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Knorr-Bremse Group

At a Glance
KNORR-BREMSE GROUP 2006 2007 2008 2009 2010
Sales EUR mill. 3,121 3,251 3,384 2,761 3,712
Net income EUR mill. 185 198 192 99 239
Employees (as per Dec. 31) 13,035 13,943 14,999 14,432 16,277
Personnel costs EUR mill. 592 622 686 641 721
Balance-sheet total EUR mill. 1,646 1,735 1,788 1,664 2,194
Equity EUR mill. 493 566 639 533 754
Annual Report | 2010 Capital expenditure * EUR mill. 107 140 134 101 113
Depreciation * EUR mill. 104 113 115 118 147
Incoming orders EUR mill. 3,541 3,767 3,209 3,185 4,040
Research and development expenditure EUR mill. 141 159 171 153 175

* not including investments in financial assets

Annual Report | 2010


Knorr-Bremse Group

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Knorr-Bremse Group

At a Glance
KNORR-BREMSE GROUP 2006 2007 2008 2009 2010
Sales EUR mill. 3,121 3,251 3,384 2,761 3,712
Net income EUR mill. 185 198 192 99 239
Employees (as per Dec. 31) 13,035 13,943 14,999 14,432 16,277
Personnel costs EUR mill. 592 622 686 641 721
Balance-sheet total EUR mill. 1,646 1,735 1,788 1,664 2,194
Equity EUR mill. 493 566 639 533 754
Annual Report | 2010 Capital expenditure * EUR mill. 107 140 134 101 113
Depreciation * EUR mill. 104 113 115 118 147
Incoming orders EUR mill. 3,541 3,767 3,209 3,185 4,040
Research and development expenditure EUR mill. 141 159 171 153 175

* not including investments in financial assets

Annual Report | 2010


Knorr-Bremse Group

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Knorr-Bremse Group

Auf einen Blick


KNORR-BREMSE KONZERN 2006 2007 2008 2009 2010
Umsatz Mio. EUR 3.121 3.251 3.384 2.761 3.712
Jahresüberschuss Mio. EUR 185 198 192 99 239
Mitarbeiter (Stand 31.12.) 13.035 13.943 14.999 14.432 16.277
Personalaufwand Mio. EUR 592 622 686 641 721
Bilanzsumme Mio. EUR 1.646 1.735 1.788 1.664 2.194
Eigenkapital Mio. EUR 493 566 639 533 754
Geschäftsbericht | 2010 Investitionen (ohne Finanzanlagen) Mio. EUR 107 140 134 101 113
Abschreibungen (ohne Finanzanlagen) Mio. EUR 104 113 115 118 147
Auftragseingang Mio. EUR 3.541 3.767 3.209 3.185 4.040
Aufwand für Forschung und Entwicklung Mio. EUR 141 159 171 153 175

Geschäftsbericht | 2010
Knorr-Bremse Group

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Main Majority-owned
Subsidiaries
of Knorr-Bremse AG

The Americas
Asia – Australia
Knorr Brake Holding Corporation Indústria Freios Knorr Ltda.
Watertown, NY (USA)* São Paulo (BR) Knorr-Bremse Asia Pacific
(Holding) Ltd. Hong Kong (CHN)

Anchor Brake Shoe Company LLC (USA) Knorr-Bremse Sistemas para


Veículos Comerciais Brasil Ltda. (BR) Hasse & Wrede CVS Dalian, China Ltd. (CHN)*
Bendix Commercial Vehicle
Systems LLC (USA) Knorr-Bremse Sistemas para Europe – Middle East – Africa IFE-VICTALL Railway Vehicle Door Systems
Veículos Ferroviários Ltda. (BR) (Qingdao) Co., Ltd. (CHN)*
Bendix Spicer Foundation
Knorr-Bremse Systeme für Knorr-Bremse Systeme für
Brake LLC (USA)* Knorr-Bremse Australia Pty. Ltd. (AUS)
Schienenfahrzeuge GmbH Nutzfahrzeuge GmbH
IFE North America LLC (USA) Munich (D) Munich (D)** Knorr-Bremse Brake Equipment (Shanghai) Co.,
Ltd. (CHN)
Knorr Brake Corporation (USA)
Freinrail Systèmes Ferroviaires S.A. (F) Bost Ibérica S.L. (E) Knorr-Bremse CARS LD Vehicle Brake Disc
Knorr Brake Ltd. (CDN)
Manufacturing (Beijing) Co., Ltd. (CHN)*
Merak North America LLC (USA) Knorr-Bremse Rail Systems Italia S.r.I. (I) Hasse & Wrede GmbH (D)
Knorr-Bremse Commercial Vehicle Systems
New York Air Brake Corporation (USA) IGE-CZ s.r.o. (CZ) Knorr-Bremse Benelux B.V.B.A. (B)
Japan Ltd. (J)**
Knorr-Bremse Ges.m.b.H. (A) Knorr-Bremse Fékrendszerek Kft. (H)
Knorr-Bremse India Pvt. Ltd. (IND) Contact
Knorr-Bremse Nordic Rail Services AB (S)* Knorr-Bremse KAMA Systems for
Knorr-Bremse / Nankou Air Supply Unit (Beijing)
Commercial Vehicles OOO (RUS)* Knorr-Bremse AG
Knorr-Bremse Systemy dla Kolejowych Co., Ltd. (CHN)*
Moosacher Strasse 80
Srodków Lokomocji PL Sp. z o.o. (PL) Knorr-Bremse Polska SfN Sp. z o.o. (PL)
Knorr-Bremse Rail Systems Japan Ltd. (J)* 80809 Munich
Knorr-Bremse Rail Systems (UK) Ltd. (UK) Knorr-Bremse Sistemi per Autoveicoli Germany
Knorr-Bremse Rail Systems Korea Ltd. (ROK)
Commerciali S.p.A. (I)
Knorr-Bremse S.A. (Pty.) Ltd. (RSA)*
Knorr-Bremse Braking Systems for Commercial Corporate Communications
Knorr-Bremse Systèmes pour Véhicules
Knorr-Bremse Vasúti Jármű Rendszerek Vehicles (Dalian) Co., Ltd. (CHN) Christoph Günter
Utilitaires France S.A. (F) Tel: +49 89 3547-1402
Hungária Kft. (H)
Knorr-Bremse Systems for Commercial Vehicles
Knorr-Bremse System för Tunga Fax: +49 89 3547-1403
Merak Sistemas Integrados de India Pvt. Ltd. (IND) E-Mail: public.relations@knorr-bremse.com
Fordon AB (S)
Climatización S.A. (E)
Knorr-Bremse Systems for Rail Vehicles
Knorr-Bremse Systems for
Microelettrica Scientifica S.p.A. (I) (Suzhou) Co., Ltd. (CHN)
Commercial Vehicles Ltd. (UK) Additional information about Knorr-Bremse:
* Minority holding in subsidiary by Oerlikon-Knorr Eisenbahntechnik AG (CH) Sigma Transit Systems Pty. Ltd. (AUS) www.knorr-bremse.com
Knorr-Bremse Systémy pro užitková vozidla
non-group companies
** 20 % stake held by Robert Bosch Sociedad Española de Frenos, Calefacción y ČR, s.r.o. (CZ) SYDAC PTY. LTD. (AUS)
GmbH, Stuttgart (D) Señales S.A. (E)*
Westinghouse Platform Screen Doors
As per December 31, 2010 Dr. techn. Josef Zelisko Ges.m.b.H. (A) (Guangzhou) Ltd. (CHN)*

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Main Majority-owned
Subsidiaries
of Knorr-Bremse AG

The Americas
Asia – Australia
Knorr Brake Holding Corporation Indústria Freios Knorr Ltda.
Watertown, NY (USA)* São Paulo (BR) Knorr-Bremse Asia Pacific
(Holding) Ltd. Hong Kong (CHN)

Anchor Brake Shoe Company LLC (USA) Knorr-Bremse Sistemas para


Veículos Comerciais Brasil Ltda. (BR) Hasse & Wrede CVS Dalian, China Ltd. (CHN)*
Bendix Commercial Vehicle
Systems LLC (USA) Knorr-Bremse Sistemas para Europe – Middle East – Africa IFE-VICTALL Railway Vehicle Door Systems
Veículos Ferroviários Ltda. (BR) (Qingdao) Co., Ltd. (CHN)*
Bendix Spicer Foundation
Knorr-Bremse Systeme für Knorr-Bremse Systeme für
Brake LLC (USA)* Knorr-Bremse Australia Pty. Ltd. (AUS)
Schienenfahrzeuge GmbH Nutzfahrzeuge GmbH
IFE North America LLC (USA) Munich (D) Munich (D)** Knorr-Bremse Brake Equipment (Shanghai) Co.,
Ltd. (CHN)
Knorr Brake Corporation (USA)
Freinrail Systèmes Ferroviaires S.A. (F) Bost Ibérica S.L. (E) Knorr-Bremse CARS LD Vehicle Brake Disc
Knorr Brake Ltd. (CDN)
Manufacturing (Beijing) Co., Ltd. (CHN)*
Merak North America LLC (USA) Knorr-Bremse Rail Systems Italia S.r.I. (I) Hasse & Wrede GmbH (D)
Knorr-Bremse Commercial Vehicle Systems
New York Air Brake Corporation (USA) IGE-CZ s.r.o. (CZ) Knorr-Bremse Benelux B.V.B.A. (B)
Japan Ltd. (J)**
Knorr-Bremse Ges.m.b.H. (A) Knorr-Bremse Fékrendszerek Kft. (H)
Knorr-Bremse India Pvt. Ltd. (IND) Contact
Knorr-Bremse Nordic Rail Services AB (S)* Knorr-Bremse KAMA Systems for
Knorr-Bremse / Nankou Air Supply Unit (Beijing)
Commercial Vehicles OOO (RUS)* Knorr-Bremse AG
Knorr-Bremse Systemy dla Kolejowych Co., Ltd. (CHN)*
Moosacher Strasse 80
Srodków Lokomocji PL Sp. z o.o. (PL) Knorr-Bremse Polska SfN Sp. z o.o. (PL)
Knorr-Bremse Rail Systems Japan Ltd. (J)* 80809 Munich
Knorr-Bremse Rail Systems (UK) Ltd. (UK) Knorr-Bremse Sistemi per Autoveicoli Germany
Knorr-Bremse Rail Systems Korea Ltd. (ROK)
Commerciali S.p.A. (I)
Knorr-Bremse S.A. (Pty.) Ltd. (RSA)*
Knorr-Bremse Braking Systems for Commercial Corporate Communications
Knorr-Bremse Systèmes pour Véhicules
Knorr-Bremse Vasúti Jármű Rendszerek Vehicles (Dalian) Co., Ltd. (CHN) Christoph Günter
Utilitaires France S.A. (F) Tel: +49 89 3547-1402
Hungária Kft. (H)
Knorr-Bremse Systems for Commercial Vehicles
Knorr-Bremse System för Tunga Fax: +49 89 3547-1403
Merak Sistemas Integrados de India Pvt. Ltd. (IND) E-Mail: public.relations@knorr-bremse.com
Fordon AB (S)
Climatización S.A. (E)
Knorr-Bremse Systems for Rail Vehicles
Knorr-Bremse Systems for
Microelettrica Scientifica S.p.A. (I) (Suzhou) Co., Ltd. (CHN)
Commercial Vehicles Ltd. (UK) Additional information about Knorr-Bremse:
* Minority holding in subsidiary by Oerlikon-Knorr Eisenbahntechnik AG (CH) Sigma Transit Systems Pty. Ltd. (AUS) www.knorr-bremse.com
Knorr-Bremse Systémy pro užitková vozidla
non-group companies
** 20 % stake held by Robert Bosch Sociedad Española de Frenos, Calefacción y ČR, s.r.o. (CZ) SYDAC PTY. LTD. (AUS)
GmbH, Stuttgart (D) Señales S.A. (E)*
Westinghouse Platform Screen Doors
As per December 31, 2010 Dr. techn. Josef Zelisko Ges.m.b.H. (A) (Guangzhou) Ltd. (CHN)*

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Knorr-Bremse Group

Auf einen Blick


KNORR-BREMSE KONZERN 2006 2007 2008 2009 2010
Umsatz Mio. EUR 3.121 3.251 3.384 2.761 3.712
Jahresüberschuss Mio. EUR 185 198 192 99 239
Mitarbeiter (Stand 31.12.) 13.035 13.943 14.999 14.432 16.277
Personalaufwand Mio. EUR 592 622 686 641 721
Bilanzsumme Mio. EUR 1.646 1.735 1.788 1.664 2.194
Eigenkapital Mio. EUR 493 566 639 533 754
Geschäftsbericht | 2010 Investitionen (ohne Finanzanlagen) Mio. EUR 107 140 134 101 113
Abschreibungen (ohne Finanzanlagen) Mio. EUR 104 113 115 118 147
Auftragseingang Mio. EUR 3.541 3.767 3.209 3.185 4.040
Aufwand für Forschung und Entwicklung Mio. EUR 141 159 171 153 175

Geschäftsbericht | 2010
Knorr-Bremse Group

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1/ Overview 04
06
2010 at a Glance
The Executive Board of Knorr-Bremse AG
08 The Supervisory Board of Knorr-Bremse AG
10 Report of the Supervisory Board
12 The State and Development of Knorr-Bremse AG
and the Knorr-Bremse Group

2/ Reports 38
40
Rail Vehicle Systems
Markets
42 Market Successes
54 Projects
64 Products
70 Service

76 Commercial Vehicle Systems


78 Markets
82 Market Successes
92 Projects
98 Products
104 Service

108 Group
110 Knorr Excellence
116 Responsibility
124 Employees
128 Trade Fairs

3/ Consolidated
Financial Statements
134
155
Notes to the Consolidated Financial Statements
Consolidated Cash Flow Statement
156 Segment Reporting
158 Statement of Changes in Group Equity
159 Independent Auditors’ Report
160 Consolidated Balance Sheet
161 Consolidated Statement of Income

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2010 at a Glance

Knorr-Bremse is voted “Best Brand


in Commercial Vehicle Sector” for
the fifth time running
Knorr-Bremse and Berkelium Group set
up the Icer Rail joint venture for produc-
Bendix receives a “Top 5 Aftermarket The 1 millionth Air Processing Unit tion of organic brake shoes and pads
Products 2010 Award” for the Tire is manufactured in Kecskemét A new assembly line for torsional
Pressure Monitoring System (TPMS) vibration dampers is set up in Russia
The 2010 Financial Statements
Knorr-Bremse Global Care celebrates its Press Conference takes place at Standard & Poor‘s and Moody‘s
fifth anniversary headquarters in Munich raise Knorr-Bremse’s rating to A-
Knorr-Bremse is granted UIC approval Knorr-Bremse is honored as (Outlook stable) and Baa1 (Outlook
for wheel slide protection systems “Best Investor Suzhou 2009” positive) respectively

January March May

February April June


The Knorr-Bremse Aldersbach plant By supplying the brake Knorr-Bremse Czech Republic opens a
celebrates its 30th anniversary equipment for the Shinkansen E5 new Commercial Vehicle Systems plant
Knorr-Bremse accesses the Japanese
Sydac wins the “Top 20 South A delegation from the City of Qingdao
high-speed rail market
Australian Innovation Award” in China visits Knorr-Bremse in Munich
Knorr-Bremse takes part in the
Knorr-Bremse India acquires the Short-time working ends at Commercial
nationwide “Logistics Day” in Germany
remaining shares in the Tata Autocomp. Vehicle Systems in Germany
Systems Ltd. joint venture Knorr-Bremse receives Elogistics Award
Dresden University of
Technology receives a brake
test rig from Knorr-Bremse
Knorr-Bremse presents a brake exhibit
to Deutsches Museum in Munich

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“Efficient.Technology.Worldwide”:
Knorr-Bremse showcases products
and services at the key IAA and
InnoTrans fairs
Knorr-Bremse Aldersbach produces
its 20 millionth disc brake
Knorr-Bremse Rail Vehicle Systems
inaugurates a new plant in Budapest Merak manufactures HVAC systems
with an eco-friendly refrigerant
25th Truck Grand Prix at the
Nürburgring: Knorr-Bremse goes Knorr-Bremse strengthens the HVAC
racing with Team Hahn segment through the strategic
acquisition of Sigma Coachair Group
World Cup in South Africa: Knorr-
Bremse supplies braking systems for Knorr-Bremse sets up assembly of rail Knorr-Bremse adopts a Group-wide
Gautrain Electrostar trains vehicle brake equipment in Russia corporate social responsibility strategy

July September November

August October December


Knorr-Bremse Commercial Vehicle Microelettrica Scientifica acquires a In Daxing, Knorr-Bremse produces
Systems signs a joint venture agree- majority stake in Heine Resistors GmbH the 100,000th brake disc for the
ment with CAFF in China Chinese market
Global Care helps victims of an
Knorr-Bremse employees donate environmental disaster in Hungary
to help flood victims at Knorr-Bremse
Knorr-Bremse becomes a signatory to
in the Czech Republic
the UN Global Compact
A “Girls for Technology” camp is
held at Knorr-Bremse in Munich

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6

The Executive Board of Knorr-Bremse AG

Klaus Deller

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EXECUTIVE BOARD 7

Dr. Dieter Wilhelm Dr. Raimund Klinkner Dr. Lorenz Zwingmann


Chairman

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8

The Supervisory Board of Knorr-Bremse AG

Klaus Frank Werner Dr. Kurt Dr. Martin Manfred


Gegenfurtner* Hellmer* Ratzisberger* Kiethe Kimmich* Wennemer
Aidenbach Munich Aldersbach Munich Munich Bensheim
(since April 1, 2010) (since July 1, 2010)

Toolmaker, Test engineer, Chairperson of the Attorney at law IG Metall Trade 2nd Deputy
Knorr-Bremse Knorr-Bremse Works Council of Union Secretary, Chairman,
Systeme für Systeme für Knorr-Bremse Munich Office Former Chairman of
Nutzfahrzeuge Schienenfahrzeuge Systeme für the Executive Board
GmbH GmbH Nutzfahrzeuge GmbH, of Continental AG
Aldersbach Plant

Elfriede Hilger*, Munich (until March 31, 2010)


Chairperson of the General Works Council of Knorr-Bremse Systeme für Schienenfahrzeuge GmbH, Chairperson of the
Works Council of Knorr-Bremse AG, Knorr-Bremse Systeme für Schienenfahrzeuge GmbH, Munich Plant, and KB Media GmbH

Daniela Fischer*, Bruckmühl (until June 30, 2010)


Head of the Legal Office of the IG Metall Trade Union, Munich Office

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SUPERVISORY BOARD 9

Heinz Hermann Dr. Eduard Dr. h. c. Horst Dr. Hans-Peter Dr. Wolfram Heinz
Thiele Gerum* Zimmer Binder Mörsdorf Hausner*
Munich Rosenheim Lampertheim- Berg Essen Salzweg
Hofheim

Chairman, 1st Deputy Chairman, Retd. Member Retd. Member Retd. Member of the Assistant Repre-
Entrepreneur Vice President of the Board of of the Board of Executive Board of sentative of the IG
Global R & D, Management of Management Thyssen-Krupp AG Metall Trade Union,
Knorr-Bremse Mercedes-Benz AG of Deutsche Bank Passau Office
Systeme für AG, Munich Branch
Nutzfahrzeuge GmbH

*Employee representative

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10

Report of the Supervisory Board


In the course of fiscal 2010, the Supervisory Board concerned itself in detail with the state and
development of Knorr-Bremse AG and all Group companies.

Along with important individual transactions and human tems plant in Liberec, Czech Republic, were inaugurated.
resources decisions, this also included consideration of As well as bringing an increase in capacities in the Rail Ve-
fundamental aspects of strategic direction and corporate hicle Systems sector, these new facilities also allow the
planning. In addition, the Supervisory Board received regu- company to implement advanced production and logis-
lar reports from the Executive Board either in the course of tics concepts. Also in the year under review, the Rail Vehicle
its meetings or in written or oral form. The Supervisory Systems plant in Suzhou, China, was expanded.
Board examined important individual transactions, as well
as deciding on items of business that required its approval In addition to organic growth, the year under review saw
either by law or in line with company statutes. The infor- corporate strategy continue to focus on targeted acquisi-
mation and analyses upon which the decisions of the Su- tions and joint ventures with the aim of optimizing the
pervisory Board were based were discussed and assessed product portfolio. In the rail vehicle sector the acquisition
in depth together with the Executive Board. In order to of the business of the Sigma Coachair Group in Wetherill
comply with the requirements of the German Accounting Park, Sydney, Australia, and of Heine Resistors in Dresden,
Law Modernization Act in terms of corporate governance, Germany, reinforced the portfolio in the fields of air condi-
a second meeting of the Financial Statements Committee tioning systems and band resistors respectively. Also,
was held in mid year. At its meetings, the Financial State- through the joint venture with the Icer Brakes company,
ments Committee dealt in particular with the supervision the product portfolio was further expanded to include or-
of the accounting process, the efficacy of the internal con- ganic brake pads and brake shoes. In the commercial ve-
trolling system, the risk management system and the inter- hicle sector, the signing of a preliminary contract govern-
nal audit system, as well as the work of the auditors. ing the establishment of a joint venture with the Chinese
company CAFF for the production of commercial vehicle
Following the global financial and economic crisis in 2009, brake system and drivetrain components marked an im-
which led to substantial declines in sales and earnings, in portant strategic step in the world’s largest commercial
fiscal 2010 the Knorr-Bremse Group was able to increase vehicle market. The final contract was closed in January
sales to EUR 3.71 billion (2009: EUR 2.76 billion). This figure 2011.
includes positive currency translation effects in the amount
of approximately EUR 170 million. The Rail Vehicle Systems Against the backdrop of rising sales, the company’s top pri-
division posted further sales growth on the back of the ority remained ensuring the highest quality standards. This
marked expansion of its business in the passenger trans- was achieved not only through the quality assurance pro-
port sector, above all in Asia where sales more than doub- cesses in place across the Group but also by means of tar-
led. The Commercial Vehicle Systems division benefitted geted human resource development. By way of examples,
from the unexpected pace of recovery in markets across all two key modules were added to the Group-wide “Knorr
regions. Yet despite the rise in activity in the commercial Excellence” initiative: the FIT (Finance & IT Excellence) initia-
vehicle sector, in 2010 the markets in Europe and North tive aims to make Knorr-Bremse best in class in the long
America remained well below their pre-crisis level. term in these two areas, while the PEX (People Excellence)
initiative was set up in response to the competition for the
To safeguard the future development of the company, in best specialist and management staff in the employment
2010 Knorr-Bremse continued to invest in the strategic de- market.
velopment and expansion of its production plants. In the
year under review, both the Rail Vehicle Systems plant in The 2010 Financial Statements and the Management Re-
Budapest, Hungary, and the new Commercial Vehicle Sys- port on Knorr-Bremse AG, the 2010 Consolidated Financial

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SUPERVISORY BOARD 11

Statements and the Management Report on the Knorr- On March 31, 2010 Ms Elfriede Hilger stepped down from
Bremse Group drawn up by the Executive Board, and the her position as an employee representative on the Super-
company‘s accounts were examined by the auditors elect- visory Board of Knorr-Bremse AG. Frank Hellmer, who was
ed by the Annual Shareholders‘ Meeting, KPMG AG elected at the Supervisory Board elections in 2008 to re-
Wirtschaftsprüfungsgesellschaft, Munich, and endorsed place Ms Hilger should she leave the Board, joined the
with their unqualified opinion dated March 2, 2011. The Board on April 1, 2010. On behalf of Knorr-Bremse AG the
Supervisory Board also examined the Financial Statements Supervisory Board wishes to express its sincere thanks to
for fiscal 2010, the Management Report, the proposed al- Ms Hilger for her long-standing and committed contribu-
location of unappropriated retained earnings, and the tions to its work.
Consolidated Financial Statements and Management Re-
port on the Knorr-Bremse Group. No objections were On June 30, 2010, Ms Daniela Fischer stepped down from
raised. At its meeting on March 18, 2011, the Supervisory her position on the Supervisory Board of Knorr-Bremse AG.
Board approved the 2010 Financial Statements, which Effective July 1, 2010, Dr. Martin Kimmich was appointed
thereby became legally binding. The Supervisory Board by the Munich Registration Court to replace Ms Fischer as
concurs with the Executive Board’s proposal for the alloca- an employee representative on the Supervisory Board. The
tion of unappropriated retained earnings. The Consolidat- Supervisory Board wishes to thank Ms Fischer for her con-
ed Financial Statements were also approved. tributions to its work.

