Financial Overview

Sales distribution by sectors, Consolidated ZF Group

<Factors>
1) Sales of Overall
- In the year 2006, the Consolidated ZF Group increased sales by 8 % to euro 11,659 million. Thus, the Company again grew more dynamically than the market. In the core business of driveline and chassis technology products for passenger cars and commercial vehicles, which represents 87 % of its sales, the Company further strengthened the international market position. The most successful products for passenger cars include automatic 6-speed transmissions, axle drives, electronic damping systems, axle systems, and electric power steering systems. In the field of commercial vehicles, automatic transmission systems, low-floor axles for buses, steering systems, as well as driveline and chassis components were successful. The respective divisions and business units benefited from the favorable trend in the industry, particularly in the fields of commercial vehicles and construction machinery.
The sales percentage in construction and agricultural machinery, marine craft, aircraft, as well as special and rail vehicles remained unchanged at 13 % in the year 2006.

2) Car Driveline Technology
- Compared with the prior year, this division increased sales again by 3 % to euro 1,979 million. All in all, approx. 1.3 million passenger car transmissions were produced. The ZF Getriebe GmbH, Saarbrucken plant, sold approx. 1,029,000 automatic transmissions 窶 an increase of 4 %. Sales rose accordingly to euro 1,720 million. Automatic 6-speed transmissions comprise over 95 % of total production.
Compared to the prior year, the plant in Brandenburg recorded 2 % growth with the supply of 262,000 manual transmissions. Sales totaled euro 258 million.

- The new plant in Shanghai, ZF Transmissions (Shanghai) Co. Ltd., for production of automatic transmissions was officially opened in the fall of 2006.
In June 2006, the Company began volume production of Automatic 5-speed transmission for the VW Passat Lingyu.

-The new generation of automatic 6 speed transmissions for passenger cars began volume production.
Thanks to the new transmissions, gasoline engines use up to 3 % less fuel and diesel engines up to 6 % less. At the same time, the transmissions reduce acceleration times, and shift times were shortened by 50 %. These transmissions have been offered by BMW in the new 3 Series Coupe and the X3 since September 2006, with additional models to follow.

- Effective July 1, 2006, ZF Getriebe N.V. was acquired by Punch International NV, a diversified
technology group headquartered in Sint-Martens-Latem/Belgium. Punch International
will continue the present activities in Sint-Truiden, and it intends to continue
development of continuously variable transmissions.

3) Car Chassis Technology
- In the year 2006, sales in this division increased by 12 % to euro 2,329 million despite the continuously very difficult market environment.
- New production plants which met and/or exceeded planned production volumes in the year 2006 were major factors in the growth of sales. These plants include ZF Fawer Chassis Technology (Changchun) Co. Ltd. China with the assembly of front and rear axle systems for Audi, ZF Lemforder (Thailand) Co. Ltd. Thailand with axle assembly for BMW, and ZF Lemforder Australia Pty. Ltd., Australia, with the production of axle systems for the customer GM Holden. ZF Lemforder Corporation in Tuscaloosa, USA, completed the conversion of production for the current Mercedes M-Class as well as the R and GL models. Only ZF Lemforder Chicago LLC, USA lagged considerably behind planning after a customer reduced supply volumes.

4) Commercial Vehicle and Special Driveline Technology
- Within the commercial vehicle industry, which developed better than expected, the division took advantage of its strong market position and product innovations to again achieve growth.
Sales increased by 8 % to euro 1,776 million.
-The Truck Driveline Technology business unit achieved sales of euro 1,236 million, which reflects an increase of 12 % and is considerably above the overall development of the market in the truck sector. In Western Europe, market share expanded to 45 %. In Russia and China, both the joint venture OOO ZF Kama in Russia and the subsidiary ZF Drivetech (Hangzhou) Co. Ltd. in China developed positively.
- In 2006, the Bus Driveline Technology business unit registered sales of euro 330 million. This represents a growth of 2 % on a consolidated basis. The leading market position in bus transmissions was maintained and even expanded in some markets and regions. Successes in the coach business in South Korea are noteworthy, where new customers were acquired for manual transmissions and ZF-Intarder secondary retarders. Business with Chinese bus manufacturers was entered successfully with the Ecomat automatic transmission; in addition
to China, Southeast Asia and the Middle East are the primary target markets. At ZF Drivetech (Suzhou) Co. Ltd., China, manufacturing of components for local assembly of manual 6-speed transmissions was advanced. The new EcoLife automatic transmission was presented at the IAA Commercial Vehicles in Hanover, Germany. The first application of this transmission was launched in the new Volvo B9TL double-decker bus.
- Despite the continuously difficult market environment in North America, the Pickup/Van Driveline Technology business unit increased sales by 12 % to euro 133 million. This development was driven especially by the European market, where the customer base was expanded with the volume production launch of transmissions for the Nissan Cabstar and Nissan Atleon.
- The Special Driveline Technology business unit, which includes the military vehicles, special vehicles for civil purposes, rail vehicles, and industrial drives product segments, achieved sales of euro 142 million in the year 2006, which represents an increase of 12 %.

