BASIS OF PRESENTATION

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Dürr Aktiengesellschaft (“Dürr AG” or the “Company”) has its registered offices in Stuttgart, Ger-many. Its headquarters for operations are located at Carl-Benz-Strasse 34 in 74321 Bietigheim-Bissingen, Germany. The Dürr Group (“Dürr” or the “Group”) consists of Dürr AG and its subsid-iaries. The Dürr Group specializes in mechanical and plant engineering and is one of the global market leaders in almost all of its fields of business. In the 2014 reporting period, it generated approximately 75 % of sales revenues with the automotive industry, but also acts as supplier of production technology for other industries including the aviation, mechanical engineering, energy, chemical and pharmaceutical industries as well as the woodworking industry. Dürr serves the market with five divisions: Paint and Final Assembly Systems offers assembly and paint finishing technology, mainly for the automotive industry. Application Technology produces products and systems for automated painting applications as well as sealing and glueing technology. The ma-chines and systems produced by Measuring and Process Systems are used in engine and drive construction as well as final assembly. Clean Technology Systems offers technology for purifying exhaust gases and products to increase the energy efficiency of industrial processes. Woodwork-ing Machinery and Systems develops and manufactures woodprocessWoodwork-ing technology.

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) at the end of the reporting period, and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB [“Handelsgesetzbuch”: German Commercial Code].

The accounting policies used generally correspond to the policies applied in the prior period. In addition, the Group has applied the new and / or revised standards that are effective for the 2014 reporting period.

The change in accounting policies results from the adoption of the following new or revised standards

■IFRS 10 “Consolidated Financial Statements”: IFRS 10 introduces a uniform concept of control to be used in determining which entities should be included in the consolidated financial statements. IFRS 10 replaces IAS 27 “Consolidated and Separate Financial Statements” for the consolidated financial statements and Standing Interpretations Committee (SIC)-12 “Consoli-dation – Special Purpose Entities”. As of January 1, 2014, there are no changes to the entities included in the consolidated financial statements and therefore no effect on the net assets, financial position and results of operations of the Group as the application of IFRS 10 does not lead to any changes in the basis of consolidation.

■IFRS 11 “Joint Arrangements”: IFRS 11 governs the financial reporting by parties to a joint ar-rangement. It replaces International Accounting Standard (IAS) 31 “Interests in Joint Ventures”

and SIC-13 “Jointly controlled Entities – Non-monetary Contributions by Venturers”. IFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation.

The Company

Accounting policies

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As Dürr already measures its joint ventures and associates in accordance with the equity method and the application of IFRS 11 does not have any effect on the composition of these com-panies, the introduction of the standard does not have any effect on the net assets, financial position or results of operations of the Group.

■IFRS 12 “Disclosure of Interests in Other Entities”: IFRS 12 governs the disclosures required for reporting on the interests held by the reporting entity in subsidiaries, joint ventures, associ-ates, and structured entities and results in extended disclosure requirements. This replaces the disclosure requirements previously contained in a number of standards (IAS 27, IAS 28 and IAS 31).

■Amendments to the transitional provisions for IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint Arrangements” and IFRS 12 “Disclosure of Interests in Other Entities”: These de-fine the date of first-time adoption and the applicable wording of IFRS 3 “Business Combina-tions” and IAS 27 “Separate Financial Statements” when applying IFRS 10 retrospectively. They also provide for exemptions in IFRS 11 and IFRS 12. The amendments do not have an effect on the consolidated financial statements.

■Amendment to IAS 28 “Investments in Associates”: This standard was renamed “Investments in Associates and Joint Ventures”. The amended IAS 28 now incorporates SIC-13 “Jointly con-trolled Entities – Non-monetary Contributions by Venturers” and clarifies other issues as well.

The amendment does not have any effect on the consolidated financial statements.

