Financial Overview

(in million euros)

	FY2009	FY2008	Rate of change (%)	Factors
Overall
Sales	9,371	12,501	(25.0)	-
Sales by Segment (Automotive related segment)
Car Driveline Technology	1,647	2,011	(18.1)	-
Car Chassis Technology	1,624	1,951	(16.8)	-
Commercial Vehicle and Special Driveline Technology	1,166	2,235	(47.8)	-
Off-Road Driveline Technology and Axle Systems	1,128	1,955	(42.3)	-
Powertrain and Suspension Components	1,832	2,387	(23.3)	-
Rubber-Metal Technology	378	489	(22.7)	-
Electronic Components	208	32	-	-
Steering Technology (ZF Lenksysteme GmbH)	1,099	1,297	(15.3)	-

Business Overview

Car Driveline Technology

-A total of approximately 1 million passenger car transmissions were produced.

-The ZF Getriebe GmbH plant in Saarbruecken, Germany, was able to sell about 723,000 automatic transmissions. This corresponds to sales of 1,377 million euros.

-The plant in Brandenburg, Germany, was well under 2008 at 21% for the 157,000 manual and dual clutch transmissions it sold. Sales fell 10% to 241 million euros. This lower sales decrease is primarily due to a shift towards high-quality dual clutch transmissions.

-In the Shanghai plant in China, 92,000 5-speed and 6-speed automatic transmissions were produced in the year under review; achieving an increase of 26% compared to 2008.

-The strong decline in sales figures over several months required the introduction of short-time work at the Saarbruecken and Brandenburg locations.

Car Chassis Technology
-The division responded to the serious market slump in the first half of 2009 by exhausting all possible cost-cutting options such as limiting spending, a hiring freeze, and reducing working hours.

-Despite the market's economic woes, Axle Systems in Changchun and Senyang, China, and in Rosslyn, South Africa, exceeded the sales and quantity forecasts resulting in sales declines that were less than the market decline.

-The Axle Systems business unit encountered additional stresses in 2009 because the phase-out for current models had already begun due to the impending vehicle model changeovers scheduled for 2010 and 2011.

-The Gearshift Systems business unit posted a sales decline in 2009. Due to the cash for clunkers program as well as changes to the product portfolio, the decline has been considerably lower than in the overall industry.

Commercial Vehicle and Special Driveline Technology

-The Truck Driveline Technology business unit had to absorb sales declines of 29%, down to 705 million euros.

-Sales in the Bus Driveline Technology business unit fell by 20% to 320 million euros.

-Sales in the Pickup/Van Driveline Technology business unit fell by 25% to 77million euros.

-Sales in the Special Driveline Technology fell by 13% to 186 million euros.

Off-Road Driveline Technology and Axle Systems

-Passenger Car Axle Drives business unit had to cope with sales falling by 30% to 253 million euros after years of double-digit growth.

-Sales in CV Axle Systems business unit of 247 million euros were reported, that is 1% above 2008.

-In the CV Chassis Modules business unit, the heavy production declines reported by commercial vehicle manufacturers resulted in a 48% sales decline to 166 million euros.

Powertrain and Suspension Components

-The business units within the Powertrain division posted a considerable sales drop of 25% to 929 million euros.

-For established products for passenger cars, such as the dual-mass flywheel and the XTend clutch, the serious decline in sales in the first half of the year was compensated for in the second half of the year by the positive impact of the cash for clunkers program.

-The business units under the Suspension division posted sales of 1,007 million euros, a considerable decrease of 24%.

Electronic Components

-The automobile share came to 47%.

-The business unit held up well when compared to regional sales distribution in the automotive electronic component segment focusing on Western Europe.

ZF Lenksysteme GmbH
-ZF Lenksysteme GmbH did not escape the impact of the financial and economic crisis in 2009. Sales dropped 15% with declines particularly heavy in the first quarter.

-Sale in Western Europe fell, but business in China boomed.

-The recession hit sales of the CV Steering Systems and Columns business unit very hard and remained extremely sluggish throughout the entire year.

-Foreign sales dipped by roughly 9% compared to 2008.

-Sales were divided between the business units as follows: 64% in Car Steering Systems, 10% in CV Steering Systems and Columns, 12% in Steering Pumps, and 14% in Car Steering Columns.

