysts' Meeting, Frankfurt Wednesday, November 13 www.h-quandt-stiftung.de fax: +49 6172/404-448 116 Index e-mail: [email protected] · Strategy creates values

Back cover:

ALTANA The ALTANA Group Worldwide

Picture credits: Chronicle: 25 Years of ALTANA Mirko Krizanovic

25 Years of 25 Years Contact Peter Granser (p. 21 and 35) Thomas Rabsch (p. 53, portrait of the artist) Financial Calendar 2002 Jourdan & Müller · PAS (p. 10) Michael Meissen, Frankfurt a. M. (p. 54 and 55)

Picture rights: Saskia Niehaus, Cologne VG Bild-Kunst, Bonn, 2001 for the works of Max Beckmann

Annual Report 2001 Annual Report 2001

CYAN MAGENTA YELLOW TIEFESILBERBLAUSTANZE CYAN MAGENTA YELLOW TIEFESILBERBLAUSTANZE 032_Umschlag_GB01_E.qxd 11.04.2002 11:24 Uhr Seite K4 mib25 A - E:Altana:3231_Altana_GB_2001_Englisch:BelDoks_Englisch:

Contact Contents

2 Foreword by the Chairman: Strategy creates values

4 The Management Board of ALTANA AG

5 Executive Bodies

6 25 Years: Leading figures of ALTANA

7 Interview with Nikolaus Schweickart

12 ALTANA share: Going for growth

Back cover:

ALTANA The ALTANA Group Worldwide

Picture credits: Chronicle: 25 Years of ALTANA Mirko Krizanovic

Picture rights: Saskia Niehaus, Cologne VG Bild-Kunst, Bonn, 2001 for the works of Max Beckmann

Annual Report 2001 Annual Report 2001

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At a glance The new corporate identity The ALTANA Group Worldwide

At a glance

Asia ALTANA Group 2001 2000* in € million in € million Change in % U.S. and Canada Pharmaceuticals Chemicals Zydus Byk BYK-Chemie Sales 2,308 1,928 +20 Pharmaceuticals Healthcare Ltd. Japan KK Profit before interest, taxes, depreciation and amortization ALTANA Inc. Ahmedabad Osaka (EBITDA) 544 1 396 +38 Melville, N.Y. 50 % ■ ■ 100 % ■ Profit before interest and taxes (EBIT) 439 1 308 +42 100 % ■ ■ Profit before taxes (EBT) 463 1 329 +41 Shunde Rhenacoat Byk Canada Inc. Coating Company Ltd. Return on sales before taxes (in %) 20.1% 1 17.1% Oakville, Ontario Shunde 1,2 Consolidated profit 271 181 +50 100 % ■ 51 % ■ ■ Cash flow from operating activities 348 1 282 +24 Chemicals Tongling Siva Total assets 2,127 1,812 +17 BYK-Chemie USA Insulating Materials Equity 1,187 984 +21 Wallingford, CT Co. Ltd. Equity ratio (in %) 55.8% 54.3% Division of BYK- Chemie USA Inc. Tongling City ■ ■ 100 % ■ ■ 100 % Capital expenditure on property, plant and equipment 171 133 +28 BYK-Gardner Australia Germany Research expenditure 285 219 +30 Columbia, MD Latin America Pharmaceuticals Division of BYK- Pharmaceuticals Chemicals Chemie USA Inc. ALTANA Pharma Number of employees 9,122 8,556 +7 Pharmaceuticals Byk Gulden BYK-Chemie ■ (Pty) Ltd. 100 % Byk Gulden Lomberg Chem. GmbH Africa North Ride Fabrik GmbH Wesel € € S.A. de C.V. Figures per ALTANA share in in Change in % The P.D. George 100 % Mexico City Constance 100 % ■ ■ Pharmaceuticals Dividend 0.60 3 0.44 4 +35 Company Inc. ■ ■ ■ ■ Byk Madaus 100 % 100 % Europe 3 4 5 St. Louis, MO Rhenania Bonus dividend 0.10 0.17 n.c. (Pty) Ltd. ■ ■ 1,2 4 100 % Byk Argentina Oranienburger Coatings GmbH Consolidated profit 1.97 1.30 +51 Midrand Pharmaceuticals Laboratoires Byk Portugal Lda. Chemicals Camattini S.p.A. S.A. Pharmawerk Grevenbroich Cash flow from operating activities 2.53 1 2.03 4 +25 Watson-Rhenania 50 % ■ AB Sangtec Medical Byk France S.A.S. Lisbon Epoxylite UK Ltd. Collechio Buenos Aires GmbH 100 % ■ ■ 1 Excluding special gains from the sale of the stake of the Lundbeck joint venture (€110 million before taxes / €81 million after taxes) and donation to the Herbert Quandt Foundation Coatings-Company Bromma Le Mée-sur-Seine 100 % ■ Bradfort 100 % ■ ■ (€15 million before taxes / €9 million after taxes) 100 % ■ ■ Oranienburg 2 Including special gains from the Lundbeck divestment and donation to the Foundation, consolidated profit totaled €342 million. The earnings per share was €2.49 (+91%) Pittsburgh, PA DS-Chemie 100 % ■ ■ 100 % ■ 100% ■ 3 100 % ■ Byk Roland Salchi- Management recommendation ■ ■ 4 50.1 % Byk Química e GmbH After stock split in 2001 (adjusted to the current share capital) Sangtec Molecular Byk Österreich Polska Sp.z.o.o. Sterling Technology Ltd. Rhenacoat s.r.l. 5 Not comparable (p. 18f.) Farmacêutica Ltda. Roland Arznei- Bremen Diagnostics AB Ges. mbH Warsaw Manchester Milan São Paulo mittel GmbH 100 % ■ ■ Setting the trend – stability and dynamic growth Bromma Vienna 100 % ■ 50.25% ■ ■ 51 % ■ ■ 100 % ■ ■ Hamburg * In the light of ALTANA’s U.S. listing on the New York Stock Exchange planned for ALTANA has received a new logo in order to reflect the major changes the company Joachim Dyes 100 % ■ ■ 100 % ■ 100 % ■ Byk Mazovia BYK-Cera B.V. Syntel S.p.A. May 2002 and the accounting and disclosure regulations stipulated by the U.S. has undergone in recent years. Today ALTANA stands for a focused strategy, financial Lackfabrik GmbH Byk UK Ltd. Byk AG sp.z.o.o. Deventer Quattordio Security and Exchange Commission (SEC), figures referring to certain items in the stability, innovative strength, dynamic growth – and for success. Our new logo Byk Sangtec Lehrte Ely Kreuzlingen Lyskowice 100 % ■ ■ 85 % ■ ■ Diagnostica GmbH 100 % ■ ■ 2000 Consolidated Financial Statements have been adjusted accordingly. For details, underscores the dynamic strength inherent in our stability. From now on it will also 100 % ■ 100% ■ 58% ■ ■ please see p. 78 in the Notes to the Consolidated Financial Statements. Any be the symbol for our activities in the field of pharmaceuticals and chemicals. & Co. KG BYK-Chemie La Artística Wiedeking GmbH Dietzenbach Cambridge Life Byk Gulden Byk Cˇeská France S.A.S. Productos comparisons with the prior year made in this Annual Report refer to the adjusted Kempen 100 % ■ ■ Sciences PLC Italia S.p.A. Republika S.R.O. Le Blanc-Mesnil Químicos S.A. figures in the 2000 Consolidated Financial Statements. 100 % ■ ■ Ely Cormano Prague 100 % ■ Vigo Byk & Diasorin ■ ■ ■ ■ ■ ■ ■ Marketing company Rhenatech GmbH 100 % 100 % 100 % 100 % Diagnostics GmbH Rhenacoat S.A. ■ Manufacturing company Elektro- Dietzenbach Byk Nederland Byk Elmu S.A. Byk Slovakia Montataire DEA TECH isoliersysteme 51% ■ B.V. Madrid S.R.O. 100 % ■ ■ SIVA s.r.l. Kempen Zwanenburg 100 % ■ Bratislava Ascoli Picenco 100 % ■ ■ Rembrandtin 100 % ■ 100 % ■ 100 % ■ ■ Lack Ges. mbH BYK-Gardner GmbH Byk Belga S.A. Vienna Geretsried Brussels 100 % ■ ■ 100 % ■ ■ 100 % ■

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At a glance The new corporate identity The ALTANA Group Worldwide

At a glance

TIEFESILBERBLAU TIEFESILBERBLAU Strategy creates values

Creativity and responsibility, tolerance and openness, reliability and quality – these are the values on which we have based our strategy. Values that enable us to create added value – for our shareholders and customers, for our employees and for society as a whole. 2 Foreword

Strategy creates values

2001 marks an important anniversary in the history of our young company – 25 years of ALTANA, a good reason for us to celebrate the past and chart new waters. Farsighted strategies led to the founding of the company a quarter of a century ago, when it was spun off from a larger, broad-based group of companies, thus enabling it to develop anew as an autonomous unit. The reorganization and splitting was a courageous and pioneering step which turned the VARTA conglomerate into three companies and simultaneously added three autonomous business units to the stock listing, while retaining the same shareholder structure as before. Herbert Quandt, Hans Graf von der Goltz and Eberhard von Heusinger were the founding fathers and architects. They had a vision – and also a strategy – based on flexible, mobile units and strong group management. Concentration was the leitmotif, lean structures the organizational principle. Now, 25 years later, despite an entirely different business environment, major upheavals in the structure of the economy, and a much higher degree of business internationalization, the same principles still apply. Today, however, they have different names. Our founding fathers were ‘creative destroyers’ in the sense en- visaged by Schumpeter. They overthrew the old structures and created new ones, thus paving the way for the successful development of ALTANA – a true success story. Those of us in positions of responsibility today pay tribute to our founding fathers and their achievements. This Annual Report provides information about the 25th business year of the ALTANA Group, our most successful year so far, which we closed on a new record high. It is another pearl to add to the string of outstanding business years in the company’s recent history, it reflects the fresh esprit de corps of a vibrant and self- confident company and, at the same time, marks a new beginning. Our sights are set on the future, on the next 25 years. Thanks to our dynamic operational pillars, a solid financial basis and balance sheet and a clear strategy, we are well-poised to meet future challenges. • 2002 will set an important milestone in ALTANA’s history, as the company is going public in the United States. Our listing on the New York Stock Exchange planned for May means we will be floating the company on the world’s largest stock market. This step is an expression of our deliberate strategy of internationalization. Last year, for the first time ever, our domestic German market moved down to second position in the internal ranking, having been overtaken by the United States. We intend to significantly raise and sustain our business profile in the world’s most important pharmaceutical market with the aid of innovative drugs from our own research pipeline, and we are ready to bear the entrepreneurial responsibility that entails. By taking this step we aim to increase our visibility in the pharmaceutical and chemical sector and in the financial community. We also want to attract new, highly skilled staff and, as a company listed in the United States, give them a new sense of belonging. Foreword 3

• In 2002 ALTANA will underscore its youthfulness with a new look. We aim to make ALTANA an international brand, a process which will span several years and be supported by a new corporate design. The most significant change will be in the Pharmaceuticals division: The original name Byk Gulden will be replaced at all levels of the company worldwide by ‘ALTANA Pharma’ so as to create a uniform presence which will both increase awareness of the company and the public’s ability to identify with it. The Chemicals division will no longer be managed by BYK- Chemie in the future, but by the new management company ‘ALTANA Chemie’, which will head four newly formed business units managing the day-to-day operations. Finally, the two wholly owned ALTANA subsidiaries will be converted into public limited companies. • The defining events in May 2002, besides the 25th Annual General Meeting of our company, will be a concert tour of five major cities – Frankfurt, São Paulo, New York, Mexico City and Shanghai – featuring the Munich Symphony Orchestra and the Munich Motet Choir with a program of music from four continents. Under the motto ‘ALTANA Global Classics’ we do not only aim to highlight the international character of our company but also to underscore our conscious commitment to the arts and society. • In 2002 our pharmaceutical business will be characterized by high expenditure on research in connection with the highly promising blockbuster candidates in the respiratory tract pipeline. Pantoprazole is set to continue full steam ahead on its successful course, generating double-digit growth rates. In the Chemicals division, we will sustain our targeted expansion in global niche markets, and bolster our position through acquisitions. Given the difficult economic climate, our foremost aim is to stabilize the high operating profit level and at the same time maintain an uninterrupted pace of investment. Success generates a pleasant feeling of pride and satisfaction, and spurs us on to greater things. This has been achieved by our staff, who have worked with their hands, their heads and their hearts. Hands are a graphic symbol of strength and security, of energy and a zest for life. I should therefore like to extend my hand in thanks to all our staff and managers for 25 success-filled years of ALTANA history and for an outstanding business year in 2001. Through your efforts as a staff you have created value for our company.

Nikolaus Schweickart Chairman of the Management Board 4 Management Board

The Management Board of ALTANA AG

Nikolaus Schweickart (58) Degree in Law

Member of the ALTANA Management Board Dr. Klaus Oehmichen Dr. Hermann Küllmer Dr. Hans-Joachim Lohrisch since 1987 (64) (58) (53) Chairman of the Board Degree in Chemistry Degree in Business Degree in Chemistry since 1990 Administration Member of the ALTANA Member of the ALTANA Management Board Member of the ALTANA Management Board since 1990 Management Board since 1999 Head of ALTANA Chemie since 1990 Head of ALTANA Pharma Chief Financial Officer Executive Bodies 5

Executive Bodies

Supervisory Board Management Board General Representatives

Justus Mische Rolf Jaeger* Nikolaus Schweickart Dr. Thomas Gauly Chairman Chairman Dr. Uwe Krüger* Bad Homburg v.d.H. Klaus Malkomes Marcel Becker* Deputy Chairman Prof. Dr. Heinz Dr. Hermann Küllmer Riesenhuber Chief Financial Officer Susanne Klatten Bad Homburg v.d.H. General Counsel Deputy Chairwoman Renate Schmid* Dr. Hans-Joachim Dr. Rudolf Pietzke Dr. Uwe-Ernst Bufe Dr. Klaus-Jürgen Lohrisch Schmieder Head of ALTANA Pharma Yvonne D’Alpaos-Götz* Constance Dr. Jörg Senn-Bilfinger* Dr. Stefan Engelhorn † Dr. Klaus Oehmichen Head of ALTANA Chemie Wesel *Employee representative

ALTANA Pharma ALTANA Chemie

Therapeutics Additives & Instruments Imaging Coatings & Sealants In-vitro Diagnostics Varnish & Compounds Self-medication (OTC) Wire Enamels 25 Years: Leading figures of ALTANA

Dr.h.c. Hans Eberhard Dr. Frank Trömel Nikolaus Schweickart Herbert Quandt Graf von der Goltz von Heusinger Chairman of the Chairman of the Chairman of the Chairman of the Member of the Management Board Management Board Management Board Management Board Management Board 1987–1990 since 1990 1977–1980 1980 –1985 1981–1987 Interview 7

Interview with Nikolaus Schweickart: Roots and Perspectives

“Global competition is not a new phenomenon; its force has been felt since the mid-nineties. And precisely the last few

years have been the most successful to date in ALTANA’s history. In our view, globalization is neither a threat nor a trap – quite the reverse. It is a chance to be successful and to create values.”

Nikolaus Schweickart, Chairman of the Management Board

ALTANA is still a young company – in 2001 it celebrated its 25th year in business – and for the sixth consecutive year it has clearly outperformed the market. In your view, which decisions have had a lasting impact on the development of the company and its success today?

Schweickart: First of all, the fundamental decision by the founding fathers 25 years ago to spin the company off from a larger group of companies, relaunch it, and allow it to operate successfully as an independent company; further, the strategic realignment in 1990 from a financial holding to a strategic management holding company in which the board members responsible for day-to-day operations are integrated into the Group’s Management Board and, finally, the concentration on pharmaceuticals and specialty chemicals in the mid-nineties, which enabled us to boost our innovative strength and achieve a high degree of internationalization.

ALTANA is receiving a new look, with a new corporate logo and corporate colors. But the changes are not only external. The management is also introducing structural changes. What do they involve and why are you implementing them now?

Schweickart: The two divisions of our company operate entirely independently of one another. The strategic environment of Pharmaceuticals differs fundamentally from that of Chemicals. As a result, the company needs tailor-made concepts to permit the further dynamic development of the operational units. For Pharma- ceuticals, that means focusing on innovative, ethical drugs, the major expansion of our research activities, including cooperation with third parties, and establishing a presence in all the major pharmaceutical markets in the developed world. In the Specialty Chemicals division, success is based on different factors: technology leadership in niche markets, which are understood as global segments, a strong emphasis on service, and long-term customer loyalty. The Business Units are tailored to these strategic needs. Achieving stability through flexibility: This has been a common denominator and an outstanding feature of ALTANA over the past 25 years. 8 Interview

In the past few years, in connection with increasing globalization and growing competitive pressure, there was a lot of talk about the ‘critical size’ of a company. Is ALTANA able to keep pace with global competition?

Schweickart: Yes, without any doubt. Global competition is not a new phenomenon; its force has been felt since the mid-nineties. And precisely the last few years have been the most successful to date in ALTANA’s history. In our view, globalization is neither a threat nor a trap – quite the reverse. It is a chance to be successful and to create values. Besides, critical size should not be viewed – as is all too often the case – as a quantitative term. Size often leads to immobility and slows down decision-making processes. If large research budgets only result in a modest innovative output, then things do indeed become critical – not as your question insinuates, but in the opposite way. I think our pharmaceutical research has shown that in spite of a limited budget, new, innovative drugs with a blockbuster quality can be developed. One such drug – Pantoprazole – is already available on the world markets and further drugs for the respiratory tract area are in the pipeline.

Conglomerates are under greater pressure on the stock exchange than focused companies. Particularly after the failure of the life-science concept, the trend towards focusing on one core area – pharmaceutical or chemical – appears to be gaining strength. Will ALTANA continue to hold on to its two business areas in the future?

Schweickart: The stock exchange is a wonderful institution. But not even it possesses the absolute truth. Conglomerates are not per se less well-positioned than focused companies, particularly in terms of shareholder value – as a large number of recent publications have demonstrated. If conglomerates are clearly structured and well-managed, they stand exactly the same chance of posting an excellent performance. We have never subscribed to the life-science idea, which incidentally was very short-lived. As a company that is geared toward long-term thinking, we neither chase after trends, nor do we follow the zeitgeist, no matter how forceful it may

“Achieving stability through flexibility: This has been a common denominator

and an outstanding feature of ALTANA over the past 25 years.” Interview 9

“Our sustained growth has enabled us to create new jobs – in the past and for the future.”

sometimes be. We make independent decisions to suit our needs, a stance which has proven successful. As long as both divisions, in terms of their profitability, are players in the same EBITDA league – with a margin of about 20% – we see no need for strategic realignment.

While many companies are laying off employees, ALTANA plans to recruit about 2,000 new employees over the next three years. To what do you attribute this anti-cyclical policy?

Schweickart: In the environment in which we operate, economic cycles do not have the same significance as they have elsewhere, even if the Chemicals division – at a high level – was unable to avoid the effects of last year’s global economic slump. Despite that, however, we have recently achieved double-digit growth in our operating targets. This sustained growth is the underlying reason for our ability to create new jobs, in recent years as well as in the near future. We have entered a new dimension, particularly in the pharmaceutical sector, and grown from a broad-based regional provider to a dynamic, research-driven, international group. We are de- liberately reinvesting the plentiful returns from our highly successful Panto business into our research laboratories, clinical trials, and the creation of new marketing and sales units. In the United States in particular, which is one of our targets for strategic expansion in the near future, this is enabling us to recruit new staff and thus create new jobs. Since our central research and production basis remains in Germany, our domestic locations will also profit from this internationalization. It is a gratifying development, but I think it needs some qualifying on my part. If the health policies of the present government, which are particularly hard on innovative research companies, hamper pharmaceutical research in Germany, then this will have clear consequences, and also repercussions for future research locations. You cannot, on the one hand, plan legislation that will infringe pharmaceutical research and drive it out of the country and, on the other hand, try to attract top researchers by offering considerable funding. That sort of policy simply does not make sense. 10 Interview

What are ALTANA’s aims in the coming years?

Schweickart: First of all, we will take an important step in our corporate history this year – the listing on the New York Stock Exchange, the world’s largest stock market. Going public in the U.S. will emphasize our claim to be a company with a solid international orientation, which in terms of its inner strength is ready to expand and explore new dimensions. The new corporate identity, the renaming of Byk Gulden to ALTANA Pharma, the establishment of ALTANA Chemie as the management company of its four business units, the conversion of the two divisions from a private limited company to a public limited company, and also this year the upcoming completion of the new ALTANA headquarters – all of this symbolizes the dynamism and the sense of a new departure for our company. As far as the new premises are concerned, the new, modern headquarters will be called the Herbert Quandt House. It will thus bear the name of the man who founded ALTANA 25 years ago and who was its first chairman. One major reason for the ‘ALTANA success story’ is the fact that from the outset the company had a stable shareholder structure with the Quandt family as the main shareholder. This places the company on a firm ALTANA’s new headquarters, footing and allows it to adopt a long-term approach, which is ever so crucial. the Herbert Quandt House in At the same time, as a listed company, it is ready to meet the demands of the capital Bad Homburg market – so it is a balancing act, if you like.

What are your strategic aims?

Schweickart: In the new world of ALTANA Pharma, the future will be characterized on the one hand by the sustained success of Pantoprazole, which we expect to achieve significant growth rates also in the next few years. We also expect to be able to introduce new blockbusters onto the market in the next few years, the two respiratory tract drugs Ciclesonide* and Roflumilast*. The construction of a genomics research center in Boston underscores our strongly research-oriented expansion strategy with the United States as the target market. ALTANA Chemie will pursue its successful policy of internal growth and well- targeted acquisitions. Should a suitable object be available on the market, a strategic acquisition is certainly conceivable.

For some time now ALTANA has fulfilled the criteria for admission to the blue- chip DAX index. Last year the MDAX, on which ALTANA is listed, made fewer losses than the DAX. Would inclusion in the DAX still be an attractive proposi- tion for you?

Schweickart: Yes, and without any reservations. You have to take a long-term view of the stock market environment – as we do with our corporate strategy. For any company, inclusion in the DAX 30 is a valuable image booster, especially if – as in our case – it is venturing onto the international stock market community through its U.S. listing. Let us take a look at the last two years: In 2000 and 2001 ALTANA outperformed all the indices. Last year it achieved about 20% growth, the year before almost 150%. As a result, we have pushed forward into the category of

*Glossary Interview 11

“Balancing the interests of the main shareholder and those of the capital market is a delicate act.”

serious DAX candidates, a valuation which not only reflects our company’s intrinsic assets, but above all our excellent prospects for the future. In that sense, the share price has considerable upside potential – even in the long term. Twenty-five years ago ALTANA was launched as a listed company with a market capitalization valued at DM400 million at the end of its first business year. Ten years later – at the end of 1987 – it had doubled in value, and in 1989 surpassed the DM1 billion mark for the first time. In the second half of the company’s history, in other words since 1990, ALTANA has continued on a steep upward curve, achieving a market capitalization at the end of 2001 of almost DM16 billion. We are delighted with these results, as you can imagine. And I cannot help chuck- ling to myself when I think of some of the analysts who come to review ALTANA. When they assess the company they often apply discounts – a conglomerate discount or a majority discount or even a social discount. So you see, despite these ‘handicaps,’ you can also achieve strong growth on the stock markets if the analysts get it right.

Given the extent of your cultural commitment, one gains the impression that this plays an important role in the way ALTANA views itself. What does good corporate citizenship mean to you?

Schweickart: This Annual Report not only reflects the financial but also the intellectual spectrum of ALTANA. We are not a one-dimensional organization with a narrow outlook focused merely on earnings and share prices. My personal convic- tion, which I also try to live out, is based on the realization that man does not live from stocks and shares alone. In my view, companies are members of a community and, like citizens, they have a duty to look after the well-being and needs of the society in which they live and which they want to help shape. In tomorrow’s world, the prosperity of a community, its cultural vibrancy, and its intellectual profile will depend to a much greater degree on private institutions and companies, i.e. on representatives of a civil society than in the past, when – in Germany at least – strong government regulation was the order of the day. Education is a strategic resource for the future viability of a society; art and culture are the expression of a civilization’s feeling of self-worth. That is why the arts must not flounder but flourish.

What are the most important traditions and values that you would like to retain in future?

Schweickart: To teach others “to long for the endless immensity of the sea”, as Saint-Exupéry said. 12 ALTANA on the Capital Market

Growth is a key to the future. It springs from a customer- focused, market-oriented strategy; it is the reward for first-class quality, high levels of engagement and hard work; it is an indicator of success, a reason for confidence. It is also the reflection of our entrepreneurial commitment towards shareholders and investors to act responsibly and transparently. It requires long-term thinking, courageous decisions, targeted investments – and the will to keep on growing. Going for growth

For us, that means creating the basis for sustained business development

A milestone in the history of our company: ALTANA’s listing on the New York Stock Exchange (NYSE).

14 ALTANA on the Capital Market

ALTANA shares are also an attractive long-term investment

■ 26.3% annual appreciation over a ten-year period

■ 21.4% increase in share price in financial 2001

■ significantly better performance than the DAX index (-19.8%)

and MDAX (-7.5%)

■ ALTANA market capitalization (ultimo 2001): € 7.9 billion

Comparative performance of ALTANA shares Jan. 1, 2001–Dec. 31, 2001 Jan Feb Mar April May June July Aug Sep Oct Nov Dec

ALTANA DAX MDAX 130

120

110

100

Jan. 1, 2001 = 100

Jan. 1, 2000–Dec. 31, 2001 Jan Feb Mar April May June July Aug Sep Oct Nov Dec Jan Feb Mar April May June July Aug Sep Oct Nov Dec

350

300

250

200

150

100

Jan. 1, 2000 = 100 ALTANA on the Capital Market 15

ALTANA share convincing with outstanding performance

High volatility marked the development of the international capital markets throughout 2001. The ALTANA share moved against this general trend, gaining 21.4% and proving once again to be an excellent investment. We will continue to strive for a sustainable increase in shareholder value; the forthcoming listing on the New York Stock Exchange will be another milestone in our future development.

