Annual Report 2008 We. Annual Report 2008 Continental Corporation in € millions 2008 2007 Δ in % Sales 24,238.7 16,619.4 45.8 EBITDA 2,771.4 2,490.6 11.3 in % of sales 11.4 15.0 EBIT before amortization of intangible assets from PPA 210.0 1,737.2 -87.9 in % of sales 0.9 10.5 EBIT -296.2 1,675.8 -117.7 in % of sales -1.2 10.1 Net income attributable to the shareholders of the parent -1,123.5 1,020.6 -210.1 Earnings per share (in €) -6.84 6.79 EBIT before amortization of intangible assets from PPA and before depreciation of tangible assets from PPA (only Siemens VDO) 320.3 1,737.2 -81.6 in % of sales 1.3 10.5 Adjusted1 EBIT before amortization of intangible assets from PPA and before depreciation of tangible assets from PPA (only Siemens VDO) 1,837.3 1,841.5 -0.2 in % of sales 7.6 11.1 Free cash flow 628.5 -10,625.6 105.9 Net indebtedness 10,483.5 10,856.4 -3.4 Gearing ratio in % 189.6 158.3 Total equity 5,529.9 6,856.1 -19.3 Equity ratio in % 22.4 24.7 Number of employees at the end of the year2 139,155 151,654 -8.2 Dividend in € — 2.00 Share price (high) in € 86.62 109.07 Share price (low) in € 27.00 84.19 1 Before special effects. 2 Excluding trainees. Continental’s Core Business Areas Automotive Group in € millions 2008 2007 Δ in % Sales 14,900.0 7,295.9 104.2 EBITDA 1,428.8 903.7 58.1 in % of sales 9.6 12.4 EBIT -1,205.8 504.3 -339.1 in % of sales - 8.1 6.9 Adjusted1 EBIT before amortization of intangible assets from PPA and before depreciation of tangible assets from PPA (only Siemens VDO) 908.9 654.5 38.9 in % of sales 6.1 9.0 1 Before special effects. Rubber Group in € millions 2008 2007 Δ in % Sales 9,353.9 9,337.0 0.2 EBITDA 1,415.9 1,638.4 -13.6 in % of sales 15.1 17.5 EBIT 984.9 1,225.6 -19.6 in % of sales 10.5 13.1 Adjusted1 sales 9,058.7 9,252.8 -2.1 Adjusted2 EBIT 1,008.8 1,233.4 -18.2 in % of sales 11.1 13.3 1 Before changes in the scope of consolidation. 2 Before changes in the scope of consolidation and special effects. We – the people at Continental. We describes the team spirit that evolves while mutually focusing on one goal. We stands for a culture that fosters creativity and welcomes openness. We refers to a climate that promotes flexibility and generates enthusiasm. We stands for the commitment of the employees. We are Continental. It was “their” production line from the very beginning. The machine operators were involved in installing and setting up the new MKxxE/A production line. From the start, they got to know everything about the machines used in the Frankfurt plant to produce electronic brake sys- tems. Today, they see to it that the production process runs smoothly and that the line is kept in shape. Every employee who was there at the start later took on the sponsor- ship for a new team member, show- ing them the ropes and sharing their knowledge and experience of this production line. Benjamin Heyne, Seyran Agbulut, Hicham Badran, Florian Prager and Tuncay Bayrak belong to a 24-member group of system operators who will soon be mentoring further colleagues in their training phase. That’s team spirit. Team Spirit Theodor Kett finds it a bit exagger- ated when some of his colleagues refer to him as a perfectionist, be- cause as he sees it, nothing is re- ally perfect. There is always room for improvement. And Theodor Kett should know, as he submitted more than 70 improvement suggestions as part of the Continental Ideas Management program. Of those 70 suggestions, 59 were awarded pre- miums and implemented in the pro- duction in Regensburg. He loves his profession as a technician, and he appreciates the freedom given to him by his employer Continental so that he can let his full creativity un- fold. You can’t get good ideas out of a catalogue. You have to be open to them at just the right moment. That’s creativity. Creativity Openness At Continental, there is a lot to talk about every day: ranging from day- to-day events to business policy and product innovations. Here, the com- pany attaches great importance to a culture of open dialogue and in- formation sharing, which evolves from speedy, honest and direct communication through all levels of hierarchy. For Matthias Schönberg (2nd from left) and his co-workers in Charlotte, North Carolina, U.S.A., (left to right: Travis Roffler, Joe Maher and John Barnes), such communi- cation is normal. It is founded on mutual respect between manage- ment and employees – who are, after all, a company’s most valuable asset. That’s openness. Flexibility Catherine Chatellard was born in Flexibility France and spent a few years in America while going to school and studying. She then found employ- ment in Belgium for five years. Since 2002 she has been working