Contracts

-Followings are major contracts from a press release in 2009.

Maker/ Model	Products
Nova Bus	Ecomat 4 automatic transmission, Low-floor axle system
Iveco Daily Agile	6-speed eTronic transmission
Porsche Panamera p51	7-speed dual clutch transmission
Mazda Mazda3	Clutch plate
Daimler Mercedes-Benz SL 63 AMG Roadster	Wet multi-plate clutch
BMW 760i	8-speed automatic transmission, CDC-Continuous Damping Control, Hydraulic ARS-Active Roll Stabilization system, Rack-and-pinion steering system Servotronic, Active steering system
Hyundai Genesis	6-speed AT
Mitsubishi Fuso Canter Euro 5	Ecolite 6-speed manual transmission
BMW X1	6-speed manual transmission, 6-speed automatic transmission, Suspension component, Damper, Plastic part, Rack-and-pinion steering system, Steering column
Bentley Mulsanne	8-speed automatic transmission, Continuous Damping Control (CDC) damper, Suspension component
GM Opel Astra	"FlexRide"
GM Chevrolet Equinox	Electric Power Steering (EPS)
Audi TT Coupe	Electric Power Steering (EPS)
Volvo India B7R	6-speed automatic transmission Ecomat
Tata	Front axle

Business Restructuring

-The Company has consistently geared its structures toward efficiency and competitiveness. A number of plants abroad have been consolidated and unprofitable facilities have been closed. In Germany, the Rubber-Metal Technology business unit has been integrated into the Car Chassis Technology division. The structural adjustments have meant an overall shift in the Company's business activities toward Asia, where some 500 additional employees were hired in 2009. (From a press release on Dec. 15, 2009)

R&D Expenditure

(in million euros)

	FY2009	FY2008	FY2007
Total	663	697	694

R&D Structure

-Approx. 5,300 employees work for Research and Development worldwide. Of those, about 750 engineers and technicians work at the Company's Corporate Research and Development department in Friedrichshafen, as well as an additional 150 in Pilsen, Czech Republic; Shanghai, China; and Tokyo, Japan.

R&D Facilities

Main Engineering Centers	Friedrichshafen, Germany Dielingen, Germany Schwaeb.Gmuend, Germany Passau, Germany Schweinfurt, Germany Northville, USA
Engineering Centers	Plzen, Czech Republic Shanghai, China Tokyo, Japan

Patents

-The number of internal invention disclosures at over 700 remained only slightly below 2008's level.

R&D Activities

-The Company is going to place the first priority for its large-vehicle hybrid technology on buses used for city transport. The Company will propose several types of hybrid units to bus manufacturers, aiming to take hold of the business as soon as possible. When it comes to long-distance transportation systems such as heavy-duty trucks, a significant improvement in fuel efficiency cannot be expected through the introduction of a hybrid technique. For this reason, the Company will consolidate its development resources for hybrids into city buses, which make frequent stops and goes and can thereby expect a tangible effect of the electric drive system. In an effort to improve its competitive edge, the Company is eying the possibility of introducting its electric car technology to city buses, too. (From an article in the Nikkan Jidosha Shimbun on Sep. 7, 2009)

Technological Alliance

-The Company and Continental have finalized a strategic alliance to develop and produce hybrid drives for commercial vehicles. The Company will provide the parallel hybrid transmission, while Continental will provide the lithium-ion battery. Volume production is scheduled for 2011. (From a press release on May 6, 2009)

-The Company and ISE Corporation have agreed to jointly develop and supply hybrid drive systems for the North American commercial vehicle market. Under the plans, the Company intends to utilize ISE expertise for integration engineering, subsystem assembly, sales and service support. Meanwhile, ISE will develop and market an ISE branded parallel hybrid drive system which incorporates the Company's systems and parts. In addition, North American sales of the Company's hybrid systems and components will be undertaken by ISE. (From a press release on Jun. 23, 2009)

Product Development

Wet multi-plate clutch
-ZF Sachs has developed a new wet multi-plate clutch called HCC. The HCC is installed in the clutch housing of the automatic transmission instead of torque converter and provides fast gear changes. (From a press release on Feb. 10, 2009)