International stock markets For the second consecutive year, global stock markets had to maintain their position in a difficult environment with sweeping falls in share prices. In the prior year, central focus was on the corrections of high-valued companies in the telecommunications, media and technology (TMT) sectors, with traditionally defensive areas attracting more attention; the downward trend in 2001 was spread over every market segment. After a brief upward movement in January stimulated by speculation about interest rate cuts, the downward spiral in the international capital markets resumed as early as February, marked by disappointing profit reports. The DAX fell by 18% between the end of January and the beginning of April 2001; the NEMAX 50 plum- meted by 53%. A vigorous share price recovery in April was not enough to prompt a reversal in the trend, and share prices continued to slump, the situation made even worse by the weakening of the world economy in the second and third quar-

ALTANA share

in €1 2001 20004 Consolidated profit 1.972 1.30 Cash flow from operating activities 2.532 2.03 Dividend 0.603 0.44 Bonus dividend 0.103 0.17

High 59.10 46.39 Low 31.67 15.97 Price at year-end 56.00 46.11 Carrying value 7.86 6.47

Market capitalization (at year-end) 7.9 billion 6.5 billion Number of shares outstanding (in thousand) annual average 137,534 138,828 at year-end 137,181 138,110 Security code number 760080 Reuters code ALTG.DE

1 All figures refer to a single share 2 Excluding capital gain from the Lundbeck divestment and donation to Herbert Quandt Foundation 3 Management recommendation 4 Following the stock split in 2001 16 ALTANA on the Capital Market

Market capitalization ters. By the end of August, profit warnings and the certainty of a recession made a in € million sharp fall inevitable. The tragic terror attacks on the World Trade Center on September 11 added further tension to the already critical situation in the world’s capital markets. Share prices in both Europe and the U.S. reflected growing doubt 9000 about the further development of the world economy and the capital markets. The DAX 7,862 fell by around 400 points (8.5%) on September 11, the Neuer Markt lost 7500 7.8%. There was a turn of events on September 21, when an upward trend took hold until the end of the year. The DAX fell 19.8% in the course of the year to 6,474 close at 5,160 points after its worst 12 months since 1990. The year’s high and low 6000 were separated by 3,008 points. At its peak in 2001, the Neuer Markt rose to 3,996 points but subsequently crashed to below the 700-point-level after a wave of bank- 4500 ruptcies, corporate scandals and panic selling following the events of September 11. It ended the year at 1,096 points, having decreased 60%. The NEMAX 50 also lost MDAX 3000 2,652 roughly 60% over the year to close at 1,150 points. The developed rela- 2,592 tively well in comparison: losses were limited to 7.5% and the year closed at 4,326 2,461 points. 1500

ALTANA shares boosted by pharmaceutical research In comparison with the volatile developments in the capital market, ALTANA shares proved extremely solid. The share price rose 21.4% over the year – an outstanding 97 98 99 00 01 performance in view of the general trend. While it was impossible not to be swept along by the general trading environment, the share performance was, however, Basis: Closing prices at year-end more greatly influenced by news from our pharmaceutical research. There was a noticeable decline in the share price during the first quarter due to a setback in the clinical research for Venticute® (LSF)*. The share price hit its all-year low on March 19, when it fell to €31.67. Promising study results on Roflumilast* and Ciclesonide* were then rewarded with a clear upward price jump in the third quarter. ALTANA shares subsequently rode on the general upward tide in the fall, gradually gaining in price to reach a 12-month high at €59.10 in expectation of a new record year. They concluded the year at €56.00 in line with analysts’ general expectations.

Comparative performance of ALTANA shares p. a. (in %)

Investment period 1 year 5 years 10 years ALTANA1 21.9 54.8 26.3 MDAX -7.5 17.1 7.5 DAX -19.8 26.7 13.9

1 Including dividend (without corporation tax credit)

*Glossary ALTANA on the Capital Market 17

ALTANA shares have proved to be an attractive investment, especially in the long term. Over a five-year period the share price has risen by an average 54.8% (on the assumption that dividends are reinvested). Annual growth in share value over the past ten years amounted to 26.3%, i.e. in both of these reference periods it has outperformed both the DAX and the MDAX, which recorded an average annual increase of 17.1% (DAX) and 26.7% (MDAX) over the last five years.

Further increase in trading volume Once again, trading in ALTANA shares increased considerably over the year. The average number of shares changing hands each day on all the German stock exchanges was 287,654, i.e. significantly up on last year’s figure of 216,000 (prior- year values have been adjusted by a factor of 3.6, in line with the capital measures implemented). Total trading volume rose from 62.6 million shares to 72.8 million over the past year. The increase in liquidity was mainly due to the significant rise in the number of shares in the spring of 2001 resulting from the issue of bonus shares at a ratio of 5 to 1 and a stock split at a ratio of 1 to 3. At the end of 2001, the total number of shares was 140.4 million as against 39.0 million at December 31, 2000. Year-end market capitalization* was €7.9 billion. In the official German Stock Exchange ranking, we moved up to positions 30 and 23 in terms of total trading volume and year-end market capitalization (December 28, 2001), a clear improvement on the previous year’s positions (35/28). Our M DAX weighting rose from 4.95% to 7.18% at the end of 2001. The new German Stock Exchange rules which will come into effect as of summer 2002 for the DAX, M DAX and SDAX will – as

The media interest in far as the market capitalization is concerned – no longer take into account the total ALTANA also rose significantly number of traded shares as a criteria for index eligibility, but will look instead at in 2001 the free float. Equity stakes totaling over five percent of the stock capital – such as the 50.1% owned by our major shareholder – will no longer be taken into account for evaluation purposes. At the beginning of February 2002, the German Stock Exchange published an index list calculated on the basis of these criteria. Taking this index list, as of January 31, 2002, ALTANA AG is ranked 29 for stock exchange trading and 23 for market capitalization.

Virtually no changes in shareholder structure There were hardly any changes to the ALTANA shareholder structure in comparison with the prior year. The share of institutional investors and private shareholders is approximately 25% each. 50.1% of the nominal capital* is held by our major shareholder. From a geographical point of view the percentage of international investors has grown again – this is a trend that will continue in the future. The forthcoming listing on the New York Stock Exchange will also bring ALTANA shares into the focus of American investors as an attractive investment. The per-

*Glossary 18 ALTANA on the Capital Market

centage of American shareholders is currently about 10%; we are aiming for 15% in the future. Our presence in the world’s most important financial marketplace is of crucial strategic importance in the context of the planned expansion of our operations in the United States.

35% dividend increase In line with our profit-oriented dividend policy, both the Management and Super- visory Boards will propose a dividend of €0.60 per no-par value share for the past financial year to the Annual General Meeting. This is equivalent to a year-to-year increase of 35%, and means that our shareholders will participate in our excellent performance. A special bonus is also planned for this year to mark ALTANA’s 25th anniversary; this will raise the dividend by a further €0.10 to €0.70 per no-par value share. The total dividend will amount to €98 million.

Managing the company for the benefit of shareholders and employees ‘Shareholder value’ and ‘value-based management’ are generally understood as a management concept for achieving consistent growth in the value and profitability of a company. In the interest of our shareholders we believe that this means providing an appropriate return on the capital invested. Our globally uniform portfolio of planning and controlling tools is designed to reinforce the value-based management

Analysts’ Meeting in concept within the ALTANA Group. the fall of 2001 One important element of our value-oriented strategy is to ensure that our management and employees share in the success of the company via our profit- sharing program, the ‘ALTANA Investment Plan’ and our Management Stock Option Plan (SOP). Both schemes show a very high participation rate. ‘Corporate governance’ is another term which is attracting growing importance in relation to profit-oriented management and responsible monitoring of business activities. The recommendations presented in the summer of 2001 by the first government commission triggered lively debates in Germany about the necessity of uniform corporate governance rules. The ‘German Corporate Governance Code’ government commission established by the German Federal Ministry of Justice presented a voluntary code at the end of February. We will not, however, be able to make any statement on the implementation of such a code in our company until the legislative proceedings leading to a law on transparency and publicity are concluded.

Shareholder structure

% Susanne Klatten (Member of the Herbert Quandt Family) 50.1 Institutional investors ~ 25 Private investors < 25 ALTANA on the Capital Market 19

Investor relations activities stepped up ALTANA strives to maintain an open relationship of trust with participants in the capital market and inform them immediately of new corporate developments. By providing transparent information we are able to communicate a detailed picture of our expected medium and long-term development, thereby creating confidence in our performance which, in the final instance, leads to a fair evaluation on the capital market. Dividend per share Throughout the past business year we have strengthened this dialogue with existing and potential shareholders and financial analysts. The Annual General in € Meeting continues to play a key role in our relationship with private investors. Participation was encouragingly high on May 3, 2001, with approximately 65% 0.10 0.60 of the nominal capital represented. The traditional analysts’ conferences in spring 0.70 and fall provided an opportunity for financial analysts to update themselves on the 0.17 0.44 Group’s performance and strategic direction. In August we also reported in detail 0.60 on our latest research results which were broadcast live via the Internet. In addition, we organized numerous investor relation meetings, group debates, roadshows and 0.50 conference calls. All in all, we participated in over 250 one-on-ones and presented

0.40 the company at nine investment conferences. Twenty-five financial institutes now 0.35 report regularly on our performance. We are pleased to note the predominance of

0.30 0.28 ‘buy’ recommendations throughout 2001, which we interpret as a further indication of investor confidence and positive expectations with regard to future business 0.23 0.20 developments, and the attractiveness of the ALTANA share. Regular reviews of analysts’ comments are published on our Internet site along with press releases,

0.10 annual and quarterly reports and the latest presentations. Our Web site also contains general information about the ALTANA share plus the latest developments in the share price. We are very aware of the need for this information and will provide even more comprehensive coverage via our re-designed Internet site which is scheduled

97 98 99 00 01 to go online on May 8, 2002. In 2001, the German magazine ‘Focus’ acknowledged our excellent communica- Bonus dividend tion policy and provision of information to institutional investors by awarding us Dividend second place in its ‘German Investor Relations Prize’ in the M DAX segment. 20 Pharmaceuticals

In the battle against disease, creativity is a source of hope: in our laboratories, where scientists track down the causes of diseases and researchers use state-of-the- art methods to search for molecules for innovative therapies; cooperations in which our own skills are enhanced by those of others; and in the marketplace, where ever fiercer global competition spurs us on to continually improve processes, products and customer care. Exploiting creativity

For us, that means achieving optimal solutions with limited resources

Dr. Klaus Melchers, Head of Functional Genomics in Constance and Boston, looks for new targets for pharmaceutical agents – a process that involves gene expression profiling*.

*Glossary

Research expenditure

in € million

252

240

200 190

160 144 129 120 112

97 98 99 00 01

“Our strategy is focused on our core business – prescription therapeutics. We ensure our success through innovative products from our own in-house research. The key factors are concentration on a few market-related indication areas, close cooperation with biotechnology companies, and, above all, the creativity of our staff.”

Dr. Hans-Joachim Lohrisch, Head of ALTANA Pharma Pharmaceuticals 23

Pharmaceuticals division puts core business on a broader footing

In financial 2001, ALTANA Pharma increased sales by 26% to €1,591 million, and expanded profits by 66% to €373 million. This makes us one of the most profitable companies in the pharmaceutical industry in Europe. Once again, the growth driver was the innovative gastrointestinal product Pantoprazole. Ciclesonide and Roflumilast, two respiratory tract drugs with blockbuster potential, will shortly be submitted for approval.

ALTANA Pharma researches, manufactures, and markets innovative prescription drugs and OTC preparations for self-medication, as well as contrast media and in-vitro tests for diagnosing illnesses. Our pharmaceutical business is therefore divided into four business units:

Therapeutics Imaging In-vitro Diagnostics OTC Products

Our products are available in more than 90 countries worldwide. Our successful business performance in 2001 was also due to the efforts of our 6,867 employees from 30 subsidiaries and affiliated companies in Europe, North and South America, as well as Asia. As a result of our expansion, we recruited 378 new employees (+6%), most of them in Research & Development (R&D). Two hundred and sixty-four of the new jobs were created in Constance, the headquarters of ALTANA Pharma, and in Singen. This increased our workforce in Germany by 6% to 3,022.

Further growth in pharmaceutical market in 2001 Contrary to global economic trends, the pharmaceutical market* grew by 12% in 2001. Two-thirds of the worldwide pharmaceutical sales of €285 billion were generated in the 13 most important pharmaceutical markets. The most dynamic growth by international comparison was recorded in the North American market, where sales increased by 17% to €155 billion. Europe, the second-largest pharmaceutical market, only grew by 10% to €60 billion, while in the third-largest market, Japan, sales climbed by 4% to €53 billion. In Germany, retail pharmacy drug sales* rose by about 10%, a steeper increase than in previous years. This was due to the abolition of pharmaceutical budgets and a backlog of demand. Budget capping over a number of years had led to a deterioration in medical care, especially for chronically ill patients. Once again, the strongest sales growth in the year under review was recorded in innovative, prescription drugs.

*Glossary 24 Pharmaceuticals

With total sales of €17 billion, Germany is the largest pharmaceutical market in Europe, followed by France (€15 billion) and Italy (€11 billion). In some countries, including France and Italy, government-imposed price limits and price cuts depressed market growth. The controversial discussion on drug prices, refunds, and growth rates in the pharmaceutical sector, which was also conducted in North America in 2001, has thus far had no impact on the development of the pharmaceutical market.

Pharmaceuticals

in € million 2001 2000 Change in % Sales 1,591 1,262 +26 Germany 377 340 +11 Abroad 1,214 922 +32 Profit before interest, taxes, depreciation and amortization (EBITDA) 4301 278 +54 Profit before taxes (EBT) 3731 224 +66 Capital expenditure 116 93 +25 Research expenditure 252 190 +33 Employees (Dec. 31) 6,867 6,489 +6

1 Without capital gain Lundbeck and donation to Herbert Quandt Foundation

ALTANA Pharma: Strongest growth in the U.S. In the year under review, ALTANA Pharma was able to maintain its dynamic growth. Accumulated sales revenues of the four business units rose to €1,591 million – an increase of 26% over the already very successful prior year (2000: +23%). Our strongest growth was posted in the North American market (+81%), particularly in the United States (+86%). With sales of €352 million, we now generate 22% of our total sales in the U.S. market. ALTANA Pharma is therefore better positioned than in previous years, when we earned the bulk of our sales revenues in Europe. Our business performance in 2001 was largely unaffected by the economic and political consequences of the September 11 terrorist attacks in the U.S. Even in Latin America, which has been overshadowed by the crisis in Argentina, we were able to achieve moderate growth (+2.5%). In Europe, sales climbed by 16% to €860 million, or 54% of overall sales. Meanwhile, our international business now accounts for about 76% of total sales. In the year under review, we also again posted double-digit growth in our domestic market, Germany, lifting sales by approximately 11% to €377 million. In 2001 the Pharmaceuticals division accounted for roughly two thirds of total sales of the ALTANA Group.

Domestic sales: Double-digit growth after restructuring At the beginning of 2001, we restructured our pharmaceutical business in Germany. The core areas Therapeutics, Contrast Media and OTC business were bundled in Pharmaceuticals 25

the Business Unit Deutschland (Germany) / BUD, which was set up specially for this purpose. Responsibilities were reallocated and the sales organization more clearly structured to enable us to target our response to market requirements in Germany. Some of the market and customer-oriented changes in the marketing and sales structure achieved excellent results within the first twelve months alone. We succeeded in boosting sales of our top performer Pantozol® by 60%. With other products, such as the cardiovascular medication Querto® and the prostate drug Urion® we achieved growth rates of 19% and 36% respectively. In Germany, we generated a total of €377 million in sales revenues. The Business Unit Deutschland achieved 11% growth, comparable to pharmacy drug sales in Germany. This is a particularly gratifying result in view of the rather weak OTC business and the sale of the CNS business to Lundbeck GmbH & Co. KG in Hamburg.

Profitability: ALTANA Pharma one of the top performers at an international level The Pharmaceuticals division boosted its profits before taxes by 66%, achieving much stronger growth than in sales. Excluding the capital gain of €110 million from the divestment of our H. Lundbeck A/S joint venture and a donation to the Herbert Quandt Foundation (€8 million), profits for 2001 total €373 million. Once again, ALTANA Pharma’s return on sales rose significantly in 2001, from 17.7% to 23.4%. This was largely due to the highly successful marketing of Pantoprazole. Operating return, measured in terms of EBITDA, amounted to 27%, making us one of the most profitable pharmaceutical companies.

Sales by business unit

2001 % Therapeutics 1,275 80 Imaging 91 6 In-vitro Diagnostics 43 3 OTC 129 8 Other 53 3 Total 1,591 100

Therapeutics: 30% growth in core business In the year under review, Therapeutics achieved the highest growth rate – 30% – and generated sales of €1,275 million, or about 80% of total pharmaceutical sales. Prescription drugs are our core business and have a decisive impact on our business performance. Accordingly, our R&D activities, as well as our cooperations, are geared to securing a continuous, sufficient supply of innovative prescription therapeutics. In order to fully exploit the market potential of our products, we rely on 26 Pharmaceuticals

Pharmaceuticals Profit before Therapeutics sales taxes sales

in € million in € million in € million

1, 5 91 373 1, 27 5 1500 360 1200

1,262 1250 300 1000 980

1, 0 3 4 975 772 1000 240 224 800 900

1, 214 696

601

750 922 180 600

689 145 603 545 500 120 400 109 92

250 60 200 340 345 372 355 377

97 98 99 00 01 97 98 99 00 01 97 98 99 00 01

Abroad

Germany

Sales by region

in € million 2001 2000 Change in % Germany 377 340 +11 Rest of Europe 483 402 +20 North America 418 230 +81 Latin America 260 254 +2 Other regions 53 36 +47 Total 1,591 1,262 +26 Pharmaceuticals 27

strong marketing and sales partners as well as on the expansion of our own sales organization. Our Therapeutics business is currently focused on indications in three areas: • gastrointestinal • respiratory and • cardiovascular.

Therapeutics sales by application area

in € million 2001 2000 Change in % Gastrointestinal 795 490 +62 Cardiovascular 194 170 +14 Respiratory tract 53 57 -7 Central nervous system – 53 – Other 233 210 +11 Total 1,275 980 +30

Gastrointestinal therapeutics: Pantoprazole gains mainly in the U.S. Gastrointestinal preparations made the largest contribution to Therapeutics, generating €795 million or 50% of total sales. In the year under review, their share in sales of prescription drugs rose to 63%. By far the most important product in this indication area is Pantoprazole, which is sold under the trade names Pantozol® and Protonix®, among others. Together with our sales partners, it achieved global market sales of €1,326 million, corresponding to an increase of 104%. Our sales with Pantoprazole amounted to €680 million. In the U.S., our most important pharmaceutical market, where Pantoprazole has been sold since May 2000 by our American sales partner American Home Products (AHP) / Wyeth-Ayerst under the brand name Protonix®, sales rose to €628 million. The largest sales growth with Pantoprazole – 300% – was achieved there. The share of new prescriptions in the growing PPI* market in the U.S. rose from 6.6% to 12.3% (Dec. 31). Pantoprazole is an innovative proton pump inhibitor* (PPI) that was developed in our own in-house research laboratories in Constance. Proton pump inhibitors are the drugs of first choice in the treatment of gastrointestinal ulcers and gastroesophageal reflux disease (GERD)*, a condition caused by the backflow of acid from the stomach to the esophagus (gullet). In addition to the product advantages of Pantoprazole, two decisions by the American Food and Drug Administration (FDA) enabled us to generate the strongest sales growth in the U.S. market. In March 2001, Pantoprazole was the first PPI to receive approval as a parenteral (intravenous) drug for short-term treatment. Pantoprazole is thus the first PPI in the U.S. that has been

*Glossary 28 Pharmaceuticals

Pantoprazole market sales by region

in € million 2001 2000 Change in % Germany 142 93 +53 France 70 57 +23 Italy 50 37 +35 Spain 51 39 +31 U.K. 22 19 +16 Rest of Europe 146 102 +43 U.S./Canada 716 214 +235 Latin America 58 50 +16 Other Regions 71 39 +82 Total 1,326 650 +104

approved for both oral and intravenous application. Furthermore, it was approved for the long-term treatment of gastroesophageal reflux disease. Pantozol® also performed excellently in our domestic market, Germany, despite increased competitive pressure. Here Pantozol® was able to secure market leadership in 2001. In Germany, Pantoprazole is also offered in combination with two anti- biotics as ZacPac®, a drug for the eradication* of helicobacter pylori*, which causes gastrointestinal ulcers. Acid-induced gastrointestinal diseases are a widespread problem that affects some 60 million people in the U.S. alone. The U.S. market for proton pump inhibitors is growing at an annual rate of about 21%. Given the high global demand for proton pump inhibitors and the further streamlining of our sales activities, we expect the strong growth of Pantoprazole to continue in the current year in all our key markets, in particular in the U.S.

Cardiovascular therapeutics: Stable business with market-proven products In financial 2001, our products for the treatment of cardiovascular diseases generated sales of €194 million, a 14% increase year-to-year. The most successful product was Ebrantil® (Urapidil), which is sold throughout Europe. Urapidil is a selective alpha blocker from our own in-house research in Constance. Used to treat hypertension, its parenteral form is now considered standard therapy in many European countries in the treatment of hypertensive crises. Sales of Querto® (Carvedilol) also developed very favorably in Germany. Carvedilol, a non-selective beta blocker, is indicated in the event of hypertension, coronary heart disease and cardiac insufficiency.

*Glossary Pharmaceuticals 29

Pantoprazole Respiratory tract therapeutics: New, fast-selling products in our pipeline sales Sales of established preparations for the treatment of respiratory tract diseases ® in € million 1, 3 2 6 totaled €53 million, which was slightly down on the previous year. Euphylong , 680 the main product in this segment, sets today’s quality standards for theophylline*- based products for the treatment of asthma and chronically obstructive pulmonary 1200 disease (COPD*). In 2002 we will seek European admission for two new drugs – Ciclesonide and 1000 Roflumilast – that we plan to launch at the end of 2003. The sales potential of Ciclesonide is estimated at about €1 billion, that of Roflumilast at about €800 million. 800 650 411 Imaging: Sales of innovative magnetic resonance contrast media successfully 600 expanded In 2001 sales of contrast media for diagnostic imaging rose to €91 million. The top 369 ® ® 400 273 performers in this segment were Imeron and Solutrast . Magnetic resonance (MR) 280 192 contrast media, which achieved 40% sales growth in the year under review, are 180 gaining in importance. 200 125 For many years, we have been working closely with the Italian company Bracco in the field of contrast media for state-of-the-art imaging processes. Contrast media from Bracco research destined for traditional examination methods as well as for modern processes such as nuclear spin tomography* and ultrasound are distributed 97 98 99 00 01 through our channels in Germany and other countries in central Europe. In addition, we produce contrast media at our plant in Singen, also for the U.S. market. Market sales We anticipate future growth from the innovative MR contrast medium Multi- Division sales Hance® and the new ultrasound contrast medium Sonovue®, which is used, for example, for cardiac examinations.

In-vitro Diagnostics: Expansion of molecular diagnostics During financial 2001, In-vitro Diagnostics posted sales revenues of €43 million. In-vitro diagnostics involves tests to determine tumor markers or endocrine hormones*. As part of the reorganization of our in-vitro diagnostics business, we entered into a joint venture with the Italian company DiaSorin, from which we have already profited in Germany (+16%). We have also created a separate unit for molecular diagnostics. All the research activities in this area are now concentrated at our Swedish subsidiary Sangtec Molecular Diagnostics AB. The current research programs are focusing on a new generation of tests used to diagnose cancer, infectious diseases and cardiovascular disorders, and to monitor the success of treatments.

*Glossary 30 Pharmaceuticals

OTC: Product range streamlined to increase profitability In 2001 sales of our self-medication preparations rose by 3% to €129 million. The most successful products in this business unit are Riopan®, an antacid used to treat gastric disorders and heartburn, the tonic Buerlecithin®, and the multi-vitamin preparation Sanostol®. Such over-the-counter (OTC) products are available without a prescription. The ten best selling In an effort to raise the profitability of our OTC business, we have focused the products product range of our Hamburg subsidiary Roland to a larger extent on drugs, and sold off our compression and support stockings program, which was marketed under in € million Sales the trade name Varilind®. In future, the OTC products will be linked more closely with Pantoprazole 680 the national marketing and sales organizations. Contrast media 70 Ebrantil® 61 Strong growth requires innovative, market-oriented research Riopan® 34 The future of ALTANA Pharma depends on new, innovative products in our most Ferro 33 profitable business unit, Ethical Therapeutics*. The excellent sales and profit Theophylline 26 growth in recent years has enabled us to boost our investment in research by about Querto® 23 30% annually. In financial 2001, expenditure on R&D rose to €252 million Chromagen 18 (+33%). That means that we are investing about 20% of our therapeutic sales in Sanostol® 17 research activities with a view to strengthening our position as an innovative phar- CroFabTM 17 maceutical company in the mid to long term. While we are exploiting the growth potential of our top performer Pantoprazole, we are also working on filling our pipeline with strong follow-up products. We are on the right track with Ciclesonide and Roflumilast, two promising respiratory tract drugs. These two product developments with blockbuster potential are now in the final phase of very cost-intensive clinical trials.

R&D pipeline: Two promising candidates in the late phase of clinical research • Ciclesonide is an inhalated corticosteroid. Corticosteroids are the preferred drug for long-term asthma therapy. While it has the same high degree of effectiveness as other inhalated corticosteroids currently on the market, Ciclesonide causes far fewer side-effects during treatment. Its excellent product profile is due to its ‘on-site- activation’. Ciclesonide is indicated for the treatment of all degrees of asthma severity. Asthma is one of the most common diseases in developed countries, and the number of sufferers is expected to rise in the coming years. We aim to develop and distribute Ciclesonide in the U.S. jointly with our strong partner, Aventis Pharmaceuticals Inc. A corresponding cooperation agreement was signed with the American subsidiary of Aventis S.A. in the spring of 2001. We expect this collaboration to further strengthen our market position in the U.S. In Japan, Taiwan and Korea, Ciclesonide will be developed and distributed by Teijin Ltd., Japan.