The auditors attended the meeting of the financial state- It is with a deep sense of gratitude that we honor the
ments committee on February 25, 2011 as well as the fi- memory of Dr.-Ing. E. h. Wilfried Lochte, who passed away
nancial statements meeting of the Supervisory Board on on March 7, 2011. Dr. Lochte was a member of the Supervi-
March 18, 2011, reported on their key findings and an- sory Board of Knorr-Bremse AG and of the Supervisory
swered outstanding questions. Board of Knorr-Bremse Systeme für Nutzfahrzeuge GmbH
from 1993 to 2008. With his extensive experience and pro-
KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, also nounced entrepreneurial thinking, throughout this period
examined the Executive Board‘s report on relations with af- Dr. Lochte stewarded the progress of Knorr-Bremse with
filiated companies, drawn up in line with Paragraph 312 great commitment and was instrumental in shaping the
German Corporation Law (AktG). The auditors endorsed company’s development through fundamental decisions
this report with the following opinion: on its strategic direction. He played a decisive part in en-
abling Knorr-Bremse to become established as global mar-
“Having audited and assessed this report in accordance ket leader in the rail vehicle systems and commercial vehi-
with professional standards, we confirm that: 1. The factual cle systems sectors. He maintained close, friendly and
contents of the report are correct. 2. The consideration fur- trusting relations with the company’s shareholders. We will
nished by the Company in the legal transactions set out in not forget him.
the report was not unreasonably high.“

The Supervisory Board also examined the Executive Board‘s Munich, March 18, 2011
report on relations with affiliated companies and has no
objections to the concluding statement by the Executive The Supervisory Board
Board or to the auditors‘ findings.

Heinz Hermann Thiele


Chairman

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KB_GB_2010_LageEntwicklung_EN_V1.indd 10 18.03.11 19:27
1/ Management Report

In fiscal 2010 the Knorr-Bremse Group reported sales of EUR 3.71 billion, up
by 34% or almost EUR 1 billion (2009: EUR 2.76 billion). Sales at the Rail Vehicle
Systems division moved ahead to EUR 2.02 billion (2009: EUR 1.55 billion).
The increase was primarily driven by a steep rise in sales of over 100% in Asia,
where Knorr-Bremse has been progressively expanding its market presence
since the late 1980s. In 2010 the Commercial Vehicle Systems division of
Knorr-Bremse benefitted from the increasing pace of recovery of commercial
vehicle markets, posting sales of EUR 1.70 billion (2009: EUR 1.22 billion).
Despite the rise in activity in the commercial vehicle sector, however, in 2010
the markets in Europe and North America remained well below their pre-crisis
level.

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14

The State and Development


of Knorr-Bremse AG and the
Knorr-Bremse Group

An overview of the General economic


Knorr-Bremse Group developments

The Knorr-Bremse Group is the world‘s leading manufac- The negative economic background conditions caused by
turer of braking systems for rail and commercial vehicles. the global economic and financial crisis that dominated
For more than 100 years now the company has pioneered 2008 and 2009 improved in 2010 and a relatively robust if
the development, production, marketing and servicing of regionally different real-market recovery set in.
state-of-the-art braking systems. Other lines of business in
the rail vehicle systems sector include automatic, electro- The emerging economies of Asia continued to drive the
pneumatic or electric door systems, air conditioning sys- recovery. The relative contributions to growth of the
tems, control components and windscreen wiper systems, emerging and industrialized nations showed the same
as well as platform screen doors. In the commercial vehicle marked divergent progression as they had during the cri-
systems sector, the product range includes complete brak- sis. In 2010, average growth among the emerging nations
ing systems with driver assistance systems, as well as tor- was 7.1%, while the industrialized nations posted just 3.0%
sional vibration dampers and powertrain-related solutions growth on average. Global figures are expected to show
such as the Pneumatic Booster System (PBS) and transmis- overall economic growth of around 5.0% (2009: minus
sion control systems for enhanced energy efficiency and 0.6%).
fuel economy.
As the global markets recovered, the economic perfor-
The structure of the Knorr-Bremse Group is based on the mance of the Eurozone also stabilized in 2010. Following a
regions Europe, North America and South America, and 4.1% decline in 2009, economic output rose 1.8% in 2010.
Asia/Australia, and the development of the Group is geared With GDP growth of 3.6% (2008: minus 4.7%) which was
to meeting the specific requirements of the markets and above average for the region, Germany made a substantial
customers in these regions. contribution to ensuring greater stability. As an export-
oriented economy, Germany was initially harder hit by the
This regional organizational structure is designed to offer collapse of global trade, but then benefitted more strongly
globally active customers uniform technical platforms from its recovery in 2010 than other Eurozone countries.
worldwide, while at the same time taking specific local With commodity prices firming up, Russia too with its
needs into account. It also ensures that customers who op- marked dependency on energy exports saw GDP rise 3.7%
erate on a regional basis are supplied with globally proven (2009: minus 7.9%).
systems and components.

KB_GB_2010_LageEntwicklung_EN_V1.indd 12 18.03.11 19:27


MANAGEMENT REPORT 15

3,712
3,384
3,251
3,121

2,743 2,761
2,423 239

198 192
185
154
130
99

2004 2005 2006 2007 2008 2009 2010

Sales and net income for the Knorr-Bremse Group in EUR millions

Sales Net income

In the USA, by contrast, the markets remained under pres-


sure. Economic output rose 2.8% (2009: minus 2.6%) on the
back of growing stability in the real estate sector. The Bra-
zilian economy presented a far more positive picture, with
economic output showing year-on-year growth of 7.5% in
2010 (2009: minus 0.6%).

Along with Brazil, it was China and India in particular that


drove global economic growth in 2010. In China GDP was
up 10.3% in 2010 (2009: 9.2%), while India saw GDP rise
9.7% (2009: 5.7%). In Japan too, industrial output again
showed moderate growth, while GDP moved ahead 4.3%
in the year under review (2009: minus 6.3%).

Firmer commodity prices supported global market stabili-


zation in 2010. After peaking at USD 140 per barrel in 2008
and falling to below USD 40 in 2009, the price of oil settled
at around USD 90 per barrel at the end of 2010. Aluminum
prices followed a similar pattern and stabilized at around
USD 2,400/t (top price in 2008 approx. USD 3,300/t, lowest
price in 2009 approx. USD 1,300/t). On the balance sheet
date, the value of the US dollar – which lines up alongside
the euro as one of the Group’s main operating currencies
– had risen 7.2% against the euro compared to December
31, 2009, with one euro worth USD 1.34. As an annual aver-
age, the euro was worth USD 1.32.

KB_GB_2010_LageEntwicklung_EN_V1.indd 13 18.03.11 19:27


16

Development of the Knorr-Bremse


Group in 2010

Consolidated sales for the Knorr-Bremse Group were up Following a 25% slump in worldwide truck output in 2009,
34% from EUR 2,760.9 million in 2009 to EUR 3,712.2 million the year under review saw global truck production rise
in 2010. This figure includes positive currency translation 48%. In Europe, where a record year in 2008 was followed
effects in the amount of approximately EUR 170 million. In by the sharpest downturn in any region, truck production
an improving but still volatile economic environment, the was 55% up in 2010 (2009: minus 63%). The North Ameri-
company benefited from its strong strategic position with can market witnessed its first upswing since 2006, growing
two divisions, Rail Vehicle Systems and Commercial Vehicle 23% in the year under review (2009: minus 37%). In South
Systems, in markets that developed differently. America, truck output was 56% up in 2010 (2009: minus
29%). The Asian region showed further growth in 2010
The Rail Vehicle Systems division showed a positive devel- with truck production rising 52% (2009: 1%). Aftermarket
opment in the year under review, stepping up sales to EUR business also benefitted from these positive develop-
2,024.4 million (2009: EUR 1,552.6 million). The increase was ments across all regions and posted further growth in
primarily driven by a steep rise in sales of over 100% in Asia, 2010.
where Knorr-Bremse has been progressively expanding its
market presence since the late 1980s.
Acquisitions, additions and joint ventures
In 2010 the Commercial Vehicle Systems division benefitted In the year under review Knorr-Bremse continued its strat-
from the increasing pace of recovery of the commercial ve- egy of improving its market position through targeted ac-
hicle markets, posting sales of EUR 1,700.7 million (2009: EUR quisitions.
1,221.5 million). One major focus of commercial vehicle ac-
tivities in the year under review was on expansion in China. In the first quarter of the year under review, Knorr-Bremse
Asia Pacific (Holding) Ltd., Hong Kong, China, and Knorr-
Bremse AG, Munich, Germany, acquired the 26% stake held
The business environment by sector by Tata Autocomp. Systems Ltd., Pune, India, in the joint
The Group benefitted decisively from the recovery of the venture Knorr-Bremse Systems for Commercial Vehicles In-
global markets and the resultant increase in the volume of dia Private Ltd., Pune, India. Knorr-Bremse is now the sole
freight transportation – although with major differences owner of the company. The acquisition of the outstanding
from one region to the next. shares took place by mutual agreement between the joint
venture partners.
Despite a modest rise in transportation volumes, demand
in the rail freight sector in the North and South America To further strengthen its position in the rail vehicle brake
region and in Europe remained subdued. This was reflect- pad business, Knorr-Bremse entered into a joint venture for
ed in 2010 by a further 30% fall in demand for freight cars the development and production of organic brake pads
in Europe (2009: minus 31%) and by a 32% decline in North and brake shoes. The company is called Icer Rail S.L., and is
America (2009: minus 63%). In the rail-borne passenger based in Pamplona, Spain. The two joint venture partners
transportation sector major projects were postponed or are Knorr-Bremse Group subsidiary Sociedad Española de
cancelled in Europe and North America. The Asian market, Frenos, Getafe, Spain, and Icer Brakes S.A., Pamplona, Spain,
by contrast, showed positive development in both the a member of the Spanish Berkelium Group. Knorr-Bremse
freight and passenger sectors. originally accessed the brake pad business in 2008 with

KB_GB_2010_LageEntwicklung_EN_V1.indd 14 18.03.11 19:27


MANAGEMENT REPORT 17

the acquisition of Anchor Brake Shoe LLC, West Chicago, global market position in a series of business areas and
USA. thereby ensure its commercial success.

Knorr-Bremse subsidiary Knorr-Bremse Asia Pacific (Hold- As part of the ongoing strategic development of the
ing) Ltd., Hong Kong, China, acquired the Australian heat- Group‘s production plants, the new Rail Vehicle Systems
ing, ventilation and air-conditioning (HVAC) systems spe- plant in Budapest was opened in July 2010. As well as
cialist Sigma Transit Systems Pty. Ltd., Wetherill Park, boosting capacity, under the heading of the “5-day factory”
Australia. While Knorr-Bremse has to date supplied HVAC the new plant also implements innovative production and
systems primarily in China, Europe and the Americas, this logistics concepts based on the globally standardized
move will enable the company to access the growth mar- Knorr-Bremse Production System (KPS). The new develop-
kets of Southeast Asia, India and Australia in particular. As a ment and production facility replaces the old factory lo-
result of the acquisition, the Knorr-Bremse Group is now cated in the immediate vicinity.
the world‘s leading manufacturer of rail vehicle HVAC sys-
tems. At the new factory, Knorr-Bremse manufactures bogie
equipment components such as brake caliper units and
By acquiring a majority stake in Heine Resistors GmbH, a block brakes. The product portfolio also includes brake
manufacturer of special-purpose resistors based in Dres- control components, such as brake panels and valves, as
den, Germany, Knorr-Bremse subsidiary Microelettrica Sci- well as a virtually complete range of components for
entifica S.p.A., Milan, Italy, reinforced its capabilities in the freight cars and individual air supply elements. Along with
field of power systems. With decades of experience, Heine the production facilities, Knorr-Bremse has also expanded
ranks among the most renowned developers and manu- the research and development function at the new plant.
facturers of resistors for drive technology and rail vehicles. The primary focus here is on brake actuators, software,
technical calculation and testing.
Knorr-Bremse subsidiary Knorr-Bremse Rail Systems (UK)
Ltd., Melksham, UK, acquired the main electronic compo- June 2010 also witnessed the official opening of a new
nents business of Precimax Precision Engineering Ltd., Bris- Commercial Vehicle Systems plant in Liberec (Czech Re-
tol, UK. public). As a value stream factory, like the Budapest plant
this new facility too permits the KPS-based implementa-
Overall, these acquisitions had no substantial effect on the tion of advanced production and logistics concepts. In Li-
assets, financial status and profitability of the Knorr-Bremse berec Knorr-Bremse manufactures commercial vehicle
Group in fiscal 2010. braking system components such as brake cylinders and
clutch servo units, foot- and handbrake valves, and air dry-
er cartridges. When the transfer of operations had been
Major projects completed, the former production facility in Hejnice was
Knorr-Bremse made good use of the healthier business en- closed down.
vironment in 2010 to pursue its strategy of safeguarding
the company’s long-term health as well as to drive forward In China the Rail Vehicle Systems division geared up to
numerous projects. Aligned with Knorr-Bremse’s regional meet the ever-increasing market requirements and invest-
approach, this enabled the company to further enhance its ed in the progressive expansion of production capacity. At

KB_GB_2010_LageEntwicklung_EN_V1.indd 15 18.03.11 19:27


18

the Daxing site a new production plant for brake discs for The FIT initiative (Finance & IT Excellence) brought the inte-
mainline rail vehicles came on stream in April of the year gration of processes from the areas of finance and IT into
under review. In Wuxi two new production shops were the KE model. The aim of the initiative is to prepare the or-
added for HVAC systems for high-speed trains and new ganization to face future challenges by establishing best-
production equipment was installed. At Qingdao the pro- in-class processes in the fields of finance and IT.
duction facilities for door systems were extended in re-
sponse to higher demand. And on account of the substan- The PEX initiative (People Excellence) involved upgrading
tial growth in China, 2010 saw the renewed expansion of existing human resources and executive development
the Suzhou site, which was only founded in 2005 and first tools and adding new ones. The aim of the initiative is to
expanded in 2007. The additions in 2010 brought an extra promote qualified and talented employees at Knorr-
5,700 m² of production space, with offices and social areas Bremse and retain them in the long term. In PEX, Knorr-
covering around 3,300 m². Bremse has created a pioneering basis for the ongoing
enhancement of its own leadership culture.
Both divisions expanded their production capacities in
Russia in the year under review. The Rail Vehicle Systems Q-First stands for the optimization of three aspects: profes-
division joined forces with OAO Vagonremmash, a subsid- sional project management, a robust product develop-
iary of Russian Railways RZD to set up an assembly line for ment process, and a zero defect strategy in the production
disc brakes and compressors in Voronezh, which is slated and assembly sectors, in the interest of attaining even
to start production in 2011. The start of production will higher quality. Other aspects also pursued successfully in
mark a major milestone in the ongoing expansion of the 2010 included stabilizing supplier structures and improv-
company’s presence in the highly promising Russian rail ing the sustainable resolution of complaints.
market. In May 2010 the Commercial Vehicle Systems divi-
sion inaugurated the first torsional vibration dampers as- One focus of the Knorr-Bremse Production System (KPS) in
sembly line at its Knorr-Bremse KAMA joint venture in Na- 2010 was on the optimization of entire value streams. The
berezhnye Chelny. The new line expands the product aim of a holistic value stream approach is to be able to re-
portfolio of the joint venture, which was previously fo- spond faster and more flexibly to customer wishes. In the
cused on drum brakes. year under review the foundations for this approach were
reinforced at methodology level as well as in the course of
actual projects. At the new factories in Budapest and Li-
Quality and processes berec, for example, the production processes were inter-
Knorr-Bremse continues to target best-in-class processes linked in such a way that throughput times were substan-
as the foundation on which its competitive capabilities are tially reduced. This approach was not restricted to newly
based. In 2010, processes and structures were again re- built facilities, however; workshops were also held to adapt
viewed and enhanced across all key areas. it to existing plants such as Berlin, Germany, and Melk-
sham, UK.
The KnorrExcellence (KE) business model which has now
been rolled out across the Group was again enhanced in In the Rail Vehicle Systems division, one key measure was
2010 and two new initiatives were added. to anchor the specific requirements of the International
Railway Industry Standard (IRIS) in the various processes

KB_GB_2010_LageEntwicklung_EN_V1.indd 16 18.03.11 19:27


MANAGEMENT REPORT 19

Assets, financial status and profitability

and ensure compliance across all plants. In 2010 all Knorr- In 2010 the main factors in the development of the Knorr-
Bremse plants worked hard to meet the new and more Bremse Group’s business were growth in the rail vehicle
rigorous requirements of IRIS Revision 02 and were reward- sector, which varied from one region to the next, and the
ed by recertification. incipient recovery of the commercial vehicle markets.

For several years now the Strong Focus program has suc- Consolidated sales rose 34.5% in 2010 to EUR 3,712.2 mil-
cessfully brought together all activities designed to boost lion (2009: EUR 2,760.9 million). In Europe, consolidated
productivity, cut costs and promote growth. As part of a sales were up 16.0% to EUR 1,886.0 million (2009: EUR
multi-year forward projection, valuable ideas submitted by 1,626.0 million), which corresponds to 50.8% of the con-
the workforce and management are collected, evaluated solidated total (2009: 58.9%). The Americas contributed
and gradually implemented. In 2010 this brought further EUR 827.0 million (2009: EUR 620.4 million) or 22.3% (2009:
substantial cost savings and improvements in productivity 22.5%) to consolidated sales. In the Asia/Australia region,
along the value chain, helping safeguard the company‘s sales amounted to EUR 999.2 million (2009: EUR 514.5 mil-
competitiveness. lion), which equates to 26.9% (2009: 18.6%) of the consoli-
dated total.

Incoming orders were valued at EUR 4,040.0 million (2009:


EUR 3,184.5 million), 8.8% above the level of annual sales
and 26.9% up on the previous year, exceeding the EUR 4
billion mark for the first time. Orders on the books at the
Knorr-Bremse Group rose 17.8% in the year under review
to EUR 3,381.8 million (2009: EUR 2,870.7 million).

Net income for the Knorr-Bremse Group was up 142.5% in


the year under review to EUR 239.4 million (2009: EUR 98.7
million). Net return on sales reached 6.4% (2009: 3.6%). The
European region contributed EUR 109.8 million to net in-
come, corresponding to a net return on sales of 5.8%. Net
income from the Americas totaled EUR 47.3 million, with a
net return on sales of 5.7%. The Asia/Australia region post-
ed net income of EUR 82.3 million, which equates to a net
return on sales of 8.2%.

The consolidated balance sheet total rose 31.8% in 2010 to


EUR 2,194.2 million (2009: EUR 1,664.4 million), largely in-
fluenced by the sales-led increase in accounts receivable
and inventories, and the rise in liquid funds. At year-end
2010, total assets represented 59.1% of sales. As a propor-
tion of the balance sheet total, intangibles, fixed assets,

KB_GB_2010_LageEntwicklung_EN_V1.indd 17 18.03.11 19:27


20

Overall assessment of the economic


position of the Group

and investments were down against the prior-year level to Within the general economic environment described
36.5% (2009: 42.4%). Working capital, defined as the sum of above, the Knorr-Bremse Group has maintained its overall
inventories and accounts receivable, minus accounts pay- position with regard to its assets and financial status. The
able trade, rose as a result of the increased volume of or- Group, which was already almost free of debt at the end of
ders to EUR 415.6 million at year-end (2009: EUR 289.2 mil- 2009, was able to build up substantial net liquidity in 2010.
lion) or 40.3 days’ sales (2009: 37.7 days). The equity ratio The Group’s profitability was ensured by rigorous cost
rose by 2.4 percentage points from 32.0% to 34.4%. management and above all by the internal optimization of
processes and structures.
Of the Group’s total assets, 45.5% are in the European re-
gion, 23.9% in the Americas, and 30.6% in the Asia/Austra- With an equity ratio of 34.4% and net liquidity of EUR 202.3
lia region. The improvement of EUR 215.0 million in net li- million, the structure of the Group’s assets is extremely
quidity to EUR 202.3 million was achieved primarily by an stable, so that it can continue to readily meet its financial
inflow of funds from cash flows from operating activities in obligations.
the amount of EUR 456.4 million. Substantial capital re-
quirements were generated in 2010 by investments (EUR
113.4 million) and the acquisition of Sigma Transit Systems Knorr-Bremse AG
Pty. Ltd., Wetherill Park, Sydney, Australia, and Heine Resis- As the parent company, Knorr-Bremse AG performs the
tors GmbH, Dresden, Germany. The ratio of net liquidity to role of service provider and holding company, as well as a
shareholders‘ equity stood at 26.8%. In 2009 the ratio of strategic management function on the operational side.
net indebtedness to shareholders’ equity (gearing) was mi-
nus 2.4%. The marked decline in income from investments in associ-
ated and related companies meant that income before
Knorr-Bremse‘s robust strategic positioning, the positive taxation fell to EUR 119.3 million in the year under review
development of the company‘s business and its excellent (2009: EUR 141.7 million). At EUR 81.9 million, net income
working capital management were confirmed by the ex- for the year was higher than the dividend paid out in 2010
ternal rating agencies Standard & Poor’s and Moody’s, who in the amount of EUR 52.0 million, so that the unappropri-
have been rating the Knorr-Bremse Group since 2000. ated retained earnings of Knorr-Bremse AG increased by
Moody‘s awarded Knorr-Bremse a “Baa1/Outlook positive” EUR 29.9 million to EUR 262.6 million (2009: EUR 232.7 mil-
rating, while Standard & Poor‘s rated the company “A-/Out- lion).
look stable”. That makes Knorr-Bremse the only family-
owned company in the Standard & Poor‘s “Global Automo- Along with interests in affiliated companies, the balance
tive Suppliers Ranking 2010” with investment grade status sheet of Knorr-Bremse AG largely reflects receivables from
to be awarded an “A” rating. and payables to Group companies and these are centrally
administered, partly within the framework of the cash-
pooling process managed by Knorr-Bremse AG.

All business processes within the parent company Knorr-


Bremse AG are analyzed, documented and optimized with
the aid of Knorr Excellence.

KB_GB_2010_LageEntwicklung_EN_V1.indd 18 18.03.11 19:27


MANAGEMENT REPORT 21

Appropriation of retained earnings Relations with affiliated companies


Knorr-Bremse AG posted unappropriated retained earn- KB Holding GmbH, Grünwald, Germany, directly holds
ings of EUR 262.6 million in 2010 (2009: EUR 232.7 million). more than half the share capital of Knorr-Bremse AG. Pur-
The Annual Shareholders Meeting will be asked to approve suant to § 312 German Corporation Law (AktG), a report on
the proposal that an amount of EUR 156.0 million from the relations with affiliated companies has been drawn up
unappropriated retained earnings of Knorr-Bremse AG be which includes the following statement: “In the legal trans-
used to pay a dividend of EUR 60.00 per dividend-bearing actions listed in the Report on Relations with Affiliated
share with a par value of EUR 26.00, with the balance to be Companies, in accordance with the circumstances known
carried forward to new account. to us at the time at which the said transactions took place,
our company received appropriate counter-performance
in each case.” The report was audited by the Auditors and
received their unqualified opinion.