■Amendment to IAS 39 “Financial Instruments: Recognition and Measurement” regarding nova-tion of derivatives and continuanova-tion of hedge accounting. Extensive regulatory changes were introduced to improve the transparency and regulatory oversight of over-the-counter (OTC) de-rivatives. Companies must therefore transfer derivatives to central counterparties to avoid any risks of default (novation). Previously, pursuant to IAS 39, accounting for derivatives as a hedg-ing instrument had to be ended if the original derivate no longer existed. The International Ac-counting Standards Board (IASB) added a simplification to IAS 39, according to which the hedge accounting does not have to be ended if the novation of a hedging instrument with a central counterparty satisfies certain criteria. Dürr does enter into OTC derivatives, but due to various exemptions, the amendment does not have any effect on the consolidated financial statements.

■International Financial Reporting Interpretations Committee (IFRIC) 21 “Levies”: The inter-pretation clarifies that a liability must be recognized for levies as soon as an activity established by law occurs which triggers a corresponding payment obligation. Furthermore, levies that are triggered when specific thresholds are reached are not accounted for until they are reached.

The inter pretation does not have any effect, or no material effect, on the consolidated financial statements.

The following new or revised standards adopted by the EU in the comitology procedures have not yet entered into effect

■Amendments to IAS 19 “Employee Benefits”: The amendment regulates the recognition of em-ployee or third-party contributions to defined benefit plans as a reduction of service cost should these reflect the work performed in the reporting period. The amended standard will become effective for reporting periods beginning on or after July 1, 2014. The amendment will only have a slight effect in the Dürr Group as only a few pension plans in certain countries will be affected by the amendment.

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The amendments contained in the 2010 – 2012 and 2011 – 2013 annual improvements projects are effective for reporting periods beginning on or after July 1, 2014, and will not have any effects, or no material effects, on the consolidated financial statements of the Company.

Annual improvements project (2010 – 2012 cycle)

■IFRS 2 “Share-based Payment”: The amendment clarifies the definition of vesting conditions and market conditions.

■IFRS 3 “Business Combinations”: By amending this standard and making subsequent changes to other standards, all contingent considerations not classified as equity are subsequently mea-sured at fair value recognizing all resulting effects in profit or loss.

■IFRS 8: “Operating Segments”: Newly included in IFRS 8 was the clarification that the under-lying considerations made when merging business segments into reportable segments must be stated and a reconciliation of segment assets to the corresponding accounts in the statement of financial position is only necessary when disclosures on segment assets are regularly reported to the chief operating decision maker.

■IFRS 13 “Fair Value Measurement”: An amendment to the “Basis for Conclusions” in IFRS 13 clarifies that the IASB, in making the amendments to IFRS 9 and IAS 39 resulting from IFRS 13, did not want to eliminate the possibility of opting out of discounting for current receivables and liabilities in the event of immateriality.

■IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets”: The amendment clarifies how to determine accumulated impairment as of the measurement date applying the remeasurement model pursuant to IAS 16 and IAS 38.

Annual improvements project (2011 – 2013 cycle)

■IFRS 1 “First-time Adoption of International Financial Reporting Standards”: The amendment clarifies the meaning of effective date in connection with IFRS 1.

■IFRS 3 “Business Combinations”: The amendment establishes the existing exemption of joint ventures from the scope of IFRS 3.

■IFRS 13 “Fair Value Measurement”: IFRS 13 allows entities managing a group of financial assets and financial liabilities on the basis of their net market risk or risk of default to calculate the fair value of this group in accordance with the standard, as market participants would measure the net risk position on the measurement date (portfolio exception). The suggested amendment clarifies that this exception for determining the fair value relates to all agreements in the scope of IAS 39 “Financial instruments: Recognition and Measurement” or IFRS 9 “Financial Instru-ments”, even if these do not satisfy the definition of a financial asset or a financial liability under IAS 32 “Financial Instruments: Presentation”.

■IAS 40 “Investment Property”: The amendment clarifies that the scope of IAS 40 and IFRS 3

“Business Combinations” are independent of each other, i.e., never mutually exclusive.