*Glossary Pharmaceuticals 31

• Roflumilast is a selective phosphodiesterase 4-inhibitor* – or PDE 4, for short. Because of its anti-inflammatory and immune-modulating properties, PDE 4-inhibitors can be used to treat a variety of chronic inflammatory diseases. In a large- scale dose-finding study conducted in 2001, we were able to prove that Roflumilast is suitable for the treatment of chronic obstructive pulmonary disease (COPD). ALTANA is thus the only company worldwide possessing a PDE 4-inhibitor for the treatment of both asthma and COPD. Roflumilast is taken once a day in tablet form. During the selection of the most suitable phosphodiesterase inhibitor, we were able to rely upon our longstanding research experience and know-how in terms of cooperations with universities and other research laboratories. COPD is the most common chronic pulmonary disease. According to the World Health Organization (WHO), it is the fourth most common cause of death – and the trend is increasing. Long-term cigarette smoking is thought to be the major cause but so far there is no successful therapy to combat the disease. We will also further develop and market Roflumilast with an internationally experienced partner. Talks are already being conducted with potential partners, and a decision will be made in the first half of 2002. Further candidates in our respiratory tract and anti-inflammatory pipeline are Pumafentrine, an anti-inflammatory drug for the treatment of asthma and COPD, which is currently undergoing phase II clinical trials, and Venticute®, an innovative lung surfactant factor (LSF*) for the treatment of acute respiratory distress syndrome. As the results of the phase III clinical trials did not meet expectations, new, potential therapeutic approaches are currently being discussed with experts. The further development of Venticute® depends on the results of these talks. The candidates for our gastrointestinal pipeline are in the early phases of clinical development. The acid pump antagonist (APA) is a new category of acid inhibitors. Other projects, which are prepared for clinical development, are targeting the eradication of helicobacter pylori, a bacterium linked with the formation of gastrointestinal ulcers and stomach cancer. A third focus of our future research will be oncology. In order to establish this research area, we are looking for suitable licensing candidates and plan to develop new therapeutic approaches with specialist partners.

R&D: Faster to market maturity with biotech and a process-oriented structure Our success depends on more than just the quality of our product pipeline, the number of active ingredients, and their profile. We have to launch our pipeline products quickly in order to fully exploit the length of patent and – wherever possible – be the first on the market with a new, innovative product. That is why we concentrate on a limited number of selected research areas and increase our efficiency through a process-oriented division of R&D activities: Discovery Research, Preclinical Development and Clinical Development.

*Glossary 32 Pharmaceuticals

ALTANA Pharma

Clinical trials Estimated Therapeutics pipeline Preclinical Phase I Phase II Phase III Registration Market entry launch

Gastrointestinal

H.p.* Projects

BY 359 / APA 2006

BY 1023 / Pantoprazole / Life Cycle Management Projects

Respiratory tract

BY 9010 / Ciclesonide nasal 2006

BY 9010 / Ciclesonide DPI 2005

BY 9010 / Ciclesonide MDI 2003

BY 217 / Roflumilast 2003/4

BY 343 / Pumafentrine 2007

APA Ciclesonide DPI Roflumilast (acid pump antagonist) (multi-dose powder inhaler) (steroid-free therapeutic) Reflux disease (GERD) Asthma Asthma and COPD

Ciclesonide nasal Ciclesonide MDI Pumafentrine (nose spray) (inhalated steroid – CFC-free (oral anti-inflammatory drug) Allergic rhinitis/hay fever propellant) Asthma and COPD Asthma

The new Discovery Research segment has an interdisciplinary research function. It uses state-of-the-art biotechnological ‘tools’ such as genomics*, proteomics*, combinatorial chemistry*, our own and outside substance libraries as well as high- throughput screening to identify new targets* for drugs and potential leads*. These include targets and leads for all three main areas of research – respiratory tract respectively inflammatory disorders, gastrointestinal diseases and oncology. We aim to take at least two new substances a year to the clinical trial phase. We are also supplementing our own R&D efforts – wherever appropriate – through project- related collaborations and strategic alliances, in particular in the field of biotechnology and bioinformatics.

ALTANA Research Institute: a new genomics research center underway In the year under review, we expanded our longstanding cooperation with the Munich- based company GPC Biotech AG. Up to now, the focus has been on research into new therapy approaches for cancer via genomics and proteomics, and this work is continuing. Meanwhile, in Waltham, near Boston, Massachusetts, we have started

*Glossary Pharmaceuticals 33

setting up a new research center. Having our own research facility in the United States, the largest pharmaceutical market, will facilitate access to renowned American universities and research establishments. From 2001 to 2007 ALTANA will invest U.S. $120 million in this project. In order to keep our pipeline well-filled, we are also looking for additional licensing substances that we can develop further. In this way we hope to push ahead with the establishment of our third research area, oncology.

Investments: Production and laboratory capacities expanded In financial 2001, ALTANA Pharma invested €116 million in property, plant and equipment, €56 million of that sum in Germany in the expansion of the production sites at Singen and Oranienburg, as well as in the expansion of our laboratory capacities in Constance. The new technical center in Singen will enable us to meet the growing demand for our products, in particular Pantoprazole, and also guarantee the production of new active substances from our research facility in Constance. The focus of our investments abroad (€60 million) was on the expansion of the production sites in Poland, Brazil and India.

Outlook for 2002: Steady implementation of our business strategy – innovative, international, and market-oriented Through the consistent implementation of our business strategy we have maintained constant growth in recent years and increased our growth potential. In 2002 ALTANA Pharma will continue to focus on expansion. We will further exploit the existing sales potential of Pantoprazole, and at the same time we will prepare the successful market launch of Ciclesonide and Roflumilast. We will also expand our marketing and sales structures in the most important markets, particularly in the U.S. – through alliances and cooperative ventures, wherever appropriate. Our new corporate identity, which will raise the visibility of ALTANA Pharma, will support us in this endeavor. In the current year, our growth strategy, the further internationalization of our business, and our deep commitment to research will again enable us to create more highly qualified jobs in R&D and marketing, and continue to raise the overall value of our company. 34 Chemicals

Niche markets are for specialists. Specific challenges demand innovative solutions. To succeed in niche markets you need to develop skills that will set you apart from others. You must strive to overcome limitations posed by materials, manufacturing processes, customers, markets and your own expertise. We specialize in improving the quality of our customers’ products and simplifying product manufacture – a strategy that has proved immensely successful in our niche markets. Overcoming limitations

For us, that means viewing the special features of new markets as an opportunity

Lin Xie, corrosion protection project manager from China, tests the application properties of paint additive fractions that have been separated using an HPLC* column. The 39-year- old is currently taking part in an exchange of expertise with BYK-Chemie in Wesel.

*Glossary

Sales Far East

in € million

124 120 112

100

86 80

60 60 53

97 98 99 00 01

“Asia is the most important growth region for our specialty chemicals business. We gained a foothold there before others and have thus managed to achieve above-average expansion in the past few years. Our strong position in the Asian market is the best basis for our future corporate success.”

Dr. Klaus Oehmichen, Head of ALTANA Chemie Chemicals 37

Chemicals division maintains its position in a difficult environment

The weak global economy hampered growth in sales throughout the chemical industry, and ALTANA Chemie was not spared the effects of the slowdown. Yet in spite of that, we maintained operating sales at virtually the same, high level achieved the previous year, which was very successful. With our specialized products we generated €717 million in sales, representing a nominal increase of 8% supported by acquisitions. In a sectoral comparison, therefore, we are still one of the most profitable chemical companies in Europe and the United States.

ALTANA Chemie has established itself as a global provider of innovative, environ- mentally compatible solutions and the corresponding special products for coatings manufacturers, coatings and plastics processors and the electrical industry. Our product portfolio includes additives*, specialty coatings, sealing and casting compounds*, impregnating agents*, and also testing and measuring instruments. With these products we serve selected niche markets, in other words, those markets which are too small for the core business of large corporations, but too complex and cost-intensive for small companies. Our products are marketed in over 100 countries worldwide. ALTANA Chemie owes its success to its dedicated staff. The company currently has 2,217 employees, of whom 1,020 are active in Germany and 1,197 outside of Germany. In the year under review, ALTANA generated on average €324,000 in sales per employee – a very high per capita result compared to other companies in the industry. In 2001 approximately 200 new employees, about two-thirds of them from newly affiliated companies, joined ALTANA. This represents an increase of 9% in our workforce.

Specialty Chemicals

in € million 2001 2000 Change in % Sales 717 666 +8 Germany 101 93 +9 Abroad 616 573 +8 Profit before interest, taxes, depreciation and amortization (EBITDA) 134 144 -7 Profit before taxes (EBT) 89 111 -20 Capital expenditure 48 35 +37 Research expenditure 33 29 +12 Employees (Dec. 31) 2,217 2,036 +9

ALTANA Chemie even more attuned to customer needs In recent years, our specialty chemicals business has continued to grow organically and as a result of our acquisition strategy. However, given the size of the company and its partially heterogeneous structure, particularly in the Specialty Coatings segment, strategic realignment was necessary to ensure we remain globally competitive – both now and in the future.

*Glossary 38 Chemicals

In mid-2001, ALTANA Chemie and its 25 subsidiaries, which had previously comprised three business units (Additives, Specialty Coatings and Measuring Instruments), were reorganized into four units:

Additives · Instruments Paint additives Can coating Impregnating resins Wire enamels Plastics additives Coil coating packaging Casting compounds Wax additives Coil coating architecture Testing and Measuring Closure compounds Instruments Can sealants Core plate varnishes Industrial coatings

In the process, the two former business units Additives and Instruments were merged. Specialty Coatings, meanwhile, was divided into three business units: Coatings & Sealants, Varnish & Compounds, and Wire Enamels. Since all our business activities, from development through to the sale of our special products, is geared to the requirements of our customers, restructuring was based on customer and market- specific principles. The new organizational structure has increased the flexibility of the individual business units, thus enabling us to better exploit strategic options in the future and to focus more easily on the further development of our business areas. ALTANA Chemie and the four independent business units are headquartered in Wesel. In the course of 2002, ALTANA Chemie will change its legal status: it will become a divisional holding company and be converted into an AG, or public limited company.

Chemical industry impacted by falling demand in domestic and foreign markets in 2001 The pronounced economic downturn in the course of last year in the United States, in Europe and in many Asian countries, in particular Japan, had a negative impact on Germany’s chemical industry. After a sharp rise in the first quarter, sales generated by German chemical companies fell off steadily in the second half. Due to low domestic and foreign demand, the sector stagnated, with sales remaining at the prior-year level of approximately €108 billion. Of this amount, about €52 billion was generated in Germany (-1.5%), and almost €57 billion abroad (+1%). Chemicals 39

In financial 2001, production was 2% down on the prior year, the hardest-hit areas being the manufacture of intermediate products for industrial and commercial customers. Production of fine and specialty chemicals declined by 4%. Growth in production was recorded only in those sectors that were largely unaffected by cyclical factors, such as pharmaceuticals and agrochemicals. Falling manufacturing prices, persistently high raw material prices, a concentration process among suppliers, competitors and customers, and the drop in demand squeezed corporate profit margins. Despite the difficult economic situation, our Chemicals division fared better than many other companies, which were forced to reduce jobs and, in some instances, close down plants.

ALTANA Chemie: Growth slowed by weak demand The performance of our Specialty Chemicals division in financial 2001 was generally disappointing. Growth in all the business units was restrained due to falling demand in nearly all the important markets, in particular the United States. Sales rose by 8% to €717 million, however, 9 percentage points of that growth were attributable to acquisitions and 1 percentage point to exchange rate factors, with the result that operational growth in this division was actually 2% down on the prior-year figure. Domestic and foreign sales rose by 9% and 8% respectively. Sales from international business thus accounted for 86% of total sales, unchanged from the previous year. Sales in Germany totaled €101 million, and outside of Germany €616 million. The strongest growth was posted in other European countries, where sales leapt 16% to €274 million. While growth in Germany and Europe was largely attributable to acquisitions, the Far East region saw substantial operational growth of 11%. The sales decline in Japan was offset by positive developments in other Asian countries, in particular China and South Korea. In the U.S., however, sales remained 8% below the prior-year level due to the weak economy. In contrast to the previous year, the activities of our Specialty Chemicals business were relatively unaffected by cyclical factors. Even during the economic crisis in Asia in 1998, ALTANA Chemie generated double-digit growth. In that year, in comparison to 2001, sales shortfalls in one region were offset by additional sales in another. However, the global economic climate in the year under review did not permit that.

Unfavorable sales/cost ratio depresses profits In financial 2001, ALTANA Chemie suffered a 20% drop in profit before taxes (EBT) to €89 million. Operating profit (EBITDA) decreased by merely 7%. Profits were squeezed above all by simultaneous pressure on the sales and cost side: • Stagnating operational sales growth lowered the ratio between the contribution margin and fixed costs. • Despite weak economic activity, the already high prices of raw materials did not ease, but continued to rise. These were costs we were unable to pass on to the customer. 40 Chemicals

• Higher personnel expenses and material costs resulting from the strategic expansion of our headquarters in Wesel as well as additional costs due to acquisitions had to be absorbed. Against this background, the return on sales* decreased from 16.7% to 12.4%. The operating return measured in terms of EBITDA fell from 21.6% to 18.7%. Both key financial figures are below the prior-year level, but still relatively high compared to the rest of the industry.

Additives & Instruments: Sound sales growth despite difficult business environment Once again the Additives & Instruments business unit generated the largest share of the division’s sales, contributing 39% or €283 million. Additives accounted for €253 million of this amount, maintaining sales at the prior-year level. Sales of testing and measuring instruments increased marginally to €30 million. Additives are chemical substances, small amounts of which are added to coatings and plastics in order to • improve their surface, color and structure properties, and to • simplify production and processing. Our product portfolio ranges from wetting and dispersing additives for the even distribution and stabilization of solids in liquids through to defoamers and air- release additives, which prevent the formation of bubbles in coatings and plastics. Since certain effects can only be achieved with additives, they have become an inte- gral and essential part in the manufacture of state-of-the-art coatings and plastics. Developing additives for special applications requires close cooperation with our customers in the coatings, plastics and printing inks industries, which in turn promotes customer loyalty. In addition to additives, we offer measuring and testing instruments. These instruments measure the surface characteristics of coatings and plastics such as color and gloss values. In both the Additives and Instruments business areas, we are in a leading position in all the key markets worldwide. That is also evidenced by the awareness of the two international brands BYK-Chemie® and BYK-Gardner®, under which we distribute our additives and instruments. The majority of additives sales – roughly 70% – are generated with paint additives, which are used in a wide variety of applications ranging from automotive paints, can and coil coatings*, wood varnishes, and printing inks to decorative paints. The most important single market for paint additives is the U.S., followed by the German market. Weak sales performance in the automotive industry had a substantial impact on our business performance in the Unites States as our customers (coatings manufacturers) are their suppliers. In Germany, the difficult situation in the construction industry adversely affected our sales. Many of our customers post- poned their investments and cleared their inventories. Over the past few years the Additives & Instruments business unit has achieved steady, organic growth. This is largely attributable to • regular innovations in line with market requirements, • a broad product portfolio, • a sophisticated global distribution system, and • a resulting leading market position in all the strategic key markets worldwide.

*Glossary Chemicals 41

Specialty Chemicals Profit before sales taxes

in € million in € million

750 120 717 111 666 100 625 100 552 89 501 500 80 445 70 65

375 616 60 573 476

250 425 40 378

125 20 67 76 93 76 101

97 98 99 00 01 97 98 99 00 01

Abroad

Germany

Sales by region

in € million 2001 2000 Change in % Germany 101 93 +9 Rest of Europe 274 235 +16 North America 152 165 -8 Far East 124 112 +11 Other regions 66 61 +8 Total 717 666 +8

Sales by business unit

in € million 2001 2000 Change in % Additives & Instruments 283 283 – Coatings & Sealants 218 179 +21 Varnish & Compounds 65 59 +11 Wire Enamels 151 145 +4 Total 717 666 +8 42 Chemicals

Increased production costs resulting from higher raw material prices and quality requirements, were substantially offset by a leaner organizational structure and new, innovative products that are cheaper to manufacture. After noticeable signs of economic recovery, we expect further growth. We see sound potential for growth in Asia, where we are already in a better position than our competitors. At the end of 2001, we founded the company BYK-Chemie Tongling in China. Additives production, quality control and the existing Shanghai sales unit will be established under the aegis of this company. Production of additives is scheduled to begin mid-2002 in Tongling. In the same year, we plan to set up application laboratories for our customer advisory service. We are thus not only affirming our long-term involve- ment in the future-oriented Chinese market, but at the same time safeguarding our competitive edge all over Asia.

Additives sales

in € million 2001 2000 Change in % Paint additives 181 181 – Plastics additives 53 54 -2 Wax additives 19 18 +4 Total 253 253 –

Coatings & Sealants: Market position improved through acquisitions and innovation In the year under review, the Coatings & Sealants business unit generated sales of €218 million, a 21% increase on the prior-year-level. Apart from 2% resulting from operational business, 19% growth was achieved through acquisitions. A distinction is made between can coatings, which are used to coat steel and aluminum sheets, and coil coatings, which are utilized in coating metal tape, before they are formed into finished products. This process causes material compression and expansion, which place high demands on coatings. As a result, production of such specialty coatings is extremely research-intensive. These coated metal sheets and tape are used to produce packagings such as cans and foil wrappings for the food industry, as well as claddings and steel furniture. Sealants include sealing compounds for lids, bottoms and the seams of beverage, food and aerosol cans as well as bottle and jar seals. In 2001 four main trends emerged: • Mergers and takeovers resulted in a further concentration process among our globally active customers, placing added strain on product prices. • Concentration also led to a change in customer relations, requiring adjustments of internal processes and increased expenditure on marketing and sales. Chemicals 43

• Migration of our customers to low-wage countries is tangibly altering the development potential of individual companies in our division. • Due to the growing demands of our customers, more and more process steps are being transferred to coatings manufacturers. This has increased the need for research, and as a result the number of R&D staff is expanding more than in other departments. About 9% of our total staff are currently engaged in R&D. In the future, innovations will continue to be of vital importance in the Coatings & Sealants business unit, not least because we aim to be the market leader in this segment in the mid and long term. Through the acquisition of the can coating business of Blancomme in the first quarter of 2001, we were able to expand our market position in France and Europe. We are now represented in another major European market with a wide range of can and coil coatings. Key factors in the decision – besides the company’s product portfolio – were the excellent customer relations, and the customer clearance for specific packaging applications. With the acquisition of Joachim Dyes Lackfabrik in 2000, we have added water- soluble specialty coatings for flexible packagings made of paper and plastics to our product range. We are currently in the process of transferring this technology to those plants that up to now have only produced coatings for metals. In compliance with our customers’ wishes, we are now intensifying our development of mixing systems, a sort of modular or building-block system for the short-term production of coatings. High advertising expenditure in the food industry has increased the demand for flexible packagings and more frequent packaging modifications. So far, the activities of Coatings & Sealants have been concentrated in Europe. In the future we will focus more on the Asian market.

Varnish & Compounds: Market leadership in the U.S. expanded In the year under review, sales of the Varnish & Compounds business unit grew by 11% to €65 million, however, most of this was attributable to acquisitions. In May 2001, we acquired the British company Sterling Technology Ltd., and in July the American Epoxylite Corporation. After a transitional period, P.D. George undertook to manufacture the products of Epoxylite. Through the takeover of experienced former Epoxylite staff into important positions we were enabled to retain the know-how for our company. With these strategic acquisitions, we have succeeded in significantly bolstering our leading market position in the North American market and the U.K. We have also added technically sophisticated epoxy resin formulations* to our product portfolio. The new acquisitions develop, produce and distribute casting compounds* for use in electric and electronic components. In addition to casting compounds for insulating capacitors and printed circuit boards, the product portfolio of the Varnish & Compounds business unit also includes impregnating resins for electric motors and transformers. These components are found in electric motors, for example, for washing machines and vacuum cleaners, or in transformers for lamps. Unlike wire enamels* (see below), which are used to coat wires before they are coiled, casting compounds and impregnating agents are used to cast the coils created through the winding process.

*Glossary 44 Chemicals

Since we generate more than 50% of our sales with liquid casting compounds and impregnating resins in the U.S., our performance in 2001 was influenced above all by the economic recession. Sales growth in 2002 will continue to depend on the state of the U.S. economy. Following the successful integration of the acquired companies, however, we anticipate a significant year-to-year improvement in sales. Furthermore, in 2002 we will be focusing more intensively on the expanding Asian region, which is proving increasingly popular among our globally active customers as a production location.

Wire Enamels: Market leader well-positioned in the future-oriented market Asia During financial 2001, sales of Wire Enamels rose by 4% to €151 million. In operational terms, however, growth lagged 7% behind the prior-year level. Sales were affected by the consistently weak demand in many important markets, especially in the U.S. market. The only exception was China. The acquisition of the Italian wire enamel specialist Syntel S.p.A. at the end of 2000 had a positive impact on sales growth, enabling us to expand our product portfolio and service offerings and also bolster our position as the world’s leading supplier of wire enamels. Wire enamels are used to insulate copper and aluminum wires, e.g. for electric motors and transformers. The latter are important components for electricity generators for power stations or household appliances such as vacuum cleaners, televisions and microwave ovens. Besides providing insulation against electricity, wire enamels must also meet high requirements in terms of thermal, mechanical and chemical stability. They are often employed in cars whenever electric motors are used instead of mechanical control elements – for example to operate wind- shield wipers or electric window raisers – and must therefore be able to withstand extremes of temperature and vibrations. In 2001 the R&D department of the Wire Enamels business unit was restructured and expanded. The new shift of responsibilities between our worldwide applications-oriented development laboratories is designed to use synergy effects and specialist expertise to a greater extent and also to better exploit resources. A new research unit was set up in Wesel to support our global R&D activities and coordinate the collaboration between all the laboratories of the globally active Wire Enamels unit. We feel assured that this will enable us to fully accommodate our customers’ requirements and remain their preferred partner worldwide. Due to the high demand, production of wire enamels at Tongling Siva in China was expanded. An increase in R&D capacities, technical service and production is already in the pipeline and will be partially realized in 2002.

*Glossary Chemicals 45

Investments: Focus on expansion of production capacities In financial 2001, ALTANA Chemie invested €48 million in property, plant and equipment, an increase of 37% year-on-year. Most of this amount was channeled into the expansion of our Wesel site. After the completion of the laboratories and administrative building, which were occupied in 1999 and 2000 respectively, a new storage tank for additives went into operation at the end of 2001. Completion of the production facilities for additives is scheduled for the end of 2002. The total investment volume of the entire expansion program (covering several years) is about €100 million. In October, production of sealing compounds for cans (can sealants) began on schedule at the new facilities of our Spanish subsidiary La Artística in Vigo.

ALTANA Chemie: Moderate sales growth expected in 2002 Due to the further deterioration of the global economy in the last quarter of 2001, the anticipated upswing in the U.S. at the beginning of 2002, and with it the recovery of the world economy, will be delayed. As a result, an upturn in the chemical industry is unlikely before the second half of the year. In Japan, demand looks set to fall even further. However, we are still striving to outperform our competitors in terms of product innovation and quality, technical advice and customer service, and to achieve, respectively expand a position as worldwide market leader in every business unit. We will therefore pursue our acquisition strategy in the future and exploit the opportunities for expansion in selected business areas and regions. Despite the continuing difficult economic climate worldwide, we anticipate modest growth in sales for 2002. We have taken the current situation as an opportunity to strengthen our efforts with regard to increased efficiency and cost management. However, there will be no cutbacks in strategic investments in R&D, customer service, or the expansion of our production capacities. Rather, we will use the current global economic situation as an opportunity to further bolster our competitive positions. We are confident that we will emerge from this ‘crisis’ stronger than before and reap outstanding benefits from the subsequent economic upswing. 46 Culture

Dialogue is an attempt to expand one’s horizons. It is inconceivable without commitment, and without self-reflection or openness to new ideas it is impossible. Dialogue is the bedrock of every culture – and vital for its future. We view the active promotion of a qualified, interdisciplinary discussion in politics and industry, in science and the arts as an ongoing task. Promoting dialogue

For us, that means building bridges between industry and culture

Dialogue in progress: Participants in the 17th Sinclair House Debate hosted by the Herbert Quandt Foundation

Twice a year, at the Foundation’s invitation, leading figures from the realms of politics, industry, science and religion meet at Sinclair House – headquarters of the Herbert Quandt Foundation and the ALTANA Cultural Forum – to discuss key social issues. Participants in the 2001 Sinclair House Debates included Professor Roman Herzog (the former German Federal President), Ambassador Otto von der Gablentz (Rector of the College of Europe in Bruges, Belgium), Ruth Deech (Chair of the British Human Fertilization and Embryology Authority), Professor Detlev Ganten (Scientific Director of the Max Delbrück Center for Molecular Medicine), Professor Didier Sicard (Chairman of the National Bioethics Council in France), Professor Ernst-Ludwig Winnacker (President of the German Research Association), and Professor Ernst Benda (former President of Germany’s Federal Constitutional Court).