5) Off-Road Driveline Technology and Axle Systems
- In the year 2006, the division achieved sales of euro 1,692 million, a 20 % increase compared to the prior year. This development benefited from the healthy economic situation of commercial vehicles and construction machinery. However, new business also contributed to the strong sales growth.
- With only moderate growth in the bus sector in the core market of Europe, the business unit of Commercial Vehicle Axle Systems increased sales by 21 % to euro 193 million. The most important contributor to growth was primarily the sales success in new markets such as China and South America with lowfloor axle systems for Bus Rapid Transit. Initial production orders were received in Russia and Ukraine. The transfer case all-wheel drive technology for the heavy trucks product group achieved very favorable results with over 14 % sales growth.
- The business unit of Commercial Vehicle Chassis Modules increased sales by 16 % to euro 266 million. Further gains are achieved by an increase in the area of chassis suspensions and cabin suspensions. A new plant was constructed in Shanghai to keep pace with the strong growth in Asia. In South Korea, the business unit successfully entered into the market by supplying deliveries to a major customer.
- The business unit of Passenger Car Axle Drives increased sales once again double-digit by 44 % to euro 341 million. The volume production launch of a new rear axle drive in the USA as well as the volume production launch of the rear and front axle drives for Audi played a considerable role in this success. In Thyrnau, 1.1 million ground bevel gear drives were produced, which makes the location number one worldwide for ground bevel gear drives.

6) Powertrain and Suspension Components
- The division achieved sales of euro 2,125 million in the year 2006, reflecting 5 % growth. Business volumes increased equally in Germany and abroad, whereby a shift from conventional to more technologically advanced products was observed. Business development in the NAFTA region was inconsistent. The declining production figures at some manufacturers could not be completely offset. Sales in Asia rose due to the recovery of market shares of main customers in China. In addition, projects to increase efficiency and acquire new Asian customers showed positive results.
- The Powertrain Components business unit recorded an increase in sales of 5 % to euro 1,046 million. In the passenger car sector, demand for dual-mass flywheels and wear compensating clutches again exceeded the prior year's already high figures. Intense development efforts with European customers for electric drives for systems were successfully advanced in both the passenger car and the light commercial vehicle sectors.
Furthermore, volume production of a newly developed, strategy-compatible wet starting element as a supplement to the torque converter was pushed forward. Volume production began on a new generation of torque converters with outstanding properties in the area of torsional vibration decoupling, which has been received positively on the market. During the entire year 2006, the business unit profited from strong commercial vehicle business. Volume production of the integrated pneumatic clutch control system for heavy commercial vehicles (ConAct), in addition to the clutch and dual-mass flywheel systems, is successful. An air compressor clutch and a belt drive damper for commercial vehicles were developed, leading to a sustainable reduction in fuel consumption.
- Despite continuously difficult conditions, the Suspension Components business unit recorded an increase in sales of 3 % to euro 1,219 million. Sales increases in all product segments, except for the Nivomat suspension level regulating system, contributed to the positive figures. In particular, sales of the electronic damping system CDC (Continuous Damping Control) rose considerably. New sport utility vehicles market segments were opened and other new projects for mid-size and upper class models are in planning. In the passenger car sector, the amplitude-selective damping will be introduced as standard in the lower mid-size class for the first time in the year 2007.

