M o b i l i t y Is The Future > Annual Report 2014 Mobility Is The Future > > Continental develops intelligent technologies for transporting people and their goods. > As a reliable partner, the international automotive supplier, tire manufacturer, and industrial partner provides sustain- able, safe, comfortable, individual, and affordable solutions. > In 2014, the corporation generated sales of approximately €34.5 billion with its five divisions, Chassis & Safety, Interior, Powertrain, Tires, and Conti- Tech, and with its 190,000 employees in 50 countries. 2015 Continental Mobility Study > Insight and outlook from the 2015 Continental Mobility Study > > Automobility remains in high demand worldwide — for young and old alike > Individual mobility — with a green conscience > Enjoy driving — but economically > Arrive relaxed — with intelligent assistance > Safe, comfortable and convenient — yet affordable > Intelligently connected — and fully focused > Variety — the answer to diverse requirements 2014 Highlights › Adjusted EBIT up again at more than 11% of sales › Net indebtedness down by nearly €1.5 billion, gearing ratio at 25.6% › Dividend increased by 30% to €3.25 Key Figures for the Continental Corporation in € millions 2014 2013 ' in % Sales 34,505.7 33,331.0 3.5 EBITDA 5,133.8 5,095.0 0.8 in % of sales 14.9 15.3 EBIT 3,344.8 3,263.7 2.5 in % of sales 9.7 9.8 Net income attributable to the shareholders of the parent 2,375.3 1,923.1 23.5 Earnings per share in € 11.88 9.62 23.5 Adjusted sales1 34,177.6 33,259.1 2.8 Adjusted operating result (adjusted EBIT)2 3,874.5 3,737.5 3.7 in % of adjusted sales 11.3 11.2 Free cash flow 2,014.9 1,818.3 10.8 Net indebtedness 2,823.5 4,289.3 –34.2 Gearing ratio in % 25.6 46.0 Total equity 11,024.6 9,322.2 18.3 Equity ratio in % 36.5 34.8 Number of employees as at December 313 189,168 177,762 6.4 Dividend per share in € 3.254 2.50 Share price at year-end5 in € 175.55 159.40 Share price5 (high) in € 183.25 161.90 Share price5 (low) in € 136.85 80.66 1 Before changes in the scope of consolidation. 2 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation, and special effects. 3 Excluding trainees. 4 Subject to the approval of the Annual Shareholders’ Meeting on April 30, 2015. 5 Price quotations of the Continental share in the XETRA system of Deutsche Börse AG. Overview of the Corporation Key Figures for Continental’s Core Business Areas Automotive Group in € millions 2014 2013 ' in % Sales 20,909.2 20,016.1 4.5 EBITDA 2,407.7 2,490.5 –3.3 in % of sales 11.5 12.4 EBIT 1,189.3 1,158.9 2.6 in % of sales 5.7 5.8 Adjusted sales1 20,796.8 19,944.2 4.3 Adjusted operating result (adjusted EBIT)2 1,676.1 1,593.3 5.2 in % of adjusted sales 8.1 8.0 Rubber Group in € millions 2014 2013 ' in % Sales 13,637.6 13,355.5 2.1 EBITDA 2,832.6 2,714.0 4.4 in % of sales 20.8 20.3 EBIT 2,262.7 2,214.8 2.2 in % of sales 16.6 16.6 Adjusted sales1 13,421.9 13,355.5 0.5 Adjusted operating result (adjusted EBIT)2 2,305.6 2,256.6 2.2 in % of adjusted sales 17.2 16.9 1 Before changes in the scope of consolidation. 2 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation, and special effects. Contents > Annual Report 2014 > Continental AG 2 Contents > To Our Shareholders > 74 Economic Report 74 General Conditions 74 Macroeconomic D evelopment C3 Key Figures for the Continental Corporation 76 Development of Key Customer Sectors C4 Key Figures for Continental’s Core Business Areas 79 Development of Raw Material Markets 82 Earnings, Financial and Net Assets Position 6 Chairman’s Let ter 84 Earnings Position 10 Members of the Executive Board 90 Financial Position 93 Net A sset s Position 12 Continental Shares and Bonds 95 Automotive Group 96 Development of the Chassis & Safety Division 19 Corporate Governance 98 Development of the Powertrain Division 19 Report of the Supervisory Board 101 Development of the Interior Division 22 Corporate Governance Report and Declaration 104 Rubber Group Pursuant to Section 289a of the German 105 Development of the Tire Division Commercial Code (HGB) 108 Development of the ContiTech Division 26 Compliance 27 Remuneration Report 110 Continental AG (Short Version in acc. with HGB) 113 Other Information 113 Dependent Company Report Management Report > 114 Takeover Disclosures and Notes 114 Report Pursuant to Section 289 (4) and Section 315 (4) of HGB 116 Remuneration of the Executive Board 40 Corporate Profile 116 Corporate Governance Declaration Pursuant to 40 Structure of the Corporation Section 289a of HGB 42 Corporate Strategy 48 Divisions and Business Units 117 Report on Subsequent Events 48 Chassis & Safety Division 50 Powertrain Division 118 Report on Risks and Opportunities 52 Interior Division 118 Risk and Opportunity Management and 54 Tire Division