Assets Liabilities

Balance sheet total Balance sheet total


in EUR millions 1,664.4 2,194.2 1,664.4 2,194.2 in EUR millions

FIxed assets/intangibles 40% 34% 32% 34% Shareholders’ equity

3% 10% 9%
Investments 2% Pension accurals

Current assets/RAP 49% 49% 48% 52% Short-term debt

Liquid assets 9% 14% 10% 5% Borrowings

2009 2010 2009 2010

Structure of assets, liabilities and finances of the Knorr-Bremse Group

KB_GB_2010_LageEntwicklung_EN_V1.indd 19 18.03.11 19:27


22

Regional developments by division

In the year under review, the Rail Vehicle Systems division ply the braking systems for 450 cars (including options) for
contributed EUR 2,024.4 million (2009: EUR 1,552.6 million) one line of the Amsterdam metro. In the streetcar seg-
to consolidated Group sales and the Commercial Vehicle ment, the company won an order from vehicle builder
Systems division EUR 1,700.7 million (2009: EUR 1,221.5 Stadler to supply door and braking systems for its Vario-
million). The growing buoyancy of the commercial vehicle bahn streetcars, which are destined for service in various
markets led to convergence of the contribution to sales of European cities.
the two divisions in 2010. The Commercial Vehicle Systems
division accounted for 46% (2009: 44%) and the Rail Vehi- In the multiple unit and high-speed rail markets too, Knorr-
cle Systems division for 54% (2009: 56%) of consolidated Bremse was able to conclude significant sales agreements.
sales. For example, Knorr-Bremse was named sole supplier of
braking systems for the new generation of double-decker
The development of the two divisions is set out below for multiple units built by Stadler in Germany. The company
the individual regions that make up the Group. also won the order to supply the braking and door systems
for 1,160 cars of the TWINDEXX high-speed platform from
Bombardier. Knorr-Bremse also signed a service agree-
ment with Bombardier for the TRAXX fleet, one of the lead-
Europe ing European locomotive platforms. Siemens is building
270 new multiple units for the 2014 Winter Olympics in So-
Rail Vehicle Systems chi, Russia, and here too Knorr-Bremse will be supplying
The decline in rail freight transportation that set in towards the braking system. In the HVAC segment, Knorr-Bremse
the end of 2008 under the influence of the financial and was the successful bidder for the two major French proj-
economic crisis continued in the year under review, with a ects Régiolis (with Alstom) and Régio2N (with Bombardier)
sustained impact on the market situation for the Rail Vehi- and will initially be supplying systems for around 1,300
cle Systems division in both the original equipment and cars. The company has also secured a strong position re-
aftermarket sectors. Compared to the previous year, far garding possible future options in both projects.
fewer freight cars and locomotives were purchased in
2010. Production of freight cars was down by around 30%
year-on-year, with locomotive output falling approximate- Commercial Vehicle Systems
ly 20%. In addition, in the European passenger transporta- After truck output in Western Europe had fallen to around
tion sector several projects were postponed or cancelled 200,000 units in 2009, the market began to recover in 2010
in 2010. In the UK in particular, three major projects were and by year-end production had reached 320,000 trucks.
shelved on account of local financial difficulties. However, while this equated to a 60% increase year-on-
year, the market still trailed far behind its pre-crisis level. All
Despite the prevailing challenging market situation in Eu- of Knorr-Bremse‘s customers in the original equipment
rope, Knorr-Bremse was able to win some important or- sector benefited equally from this upturn, which therefore
ders. In particular, the company‘s position in the European had a positive impact on the full range of products manu-
mass transit sector was strengthened by incoming orders factured and marketed by the European production net-
from the metro and streetcar segments. One example here work of Knorr-Bremse Systeme für Nutzfahrzeuge GmbH.
was the order Knorr-Bremse obtained from Alstom to sup- The output of trailers in Western Europe also recovered in

KB_GB_2010_LageEntwicklung_EN_V1.indd 20 18.03.11 19:27


MANAGEMENT REPORT 23

2010 after falling 65% in 2009, the steepest decline of any


segment in the region. Following on from 70,000 units North America
built in 2009, trailer output increased by over 50% and ex-
ceeded the forecast level of 105,000 units. The level of af- Rail Vehicle Systems
termarket sales rose by 21% against the prior year to reach The freight car market in North America experienced a fur-
an all-time high in 2010 after adjustment for foreign ex- ther decline in 2010. New freight car construction de-
change effects. Production of trucks in Central and Eastern creased from around 22,000 units in 2009 to approximately
Europe also increased, rising 37% from around 55,000 units 15,000 units in the year under review, the lowest level since
in 2009 to 75,000 units in 2010, as the pace of recovery 1987. On top of this, North American customers took deliv-
failed to match that of Western European truck output. ery of just 350 locomotives in 2010, a downturn of around
30% and the lowest level since 1992. For equipment man-
The key sales driver in Europe in 2010 was once again the ufacturers in the freight car and freight locomotive sectors,
disc brake, which also celebrated a milestone in the year however, second-half order intake showed signs of im-
under review. In the fall of 2010, the 20 millionth disc brake provement and orders on the books at year-end indicated
came off the line at the company‘s largest disc brake pro- better prospects ahead. Even so, and despite a decline of
duction facility in Aldersbach, Germany. In the Western Eu- almost 10% in the North American freight car fleet due to
ropean OEM market, Knorr-Bremse was able to maintain its scrapping, some 20% of the fleet remained idle, even at
leading role as supplier of disc brakes for tractor units. year-end. The aftermarket too was severely impacted.

Another production milestone came up in 2010 at the In the freight sector, Knorr-Bremse was able to mitigate the
company‘s Kecskemét plant in Hungary, where the 1 mil- effects of the continued strong market downturn in 2010
lionth Air Processing Unit (APU) was manufactured in the by improvements in market share and freight car content.
spring of 2010. Since 1997, the APU, which was originally The key factors here were the company‘s strong position in
developed by Knorr-Bremse in the 1990s, has seen suc- the original equipment and aftermarket sectors, increased
cessful service with Daimler, Iveco and DAF, among others. exports, especially via the growing number of inter-com-
pany shipments to China, and gains due to increased in-
2010 also brought the next stage in the expansion of the vestments by railroads in new technology products, such
exceptionally successful Knorr-Bremse KAMA joint venture as the electronic braking system EP-60 and the Locomo-
initiated in 2007 between Knorr-Bremse and the largest tive Engineer Assist Display and Event Recorder, LEADER.
Russian commercial vehicle builder KAMAZ. May 2010 saw
the inauguration of the first assembly line for torsional vi- In North America too, several major projects in the passen-
bration dampers at the production plant in Naberezhnye ger transportation sector were cancelled or postponed.
Chelny. The new line expands the product portfolio of the But even against this difficult backdrop Knorr-Bremse suc-
joint venture, which was previously focused on the pro- ceeded in winning the contract from the Washington Met-
duction of drum brakes. ropolitan Area Transit Authority (WMATA) to equip 364 ve-
hicles with brakes and HVAC systems by 2015.

2010 brought growing demand for the type VV-120T oil-


free Air Supply Unit in the North American market. WMATA,

KB_GB_2010_LageEntwicklung_EN_V1.indd 21 18.03.11 19:27


24

for example, procured another 180 units for retrofitting to Driving Success tour. In particular, Bendix was able to
their existing vehicle fleet, while New York Transit Authority showcase the superior performance of the Bendix AD-
ordered 332 oil-free units for their fleet of vehicles. B22X air disc brakes, Bendix ESP, and the Bendix Wingman
ACB – Active Cruise with Braking collision mitigation tech-
The push to expand high-speed rail services in North nology.
America continued in 2010. Knorr-Bremse expects this to
have a positive impact on the company’s long-term pros- Bendix also reached two major production milestones in
pects. 2010: The company built its 750,000th BA-921 air com-
pressor, first introduced in 2002, and Bendix shipped its
100,000th ESP full stability system, first launched in late
Commercial Vehicle Systems 2004.
For the first time since 2006, the decline in truck output in
North America was reversed in 2010. However, production
remained extremely low, 56% down on the record level of
2006. Compared to the prior year, output was up 23% at South America
approximately 218,000 units. This positive trend was
echoed in the aftermarket sector, where growth was Rail Vehicle Systems
around 20% in the year under review. Production of freight cars in South America showed a
marked recovery in 2010 compared to the previous year,
In 2010, Knorr-Bremse was again able to win important climbing over 100% to 2,800 units. Procurement of freight
orders in North America. As a result, Bendix Spicer Foun- cars, however, remains at a relatively low level (2008: 5,000
dation Brake LLC expanded its position in the North Amer- freight cars procured).
ican drum brake market. The company’s drum brakes
were adopted as standard for the on-highway and voca- The expansion of mass transit networks in major cities such
tional commercial vehicles built by Mack Trucks. Bendix as São Paulo, Buenos Aires, and Rio de Janeiro, by contrast,
has also experienced continued strong acceptance of its led to a positive development in the rail-borne passenger
air disc brake technology at OE and fleet customers, not transportation sector in the year under review. In all, Knorr-
least in anticipation of the new Stopping Distance Regula- Bremse is to equip 450 cars with braking, HVAC, and door
tion in North America, where phase one launches in Au- systems by 2012.
gust 2011.

In addition, Bendix reinforced its collaboration with other Commercial Vehicle Systems
OEMs. As announced at the Mid-America Truck Show in Following a 28% decline in output in 2009, truck produc-
2010, the PACCAR company‘s Peterbilt Motors brand be- tion rose 56% in 2010 to 184,000 units. This was even high-
came the first North American heavy truck manufacturer er than the record level of 163,000 vehicles built in 2008.
to make air disc brakes standard equipment on its flagship The main driver of this development was the Brazilian mar-
Model 587. Bendix safety technology products were also ket. As a result of the marked economic recovery across all
featured during PACCAR‘s eight-month Peterbilt and Ken- sectors – and in the construction, infrastructure, and com-
worth tours and during the 2010 Volvo North American modities industries in particular – combined with easier

KB_GB_2010_LageEntwicklung_EN_V1.indd 22 18.03.11 19:27


MANAGEMENT REPORT 25

access to vehicle financing, transportation volumes soared systems for around 1,400 new locomotives, thereby further
in the year under review. expanding its market position. In the context of the ongo-
ing extension and construction of the metro systems in
In the context of the introduction of mandatory ABS anti- Guangzhou, Shanghai, and Beijing for example, the com-
lock brake systems for commercial vehicles in Brazil, Knorr- pany won orders to supply braking systems for almost 700
Bremse was able to conclude an agreement with Ford cars. In addition, Knorr-Bremse was commissioned to sup-
Caminhões governing the supply of ABS technology: From ply some 1,500 platform screen doors for metro projects in
2013, Knorr-Bremse will be meeting 100% of the ABS needs Shenzhen and Dalian.
of Brazil‘s third-largest commercial vehicle builder. This or-
der also involves meeting the entire EBS requirements of The other Asian markets also developed positively: In India
Ford Otosan in Turkey. Knorr-Bremse posted further growth in the classical mar-
ket for freight and passenger transportation vehicles and
won a ground-breaking order from Indian Railways to
equip over 11,000 freight cars with modern bogie-mount-
Asia/Australia ed brake systems.

Rail Vehicle Systems In 2009 and 2010, Knorr-Bremse also secured a large pro-
The rail vehicle market in Asia/Australia continued its posi- portion of the mass transit projects in India, supplying the
tive development in 2010. The main growth driver was braking, door and HVAC systems for over 600 cars. In the
China, where state stimulus packages and extensive infra- heavy-haul locomotive sector too, Knorr-Bremse was able
structure projects resulted in high demand for rail vehicles. to build on its existing market position and win some key
Knorr-Bremse‘s strategy in China, based on its own produc- orders. In Japan the company continued its successful as-
tion plants and close collaboration with its Chinese part- sociation with the Shinkansen E5. Back in 2009, Knorr-
ners, was rewarded by further high-speed train orders from Bremse had already been selected to supply bogie equip-
the region. Knorr-Bremse is supplying the braking and ment for all of the power cars for the new generation of
door systems for over 1,000 cars for the CRH1-380 high- Shinkansen trains. Shipments began in 2010 and will con-
speed train. The company also received a follow-on order tinue until 2012.
for the braking systems for 320 cars from the CRH1-250C
series. In addition, Knorr-Bremse won the order to supply
the bogie equipment for 1,920 cars of the CRH2-380 high- Commercial Vehicle Systems
speed train. China now has the largest and fastest high- The Asia/Australia region reported a further increase in
speed fleet in the world, operating on a network of some truck production in 2010. This was due to the contribution
7,000 kilometers of high-speed track. Knorr-Bremse is the of China, the world‘s largest commercial vehicle market in
only supplier of brake equipment for high-speed trains to unit output terms. In China, truck production was up 47%
cover all existing vehicle platforms in China. at 1,328,000 units in 2010. Once again this development
was supported by the state stimulus programs introduced
Along with the high-speed sector, orders were also ob- in 2009, which led to a veritable boom in commercial ve-
tained in the mass transit and locomotive markets. In 2010 hicle production in the first half of the year under review. In
Knorr-Bremse was commissioned to supply the braking the second half year, state intervention in the capital mar-

KB_GB_2010_LageEntwicklung_EN_V1.indd 23 18.03.11 19:27


26

ket also throttled back domestic truck production, so that


output volumes returned to normal.

Chinese manufacturers hold a dominant 98% share of the


domestic commercial vehicle market, which explains why
foreign manufacturers and suppliers are increasingly en-
tering into joint ventures in order to secure a share of the
growing market. By signing a joint venture agreement with
the Chinese company Chongqing CAFF Automotive Brak-
ing & Steering Systems Co. Ltd. governing the production
of commercial vehicle brake system and drive train com-
ponents, Knorr-Bremse too has succeeded in taking an im-
portant strategic step forward in the Chinese market. The
joint venture opened for business at the beginning of
2011. Knorr-Bremse‘s local presence in China through its
companies in Dalian and Shanghai already dates back sev-
eral years. The positive market development in 2010
brought Knorr-Bremse major orders in the compressor, tor-
sional vibration damper, disc brake and electronic brake
control system segments. For example, Knorr-Bremse won
the order to supply CNHTC with compressors for its D20/26
product line. In addition, Knorr-Bremse will be supplying
disc brakes to the Chinese OEM Yutong. To meet rising de-
mand for disc brakes in the Chinese market, Knorr-Bremse
also prepared the ground for setting up a disc brake as-
sembly line at its Dalian plant.

The commercial vehicle markets in India and Japan also


experienced an upswing in 2010. Truck production in India
increased 83% to 280,000 vehicles built. Japan, which was
hard hit by the global economic crisis in 2009, recovered to
step up its truck production by 55% to 155,000 units. In
2010, Knorr-Bremse Japan was able to obtain a major order
from vehicle builder Isuzu. For the first time, Knorr-Bremse
will be supplying drum brakes for a Japanese light truck. In
the past, these models have featured hydraulic brakes. The
scope of supply will comprise the complete wheelend
module, plus the electronics and specific valves. The Americas 22.3%
Asia/Australia 26.9%
Europe 50.8%

Consolidated sales by region

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MANAGEMENT REPORT 27

Capital expenditure and depreciation

In 2010, the Knorr-Bremse Group invested EUR 113.4 mil- Depreciation on intangible and fixed assets increased
lion in fixed and intangible assets, which was 13% more across the Group, rising from EUR 117.7 million in 2009 to
than in the previous year (2009: EUR 100.6 million). This up- EUR 146.9 million in the year under review. With EUR 72.4
ward trend was due to the marked improvement in the million, Europe accounted for the majority of depreciation,
business environment in the year under review. followed by Asia/Australia with EUR 41.4 million and the
Americas with EUR 33.1 million. A breakdown of deprecia-
At EUR 74.8 million, 66.0% of the company‘s capital expen- tion by division shows that the larger proportion of EUR
diture was invested in Europe. EUR 21.3 million (18.8%) was 82.9 million (2009: EUR 51.3 million) was accounted for by
invested in the Americas and EUR 17.3 million (15.2%) in Rail Vehicle Systems, while depreciation at the Commercial
Asia/Australia. Vehicle Systems division amounted to EUR 61.0 million
(2009: EUR 63.4 million).
Allocation of capital expenditure was such that the Rail Ve-
hicle Systems division benefited in the amount of EUR 61.2 In 2010, investment activity focused primarily on the ex-
million (2009: EUR 66.6 million) and the Commercial Vehi- pansion of production capacities in Asia and on replace-
cle Systems division in the amount of EUR 50.4 million ment investments, as well as on the construction of the
(2009: EUR 33.4 million). new production plant in Budapest (Hungary).

107
2006 104
140
2007 113
134
2008 115
101
2009 118
113
2010 147

Capital expenditure
Depreciation

Consolidated capital expenditure and depreciation in EUR millions

KB_GB_2010_LageEntwicklung_EN_V1.indd 25 18.03.11 19:27


28

Research and development

As a technology group, Knorr-Bremse continued to drive In 2010, development activities in the rail vehicle sector
forward its research and development efforts in the year focused among other things on systems and products that
under review in close collaboration with its customers. To- meet the demanding requirements of the Chinese mass
tal expenditure on research and development and project transit and high-speed train markets. In the commercial
planning amounted to EUR 175.3 million in 2010, which vehicle sector, development activities included a focus on
equates to 4.7% of consolidated sales. innovative systems that enhance road safety. In both sec-
tors a great deal of time and effort was dedicated to the
As the global technology leader in the fields of braking sys- advancement of systems that boost energy efficiency.
tems for rail and commercial vehicles, Knorr-Bremse devel-
ops innovative products distinguished by their safety, high Moreover, both divisions pressed ahead with the develop-
quality, reliability and customer benefits. This also applies ment of innovative products for the BRIC countries. The Rail
to the other fields covered by the product portfolios of the Vehicle Systems division reached an important milestone in
Rail Vehicle Systems division (automatic door systems, air- its efforts to access the Russian rail vehicle market with the
conditioning and driver assistance systems, control com- development of a control valve that is compliant with the
ponents and platform screen doors) and the Commercial Russian GOST standards. For the Commercial Vehicle Divi-
Vehicle Systems division (driver assistance systems, tor- sion too, the development of solutions tailored to the re-
sional vibration dampers and powertrain-related compo- quirements of the BRIC markets also took center stage.
nents such as PBS and transmission control systems).
In line with Knorr-Bremse‘s regional strategy, in 2010 the
Knorr-Bremse‘s success in the market with these products proportion of the Group‘s development capacity located
is founded on its comprehensive command of electronics, in emerging markets such as India and China was again
pneumatics, and mechanical engineering. These capabili- increased. At year-end 2010, the Knorr-Bremse Group em-
ties enable the company to adopt an integrated approach ployed a worldwide total of 1,999 people in the field of re-
and provide its customers with complete systems. In the search, development and project planning (2009: 1,885).
European commercial vehicle industry in particular, the
long-standing trend towards the introduction of innova- In 2010 the Group continued to pursue its ambition of real-
tive system solutions and modular solutions involving the izing innovative solutions that meet local market and cus-
increasing use of mechatronic systems is continuing, tomer requirements, and of continuously improving these
which means that Knorr-Bremse has a competitive edge in solutions in the interests of its customers, as evidenced by
the marketplace. an impressive number of innovations and awards.

2006 141
2007 159
2008 171
2009 153
2010 175

Consolidated research and development expenditure in EUR millions

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MANAGEMENT REPORT 29

Human Resources

At year-end 2010, the Knorr-Bremse Group employed a total The number of employees in both divisions increased, al-
of 16,277 persons or 12.8% more than at the end of 2009. though without keeping pace with the rise in sales. In the Rail
Vehicle Systems division, the number of employees at year-
In the European region, there were 9,243 employees on the end 2010 was again up at 9,523 (2009: 8,256). In the Com-
payroll at year-end 2010 (2009: 8,555). At 56.8%, the propor- mercial Vehicle Systems division, following a crisis-led decline
tion of employees in Europe declined from 59.3% in 2009. in the prior year, the headcount rose to 6,590 employees
The workforce in Germany totaled 3,235 employees, which is (2009: 6,014).
164 more than in 2009 (3,071) and equates to 19.9% of the
total Group payroll. The number of employees in the Ameri- In view of demographic trends and in line with the compa-
cas also rose in 2010, reaching 3,556 at year-end compared to ny‘s international growth strategy, Knorr-Bremse attaches
3,217 in 2009. The proportion of the total Group workforce in great importance to sustained human resource develop-
the Americas showed a slight downturn to 21.8% (2009: ment. The importance of HR development is underlined by
22.3%). In Asia/Australia the size of the workforce again in- the People Excellence (PEX) initiative which bundles all of the
creased from 2,660 in 2009 to 3,478 on the back of regional necessary measures. The targeted advancement of high po-
growth. The significance of the region is also reflected in a tentials and the creation of the appropriate development
further rise in the proportion of the payroll now employed in and career opportunities provide a source of employee mo-
Asia/Australia, which rose from 18.4% in the previous year to tivation and support long-term loyalty. Through cooperation
21.4% in 2010. with key universities and participation at recruiting and uni-
versity job fairs, Knorr-Bremse is regularly perceived as an in-
novative employer by young talents. And in line with the in-
creasingly international nature of its HR efforts, the company
continues to support periods of employment at foreign loca-
tions within the Group.

We would like to thank all of the company‘s employees for


their commitment and hard work in 2010. Our thanks also go
to the employee representatives for their constructive col-
laboration.

2006 13,035
2007 13,943
2008 14,999
The Americas 21.8%
2009 14,432
Asia/Australia 21.4%
Europe 56.8% 2010 16,277

Group workforce acc. to regions on Dec. 31, 2010 Group workforce on Dec. 31, 2010

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30

Social responsibility and sustainability

Particularly in times of globalization and climate change, efforts in the wake of natural disasters, such as the earth-
being successful invariably also means conducting all as- quake in Haiti, floods in Pakistan and the Czech Republic,
pects of one‘s business, from planning to execution, with and the toxic sludge disaster in Hungary.
foresight. Doing so in awareness of a responsibility for the
impact of one‘s actions on people, the environment, and Knorr-Bremse Global Care was founded in response to the
society, and working relentlessly to optimize that impact, tsunami disaster of December 26, 2004 to provide unbur-
has become a maxim of modern corporate management. eaucratic, effective and lasting help to the victims. Since
then, 69 aid projects have been realized in a total of 31
In 2010, several projects were initiated to further enhance countries on four continents. The projects are supervised
Knorr-Bremse‘s sustainability performance. For example, on a voluntary basis and with great dedication by Knorr-
Knorr-Bremse became a signatory to the United Nations Bremse employees. By year-end 2010, with donations to-
Global Compact initiative, thereby not only making a com- taling EUR 5.3 million, Global Care had reached out to help
mitment to observe the Global Compact‘s ten globally ac- some 200,000 people.
knowledged principles in the fields of human rights, labor,
environment, and anti-corruption, but also undertaking to
implement and promote them in its everyday work.

The spotlight in 2010 was on the adoption of the Knorr-


Bremse Corporate Social Responsibility (CSR) Strategy,
which anchors corporate responsibility and sustainability
in the corporate strategy, the management system, and
the company‘s business processes. Together with the
Knorr-Bremse Corporate Values and the UITP Charta for
Sustainable Development, the ten principles of the Global
Compact form the basis for all activities and commitments
in this area. Through its new CSR strategy, Knorr-Bremse is
also responding to the needs of its customers, who are in-
creasingly demanding documentary proof of compliance
with and management of ecological and social standards.