in Spain, where she is assigned to replace- ment sales for automotive drive systems. Half of the time she is at the office, the other half on the road calling on customers in Spain and Portugal. Staff members like Cath- erine Chatellard take it fully in stride that the requirements they face change from day to day. In the proc- ess they profit all the time from new encounters and new experiences – and the company benefits from their drive and commitment. That’s flexibility. Nuno Teodoro from Portugal, Mareile Noga from Germany, Alexis Keath- ley from the U.S.A., Danqing Huang from China, Andres Guerrero from Portugal, and Kumar Krishnamurthy from India are filled with enthusiasm, even if so much is new for them. As participants in Continental’s eXplore Trainee Program, the young talented engineers work together on projects that involve intercultural tasks, in ad- dition to budgeting and technical implementation. This means that all participants have to rely on their col- leagues’ strengths, take on respon- sibility for themselves and others, and face new challenges on an on- going basis. And they master this with unconventional ideas, often displaying previously undiscovered abilities along the way. That’s enthusiasm. Enthusiasm Commitment Miguel Velasco-Antillon, Sergio Cer- vera-Mireles and Pedro Avalos- Esparza, members of a team from Mexico, have every reason in the world to celebrate. They have just been singled out for the Continental BASICS Award 2008. This prize is conferred annually on individual em- ployees or teams that get exem- plary initiatives going and display exceptional commitment. This par- ticular team implemented recycling processes for various types of scrap at the Guadalajara plant, yielding around $120,000. The money will be plowed back into various projects, from support for a primary school in a disadvantaged area and a health care campaign to the planting of 6,000 trees within the city limits. Commitment That’s commitment. v C3 Key Figures for the Continental Corporation 80 Key Figures for the Rubber Group C4 Key Figures for Continental’s Core Business Development in the Divisions: Areas 81 Passenger and Light Truck Tires 84 Commercial Vehicle Tires 87 ContiTech For Our Shareholders 90 Earnings, Financial and Net Assets Position of the Parent Company 2 Chairman’s Letter 96 Supplementary Report on Events Occurring 4 Members of the Executive Board after December 31, 2008 5 The Continental Share 98 Risk Report The Supervisory Board Report on Expected Developments 11 Report of the Supervisory Board 103 Economic Conditions in the Following 14 Members of the Supervisory Board Two Fiscal Years 107 Outlook for the Continental Corporation Corporate Governance 15 Corporate Governance Principles of the Continental Corporation Consolidated Financial Statements 18 Remuneration Report 110 Statement of the Executive Board 111 Independent Auditor’s Report Management Report 112 Consolidated Income Statements 113 Consolidated Balance Sheets Corporate Profile 115 Consolidated Cash Flow Statements 26 Overview 116 Consolidated Statements of Changes 27 Structure of the Corporation in Total Equity 28 Business Activities, Organization, 117 Segment Reporting and Locations 40 Corporate Strategy Notes to the Consolidated Financial Statements Corporate Responsibility 120 General Information 43 Employees 120 Accounting Principles 46 Environment 129 New Accounting Pronouncements 48 Acting Responsibly 135 Companies Consolidated 136 Acquisition and Sale of Companies Economic Climate 142 Notes to the Consolidated Income Statements 50 Macroeconomic Development 149 Notes to the Consolidated Balance Sheets 51 Industry Development 194 Other Disclosures Earnings, Financial and Net Assets Position 56 Earnings Position Further Information 63 Financial Position 65 Net Assets Position 206 Responsibility Statement 68 Key Figures for the Automotive Group 207 Other Directorships – The Executive Board Development in the Divisions: 209 Other Directorships – The Supervisory Board 69 Chassis & Safety 211 Ten-Year Review – Corporation 72 Powertrain 212 Glossary of Financial Terms 76 Interior 215 Financial Calendar C5 Contact Data and Acknowledgements 1 For Our Shareholders | Chairman’s Letter Dear Shareholders, 2008 was a year of extraordinary and far-reaching But if we summarize the results of all the challenges in changes for our company. Let us have a look back: In fiscal 2008 – those expected as well as those entirely starting off the first year of the "new" Continental, we unforeseen – one thing is clear: Continental indeed did were filled with energy, concentrating most of our efforts very well, also in comparison to the competition.