ALTANA AG

Herbert Quandt Foundation ALTANA Cultural Forum Education

Sinclair House Debates Art exhibitions University chair in International at Sinclair House Management at the Otto Beisheim Graduate School of Sculpture exhibition ‘Blickachsen’, Management (WHU), Koblenz Bad Homburg University chair in Bioinformatics ‘Fugato’ Organ Festival, at the University of Constance Bad Homburg Eliteschule Schloss Hansenberg Trialogue of Cultures Städelsches Kunstinstitut (elite school), Rheingau/Hesse (Museum), Frankfurt Evening Talks Colégio de Humboldt, São Paulo Museum für Moderne Kunst, (Brazil) ‘Public Spiritedness Initiative’ Frankfurt Zukunftspreis des Bundespräsi- Exchange scholarships Frauenkirche Dresden denten (Stifterverband) – Prize Eastern Europe at the Technical awarded by the German President University Dresden and the University of Constance Representatives of the three Abrahamic religions taking part in the Trialogue of Cultures: Prof. Dr. Dr.h.c. Sumaya Farhat-Naser, Dr. Mazen Armouti and Prof. Dr. Amnon Cohen (from left to right)

Cultural responsibility

The positive response to the work of the Herbert Despite the differences in attitude, all agreed that Quandt Foundation, the increasing use of the Europe can only maintain its position and be foundation’s website (www.h-quandt-stiftung.de), taken seriously as a global political force if it is and the growing demand for publications reflect united politically and economically. With regard to the immense public interest in a qualified debate subsidiarity, the E.U. must focus on the efficient on socio-political issues. The Herbert Quandt performance of those tasks which go beyond the Foundation sets out to examine the opportuni- political sphere of influence of individual mem- ties and risks involved in new developments in ber states. There was almost general consensus politics and society, and to show ways of that the definition of competencies, more trans- addressing them. This is done by organizing parent decision-making processes, the authority international and national colloquia, as well of E.U. institutions and the future financing of the as through its research and scientific activities E.U. could be regulated in a constitution which, and practical work in the ‘Public Spiritedness like the Charter of Fundamental Rights, should Initiative.’ be drawn up by a convention. The convention The following events highlight the main was established in Laeken and charged with the activities over the past year. task of preparing the planned reform of the Treaty of Nice for 2004. Europe’s constitution – A framework for the future of the Union Who owns the human genome? In the spring of 2000, the decision to focus the Ever since the announcement of the decoding of 16th Sinclair House Debate on the need for a the human genome* on June 26, 2000, which European constitution was shrouded in uncer- roused immense public interest, experts have not tainty. Would a topic of this nature still be relevant been the only ones to voice concern about the if the E.U. summit in Nice proved successful? medical opportunities, ethical problems, and As it turned out, the doubts were unfounded. social changes this will involve. The 17th Sinclair In the wake of the summit, the future of the House Debate in November 2001 pursued the E.U. was discussed, and the 16th Sinclair House discussion that had been launched by leading Debate on May 11 and 12, 2001 succeeded in German newspapers. Dr. Frank Schirrmacher, making timely and significant contributions to co-editor of the ‘Frankfurter Allgemeine Zeitung’ that discussion. Many new ideas on modernizing and one of the main initiators of the public the E.U., allocating responsibilities between the debate, chaired the interdisciplinary forum, E.U. and the member countries, as well as on the which examined the medical and economic relationship between the European institutions, opportunities connected with progress in gene which were discussed during the Sinclair House technology and biotechnology, the issue of self- Debate, were later included in the debate on restriction, the necessary legal framework, and E.U. policy in the run-up to the summit in the role of politics. In the course of the discus- Laeken, Belgium, in December. sion it became evident that many of the horror

*Glossary 50 Culture

“Culture is intellectual nourishment. It reflects a society’s degree of civilization. That is why the arts must not flounder but flourish.”

Nikolaus Schweickart, Chairman of the Herbert Quandt Foundation

scenarios linked with genetic engineering find Science promotion prize their way into the media because the general Each year, the University of Constance and the public interprets whatever scientists cannot Herbert Quandt Foundation jointly present the exclude with absolute certainty as a probable Byk Award for particularly outstanding disserta- outcome. Sound knowledge and better commu- tions in the specialist areas of Chemistry, Biology, nication could help to prevent that. It was gene- and Physics. As with the large exchange and rally agreed that in the ‘Century of Biology’ the cooperation programs which the Herbert Quandt role of the natural sciences in today’s education Foundation supports in cooperation with the system needs to be re-assessed. universities of Dresden and Constance, up-and- coming scientists are the focus of the sponsorship Trialogue of Cultures program. The long-term aim is to build up a The September 11 terrorist attacks in the United network of the leading scientific elites in central States gave added immediacy to the Trialogue of and eastern Europe. Cultures, which was initiated by the Herbert Quandt Foundation back in 1996 in cooperation Public Spiritedness Initiative with Lord Weidenfeld. Events have shown that The United Nations designated 2001 as the an open and critical exchange between Jews, ‘International Year of Volunteers’ in order to Christians, Moslems, whom the Trialogue of highlight the importance of volunteering. For Cultures aims to support, is more important the fifth time, the Foundation, which has been than ever in our efforts to combat the ‘clash of actively involved in this field through its Public civilizations.’ Projects will be developed under Spiritedness Initiative, presented a wide-ranging the aegis of the Foundation as part of a network training program for voluntary workers. The of representatives of the three Abrahamic reli- program in the state of Hesse has now been gions and cultures in the Middle East, the U.S., recognized as a scheme for organizing training and Europe in an effort to implement the tria- measures and as a basis for structuring funding logue idea in daily life. A scholarship, for in- by regional governments. The Regional Alliance stance, will enable two young German journa- on Education, which brings together 250 repre- lists to study for one semester at Tel Aviv sentatives from politics, industry, and schools University and subsequently do an internship under the aegis of the Foundation, responded to with a leading Israeli daily newspaper. A study the appeal of the 17th Sinclair House Debate to conducted by Professor Claus Leggewie will emphasize the importance of the natural sciences examine conflicts surrounding the building of for the future of our country in the ‘Century of mosques in the Rhine-Main area with the aim Biology’. At a public event for pupils, teachers of establishing points of departure for effective and parents, the alliance presented exemplary conflict intervention and a constructive discus- partnerships between schools and industrial sion on such plans. A further project will pro- companies in the field of technology and the mote the knowledge among European pupils of natural sciences. the monotheistic religions and cultures, their common features and differences. More than 12,000 people visited the Beckmann exhibition at the Sinclair House. 52 Culture

Saskia Niehaus Untitled, 1999 Pencil, crayon, gouache

Art as inspiration

To raise its profile as an exhibition venue and artists, Max Beckmann. Both exhibitions show- cultural institution, the exhibition and collecting cased works on paper. The exhibition ‘Schichten activities of the ALTANA Cultural Forum, der Nacht (Layers of the Night). Arnulf Rainer – conducted at Sinclair House in Bad Homburg Victor Hugo’ was an illustrious start to the new since 2001, have focused on international art of ‘Arts and Literature’ series. The renowned Aus- the 20th and 21st centuries as well as on four trian painter, Arnulf Rainer, presented his latest exhibition series: ‘Visiting Private Collections at cycle – reworkings of depictions of landscapes in Sinclair House,’ ‘Sculptures and Drawings by ink and water color. The show also included Sculptors,’ ‘Fine Arts and Literature,’ and ‘sculptures and sculptural drawings’ by Julio ‘Works on Paper.’ González, one of the most important Spanish The 2001 exhibition program began with the sculptors of the 20th century, whose figures young artist Saskia Niehaus, tread the line between abstract and representa- and ended with one of tional art. For many years, works by the pioneer the 20th century’s of modern sculpture were overshadowed by most important those of Picasso.

Saskia Niehaus Untitled, 2000 Papier mâché, paint, wax Culture 53

Saskia Niehaus and the unease in the Age sections of white paper. The subjects – images of of new Enlightenment Niehaus’ own inner world – bear witness to the Saskia Niehaus is one artist the Cultural Forum conflict between the fascination and reverence chose to promote with an exhibition of her work. for creation. At the same time, they reflect the In addition to sculpture, Niehaus has consistently deep-seated insecurities and fears of all that is focused on the technique of drawing. In her now possible in the biotechnology age, spurred works, which range from calling-card format to on by the delusions of enlightened science enthu- large, colorful drawings 2 x 3 meters in size, the siasts. In her art, Saskia Niehaus ultimately artist varies her spectrum of motifs from the declares her belief in continual transformation human form to animals and plants; these stand through creation, which remains immune to in harmonious relation to the large, open human attempts at manipulation.

Saskia Niehaus Untitled, 2000 Pencil, crayon, gouache

Saskia Niehaus 1968 born in Essen 1989 till 1996: studied at the Kunstakademie Münster under Ludmilla von Arseniew and Timm Ulrichs 1993 master pupil 2000 guest studio at Villa Romana, Florence 54 Culture

Max Beckmann Murder (Der Mord), 1933 Watercolor, pen-and-ink drawing over a sketch in black chalk

Max Beckmann: and most sublime,” says Martina Padberg, cura- ‘Spectacle of Life’ tor of the Beckmann exhibition. The spontaneity One of the exhibition program highlights in of a drawing was central to Beckmann’s work 2001 was the outstanding private collection of during World War I as it enabled an immediate 110 drawings, water colors, and graphic prints artistic response to the atrocity of war. At various from the various phases of Max Beckmann’s later stages, however, he created smaller, self- career. Over 12,000 art enthusiasts enjoyed these contained drawings. Another ambivalence with- more ‘lyrical’ Beckmann works, which had not in his works is the importance of graphic print- been previously exhibited in public. “Like a ing and colorful works on paper – pastel and searchlight on stage, his works on paper illumi- crayon drawings, and water colors. As he once nate the multifaceted spectacle called life (…) said, he was interested in the ruthless exploration and provide viewers with a glimpse of the and criticism of his inner self. Thus the artist phenomena of human existence at its most banal himself is a central figure in his pictures. Culture 55

Max Beckmann Two girls reading (untitled), Late-1930s Watercolor

Max Beckmann intended to be “immediately present in life’s most realistic form” for the viewer via a “baser, more common, vulgar art.”

Art at its best The accompanying program of the ALTANA Cultural Forum during exhibitions at Sinclair House has been continually expanded since Max Beckmann 2001 with the aim of fostering lively interaction Toilette (at the between art and its viewers. In addition to the mirror), 1923 traditional Sunday tours and tours by special Etching arrangement, the ‘Art in the Evening’ series was added to the program for people who work during the day. After a guided tour by an art expert, visitors can focus on and discuss the artworks in greater depth over a glass of wine. the artists, their methods of working, and their This new idea has been very well received. historical contexts. Since from the outset up to There are also events for different age 300 visitors have attended each of these events, groups, such as the program for children and we have had to hold them in larger premises at young people that has been on offer since the the neighboring Schlosskirche. fall of 2001. The well-attended opening events during the Beckmann exhibition are testimony The outstanding response to the program of to the thirst for art among these age groups as the ALTANA Cultural Forum, which is tailored well. to the specific needs of visitors, affirms us in our Since May 2001, art experts have also been commitment to provide access to art and culture conducting lectures and slide shows to provide to the broad public. The Cultural Forum will background information on the exhibited works, therefore steadily pursue this goal in 2002.

Max Beckmann 1884 born in Leipzig 1906 first participation in a Berlin Secession exhibition scholarship at Villa Romana in Florence 1925 appointed head of a master studio at the Städelschule in Frankfurt 1929 awarded honorary prize by the City of Frankfurt; appointed professor 1933 dismissed from the Städelschule 1950 died in New York “A high rate of return and increasing investments in the future – the hallmark of 2001.”

Dr. Hermann Küllmer, Chief Financial Officer Management Report 57

ALTANA looks back on another record year

The financial year 2001 marks another highlight in ALTANA’s history, with the Group achieving double-digit growth in both sales and profit for the sixth consecutive year. Sales revenues were up by 20%, adjusted pre-tax profit rose by 41%. Measured against its European and American competitors, ALTANA is now one of the most profitable companies in the industry. Our shareholders will participate in this success with a double-digit dividend increase.

2001 global economy dominated by economic slowdown The downturn in the global economy, which started in mid-2000 continued at an accelerated pace during 2001. In the economy as a whole, expansion in production came to a virtual standstill in the Unites States and western Europe, and there was a further noticeable decline in production and demand in Japan. As a result, growth forecasts had to be repeatedly revised downward in both the U.S. and the E.U. Several interest rate cuts by the Federal Reserve were not enough to stem the weak- ness in the U.S. economy, which developed into a recession in the third quarter. Further uncertainty created by the tragic events of September 11 and the subsequent negative impact on world trade made it clear again how closely interrelated national economies are.

Pharmaceutical markets still on an upward trend, chemical industry under pressure In contrast to the slackening off in the economy as a whole, the international pharmaceutical markets saw further, if varied, growth in 2001 (see p. 23f.). The American market for retail pharmacy drugs*, the world’s most important one, once again experienced double-digit growth, with sales increasing by 17%. The U.S. market is thus not only the largest worldwide, but also the fastest growing. The European pharmaceutical markets reported a respectable 10% increase in growth. Growth in Japan was 4%. In Germany, total retail pharmacy drug sales rose by 10%. Towards the end of 2001, however, there was a clear slowdown in growth rate, in line with a stronger political focus on reductions in drug expenditure. Despite this, the trend toward prescription of innovative, and therefore usually more expensive, products is still persisting. The unfavorable economic climate which marked 2001 put pressure on the chemical industry all over the world (see p. 38f.). Both the European and U.S.- American chemical industry felt its negative impact in exports as well as domestic demand. In Germany, there was a steady decline in demand by industrial customers and private consumers.

Consolidated sales: ALTANA enjoys further impressive growth rate ALTANA continued to enjoy dynamic growth, with consolidated sales climbing by 20% to reach a new record at €2,308 million. Adjusted for acquisitions in the chemical business and the divestment of the Lundbeck joint venture, operational growth was 18% for 2001.

*Glossary 58 Management Report

The focused internationalization of our business activities is reflected in our regional sales figures. The share of consolidated sales generated in markets outside of Ger- many was 79% (2000: 78%). In a year-to-year comparison, sales in the European, North, Central and Latin American, and Asian markets rose by 22% to €1,830 million. In the particularly important North American region we achieved an impressive 44% growth rate, pushing sales up to €570 million. Development in Europe (excluding Germany) was also very encouraging, reflecting an increase of 19% over the prior year. In the Far East, too, there was further impetus for growth (+21%). Business in Latin America was negatively affected by the difficult economic climate and exchange rate fluctuations in Argentina and Brazil, resulting in only 2% nominal growth. Domestic sales grew by 10% in the year under review to €478 million.

Pharmaceuticals: Continued expansion in our core business Therapeutics Our Pharmaceuticals division pushed ahead with further dynamic growth during financial 2001. Amounting to €1,591 million, sales of Therapeutics, Diagnostics and OTC products were significantly above the prior year’s level (+26%). Adjusted for exchange rate effects and changes in consolidated companies, operational growth amounted to 28%. Once again, the strongest growth was reported in our strategically important Therapeutics business area, which surged ahead by 30% to €1,275 million. Therapeutics contributed 80% (as against 78% in the previous year) to total divisional sales. While domestic sales were up 11% to €377 million in 2001, sales abroad increased by 32% to €1,214 million. Our international business is focused primarily on the U.S. market, where we significantly outperformed expectations with an impressive 86% growth rate. In the European markets outside of Germany business also grew by an encouraging 20%. This means that the share of international business in total sales generated by ALTANA Pharma increased from 73% to 76%, thereby reflecting our strategic orientation towards further global expansion of our business activities.

Sales and profit by division

in € million Sales Profit before taxes Return on sales in % 2001 2000 20011 2000 2001 2000 Pharmaceuticals 1,591 1,262 373 224 23.4 17.7 Chemicals 717 666 89 111 12.4 16.7 Holding – – 1 -6 – – Group 2,308 1,928 463 329 20.1 17.1

1 Excluding capital gain Lundbeck and donation to Herbert Quandt Foundation Management Report 59

Group Profit Return on sales sales before taxes before taxes in € million in € million in %

2400 480 21 2,308 463 20.1

2000 1,928 400 17.5 17.1

329 14.6 1600 1,586 320 14 1,476 12.8 12.2 1,345 1,830 1200 240 234 10.5

1,495 188

1,165 164 1,028 800 923 160 7

400 80 3.5 478 421 422 448 433

97 98 99 00 01 97 98 99 00 01 97 98 99 00 01

Abroad

Germany

Sales by region

in € million 2001 2000 Change in % Germany 478 433 +10 Rest of Europe 757 637 +19 North America 570 395 +44 Latin America 300 293 +2 Far East 157 130 +21 Other regions 46 40 +16 Total 2,308 1,928 +20 60 Management Report

The driving force behind sales of therapeutics is still Pantoprazole, our proton pump inhibitor*, which is now used in more than 90 countries to treat patients with acid-induced gastrointestinal diseases. Together with our sales partners we achieved market sales of €1,326 million with this innovative product at a global level in financial 2001; this is equivalent to an increase of 104% over the prior twelve months.

Chemicals maintains its position in a difficult environment In 2001, business in our Chemicals division was affected by the general economic slowdown in virtually all the major markets. At €717 million, sales were up 8% on the previous year’s figure of €666 million. Excluding acquisition and exchange rate effects, operational sales fell by 2%, although this was a favorable performance compared with the industry average. The high domestic and international growth rates of the prior financial year were impossible to achieve. Favored by acquisitions, sales in Germany were nevertheless 9% above the prior-year level (€93 million) at €101 million. Sales in the international markets also rose by 8%, from €573 million to €616 million, in 2001, partly due to acquisitions.

Structure of consolidated income ALTANA Group (adjusted)1

2001 2000 in € million in % in € million in % Sales revenue 2,308 100.0 1,928 100.0 Profit from operations 439 19.0 308 16.0 Financial items 24 1.1 21 1.1 Profit before taxes 463 20.1 329 17.1 Net profit for the year 271 11.7 179 9.3 Consolidated profit 271 11.7 181 9.4 Earnings per share (in €) 1.97 1.30

1 Excluding capital gain Lundbeck and donation to Herbert Quandt Foundation

Structure of consolidated income ALTANA Group (unadjusted)

2001 2000 in € million in % in € million in % Profit from operations 534 23.1 308 16.0 Profit before taxes 558 24.2 329 17.1 Net profit for the year 342 14.8 179 9.3 Consolidated profit 342 14.8 181 9.4 Earnings per share (in €) 2.49 1.30

*Glossary Management Report 61

In line with our policy of long-term streamlining, we made focused acquisitions in niche markets throughout 2001. We purchased the can coating* business of the French Blancomme S.A. in the first quarter, which we followed up with the takeover of British Sterling Technology Ltd. and the American Epoxylite Corporation in the second and third quarters, to reinforce our casting compounds* business for the insulation of electrical and electronic components. These three acquisitions represent total sales of around €35 million on an annual basis. Development in our Additives* business was virtually unchanged with annual sales of €253 million, closing at the same level as in the prior year. Sales revenues generated with measuring instruments rose by 1% to €30 million.

ALTANA Group: Unabated growth also in profits Over the financial year 2001, we generated further significant growth in profitability. This excellent business performance is reflected in the impressive increase in pre-tax profit, which was up by 41%, from €329 million to €463 million. This does not include the capital gain from the divestment of the Lundbeck joint venture and the donation to the Herbert Quandt Foundation. Return on sales* climbed from 17.1% to 20.1%, which means that we have now achieved our medium-term return target of 20%. The pre-tax profit figures vary between our Pharmaceuticals and Chemicals divisions. Profits in Pharmaceuticals rose significantly faster than sales, outperforming the prior year’s already high figure of €224 million by 66% to reach €373 million. Despite substantially increased expenditure on Research and Development, which was up by 33% to €252 million, we still achieved a return on sales of 23.4% compared to 17.7% in the prior year. Measured in terms of EBITDA, the operating return was 27.0%, as against 22.0% in 2000. Faced with stagnating operational sales, escalating raw material prices, increasing pressure on prices and additional, acquisition-related expenditure, our Chemicals division suffered a 20% decline in pre-tax profits over the year, which fell to €89 million. This impacted on return on sales, which was down from 16.7% to 12.4%. The EBITDA margin is below the prior-year level at 18.7%, but still high in comparison with the international industry average.

Key figures by division

in € million Pharmaceuticals Chemicals Group 2001 2000 2001 2000 2001 2000 Operating capital 638.4 494.0 432.4 346.0 1,372.2 1,205.6 Operating income 230.0 137.3 66.7 71.7 297.7 202.3 Return on capital 36.0% 27.8% 15.4% 20.7% 21.7% 16.8% Cost of capital 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Relative value added 28.0% 19.8% 7.4% 12.7% 13.7% 8.8% Absolute value added 178.9 97.8 32.1 44.0 187.9 105.9

*Glossary 62 Management Report

Consolidated profit* before one-time special items was €271 million. This is equivalent to an increase of 50%. Earnings per share* rose from €1.30 to €1.97. Including the special items, the Group’s consolidated profits amount to €342 million for 2001 and earnings per share to €2.49.

Significant increase in value added Our high profitability is reflected in the continued development of the company’s value. The statement of value added relates operating capital expenditure to operating income (excluding gain from the sale of Lundbeck and donation to the Foundation). Both divisions and the Group as a whole generated positive value added. With capital costs at 8% on average, there were significant increases in both the return on capital and the absolute value added. The return on capital for the Group was 21.7% in 2001 (2000: 16.8%), 15.4% for ALTANA Chemie and 36.0% for ALTANA Pharma (2000: 28.9%), which impressively underlines the positive business trend.

Statement of value added of the ALTANA Group

in € million 2001 2000 Operating capital (annual average) Total assets 1,969.1 1,724.6 Provisions and accruals -517.0 - 453.3 Non-interest-bearing liabilities -244.9 - 212.6 Eliminated goodwill and cumulated goodwill amortization 165.0 146.9 1,372.2 1,205.6 Operating income Profit before taxes 462.9 329.3 Interest expenses 8.3 11.6 Goodwill amortization 22.0 16.9 493.2 357.8 Calculatory taxes 195.5 155.5 297.7 202.3

Return on capital (= operating income / operating capital) 21.7% 16.8% Cost of capital 8.0% 8.0% Relative value added (= return on capital – cost of capital) 13.7% 8.8% Absolute value added (= relative value added x operating capital) 187.9 105.9

*Glossary Management Report 63

Key return figures

in % 20011 2000 Return on sales before interest, taxes, depreciation and amortization (EBITDA) 23.6 20.5 before interest, taxes and amortization (EBITA) 20.0 16.9 before interest and taxes (EBIT) 19.0 16.0 before taxes (EBT) 20.1 17.1 after taxes (EAT) 11.7 9.3 Return on equity before taxes 42.6 35.2 after taxes 24.9 19.1 Total return on capital before taxes 23.9 19.8

1 On operating level comparable without capital gain Lundbeck and donation to Herbert Quandt Foundation

The Group’s absolute value added over the past financial year was €188 million, corresponding to an increase of 77% as against the prior year’s figure of €106 million. In order to minimize any distortion of the equity base caused by investments and divestments made in the course of the year, the method of calculating the operating capital was changed. Operating capital is now based on the average annual figure, not on the amount of capital at the beginning of the year.

Further double-digit dividend increase We aim for our shareholders to participate in the success and growth in value of the company. The Management and Supervisory Boards will therefore propose a further double-digit dividend increase to the Annual General Meeting on May 8, 2002. Adjusted to the capital increase carried out in 2001 and the stock split, the dividend will be raised by 35%, from €0.44 to €0.60 per no par value share. This will be the sixth double-digit dividend increase in succession. Furthermore, to celebrate ALTANA’s 25th anniversary, we also plan to distribute a bonus dividend of €0.10. The total amount distributed will add up to €98.3 million. This means the distribution rate is 36% in relation to adjusted consolidated profits.

2001 Balance sheet: Sound asset and capital structure Against the background of dynamic growth, the balance sheet underlines the strength of the ALTANA Group. Total assets increased 17% on the prior year to €2,127 million. Fixed assets rose by 25%, from €627 million in 2000 to €783 million in the year under review. Research and production activities were expanded in both divisions, thereby maintaining the high level of investment in recent years. Furthermore, additions were made to intangible assets as a result of acquisitions at home and abroad. Fixed assets accounted for 37% of total assets as of December 31, 2001. Year-end current assets totaled €792 million, which represents an increase of 13% in year-to-year terms. Growth was generated primarily by higher receivables and 64 Management Report

Structure of consolidated balance sheet

2001 2000 in € million in % in € million in % Fixed Assets 783 36.8 627 34.6 Current Assets 792 37.2 697 38.5 Cash and cash equivalents 552 26.0 488 26.9 Total Assets 2,127 100.0 1,812 100.0

inventories resulting from an expansion of business. Cash and cash equivalents added up to 26% of total assets. The structure of liabilities is essentially unchanged in comparison with the Capital expenditure prior year. Equity rose by 21%, i.e. by €203 million to €1.2 billion. The equity Group ratio therefore went up to 56% as against 54% in the year before. Provisions in € million accounted for 24% and other liabilities for 20% of total liabilities – 6% thereof for borrowings.

234 240 Renewed significant increase in cash flow In the year under review, the operating cash flow (excluding special items) grew € € 200 by 24% to 348 million. Cash flow per share thus amounted to 2.53 (2000: €2.03). Cash flow from investing activities primarily concerns funds expended on 163 106 fixed assets, amounting to €251 million, plus €110 million from the Lundbeck 160 divestment. The cash flow used in financing activities includes the dividend payment of €84 million for the previous financial year plus the purchase of treasury shares 73 120 109 for an amount of €56 million. Group liquidity, comprising cash, cash equivalents and securities, rose by €64 million over year-end 2000 to €552 million. 88 76 80 51

128 Investments oriented towards future growth 38 25 €

90 In the year under review, our global investments totaled 234 million, of which 40 €171 million, or 73%, went into property, plant and equipment; the remaining 58 51 50 €63 million was channeled into intangible assets. Investment in property, plant and equipment in the Pharmaceuticals division amounted to €116 million, an increase of 25% on the prior year. The greater part 97 98 99 00 01 of this investment was used to finance the enlarged research laboratories in Constance, the expansion of production facilities in Singen and the two new plants Abroad in Poland and Brazil. Production in Poland started in the first half of 2001, and in Germany early 2002 in São Paulo (Brazil). In the Chemicals division, €48 million was invested in property, plant and equipment. Most of this went into the construction of a new additives production facility at our Wesel site. Capital expenditure on intangible assets was essentially concentrated on research licenses in the Pharmaceuticals division and on the acquisition of established clien- tele and product know-how in the Chemicals Group. Management Report 65

Structure of consolidated balance sheet

2001 2000 in € million in % in € million in % Equity 1,187 55.8 984 54.3 Provisions and accruals 505 23.7 436 24.1 Liabilities 435 20.5 392 21.6 Total liabilities 2,127 100.0 1,812 100.0

Research and Development: Significant increase in both budget and employees Innovation is the key to further growth and an essential factor in securing the future business of our company. For this reason, we made a further significant increase in Research expenditure expenditure on Research and Development (R&D) in 2001, raising it by 30% to Group €285 million. At year-end, 1,484 staff were employed in our Research and Deve- in € million lopment departments worldwide. At €252 million, research expenditure in the Pharmaceuticals division increased by 33% compared with the previous year. This is equivalent to 20% of therapeutic 300 285 sales (2000: 19%). At the end of 2001, ALTANA Pharma employed a total of 1,052 people in research and development activities, 13% more than in the prior year.