As in previous years, in 2010 Knorr-Bremse supported the


charitable organization Knorr-Bremse Global Care, which
was founded in 2005, providing funding for its activities in
the amount of EUR 1,000,000 in the year under review. The
main focus of the organization‘s activities in 2010 was on
the pursuit of long-term projects, such as the construction
of a permanent hospital ward in Burma‘s Irrawaddy Delta
which was devastated by Cyclone Nardis in 2008. In 2010,
the organization also supported several emergency relief

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MANAGEMENT REPORT 31

Follow-up report

Subsequent to the conclusion of fiscal 2010, effective Jan-


uary 1, 2011, Knorr-Bremse Nordic Rail Services AB, Lund,
Sweden, acquired the Swedish specialist in the door sys-
tems aftermarket business Kalmar Tågkompetens AB, Kal-
mar, Sweden, strengthening its portfolio in the Northern
European market.

Moreover, on January 1, 2011, the Knorr-Bremse IT-Services


GmbH organization, based in Munich, Germany, became
operational. Knorr-Bremse IT-Services GmbH bundles the
IT activities of Knorr-Bremse AG, Munich, Germany, Knorr-
Bremse Systeme für Nutzfahrzeuge GmbH, Munich, Ger-
many, and Knorr-Bremse Systeme für Schienenfahrzeuge
GmbH, Munich, Germany, under one roof.

Effective January 19, 2011, Knorr-Bremse Asia Pacific (Hold-


ing) Ltd., Hong Kong, China, and the Chinese manufacturer
Chongqing CAFF Automotive Braking & Steering Systems
Co. Ltd., Chongqing, China, founded the joint venture
company Knorr-Bremse CAFF Systems for Commercial Ve-
hicles Chongqing Ltd., Chongqing, China. Knorr-Bremse
holds a 66% stake in the joint venture with the remaining
34% being held by its Chinese partner. The joint venture
company manufactures brake components in the air sup-
ply and brake control segments, as well as components for
transmission and clutch control systems.

KB_GB_2010_LageEntwicklung_EN_V1.indd 29 18.03.11 19:27


32

Report on risks and opportunities

The Knorr-Bremse Group operates an established, multi- Bremse is particularly exposed to the risks implicit in the
stage, worldwide planning, reporting, and controlling sys- changing state of the global economy. The development
tem. Standard reporting periods and report contents have of the economies of individual countries and of the world-
been defined across the Group, and these formal reports wide flow of trade is carefully monitored in order to mini-
are supplemented in greater depth by presentations on mize risks affecting the company‘s sales. At the same time,
routine and special subjects at monthly review meetings. the international presence of Knorr-Bremse renders the
Group largely immune to risks that are restricted to an indi-
In addition, the Knorr-Bremse Group has put in place a vidual region.
standardized risk management system at top manage-
ment level. This is based on a semi-annual risk report that is In the course of its dynamic growth in recent years, Knorr-
discussed at regular Executive Board meetings and used as Bremse has integrated a number of companies or share-
a basis for introducing appropriate measures. This ensures holdings into the Group. In the past, the financial and cul-
that the operational risk management system is duly com- tural risks typically associated with such integration
plemented at strategic level. In its entirety, this control sys- processes were minimized by means of systematic analysis
tem has proved an effective, reliable network for the early and assessment of the target companies. When it comes to
identification and remediation of potentially undesirable overcoming cultural barriers, Knorr-Bremse can look back
developments. on 20 years of experience with integration processes re-
lated to the acquisition of numerous companies as well as
Risk assessment and management also forms an impor- to joint ventures in which the company holds a majority
tant part of the process of describing, documenting, and stake and is responsible for operational management. This
continuously improving business processes across the experience will pay dividends in any future mergers and
Knorr-Bremse Group (Knorr Excellence model). acquisitions and has been mapped in the form of struc-
tured processes.

Business risks Knorr-Bremse and its systems are regularly at the leading
The Knorr-Bremse Group is active in business segments edge of technological development. This also engenders
that for years have been characterized by a dynamic pro- risks which, because of the safety-critical nature of the ap-
cess of consolidation on the customer side. This has result- plication concerned, require particularly careful monitor-
ed in powerful demand-side leverage, with corresponding ing. To this end, Knorr-Bremse routinely employs compre-
pressure on prices. Knorr-Bremse responds to these factors hensive quality planning, quality assurance, and testing
with innovative products and systems, positioning itself as procedures. To ensure continuous improvement of its
a partner for long-term relationships that target cost-effec- quality procedures, Knorr-Bremse takes its lead from inter-
tive solutions for the customer. The earlier Knorr-Bremse is national standards. The individual plants regularly undergo
involved in the customer‘s project as a whole, the better internal and external audits in this context. Above and be-
the chance of attaining that target. yond this, despite having already attained a very high level
of quality, both divisions work intensively to continuously
Regional commercial vehicle and rail vehicle markets are improve the quality and reliability of their products with
subject to irregular cycles. Market volatility and fluctuating the aid of the Knorr Excellence quality program “Quality
growth can affect individual suppliers, market segments or First”.
entire regions. As a globally active corporate group, Knorr-

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MANAGEMENT REPORT 33

Operational risks order to avoid malfunctions, Knorr-Bremse attaches great


Risks due to production downtimes are covered by com- importance to harmonization of the hardware and soft-
mercially appropriate insurance contracts. Flexible work- ware architecture, the integrity and security of existing
ing time models enable unexpected short-term shifts in data, appropriate back-up solutions, and careful manage-
capacity requirements to be accommodated efficiently. ment of access control. Compliance with the IT Security
Knorr-Bremse maintains a close working relationship with Guidelines is comprehensively monitored with the aid of
many suppliers and service providers. In order to avoid de- internal and external audits at all major sites around the
livery delays or quality defects, which in turn could lead to world. The Corporate Data Center in Munich, Germany,
lost production time and have a negative impact on earn- meets the very highest requirements (industry standard) in
ings, Knorr-Bremse attaches great importance to careful terms of efficiency, reliability, and security. Based on this
supplier selection procedures. Suppliers are also continu- platform, the necessary global transparency and the inte-
ously subjected to technical and commercial audits. gration of all corporate sites – and of recent additions in
particular – are being further enhanced.
Exchange rate risk is not of crucial importance for the
Knorr-Bremse Group because geographic diversification In response to increasingly stringent environmental re-
over recent years has enabled the Group to establish a quirements, Knorr-Bremse has aligned its activities with
high proportion of local manufacturing and local suppliers the international standard ISO 14001. The majority of the
within the respective currency zones. In order to limit the company’s sites have already been certified or recertified
residual exchange rate risk related to transactions across accordingly.
different currency zones, Knorr-Bremse is increasingly
identifying opportunities to exploit compensatory supply In Asia, as well as in the other regions, imitation and coun-
volumes within the Group. In selected cases, currency risks terfeit products remain a serious threat to business in the
are also hedged by means of derivatives. Such measures, commercial vehicle and rail vehicle sectors. The most ef-
however, serve exclusively to hedge underlying transac- fective countermeasure to this threat is Knorr-Bremse’s
tions within the scope of normal business operations. technical expertise, which on account of the safety-critical
applications of its products is both recognized and appre-
The basis for managing foreign exchange risks is provided ciated by customers around the world.
by the Knorr-Bremse Guidelines on Managing Currency Ex-
posure, which set out the procedures to be followed and Careful analysis of the Group-wide risk profile has revealed
the necessary scope of hedging transactions in binding that no identifiable risks exist that would threaten the sur-
form for all Group companies. The monitoring of compli- vival of the company or have a substantial impact on its
ance with these Guidelines is part of the relevant Knorr assets, financial status or profitability. Nor are any such risks
Excellence process. The risk of fluctuations in commodity currently expected to arise in the future.
prices that are of relevance to Knorr-Bremse is also hedged
by means of derivatives, in so far as such fluctuations could
have a substantial impact on the Group‘s profitability. This
is the case with steel and aluminum.

Business processes within the Knorr-Bremse Group are


supported by powerful and state-of-the-art IT systems. In

KB_GB_2010_LageEntwicklung_EN_V1.indd 31 18.03.11 19:27


34

Outlook

In 2011 the Knorr-Bremse Group expects to see the posi- creasing globalization of its business. Further expansion
tive development of its business continue, albeit in an en- into markets of the future, such as Russia and China, and
vironment that remains highly volatile. Following the the shipments this calls for from Europe, along with the
worldwide market recovery that set in during 2010, we are introduction of products that meet specific local require-
currently expecting that trend to persist, although the ments, and selective penetration of new fields of activity
pace of recovery will vary considerably from one region to should drive the growth of the company‘s business in the
the next. In Europe a divided picture will likely emerge. On medium term. In all growth projects, the focus is on in-
the one hand the export-oriented countries – and Germa- creasing customer benefits and extending our technology
ny in particular – will show strong growth driven by the leadership, with the quality and reliability of all products
recovery of global trade. On the other hand the countries being assigned top priority.
of Southern Europe and Ireland will remain burdened by
high levels of national debt. In the USA, the world‘s largest In the North American rail vehicle sector, Knorr-Bremse an-
economy, levels of consumer spending which are being ticipates that 2011 will bring a moderate market recovery
depressed by prevailing high levels of unemployment are for equipment manufacturers for freight cars and locomo-
still considered extremely critical. tives compared to 2010. In both of these segments, how-
ever, growth will be at relatively low levels. To offset the
The emerging Asian markets will probably continue to weak state of the domestic market, North American loco-
make a significant contribution to economic growth in motive manufacturers are stepping up their export activi-
2011. ties, bringing new challenges for market players. In the
passenger transportation sector in North America the an-
In the European rail vehicle market there are currently no ticipated investments failed to materialize in 2010, leading
signs of any decisive growth drivers for 2011. The locomo- to a marked deterioration in the mood of the market, so
tive sector is expected to make a modest recovery while that the outlook for 2011 is for zero growth.
the freight car market remains stagnant. A stable market
environment is anticipated for the passenger sector. The The commercial vehicle market in the North American re-
postponement or cancellation of major procurement proj- gion is expected to continue its modest recovery in 2011.
ects in 2010 was a key factor in the continued depressed The sharp drop in unit sales anticipated for 2010 on ac-
state of the market. In Russia, large-scale projects associa- count of the new emissions regulations will probably not
ted with the 2014 Winter Olympics in Sochi and the 2018 happen in 2011 either. Owing to increasing market shares
World Cup are revitalizing the market. in the OEM sector, aftermarket business is set to grow in
2011 as well as in subsequent years.
In the European commercial vehicle sector the recovery
that has set in is expected to continue in 2011. The volume In the South American region the rail freight sector is ex-
of trucks built in 2011 will probably be up on the prior-year pected to show a recovery, driven by the ongoing rise in
level. However, the record level of 2008 will not be repeat- demand for raw materials. In particular, the infrastructure
ed in the medium term. projects associated with the 2014 World Cup in Brazil and
the 2016 Olympics in Rio de Janeiro are exerting a positive
In fiscal 2011, the main challenge for the Commercial Ve- influence on the market. The Knorr-Bremse Rail Vehicle Sys-
hicle Systems division in Europe will be posed by the in- tems division will also be involved in the expansion of the

KB_GB_2010_LageEntwicklung_EN_V1.indd 32 18.03.11 19:27


MANAGEMENT REPORT 35

mass transit networks in São Paulo, Buenos Aires, and Rio scribed above for the further growth of the global econo-
de Janeiro. my. Presuming that the economy continues to pick up
speed, earnings are expected to remain stable. Based on
In the South American commercial vehicle sector, the mar- the assumptions made for the Group, the assets, financial
ket environment is expected to remain stable compared to status, and profitability of Knorr-Bremse AG too can be ex-
2010. The construction activities triggered by major events pected to remain stable, depending on income from the
will have a supporting impact on the commercial vehicle company‘s investments.
market, which will likely be influenced by advance pur-
chases, given that the introduction of EURO 5 emissions In 2011 Knorr-Bremse will continue to pursue a policy
standards is planned in 2012. geared to safeguarding the company‘s long-term health
and in particular will be driving forward the steps already
In Asia/Australia Knorr-Bremse expects to see the expan- introduced to expand its capacities in regions where de-
sion of the transportation infrastructure continue over the mand is growing. These include, for example, an intensive
next few years. It is anticipated that growing environmen- marketing effort in Asia and the introduction of innovative
tal awareness, higher energy costs, and increasing levels of products, as well as the selective expansion of the compa-
gridlock on the roads will have a positive impact on the ny‘s fields of activity.
development of rail transportation. The focus here will be
on the passenger sector, although the rail freight market Extending this outlook to 2012 is difficult on account of
will also benefit from this development. market volatility and the risks described above. Knorr-
Bremse currently expects to see global economic growth
In 2011 Knorr-Bremse will continue to expand its activities accompanied by an increase in transportation volumes.
in the rail vehicle sector in the Asia/Australia region. The Further factors with a positive influence on the develop-
high pace of growth in the region’s rail fleets will also cre- ment of business for Knorr-Bremse will include the mega-
ate potential new aftermarket business. At the Rail Vehicle trends of ongoing urbanization and the increasing impor-
Systems division’s plants in China, measures will be taken tance of energy-efficiency and safety. Consequently,
to increase capacities in order to meet existing orders and against the backdrop of the economic context described
future customer demand. above, a stable earnings position can be anticipated for
2012 as well.
In the commercial vehicle sector the region is expected to
see a steady level of truck production for 2011 as a whole.
In the medium term, however, Knorr-Bremse is anticipat-
ing renewed growth since China is driving forward its ve-
hicle exports, particularly to Africa and South America. The
commercial vehicle markets in India and Japan look set to
show a positive development.

Based on the regional backdrops set out above, Knorr-


Bremse expects to see the business develop positively in
2011. Progress will, however, be influenced by the risks de-

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2/ Report

Against a background of general economic recovery in 2010, Knorr-Bremse


benefited from its strong strategic position with two divisions: Rail Vehicle
Systems and Commercial Vehicle Systems. In the rail division one of the main
drivers of growth was a dramatic increase of more than 100% in Asian sales,
while the truck division benefited from rapidly accelerating recovery in com-
mercial vehicle markets. 2010 saw the company once again invest consider-
able effort in driving innovation, accessing new markets and improving inter-
nal processes. The response of the prestigious rating agencies Moody‘s and
Standard & Poor‘s was to upgrade their ratings of the company once again.

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Rail Vehicle Systems

Over the year Knorr-Bremse Rail Vehicle Systems benefited in particular from a
high volume of orders from Asia. The main growth driver was China, where
state-sponsored programs and large-scale infrastructure projects resulted in
buoyant demand for mass transit and mainline vehicles, but the division was
also successful in other parts of the region. In a bid to improve its global
market position it once again invested extensively in products and production
facilities, while at the same time strengthening its position through carefully
targeted acquisitions.

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RepoRt 41

Markets
Despite persistent weakness in the European market, Knorr-Bremse won important orders for
metros, streetcars, multiple units and high-speed trains. In North America, there was increased
demand for environmentally-friendly air supply units and South America experienced a signifi-
cant recovery in freight car production. In Asia there were positive developments virtually
across the board in the rail vehicle market.

Europe
The downturn in European freight traffic continued in 2010, with freight car production declining by
some 30% and locomotive production down about 20% on the previous year. In the passenger segment
several projects were not implemented as planned. Even so, Knorr-Bremse was able to win a number of
important orders. A downturn in the freight sector was compensated by important contracts in the
metro, streetcar and multiple unit/high-speed segments.

North America
The North American freight market continued to decline in 2010, with production of new freight cars
down from 22,000 units in 2009 to 15,000 in 2010 – the lowest level since 1987. Nevertheless, by the
end of 2010 the volume of orders received by Knorr-Bremse had started to grow, indicating possible
signs of market recovery. In the passenger sector Knorr-Bremse won a number of major orders in the
metro segment.

South America
There was a distinct recovery in South American freight car production in 2010, even though it did not
return to pre-crisis levels. The main growth drivers in the passenger sector came from major cities like
São Paulo, Buenos Aires and Rio de Janeiro, where local transport networks were extended. Prepara-
tions for the Soccer World Cup in Brazil in 2014 and the Summer Olympics in Rio de Janeiro in 2016 are
expected to provide a further boost.

Asia/Australia
There was further positive development in the rail vehicle markets in Asia and Australia in 2010. The
main source of growth was China, where there was continued strong demand for rail vehicles. The
company’s strategy of operating its own production facilities and co-operating closely with Chinese
partners reaped rewards in the form of major orders from the high-speed sector in the region. 2010
was also a successful year for Knorr-Bremse in other Asian countries such as India and Japan.

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RepoRt 43

Market Successes
Knorr-Bremse is recognized worldwide as a reliable and innovative manufacturer and business
partner. This was once again demonstrated during 2010 by the conclusion of major project
agreements in all regions. In China, Knorr-Bremse is to supply braking and door systems for a
large number of new high-speed trains; from both North and South America the company
received major orders for the metro segment; and in India it is involved in refitting more than
11,000 freight cars with modern bogie equipment. But these were not the only successes
recorded by the company.

Worldwide sales figures for the Rail Vehicle


Systems division in eUR millions
2008 1,431
2009 1,553
2010 2,024

Europe
Linear eddy current brakes and door systems for Velaro D
Knorr-Bremse is to equip 15 new Deutsche Bahn high-speed multiple units based on the Siemens
Velaro platform with the latest generation of eddy current brakes. Knorr-Bremse subsidiary IFE is also
supplying the door systems. Specially designed for international operations within Europe, the trains
will link France and Germany at speeds up to 320 km/h.

Eddy current brakes are completely wear-free and operate without contact between the wheel and
the rail. They can be applied progressively and act virtually without delay. In the case of the new Velaro
D, the requirements for the braking system were set even higher than usual, mainly because the trac-
tion technology is based on bipolar transistors. The higher voltages involved meant the coils of the
eddy current brake had to be provided with improved insulation. Knorr-Bremse developed coils ca-
pable of withstanding up to 10 kilovolts, and its engineers also enhanced the brake’s characteristics in
terms of signal transfer technology.

Knorr-Bremse delivered four eddy current brakes to Siemens for testing at the end of 2009 and by
January 2010 sample testing had been completed and series production could begin. By mid 2011,
output is scheduled to reach eight brake sets per month.

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Pan-European maintenance agreement with Bombardier


The first ever pan-European maintenance agreement between Knorr-Bremse and Bombardier was
signed during the InnoTrans trade fair in Berlin. Knorr-Bremse is to overhaul the braking systems of all
European TRAXX (Transnational Railway Applications with eXtreme FleXibility) locomotives for which
Bombardier has full servicing agreements with the owners.

The new agreement is not just confined to maintaining the systems supplied by Knorr-Bremse. Parallel
to the regular overhaul work, specialists from both companies will also be attending workshops to
discuss further improvement of the servicing, particularly in terms of cost and availability. As a systems
specialist, for example, Knorr-Bremse can dismantle components in its own service centers to examine
their actual condition and develop specific maintenance measures. It is an approach that supports
Bombardier’s “total cost of ownership” (TCO) approach aimed at making its vehicles and systems more
attractive to potential customers. In return, Knorr-Bremse will receive feedback on the performance of
its systems under real operating conditions.

Another element of the agreement involves Knorr-Bremse advising Bombardier on setting up a ware-
house with a range of replacement components. The company’s years of practical experience in the
field will help Bombardier meet customers’ high expectations in terms of availability.

Major Swiss order


Another success story for Knorr-Bremse came when the company signed a contract to supply braking
systems for 59 TWINDEXX double-decker mainline passenger trains ordered by Swiss Railways (SBB)
from vehicle builder Bombardier. In addition to onboard components – including the EP compact
brake control system – the package includes complete bogie equipment and air supply modules with
oil-free compressors. Knorr-Bremse subsidiary IFE will also be supplying the train doors. The 59 dou-
ble-decker trains will require more than 1,600 passenger doorsets, 40 loading doors and 40 catering
doors in all. Each of the passenger and catering doors will also be supplied with an intelligent sliding
step with automatic platform detection.

The order covers nine 4-section and fifty 8-section trains. An option for more than 100 further trains
has also been formally agreed between Bombardier and SBB. Delivery of the first components is
scheduled for the end of 2011, with the 59 completed vehicles due for delivery to SBB between 2013
and 2019. The first trains will go into regular service from December 2013 onwards.

The TWINDEXX double-decker multiple units operated by Swiss Express are some of the most modern
rail vehicles currently available. They include a large on-board restaurant and a spacious family car, as
well as a business compartment offering space for businessmen to hold meetings or work undis-
turbed. The trains have a top speed of 200 km/h (optionally 230 km/h) and will initially operate on the
St. Gallen – Zurich – Bern – Geneva and Romanshorn – Zurich – Bern – Brig lines as well as on the Inter-
Regio service between Zurich and Lucerne.

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Braking systems for Amsterdam Metro


Years of close cooperation between Knorr-Bremse and French vehicle builders Alstom paid off once
again in 2010 when Knorr-Bremse received an order for braking equipment for rail vehicles destined for
operation on Amsterdam Metro. The order is part of a framework agreement with Alstom dating back
to 2008 that covers the development and supply of braking systems for the “Metropolis” metro platform.

The contract involves supplying a total of 138 car-sets with complete braking systems based on the EP
Compact Lite brake control system, with additional components for the parking brake and pneumatic
suspension. It also includes oil-free compressors, axle brake discs and brake calipers.

As only 5.5 kilometers of the 40 km metro network actually runs underground, the operator is also
equipping the trains with sanding systems – again supplied by Knorr-Bremse. Delivery of the braking
systems for Amsterdam Metro is scheduled for the period 2011-2013.

Supplying Alstom’s CITADIS Evo platform


During the year under review, Knorr-Bremse received an order to equip the CITADIS Evo platform for
vehicle builder Alstom. 27 of the low-floor streetcars manufactured by Alstom are to be fitted with a
hydraulic braking system using electro-magnetic track brakes. Because of restricted installation space
on the bogies, the braking systems are designed to be as compact as possible. Higher maximum op-
erating pressures of up to 100 bar compared with 10 bar for pneumatic systems make it possible to
use smaller brake calipers. The order for the vehicles – which are destined for operation in Rouen,
France – also includes door systems from Knorr-Bremse subsidiary IFE.

Knorr-Bremse also signed a declaration of intent with Alstom to supply hydraulic braking systems for
future orders of the CITADIS Evo platform. The framework agreement covers a period of seven years
and involves the company equipping up to 100 vehicles per year.

Knorr-Bremse already has a longstanding connection with the CITADIS platform – some 800 vehicles
have already been fitted with the company’s systems. The most recent order came in 2009 in the form
of braking systems for 75 vehicles in the French cities of Montpellier, Dijon and Brest.

Moscow Metro opts for Knorr-Bremse systems


Handling over nine million passengers a day, Moscow Metro is one of the world‘s busiest networks.
The metro operates a fleet of more than 4,500 vehicles, which is modernized every year by the acquisi-
tion of new car-sets. In May 2010, Moscow Metro brought into service the initial prototypes of the
latest generation of vehicles. These are fitted with multiple systems manufactured by Knorr-Bremse.

Along with the oil-free compressor and block brake units, these vehicles are equipped with braking
resistors from Microelettrica and door systems manufactured by Knorr-Bremse subsidiary IFE. Vehicle
builder Metrovagonmash (MVM) and Moscow Metro opted for IFE doors because with extremely short
intervals of less than 50 seconds between trains, it is vital that the door systems can be relied on to
work perfectly.

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The first production order covers 53 cars due for delivery during the course of 2011. A total of nearly
800 doors is required, and production began at the IFE facility in the Czech Republic in November
2010. Within the same time frame Knorr-Bremse will be supplying all the oil-free compressors, block
brake units and braking resistors.

These recent orders from Metrovagonmash have enabled Knorr-Bremse to further expand its penetra-
tion of the Russian metro market: Both the new cars and their predecessors, which will continue to be
built in parallel in 2011, are now equipped throughout with Knorr-Bremse compressors and Micro-
elettrica brake resistors.

Braking systems for Russian State Railways


Russia is currently modernizing its regional train fleet in advance of the Sochi Winter Olympics – which
is one reason why the country’s state railway system (RZD) is calling the new regional trains ordered
from Siemens the “Desiro RUS Sochi 2014”. Knorr-Bremse is to supply complete braking systems and
bogie equipment for a total of 54 multiple units.