Hybrid unit
-The Company will launch a full-scale promotion of its hybrid system technology, targeting luxury passenger cars. For its hybrid unit developed on the base of its 8-speed-automatic transmission whose mass production has recently started, three models which will improve fuel efficiency by 5% through 25%, depending on the specifications, are provided. The Company estimates that CO2 emission of the combination of the full-hybrid unit, which will improve fuel efficiency most, and the 2.5-liter V6 engine vehicle should be reduced to 127 g/km (NEDC: New European Driving Cycle). The high mountability of this hybrid unit, that is, the drive system will be made hybrid basically by a simple recombination of the automatic transmission, is expected to increase its sales. (From an article in the Nikkan Jidosha Shimbun on Aug. 6, 2009)

8 speed automatic transmission and 7 speed dual clutch transmission
-The Company started to supply the new 8 speed automatic transmission (AT) and the 7 speed dual clutch transmission (DCT) with a start-stop function - reducing fuel consumption in vehicles equipped with these transmissions by around 5%. In the 8 speed AT, a hydraulic impulse oil storage (HIS) maintains hydraulic pressure to the transmission when the engine is still stopped, while the DCT uses a non-return valve to prevent the clutch hydraulic system from draining. (From a press release on Aug. 13, 2009)

Hybrid system for small commercial vehicles tangible
-The Company sees commercialization of its hybrid system for small commercial vehicles tangible. The system is capable of raising the 10/15 mode fuel efficiency by 30% compared to the base vehicle. While small commercial hybrid vehicles are superior in the emission performance, the fuel efficiency improvement ratio stays at a very low level as the hybrid system increases the vehicle weight. The Company will coordinate control of a one-motor unit, in which one motor is used for both driving and generating electricity, with an engine and an AMT (Automated Manual Transmission: automatic transmission based on a manual transmission) in order to improve fuel efficiency while keeping costs low. The Company plans to develop the needs mainly in Japan and Europe and aims to mount the new system in vehicles in 2013. (From an article in the Nikkan Jidosha Shimbun on Aug. 18, 2009)

Ultralight fiber composite damper
-At the IAA 2009, the Company presented a concept study of ultralight fiber composite damper. By using lighter materials and by integrating functions, it has been possible to halve the weight of today's aluminum lightweight dampers. The study by ZF Sachs deals with an entire suspension strut with integrated wheel carrier. Weight savings are generated by using lighter materials instead of steel parts in the piston rod, internal parts, and module assemblies on the one hand, and with the integration of functions on the other. Despite their low weight, plastic dampers have all the features of a modern damper; this was proven by loading calculations based on Western European road surface conditions. (From a press release on Sep. 11, 2009)

Capital Expenditure

(in million euros)

	FY2009	FY2008
Overall	516	939
Car Driveline Technology	136	187
Car Chassis Technology	64	71
Commercial Vehicle and Special Driveline Technology	87	258
Off-Road Driveline Technology and Axle Systems	42	89
Powertrain and Suspension Components	60	168
Rubber-Metal Technology	7	18
Electronic Components	7	2
Steering Technology (ZF Lenksysteme GmbH)	52	82

Car Driveline Technology
-The expansion of production capacities for ramping up production of the 8-speed automatic transmission in Saarbruecken and the dual clutch transmission in Brandenburg, Germany, accounted for the largest investment share in this division.

Car Chassis Technology
-The division required investments for new projects and capacity expansions at the following locations: Diepholz, Kreuztal, Damme, and Dielingen, Germany; Shanghai, China; Duncan and Lapeer, USA; and Levice, Slovakia.

Commercial Vehicle and Special Driveline Technology
-The division had large additions to property, plant, and equipment from ongoing machine and plant orders as well as the completion of a technology and administration building at the Friedrichshafen location. Other major investments were allocated to the following locations: Sorocaba-SP, Brazil; Eger, Hungary; and Boutheon, France.

Off-Road Driveline Technology and Axle Systems
-Investments in capacities for new ramp-ups in this division were mainly made at these locations: Thyrnau, Passau, and Dielingen, Germany; Liuzhou, China; and Steyr, Austria.

Powertrain and Suspension Components
-In this division, capacities for ongoing and new products were mainly necessary in Schweinfurt, Germany; Trnava, Slovakia; and Sao Bernardo do Campo-SP, Brazil.