250 The development labs of our Specialty Chemicals division employed 432 people 219 worldwide as of December 31, 2001. Of these, 14% were new recruits. Total expenditure on R&D by ALTANA Chemie amounted to €33 million (+12%). 200 172 153 Environmental protection: Commitment to ‘Responsible Care’ 150 134 Our environmental protection efforts are directed towards all areas of our business operations, and in particular towards the development of products and the respective

100 work processes and facilities required for their manufacture and storage. Both divisions of ALTANA AG participate in the worldwide ‘Responsible Care’ initiative launched by the chemical industry, which involves commitment to ongoing improve- 50 ments in environmental protection, health and safety. Bearing this in mind, both ALTANA Pharma and ALTANA Chemie have implemented an effective environmental management system to ensure adherence to our stated principles. The relevant key figures are presented to the environmental management team several times a year, 97 98 99 00 01 and the effectiveness of our environmental protection activities is also monitored and confirmed by independent auditors at regular intervals. Our aim is to continually improve environmental protection, health and safety, and to create a balanced relationship between ecological and economic concerns. We have steadily embraced new goals and consistently developed our environmental management operations ever since the first Environmental Statement in 1996. Our validated companies inform the public of progress made in their efforts to promote environmental protection on a yearly basis. 66 Management Report

ALTANA increased its workforce in 2001 Continued growth and future competitive strength depend on having employees who are able to contribute the kind of commitment and professional skills needed to achieve our strategic goals. A total of 9,122 people worked for ALTANA as of December 31, 2001, representing an increase of 7% in the year under review. The continuing internationalization of the ALTANA Group is also reflected in the growing number of employees outside of Germany, up by 7% to 5,042. In Germany, the number of staff rose by 6% to 4,080. Our Pharmaceuticals division employed 6,867 people worldwide, the Chemicals division 2,217. The Group’s personnel costs rose to €495 million (2000: €453 million) in line with the growing number of employees. Launched in 2000, the ‘ALTANA Investment Plan’ allows our employees to share directly in the long-term success of the company by purchasing ALTANA shares at preferred terms. The discount is calculated in accordance with the increase in earnings per share compared with the prior year. In addition to every share purchased, ALTANA also grants an option free of charge. The program was extended to more countries in 2001, thereby enabling around 80% of our global workforce to participate. The participation rate of more than 50% reflects the high degree of acceptance which the scheme enjoys. Employee qualification opportunities again embraced a wide variety of introduc- tory and ongoing training measures. In the Chemicals division, special management seminars stretching over several days were offered in the German subsidiaries, in addition to language, IT and safety training courses. In the Pharmaceuticals division, more than 2,000 employees in Germany alone took part in 1,570 internal and external training events. The Management Board wishes to thank all our employees for their dedication and loyalty over the past business year. Their efforts were the basis for the success which we have generated together as a team, and point the way ahead for further positive development. Our special thanks also go to the employee representatives, with whom we worked together successfully and in an atmosphere of trust. In recognition of their efforts and on the occasion of ALTANA’s 25th anniversary, a special bonus payment will be distributed to our employees. Management Report 67

Employees by region

2001 2000 in % in % Germany 4,080 44.7 3,862 45.1 Rest of Europe 2,224 24.4 2,033 23.8 North America 1,068 11.7 1,019 11.9 Latin America 1,432 15.7 1,401 16.4 Other regions 318 3.5 241 2.8 Total 9,122 100.0 8,556 100.0

Risk management system proves its worth As an internationally active company, risk management is an essential and indispen- sable component of our corporate management and monitoring. Against this background, we further developed our systems for identifying and monitoring risks in our business areas in the year under review. These systems comprise a large variety of steering and controlling tools, including value-oriented parameters for corporate management, strategy, planning and budgeting processes as well as detailed analyses of the markets, our competitors and the latest technology. These instruments are applied and monitored by our Controlling teams at the subsidiary level. Central controlling tasks are performed at division and Group levels. The systematic identi- fication and evaluation of risks as prescribed by the German Act on Corporate Governance and Transparency (KonTraG) is therefore well established within the company and has proved its worth. No risks were identified which would endanger the continued existence of the company in the period under review or beyond.

Opportunities and risks in future development Developments in the global economy, exchange rate effects, primarily at the dollar/euro level, escalating raw material prices, uncertainty about the future development of health care programs and growing competition from generics* in the markets for proton pump inhibitors are risks which may have a lasting impact on our business performance. We are conscious of these risks and conduct audits on a regular basis. We shall continue to pursue our strategic goals in order to counter these potential influences. We will increase the quality of our products through capital expenditure on our production facilities. Through the regional positioning of our chemical and pharmaceutical production we will cut costs and exploit geographic proximity to the markets. Focused investment in research will boost our innovation potential and our future competitive strength as well. This is particularly true for our Pharmaceuticals division, which will enjoy access to cutting-edge technologies and the latest developments through international research alliances.

*Glossary 68 Management Report

Report in accordance with section 312 of the German Stock Corporation Act The Management Board of ALTANA AG has prepared a report in accordance with section 312 of the German Stock Corporation Act (Aktiengesetz) on relations with associated companies for the financial year 2001. In this report we concluded that the payment received by ALTANA AG for the transactions and operations listed in the report was reasonable in accordance with the circumstances known at the time when the company entered into said transactions.

Outlook: ALTANA expects further double-digit growth in 2002 In view of our record performance over the past year we have set further ambitious targets for 2002. We expect to see continued double-digit growth rates in sales and profits. In order to achieve our goals we will push ahead consistently with the further development of our operating divisions. Pharmaceuticals will concentrate on expanding its core business innovative ethical therapeutics*. This will involve exploiting the product potential of our main sales pillar Pantoprazole to the full and preparing the market launch of Ciclesonide* and Roflumilast* (applications for market approval in Europe will be filed in 2002). The decision on a distribution partner for Roflumilast will be made in the first half of the year. As from 2003, we will also start building up our own sales team in the U.S. Our overall aim is to strengthen our presence in all the markets relevant to our core business. We intend to reinforce our in-house research activities to secure innovative new products with strategic partnerships as well in the future, for instance in the form of know-how transfers or joint research projects. We attach great importance in this context to setting up our own genomics research center near Boston together with GPC Biotech. In our Specialty Chemicals division, technological leadership, long-term customer relationships based on top-quality products and customer-focused service will provide the foundation for our future success. Here, too, we will drive growth forward through our own efforts and targeted acquisitions. In view of the enormous importance of innovations to the future of our company, we will further expand our already high level of expenditure on R&D, particularly in the pharmaceutical business. We will also retain our ambitious budget – €700 million over the next five years – for investment in property, plant and equipment in order to safeguard the planned further development of ALTANA. The new corporate branding of the Group and its business units will help to raise ALTANA’s profile. This is one of the prerequisites for ensuring a successful stock exchange debut in New York. The new ALTANA headquarters currently under construction is an expression of our confident expectation to achieve further dynamic growth in the future.

*Glossary Financial Statements 69

Contents Financial Statements

70 Management Board Statement

71 Independent Auditors’ Report

72 ALTANA Group Consolidated Balance Sheet

73 ALTANA Group Consolidated Income Statement

74 ALTANA Group Consolidated Cash Flow Statement

76 Statement of Changes in Equity of the ALTANA Group

78 Notes 70 Financial Statements

Management Board Statement

The consolidated financial statements in this Annual Report have been prepared by the Management Board of ALTANA AG, which is responsible for the completeness and accuracy of the information contained therein. The consolidated financial statements have been prepared in compliance with the International Accounting Standards (IAS). The information contained in the consolidated financial statements and the Group Management Report is based on the information reported, in accordance with consistent guidelines in force throughout the Group by the companies included in the consolidation. The integrity of the reporting process is safeguarded by effective internal control systems established at these companies under the direction of the Management Board. In this way, a true and fair view of the performance and results of the Group is assured and the Management Board is in a position to recognize potential investment risks and negative developments at an early stage and take appropriate countermeasures. By resolution of the last Annual General Meeting, the Chairman of the Supervisory Board appointed KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschafts- prüfungsgesellschaft, Frankfurt am Main, as independent auditor of the consolidated financial statements. The auditor's report is reproduced on the following page. The Supervisory Board has discussed in detail the consolidated financial statements, Group Management Report and auditor's report. The report of the Supervisory Board is contained on pages 110 and 111 of this Annual Report.

Bad Homburg v. d. H., February 2002

The Management Board

Nikolaus Schweickart Hermann Küllmer

Hans-Joachim Lohrisch Klaus Oehmichen Financial Statements 71

Independent Auditors’ Report

We have audited the consolidated financial statements, comprising the balance sheet, the income statement and the statements of changes in shareholders' equity and cash flows as well as the notes to the financial statements prepared by ALTANA Aktiengesell- schaft, Bad Homburg v. d. H., Germany, for the business year from January 1, 2001 to December 31, 2001. The preparation and the content of the consolidated financial statements in accordance with International Accounting Standards (IAS) are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and German generally accepted standards for the audit of financial statements promul- gated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that it can be assessed with reasonable assurance whether the consolidated financial statements are free of material misstatements. Knowledge of the business activities and the economic and legal environment of the Group and evalu- ations of possible misstatements are taken into account in the determination of audit procedures. The evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position, results of operations and cash flows of ALTANA Aktien- gesellschaft for the business year in accordance with International Accounting Standards. Our audit, which also extends to the group management report prepared by the Company's management for the business year from January 1, 2001 to December 31, 2001 has not led to any reservations. In our opinion on the whole the group management report provides a suitable understanding of the Group's position and suitably presents the risks of future development. In addition, we confirm that the consolidated financial statements and the group management report for the business year from January 1, 2001 to December 31, 2001 satisfy the conditions required for the Company’s exemption from its duty to prepare consolidated financial statements and the group management report in accordance with German law.

Frankfurt am Main, March 4, 2002

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Hans Zehnder Manfred Jenal Wirtschaftsprüfer Wirtschaftsprüfer 72 Financial Statements

ALTANA Group Consolidated Balance Sheet

Assets

Notes Dec. 31, Dec. 31, 2001 2000 Intangible assets, net 6 178,669 144,532 Property, plant and equipment, net 7 579,039 477,524 Long-term Investments 8 25,063 5,113 Total Fixed Assets 782,771 627,169

Inventories 9 277,345 251,705 Trade accounts receivable, net 10 377,829 314,893 Marketable securities 11 297,972 315,646 Cash and cash equivalents 254,453 171,795 Deferred tax assets 25 41,276 45,646 Other assets and prepaid expenses 12 94,920 84,817 Total Assets 2,126,566 1,811,671

Liabilities and Shareholders’ Equity

Notes Dec. 31, Dec. 31, 2001 2000 Issued share capital1 140,400 99,840 Additional paid-in capital 141,887 158,615 Retained earnings 1,017,167 779,062 Revaluation reserve -5,617 0 Translation adjustment 2,959 -607 Treasury stock, at cost -110,062 -52,553 Total Shareholders’ Equity 13 1,186,734 984,357

Minority Interests 9,134 7,005

Employee benefit obligations 15 244,787 242,322 Accrued income taxes 25 63,828 50,535 Accrued liabilities 16 196,176 143,017 Total Provisions 504,791 435,874

Debt 17 126,715 100,449 Trade accounts payable 174,393 171,388 Other liabilities 18 74,062 60,160 Deferred income 18 30,910 26,601 Deferred tax liabilities 25 19,827 25,837 Total Liabilities 425,907 384,435

Total Liabilities and Shareholders’ Equity 2,126,566 1,811,671

1 Share capital, no par value shares, 207,900,000 shares authorized, 140,400,000 issued and 137,181,015 outstanding Financial Statements 73

ALTANA Group Consolidated Income Statement

Notes 2001 2000 Net sales 2,307,658 1,927,915 Cost of sales -894,131 -784,303 Gross profit 1,413,527 1,143,612

Selling and distribution expenses -575,528 -524,840 Research and development expenses -284,648 -219,245 General administrative expenses -105,293 -93,839 Other operating income 20 46,110 55,626 Other operating expenses 21 -55,424 -52,666 Donation Herbert Quandt Foundation -14,774 0 Gain of sale of Lundbeck 4 110,137 0 Operating income 534,107 308,648

Net income from investments in associated companies 22 897 67 Interest income, net 23 19,801 19,542 Other financial income (expenses), net 24 3,490 1,046 Financial income 24,188 20,655

Income before taxes and minority interests 558,295 329,303

Income tax expense 25 -216,099 -150,475 Income before minority interests 342,196 178,828

Minority interests 278 1,870 Net income 342,474 180,698

Basic earnings per share (in €) 2.49 1.301 Diluted earnings per share (in €) 2.47 1.301

1 After stock split in 2001 adjusted to the current share capital

All figures on pages 72-106 in € thousand, unless stated otherwise. 74 Financial Statements

ALTANA Group Consolidated Cash Flow Statement

2001 2000

Net income 342,474 180,698 Depreciation and amortization 105,648 87,012 Unrealized losses on marketable securities 0 1,570 Net gain from disposals of fixed assets -112,788 -838 Net gain from sales of marketable securities -5,129 -3,637

Increase / decrease in operating assets and liabilities, net of acquisitions and dispositions Inventories -26,536 -16,095 Trade accounts receivable, other assets and prepaid expenses -76,125 -56,467 Income taxes 2,728 955 Provisions 72,998 28,098 Accounts payable and other liabilities 11,288 31,071 Deferred income 4,309 26,601 Minority interest -278 -1,870 Other -9,407 4,444 Net cash flow provided from operating activities 309,182 281,542

Capital expenditures -237,107 -163,132 Purchases of financial assets -20,247 -5,482 Proceeds from sale of fixed assets 9,679 5,693 Proceeds from sale of Lundbeck 110,823 0 Acquisitions, net of cash aquired -2,840 -63,722 Proceeds from sale of marketable securities 188,450 279,594 Purchase of marketable securities -162,076 -208,731 Net cash flow used in investing activities -113,318 -155,780 Financial Statements 75

2001 2000

Net cash flow used in investing activities -113,318 -155,780 Dividends paid -84,401 -48,429 Purchase of treasury shares -75,699 -35,349 Proceeds from sale of treasury shares 19,431 0 Proceeds from long-term debt 26,697 22,661 Repayment of long-term debt -17,924 -58,462 Net increase in short-term debt 15,474 1,721 Net cash flow used in financing activities -116,422 -117,858

Effect of exchange rate changes 3,216 647

Net increase (decrease) in cash and cash equivalents 82,658 8,551

Cash and cash equivalents as of January 1 171,795 163,244 Cash and cash equivalents as of December 31 254,453 171,795

Cash paid for Income taxes 198,203 151,491 Interest 6,702 9,237

Cash received for Interest 24,362 29,596 76 Financial Statements

Statement of Changes in Equity of the ALTANA Group

Issued Additional Number of Share paid-in Retained Revaluation shares capital capital earnings reserve

Balance January 1, 2000 39,000,000 99,840 158,615 646,793 Dividends paid -48,429 Net income 180,698 Translation adjustments Purchase of treasury shares Balance December 31, 2000 39,000,000 99,840 158,615 779,062 0

Contingent shares – DAT acquisition 2,623 Adoption of IAS 39 – marketable securities net of tax of 3,245 5,226 Adoption of IAS 39 – financial instruments net of tax of 1,363 2,133 Realized gains and losses, net of tax of 2,000 -3,129 Change in fair value of marketable securities, net of tax of 307 -7,714 Change in fair value of financial instruments, net of tax of 1,363 -2,133 20% Stock dividend 7,800,000 40,560 -20,592 -19,968 Stock split 1 to 3 93,600,000 Dividends paid -84,401 Net income 342,474 Issuance of treasury shares 1,241 Purchase of treasury shares Translation adjustments Balance December 31, 2001 140,400,000 140,400 141,887 1,017,167 -5,617 Financial Statements 77

Treasury Stock Total Translation Shareholders’ adjustment Shares Amount equity

-7,229 -257,000 -17,204 880,815 -48,429 180,698 6,622 6,622 -379,002 -35,349 -35,349 -607 -636,002 -52,553 984,357

2,623

5,226

2,133

-3,129

-7,714

-2,133 -1,653,605 0

-84,401 342,474 762,372 18,190 19,431 -1,691,750 -75,699 -75,699 3,566 3,566 2,959 -3,218,985 -110,062 1,186,734 78 Notes

Notes

1 The Company The Company previously recognized revenue for all sales made to WA during 2000 using an estimated average net Description of business and organization sales price. Due to the direct link between WA’s sales price ALTANA AG is incorporated as a stock corporation (“Aktien- and the amount the Company will ultimately realize, gesellschaft”) under the laws of the Federal Republic of revenue for the products delivered to but not yet sold by WA Germany. ALTANA AG and its subsidiaries (the “Company” as of the balance sheet date have been restated to reflect or “ALTANA”) conduct business in more than 30 countries the minimum price. Adjustments to the minimum price are worldwide and operate in two segments, pharmaceuticals recognized during the period the product is sold by WA. and chemicals. Also under this agreement, certain deliveries were requested by the customer and made during 1999 in anti- Basis of presentation cipation of FDA approval. Under the terms of the contract, The consolidated financial statements of the Company are the Company did not bear any inventory risk and the prepared in accordance with the International Accounting buyer did not have any legal right to return the product. Standards (“IAS”) issued by the International Accounting However, it was management’s intent to accept returns of Standards Board (“IASB”) and the interpretations of the expired product prior to FDA approval. This was not com- Standing Interpretations Committee (“SIC”), and in accor- municated to the license partner and was not extended dance with § 292a of the German Commercial Code. The to relate to the periods subsequent to FDA approval. The financial statements comply with the European Union’s Company originally recognized revenue in 1999 as no guidelines on the preparation of consolidated financial legal right of return existed. The financial statements as statements (Directive 83/349/EWG). of and for the year ended December 31, 1999 have been restated to defer revenue, in accordance with IAS 18 “Revenue”, until FDA approval was received in May 2000 2 Restatements due to the Company’s intent to accept return of expired inventory which could have resulted from delay in FDA In connection with the Company’s planned listing in May approval. 2002 on the New York Stock Exchange and in view of the accounting and disclosure requirements of the United Daiichi termination agreement States Securities and Exchange Commission, the Company On February 22, 1993, the Company and Daiichi Pharma- has restated its previously issued consolidated financial ceutical Co., Ltd. entered into a licensing agreement statements in accordance with IAS 8 “Net Profit or Loss pertaining to the development and commercialization of for the Period, Fundamental Errors and Changes in Pantoprazole by Daiichi in Japan. Daiichi terminated the Accounting Policies”, paragraphs 31 to 40. agreement effective October 2000. Under the termination The following paragraphs discuss the nature of these agreement, Daiichi agreed to pay the Company a total of errors and their effect on net income and the related per €18.4 million in three annual installments as a settlement share amounts. for termination. These payments are non-refundable and release Daiichi completely from its obligation under the Revenue recognition licensing agreement. The first installment, totaling €6.1 On January 22, 1997, the Company entered into a licensing million was paid during 2000. The second installment, agreement with American Home Products, acting through was paid on October 1, 2001. The final installment, is due one of its subsidiaries, Wyeth-Ayerst Laboratories (“WA”). on October 1, 2002. In 2000, the Company initially recorded Under the terms of the agreement, the Company granted only the first installment as other income. The financial WA an exclusive license to carry out certain manufacturing statements as of and for the year ended December 31, tasks with respect to semi-finished Pantoprazole-based 2000, have been restated to reflect the entire settlement products supplied by the Company and to distribute the as other income in the year 2000 as ALTANA has no future resulting drugs in the U.S. market. WA agreed to pay the obligations or commitments with respect to the termina- Company a specified percentage of its net sales of the tion of the licensing agreements or resulting payments. product subject to a minimum price. Notes 79

Retroactive consolidation of special purpose entities 3Significant accounting policies The Company has four special funds containing marketable and procedures securities and other financial instruments. In 2001, the Company concluded that under IAS 27 “Consolidated Consolidation Financial Statements of Accounting for Investments in The consolidated financial statements of the Company Subsidiaries”, these special funds should be considered include ALTANA AG and 25 (2000: 24) subsidiaries in special purpose entities that are controlled by the Company Germany and 54 (2000: 52) subsidiaries abroad. The and, therefore, should be consolidated. Previously, the change in the consolidated subsidiaries from 2000 to Company recorded its investments in the funds as market- 2001 does not have a material effect on the balance able securities at the lower-of-cost market with unrealized sheet, the statement of income, changes in shareholders’ losses recorded currently in income. The financial state- equity and cash flows and, therefore, does not adversely ments have been restated to reflect the consolidation of effect comparability. these special purpose entities for all periods presented. The Company holds a 49% interest in Bracco Byk Gulden, Constance and accounts for this investment using Reclassification of other equity the equity method. For the periods ended December 31, 2000 and 1999, The Company accounts for its investments in joint ven- the Company’s Consolidated Statements of Changes in tures using the proportional consolidation method as per- Shareholders’ Equity included a caption entitled “other mitted under IAS 31 (revised 2000) “Financial Reporting changes” in retained earnings. These amounts relate to of Interests in Joint Ventures”. These joint ventures are foreign currency translation adjustments and have, Byk Madaus, which is located in South Africa, Zydus Byk therefore, been reclassified accordingly. Healthcare, which is located in India and Byk & DiaSorin, located in Germany. Effects on net income All significant intercompany balances and transactions The effects of the restatements discussed above on net have been eliminated in consolidation. income and earnings per share are as follows: Page 109 of this annual report shows a survey of major consolidated companies. A complete listing of the ALTANA Group’s equity investments is lodged with the commercial

Net Related per register of Bad Homburg v. d. Höhe under No. HRB 1933. Income share amounts (in €)1,2 Foreign currency For the period ended December 31, 2000 Financial statements of subsidiaries where the functional Net income previously reported 177,447 1.28 currency is a currency other than the euro are translated Revenue recognition -5,720 using the functional currency principle. For these entities, Daiichi termination agreement 12,271 assets and liabilities are translated at year-end exchange Consolidation of special rates, while revenues and expenses are translated at aver- purpose entities 496 age exchange rates prevailing during the year.3 Adjustments Tax effect of restatements -3,796 for foreign currency translation fluctuations are excluded Net income as restated 180,698 1.30 from net income and are reported as a separate component of shareholders’ equity. For the period ended December 31, 1999 Transaction gains and losses that arise from exchange Net income previously reported 123,989 0.88 rate fluctuations on transactions denominated in a currency Revenue recognition -9,352 other than the functional currency are included in other Consolidation of special operating income or other operating expense. purpose entities -2,068 Tax effect of restatements 5,659 Net income as restated 118,228 0.84

1 Earnings per share calculated after stock split in 2001. 2 The diluted earnings per share almost equal the basic earnings per share. 3 Due to the financial crisis in Argentina, the foreign exchange market was closed on December 20, 2001 and reopened on January 11, 2002. Therefore, the closing rate on January 11, 2002 was used to translate assets and liabilities for the Company’s Argentinian subsidiary. 80 Notes

The following table provides selected foreign currencies of importance to the Company along with relevant exchange rate information:

1 Euro Middle rate at December 31, Average rate for the years ended December 31, 2001 2000 2001 2000 U.S.-Dollar 0.88 0.93 0.89 0.92 Pound Sterling 0.61 0.62 0.62 0.61 Japanese Yen 115.71 106.90 108.72 99.27 Brazilian Real 2.06 1.81 2.08 1.68 Mexican Peso 8.06 8.92 8.35 8.71

Intangible assets The useful lives are: Intangible assets are stated at cost and are amortized straight-line over the shorter of their contractual term or

the estimated useful lives over the periods shown below: Years Buildings 5 – 50 Plant and machinery 3 – 20 Years Assets under capital lease 2 – 25 Goodwill 5 – 15 Equipment 2 – 20 Patents, licenses and similar rights 3 – 20 Other intangibles 2 – 20 Maintenance and repairs are expensed as incurred while replacements and improvements are capitalized. Gains or Amortization of goodwill is recorded in other operating losses resulting from the sale or retirement of assets are expenses. Prior to 1995, goodwill was not amortized but reflected in other operating income or expense. Borrowing charged against retained earnings as permitted under IAS cost are expensed as incurred. 22 “Business Combinations”. Impairment Property, plant and equipment In the event facts and circumstances indicate that the Property, plant and equipment are stated at cost and Company’s assets, regardless of whether they are to be include certain costs which are capitalized during con- held and used or to be disposed of, may be impaired, an struction, including material, payroll and direct overhead evaluation of recoverability is performed. In accordance costs. Government grants are deducted from the acquisi- with IAS 36 “Impairment of Assets”, an impairment loss is tion costs. recognized when an asset’s carrying amount exceeds the Depreciation on plant and equipment is calculated on higher of its net selling price and its value in use. Value in a straight-line basis over the estimated useful lives of the use is based on the discounted cash flows expected to assets. arise from the continued use of the asset and from its disposal at the end of its useful life. If there is any indication that the considerations which led to impairment no longer exist, then the Company would consider the need to reverse all or a portion of the impairment charge. Notes 81

Inventories as a fair value or cash flow hedge. For derivatives desig- Inventory is valued at the lower of acquisition or manufac- nated as fair value hedges, changes in fair value of the turing cost or net realizable value at the balance sheet hedged item and the derivative are recognized currently in date. Net realizable value is the estimated selling price in the income statement. For derivatives designated as a the ordinary course of business, less the estimated cost of cash flow hedge, changes in fair value of the effective completion and selling expense. Generally, cost is deter- portion of the hedging instrument are recognized in equi- mined on the basis of weighted average costs. Manufacturing ty (revaluation reserve) until the hedged item is recognized costs comprise material, payroll and direct overhead, in the income statement. The ineffective portion of the including depreciation. fair value changes or to the extent the derivative does not qualify for hedge accounting under IAS 39, changes Marketable securities in fair values are recognized in the income statement Until December 31, 2000, marketable securities were immediately. carried at the lower-of-cost or market value with unrealized losses recorded in financial income. Unrealized gains were Government grants not recorded. Historical costs were reinstated when con- The Company received €0.1 million and €0.5 million for siderations for the write-down no longer existed. the years ended December 31, 2001 and 2000, respec- Beginning on January 1, 2001, in accordance with IAS tively, of taxable and non-taxable investment grants from 39 (revised 2000), “Financial Instruments: Recognition and the State of Brandenburg for the acquisition of certain Measurement”, the Company classified all marketable long-lived assets. The grants are recorded as a reduction securities as available-for-sale and, therefore, carried these of the cost basis of the acquired and constructed securities at fair value with unrealized gains and losses assets. recorded in equity (revaluation reserve), net of tax. As prior In addition, the Company received government grants years’ financial statements are not restated in accordance as non-refundable reimbursement of expenses in the with IAS 39, differences between the carrying amount and amount of €1.1 million and €1.2 million for the years the fair value are recognized as an adjustment to equity ended December 31, 2001 and 2000, respectively. These (revaluation reserve) as of January 1, 2001. grants are recorded as other income to the extent they are Impairment charges are recorded in income. Gains and earned. losses are recognized in the income statement when realized and are determined on an individual security basis. Accrued liabilities and employee benefit obligations The valuation of pension liabilities is based upon the Cash and cash equivalents projected unit credit method in accordance with IAS 19 The Company considers cash in banks and highly liquid (revised 2000), “Employee Benefits”. The Company recog- investments with original maturities of three months or nizes a portion of its actuarial gains and losses as income less as cash and cash equivalents. or expense if the net cumulative unrecognized actuarial gains and losses at the end of the reporting period exceed Financial Instruments the corridor of 10% of the projected benefit obligation. Effective January 1, 2001, the Company adopted IAS 39. The excess is amortized over the expected remaining This standard requires the recognition of all financial service period. assets and liabilities as well as all derivative instruments as An accrued liability for taxes and other contingencies assets or liabilities on the balance sheet and mainly all are is recorded when an obligation to a third party has been measured at fair value, regardless of the Company’s intent. incurred, the payment is probable and the amount can Changes in the fair value of derivative instruments are be reasonably estimated. Accrued liabilities relating to recognized in income or stockholders’ equity (as revaluation personnel and social cost are valued at their net present reserve) depending on whether the derivative is designated value when appropriate. 82 Notes