The 5-car trains will be equipped with the EP Compact brake control system. The fact that Knorr-
Bremse is also supplying the oil-free compressor marks a further milestone in the company’s activities
in Russia. The Russian Desiro multiple units will be braked by a combination of wheel and axle brakes.
Both types have been combined because passenger densities of up to seven people per square meter
make high demands of the brakes.

The braking systems are designed to operate in temperatures ranging between +50 and -50 degrees
Celsius. All three of Knorr-Bremse’s Russian sites – St Petersburg, Moscow and Voronezh – were in-
volved in their development.

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Framework agreement with AAE


Knorr-Bremse has signed an agreement for the overhaul of brake components with AAE (Ahaus Alstät-
ter Eisenbahn AG), the leading European leasing company for standard freight cars. The contract covers
a period of three years and includes all Knorr-Bremse control valves, load-proportional valves and load
brake valves installed in freight cars covered by the company’s European overhaul program. The pro-
gram starts in 2011 and a total of some 6,000 valves will be overhauled over the period covered by the
contract.

The logistics will be handled by the Knorr-Bremse Service Center in Berlin, but the actual overhaul will
take place at the company’s specialized Service Center in Budapest. The time frame for carrying out the
overhaul and returning components to AAE is a mere five days. By setting up a pool of overhauled
components and maintaining them on the basis of forecast deadlines it is possible, in cooperation with
the customer, to guarantee minimum throughput times. At any one time the service center has valves
undergoing overhaul and also a stock of finished valves. As freight cars come in, they can immediately
undergo servicing and the valves can be installed as rapidly as possible, enabling Knorr-Bremse to keep
out-of-service times to a minimum.

This quick turnaround was one reason why the contract was awarded to Knorr-Bremse. Another was
the company’s ability to offer a single central location for all the customer’s overhaul requirements. And
of course a further deciding factor was Knorr-Bremse’s excellent reputation amongst operators for ser-
vice reliability.

Service contract with Danish Railways extended


Danish Railways (DSB) is continuing to rely on the competence of Knorr-Bremse when it comes to
servicing its fleet: Knorr-Bremse will also be handling the second overhaul cycle for the hydraulic
brakes of DSB’s commuter rail fleet. For Knorr-Bremse this renewed vote of confidence is a great suc-
cess and underlines the company’s strong competitive position in such major projects. A key factor in
obtaining the order was doubtless Knorr-Bremse’s extremely reliable performance in the first overhaul
cycle of these commuter trains.

The follow-up order covers the entire commuter rail fleet operated by DSB, which comprises 120
eight-car sets and 35 four-car sets. The second overhaul cycle will run from 2012 to 2018. At the same
time, DSB secured an option to extend the contract beyond this period.

North America
Locomotive exports to China, South Africa and South America
Due in part to the ongoing weakness of the domestic freight market, locomotive exports have become
an important factor for North American rail equipment suppliers. Recent procurements, originating pri-
marily in China, Africa and Australia, have also benefited Knorr-Bremse’s US subsidiary New York Air Brake
(NYAB).

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Strong demand from China in particular has driven up exports by North American locomotive builders. In
the year under review this was reflected in orders of CCB II microprocessor-controlled braking systems for
the Chinese market. By the year’s end, some 1,800 CCB II systems had been supplied.

Knorr-Bremse is also involved in a major order that the US conglomerate General Electric (GE) received in
South Africa: South African rail operator Transnet Freight Rail ordered 100 new diesel locomotives from GE,
and by the end of 2010, NYAB had supplied 18 CCB II brake control systems to GE for this project, with the
remaining 82 to follow in 2011. In addition, NYAB also supplied a further 20 CCB II systems to Union Car-
riage & Wagon (UCW) destined for South African operator Transnet, the parent company of Transnet
Freight Rail. Again, most of the systems are to be delivered in further batches during the course of the cur-
rent year. NYAB is also involved in GE orders from Brazil, for which Knorr-Bremse also supplied over
100 CCB II systems.

For the Canadian locomotive builder Electro Motive Diesel (EMD), NYAB supplied not only CCB II systems
but also the EP 60 electro-pneumatic braking system for some of the locomotives ordered. The same ap-
plied to 25 locomotives ordered from EMD by Saudi rail operator SRO (Saudi Railway Organisation).

EP-60 for Australian freight trains


In addition to supplying EP-60 for the locomotives being built by EMD, Knorr-Bremse also received
orders from Australia for the electro-pneumatic braking system. By the end of 2010, the company’s
subsidiary NYAB had equipped more than 1,000 Australian freight cars with EP-60 systems, and a total
of four different operators were operating the system on a trial basis.

The EP-60 braking system considerably improves the braking of long, heavy freight trains because the
braking signal is transmitted electrically rather than pneumatically from the locomotive to the freight
cars, only being converted into a pneumatic signal when it reaches the bogie. This avoids a situation
where the front cars are braked first but the delay in signal transmission means the rear cars continue
to shunt them.

Largest order ever for Knorr Brake Corporation


For the new trains operated by Washington Metropolitan Area Transit Authority (WMATA) in Washington
DC, Knorr-Bremse is supplying the brakes (including oil-free compressors) and the HVAC systems. The
braking systems are being developed in Westminster, while Knorr-Bremse’s Spanish subsidiary Merak is
responsible for the design and development of the HVAC. The North American division of Knorr Brake
Corporation, Merak NA, will produce the HVAC units. The contract concluded with the Japanese manu-
facturer of the vehicles, Kawasaki, is the largest North American project in the history of Knorr Brake
Corporation.

The order covers the equipment for 364 cars with an option for 384 more. The first car-sets are scheduled
for delivery as early as 2012, with series production slated for the period from 2013 to 2015. The new
trains will boost transportation capacity for what, in terms of passenger numbers, is the second largest
metro in the United States. By 2030, WMATA anticipates carrying an average of one million passengers a
day. Metro Washington DC has also ordered a further 180 oil-free compressors for retrofitting in existing
car-sets.

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RepoRt 49

The recent order is the latest development in a partnership between Knorr-Bremse and Kawasaki on the
North American continent that stretches back many years: Knorr Brake Corporation is currently supply
braking systems to Kawasaki for the M-8 Project for Connecticut DOT. In the 1990s, the company also
supplied the braking system for coaches for the Long Island RR. Knorr-Bremse is also a long-time supplier
to Washington Metro, having supplied the previous two series of trains built by CAF and Alstom.

Knorr-Bremse is also involved in the expansion and modernization of the metro network in Chicago,
where it is to supply braking systems for 160 metro cars being built by Nippon Sharyo.

South America
Braking and HVAC systems for Rio de Janeiro and São Paulo metros
Major orders from Rio de Janeiro and São Paulo metros further strengthened Knorr-Bremse’s lead in
the South American mass transit market during the year under review.

The company will be supplying modern braking systems for 119 cars ordered from Chinese manufac-
turer China Railway Construction (CRC) by Rio de Janeiro Metro as part of its fleet expansion. The order
for HVAC systems was secured by Sigma Coachair Group, which was taken over by Knorr-Bremse Asia
Pacific in September 2010.

Knorr-Bremse also successfully tendered to supply the newly built Line 8 operated by Companhia
Paulista de Trens Metropolitanos (CPTM) in São Paulo. The company is to provide braking systems for
all 288 new cars ordered from Spanish vehicle builder CAF, and Merak will also supply the HVAC sys-
tems. The business partnership between Knorr-Bremse and São Paulo Metro goes back many years.
Some 60 per cent of trains operating on the existing six lines have Knorr-Bremse braking systems on
board.

Contract to supply Buenos Aires Metro


Knorr-Bremse also chalked up a success in Argentina during 2010, when it became involved in a major
order placed with Chinese manufacturer China Railway Construction (CRC) by Buenos Aires Metro as
part of the mega-city’s modernization of its metro network. Knorr-Bremse Rail Vehicle Systems is to
supply the braking systems.

The first step in a project covering a total of 45 vehicles involves replacing the oldest ones on Line A,
which dates back to 1913. These are the oldest metro vehicles still in operation anywhere in the world.
The contract was signed in August 2010, and shipment of the systems starts in May 2011. In addition
to the current order for 45 new vehicles China Railway Construction has also signed an option for a
further 234.

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Asia
Further orders from China in the high-speed train segment
Knorr-Bremse has received further major orders from China: The company’s Chinese subsidiaries and
partner companies are supplying the braking and door systems for more than 1,000 cars for the CRH1-
380 high-speed train, the “Zefiro China”, built by the Bombardier Sifang Transportation joint venture.
They have also been commissioned to supply the braking systems for 320 cars from the CRH1-250C
series.

In addition, Knorr-Bremse won the order to equip the CRH2-380 high-speed train manufactured by
CSR Sifang Locomotives & Rolling Stock Co. Ltd. In this project, Knorr-Bremse and its Chinese partners
are responsible for supplying the bogie equipment for almost 2,000 cars.

Besides these orders, Knorr-Bremse will also be supplying the braking systems for 480 cars for the new
CRH3 and CRH5 series trains. In addition, the company is supplying door and HVAC systems for sev-
eral hundred cars and equipping many of them with electronic components made by Microelettrica.

The year 2010 brought a very special highlight for Knorr-Bremse in China: The company’s products
were installed in the CRH380A train that set a new speed record of 486 km/h. The new CRH380 high-
speed trains are equipped with high-performance disc brakes, door systems and HVAC systems from
Knorr-Bremse. In 2011 these trains are scheduled to go into service on the Beijing to Shanghai route.

Expo Shanghai
Following the success of Knorr-Bremse’s supporting role during the Beijing
Olympics in 2008, organizers of the EXPO in Shanghai also opted to put their
local rail services in the company’s hands. A record tally of 70 million visitors
meant that ten times as many people as two years ago had to be transported
daily to the World Exhibition site between May 1 and October 31, 2010.

Most of the visitors were carried by local rail services. Massive expansion means Shanghai now has the
world’s largest metro system – bigger even than London Underground.

Knorr-Bremse is one of the leading component suppliers to Shanghai Metro – accounting for 80 per
cent of the braking systems delivered by April 2010. In particular its reputation for reliable and innova-

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RepoRt 51

Orders for heavy locomotives


Knorr-Bremse also received important orders in the Chinese heavy-duty freight locomotive segment.
The company was commissioned by CNR Dalian Locomotive and Rolling Stock Company and CNR
Beijing 7th Railway Transportation Equipment Co. Ltd. to develop and manufacture braking systems
for a total of 450 7200kW locomotives. And CSR Zhuzhou ordered braking systems for more than 700
further locomotives in the same category. The order also included 150 braking systems for 9600kW
locmomotives. In addition, Knorr-Bremse received an order from the CSR Qishuyan Locomotive Com-
pany Ltd. for braking systems for 300 diesel-electric lcomotives.

Knorr-Bremse accesses Japanese high-speed market


Knorr-Bremse has succeeded in accessing the Japanese high-speed train market. In 2010 Japanese
railway company JR East commissioned the company to supply braking components for the traction
bogies of 23 units of the new E5 Shinkansen generation. The high-performance brakes had to be ca-
pable of bringing the Japanese high-speed train safely to a halt from speeds of up to 360 km/h, and
for this purpose Knorr-Bremse developed an ultra-compact lightweight type of brake caliper based on
a tried-and-tested modular design. The brake discs and flexible ISOBAR sintered brake pads were also
specially developed for the extreme demands of possible emergency braking in the event of an earth-
quake.

tive products has enabled the company to establish a strong footing in this vast metropolis with its 20
million-plus inhabitants. The EP2002 intelligent brake control system, for example, is a huge success
in Shanghai. And as one of the most important sub-suppliers for Shanghai Metro, Knorr-Bremse also
offers rapid, professional aftermarket support: Field service engineers, operations technicians and
other specialists ensure the smooth running of systems round the clock. Rapid delivery of original
spare parts is also guaranteed: In Suzhou, Shanghai and Wuxi the necessary components are manu-
factured either in-house or by joint ventures. And the company’s own logistics department ensures
fast, efficient transportation and delivery.

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With the new E5 generation of the Shinkansen, JR East will be extending the “Tohoku“ line between
Tokyo and Hachinohe to Aomori, on the west coast of the main island of Honshu. If it is to compete
with air travel, the high-speed train has to complete the trip within three hours – which means increas-
ing its top speed from 275 km/h to 320 km/h. This calls for a braking system with substantially higher
performance.

In addition to supplying the E5 generation, Knorr-Bremse also received an order to supply most of the
bogie equipment for the pre-series prototype of the next generation – the E6. Delivery took place
within a few months of receipt of the order, and initial testing started in June 2010.

Knorr-Bremse upgrades Indian freight car brakes


The Indian national rail operator, Indian Railways, has chosen Knorr-Bremse to supply the new brakes
for a staged upgrade of its freight car fleet. In place of conventional braking technology, the cars will
be equipped with modern bogie brakes from Knorr-Bremse that are not only lighter and more effi-
cient but also more reliable, as well as having just one brake cylinder per bogie.

Indian Railways management began showing an interest in collaboration with Knorr-Bremse back in
2009, and in 2010 placed an initial order for the supply of bogie-mounted brake systems for approxi-
mately 11,000 freight cars by September 2011. Knorr-Bremse India wasted no time and began deliver-
ies in October 2010.

Along with modern bogie brakes, the Knorr-Bremse plant in India also manufactures conventional
brakes; however, demand is progressively shifting toward the more technically advanced bogie brakes.

Prizes and awards


Elogistics Award
Knorr-Bremse Systeme für Schienenfahrzeuge has won an Elogistics Award from AKJ Automotive – a
working group that brings together experts and top managers from the German automotive industry
and offers a platform for exchanging experience amongst OE manufacturers, suppliers and service
providers in the automotive value chain. The Elogistics Award is made in recognition of best-practice
solutions in the fields of IT and logistics developed by companies in the automotive industry and re-
lated sectors.

Knorr-Bremse received the award for a pioneering solution to the problem of “uniform disposition re-
sponsibilities in a complex plant structure” based on a sophisticated combination of logistics and in-
formation technology. The company succeeded in designing an integrated disposition system with
only one person responsible for each category of goods, enabling customer requirements to be dealt
with much more rapidly and efficiently, even on a cross-plant basis.

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Sydac wins Australian award


Knorr-Bremse subsidiary Sydac, an industry-leader in the development of simulation technology and
engineering software, won first prize in the Top 20 South Australian Innovation Awards. The new
awards system profiles the 20 most influential business-to-business innovations of the 21st century.
The judges felt that Sydac’s highly innovative technology and development of a successful business
model demonstrated twin competitive advantages that have gained the company a significant mar-
ket share at home and abroad.

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Projects
2010 saw Knorr-Bremse further improve its capabilities, extending its product portfolio and thus
strengthening its market lead in many areas with a combination of newly established sites, joint
ventures and acquisitions. In China, for example, many of its production sites were expanded,
and in Munich the first and only testing center outside Russia for GOST-standard brake equip-
ment used in Russia and the Commonwealth of Independent States went into operation.

Brake equipment assembly in Russia


In September, Knorr-Bremse completed preparations for the assembly of disc brakes and compressors
in the Russian city of Voronezh. Production at the new facility promises to strengthen the company’s
presence in the country and enable even more Russian trains to be directly supplied with products
tailored to local market requirements. Knorr-Bremse’s collaboration with OAO Vagonremmash, a subsid-
iary of Russian railway company RZD, is an important partnership that could bring further orders from
the Russian rail market.

The disc brakes manufactured in Voronezh will be initially installed in mainline passenger cars built by
OAO TVZ – but can also be used in other vehicle types. The oil-free compressors assembled at the same
plant are suitable for electric multiple units or locomotives.

Knorr-Bremse’s aim is to be able to deliver customized equipment from Voronezh for all Russian vehicle
types. To guarantee high quality standards the assembly line has been designed along the lines of the
Knorr Production System (KPS), with globally tested quality standards applied.

With its new production facility for disc brakes and compressors Knorr-Bremse is building on a long
tradition of business activity in Russia. Back in the 1960s, the former Knorr-Bremse parent plant in East
Berlin supplied braking equipment for Soviet passenger trains, and today, Knorr-Bremse equipment is
used in mainline trains, locomotives and multiple units. Prestigious Russian high-speed trains like the
Siemens Sapsan or the Alstom Allegro also use Knorr-Bremse braking equipment and on-board sys-
tems.

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Certification of GOST-standard testing facility


Knorr-Bremse is the first – and currently the only – company outside Russia to have achieved certifica-
tion of a testing facility for braking equipment built to the GOST standard, which applies in Russia and
the Commonwealth of Independent States. The company is now in a position to test and certify a
wide range of components for the Russian market both at its Munich headquarters and also in Berlin.
The facility can be used during product development and also for certification purposes. Avoiding the
need to ship components to Russia for testing and certification means the company can considerably
increase its process flexibility and shorten its delivery times.

Depending on the project concerned, the company is able to test rail vehicle braking equipment such
as brake discs and brake blocks as well as complete bogie equipment. Other testable components
include compressors with their motors and air reservoirs, and also control valves.

New building in India


In the fall of 2010 Knorr-Bremse India completed its plans for the construction of a new rail vehicle
systems plant. On a site close to the existing facility, a modern building offering about 18,000 m2 of
production and office space will house some 400 employees who will manufacture rail vehicle brake
control systems, bogie equipment, compressors and air dryers. The new building had become neces-
sary because of recent exponential growth in the Indian market – with predictions of a further
medium-term increase in demand as India continues to expand its infrastructure.

In line with Knorr-Bremse India’s international strategy, the new plant will work with certified suppliers
to produce components for the Indian market. The company will be applying the global Knorr-Bremse
Production System (KPS), which ensures that processes are standardized along the entire value chain
– from raw material processing and surface treatment right down to assembly and final quality testing.

Knorr-Bremse’s new building will also set a new environmental benchmark by adhering to the “Green
Building Standard”. This involves, for example, significantly reducing CO2 emissions through efficient
air conditioning and high-specification building insulation.

Expansion in China

Knorr-Bremse China is preparing for the future and responding to steady growth in demand. The com-
pany’s Chinese sites are expanding their production facilities, installing new plant and streamlining
their processes – reflecting the company’s huge success in this growth market.

Suzhou site grows


In 2010 the first major expansion of Knorr-Bremse’s “Suzhou II” plant, which had been a new-build in 2007,
was completed. Within five months an additional 5,700 m2 of production facilities and approximately
3,300 m2 of office space and functional/social areas were created, bringing the total to 22,500 m2.

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More room for machining operations was created, enabling the plant to operate with a high degree of
vertical integration and further localize production. Assembly lines were redesigned to cope with high
levels of demand for brake control systems, especially in the mainline segment. Throughput was further
optimized in terms of timing and routing, with alignment of assembly, inspection and packing pro-
cesses. And the service area was expanded to 1,400 m2 in response to growing aftermarket demand. A
new laboratory measuring 350 m2 was also created to house the so-called System Engineering and
Commissioning Center China.

Environmental aspects were also taken into account in the expansion program, with a rainwater tank
installed for irrigation of the surrounding gardens and solar panels mounted on the roof for hot water
supply. A modern canteen, new locker rooms and showers were also built to take care of the 1,000-strong
workforce.

Rapid growth in Wuxi


The Merak-Jinxin joint venture in Wuxi, which produces air conditioning systems, was also further ex-
panded in 2010. Since it was first set up in June 2008, the company has grown its workforce from 10
to 300. During the year under review, high order volumes from the region drove up production to
more than 2,000 on-board HVAC units. To meet such demand, the workshops were expanded, increas-
ing potential annual output to 2,400 units.

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“5-day factory”
opened in Budapest
It is one of the most advanced plants in the Knorr-Bremse Group: following a
construction phase lasting only a year or so, the new development and pro-
duction plant for rail vehicle systems was officially inaugurated in Budapest in
July 2010. For Knorr-Bremse the plant represents a massive increase in capacity
and sets new standards of production and logistics.

At the new factory, Knorr-Bremse manufactures bogie equipment components


such as brake caliper units and block brakes. The product portfolio also includes
brake control components, such as brake panels and valves, as well as a virtually
complete range of components for freight cars and individual air supply ele-
ments. The move to new premises had become necessary because the old fac-
tory, located just a few hundred meters away, had reached the limits of its capac-
ity. Along with the production facilities, Knorr-Bremse has also expanded the
research and development function at the new plant. The primary focus here is
on brake actuators, software, technical calculation and testing.

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A unique concept in the rail vehicle industry


One innovative aspect of the new plant, in which the company has invested some EUR 45 million, is
the underlying concept of the “5-day factory”, based on the globally standardized Knorr-Bremse Pro-
duction System. The concept involves a wide range of pioneering measures aimed at significantly re-
ducing throughput times along the entire value chain. In the past a major component like the block
brake would take from 20 to 30 days to complete from provision of the raw materials to final shipment,
but standardization of all production processes at the new factory now means the same process
should take just five days – an improvement by a factor of four.

Ingenious supply chain models


Underlying these improvements is the use of intelligent supply chain models, integrated manufactur-
ing cells, an in-house surface treatment center, and one-piece-flow assembly lines aligned with cus-
tomer cycles. This in turn is facilitated by an ingenious system that ensures optimal integration of
procurement, production, and delivery systems.

Knorr-Bremse has developed a system that precisely assigns all products to a supply model. This is
based on more than just the customary analyses: The “5-day factory” also weights the competence of
each supplier, for example, as well as other aspects with a bearing on logistics, such as volumes.

Focus on customer benefits


By moving to the new plant, Knorr-Bremse is enhancing customer benefits in several respects – first
and foremost through greater flexibility and optimized schedule effectiveness. The closed value-loop
within the company has also been improved and more efficient transportation and handling pro-
cesses have further improved product quality.

On a site situated close to the old facility, more than 1,000 employees now work in a modern building
offering over 30,000 m² of production and office space. A combination of selected building materials
and innovative control technology ensures optimum energy use and has significantly reduced the
new plant’s energy requirements and operating costs.

Opening ceremony
High-ranking visitors attended the inauguration of the new Knorr-Bremse Rail Vehicle Systems plant in
Budapest in early July: Both the Hungarian Minister of National Development, Dr. Tamás Fellegi, and
the Chairman of the Supervisory Board and owner of Knorr-Bremse, Heinz Hermann Thiele, were pres-
ent at the ceremony.

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In June 2010 two workshops were set up for production of HVAC systems for high-speed trains. A
month later, three assembly lines went into service, producing, amongst other things, air heaters, ex-
haust systems and mixing boxes.

Output doubled in Qingdao


Massive growth in demand for high-speed train door systems mean that IFE-VICTALL in Qingdao had
to double its average monthly output with effect from early January 2010. Expansion of the company’s
production capacity was also used as an opportunity to redesign processes in line with the principles
of the globally standardized Knorr Production System (KPS) and introduce the basic concept of a
“5-day factory”, in which the throughput time for a product is reduced to a maximum of five days.

First Gautrain line opened


The Gautrain’s first track section was opened in the South African capital
Johannesburg just in time for the start of the 2010 Soccer World Cup.

Knorr-Bremse’s contribution to the 24 modern Electrostar trains built by the Bombela Consortium can-
not be missed: the company has supplied the entire electro-pneumatic braking system including oil-
free compressor and sanding system. And Knorr-Bremse subsidiary IFE supplied each Gautrain with 16
access systems and four cab doors.

The new 80-kilometer express link is a showcase project when it comes to expansion of South Africa’s
public transportation network. Running at speeds of up to 160 kilometers per hour, the Gautrain is one

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New plant in Daxing


In Daxing, Knorr-Bremse and its Chinese partner CARS (China Academy of Railway Sciences) produces
brake discs for Chinese-built locomotives and multiple units. In April 2010, after a mere four months’ con-
struction time, a new plant for the manufacture of brake discs went on stream. And by December of the
same year, it was able to celebrate a further success: within less than four years it had produced its
200,000th brake disc.