Internal Control System 56 ContiTech Division 121 Material Risks 58 Corporate Management 121 Financial Risks 61 Research and Development 122 Risks Related to the Markets in which Continental 64 Sustainability Operates 65 Employees 124 Risks Related to Continental’s Business Operations 69 Environment 127 Legal, Environmental and Taxation Risks 73 Social Responsibility 130 Material Opportunities 131 Statement on Overall Risk and Opportunities Situation 132 Report on Expected Developments 132 Future General Conditions 132 Forecast of Macroeconomic Development 134 Development of Key Customer Sectors 136 Outlook for the Continental Corporation Contents > Annual Report 2014 > Continental AG 3 Consolidated Financial Statements > Further Information > 140 Statement of the Executive Board 234 Responsibility Statement by the Company’s 141 Independent Auditor’s Report Legal Representatives 142 Consolidated Statement of Income 235 Other Directorships – The Executive Board 143 Consolidated Statement of Comprehensive Income 236 Other Directorships – The Supervisory Board 144 Consolidated Statement of Financial Position 238 Ten-Year Review – Corporation 146 Consolidated Statement of Cash Flows 239 Glossary of Financial Terms 147 Consolidated Statement of Changes in Equity C5 Financial Calendar C5 Publication Details 148 Notes to the Consolidated Financial Statements 148 Segment Reporting 152 General Information and Accounting Principles 161 New Accounting Pronouncements 166 Companies Consolidated 167 Acquisition and Sale of Companies and Business Operations 171 Notes to the Consolidated Statement of Income 177 Notes to the Consolidated Statement of Financial Position 220 Other Disclosures To Our Shareholders Contents Annual Report 2014 Continental AG 4 The company regularly reports equally to the shareholders, analysts, shareholders’ associations, the media and interested members of the public on significant developments in the corporation. We thus provide all market participants with rel- evant information about Continental at the same time. To Our Shareholders Contents Annual Report 2014 Continental AG 5 To Our Shareholders 6 Chairman’s Letter 10 Members of the Executive Board 12 Continental Shares and Bonds 19 Corporate Governance 19 Report of the Supervisory Board 22 Corporate Governance Report and Declaration Pursuant to Section 289a of the German Commercial Code (HGB) 26 Compliance 27 Remuneration Report To Our Shareholders Chairman's Letter Annual Report 2014 Continental AG 6 Chairman’s Letter When weighing your investment options in the past year, you again placed your trust in Continental’s ability to create value with technologies for mobility and other sectors. Your Continental recently caught up with the group of the ten most highly valued companies in Germany in terms of market capitalization. On behalf of our global team, we would like to thank you for your trust. Our approach to creating value and achieving profitable growth has clearly met with approval. It can be summed up in three words: global, sustainable, and innovative. Our global Continental team of around 190,000 employees once again put in an outstanding performance in 2014, and for this, we thank them most sincerely. We have made some impressive achievements, most notably: › Our profitable growth. We have boosted our sales by 3.5 percent to €34.5 billion and our EBIT by 2.5 percent to €3.3 billion. › Our sound net assets position. Our net indebtedness at the end of 2014, and thus before the cash outflow for the Veyance acquisition, was below three billion euros, continuing at the excellent level of earlier years. › Our capacity for innovation. Excellent examples of this are our 48-volt technology for hybrid drive systems for cars, our expanded development centers in Asia, our High Technology Performance Center for the devel- opment and production of top-quality tires in Korbach, Germany, and our new Intelligent Transportation Systems business unit in Silicon Valley, California, U.S.A. The latter will develop brand new business models for the car as part of the Internet. Your trust in our performance potential paid off again in 2014, with the value of your shares rising 10 per- cent. In addition, we are delighted to be able to propose to the Annual Shareholders’ Meeting in April 2015 that a dividend of €3.25 per share be distributed to you. All in all, we systematically continued along our successful path last year. And we did so in spite of persistent weak economic growth in Europe and South America, the uncertain situation in Ukraine and Russia, and significant exchange rate fluctuations for some currencies. In addition, uncertainty on the markets was fueled by the sharp decline in the oil price in the final quarter of the reporting year.