Revenue recognition Employee incentive plans The Company recognizes revenues from sales of products Compensation expense for options granted under employee if the revenue can be reliably measured, it is probable that incentive plans are measured as the excess of the average the economic benefits of the transaction will flow to the cost of treasury shares acquired over the exercise price. Company and all related costs can be reliably measured. Compensation expense is allocated over the applicable As such, the Company records revenue from product sales vesting period. Discounts granted in connection with the when the goods are shipped and title has passed to the ALTANA Investment plans are expensed as incurred as customer. With respect to licensing agreements where there is no vesting period. revenue in excess of a defined minimum price is contingent on the buyer’s ultimate resale price, sales are recog- Income taxes nized at the contractual minimum price with additional Under IAS 12 (revised 2000), “Income Taxes”, deferred sales recognized when realized. Provisions for discounts tax assets and liabilities are recognized for all temporary and rebates to customers and returns are recorded for in differences between the carrying amount of assets and the same period in which the related sales are recorded. liabilities in the financial statements and their tax bases, Up-front payments received in connection with investment tax credits and for net operating loss carry- licensing agreements are recognized immediately if the forwards. For purposes of calculating deferred tax assets payment is not refundable and is unconditional. If such and liabilities, the Company uses the rates that have been payments are conditional on future events, recognition of enacted or substantively enacted at the balance sheet revenue is deferred until the future event occurs. If the date. The effect on deferred tax assets and liabilities of a payment is made in connection with future services to be change in tax rates is recognized in income in the period provided by the Company, revenue is deferred and the legislation is substantively enacted. A deferred tax amortized over the periods such services are to be asset is recognized only to the extent that it is probable provided. that future taxable income will be available against which the credits and carry-forwards. Advertising and promotion costs Advertising and promotion costs are expensed as incurred Earnings per share and totaled €155.4 million and €151.0 million for the Basic earnings per share are computed by dividing net income years ended December 31, 2001 and 2000, respectively. by the weighted average number of common shares out- These costs are recorded as selling and distribution standing for the year. Diluted EPS reflects the potential expenses in the consolidated income statements. dilution that could occur if securities or other contracts to issue common stock were exercised or converted into Research and development expenses common stock. Diluted earnings per share is calculated by In accordance with IAS 38, “Intangible Assets”, research adjusting the weighted average number of common costs, defined as costs of original and planned research shares for the effect of the stock option plans as well as performed to gain new scientific or technical knowledge the impact of the Deutsch-Atlantische Telegraphen AG and understanding, are expensed as incurred. Development (“DAT”) lawsuit which is payable in the Company’s shares costs are defined as costs incurred to achieve technical and (see Note 30). No adjustments to net income were neces- commercial feasibility. Regulatory and other uncertainties sary for the computation of diluted earnings per share. inherent in the development of its key new products are so high that the guidelines under IAS 38 are not met so that development costs are expensed as incurred. Notes 83

consideration in an acquisition. The adoption of SIC 28 resulted the remeasurement of the shares to be issued to 2001 2000 former minority shareholders in DAT. As a result, estimated Basic earnings per share: impairments of goodwill recognized in prior periods were Net Income 342,474 180,698 reduced resulting in an increase in net income of €2.5 Weighted average common million (€0.02 basic earnings and diluted earnings per shares outstanding 137,533,720 138,827,786 share) for the year ended December 31, 2001 for the € Basic earnings per share (in ) 2.49 1.30 cumulative effect of the change in accounting policy. Had the Company applied SIC 28 retroactively, the increase in Diluted weighted average net income and earnings per share for the year ended common shares: December 31, 2000 would have been €2.8 million Net income 342,474 180,698 (€0.02 basic earnings and diluted earnings per share). Weighted average common Under the previous version of IAS 12 (revised 1996), shares outstanding 137,533,720 138,827,786 “Income Taxes”, the Company calculated deferred tax Dilution from stock options 607,434 437,528 assets and liabilities using the distributed earnings rate in Dilution from DAT lawsuit 306,391 180,325 countries that apply different rates for retained earnings Diluted weighted average and distributed earnings. Previously a deferred tax asset of common shares outstanding 138,447,545 139,445,639 €9.7 million was recognized for the tax implications of € Diluted earnings per share (in ) 2.47 1.30 future tax credits that would be realized upon the distribution of retained earnings. Additionally, a current tax receivable of €13.5 million had been recorded as of Concentration of risks December 31, 2000 for the dividend declared in 2001. The Company’s sales of certain key products account for With the adoption of IAS 12 as of January 1, 2001 a substantial portion of revenues. The most important deferred and current tax assets on undistributed earnings product is Pantoprazole, a therapeutic treatment for ulcers are not recognized until the dividend is declared. This and reflux disease. In 2001 and 2000, respectively, resulted in an increase in income tax expense of approxi- Pantoprazole accounted for 43% and 32% of net sales of mately €23.2 million. The dividend declared in 2001 the pharmaceuticals segment and for 29% and 21% of resulted in a €13.5 million current tax benefit during the Company’s total net sales. The Company expects 2001. The net impact of adoption under revised IAS 12 Pantoprazole to continue to be a key revenue driver for for 2001 was €9.7 million or €0.07 basic and diluted the next several years. earnings per share. As of January 1, 2001, the Company also adopted IAS Accounting changes 39 and recognized €3.7 million assets and €0.2 million Under IAS 8, changes in accounting policies may be liabilities. Retained earnings were adjusted by €2.1 million, performed either using the benchmark treatment or the net of tax of €1.4 million. A revaluation reserve was allowed alternative treatment, unless one method is recorded totaling €5.2 million, net of tax of €3.2 million. prohibited by a new accounting standard. The Company uses the allowed alternative treatment unless otherwise Use of estimates required by the specific accounting standard. The preparation of financial statements requires manage- As of January 1, 2001 the Company adopted SIC 28, ment to make estimates and assumptions that affect the “Business Combinations – “Date of Exchange” and Fair amounts of assets, liabilities and of contingent liabilities Value of Equity Instruments”, which addresses primarily reported at the end of any given period and the reported the definition of the “date of exchange” when determin- amounts of revenues and expenses for that reported ing the fair value of equity investments issued as purchase period. Actual results could differ from these estimates. 84 Notes

4 Business combinations and dispositions 5 Segment reporting

All acquisitions have been accounted for using the pur- The following segment information has been prepared in chase method with the excess of the purchase price over accordance with IAS 14 “Segment Reporting”. The the estimated fair value of the net assets acquired accounting policies of the segments are the same as those accounted for as goodwill and amortized on a straight-line described in Note 3. basis over their estimated useful lives. The results of oper- The Company has two reportable segments – pharma- ations of the acquired businesses are included in the con- ceuticals and chemicals. The segments are determined solidated financial statements from their respective dates based on the nature of products developed, manufactured of acquisition. The results of operations of a sold business and marketed and reflect the management structure of is included in the consolidated financial statements until the organization. Pursuant to this structure, the holding the date of the sale. company is responsible for making strategic decisions with The Company acquired various chemical and pharma- respect to the two segments, whereas the implementation ceutical entities for a total consideration of €2.9 million of these decisions at the segment level is the responsibility and €66.8 million in 2001 and 2000, respectively. The excess of the heads of the respective segments, who manage the of the total acquisition costs over the fair value of the segments on a day-to-day basis. The reporting system tangible and intangible net assets acquired was recorded reflects the internal financial reporting and the predominant as goodwill and amounted to €1.4 million and €54.6 mil- sources of risks and returns in the Company’s businesses. lion in 2001 and 2000, respectively. The Company’s pharmaceuticals segment develops, On February 1, 2001, a joint venture with DiaSorin S.r.l. manufactures and internationally markets a wide range of Sulloggia, Italy, was founded. The Company contributed pharmaceutical products. Its product range comprises its marketing and sales activities of the German diagnos- therapeutics, which includes prescription drugs for a vari- tics business (total net assets €0.1 million) into the new ety of indications, diagnostics, which includes laboratory joint venture, Byk & DiaSorin Diagnostics GmbH & Co KG diagnostic devices and reagents for in-vitro applications and received a 51% economic interest. The joint venture and imaging, which comprises reagents for in-vivo appli- is consolidated using the proportional method in accord- cations. In addition, the Company markets over-the- ance with IAS 31 “Financial Reporting of Interests in Joint counter products for self medication and also generates Ventures”, as DiaSorin S.r.l. and the Company have equal limited revenues from other sources, mainly from contract voting rights. manufacturing on behalf of third parties. In February 2001, the Company sold its interest in the The chemicals segment offers a portfolio of specialty joint venture with Lundbeck A/S for €111 million in cash, chemicals, including additives and instruments, coatings realizing a profit of €110 million, which is reported sepa- and sealants, wire enamels and varnish and compounds. rately in the income statement. The segment offers specialty chemicals together with support and comprehensive customer service as well as the adaptation of the products to fit the customers’ special use of the products. Notes 85

Segment information is reconciled to total consolidated information as follows1:

in € million Pharma- Holding ceuticals Chemicals company Consolidation Group Net sales 2001 1,591 717 0 0 2,308 2000 1,262 666 0 0 1,928

Operating income (loss) 2001 466 98 -30 0 534 20012 363 98 -22 0 439 2000 221 115 -28 0 308

Total assets 2001 1,284 586 898 -641 2,127 2000 1,065 503 893 -649 1,812

Long-lived assets 2001 375 189 15 0 579 2000 312 158 8 0 478

Liabilities 2001 543 146 46 196 931 2000 458 135 50 177 820

Capital expenditures 2001 150 77 7 0 234 2000 117 40 6 0 163

Depreciation and amortization 2001 59 24 0 0 83 2000 51 19 0 0 70

Other non-cash expenses (income) 2001 72 8 18 0 98 2000 27 -2 11 0 36

1The subsidiaries per segment are shown on page 109 in the annual report 2Adjusted to exclude one-time special items: gain of the sale of Lundbeck A/S (€110 million) and the donation to Herbert Quandt Foundation (€15 million)

The segments are reported on a consolidated basis. Long-lived assets include all tangible assets, such as The holding company column represents income, property, plant and equipment and construction in progress. expenses, assets and liabilities relating to corporate Segment liabilities consist of total liabilities and provisions functions and investment activities mainly performed by excluding interest-bearing liabilities as well as current and ALTANA AG. deferred income taxes. The consolidation column contains Net sales of the segments represent mainly sales to the reconciliation of segment liabilities to consolidated third parties (external net sales). There is no significant total liabilities and provisions. Capital expenditures as well revenue from inter-segmental sales between the pharma- as depreciation and amortization relate to property, plant ceuticals and chemicals segments. In 2001 and 2000, and equipment and intangible assets excluding goodwill. approximately 79% and 78%, respectively, of net sales Other non-cash expenses mainly consist of pension were generated outside of Germany. expense. 86 Notes

The following table presents selected financial information by geographic region:

in € million Net sales Total assets Long-lived Capital assets expenditures 2001 2000 2001 2000 2001 2000 2001 2000 Germany 478 433 1,549 1,385 323 274 127 90 Rest of Europe 757 637 434 363 98 84 34 31 North America 570 395 268 210 72 63 33 15 thereof U.S. 494 343 238 193 70 62 32 15 Latin America 300 293 241 194 72 46 36 24 Far East 157 130 46 34 14 9 4 1 Other Regions 46 40 2 5 0 2 0 2 Consolidation 0 0 -413 -379 0 0 0 0 Group 2,308 1,928 2,127 1,812 579 478 234 163

Net sales relating to geographic areas represent sales to in € million third parties, based on the location of customers. 2001 2000 The following table presents net sales by business Pharmaceuticals area: Therapeutics 1,275 980 Imaging 91 77 Diagnostics 43 43 OTC 129 126 Other 53 36 Total 1,591 1,262

Chemicals Additives & Instruments 283 283 Coatings & Sealants 218 179 Wire Enamels 151 145 Varnish & Compounds 65 59 Total 717 666

Group 2,308 1,928 Notes 87

6Intangible assets

Patents, Goodwill Advance Other Total licenses and payments similar rights Cost Balance at January 1, 2001 78,743 142,465 6 124 221,338 Additions 62,891 2,896 193 209 66,189 Disposals -4,895 -316 0 0 -5,211 Transfers 954 0 0 2 956 Translation adjustments -410 22 0 0 -388 Changes in reporting entities 1,304 2,136 0 0 3,440 Balance at December 31, 2001 138,587 147,203 199 335 286,324

Accumulated amortization Balance at January 1, 2001 33,106 43,622 0 78 76,806 Additions 12,380 21,968 0 59 34,407 Disposals -4,417 0 0 0 -4,417 Transfers 372 0 0 1 373 Translation adjustments -214 16 0 0 -198 Changes in reporting entities -11 695 0 0 684 Balance at December 31, 2001 41,216 66,301 0 138 107,655

Carrying amount at December 31, 2001 97,371 80,902 199 197 178,669 December 31, 2000 45,637 98,843 6 46 144,532

Amortization expense for the years ended December 31, Together with the 8.3% interest in GPC Biotech AG, 2001 and 2000, amounted to €34.4 million and €23.8 Martinsried, the Company purchased a platform license million, respectively. Amortization expense in 2001 includes totaling €30.1 million, the estimated useful life is 5.7 €2.6 million of impairment charges. years. Additions in 2001 mainly relate to the acquisition of customer lists and product know-how in France and in the United States for €28.3 million in the chemicals segment. The acquisition cost totaled €28.3 million. 88 Notes

7Property, plant and equipment

Land & Plant & Equipment Advances/ Total buildings machinery construction in progress Cost Balance at January 1, 2001 347,574 278,473 272,046 65,170 963,263 Additions 16,108 24,544 48,630 81,635 170,917 Disposals -997 -5,934 -12,490 -1,851 -21,272 Transfers 44,937 31,406 8,223 -85,522 -956 Translation adjustments 2,526 3,039 907 -547 5,925 Changes in reporting entities 2,388 2,043 -246 0 4,185 Balance at December 31, 2001 412,536 333,571 317,070 58,885 1,122,062

Accumulated depreciation Balance at January 1, 2001 131,505 179,539 174,695 0 485,739 Additions 12,346 22,903 35,307 0 70,556 Disposals -332 - 4,900 -10,276 0 -15,508 Transfers 0 0 -373 0 -373 Translation adjustments -627 1,064 509 0 946 Changes in reporting entities 431 1,336 -104 0 1,663 Balance at December 31, 2001 143,323 199,942 199,758 0 543,023

Carrying amount at December 31, 2001 269,213 133,629 117,312 58,885 579,039 December 31, 2000 216,069 98,934 97,351 65,170 477,524

Depreciation expense for the years ended December 31, In 2001, fixed asset additions in the pharmaceuticals 2001 and 2000, amounted to €70.6 million and €62.7 segment mainly relate to the increase of the research million, respectively. capacity in Constance and an expansion of the production As of December 31, 2001 and 2000, respectively, plant in Singen, both located in Germany. In addition, two €5.5 million and €2.5 million of net book value relate to production plants were newly constructed in Poland and equipment and buildings under capital lease. Brazil. In the chemicals segment a new production plant was constructed in Wesel, Germany. Notes 89

8 Long-term investments

Affiliated Other Other long- Total companies investments term financial assets Cost Balance at January 1, 2001 1,530 2,460 5,385 9,375 Additions 48 19,452 747 20,247 Disposals -251 0 -3,435 -3,686 Translation adjustments 0 0 -562 -562 Changes in reporting entities 1,053 0 -17 1,036 Balance at December 31, 2001 2,380 21,912 2,118 26,410

Accumulated amortization Balance at January 1, 2001 104 3 4,155 4,262 Additions 00686 686 Disposals 00-3,083 -3,083 Translation adjustments 0 0 -518 -518 Balance at December 31, 2001 104 3 1,240 1,347

Carrying amount at December 31, 2001 2,276 21,909 878 25,063 December 31, 2000 1,426 2,457 1,230 5,113

The primary addition to other investments relates to the Company’s purchase of an 8.3% interest in GPC Biotech AG, Martinsried, Germany for €15.1 million (see Note 27), one of the Company’s major research collaboration partners. Amounts totaling €0.9 million and €0.9 million of other long-term financial assets as of December 31, 2001 and 2000, respectively, relate to long-term employee loans bearing a 6% interest rate. Long-term investments include strategic investments which are classified as “available for sale” and carried at fair value. If a fair market value is not readily determinable they are carried at cost. 90 Notes

9 Inventories 10 Trade accounts receivable

Inventories consist of: Trade accounts receivable are as follows:

Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2001 2000 2001 2000 Raw materials and supplies 91,907 84,833 Trade accounts receivable 387,623 323,853 Work in process 39,016 37,723 Allowance for doubtful accounts -9,794 - 8,960 Finished products and goods 142,417 128,705 377,829 314,893 Advance payments 4,005 444 Thereof long-term 155 17 277,345 251,705

The roll forward of the allowance for doubtful accounts is as follows:

Dec. 31, Dec. 31, 2001 2000 Allowance at the beginning of the year 8,960 6,737 Translation adjustments -26 268 Charged to expense 2,309 4,395 Amounts written-off -1,449 -2,440 Allowance at the end of the year 9,794 8,960

11 Marketable securities

In accordance with IAS 39 (revised 2000), available-for-sale marketable securities are recorded at fair value beginning on January 1, 2001. Amortized cost, fair value and gross unrealized holding gains and losses, which are recorded in the revaluation reserve, net-of-tax as of December 31, 2001 are as follows:

December 31, 2001 Amortized Fair Unrealized Unrealized Cost value gains losses Debt securities 222,672 224,570 3,192 1,294 Equity securities 78,658 72,620 4,045 10,083 Other 708 782 173 99 Total 302,038 297,972 7,410 11,476 Notes 91

Prior to adoption of IAS 39, marketable securities were recorded at the lower-of-cost or market whereby gains were not recognized until realized and losses were recorded in the income statement immediately. Unrealized gains were as follows:

December 31, 2000 Carrying Fair Unrealized value value gains Debt securities 263,289 266,059 2,770 Equity securities 51,939 57,037 5,098 Other 418 1,032 614 Total 315,646 324,128 8,482

The contractual maturities of debt securities are as follows:

December 31, 2001 2000 Fair Carrying value value Due within one year 36,833 23,004 Due after one year through five years 115,958 139,574 Due after five years 71,779 100,711 224,570 263,289

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to repay obligations earlier without prepayment penalty. 92 Notes

12 Other assets and prepaid expenses Authorized capital As of December 31, 2001, the management board was authorized to increase the Company’s share capital by €27.0 million in exchange for cash (authorized capital I) Dec. 31, Dec. 31, 2001 2000 and an additional €27.0 million in exchange for non-cash Balances due from employees 6,211 4,164 contributions with exclusion of shareholders’ subscription Cash surrender value of life insurance 5,987 7,827 rights (authorized capital II). The management board was Balances due from fiscal authorities 16,380 13,073 also authorized to increase the share capital by €13.5 mil- Prepayments 6,796 4,924 lion in exchange for cash with exclusion of shareholders’ Licenses 5,495 5,505 subscription rights at an issue price that is not significantly Balances due from related parties 2,224 2,673 lower than the market price at that time (authorized Prepaid expenses 16,783 10,811 capital III). None of the authorized capital has been issued. Contract termination settlement The authorizations expire as of April 30, 2004. (Note 2) 6,136 12,271 Other 28,908 23,569 Treasury shares 94,920 84,817 The management board was authorized by the shareholders (thereof long-term) (6,945) (14,283) on May 3, 2001 to repurchase up to 14,040,000 shares (10% of the authorized capital) during the period May 4, 2001 to October 31, 2002. In addition to reselling the treasury shares on the stock market, the management 13 Shareholders’ equity board was authorized to offer up to 2.5% of these shares to eligible employees in connection with the Company’s Issued capital stock option plans (Note 14) or to third parties in connec- At the annual general shareholders’ meeting on May 3, tion with acquisitions. The management board was not 2001, the Company’s shareholders approved a 20% stock authorized, however, to actively trade these shares on the dividend whereby €20.0 million was transferred from stock market. retained earnings to share capital resulting in the issuance Pursuant to this authorization, the Company pur- of 7,800,000 new shares to existing shareholders and an chased 1,316,950 treasury shares from May to October additional transfer of €20.6 million from additional paid 2001 at a total cost of €58.5 million with an average in capital to share capital without issuance of new shares. price of €44.45 per share. These shares are used for Subsequently, at the same general shareholders’ meeting, distribution to eligible employees under the ALTANA stock a 3 for 1 stock split was declared. As a result of these option plans and the ALTANA Investment plans. During transactions, share capital as of December 31, 2001 is 2001, 598,505 shares were issued in connection with the €140,400,000, represented by 140,400,000 no par value exercise of the options and 37,295 shares were sold to shares representing €1 per share. Share and per share employees. information has been restated for all periods presented. Additionally, in accordance with article 71 (1) No. 2 of the “German Stock Corporation Act” (Aktiengesetz), during October and November 2001, the Company purchased 220,000 shares at an average price of €50.34 to distribute to the eligible employees under the ALTANA Investment Plan 2001 (Note 14). In December 2001, 126,572 shares were sold to employees. To cover the risks from ongoing litigation, in May 2001, the Company purchased in accordance with article 71 (1) No. 3 of the “German Stock Corporation Act”, 154,800 shares for an average share price of €39.26 each. Notes 93

Together with the 2,289,607 treasury shares purchased 14 Employee incentive plans in prior years the Company held a total of 3,218,985 treasury shares at December 31, 2001, representing €3.2 Management stock option plans million (or 2.29%) of its share capital. Of the treasury 1999 and 2000 shares, 2,920,185 are reserved to meet obligations from On July 1, 1999, the Company initiated a stock option the employee incentive plans and 298,800 are reserved plan open to members of the Company’s management for issuance to settle ongoing litigation (Note 30). board, its senior executives and certain other key employees (“Stock Option Plan 1999”). The exercise price is Dividends €15.03 per share, which is calculated on the basis of the Under the “German Stock Corporation Act”, dividends average of the published prices of the shares during the available for distribution to shareholders are based upon 20 trading days preceding the commencement of the plan the unconsolidated retained earnings of ALTANA AG as on the Frankfurt Stock Exchange. On July 1, 2000, the reported in its balance sheet determined in accordance Company launched a similar plan (“Stock Option Plan with the German Commercial Code (Handelsgesetzbuch). 2000”). This plan entitles beneficiaries to purchase shares The management board has resolved to appropriate of the Company at an exercise price of €22.97 calculated €94.6 million of 2001 net income of ALTANA AG of on the same basis as described above. €192.9 million to retained earnings, resulting in unappro- The plans offer management the option of settling in priated profits of €98.3 million. The management board either stock or cash. Under each plan, the rights become and supervisory board plan to propose to the shareholders exercisable two years after the grant date if the average at the annual general shareholders’ meeting to distribute earnings per share in the year of grant and the following from unappropriated earnings a dividend of €0.60 as well year exceed the average of the two preceding years by as a bonus dividend of €0.10 per no-par value share, with 20%. The stock options expire four years after the grant the amount attributable to treasury shares to be allocated date. to retained earnings.