A combination of state-of-the-art machines, streamlined production flow using six lines, and application
of Knorr-Bremse’s standardized global production strategy makes for highly efficient production of up to
9,000 discs per month. This means Daxing has the highest output of rail vehicle brake discs of any plant in
the world.

of the fastest trains on the Electrostar platform. During its first four months in operation the train’s
popularity as an alternative to often-congested roads was demonstrated when more than a million
passengers opted to use the new link.

Passengers can make the trip on this first section from Johannesburg International Airport to Sand-
ton, in the northern part of the city, in just 14 minutes. The second section linking Johannesburg with
Pretoria is scheduled to open in 2011 and will take a mere 42 minutes longer.

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Clear objective:
market leadership
A combination of acquisitions and new partnerships has enabled Knorr-
Bremse to further strengthen its position in rail markets around the world.
During 2010 a joint venture – Icer Rail – was set up to develop organic UIC
brake pads and UIC brake blocks. Acquisition of Sigma Coachair Group (SCG)
raised the Knorr-Bremse Group to the status of the world’s leading manufac-
turer of rail vehicle HVAC systems. And the takeover of Heine Resistors GmbH
strengthened the company’s market position in the field of resistors for rail
applications.

Addition in brake pad segment


In May, Knorr-Bremse’s subsidiary Sociedad Española de Frenos formed a joint
venture with Icer Brakes, part of the Berkelium Group, with the specific aim of
developing and manufacturing brake pads and blocks. It was a logical next step
for Knorr-Bremse’s strategy in the rail vehicle brake pad segment. Back in 2008 it
had acquired Anchor Brake Shoe Company, the leading North American manu-
facturer of brake shoes for locomotives and freight cars. In this case the focus
was on the American market, whereas the new Icer Rail joint venture expanded
Knorr-Bremse’s portfolio of brake blocks to include organic brake pads and brake
blocks designed to European UIC standards.

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Joint development activities


The joint venture enables Knorr-Bremse for the first time to take an integrated approach to developing
braking systems with organic UIC brake pads and UIC brake blocks. Engineers in both companies are
now working on achieving optimum interplay of friction materials and braking systems to ensure
minimum wear and maximum operating life for the individual components.

The two partners are a perfect match: Icer Brakes is a recognized expert in the development and
manufacture of friction materials – an area where Knorr-Bremse has not been particularly active up till
now – while Knorr-Bremse offers something a highly specialized manufacturer like Icer Brakes does
not have: a century of experience in rail vehicle applications and braking systems combined with a
global sales and marketing network.

Strategic acquisition in HVAC segment


There were similar motives in the case of Knorr-Bremse’s acquisition of the well-established Australian
HVAC specialist, Sigma Coachair Group (SCG). The takeover has considerably expanded Knorr-Bremse’s
market position. Via its subsidiary, Merak, the company already has a well-established reputation main-
ly in China, Europe and America, but SCG gives it easier access to growth markets in Southeast Asia,
India and Australia.

The merger will generate many synergies for both companies, particularly in development, produc-
tion and procurement. More than 30 years of experience in the field have enabled Sigma Coachair
Group to achieve top quality standards combined with high levels of efficiency. The company has also
been involved in a large number of projects worldwide. For example, trains built by Kawasaki Heavy
Industries for Taipei Metro are being equipped with Sigma HVAC systems. And via Hyundai Rotem the
public transport operator in Boston has ordered Sigma Coachair systems for new metro trains. Many
of the management positions at Sigma Coachair have been deliberately preserved so that the com-
pany’s years of expertise will continue be available in the future.

Further foothold in special resistors


Knorr-Bremse’s purchase of a majority share in German company Heine Resistors GmbH also fits into
the Group’s strategy of making targeted acquisitions to expand its market position in a range of further
business areas.

Heine Resistors GmbH was taken over by Microelettrica Scientifica S.p.A., a member of the Knorr-
Bremse Group based in Rozzano, Italy. This Knorr-Bremse subsidiary has been designing, developing
and producing switches, protection relays and resistors for rail vehicles and industrial applications for
more than 50 years.

The acquisition of Heine is particularly promising for Microelettrica in the field of brake resistors, as the
two firms will be able to benefit from industrial synergies. They also complement each other perfectly
in worldwide markets, with Microelettrica particularly well represented in Sweden, Italy and Japan,
while Heine has a particularly strong customer base in Germany and Eastern Europe.

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Products
For more than 100 years Knorr-Bremse has been pioneering the development, production,
marketing and servicing of modern braking systems for the rail vehicle industry. In fiscal 2010
Knorr-Bremse also launched a number of innovative products in other areas such as access and
HVAC systems – all aimed at making rail transportation safer, more economical and more
environmentally friendly.

New HVAC system from Merak


Knorr-Bremse subsidiary Merak has developed a new air-conditioning system that operates with the
new, ultra-eco-friendly refrigerant HFO1234yf. The use of this refrigerant for air-conditioning in rail
vehicles represents a major advance in the field, as its Global Warming Potential (GWP) of 4 in 100 years
is much lower than that of the currently used refrigerant R134a (GWP 1,300). By using HFO1234yf the
rail vehicle HVAC system also complies with the strict criteria of an EU Directive that regulates emis-
sions from mobile air-conditioning systems and requires the use of a refrigerant with a GWP lower
than 150.

Merak has a long tradition of developing eco-friendly systems. Back in the early 1980s, for example, the
company developed the first high-performance rail vehicle HVAC system based on the use of a heat
pump. Thanks to its continuous development there are now over 1,000 Merak HVAC systems in opera-
tion that use this technology.

Simulators further developed


Sydac develops state-of-the-art train driving simulators for customers in Australia, North America and
Europe. High-definition graphics enable all possible weather conditions, various seasons and times of
day to be simulated, along with detailed depictions of the surroundings and persons such as passen-
gers or trackside workers which create a virtual environment for train driving. Crucially they enable
drivers to practice coping with all kinds of situations caused by technical failure or human action with-
out damage to persons or materials.

In the summer of 2010 Sydac delivered simulators to Australian operator Downer EDI Rail for use in its
new Waratah trains in Sydney. The order comprised four simulators in all – two for training multiple

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unit drivers and two for other personnel. One of each of these two types was mounted on a truck, to
enable them to be used flexibly and independently of location.

For the Norwegian Rail Academy Sydac also developed state-of-the-art simulators that realistically
simulate the FlytoGet line in the Norwegian capital of Oslo. The Norwegian Rail Academy ordered six
full cab simulators and three additional ones for operations control.

2010 also saw Sydac further expand its cooperation with TDS (Train Dynamic Systems), a company
owned by Knorr-Bremse subsidiary New York Air Brake (NYAB). The main focus was on merging simula-
tion of heavy-duty freight trains from North America with Sydac’s simulator technology for passenger
operations.

Further development of EP2002 brake control system


Knorr-Bremse has launched the EP2002 Cube brake control system for metros and multiple units. Based
on the proven EP2002 brake control system, the Cube features an additional integrated control module.
The mechatronic system, which combines mechanical and electronic elements in a single, ultra-com-
pact unit, now not only offers the service and emergency brake functions of EP2002 but also additional
pneumatic functions for controlling the parking brake and air suspension. As a result there is no longer
any need for an additional, separate control panel.

In the past, auxiliary functions such as air treatment or parking brake control have been installed in
brake control modules in sub-frames or on equipment panels. This is where the EP2002 Cube makes a
real difference. The Cube is basically a three-dimensional aluminum block with no active functional ele-
ments of its own that fills the roles of the conventional EP2002 assembly subframe, the connector block
and the piping, effectively making it a three-dimensional multifunctional component. All of the com-
ponents required for the above functions are attached to the Cube. The multiple air lines encased
within the aluminum block mean that except for the compressed air feed pipe and the lines to the
mechanical brake components, air spring components, and reservoirs, all of the piping in the vehicle
can be dispensed with. Even then, the installation envelope of the Cube is no larger than the cross-
section of an average air reservoir. This simplifies integration of the brake control system, enabling it to
be installed beneath the car within a length of just 400 millimeters.

Advantages like these have greatly accelerated the market penetration of the new EP2002 Cube. By the
end of the year under review some 700 units had already been installed in metro projects in China.

New E3D door system


During the year under review, Knorr-Bremse’s subsidiary IFE developed a new door system for trains
travelling at speeds up to 300 km/h. E3D is an electrically operated single-leaf door system that com-
bines the familiar E3 and DET door systems. It is supplied almost completely pre-assembled and fea-
tures a compact installation envelope and easy maintenance.

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A clear opening width of up to 1,400 mm and an excellent pressure seal up to 6,000 pascals offers pas-
sengers high levels of comfort. The seal prevents unpleasant pressure fluctuations inside the train
caused by aerodynamic effects at high speeds.

E3D also has a highly sensitive obstacle detection system. If it is triggered while the door is closing, it
stops within a fraction of a second until it receives a further close command.

Intelligent sliding step


Another new development from Knorr-Bremse showcased at InnoTrans 2010, was an intelligent slid-
ing step developed for double-decker trains. This is equipped with an ultrasound sensor that mea-
sures the distance from the platform and calculates how far it needs to extend, stopping the step au-
tomatically between 3 and 4 centimeters from the platform edge. By reducing the gap and height
difference between step and platform it offers greater safety especially for elderly people. The system
is also equipped with a contact strip to prevent passengers becoming caught in the step.

Series assembly of door systems


Door manufacturer IFE has further expanded its door assembly services. In addition to first assembly, it
now also offers specific assembly aids and diagnostic instruments – or alternatively it can even carry out
full series assembly for the customer. In 2010, as part of the negotiations on equipping the FLEXITY 2
platform, IFE concluded an initial agreement on door system assembly with Bombardier.

Vehicle manufacturers are increasingly relying on specialized systems suppliers to take over the task of
door assembly. Using expert technicians from the original equipment manufacturer is the only way to
ensure correct installation. When IFE assembles the door systems itself the company is able to offer a
guarantee that includes pre-defined standards of reliability. Such high standards can usually only be
achieved through skilled assembly by an expert.

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Valves for the world


There are few rail vehicles for which Knorr-Bremse cannot supply a control
valve that complies with the required standard. The company’s valves are used
in their millions worldwide – but they are by no means interchangeable. In the
past, various regions have set differing standards, none of which are compat-
ible with one another. When selling to particular markets it is therefore essen-
tial to adapt products to the specific regional requirements. Control valves
have to be capable of functioning reliably in desert sand but also at minus 60
degrees Celsius in the Russian winter.

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From Europe to the world


In the core European market, decades of experience, state-of-the-art technology and long service in-
tervals have contributed to the success of the Knorr KE valve, which complies with the European UIC
standard. The valve is globally regarded as a synonym for extreme reliability, having proved itself mil-
lions of times. The secret to its success is its continuous development: Improvements and innovations
are tested on Knorr-Bremse’s UIC test bench in Munich, where engineers can simulate braking of trains
up to 1,500 in length and record the performance data of every individual control valve.

Acquisition of the US company New York Air Brake (NYAB) and the launch of the Knorr-Bremse DB60
control valve specially designed for the American AAR standard, marked the continuation of Knorr-
Bremse’s worldwide expansion – and also gave the company access to the South African market,
which uses the same standard. Knorr-Bremse valves are also installed in trains in Australia, where the
AAR system is used for transportation of heavy iron ore and otherwise the Australian Railways ARA
standard applies.

Knorr-Bremse was also able to draw on its experience with adapting to the AAR standard when it en-
tered the Russian market. In close collaboration with the Russian state railways the company devel-
oped valves for trains operating on 1,520 mm gauge tracks. They are designed to be easily installed on
Russian trains and to be compatible with competing valves – but also to offer demonstrable advan-
tages for operators.

Close collaboration with local experts


For a major project such as development of control valves for the GOST standard it was crucial for
Knorr-Bremse to have the support of experienced Russian rail experts who were familiar with local
conditions and knew what was important for the Russian market. But despite being able to call on
their experience the project was a major challenge. Whereas in Europe and America the valves are
designed to function at temperatures down to minus 40 degrees Celsius, in Russia the temperature
limit was minus 60 degrees Celsius.

Successful certification
This certification project involved detailed testing of systems, components and materials on special
test benches in Munich over a period of several months. Compatibility tests were backed up by field
and operational testing.

At the end of the year under review an important milestone was reached when the new valves were
certified for the Russian market. Once in-service testing begins in 2011 the company will be well on its
way to becoming a certified supplier of GOST standard control valves for use in Russia and the Com-
monwealth of Independent States.

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Service
Every vehicle builder and train operator has a unique customer profile – and therefore also has
unique needs when it comes to aftermarket service for brakes and on-board systems. Knorr-
Bremse Rail Services brings together the company’s full range of aftermarket activities for rail
vehicles into a single, flexible program designed to offer efficiency, ease of use, delivery effec-
tiveness and high availability of spare parts. In 2010 the company’s aftermarket logistics con-
cepts were further developed in the form of “Original Spare Parts Kits” and the “FastMover Spare
Parts Concept”, and the e-business system for spare parts ordering was also further expanded.
The aim of all these measures was to maximize efficiency of spare parts management for the
customer.

Original spare parts kits


The success of Knorr-Bremse’s original spare parts kits continued in 2010, with kits being supplied to
more than 50 customers. Each consists of a complete set of the spare parts required for maintaining and
overhauling a specific Knorr-Bremse system.

The kits are a crucial factor in increasing efficiency. They simplify disposition, ordering and delivery
monitoring, as well as receipt of goods and invoicing. They also help improve warehousing, commis-
sioning and inventory processes.

The kits mean Knorr-Bremse can automatically supply service staff with the correct original parts re-
quired for their work, enabling them to concentrate on the job at hand. The composition of the kits
enables the repair shop to operate more economically at each stage of the process. Standardization
ensures a consistent quality of overhaul work, repair shops benefit from reduced day-to-day pressure
and vehicle operators welcome the improvement in terms of quality, safety and cost.

FastMover spare parts concept


It is difficult to plan for the precise moment when a product component will require replacement on
account of wear and tear. This makes efficient spare parts management all the more important to
ensure the overhauled components are in the right place at the right time. It was with this in mind that
Knorr-Bremse developed a program entitled “FastMover Spare Parts Concept”.

Under the program Knorr-Bremse undertakes contractually to hold in inventory a certain range of so-
called “fast movers” – components with a fast turnover that cover the majority of spare part requirements.
This reduces capital tie-up for the customer, minimizes delivery times and increases parts availability.

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Electronic data interchange


With its expansion of electronic data interchange (EDI), Knorr-Bremse has taken another step towards
improved efficiency and leaner processes. EDI considerably simplifies spare parts ordering.

A successful pilot project demonstrated that an EDI system using a standardized SAP interface enables
spare parts to be ordered up both quickly and efficiently.

When a customer enters an order on his PC it is initially stored in his internal IT system. A click of the
mouse then forwards it to Knorr-Bremse, where it goes directly to the delivery system, which converts
the customer’s reference number into the Knorr-Bremse order and dispatch system. This then auto-
matically generates data on availability, price, delivery and payment conditions. The customer receives
automatic confirmation of every order he submits, together with information on when the part is due
to be shipped from Knorr-Bremse.

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Booming
aftermarket in Asia
As expected, the large-volume orders received from Asia in recent years are
now beginning to trigger demand for servicing and spare parts in this growth
region. In 2010 Knorr-Bremse therefore continued to expand its aftermarket
capacity in China.

Rapid growth of the Chinese rail market started at least 10 years ago and contin-
ues apace. With the support of the Chinese government, high-speed rail lines
have been planned and constructed, and many major cities have invested in
modern metro networks or expanded existing ones. At the same time the state
railway operator decided to invest in modern locomotives manufactured in the
West, and by the end of 2010 almost 3,500 locomotives equipped with Knorr-
Bremse systems were in operation, with a further 1,000 or more due for delivery
in 2011.

It is no coincidence that Knorr-Bremse was involved in many of these initial in-


vestments and is now also benefiting from increased demand for aftermarket
services. The company has maintained contacts with China since the 1970s and
its first major project came in 1990, when it was contracted to equip 96 cars with
braking systems for Shanghai Metro. From that moment onwards, Knorr-Bremse
managed to steadily expand its business activities in China, culminating in last
year, when the company received the largest order in its 100-year history – a
contract worth some EUR 500 million to supply braking, door and HVAC systems
for the Chinese CRH3 high-speed train.

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Changing aftermarket activities


In the past, Knorr-Bremse’s aftermarket activities in China consisted largely of supplying spare parts,
but components supplied several years ago for the braking systems of high-speed trains, metros and
locomotives are now due for their first major technical overhaul.

Knorr-Bremse Rail Vehicle Systems has been quick to react to this development and has rapidly built
up the required additional aftermarket capacity. This involved in particular establishing a service cen-
ter in Suzhou in Jiangsu Province and expanding the field service teams who work directly with cus-
tomers at local level.

New service center


The main backbone of Knorr-Bremse‘s aftermarket service in China is its Suzhou service center, and the
workforce here was considerably expanded during the year under review, enabling the company to
react more swiftly to demand in the Chinese aftermarket and further improve the safety and reliability
of trains operating in China.

The servicing skills of all local staff were also developed in close collaboration with established service
centers and Knorr-Bremse production units worldwide.

The equipment used in China meets the same standards as in Europe, as do the tools used, the key
performance indicators and the tried-and-tested methods of the Knorr-Bremse Production System
(KPS). This means Knorr-Bremse can guarantee uniform quality standards around the globe. Delivery
performance at the service center in Suzhou is already running at well over 95%.

Expansion of field service team


Knorr-Bremse reacted to the new requirements of the market in two ways. First of all it expanded its
field service teams – virtually doubling them in size during 2010. And secondly it encouraged other
service units to pass on their expertise – particularly technical skills – to the Chinese field service teams
so as to make local support for customers even more effective. At the same time the company adapt-
ed structures and processes to the requirements of the Chinese market.

Expansion of aftermarket service in Asia continues


In the future, too, Knorr-Bremse will be able to draw on its experience of developing from a simple
spare parts supplier to providing aftermarket services for entire systems. China is currently about a
decade ahead of many Asian threshold countries in terms of developing its rail market. So the exper-
tise gathered by Knorr-Bremse in the Chinese aftermarket should stand the company in good stead
when it comes to future developments in other rapidly growing Asian markets.

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Commercial Vehicle Systems

Following a dramatic slump the previous year, Knorr-Bremse Commercial


Vehicle Systems posted significantly higher sales in all markets in 2010. Truck
production in China rose by 47%, and in North America the ongoing decline
since 2006 was halted. In addition, the proportion of trucks produced in West-
ern Europe grew by 60% to 320,000 units. After increasing capacity in line with
this trend, the Commercial Vehicle Systems division was able to benefit dispro-
portionately from this new growth.

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Markets
There was a distinct upturn in the European commercial vehicle market, even though it failed
to return to pre-crisis levels. Production figures rose significantly in virtually all segments.
Knorr-Bremse successfully tendered for a wide range of projects, winning new orders in North
and South America and also in many Asian countries.

Europe
Recovery in the truck market picked up speed during the course of the year under review. In Western
Europe, truck production was up 60% at 320,000 units, and trailer production also recovered, expand-
ing by more than 50% to exceed the forecast output of 105,000 units. Developments in Central and
Eastern Europe were also positive, with truck output rising by 37% to 75,000 units. However despite
these increases, sales remained well below pre-crisis levels.

North America
2010 saw the decline in North American truck production halted for the first time since 2006. Output
was 23% up on the previous year at some 218,000 vehicles, though this was still 56% below the record
level achieved in 2006. Aftermarket developments were also positive. Against a background of these
positive trends, Knorr-Bremse North America won a number of important orders.

South America
In a context of economic recovery in all segments – particularly the construction, infrastructure and raw
materials industries – combined with measures to facilitate vehicle financing, transport volumes in
South America increased significantly during the year under review. As a result, South American com-
mercial vehicle production rose 56% in 2010 to 184,000 units, surpassing the record level achieved in
2008.

Asia/Australia
2010 saw truck production in Asia/Australia continue to expand, driven mainly by output in China,
which was 47% up at 1,328,000 vehicles. The commercial vehicle markets in India and Japan also re-
corded growth. Knorr-Bremse benefited from this positive trend, winning important orders for com-
pressors, torsional vibration dampers, disc brakes and electronic brake control systems.

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Joint venture
with CAFF in China
As part of a significant expansion of its activities in China in the year under
review, Knorr-Bremse Commercial Vehicle Systems signed a joint venture
agreement for the manufacture of brake valves, transmission valves and air
dryers in August. The setting up of the new company marks a milestone in
Knorr-Bremse‘s China strategy and is a good example of the benefits of long-
term engagement in a local market.

The agreement was signed between Knorr-Bremse Asia Pacific (Holding) Ltd.
and the Chinese manufacturer Chongqing CAFF Automotive Braking & Steering
Systems Co. Ltd. Knorr-Bremse holds a 66% stake in Knorr-Bremse CAFF Systems
for Commercial Vehicles Chongqing Ltd., as the new joint venture is called, with
the remaining 34% being held by its Chinese partner.

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Partner with an excellent reputation


Chongqing CAFF Automotive Braking & Steering Systems Co. Ltd. is a company with an excellent
reputation, especially within China. Founded in 1952, the company was one of the first manufacturers
of automotive components in China and has had a lasting influence on the development of the Chi-
nese automobile and commercial vehicle industries over recent decades. CAFF currently employs
around 1,600 people.

Declared goal: market leadership


The declared medium-term goal is to become one of the leading commercial vehicle industry suppli-
ers in the People’s Republic of China, and the German-Chinese partnership is an important step in that
direction. Collaboration with CAFF enables the Commercial Vehicle Systems division to produce a
wide-ranging product portfolio with a high element of value-added directly in the Chinese market. At
the same time, the new joint venture will strengthen the company‘s local presence yet further.

In addition to the choice of partner, the location was also of great importance for Knorr-Bremse. Situ-
ated at the heart of China, the municipality of Chongqing is home to some 32 million people and is a
key driver of industrial development in virtually the whole of Western China. Chongqing is also a major
cultural and industrial center and an important transportation hub in this region to the east of Sichuan
province. Many western companies have set up operations here and some countries maintain gen-
eral consulates in the city.

Strategic vision pays dividends once again


The formation of the joint venture Knorr-Bremse CAFF Systems for Commercial Vehicles Chongqing
Ltd. is yet another example of the success of the Group’s long-term strategy in China.

Parallel to the expansion of the Rail Vehicle Systems division, Knorr-Bremse Commercial Vehicle Sys-
tems had entered into negotiations on potential partnerships with Chinese companies at a very early
stage, and the foundation of this joint venture demonstrates the value of this approach.

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Market Successes
Against a background of general market recovery, Knorr-Bremse achieved notable successes in
2010: from Volvo the company received an order to supply compressors for its new medium-
duty engine platform; in Brazil it became the market leader for electronic braking systems; and
in Germany it was voted “Best Brand” in the “Brakes” category of the commercial vehicle sector
for the fifth year in succession.

Worldwide sales figures for the Commercial


Vehicle Systems division in eUR millions
2008 1,975
2009 1,221
2010 1,701

Europe
Electronic brake control system 5.1 at Daimler
This was not the first time that Knorr-Bremse had received an order to supply electronic brake control
systems (EBS) to Daimler AG. But this latest contract nevertheless represented an important milestone,
as the company will now also be supplying the world’s leading commercial vehicle manufacturer with
an EBS system for heavy-duty trucks. The system will be used on the twin-axle semitrailer tractors be-
longing to the new SFTP vehicle platform, which means Knorr-Bremse will be supplying about half of
the EBS systems for the platform. Last year the final preparations were made at the Aldersbach site for
series production of components in 2011.

The preparations for production kick-off had been preceded by almost four years’ intensive joint devel-
opment work on the system’s software and hardware, including many testing phases both at Knorr-
Bremse and at Daimler. During the year under review the machine tools for production were manufac-
tured and assembly lines modified so that series production could start on schedule in 2011.