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Standards and interpretations which have not yet entered into effect and have not yet been adopted by the EU in the comitology procedures

■IFRS 9 “Financial Instruments”: IFRS 9 governs the classification and measurement of financial assets. The IASB issued the final version of IFRS 9 on July 24, 2014. The standard combines all previously published regulations with the new regulations on recognizing impairment as well as limited changes to the classification and measurement of financial assets. These new regula-tions are effective for reporting periods beginning on or after January 1, 2018. Dürr has not yet concluded its review of what effects the application of IFRS 9 will have on the consolidated finan-cial statements.

■IFRS 11 “Joint Arrangements”: The publication from May 6, 2014 clarifies that both the first-time acquisition as well as the acquisition of further interests in a joint operation in which the activity constitutes a business are to be accounted for by applying the accounting principles on business combinations in IFRS 3, except for those principles that conflict with the guidance in IFRS 11. It also clarifies that the acquirer must disclose the information required by IFRS 3 and other standards for business combinations. The amendments are effective for reporting pe-riods beginning on or after January 1, 2016 and are not expected to have any effect on the con-solidated financial statements.

■IFRS 15 “Revenue from Contracts with Customers”: The aim of the standard issued on May 28, 2014, concerning revenue recognition is the combination of the rules previously contained in various standards and interpretations. Common basic principles have been created that can be applied to all industries and all types of sales revenue transactions. The question of what amount and at what time / over what period of time sales revenue is to be realized is clarified with a five-step model. The standard also contains a number of other rules on details and ex-pands the required disclosures in the notes. The new standard will become effective for report-ing periods beginnreport-ing on or after January 1, 2017. The first-time application is to be performed retrospectively, although there are various simplification options available. Dürr has not yet con-cluded its review of what effects the application of IFRS 15 will have on the consolidated finan-cial statements.

■Amendments to IAS 1 “Presentation of Financial Statements”: In the amendments from Decem-ber 18, 2014, the IASB clarifies the definition of materiality in IAS 1. In addition, they clarify sub-classifications of items in the statement of financial position and the statement of compre-hensive income, the presentation of subtotals and requirements regarding the structure of the notes. Furthermore, requirements regarding the presentation of significant accounting policies as an integral part of the disclosures in the notes were revoked. The amendments are effective for reporting periods beginning on or after January 1, 2016. The amendments are not expected to have any effects, or no material effects, on the consolidated financial statements.

■Amendment to IAS 27 “Separate Financial Statements”: The amendment again permits the equity method as an accounting option for shares in subsidiaries, joint ventures and associates in the separate financial statements of an investor. The amendments are effective for reporting periods beginning on or after January 1, 2016. The amendments do not have any effect on the consolidated financial statements as they regulate accounting for separate financial statements.

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Annual improvements project (2012 – 2014 cycle): In September 2014, the IASB issued the final omnibus standards with changes to existing IFRSs in the course of its annual improvements project.

The annual improvements project included minor amendments or clarifications. These amend-ments are effective for reporting periods beginning on or after July 1, 2016, and will not have any effects, or no material effects, on the consolidated financial statements.

■IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”: The amendment con-tains the addition of special guidance for an entity that reclassifies an asset from being held for sale to being held for distribution (or vice versa) and the addition of special guidance for when the accounting of assets held for distribution is terminated.

■IFRS 7 “Financial Instruments: Disclosures” with subsequent amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards”: Inclusion of additional guidance to clarify whether a management agreement constitutes continuing involvement in a transferred asset (in order to determine disclosures required). It also clarifies the application of the amend-ments to IFRS 7 with respect to offsetting in condensed interim financial stateamend-ments.

■IAS 19: “Employee Benefits”: This amendment clarifies that high quality corporate bonds that are used in determining the discount rate for post-employment benefits are to be denominated in the currency of the amounts payable and as a result the depth of the market for high quality corporate bonds is to be assessed at currency level.

■IAS 34 “Interim Financial Reporting”: The amendment clarifies the meaning of ‘elsewhere in the interim financial report’ and requires that a disclosure must be incorporated by cross-refer-ence if this information has not been included in the main section of the report.

The Group elected not to early adopt standards and IFRIC interpretations which have already been issued but have not yet become effective. Generally speaking, Dürr intends to adopt all standards when they become effective.