Revaluation reserve In accordance with IAS 39, unrealized gains and losses resulting from changes in fair values of available-for-sale marketable securities are recorded in a revaluation reserve, a separate section of shareholders’ equity. Additionally, changes in the fair value of financial instruments qualifying as cash flow hedges are recognized in the revaluation reserve if all hedge accounting criterion under IAS 39 are met. The amounts are stated net of tax. 94 Notes

2001 2000 Number of Exercise Number of Exercise options price (in €) options price (in €) Outstanding options at January 1 1,854,000 19.10* 925,200 15.03* Granted 0–950,400 22.97* Exercised -635,800 15.03 0-* Forfeited -7,200 15.03 -21,600 15.03* Outstanding options at December 31 1,211,000 21.26* 1,854,000 19.10*

*Weighted average

Management stock option plan 2001 ALTANA Investment 2000 and 2001 On July 1, 2001, the Company initiated a stock option In 2001 and 2000, the Company initiated the “ALTANA plan open to members of the Company’s management Investment 2001” and “ALTANA Investment Plan 2000” board, its senior executives and certain other key em- for employees in 14 European countries and in the United ployees (“Stock Option Plan 2001”). The exercise price is States of America, who were not eligible to participate in €42.41 per share, which is calculated on the basis of the the Stock Option Plans. Each investment plan consists of average of the published prices of the shares during the two components. 20 trading days preceding the commencement of the plan The first component entitled eligible employees to on the Frankfurt Stock Exchange and may only be settled purchase a specific number of shares based on their in stock. The rights become exercisable two years after the respective incomes at a fixed price per share, the lowest grant date, if earnings per share in 2002 exceed earnings quoted price of the Company’s shares the day when the per share in 2000 by 20%. The stock options expire five management board approved the plans. A discount was years after the date of grant. granted for a specified number of shares purchased by each participant. The Company sold the respective shares in December 2001 and December 2000 to the employees, with the exception of the employees of U.S. subsidiaries. 2001 Number of Exercise For employees unable to receive shares directly from the € options price (in ) Company due to statutory reasons, the Company provided Outstanding options at January 1 00the cash equivalent of the benefit received by other Granted 1,065,750 42.41 employees participating in the plan. Outstanding options at December 31 1,065,750 42.41 Under the second component, employees received one option for each share purchased. The options become exercisable two years after the grant date and expire two years after the exercise date. The options entitle holders to receive cash in an amount equal to the difference between exercise price and the market price of the Company’s shares on the date on which the options are exercised. Notes 95

Compensation expense ALTANA Investment Compensation expense for the years ended December 31, 2001 2000 2001 and 2000 totaled €3.6 million and €6.9 million, Share purchase component respectively. Compensation expense in 2001 and 2000, Shares sold to employees 126,572 284,393 respectively, included €1.9 million and €4.9 million for Exercise price 47.00 27.08 the discount on the share purchase component of ALTANA Discount granted 30.0% 23.0% Investment 2001 and 2000, as there is no vesting period. Discount granted for maximum shares for each employee 37 shares 20 shares 15 Employee benefit obligations Options component

Options granted 165,797 305,898 The provisions for the Company’s pension benefit and Options forfeited 13,310 other post-retirement obligations are as follows: Exercise price 47.00 27.08 Date of grant Oct. 1, 2001 Oct. 1, 2000 Exercise of the options beginning Oct. 1, 2003 Oct. 1, 2002 Dec. 31, Dec. 31, Expiration of the option Oct. 1, 2005 Oct. 1, 2004 2001 2000 Provision for pensions 244,141 237,882 Provision for other post-retirement benefits 646 4,440 244,787 242,322

Employee benefit obligations relate mainly to the German plans. The defined benefit obligation is calculated based on the expected compensation level or retirement benefit, the years of service and the expected discount rate. Some pension commitments are funded by plan assets maintained by trust funds. Fund assets consist of equity and debt securities as well as real estate. 96 Notes

2001 2000 German Non-German German Non-German Plans Plans Plans Plans Defined benefit obligation Balance at January 1 192,743 41,946 213,856 32,932 Changes in reporting entities -3,251 5,936 00 Translation adjustment 0 1,686 0 1,855 Service cost 4,179 2,513 4,848 2,458 Interest cost 12,298 2,857 11,704 2,504 Actuarial losses (gains) 9,706 2,768 - 29,989 2,744 Plan amendments 000 686 Other -15 -498 53 0 Benefits paid -7,856 -1,314 -7,729 -1,233 Balance at December 31 207,804 55,894 192,743 41,946

Plan assets Balance at January 1 0 35,927 0 32,981 Changes in reporting entities 0 5,248 00 Translation adjustment 0 1,854 0 2,466 Actual return on plan assets 0-979 0 1,119 Employer contribution 0 325 0 330 Benefits paid 0-959 0-969 Balance at December 31 0 41,416 0 35,927

Reconciliation of funded status Funded status at December 31 207,804 14,478 192,743 6,019 Unrecognized net gains (losses) 19,056 2,803 29,989 9,131 Net amount recognized at December 31 226,860 17,281 222,732 15,150

The following table depicts the underlying actuarial assumptions for the pension plans:

December 31, 2001 December 31, 2000 German Non-German German Non-German Plans Plans Plans Plans Weighted average assumptions Discount rate 6.0% 6.9% 6.5% 7.5% Expected return on plan assets –8.7% –8.7% Rate of compensation increase 3.5% 4.7% 3.5% 4.7% Rate of pension increase 2.0% – 2.0% – Notes 97

The components of net periodic pension costs for the years ended December 31, were as follows:

December 31, 2001 December 31, 2000 German Non-German German Non-German Plans Plans Plans Plans Service cost 4,179 2,513 4,848 2,458 Interest cost 12,298 2,857 11,704 2,504 Expected return on plan assets 0-3,192 0-3,047 Actuarial losses and (gains) 603 -420 0-860 Net periodic pension costs 17,080 1,758 16,552 1,055

The provision for other post-retirement benefits pertains to post-retirement health care and life insurance benefits for employees of the Company’s U.S. subsidiaries and other similar obligations.

16 Accrued liabilities

Accrued liabilities consist of the following:

Employees Sales and Warranty Other Total marketing costs Balance at January 1, 2001 74,557 18,634 7,454 42,372 143,017

Additions 59,252 52,308 4,712 19,199 135,471 Utilization -39,418 -14,742 -1,491 -15,083 -70,734 Release -2,066 -492 -216 -7,339 -10,113 Translation adjustment 15 366 241 -307 315 Changes in reporting entities -968 -725 0 -87 -1,780 Balance at December 31, 2001 91,372 55,349 10,700 38,755 196,176

Thereof short term at December 31, 2000 102,402 at December 31, 2001 152,482

The personnel-related provisions encompass provisions for The items included in other provisions are primarily related special bonuses, as well as anniversary, paid vacation and to non income taxes and contributions, pending litigation, employee incentive plans. Accrued liabilities for sales and legal costs, audit fees and costs for clinical studies and marketing pertain primarily to business development and research. market studies. Provisions for warranty cover commitments in connection with goods delivered and services rendered. 98 Notes

17 Debt

December 31, 2001 December 31, 2000 Total Due within Total Due within one year one year Borrowings from banks 82,417 32,390 73,537 35,661 Profit-sharing certificates 8,672 8,672 9,005 9,005 Herbert Quandt Foundation 25,656 25,656 10,226 10,226 Lease obligations 4,170 1,175 2,772 166 Other 5,800 891 4,909 941 126,715 68,784 100,449 55,999

For the years ended December 31, 2001 and 2000 weighted 3% (subject to minimum rate of 8%), is considered average interest rates for borrowings from banks were short-term since it may be called at any time by the 4.92% and 5.21%, respectively. Foundation. For the years ended December 31, 2001 and As of December 31, 2001 and 2000, respectively, 2000, the minimum interest rate of 8% was paid to the bank borrowings include €25.3 million and €21.3 million Foundation. denominated in foreign currencies other than euro, all of At December 31, 2001 the aggregate amounts of which is denominated in U.S. Dollars in 2001. indebtedness maturing during the next five years and Bank borrowings of €1.7 million and €7.3 million are thereafter are as follows: secured by mortgages (land) as of December 31, 2001 and 2000, respectively. Profit-sharing certificates are held by German employees of the Company who are entitled to receive interest at a 2002 67,609 rate equal to the higher of the Company’s dividend rate in 2003 9,141 any given year and 7%. The Company ceased issuing such 2004 5,892 certificates in 2000. For the year ended December 31, 2005 4,696 2001, the effective interest rate was 98.6% on these 2006 4,697 certificates, whereby amounts in excess of 7% are recorded Due thereafter 30,510 as compensation expense. Total 122,545 The Herbert Quandt Foundation is a not-for-profit Lease obligations 4,170 foundation established in 1980, that promotes scientific Total debt 126,715 and cultural research activities and supports civic responsibility projects. The Company donated €14.8 million to the Foundation in 2001. In turn, the Foundation deposited all its funds totaling €25.7 million with ALTANA. The deposit, subject to an interest rate equaling the discount rate plus Notes 99

18 Other liabilities and deferred income

December 31, 2001 December 31, 2000 Total Due within Total Due within one year one year Payroll taxes 21,442 21,442 16,730 16,730 Employees and social security contributions 19,214 18,069 17,090 16,126 Commissions 5,786 5,786 5,084 5,084 Debit notes to customers 3,295 3,295 3,605 3,605 Balances due to related parties 1,554 1,554 797 797 Other 22,771 20,351 16,854 13,487 74,062 70,497 60,160 55,829

There are no items in other liabilities with a term in excess By their nature, all such instruments involve risk, including of five years. market risk and credit risk of non-performance by counter- Deferred income relates primarily to sales of parties, and the maximum potential loss may exceed the Pantoprazole made to Wyeth-Ayerst. amount recognized in the balance sheets. However, at December 31, 2001 and 2000, in management’s opinion the probability of non-performance of the counter-parties 19 Financial instruments in these financial instruments was remote.

Use and risk management of financial instruments Credit risk The Company conducts business on a global basis in The Company may be exposed to credit-related losses numerous major international currencies and is, therein the event of non-performance by counterparties to fore, exposed to adverse movements in foreign currency financial instruments. Counterparties to the Company’s exchanges rates. Derivative financial instruments are used financial instruments represent, in general, well estab- to reduce various types of markets risks. The Company lished financial institutions. The Company does not have does not invest in derivatives for trading purposes. a significant exposure to any individual counterparty. The Company has established policies and procedures for risk assessment of derivative financial instrument activ- Interest rate risk ities. The Company has a decentralized risk management The Company is exposed to interest rate fluctuations. strategy, whereby the subsidiaries use derivative financial A substantial part of the interest rate sensitive assets and instruments, including forward foreign exchange con- liabilities relate to marketable securities, cash equivalents tracts, to hedge foreign currency denominated assets and and debt. The Company does not utilize financial instru- liabilities, firm commitments and forecasted foreign cur- ments to hedge these risks. rency transactions and occasionally use interest rate swaps to hedge exposure to interest rate risk on debt obligations. At December 31, 2001 no derivative financial instruments were used to hedge forecasted foreign currency transactions or interest rate fluctuations. 100 Notes

Forward foreign exchange contracts anticipated cash flows of the Company. Generally, the The Company uses various derivative financial instruments contracts do not exceed a one-year maturity period. in order to hedge foreign currency denominated assets The notional amounts of forward foreign exchange and liabilities, firm commitments and forecasted foreign contracts as of December 31, 2001 and 2000 amount to currency transactions. The amounts recorded on the bal- €75.4 million and €93.1 million, respectively. ance sheets do not always represent amounts exchanged by the parties and, thus, are not necessarily a measure of Fair value of financial instruments the exposure of the Company through its use of deriva- The fair values of financial instruments are equal to the tives. The principle derivative financial instruments used by prices at which these instruments could be sold to third the Company are forward foreign exchange contracts. The parties. These fair values are determined on the basis of maturity dates of the forward contracts are linked to the market data and valuation methods described below:

December 31, 2001 December 31, 2000 Carrying Fair Carrying Fair value value value value Financial instruments

Assets Long-term investments 25,063 25,063 5,113 5,113 Accounts receivable 377,829 377,829 314,893 314,893 Marketable securities 297,972 297,972 315,646 324,128 Cash and cash equivalents 254,453 254,453 171,795 171,795

Liabilities Borrowings from banks 82,417 82,417 73,537 73,537 Lease obligation 4,170 4,170 2,772 2,772 Other 5,800 5,800 4,909 4,909

Derivative financial instruments Assets – Currency contracts 191 191 0 3,690 Liability – Currency contracts 861 861 194 194

The fair values of financial assets and marketable securities are determined on the basis of quoted market prices. Investments in companies that are not publicly traded, the profit sharing certificates and the debt due to Herbert Quandt Foundation are not included in the table since their market value is not readily determinable. The carrying amount of cash and cash equivalents as well as accounts receivable approximate their fair value due to the short-term maturities of these instruments. The carrying value of borrowings from banks approxi- mates the fair value. Notes 101

20 Other operating income A net gain is recorded in other operating income, a net loss is recorded in other operating expense.

2001 2000 22 Net income from investments in Up-front payments – associated companies license agreements 306 8,555 Gain on sale of product line 8,180 0 Reimbursements 7,483 11,315 Contract termination settlement 2001 2000 (Note 2) 0 18,406 Dividends received 911 222 Release of accruals 10,113 8,224 Losses from affiliated companies -14 -155 Gains on disposal of fixed assets 4,264 2,695 Net income from investments in Foreign exchange gains, net 0 739 associated companies 897 67 Other 15,764 5,692 46,110 55,626

23 Interest income, net

21 Other operating expenses

2001 2000 Interest income 27,430 30,495 2001 2000 Interest expense -7,629 -10,953 Amortization of goodwill 19,345 16,927 Net interest income 19,801 19,542 Write-off of receivables 1,825 4,696 Losses on disposal of fixed assets 1,589 1,857 Foreign exchange losses, net 8,251 0 24 Other financial income (expense), net Charitable contributions 2,630 3,071 Special welfare contributions 1,967 2,912 Impairment charges 3,036 6,902

Other 16,781 16,301 2001 2000 55,424 52,666 Gain on disposal of marketable securities 5,238 9,816 Other financial income 10 434 Total other financial income 5,248 10,250 Foreign exchange gains and losses are shown net as follows: Unrealized losses on other financial assets and marketable securities -712 -2,152 Losses on disposal of marketable securities -109 - 6,179 Other financial expenses - 937 - 873 2001 2000 Total other financial expenses -1,758 - 9,204 Foreign exchange gains 5,126 7,134 Foreign exchange losses -13,377 - 6,395 Other financial income (expenses), net 3,490 1,046 Foreign exchange losses - 8,251 739 102 Notes

25 Income taxes Prior to this change, retained earnings were subject to a 40% corporate tax rate, plus a 5.5% solidarity surcharge Income before income taxes and minority interests is on corporate taxes payable. Upon distribution, the tax rate attributable to the following geographic regions: was reduced to 30%. The deferred tax assets and liabilities as of December 31, 1999 arising from temporary differences in Germany have been calculated using the 30% distributed income tax rate.

2001 2000 In addition, all German companies pay a trade tax Germany 414,582 185,232 rate of approximately 12% after corporate tax benefit. Foreign 143,713 144,071 Therefore, the effective combined income tax rate applied 558,295 329,303 for the years ended December 31, 2000 and 1999 was 43%. In connection with the enactment of the new German corporate tax law on October 23, 2000, deferred tax Income tax expense for these geographic regions is as assets and liabilities have been recalculated assuming the follows: new uniform tax rate. This change resulted in a decrease in the combined income tax rate to 39%, reducing deferred income tax expense by €1.8 million for the year ended December 31, 2000.

2001 2000 For the years ended December 31, 2001 and 2000, Germany 160,129 89,890 income tax expense differed from the amounts computed Foreign 60,457 54,848 by applying the effective combined income tax rate of Total current taxes 220,586 144,738 39.0% in 2001 and 43.0% for 2000 as follows:

Germany 3,703 -222 Foreign -8,190 5,959

Total deferred taxes -4,487 5,737 2001 2000 Income before taxes and Total income tax expense 216,099 150,475 minority interest 558,295 329,303

Computed income tax expense at the effective combined income tax rate 217,735 141,600 The German corporate tax law in effect for the Company’s Non-deductible expenses 10,914 12,947 fiscal years through December 31, 2000 applied a split Foreign tax rate differential -10,088 -9,531 corporate income tax rate for retained earnings and for Impact of revised IAS 12 23,220 0 distributed earnings. In October 2000, a new German Tax credits on dividends -13,518 0 corporate tax law was enacted that eliminated the split Tax free income -12,721 0 income tax rate. Effective for the Company’s fiscal year Other 557 5,459 beginning January 1, 2001, a uniform tax rate of 25%, Total 216,099 150,475 plus a 5.5% solidarity surcharge on corporate tax is applicable in Germany. Effective income tax rate 38.7% 45.7% Notes 103

Deferred income tax assets and liabilities relate to the At December 31, 2001, the Company had tax loss carry- following items: forwards of €39.9 million (2000: €31.1 million), of which €29.7 million (2000: €23.4 million) have unlimited carry- forward periods and €9.3 million (2000: €7.6 million) expire before 2006. Deferred tax assets on tax loss carry- Dec. 31, Dec. 31, 2001 2000 forwards of €38.5 million and €23.3 million were not Assets recognized as of December 31, 2001 and 2000, Intangibles 14,644 14,017 respectively. Property, plant and equipment 9,494 6,998 At December 31, 2001, a deferred tax liability has not Inventories 8,207 7,627 been provided for the excess in the amount of €280 mil- Receivables and other assets 4,844 3,242 lion for financial reporting under IAS over the tax basis or Pension and other post-retirement undistributed earnings of certain investments in foreign benefits 25,988 27,575 subsidiaries that are essentially permanent in duration. Other provisions 18,474 13,436 These amounts become taxable upon a repatriation of Future benefit on distribution to earnings from the subsidiaries or a sale of the subsidiaries. shareholders 0 11,003 It is not practicable to estimate the amount of the un- Deferred revenue 12,054 5,878 recognized deferred tax liability for these undistributed Tax loss carry-forwards 1,361 1,410 earnings. Other 4,585 6,926 Tax benefits in the amount of €17.4 million for future Deferred tax assets 99,651 98,112 divided payments exist, thereof €16.4 million relates to the 2001 proposed dividend payments.

Liabilities Property, plant and equipment 35,920 35,286 Financial assets 3,042 4,406 26 Personnel expenses Inventories 7,236 7,098 Receivables and other assets 3,648 7,669 Gain deferred for tax purposes 10,125 13,655 2001 2000 Other provisions 4,989 2,640 Wages and salaries 392,989 356,423 Liabilities 3,118 1,191 Social security contributions 81,554 73,458 Other 10,124 6,358 Expenses for pensions and other Deferred tax liabilities 78,202 78,303 post-retirement benefits 20,586 22,918 Total personnel expenses 495,129 452,799 Deferred tax assets, net 21,449 19,809

The expenses were incurred for the following average Net deferred income tax assets and liabilities are as number of employees during the year: follows:

Number of employees by segment 2001 2000 Dec. 31, Dec. 31, 2001 2000 Pharmaceuticals 6,779 6,538 Long-term deferred tax assets 41,276 45,646 Chemicals 2,193 1,990 Long-term deferred tax liabilities -19,827 -25,837 Holding company 38 29 Long-term deferred tax assets, net 21,449 19,809 Total 9,010 8,557 104 Notes

The pro rata consolidated companies had 78 and 242 and reduces related cost. In addition, GPC and the employees for the years ended December 31, 2001 and Company entered into two collaborative research projects 2000, respectively, which are included proportionately. focusing on Pathway Mapping and Kinases. Concurrently The above figures include 195 and 219 interns for the with this agreement, the Company purchased an 8.3% years ended December 31, 2001 and 2000. interest in GPC.Total consideration of €45.3 million was allocated to the individual assets based on the relative fair values of all assets acquired. 27 Commitments and contingencies Guarantees and other commitments Research and development agreements As part of its research activities, the Company has entered into various long-term research agreements with research Dec. 31, Dec. 31, and development providers to collaborate on the discovery, 2001 2000 development and commercialization of pharmaceutical Commitments for capital expenditures 76,746 62,506 drugs. Under these agreements, the Company provides Guarantee for pension obligations research funding over the agreed upon service period. of disposed business 15,838 16,003 In addition, cost reimbursements, license fees, milestone Other 3,627 3,242 payments, and royalties are possible depending on the Total 96,211 81,751 terms on the respective agreement and the outcome of the research activities. The minimum future payments of research and development agreements as of December 31, 2001 are as follows: In 1995, the Company sold its dietetics business line. In accordance with the German Civil Code, the Company remains liable for the pension commitments for holders of annuities and prospective beneficiaries since the sale was consummated as an asset transaction. The Company is 2002 47,546 obligated to make payments on demand of the former 2003 52,318 employees, but has the right of refund from the acquiror 2004 31,218 according to the purchase agreement. No payments have 2005 18,819 been requested. 2006 9,018 Thereafter 48,518 Lease arrangements Total 207,437 The Company leases equipment used in its operations which are classified as either operating or capital leases. The lease contracts expire on various dates through 2010. Effective November 1, 2001, the Company entered into a €68 million licensing and collaboration agreement with GPC Biotech AG (“GPC”). Under the agreement, the Company will license GPC patented technology in the area of genomics and proteomics research. This patented technology has future economic benefit to the Company since the technology will be used in multiple areas of therapeutic research. The technology significantly speeds up research Notes 105

Future minimum lease payments for non-cancelable operating and capital leases at December 31, 2001 are: Dec. 31, Dec. 31, 2001 2000 Balances due from related parties 2,224 2,673 Balances due to related parties 1,554 797 Capital Operat- Deposit from Herbert Quandt leases ing leases Foundation 25,657 10,226 2002 1,175 13,941 2003 901 9,185 2004 701 5,466 Transactions with related parties 2005 529 3,878 2006 277 3,026 After 2006 1,690 2,003 Total minimum lease payments 5,273 37,499 2001 2000 Sales to related parties 1,437 891 Less amount representing interest -1,103 Services and goods acquired from Present value of lease payments 4,170 related parties -746 -32,123 Less current portion -1,175 Lease expense -570 -690 Non-current lease obligations 2,995 Interest income from related parties 0 41 Interest expense to related parties -884 -912

Total rent expense was €29.9 million and €26.8 million for the years ended December 31, 2001 and 2000, respectively. 29 Compensation of the supervisory board and management board

28 Related party transactions

Susanne Klatten is considered a related party, as she 2001 2000 owns 50.1% of the shares of ALTANA AG. She is deputy Compensation of the supervisory board 1,661 1,391 chairwoman of the supervisory board. During the years Compensation of the management board 5,684 4,790 reported there were no transactions between her and the Pension payments to former members Company except for dividends distributed and the regular of the management board or their compensation for her function on the supervisory board. surviving dependents 537 436 Mrs. Klatten is also chairwoman of the board of coun- Pension commitments to former selors of the Herbert Quandt Foundation, and Nikolaus members of the management board Schweickart, the chairman of the Company’s management or their surviving dependents 5,701 5,328 board, serves as the chairman of the board of the Herbert Quandt Foundation. The Company donated €14.8 million to the Foundation in 2001. In 2001, € 0.1 million of the total emoluments of the Affiliated companies, joint ventures and associated supervisory board is attributable to fixed and € 1.6 million companies are considered related parties. Balances due to to variable payments. The emoluments of the manage- and due from related parties are recorded in other assets ment board include € 1.1 million in fixed and € 4.6 million and other liabilities as they are not material. Balances and in variable payments. transactions with unconsolidated subsidiaries are disclosed As part of the Company’s stock option plans, the below. members of the management board were granted 106,500 and 108,000 stock options in the years ended December 106 Notes

31, 2001 and 2000, at a price of € 42.41 and € 22.97 in of the purchase acquisition. A majority of the payment 2001 and 2000, respectively. As of December 31, 2001, will be settled by the issuance of shares. This expected management board members held a total of 228,700 settlement of stock is included in shareholders’ equity options. The related expense reported in the compensation under “Contingent Issuance of Stock – DAT Acquisition”. of the management board amounted to € 0.1 million and For the portion of the settlement expected to be paid in € 0.3 million for the years ended December 31, 2001 and cash an accrual was recorded. 2000, respectively. The exercise of the options is contingent upon specific conditions. See Note 14 “Employee incen- Other litigation and potential exposures tive plans” for a description of the stock option plans. From time to time, the Company is party to or may be threatened with other litigation arising in the ordinary course of its business. Management regularly analyzes 30 Litigation current information including, as applicable, the Company’s defenses and insurance coverage and, as necessary, pro- Deutsch-Atlantische Telegraphen AG vides accruals for probable liabilities for the eventual dis- In 1990, a group of minority shareholders of Deutsch-Atlan- position of these matters. The ultimate outcome of these tische Telegraphen AG (“DAT”), brought a legal action matters is not expected to materially affect the Company’s against the Company in connection with the exchange financial position, results of operations or cash flows. offer made to these minority shareholders. After consideration of the case, both the Landes- gericht Köln and the Oberlandesgericht Düsseldorf stated 31 Additional Information that the 1.4 shares offered to the former shareholders was fair consideration. However, in 1999 the Federal Supreme List of Companies who are exempt from publication of Court of Germany overturned this ruling stating that the their financial statements in accordance with § 264 (3) fair value should be determined based on a higher market and 264 (b) of the German Commercial Code (HGB) value for DAT shares. ALTANA Technology Projects GmbH, Bad Homburg v.d.Höhe On March 12, 2001, the German Federal Court of Byk Gulden Lomberg Chemische Fabrik GmbH, Constance Justice (Bundesgerichtshof) ruled that the exchange ratio Byk Beteiligungsgesellschaft mbH, Wesel must be based on the average market price of the shares Byk Diagnostica (Verwaltung) GmbH, Dietzenbach to be exchanged during the three months preceding the Byk Sangtec Diagnostica GmbH & Co. KG, Dietzenbach approval by majority shareholders of DAT to sell its shares Promonta Medical GmbH, Hamburg to the Company. Oranienburger Pharmawerk GmbH, Oranienburg The settlement has been recorded as contingent con- Gewerbepark Oranienburg GmbH, Oranienburg sideration based on the Company’s best estimate of the Roland Arzneimittel GmbH, Hamburg outcome. However, since the Company sold a majority of Schnetztor-Verlag GmbH, Constance the DAT assets and no longer generates any revenue from Unipharma GmbH, Constance DAT, the additional consideration is expensed immediately BYK-Chemie GmbH, Wesel as an impairment expense. In 1999 and 2000, the Com- ALTANA Coatings & Sealants GmbH, Wesel pany provided for the expected loss by estimating addi- ALTANA Electrical Insulation GmbH, Wesel tional payments that were expected to be acquired based DS Chemie GmbH, Bremen on current values of ALTANA shares. In 2001, the Com- Rhenania Coatings GmbH, Grevenbroich pany remeasured the additional shares to be issued to Joachim Dyes Lackfabrik GmbH, Lehrte former DAT shareholders in order to adopt SIC 28. Wiedeking GmbH, Kempen The net effect of €2.5 million was included on the income Rhenatech GmbH Elektroisoliersysteme, Kempen statements for the year ended December 31, 2001 under BYK-Gardner GmbH, Geretsried “other operating expenses”. As of December 31, 2001 total payments expected to The management board and the supervisory board have be made by the Company have been measured at € 2.6 passed the resolution of the financial statements and million, based on the value of ALTANA shares at the time approve the publication as of March 19, 2002. Notes 107