The EBS5.1 brake control system was specifically designed for the requirements of the new vehicle
platform and its new electronic architecture and represents a variant of the EBS5. As a platform devel-
opment, EBS5 succeeds in integrating into a single brake control system a wide range of functions that
are now taken for granted in commercial vehicles. In addition to driver assistance systems like the ESP
electronic stability program or the ABS anti-lock system, these also include coupling force control,
wear control and retarder blending.

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ABS for agricultural vehicles


This is an example of a new area of application for a well-established product: 2010 saw Knorr-Bremse
continue its development of an electro-pneumatic anti-lock braking system for agricultural vehicles
and virtually complete the preparations for series production. During the first half of 2011, full produc-
tion of the new ABS system will start for the Fendt 900 vehicles series.

There were two basic reasons why Knorr-Bremse became involved in this new market segment. Firstly,
market analyses had indicated that as agricultural tractors become ever larger, demand is growing for
safety-critical products. In developing the system Knorr-Bremse was able to draw on its core compe-
tences and decades of experience with vehicle safety systems. For this new category of vehicle the
company used tried-and-tested electro-pneumatic components from the related truck sector.

The second reason was increasing convergence of the parameters for agricultural tractors and trucks.
Tractors are becoming faster and capable of pulling heavier loads. And their engines are increasingly
not just used to power the vehicle but also for other functions, for example driving snow blowers. As
the fields of use expand, so, too, do the technical requirements. If, for example, agricultural vehicles are
used for clearing snow, then safety aspects become increasingly important.

Compressors for Volvo Powertrain


Knorr-Bremse has won an order from Volvo Powertrain to supply compressors for the company’s new
medium-duty engine platform. This means that Knorr-Bremse’s share of the compressor market for Volvo
Powertrain will rise significantly from 2013 onwards. At the end of 2009 Knorr-Bremse had already secured
a contract to supply compressors for the company’s heavy-duty engine platform.

The total volume will be more than 72,000 units per year, making Knorr-Bremse one of Volvo Powertrain’s
five most important suppliers. Production facilities in Lisieux (France), Dalian (China) and Pune (India) will
be involved in supplying the compressors.

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North America
Bendix becomes main supplier for to Mack Trucks
The joint venture Bendix Spicer Foundation Brake LLC between Knorr-Bremse’s US subsidiary Bendix
Commercial Vehicle Systems LLC and Dana Commercial Vehicle Products LLC, USA, has reinforced its
North American market leadership position. In April, the foundation drum brakes manufactured by
Bendix Spicer Foundation Brake LLC became standard at Mack Trucks for the company’s commercial
vehicles, which are mainly long-haul models.

For the joint venture, becoming the main supplier for Mack Trucks confirmed its strategic direction.
Ever since the company was founded in 2004, Bendix Spicer Foundation Brake LLC has remained fo-
cused on the development and production of highly robust and durable foundation drum and disc
brakes and slack adjusters.

Active Cruise with Braking System (ACB) for Peterbilt Motors Company
The Bendix Wingman ACB (Active Cruise with Braking) – an automatic emergency braking system – is
being offered by another major North American vehicle builder, Peterbilt Motors Company, further
underpinning the key position of Knorr-Bremse subsidiary Bendix as a manufacturer of safety tech-
nologies for commercial vehicles in the U.S. market. The ACB system is built upon the Bendix Elec-
tronic Stability Program and helps drivers avoid collisions and mitigate the risk of rollover and loss-of-
control situations.

Using a radar sensor, ACB constantly measures the distance to the forward vehicle and, based on the
acquired data, automatically governs the speed of the truck. The radar sensor, which is mounted to the
front of the vehicle, can detect up to 32 moving and stationary objects within a radius of approxi-
mately 150 meters. If the following distance closes too fast, the system provides audible and visual
alerts to the driver. If the distance continues to close, ACB proactively intervenes in the engine and
brake control systems to mitigate the risk. In inclement weather or in heavy traffic, the driver can de-
activate the automatic intervention in the engine and brake control units.

Of course, ACB cannot replace a good driver. But the system can bring a significant improvement in
highway safety in everyday truck traffic and help reduce the risk of collisions and the related costs. In
addition, by assisting the driver to maintain a set following distance to the forward vehicle and pre-
venting abrupt acceleration, the ACB system can help save fuel.

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20 millionth
disc brake delivered
The success story continues apace: parallel to the 2010 IAA in Hanover, the
Knorr-Bremse site in Aldersbach, Germany produced its 20 millionth disc brake.

The success of the pneumatically operated disc brake started in 1992, when
Knorr-Bremse produced a small series for a bus application. Then, in 1996, the
leading truck manufacturers introduced the brakes as standard, and in the third
year of production an important milestone was reached when the millionth unit
came off the production line. By January 2006, Knorr-Bremse had produced its 10
millionth brake.

As the number of different applications grew, production steadily increased by


more than 200,000 to 2.8 million a year in 2007 and 2008. Then, only a few years
later in 2010, the company celebrated brake number 20,000,000.

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Consistent performance the secret of success


There are many reasons for the success of the pneumatic disc brake, including its light, compact design,
even brake pad wear, greater ease of servicing and related cost savings. But the main reason remains
the enhanced safety levels it offers. Introduction of the disc brake significantly reduced braking dis-
tances compared with traditional drum brakes. The brake’s consistently strong performance under all
operating conditions and its rapid response and controlled application ensures safe braking especially
at high speeds. And the development engineers are currently focusing on reducing the braking dis-
tance even further.

Continuous improvement the key to market success


The enduring success of the disc brake is due in no small part to the product’s continuous development
and improvement. Modifications introduced in recent years have included the monoblock caliper and
the splined disc – which offers improved heat-resistance. Parallel to these developments the brake has
also been adapted for specific applications, for example on trailers. Some 50 engineers are currently
working on continuous improvement of this innovative product.

By constantly enhancing the product’s advantages for customers, Knorr-Bremse has managed to fur-
ther consolidate its position as the leading supplier of disc brakes and complete braking systems for the
commercial vehicle industry. Its many applications now set the industry standard for trucks weighing
between 6 and 44 tons. The company is also particularly focused on developing products that are tai-
lored to the various regional markets. Thus, for example, the disc brake is currently being adapted for
use in North America, Brazil and – most recently – China. The R&D expenditure involved represents an
important investment in the global success of the disc brake.

Uniform quality standards world-wide


Knorr-Bremse relies on state-of-the-art technology and a comprehensive quality management system
in the production of these brakes, with EUR 80 million invested in the machining and assembly equip-
ment at the Aldersbach factory alone. A similar volume of investment is also devoted to suppliers. And
the Knorr-Bremse Production System (KPS) ensures that all the disc brakes are produced to the same
high standard the world over. Across-the-board quality management ensures top quality at every stage
of the value chain. In recent years the Disc Brake Center of Competence in Aldersbach has helped es-
tablish further centers of competence in Brazil, the USA and China.

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South America
Anti-lock system for Ford
Knorr-Bremse Brazil and Knorr-Bremse Turkey have jointly won important orders from Ford. In June,
Ford Caminhões decided to put its faith in Knorr-Bremse ABS technology: with effect from 2013, Knorr-
Bremse Brazil will be supplying the complete ABS requirements of South America’s third biggest truck
manufacturer. Knorr-Bremse’s Brazilian subsidiary is also set to benefit from new legislation requiring
trucks to be equipped with ABS systems in Brazil from 2013 onwards.

In addition to this order from South America, Knorr-Bremse will also be supplying the entire EBS re-
quirements of Ford Otosan in Turkey. The contract was secured as a result of close cooperation be-
tween the teams in Brazil, Knorr-Bremse’s Turkish organization and the Electronics Center of Compe-
tence responsible for developing ABS systems in Schwieberdingen.

Series production
of compressor with clutch
Series production of the compressor with clutch started in September of the year under review. The
compressors will be initially installed in the TGX Efficient Line, a new vehicle series from truck manufac-
turer MAN, but during 2011 will be extended to the entire range of heavy vehicles. The compressor with
clutch is an innovative development that connects and disconnects compressor and engine according
to air requirements, thereby saving significant quantities of fuel.

The compressor disengages from the engine in situations where this makes sense in terms of energy
management – for example where more power is needed for the vehicle itself during drive-off, accel-

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Asia
Successes in China
Knorr-Bremse has been represented in China by its companies in Dalian and Shanghai for several
years. In order to expand its activities in China, a start was made in 2010 with the development of an
assembly line for disc brakes in Dalian, which should be completed in 2011. In August a contract was
signed with commercial vehicle supplier CAFF to form a joint venture that will take up operations in
2011 (see pages 80/81).

During 2010 Knorr-Bremse received growing numbers of orders for compressors from China National
Heavy Duty Truck Group (CNHTC) and the engine manufacturer Weichai. FOTON, one of the leading
Chinese truck manufacturers also decided to bring in Knorr-Bremse to provide equipment for a num-
ber of important products. The new orders have considerably strengthened the position of Knorr-
Bremse in the Chinese truck market. The company is also to supply the majority of the torsional vibra-
tion dampers for CNHTC trucks as well as WP7 and WP12 engines from Weichai.

eration or overtaking. This means the engine does not need to generate extra power to drive the com-
pressor, and fuel is saved. But even during normal driving the compressor can be disengaged when the
braking system already has sufficient air – so the engine does not have to drive the compressor in neu-
tral.

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Partnership with Volvo in Asia further expanded


Winning the order to develop and supply central braking system components for the Asian market has
enabled Knorr-Bremse to further expand its strategic global partnership with Volvo. From 2013 onwards
Knorr-Bremse will be supplying braking systems from its Chinese and Indian plants for medium and
heavy-duty trucks to be manufactured locally by Volvo.

At the end of 2010 Knorr-Bremse received an order for complete ABS and air treatment systems for the
trucks. The company also won the tender to supply the engine compressors, which will be manufactured
in India.

By producing for the local mass-premium segment Volvo aims to significantly expand its share of the
Asian market – one reason why Knorr-Bremse attaches such significance to the latest orders and the
expansion of its strategic product lines at Volvo.

Prizes and awards


“Best Brand” for fifth year running
For the fifth year running, Knorr-Bremse was named “Best Brand in the Commercial Vehicle Industry” in
the “Brakes” category. The award recognizes the reliability, quality and safety of Knorr-Bremse products
and is regarded by customers as a reliable indicator of quality. Readers of the trade journals lastauto
omnibus, trans aktuell and FERNFAHRER were invited by DEKRA, the vehicle inspection experts, and
publishers ETM to vote for the best brands in the commercial vehicle segment.

Participants were not just voting on brand recognition but also on the perceived value of the products
concerned and the degree of confidence they inspired. The fact that Knorr-Bremse won the award for
the fifth time running despite difficult market conditions is an incentive for the company to remain a
preferred supplier for its customers, offering them high quality, innovative and competitive products.

Knorr-Bremse wins die casting competition


In the 2010 International Aluminum Pressure Die Casting Competition, Knorr-Bremse, together with
Swiss supplier DGS Druckguss Systeme AG, won first prize in the category “Multifunctional near-net
shape castings” for its casing for the Electronic Air Control 2 (EAC2) for braking systems.

The term “near-net shape” is used by experts to describe products that have virtually achieved their
final shape following casting and only require minimal finishing. The process jointly developed by
Knorr-Bremse and DGS brings enormous advantages: During finishing of a component weighing 4.6
kilograms following conventional pressure die casting, anything up to a kilogram of waste can be
generated, whereas the figure for the new process is a mere 300 grams.

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PACCAR quality award


The fact that Bendix Spicer Foundation Brake LLC (BSFB) won a “50 PPM” quality prize from American
manufacturer Paccar is an indication of the company’s success in working towards the “zero defects”
goal laid down by Knorr-Bremse. PPM stands for “parts per million“ and is a common metric used in
manufacturing to refer to the number of defects – or defective units – per million parts examined.
BSFB received the prize in recognition of the fact that fewer than 50 in a million parts delivered were
faulty or defective. This makes Bendix one of a small circle of preferred PACCAR suppliers.

SmarTire among TOP 5 aftermarket products


US industry publication Heavy Duty Aftermarket Journal has named the SmarTire TPMS tire pressure
monitoring system as one of the top 5 aftermarket products of 2010. The criteria for selection are in-
novation, customer usefulness and customer retention.

The system, which can be retrofitted to almost any commercial vehicle, monitors the pressure and
temperature of each tire to provide tire status information in real time. If the tire pressure falls below
a set level, the system warns the driver of the potential danger, enabling him to check and if necessary
adjust tire pressure at any time. Continuous monitoring can also have a positive impact on running
costs, as tire pressure influences both tire wear and fuel consumption.

Three supplier awards from Caterpillar


During the year under review Bendix received three awards for quality excellence from commercial
vehicle manufacturer Caterpillar. In the categories OEM air treatment products, remanufactured air
compressors and service parts the company received silver level designation – a status only granted
by Caterpillar to a select group of suppliers.

Bendix regards this achievement as validation of its system of continuous quality improvement. At
the same time it boosts the company’s commitment to supporting Caterpillar with top quality prod-
ucts.

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Projects
During 2010 Knorr-Bremse further strengthened its market position in the commercial vehicle
sector with a wide range of different projects. In Russia, for example, a new torsional vibration
damper assembly line was opened, and in Kecskemét, Hungary, the one millionth air treatment
unit was produced. In response to growing demand in the Chinese market, Knorr-Bremse also
paved the way for transferring an entire disc brake assembly line from its German site in Alders-
bach to Dalian, China.

New damper assembly line opens in Russia


In May 2010 a new assembly line for dampers started up at Knorr-Bremse KAMA in Naberezhnye
Chelny in the Russian Republic of Tatarstan. This joint venture between Knorr-Bremse and Russia’s big-
gest truck manufacturer, KAMAZ, produces torsional vibration dampers for the Russian market. Cur-
rently some 250 truck dampers leave the assembly line during every shift. Locating production in Na-
berezhnye Chelny has considerably increased supply chain flexibility, as products previously shipped
from Europe to Russia can now be produced locally.

This establishment of local production facilities in Russia is part and parcel of Knorr-Bremse’s global strat-
egy of ensuring that products are manufactured directly in the market in which they are to be sold as far
as possible. The strategy has proved highly successful: since it was first set up the new Russian joint ven-
ture has grown steadily and expanded production despite the difficult economic circumstances.

Milestone in Kecskemét
A milestone was passed in the production of air treatment equipment at Knorr-Bremse in March 2010,
when the company’s plant in Kecskemét, Hungary turned out its one millionth APU (Air Processing
Unit). The APU in question is a pneumatically controlled unit for air treatment in commercial vehicles
that combines several different functions in a single item of equipment. Among other things, it com-
prises an air dryer with pressure regulator, as well as a four-circuit safety valve with one or more inte-
grated pressure limiters. Production of the one-millionth APU is a further step forward in the long
success story of Knorr-Bremse: The first such units to feature in a standard production model appeared
in the Mercedes Actros truck over ten years ago. Since 1997 Iveco and DAF have also been using air
processing units from Knorr-Bremse to replace their previous stand-alone air dryers and multi-circuit
safety valves.

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Up till 2005 the APUs were manufactured at the Knorr-Bremse plant in Aldersbach, Lower Bavaria
(Germany). Then production was transferred to Kecskemét in Hungary, where today Knorr-Bremse
employs some 650 people making not only air treatment systems but also pneumatic and electronic
brake control systems for the European commercial vehicle industry. Kecskemét is also where APU
sales activities for Central and Eastern Europe are based.

Cooperation with Robert Bosch


Knorr-Bremse Systeme für Nutzfahrzeuge and Robert Bosch GmbH are to jointly develop a radar sen-
sor for commercial vehicle safety systems, including the AEBS automatic emergency braking system.
By forming a joint venture, both companies will be able to benefit from the expertise of their respec-
tive partner. Knorr-Bremse will contribute its considerable experience with safety systems in the
commercial vehicle market, and Bosch will offer its expertise in developing and manufacturing radar
sensors.

The result of this successful collaboration will be an intelligent radar sensor that meets all require-
ments in terms of design and function and combines the specific expertise of both companies.

Strategic relocation
Bendix Spicer Foundation Brake LLC, a joint venture between Knorr-Bremse subsidiary Bendix Com-
mercial Vehicle Systems LCC and Dana Commercial Vehicle Products LLC, reorganized its production
of spring brake actuators and brake chambers at the end of 2010. This included transferring produc-
tion operations from Di-Pro Inc. in Fresno, California to the new Bendix facility in Acuña, Mexico.

The move, which was completed in December 2010, is consistent with Bendix’s overall strategic plan
to optimize its North American manufacturing locations by leveraging corporate shared services,
alongside its goal of maintaining lean and cost-effective manufacturing processes to remain com-
petitive in the marketplace.

Development of a disc brake production line in Dalian


During the year under review, Knorr-Bremse drove forward the development of local supply structures
and production capacity at its Chinese plant in Dalian in response to growing demand for a commer-
cial vehicle disc brake designed for the Chinese market. The process of transferring an entire assembly
line from Aldersbach to Dalian will be completed during 2011, and deliveries of locally produced disc
brakes are scheduled to start in 2012. Parallel to the relocation process, the task of designing a market-
specific disc brake will be completed and the green light given to Chinese suppliers for series produc-
tion to start.

The new production line will enable Knorr-Bremse to manufacture some 300,000 disc brakes per year
– all to the company’s usual high quality standards. As in the case of previous relocation projects in
North and South America, the project was able to draw on the experience of experts at the Aldersbach
plant and the Disc Brake Center of Competence who supported the operations in Dalian, working
with local colleagues and providing them with training.

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By the end of the year under review Knorr-Bremse was already working with all the major Chinese
truck manufacturers on application projects involving the localized disc brake.

Knorr-Bremse CVS India joint venture acquired


As of February of the year under review, the joint venture Knorr-Bremse Systems for Commercial Ve-
hicles India Private Ltd., originally formed between Knorr-Bremse Far East Limited and Tata Autocomp.
Systems, became a wholly-owned subsidiary of the Knorr-Bremse Group. The company is thus re-
sponding to the pace of growth in the Indian market and clearing the way for further expansion.

In keeping with the excellent past and prospective collaboration between the two companies, the
acquisition took place by mutual agreement. For Knorr-Bremse, the move opens up additional oppor-
tunities to serve the Indian market as an autonomous systems supplier and to participate in market
growth as a supplier to all Indian truck manufacturers. At the same time, it enables Knorr-Bremse to
play a more prominent part in shaping technological market trends. Initial orders have already been
won and provide a promising start for the execution of Knorr-Bremse’s expansion plans.

In addition, in terms of both technology and economy the products developed and manufactured in
India frequently meet the requirements of customers in other emerging markets. As a result, Knorr-
Bremse India will be able to build a network of efficient local suppliers.

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Value-stream factory
opens in Czech Republic
Development of a new facility in the town of Liberec, Czech Republic, involved
more than just transferring production activities. In early June 2010, Knorr-
Bremse Commercial Vehicle Systems introduced an entirely new approach to
production and logistics based on its globally standardized production system
KPS and taking the form of a “value-stream factory”. The result was a significant
increase in efficiency and flexibility in both areas.

The new production and sales center in the northern Bohemian town of Liberec
replaced the existing facility in Hejnice, some 30 kilometers away. On a site mea-
suring almost 8,000 m² Knorr-Bremse Commercial Vehicle Systems now produc-
es components for truck braking systems such as brake cylinders, clutch servos,
foot and hand brake valves and filter cartridges.

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Focus on value creation


All processes at the new factory are focused on value creation, with a particular emphasis on flexibility
and economy. The proverbial key to success is synchronization of processes, with individual produc-
tion processes no longer regarded separately but rather as part of a single process. Thus the focus is
no longer on optimizing and maximizing capacity utilization of individual workplaces but on the pro-
cess as a whole, optimizing resource utilization and eliminating deviations.

The basic elements of a value-stream factory were incorporated into the planning process from the
very outset. Logistics are situated immediately next to production processes, with standardized, mod-
ularized product islands and workstations. Tugger trains ensure a coordinated and efficient supply of
materials to assembly operations, reducing inventory and improving component availability. In addi-
tion to standardization, another focus was on further developing shopfloor management. The com-
pany value chain was concentrated on the production process itself, with all supporting processes
aimed at making production as cost-effective, flexible and error-free as possible.

The right time, the right workplace


Modular factory design provides the basis for an ideal materials flow. The layout of the plant and its
individual buildings is based on current value streams, but is designed to be flexible enough for the
materials flow to be maintained even when a change in product and production structures is intro-
duced. The new layout with its optimized processes guarantees the right quantity of the required
material being sent at the right time to the right place.

The many advantages of Liberec


The decision to move to Liberec came as part of Knorr-Bremse’s strategic development of its produc-
tion network. In addition to having good transport links, the region of Northern Bohemia also offers
large numbers of highly skilled workers. And the town of Liberec, which has engineering and mecha-
tronics faculties at its university, is home to many engineers. Proximity to Knorr-Bremse’s former plant
at Hejnice also facilitated the transfer of expertise to the new site.

Long tradition of links with Czech Republic


This latest move to a new site is one further step in Knorr-Bremse‘s long history of activities in the
Czech Republic. In 1992, shortly after the fall of the Iron Curtain, the Knorr-Bremse plant in Aldersbach
started to co-operate with the Czech company AUTOBRZDY a.s. A year later the German-Czech joint
venture Knorr-Autobrzdy s.r.o. was set up, and in 1998 was fully taken over by Knorr-Bremse and incor-
porated into the Knorr-Bremse Group.

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Products
Reliable, safe, high performing, efficient and tailored to the requirements of international
customers – these were the characteristics of the commercial vehicle products either newly
developed or further improved during 2010. They included the AEBS automatic emergency
braking system, the compressor with clutch and the latest version of the TEBS trailer electronic
braking system.

Screw compressor for hybrid buses


In response to growing demand for commercial vehicles that use hybrid drive technology, Knorr-
Bremse began series production of screw compressors for hybrid buses in spring 2010. The new de-
sign of compressor is to be installed in the 5,000 Volvo buses ordered as part of London’s fleet renewal
program, some of which is due to be completed in time for the 2012 Olympic Games. In addition to
supplying Volvo, Knorr-Bremse has also launched similar projects with other commercial vehicle man-
ufacturers.

Screw compressors are capable of producing large volumes of compressed air, using two synchronous
counter-rotating screws with a large inlet valve and smaller outlet valve. Unlike conventional compres-
sors, they are not powered by the vehicle engine but by their own electric motor. They are low-vibra-
tion and quiet in operation.

Knorr-Bremse is convinced of the potential offered by screw compressors and has also started design-
ing a compressor application for hybrid trucks. Unlike buses, trucks are not constantly stopping and
starting and therefore require less air to operate their brakes, so the engineers are focusing on design-
ing a unit that produces smaller volumes of compressed air.

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New lightweight disc brakes


Knorr-Bremse continues to develop its portfolio of pneumatic disc brake products with a view to cov-
ering as wide a range of vehicle applications as possible while at the same time catering for regional
differences. The company’s latest disc brake is much lighter, and can reduce the overall weight of a
truckset by up to 100 kilos, saving fuel and cutting emissions without compromising safety. In the
trailer segment the successor to the SK disc brake – the ST – was also presented in 2010. Specially
designed for trailer applications, this brake is extremely light but offers the same braking performance
as before.

Trailer-EBS further developed


The TEBS trailer electronic braking system specially developed by Knorr-Bremse for trailers ensures
even braking on all wheels of a truck-trailer combination. TEBS receives the driver’s braking signal and
adjusts it to the weight distribution of the trailers, thereby reducing brake wear and cutting vehicle
maintenance costs.

During the year under review Knorr-Bremse added a number of additional functions to the second
generation of TEBS, including ABS configuration for vehicles with more than three axles. This means
that trailer EBS is now available for all vehicle types. Applications for pony trailers were also added.