The requirements of the standards applied were satisfied in full. The financial statements thus give a true and fair view of the net assets, financial position and results of operations and cash flows of the Group.

The reporting period of Dürr is the calendar year. The consolidated financial statements are pre-pared in euros; all amounts are presented in thousands of euro (€ thousand or € k), unless stated otherwise.

All assets and liabilities are measured at historical or amortized cost. Exceptions to this rule are derivative financial instruments, liabilities from options held by non-controlling interests, liabili-ties from contingent purchase price installments, obligations from share-based compensation and financial assets classified as available-for-sale or held-for-trading, purchase options for shares in entities and assets and liabilities held for sale which are measured at fair value.

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Assets and liabilities are treated as current if they are realized or settled within twelve months of the end of the reporting period. Assets and liabilities with a remaining term of more than twelve months are disclosed as non-current. Furthermore, liabilities with a remaining term of between one and five years are disclosed in the notes to the consolidated financial statements as medium-term and those with a remaining medium-term of more than five years as long-medium-term.

2. BASIS OF CONSOLIDATION

The consolidated financial statements of Dürr are based on the IFRS financial statements of Dürr AG and the consolidated subsidiaries and entities accounted for using the equity method as of December 31, 2014, prepared in accordance with uniform policies and audited by indepen-dent auditors.

For subsidiaries included in the consolidated financial statements for the first time, capital con-solidation is performed according to the acquisition method of accounting pursuant to IFRS 3

“Business Combinations”. This involves offsetting the cost of the shares acquired against propor-tionate equity of the subsidiaries. All assets, liabilities and contingent liabilities acquired are in-cluded in the consolidated statement of financial position at the acquisition date taking hidden reserves and encumbrances into account. Any remaining debit difference is shown as goodwill.

When the entity is removed from consolidation, the goodwill is released to profit or loss. Negative differences are posted immediately to profit or loss. For acquisitions in which less than 100 % of the shares are purchased, IFRS 3 provides for a choice between the purchased goodwill method and the full goodwill method. This option can be exercised for every business combination. Dürr de-termines the method to be used to recognize the goodwill for each acquisition. Changes in interests for subsidiaries which cause the Group’s interest to increase or decrease without losing control are treated as transactions between equity providers that do not affect income.

Intragroup sales revenues, other operating income and expenses and all intragroup receivables, liabilities, provisions and end-of-year adjustments (prepaid expenses and deferred income) are eliminated. Intragroup profits which are not realized by sale to third parties are eliminated.

Subsidiaries that, on account of their low level or lack of business activity, are immaterial for the Group and the presentation of a true and fair view of the net assets, financial position and results of operations are generally included in the consolidated financial statements at amortized cost.

They are listed under non-consolidated subsidiaries.

Entities over which Dürr exercises significant influence (associates) are accounted for using the equity method. Significant influence is the power to participate in the financial and operating policy of the investee. The equity method is also applied for joint ventures in which Dürr together with other venturers undertakes an economic activity which is subject to joint control. Interests in entities accounted for using the equity method are initially recognized at cost. Costs exceeding the share in the net assets of the entity accounted for using the equity method after taking into account hidden reserves or burdens are recognized as goodwill. Goodwill resulting from the ac-quisition of an associate is included in the carrying amount of the entity accounted for using the equity method and is not amortized, but tested instead for impairment as part of the overall carry-ing amount of entity accounted for uscarry-ing the equity method.

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Subsequent to initial recognition, the share of the profit or loss of the entity accounted for using the equity method to which Dürr is entitled is recorded under investment income in the consoli-dated statement of income; the share in other comprehensive income is recognized directly in group equity. The cumulative changes after the acquisition date increase or decrease the carrying amount of the entity accounted for using the equity method. Dividends received are deducted from the carrying amount. If the losses of an entity accounted for using the equity method attribut-able to Dürr correspond to or exceed the value of the interest in this entity, no further losses are recognized unless Dürr has entered into obligations or has made payments for the entity accounted for using the equity method.

All other investments are accounted for at cost because market values are not available and fair

All other investments are accounted for at cost because market values are not available and fair