Supervisory Board of ALTANA AG

Justus Mische Dr. Uwe-Ernst Bufe Prof. Dr. Heinz Riesenhuber Chairman (since May 3, 2001) Former federal minister Degree in Chemistry Membership in other supervisory boards: Degree in Business Administration Membership in other supervisory boards: Evotec BioSystems AG1 (Chair) former management board member of AirLiquide AG1 Frankfurter Allgemeine Zeitung GmbH1 Hoechst AG Frankfurter Versicherungs AG1 HBM BioVentures AG2 Membership in other supervisory boards: Rütgers AG1 Henkel KGaA1 B. Braun Melsungen AG1 (Chair) UBS Warburg AG1 (Chair) Osram GmbH1 Dragoco AG1 Portum AG1 Hoechst AG1 (Chair) Yvonne D’Alpaos-Götz* Vodafone AG1 MG Technologies AG1 Full-time member of Works Council Membership in other supervisory boards: Renate Schmid* Marcel Becker* Byk Gulden Lomberg Full-time member of works council Deputy Chairman Chemische Fabrik GmbH1 Full-time member of works council Dr. Klaus-Jürgen Schmieder Chairman of group works council Dr. Stefan Engelhorn † (since May 3, 2001) (May 3, 2001 – February 23, 2002) Chairman of the Management Board Susanne Klatten President of Messer Griesheim GmbH Deputy Chairwoman SCIL Technology Holding GmbH Membership in other supervisory boards: Rheinhyp Rheinische Hypothekenbank1 Betriebswirtin (MBA) Rolf Jaeger* Messer Nippon Sanso GmbH & Co. KG1 Membership in other supervisory boards: Trade union secretary of IG Bergbau, (Chair) Bayerische Motoren Werke AG1 Chemie, Energie Messer Griesheim Industries Inc.2 (Chair) Byk Gulden Lomberg Membership in other supervisory boards: Messer Group Inc.2 (Chair) Chemische Fabrik GmbH1 Agfa-Gevaert AG1 DataCard Corporation2 Dr. Ernst F. Schröder Dr. Uwe Krüger* (until May 3, 2001) Jörg Bentz (since November 2, 2001) Personally liable partner of Dr. August (until May 3, 2001) Degree in Chemistry Oetker KG Personally liable partner of Melitta Membership in other supervisory boards: Unternehmensgruppe Bentz KG Carmen Lakaschus Condor Lebensversicherungs-AG1 Membership in other supervisory boards: (until May 3, 2001) Optima Lebensversicherungs-AG1 Cofresco S.A.S.2 Degree in Psychology Société Anonyme Hôtel Le Bristol2 Gerry Weber International AG1 (Chair) Dr. Bernd Renger* (until October 20, 2001) Dr. Jörg Senn-Bilfinger* Degree in Chemistry Degree in Chemistry

*Employee representative

1 Membership in other statutory supervisory boards 2 Membership in comparable domestic and foreign supervisory bodies 108 Notes

Management Board of ALTANA AG

Nikolaus Schweickart Dr. Hermann Küllmer Dr. Klaus Oehmichen Chairman Chief Financial Officer Head of ALTANA Chemie

Membership in other boards: Membership in other boards: Membership in other boards: ALTANA Inc.2 (Chair) Byk Gulden Lomberg BYK-Chemie USA Inc.2 BYK-Chemie USA Inc.2 (Chair) Chemische Fabrik GmbH1 The P.D. George Company2 (Chair) Byk Gulden Lomberg La Artística Productos Químicos S.A.2 Chemische Fabrik GmbH1 (Chair) Dr. Hans-Joachim (Chair) DAT Deutsch-Atlantische Lohrisch Shunde Rhenacoat Coating Company Telegraphen AG1 (Chair) Head of ALTANA Pharma Ltd.2 (Chair) MIVERA Vermögensanlagen AG1 Tongling Siva Insulating Materials Membership in other boards: (Chair) Company Ltd.2 (Chair) ALTANA Inc.2 Universitätsklinikum BYK-Chemie Japan KK2 ATUGEN AG1 Carl Gustav Carus Dresden1 BYK-Chemie Asia Pacific Pte. Ltd.2 Zydus Byk Healthcare Ltd.2 (Chair) Sterling Technology Limited2 (Chair) Epoxylite Limited2 (Chair) BYK-Chemie Tongling2 (Chair)

1 Membership in other statutory supervisory boards 2 Membership in comparable domestic and foreign supervisory bodies Major Consolidated Companies 109

Major Consolidated Companies

Dec. 31, 2001 Share of capital Equity Sales1 Profit Employees in % in € million in € million for the year1 in € million Holding company ALTANA AG, Bad Homburg v.d.H. 758 – 1863 38

ALTANA Pharma Byk Gulden Lomberg Chemische Fabrik GmbH, Constance 100 78 838 1642,3 2,488 Roland Arzneimittel GmbH, Hamburg 100 0 62 92 130 Byk Sangtec Diagnostica GmbH & Co. KG, Dietzenbach 100 1 26 0 96 Byk Nederland B.V., Zwanenburg (NL) 100 42 61 12 115 Byk Belga S.A., Brussels (B) 100 3 24 0 54 Laboratoires Byk France S.A.S., Le Mée-sur-Seine (F) 100 9 88 4 248 Byk Österreich Ges. mbH, Vienna (A) 100 9 35 4 61 Byk Gulden Italia S.p.A., Cormano (I) 100 23 90 7 250 Byk Elmu S.A., Madrid (E) 100 4 47 -6 156 Byk Roland Polska Sp.z.o.o., Warsaw (PL) 100 17 32 1 110 Altana Inc., Melville (U.S.) 100 35 137 2 595 Byk Canada Inc., Oakville (CAN) 100 14 66 11 136 Byk Gulden S.A. de C.V., Mexico City (MEX) 100 110 132 34 491 Byk Química e Farmacêutica Ltda., São Paulo (BR) 100 64 89 10 710 Byk Argentina S.A., Buenos Aires (RA) 100 11 37 -5 231

ALTANA Chemie BYK-Chemie GmbH, Wesel 100 107 192 352 467 Rhenania Coatings GmbH, Grevenbroich 100 3 47 12 171 DS-Chemie GmbH, Bremen 100 6 45 22 133 Joachim Dyes Lackfabrik GmbH, Lehrte 100 4 29 32 71 Wiedeking GmbH, Kempen 100 4 19 12 52 BYK-Cera B.V., Deventer (NL) 100 14 30 2 73 BYK-Chemie France S.A.S., Le Blanc-Mesnil (F) 100 4 16 0 19 Rembrandtin Lack Ges. mbH, Vienna (A) 100 17 33 1 130 Dea Tech SIVA s.r.l., Ascoli Piceno (I) 100 20 42 4 79 Salchi-Rhenacoat s.r.l., Milan (I) 51 7 24 0 66 The P.D. George Company Inc., St. Louis (U.S.) 100 30 103 3 202 BYK-Chemie USA, Wallingford (U.S.) 100 65 63 5 81 BYK-Chemie Japan KK, Osaka (J) 100 5 22 0 31

Other subsidiaries MIVERA Vermögensanlagen AG, Bad Homburg v.d.H. 100 23 – 1 4 ALTANA Technology Projects GmbH, Bad Homburg v.d.H. 100 51 – -82 –

1 Figures in accordance with International Accounting Standards (IAS) 2 Profit and loss transfer agreement with ALTANA AG 3 Including the earnings of subsidiaries linked by profit and loss transfer agreement 110 Report of the Supervisory Board

Report of the Supervisory Board

The Supervisory Board discharged the duties assigned to it by law and by the articles of association, acted in an advisory capacity to the Management Board, and regularly monitored its activities.

Business developments and key topics At its meetings in 2001, the Supervisory Board examined in detail the current business developments of the Group and the Pharmaceuticals and Chemicals divisions, as well as the forecasts for the year under review. Special business events and issues of fundamental importance were discussed at length with the Management Board. Of particular interest were the international market development of Pantoprazole, particularly in the United States, the continuation of current research projects in the field of pharmaceuticals, and the difficult operating environment encountered by the Chemicals division. The Supervisory Board also examined in depth the company’s long-term planning. In this connection, detailed discussions were held with the Management Board on the company’s strategic goals, particularly with regard to the expansion of pharmaceutical research and collaborations in the field of biotechnology, the future focus of business of the two divisions and the strengthening of the company’s international presence in the United States and the Far East. Other key issues included the equity measures implemented in the spring of 2001, the organization of the stock option programs for executives and staff as well as of the corporate branding activities planned for 2002 to establish the company’s umbrella brand, and the U.S. listing scheduled for May 2002.

Meetings of the Supervisory Board and its Committees The Supervisory Board held four regular meetings in the year under review. Outside of those meetings too, the Chairman of the Supervisory Board was kept regularly informed by the Chairman of the Management Board. The Management Board submitted written reports to all Supervisory Board members each quarter, informing them of the current state of affairs and the outlook for the Group. The Finance Committee of the Supervisory Board met once, conducted detailed preliminary discussions on the annual financial statements before they were submitted to the Supervisory Board for approval, and recommended unanimously that the annual financial statements be approved. The auditors were present at the finance committee’s discussion of the annual financial statements and reported on the findings of their audit. The Human Resources Committee, which is responsible for the Management Board’s personnel matters, met twice. The Mediation Committee, established in accordance with section 27(3) of the German Codetermination Act (Mitbestimmungsgesetz) did not meet.

Annual Financial Statements The annual financial statements of ALTANA AG, the consolidated financial statements for the year ended December 31, 2001, and the combined management report were audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungs- gesellschaft, Frankfurt am Main, which was appointed by the Annual General Meeting and engaged by the Supervisory Board, and issued an unqualified audit opinion in each case. The risk management systems set up for the Group were also scrutinized in terms of their compliance with the German Act on Corporate Governance and Transparency (KonTraG). The examination revealed that the systems properly fulfill their function. Report of the Supervisory Board 111

The financial statement documentation, the annual report, and the reports of KPMG on the audit of the annual financial statements and of the consolidated financial statements were made available to all Supervisory Board members in good time before the meeting convened to grant approval on the financial statements. The Supervisory Board inspected this documentation and is in agreement with the findings of the audit. The Supervisory Board has no grounds for objection following its final examination. At its meeting on March 19, 2002, the Supervisory Board approved the annual financial statements prepared by the Management Board, which are thereby adopted. The Supervisory Board evaluated the Management Board’s proposal on the utilization of accumulated profits and is in agreement with this proposal.

Supervisory Board and Management Board positions At the end of the Annual General Meeting on May 3, 2001, the period of office of Carmen Lakaschus, Jörg Bentz and Dr. Ernst F. Schröder expired. Dr. Uwe-Ernst Bufe, Dr. Stefan Engelhorn and Dr. Klaus-Jürgen Schmieder were appointed new members of the Supervisory Board. In addition, Dr. Bernd Renger, the executive employee representative on the Supervisory Board of ALTANA AG, resigned his seat on October 20, 2001. His place was taken by Dr. Uwe Krüger, who was legally appointed to the Supervisory Board to represent the employees with effect from November 2, 2001. The Supervisory Board wishes to thank all the retiring Board members for their constructive and committed collaboration. On February 23, 2002, Dr. Stefan Engelhorn died after only a brief period in office. Dr. Engelhorn possessed immense specialist knowledge and expertise and will be greatly missed.

Report in accordance with Section 312 of the German Stock Corporation Act The Management Board prepared a report in accordance with Section 312 of the German Stock Corporation Act on relations with affiliated companies for the financial year 2001. The Supervisory Board inspected this report and found it to be accurate. The auditor issued the following audit opinion: “On completion of our audit and assessment in accordance with professional standards, we confirm that the factual information in the report is correct and that the payments made by the company for the transactions listed in the report were not unreasonably high.” The auditor’s findings were approved by the Supervisory Board. Following completion of its own review, the Supervisory Board has no objections to the Management Board’s statement at the end of the report.” The Supervisory Board would like to thank all the members of the Management Board, the company’s management, and employees of the ALTANA Group for their efforts and commitment in the year under review.

Bad Homburg, March 19, 2002 For the Supervisory Board

Justus Mische Chairmann 112 Ten-year Review

Ten-year Review

ALTANA Group

in € million 2001 2000 1999 1998 Sales 2,308 1,928 1,586 1,476 Pharmaceuticals 1,591 1,262 1,034 975 Chemicals 717 666 552 501 Profit before taxes 4632 329 234 188 Return on sales (in %) 20.1 17.1 14.8 12.8 Net profit for the year 2712 179 127 106 Allocation to reserves 172 91 75 61 Distributions 98 86 49 40 Cash flow from operating activities 3482 282 164 188 Fixed assets 783 627 481 410 Intangible assets 179 144 83 65 Property, plant and equipment 579 478 394 336 Financial assets 25 549 Current assets 1,344 1,185 1,149 1,072 Inventories 277 252 227 192 Receivables 515 445 374 316 Cash and cash equivalents (incl. securities) 552 488 548 564 Equity 1,187 984 903 818 Issued share capital 140 100 100 100 Reserves 705 703 660 601 Consolidated profit 342 181 124 101 Equity ratio (in %) 55.8 54.3 55.4 55.2 Return on equity after taxes (in %) 24.9 19.1 14.8 13.4 Debt 940 828 727 664 Provisions and accruals 505 436 431 405 Liabilities 435 392 296 259 Total assets 2,127 1,812 1,630 1,482 Capital expenditure on property, plant and

3 equipment and intangible assets 234 163 109 88 Depreciation and amortization of property, plant and equipment and intangible assets3 83 70 61 58 Research expenditure 285 219 172 153 Pharmaceuticals 252 190 144 129 Chemicals 33 29 28 24 Number of employees (Dec. 31) 9,122 8,556 8,218 7,780 Pharmaceuticals 6,867 6,489 6,308 5,906 Chemicals 2,217 2,036 1,883 1,848 Personnel costs 495 453 391 365

Figures per ALTANA share (in €) 4 Dividend 0.605 0.445 0.35 0.28 Consolidated profit 1.972 1.30 0.88 0.72

1 New group structure from 1995 onwards 2 Without capital gain Lundbeck and donation to Herbert Quandt Foundation 3 Excluding goodwill 4 After stock split in 2001 adjusted to the current stock capital 5 Plus 0.10 € bonus dividend (2000: 0.17 €) Ten-year Review 113

1997 1996 19951 1994 1993 1992 1,345 1,163 1,024 1,454 1,410 1,344 900 819 750 720 686 668 445 344 274 244 205 152 164 116 96 99 87 97 12.2 10.0 9.4 6.8 6.2 7.2 90 70 61 56 44 44 52 34 30 28 20 21 33 30 27 27 23 21 118 152 127 143 123 116 370 313 286 365 352 296 53 25 14 16 19 6 310 283 268 344 325 282 754588 1,011 912 933 663 610 457 180 173 146 180 175 163 303 236 209 263 251 219 528 503 578 220 184 75 757 614 585 396 366 241 100 100 100 100 100 83 558 436 418 229 212 109 85 64 57 55 43 42 54.8 50.1 48.0 38.5 38.0 32.0 12.2 11.6 12.5 14.8 14.5 19.2 624 611 634 632 596 512 392 377 394 357 320 301 232 234 240 275 276 211 1,381 1,225 1,219 1,028 962 753

76 77 70 83 85 70

52 57 61 65 58 53 134 118 105 109 101 97 112 97 88 80 71 69 22 21 17 17 16 12 7,373 7,436 7,136 9,947 10,075 9,846 5,789 5,866 5,845 5,709 5,641 5,556 1,562 1,548 1,269 1,059 971 831 355 321 289 412 404 377

0.23 0.21 0.19 0.19 0.18 0.18 0.61 0.46 0.40 0.32 0.31 0.37 114 Glossary

Glossary

Additives Combinatorial chemistry Epoxy resin Helicobacter pylori Chemical substances which are Using combinatorial chemistry, Polymer (➛ Compounds). A bacterium in the stomach and added to coatings, plastics and numerous molecular components gastrointestinal tract, one of the waxes. Added to the basic mate- can be varied systematically to Eradication causes of gastrointestinal ulcers. rial in very small amounts, build up large ➛ substance (➛ Helicobacter pylori). The additives make manufacturing libraries. wiping out of bacteria or a HPLC processes easier or substantially disease. High Performance Liquid improve the quality of finished Compounds Chromatography. A method by products. Here: polymers (macromolecules) Ethical therapeutics which the components in a sam- such as ➛ epoxy resins, Drugs available on prescription ple mixture are separated pass- Blockbuster non-saturated polyester resins, only. ing through a column due to dif- A drug which generates annual polyurethane and silicone rubber. ferences in their positioning market sales of over U.S. $ 1 Financial result behaviour between the mobile billion. Consolidated profit Financial expenses minus income liquid phase and the stationary Profit after taxes, excluding in a financial year. The financial phase. Can coating profit attributable to ➛ minority result consists of: income (or Coating of tin cans, lids and interests. expenses) from investments in HTS tubes or the metal sheet they are affiliated companies, net interest High-throughput screening. made of. Stove enamel coats are COPD – chronic obstructive income (or expenses) and other Automated procedure by which applied one after the other onto pulmonary disease financial result. a very large number of substances tin plate, steel (black plate), or Chronic obstructive bronchitis. can be tested for their biological aluminum and baked separately. Free float effectiveness in a short time. Corporate Governance The amount of share capital Carrying value per share A standard term used in corpo- issued by a public limited IAS Book value per share. Equity per rate management based on a company that is not in firm International Accounting Stan- share on the balance sheet at the voluntary code of best practice, ownership. In other words, those dards. Internationally applicable end of the financial year: equity the aim of which is to achieve shares that are freely negotiable. rules for the external auditing of attributable to shareholders of enhanced corporate transparency, companies. ALTANA AG divided by the num- and greater security for investors. Functional genomics ber of shares. The Corporate Governance Code The analysis of the functional in- Issued capital encompasses recommendations teraction of genetic information. ➛ Nominal capital which is Ciclesonide for corporate management and An important step in the identifi- shown on the balance sheet at Inhaled glucocorticoid (group of nationally and internationally cation of new ➛ targets. the first position under equity substances related to cortisone). recognized codes of practice for and liabilities. Ciclesonide inhibits inflammation listed companies. Gene expression profiling and is intended for use in the A method used in drug research Leads treatment of asthma. Earnings per share (EPS) to identify and describe new Agent candidates taken to The after-tax corporate profit ➛ targets and to establish a develop effective medications Casting compounds achieved within a certain period profile of new active substances. through targeted variations Compounds that are mainly used of time (quarter, financial year) in the computer industry to divided by the average number Generics LSF – lung surfactant factor steep and cast electrical and of shares issued by the company. Medications that imitate existing A substance which is active on electronic components. Earnings per share is not identi- drugs, using agents that are the surface area of the alveoli. cal to the dividend. patent-free. The loss of lung surfactant Coil coating causes massive breakdown of Type of coating in which special Endocrine hormones Genome research / Genomics gas exchange in the lungs. coatings are applied to steel or Endocrine hormones are messen- The systematic analysis of genes aluminum strips and then baked. ger substances that are released and their effect on cells and Magnetic resonance (MR) After coating, the sheets are into the bloodstream by a gland complete organisms. tomography rolled up to form so-called coils. and trigger responses in another Imaging procedure for examina- The ready-coated metal sheets organ in the body. They are GERD tion and diagnosis on the basis are then formed into household involved in regulating different Gastro esophageal ➛ reflux of electromagnetic measurements. appliances such as refrigerators processes in the body. Example: disease. A computer assembles the indi- or washing machines. corticosteroids. vidual measurements to a strati- fied picture (tomogram). Glossary 115

Market capitalization Proton pump inhibitor (PPI) Roflumilast Stock-market value of a Substance which selectively Agent for the treatment of asth- company at a given time: share inhibits the secretion of stomach ma and ➛ COPD. Belongs to the price multiplied by the number acid. Example: Pantoprazole. class of phosphodiesterase (PDE-4) of shares issued. inhibitors. Roflumilast alleviates Reflux disease breathing difficulties with its Minority interests Reflux esophagitis (GERD) is an anti-inflammatory and calming Interests of external shareholders illness which causes morphologi- effect on the breathing muscula- in the profit or equity of sub- cal changes to the esophagus ture. sidiaries which are not 100% through the intrusion of gastric controlled, directly or indirectly, juices. Substance library by ALTANA AG. Large collection of different mo- Retail pharmacy drug sales lecules used in high-throughput Net profit for the year In Europe: Sales of all medications screening (➛ HTS) Profit after taxes in a financial sold in pharmacies, ➛ ethical year, including profit attributable therapeutics as well as prescrip- Target to ➛ minority interests. tion-free drugs that are exclu- Biological molecule, e.g. an sively sold in pharmacies or are enzyme which plays an important Nominal capital freely available. The data are role in the genesis or development Capital stock. The capital fixed in based in the pharmacies’ pro- of an illness. the articles on incorporation curement activities. In the United (bylaws) of an AG (public limited States, other sales channels are Theophylline company). The company issues included as well, such as drug- Purine derivative found in the shares to this amount. The articles stores and food stores with leaves of the tea plant (camillia s. also determine how many shares pharmacies. Source of retail sales thea sinensis). Applied in the the amount is divided into. figures in this annual report: therapy of obstructive lung IMS Health. diseases. Nuclear spin tomography ➛ Magnetic resonance Retained earnings Total dividend payment tomography. Legal reserves and reserves Distribution to shareholders for required under company bylaws. the previous financial year: Operating result Undistributed profits; amounts dividend multiplied by the num- Earnings minus operating which are taken out of the ber of shares. expenses in a financial year. ➛ net profit of the current or earlier financial years. Component Total return on capital Phosphodiesterase-4-(PDE-4) of equity. Sum of the profit before taxes inhibitor and the interest expense divided A group of substances that block Return on equity (ROE) by the average total assets. Total the phosphodiesterase enzyme Pre-tax return on equity: profit assets correspond to the balance and thus have an anti-inflamma- before taxes divided by average sheet total. tory effect. PDE-4 inhibitors are equity. After-tax return on equity: therefore used in the treatment ➛ net profit for the year divided Wire enamel of asthma and COPD. by average equity. Used to insulate all kinds of wire, especially in electrical compo- Proteomics Return on sales (ROS) nents and in transformers. The systematic study of proteins Pre-tax return on sales: Profit and their function, named in before taxes divided by sales. analogy to ➛ genomics. After-tax return on sales: ➛ net Proteome = the protein composi- profit for the year divided by tion of a cell at a given time. sales. 116 Index

Index

A G R Acquisitions 3, 10, 39, 42, 44f., 45, Gastrointestinal therapeutics 27 Raw material prices 39, 42, 67 57, 60f., 64, 68 Genome 49 Research & Development Additives & Instruments 5, 38, 40 Genomics Research Center 10, 68 - Chemicals 37, 43ff., 66 ALTANA Genomics 20, 32 - employees 23, 43, 65 - Anniversary 18, 63, 66 Globalization 7f. - expenditure 65, 86 - Cultural Forum 48, 52f., 55 Good Corporate Citizenship 11 - Pharmaceuticals 24, 25, 30ff., 61, 68 - Investment Plan 18, 66, 92, 94f. Respiratory tract - Research Institute 33 H - pipeline 3, 31 - share 14ff., 66 Herbert Quandt Foundation 25, 48ff., 61 - therapeutics 10, 23, 29f. - share price 11,15ff., 92ff. Responsible Care 65 I Return on sales 25, 40, 58f., 61 B Imaging 23, 25, 29 Roflumilast 10,16, 23, 29ff., 68 Balance sheet 72 International Accounting Standards (IAS) 78 Biotechnology 22, 32 Internationalization 2, 7, 33, 58, 66 S Blockbuster 3, 8, 23, 30 In-vitro diagnostics 5, 23, 25, 29 Sales - by regions 25, 28, 36, 37, 41, 58f., 86 C L - Chemicals 37ff., 58, 60, 61, 86 Cash flow 15, 64, 81 LSF 31 - Group 57ff., 61, 68, 85ff. Cash flow statement 74f. - Pharmaceuticals 23ff., 27ff., 58, 60, China 39, 42, 44, 45 M 61, 65, 86 Ciclesonide 10,16, 23, 29, 30ff., 68 Market capitalization 17 Shareholder value 8,18 Coatings & Sealants 5, 38, 42, 43 MDAX 16f.,19 Stock option plan 18, 82, 92ff., 105f. Contrast media 25, 29, 30 Stock split 15,17, 63, 92 Cooperations 20, 22, 27, 29ff., 33, 68 N Corporate Design 3 New York Stock T Exchange (NYSE) 2,10,12,15,18 Therapeutics 5, 22, 23, 25ff. D Niche markets 3, 7, 34, 37, 61 Trading volume 17 DAX 10,14ff. Dividend 15,17ff., 57, 63f., 83, 93,103,105 O U Domestic business 24, 26, 37f., 41 Oncology 31ff. U.S. market 24, 27, 28, 40, 43f., 57, 58 Operating margin 25, 40, 61, 62 U.S. listing 2,10 E OTC 5, 23, 25, 30, 58 Earnings per share 60, 62, 66, 82ff., 93 V EBT 24, 37, 39, 61ff. P Value-based management 18, 67 EBITDA 9, 24, 25, 37, 39, 40, 63 Pantoprazole 3, 8, 10, 23, 25, 27ff., 60 Varnish & Compounds 5, 38, 41, 43f. Economy (Economic conditions) 15, 42, 38f. Pantozol® 25, 27, 28 Venticute® 16, 31 Employees' profit-sharing Pharmaceutical markets 2, 23f., 27, 33, 57 program 18, 82, 93f.,106 Pipeline 30, 31, 33 W Ethical therapeutics 30, 68 Profit and loss account 60 Wire Enamels 5, 38, 41, 44f. Profit F - Chemicals 37, 39, 41, 58 Free float - Group 15,18, 57, 58ff. Foreign business/ - Pharmaceuticals 23ff., 30, 58, 61 business abroad 24, 38f., 58 Proteomics 32f. Protonix® 27 Proton pump inhibitor 27, 28, 60, 67 032_Umschlag_GB01_E.qxd 11.04.2002 11:26 Uhr Seite K2 mib25 A - E:Altana:3231_Altana_GB_2001_Englisch:BelDoks_Englisch:

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At a glance The new corporate identity The ALTANA Group Worldwide

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Contact Contents

2 Foreword by the Chairman: Strategy creates values

4 The Management Board of ALTANA AG

5 Executive Bodies

6 25 Years: Leading figures of ALTANA

7 Interview with Nikolaus Schweickart

12 ALTANA share: Going for growth

Back cover:

ALTANA The ALTANA Group Worldwide

Picture credits: Chronicle: 25 Years of ALTANA Mirko Krizanovic

Picture rights: Saskia Niehaus, Cologne VG Bild-Kunst, Bonn, 2001 for the works of Max Beckmann

Annual Report 2001 Annual Report 2001

Contact Contents

2 Foreword by the Chairman: Strategy creates values

4 The Management Board of ALTANA AG

5 Executive Bodies

6 25 Years: Leading figures of ALTANA

7 Interview with Nikolaus Schweickart

12 ALTANA share: Going for growth

Back cover:

ALTANA The ALTANA Group Worldwide

Picture credits: Chronicle: 25 Years of ALTANA Mirko Krizanovic

Picture rights: Saskia Niehaus, Cologne VG Bild-Kunst, Bonn, 2001 for the works of Max Beckmann

Annual Report 2001 Annual Report 2001

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