7) Rubber-Metal Technology
- In the year 2006, business unit sales fell by 4 % to euro 515 million. This resulted
from exchange rate effects as well as the sale of Sun Manufacturing & Coatings LLC, Williamstown, Kentucky/USA.

8) ZF Lenksysteme GmbH
- In the year 2006, sales outperformed the industry's average again, increasing by over 5 % to euro 2,349 million compared with the prior year. 50 % of sales are consolidated in the Consolidated Financial Statements of ZF Friedrichshafen AG.
- Sales were divided between the business units as follows:

- The strongest sales drivers were the foreign companies, particularly in China, as well as the Servolectric electric power steering system for passenger cars. In the year 2006, the 4 millionth unit was manufactured since volume production launch in the year 2002, making ZF Lenksysteme GmbH the world market leader in the compact car sector. Sales of hydraulic steering systems remained stable. Commercial vehicle steering systems also developed well, particularly in Europe, and maintained the high level of the prior year.

< Outlook for FY2007>
Overall
-In 2007, a decline in growth dynamics is anticipated in the Company's core sectors, in comparison with the maily positive year 2006.
- In order to grow in the long term and to secure high investments in new product generations by larger volumes, the Company must acquire new customers in addition to already established customers. The global market presence must be expanded in order to participate in the growth of the emerging markets. Intensified activities in the regions are necessary to achieve this goal. In particular, product strategy must include design-to-market approaches more intensely and therefore customer expectations that vary throughout the regions. Furthermore, the Company will increase efforts toward the important Japanese and South Korean vehicle manufacturers, primarily by increasing development and sales activities.
In order to further expand the international market position and strengthen competitiveness, it is necessary to make even stronger use of the potentials on the global procurement markets in addition to the activities on the sales market. China, India, and Eastern Europe will be the primary regions for these efforts.

By Segment
Car Driveline Technology
-In 2007, the Car Driveline Technology division expects an increase in sales of 4 %, which is slightly above the industry average.

Car Chassis Technology
-In the year 2007, the Car Chassis Technology division expects major challenges similar to those in the year 2006. As a result of the termination of a large passenger car axle contract, the division anticipates a stagnation respectively decline in sales.

Commercial Vehicle and Special Driveline Technology
- In 2007, economic developments in the European commercial vehicle industry are expected to remain positive. Further market growth is apparent in the Asia-Pacific and South American regions, while a decline is anticipated in the North American market. The division will continue its market and product offensive and expects sales growth of 8 %. The next steps for the volume production launch of the new EcoLife automatic transmission at the Friedrichshafen location are imminent. In Boutheon/France, volume production of the AS Tronic mid automatic transmission range for medium trucks is ramping up. Local presence is being expanded in China and India.

Off-Road Driveline Technology and Axle Systems
- The Off-Road Driveline Technology and Axle Systems division is well positioned for future challenges because intense efforts were made in the year 2006 to develop new product generations to meet these challenges; in addition, sales activities worldwide were considerably intensified in order to tap into new markets. After the 20 % surge in growth in the year 2006, the division expects growth in the order of 4 % in 2007.

Powertrain and Suspension Components
- In light of the moderate growth prospects of today's core passenger car markets in Western Europe and North America, the division does not anticipate any considerable impulses.
However, the commercial vehicle market continues to promise a high sales level. New products for passenger cars and commercial vehicles, such as hybrid components and modules, as well as system-compatible controlled damping systems will become more important on the market.
All in all, the division anticipates increasing sales of nearly 6 % again in the year 2007.

Rubber-Metal Technology
- In the year 2007, the Rubber-Metal Technology business unit anticipates a further slight increase in sales. Price pressure from automotive manufacturers and the necessity to relocate production to best cost countries in the Asian-Pacific region will continue. The business unit will expand its presence in growth markets and with the rapidly growing, primarily Asian, automotive manufacturers.

ZF Lenksysteme GmbH
- Based on the market forecasts for 2007, ZF Lenksysteme only anticipates slight sales growth. Nevertheless, further improvements in results are expected. This will, however, only be possible if maximum effort is made to reduce costs.

R&D Expenditure

Investments in tangible assets

698