If combined with the Trailer Roadtrain Module (TRM), electronic transmission of the braking signal to
the trailers also makes it possible to bring extra-long vehicles safely and rapidly to a halt.

AEBS automatic emergency braking system


During the year under review Knorr-Bremse continued to develop the AEBS automatic emergency
braking system for commercial vehicles. At the 2010 IAA Commercial Vehicles it gave an impressive
demonstration of the system during a special session on hazardous goods transportation organized
by the German Association of the Automotive Industry VDA. AEBS involves a radar sensor mounted on
the truck monitoring the distance to the vehicle in front. If this starts to close too quickly, the system
intervenes in the braking system, helping avoid a collision. Combined with an optional video camera,
AEBS can even trigger full emergency braking if it identifies a completely stationary object (for exam-
ple the end of a tailback) in front of the vehicle.

In each of these two versions, AEBS initially alerts the driver to the imminent danger with acoustic and
optical signals or a brief application of the brakes. If the driver fails to react within a predefined period
of time, the system triggers partial braking, thereby allowing for a longer driver reaction time. Only
when the system spots an imminent danger of collision is emergency braking triggered. In this way
the system avoids an accident as far as physically possible or at least mitigates its consequences. This
latter effect can be increased by the system continuing to brake even during a collision, thereby en-
abling the brakes to absorb some of the energy.

Even when AEBS applies the brakes without the driver’s involvement, he still retains full control over
the vehicle (in line with the Vienna Agreement) and can interrupt AEBS braking at any time by accel-
erating, steering etc.

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Tire Pressure Monitoring System now also available in Europe


During the year under review Knorr-Bremse launched the Tire Pressure Monitoring System (TPMS) in
the European market. This wireless sensing system for state-of-the-art tire monitoring in commercial
vehicles had already been available on the North American auto market since 2009.

TPMS is the only tire monitoring system in the world that keeps a constant eye on both tire pressures
and temperatures in semi-trailer tractors, trailers, trucks and buses. If the tire pressure falls below a set
level, the system warns the driver of the potential danger. TPMS is not just suitable for new-build trucks
– it can also be retrofitted to virtually any commercial vehicle.

As well as being a safety feature, TPMS can also play a key role in cutting fleet operation costs. By en-
abling the driver to check and if necessary adjust tire pressure at any time, both tire wear and fuel
consumption can be significantly reduced. A further positive effect is that fact that maintaining the
right tire pressure also enhances the performance of the braking system.

Production of brake pad retaining system with ProTecS launched


During the year under review Knorr-Bremse launched production of the new brake pad retaining
system with ProTecS. This replaces the system used hitherto on air disc brakes SN6, SK7 and SN7 and
can be used on all applications. What is new is the use of a welding point to connect the spring and
brake pad.

This increases the pressing force across the entire working area and significantly increases service life,
particularly in rough driving conditions. The pad retaining system also acts like a sliding shoe, provid-
ing good protection against abrasion on the spring and retaining clip caused by dirt. The system also
has a further advantage – it enables the pad to be slid back more easily out of contact with the disc.

A further feature that comes with the introduction of ProTecS is the cast back plate. This weighs less
than the previous steel plate, generating less momentum, thus preventing radial acceleration of the
pad and reducing deformation in contact with the brake carrier.

The new pad retaining system with ProTecS also offers considerable safety advantages in terms of
servicing. With ProTecS the risky practice of re-using springs is not possible. And the new pad sets are
also more environmentally friendly – the friction materials meet the requirements of Eco-Class 1 and
3 respectively. The cadmium and lead compound content of the pads has been considerably reduced.

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Meeting the needs of


the BRIC states
As the world’s largest commercial vehicle markets, Brazil, Russia, India and
China – the BRIC states – have high requirements for commercial vehicle
components. For many years, Knorr-Bremse has pursued a consistent regional-
ization strategy aimed at covering the specific needs of the markets in these
countries. And its efforts have paid off in the form of steady growth in demand
for Knorr-Bremse components.

All over the world Knorr-Bremse offers innovative, region-specific solutions


aimed at improving vehicle safety and energy efficiency and tailored to the
needs of individual markets. In developing its products it always takes into ac-
count customer requirements in the various countries, with their differing infra-
structures, transport systems and climatic conditions. Localized products also
must comply with national legislation and, in some cases, have to be locally pro-
duced, either for cost reasons, or to meet customs regulations or quite simply
because of the distances involved.

In 2010 the focus was on products especially tailored to the needs of the BRIC
states.

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20-inch disc brake for China


Unlike in Europe and North America, commercial vehicles in China use tires with inner tubes. This cre-
ates a wheel contour that provides less space for disc brakes. To cope with this reduced installation
envelope Knorr-Bremse has developed a special design of brake with an internal mechanism based on
the well-known disc brake concept that has sold in its millions in the company’s core markets.

In 2010 the process of localizing production of the 20-inch disc brake began, including the develop-
ment of a local supply infrastructure. At the same time the process began of transferring an entire disc
brake assembly line from the German site in Aldersbach to Dalian, China.

ABS for BRIC


With more than 20 years’ experience of designing electronic brake control systems, Knorr-Bremse is
the world’s leading manufacturer of ABS systems. This means Knorr-Bremse Commercial Vehicle Sys-
tems is well placed for accessing BRIC markets.

With its ABS system specially designed for the BRIC states, Knorr-Bremse offers a scaleable, cost-effec-
tive solution that meets the needs of these countries. The system covers a wide range of functions: It
has to meet certain minimum requirements but also has to be modular in design and capable of being
customized to regional customers’ requirements. The ABS is therefore available with integrated ESP
function on the one hand, and on the other hand can also reproduce electronic brake control func-
tions.

PBS – Pneumatic Booster System


The concept underlying this development is both simple and ingenious: the Pneumatic Booster Sys-
tem (PBS) utilizes the compressed air that has already been generated for the braking system, injecting
measured amounts briefly into the inlet manifold of the engine to boost its short-term performance.
Within half a second the engine has enough oxygen to eliminate so-called “turbo lag” during accelera-
tion. This brief but significant improvement in performance enables the driver to change up faster and
maintain lower average engine revs without affecting performance.

This short-term boost in engine performance is not only useful during drive-off and overtaking. The
acceleration of a vehicle equipped with the Pneumatic Booster System is comparable to one with a
20% to 30% higher cubic capacity – which means PBS is of considerable benefit to BRIC states, where
vehicles are traditionally fitted with smaller engines.

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Service
Knorr-Bremse’s “Active Service” concept set new standards of support for dealerships, repair
shops and fleet operators, offering tailor-made, cost-effective solutions and a strong regional
presence, with the company available 24/7 by telephone, on the Internet or via local contacts.
2010 saw it further improve its already excellent levels of aftermarket service.

Active Service
Knorr-Bremse has brought together its entire range of services for dealerships, repair shops, fleet man-
agers and drivers under the title of “Active Service” with the aim of helping them achieve maximum
efficiency and economy in all aspects of their operational and business processes. Active service offers
a concept tailored to each particular application and adjusted to the increasing complexity of com-
mercial vehicle systems. From initial product development to installation and subsequent servicing,
everything is focused on offering the customer the best possible service. The service portfolio is based
on the criteria of safety, quality and economy throughout the entire lifecycle of a product.

A combination of OE-quality products and enhancement of practical skills through technical training
and hotline support enables turnaround times in repair shops to be shortened. Rapid online access to
servicing manuals, service news and other technical documentation is included. Standardization of
products reduces inventory costs and capital tie-up and also – despite the increasing variety of prod-
ucts involved – ensures product availability for servicing. Internet-based services such as the elec-
tronic product catalogue enable products and relevant information to be rapidly found.

The entire product catalogue including technical details and drawings can be viewed at any time on
the Knorr-Bremse website. And to ensure ease of use, the functions related to product search, web
shop, legacy parts and warranties are linked with SAP. In Europe, warranty inquiries are also linked di-
rectly to Knorr-Bremse’s QSYS quality system.

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NEO system diagnostics


With its new NEO System Diagnostics tool, Knorr-Bremse has created an electronic diagnostic platform
that provides rapid, professional support for repair shop personnel working on electronic vehicle sys-
tems. Depending on the particular configuration involved, it either communicates via the vehicle’s
diagnostic interface or directly with the electronic control unit (ECU). Not only can it read off the error
code – in the case of complex faults it can also run a system analysis to localize and deal with the
problem. NEO has a modular design and is compatible right across the range, from the starter version
through to the top model.

Regular software updates enable repair shops to guarantee state-of-the-art servicing. In 2010, for ex-
ample, when the full service product portfolio for the latest generation of the EBS5.X electronic brak-
ing system and corresponding vehicle applications was made available on the aftermarket, the up-
dated diagnostic software was also included. In addition to the basic functions such as error display
and localization, the data transfer function also enables a repair shop to replace the entire ECU
smoothly and efficiently if necessary. NEO System Diagnostics and the accompanying software can
also be used for sensor calibration. The NEO software also offers a full range of functions for the latest
EBS5 electronic braking system family for special OE applications.

Technical training
Building on past experience with its technical training program, Knorr-Bremse has created a new train-
ing portal that will be available online for customers from 2011. The portal facilitates communication
between the Knorr-Bremse training team and participants, for example by offering regularly updated
information on training provisions and availability of places as well as supervising waiting lists.

In addition, with the launch of its collaboration with Robert Bosch, a further milestone has been
reached in the field of technical training of commercial vehicle repair shops. The two companies now
offer joint training sessions on commercial vehicle braking systems as part of the Active Service con-
cept. The main beneficiaries are repair shops and dealerships, who can now update their skills and
knowledge from a single source.

“TruckWorks”
“TruckWorks” is a new service concept developed by Mercedes-Benz that relies crucially on the sup-
port of partners such as Knorr-Bremse. It involves Mercedes-Benz offering OEM-quality services from a
single source not just for vans and trucks but also for trailers, semitrailers and attachments. To create
this one-stop shop concept, 19 co-operation partners – one of which was Knorr-Bremse – were re-
cruited from the vehicle manufacturing and supply sectors. The company’s full range of aftermarket
capabilities is called for to support the program – including component searches, training, hotline and
OEM systems diagnostics.

Quality management program for aftermarket customers


The quality management program for aftermarket customers (QMPAD) is being subjected to a thor-
ough revision and expansion for the first time since its launch in 2004. The system, which was rolled

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out progressively in the aftermarket following the introduction of the Group Exemption Regulation
(GER) in 2002, is being adapted to take into account changing market conditions and new legislation.
At the same time the regional application of the program is being expanded, with a version not based
on the GER being introduced for future cooperation with export customers serving markets outside
Europe.

Aftermarket event at 21st Automechanika in Frankfurt


Some 155,000 visitors from a record 180 different countries attended one of the world’s biggest inter-
national trade fairs for the automotive industry – the 21st automechanika in Frankfurt. Much interest
was shown in a customer event on the subject of the aftermarket organized by Knorr-Bremse outside
the trade fair grounds: At the Marriott Hotel Josef Frank, Aftermarket Director of CLEPA, the European
Association of Automotive Suppliers (Comité de liaison européen des fabricants d‘équipements et de
pièces automobiles), talked about the Euro V and VI technical standards and the new Motor Vehicle
Block Exemption Regulation MVBER. Afterwards, participants also had an opportunity to discuss cur-
rent issues.

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Knorr-Bremse Group

In addition to the targeted fostering of product innovations, the key success


factors for Knorr-Bremse in the future will include process optimization,
employee development, corporate responsibility, environmental protection
and social engagement, aspects which remained among the top priorities for
this family-owned company in 2010.

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Knorr Excellence
Under the heading of Knorr Excellence (KE), Knorr-Bremse has introduced a standardized model
for all its management systems and has merged all process optimization initiatives across the
entire Group. The aim of KE is to achieve excellence in all corporate processes and to ensure
higher levels of customer satisfaction by continuously improving the Group‘s performance.
In 2010, Knorr-Bremse consistently pursued this program and further improved standardized
processes throughout the Group by launching new initiatives, notably in the fields of finance,
IT and human resources on the one hand and by pursuing existing initiatives on the other
hand.

Finance & IT Excellence


Within its FIT initiative, Knorr-Bremse made further efforts to establish best in class processes across
the board in the finance and IT sectors in 2010.

In the IT sector, FIT includes two projects: “IT 2.5“ and “ONE IT“. The objective of IT 2.5 is to boost pro-
ductivity, thus improving IT cost structures. In the course of the project, the individual IT cost items
were reviewed and specific improvement potentials identified and then tapped by specific action.
ONE IT is a global organizational project that seeks to realize further synergies through global harmo-
nization in the IT sector. In 2010, the main focus was on integrating the previously separate IT systems
of the Rail Vehicle Systems and Commercial Vehicle Systems divisions of Knorr-Bremse and of the par-
ent company, Knorr-Bremse AG, under the heading of Global Shared Services.

In the finance sector, the FIT projects “Intercompany Netting“ and “Fast Close“ were launched. The In-
tercompany Netting project seeks to simplify and expedite intercompany payment transactions and
related liaison processes, thus reducing transaction costs in the long term. The objective of Fast Close
is to increase the flexibility of timing for the annual financial statements process, at the same time as
ensuring and improving analysis quality. Thanks to the process improvements already implemented,
Knorr-Bremse was able to save ten working days during the preparation of annual financial statements
for 2010.

In the finance sector, the Supplier Early Payment Program SEPP launched a few years ago was rolled
out worldwide in 2010. SEPP has proven to be an effective means of safeguarding liquidity and reduc-
ing the cost of capital for selected suppliers. SEPP therefore provides sustained reinforcement for the
financial stability of key external partners of the Knorr-Bremse Group.

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PEX People Excellence


Within the PEX – People Excellence – initiative, existing human resources and executive development
projects were continued and new projects were launched in 2010. The objective of the initiative is to
implement basic elements of human resources development around the world and to take the Group
management culture forwards. The elements of the initiative, including the staff dialogue, executive
development and the identification and development of high-potentials aim to create further perfor-
mance incentives and to highlight the long-term prospects for employees. With PEX, Knorr-Bremse
has established a future-oriented basis for the ongoing development of its management culture (see
also the “Employees“ section on pages 125 to 127).

Quality First
Within the Q-First quality campaign, a large number of specific measures were defined to ensure that
each and every component developed and supplied by Knorr-Bremse is of the highest possible qual-
ity. Quality First comprises a raft of measures covering areas such as management, human resources,
development, production, supplier development, complaints management and customer relations.
As a manufacturer of safety-critical products, Knorr-Bremse considers these measures indispensable.

One fundamental principle of the Knorr-Bremse quality management policy is prevention rather than
cure. Potential errors must be detected in good time before they lead to defects in product compo-
nents in service. In 2010, Knorr-Bremse therefore once again dedicated its efforts to ensuring that
safety-relevant requirements were taken into consideration from the beginning of the development
process. In addition, the company again conducted a large number of Product Safety Audits (PSA).
These especially strict audits that are specific to Knorr-Bremse ensure that internal and external suppli-
ers comply with the Group‘s very high quality standards.

Supply Chain Excellence


The Supply Chain Excellence (SCE) project has now been successfully launched at all Knorr-Bremse
sites. The main focus of the project in 2010 was to ensure that internal and external production ca-
pacities were adapted to the increasingly rapid recovery in global demand. The introduction of best in
class logistics processes at the Budapest (Rail Vehicle Systems) and Liberec (Commercial Vehicle Sys-
tems) plants under the headings of “5-day factory“ and “value-stream factory“ were other key aspects
of the SCE initiative. Global inventory management was continued and schedule effectiveness was
significantly improved in many areas.

Knorr-Bremse Production System


In 2010, the Knorr-Bremse Production System (KPS) concentrated on value stream optimization and
employee training. For example, joint training events for the Rail and Commercial Vehicle Systems divi-
sions were held during the year. These events focused on KPS expert training and on shop floor man-
agement training for executives. In practically oriented training sessions, the participants were famil-
iarized with or learned more about KPS methods by working in teams to optimize real production lines
and processes. The new KPS process audit in the Rail Vehicle Systems division, which has now been
introduced at nine Knorr-Bremse production facilities, is a tool for systematically determining the KPS

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maturity level of production lines at the same time as identifying scope for improvement and indicat-
ing how it can be achieved. In the Rail Vehicle Systems division, within the framework of KPS, value
stream methodology was systematically implemented at Kecskemét, for example, on production lines
operated at high capacities, with a view to identifying potential for further improvements. In addition,
a stronger focus on shop floor management was adopted and training for new employees, experts
and executives was driven forward.

PROGRESS
In 2010, the optimization and harmonization of business processes on the basis of improvements re-
sulting from Knorr Excellence initiatives was continued under the PROGRESS program. SAP was intro-
duced at nine locations in 2010 and is now used at more than 70 Knorr-Bremse facilities. The simulta-
neous optimization and harmonization of business processes together with the introduction of SAP
for all the companies of the Knorr-Bremse Group has proved itself in practice and will be continued in
2011.

Efficient Cut of CO2


To combine environmental and economic aspects, Knorr-Bremse defined Group-wide climate protec-
tion targets and launched the ECCO2 (Efficient Cut of CO2) environmental initiative for worldwide im-
plementation in 2009. By 2020, the energy efficiency of the Group is to be improved by 20% and CO2
emissions thereby cut by 20% (see also “Responsibility“, p. 118). In 2010, measures to reduce CO2 emis-
sions were taken at a variety of locations as part of ECCO2. At the new plants in Budapest and Liberec
in particular, special attention was paid to resource conservation during the construction of the build-
ings.

Prizes and awards


MIS Asia IT Excellence Award 2010
The MIS Asia IT Excellence Award is one of the most coveted awards for outstanding IT performance in
Asia. Asian IT organizations and CIOs in particular are honored for their outstanding management
contribution to the use of IT for enhancing corporate value and achieving business targets. In 2010,
Knorr-Bremse Asia-Pacific won the award for the second year in succession. Knorr-Bremse received the
accolade in the Best Security Strategy category for its Securegate Asia Pacific program.

MNC Corporate Treasury Team of the Year Award


Not least because of the strict selection criteria that apply, Asset Magazine‘s Triple A Awards are some
of the most prestigious annual honors presented by the Asian finance industry. The awards honor
companies and individuals that have made a significant contribution to the development of the fi-
nance industry in Asia. In 2010, Knorr-Bremse Asia-Pacific received the MNC Corporate Treasury Team
of the Year Award for its successful financial management.

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Further improvement
in external ratings
Knorr-Bremse’s rapid and rigorous reaction to the onset of the economic crisis
in the fall of 2008 paid renewed dividends in terms of the Group’s external
creditworthiness rating in 2010: Two prominent rating agencies not only
reaffirmed the Group’s investment grade status, they also upped their ratings
again.

In the opinion of the rating agencies Moody’s and Standard & Poor’s, Knorr-
Bremse has steered a safe course through the crisis. Moody’s initially retained its
2009 rating of Baa1, but raised the outlook from “stable” to “positive”. Standard &
Poor’s awarded Knorr Bremse a rating upgrade from “BBB+/Outlook positive” to
“A-/Outlook stable”. Standard & Poor’s had already seen the potential for an up-
grade a year earlier, despite a very difficult market environment. With its 2009 fi-
nancial indicators, on which the 2010 rating was based, Knorr-Bremse was able
to demonstrate that it had been able to realize that potential.

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Two pillars provide mutual support


A key role here is played by the fact that the Group’s two separate business areas, rail vehicles and
commercial vehicles, are subject to different economic cycles that can take very different courses – in
terms of time and from one region to the next. Thus in times of crisis the two pillars provide mutual
support and mitigate the overall impact of the cyclical global market. The fact that the company’s
product portfolio has been expanded beyond the core field of braking also helps to safeguard its long-
term future. Its innovative products in the areas of engine management, HVAC, power electronics or
automatic door systems stand for reliable leading-edge technology at its finest.

International strategy a stability factor


In 2010 Knorr-Bremse maintained its global strategic focus with a broad-based position in numerous
markets. Knorr-Bremse invested not only in product development but also in strategically important
production facilities such as the new Rail Vehicle Systems plant in Budapest, Hungary, or the new
Commercial Vehicle Systems plant in Liberec, Czech Republic. The agencies rated this diversification in
terms of both regions and product groups as an additional stability factor in mitigating the effects of
cyclical crises.

Dependable planning
Knorr-Bremse’s documented continuity in meeting or exceeding agreed targets over a long period of
time was considered by the rating agencies proof of a solid and consistent management performance.

A moderate financial policy is key to this management approach. The Group’s balance sheet structure
and cash flow generation are geared to stability and sustainability and supported by an appropriate
volume of short and medium-term committed lines of credit that are by no means taken up in full.
Should the need arise, however, these credit facilities could bridge the gap between cash flow gen-
eration and cash requirements, ensuring the flexibility that the company needs if it is to generate a
rapid response.

Appropriate level of debt


The rating agencies both affirm that Knorr-Bremse’s credit facilities are strictly aligned with the com-
pany‘s core business and in keeping with its economic capabilities. No speculation takes place.
Through their ratings, Moody’s und Standard & Poor’s confirm that in times of crisis and of larger exter-
nal acquisitions, the Group is always capable of generating sufficient cash flow to ensure that its level
of net debt remains appropriate or, as was the case in 2010, can be transformed into net liquidity.

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Responsibility
Sustainability and responsibility are increasingly important elements of modern corporate
governance. Knorr-Bremse is therefore expanding its activities in the area and integrating them
into its overall corporate strategy.

A family business like Knorr-Bremse sets great store by sustainability and responsibility. As part of its
long-term business planning process the company has drawn together its business, environmental
and social activities and formulated a corporate social responsibility strategy. And by signing up to the
United Nations Global Compact, Knorr-Bremse has publicly signaled its commitment to the ten glob-
ally recognized basic principles that are also part of its own corporate culture.

Corporate social responsibility strategy


The corporate social responsibility strategy that Knorr-Bremse has developed in collaboration with
several of its divisions forms an integral part of the Group’s overall corporate strategy. It systematizes
the company’s responsibilities for the environment, the workforce and society in general and deter-
mines the main focus of its future activities in the area. The overarching objective is to use its global
and local activities in the field of corporate responsibility to develop the business and strengthen
corporate culture, protect against risks, contribute towards sustainable development and create a
positive public image for the Group.

Knorr-Bremse will focus its activities on six areas in future. Measures in the field of “Products and Part-
ners”, for example, are designed to support customers in saving energy and conserving sources and
help business partners to achieve higher environmental and social standards.

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CSR program
Each year a CSR program based on this strategy lays down specific objectives and measures for the
various different areas of corporate social responsibility. Following the launch of the energy efficiency
campaign ECCO2 (Efficient Cut of CO2), the company is also further developing and implementing its
climate strategy and auditing its suppliers’ environmental and social standards. The CSR program for
2011 includes a process of dialogue and benchmarking with key customers, greater focus on market-
ing energy-efficient products and a pilot project for auditing CO2 emissions at company plants.

Protecting the climate with ECCO2


With its ECCO2 environmental and climate campaign Knorr-Bremse has set itself the goal of improving
energy efficiency by 20% and achieving a similar percentage reduction in carbon dioxide emissions by
the year 2020. The campaign forms part of the Knorr Excellence Model for improving business pro-
cesses. During the year under review, the main focus of ECCO2 was on optimizing compressed air and
lighting systems, with further measures related to space heating and heat recycling. These enabled
energy efficiency to be improved by 10% during 2010 and CO2 emissions to be reduced by 10% com-
pared to the previous year. The – mainly technical – measures involved have resulted in savings of EUR
1.2 million per year.

Synergies were also achieved as part of the Supply Chain Excellence Initiative (SCE), which looks at
supply structures and inter-site logistics within the Knorr-Bremse Group. Reorganizing the system and

UN Global
Compact
Knorr-Bremse has become a signatory to the United Nations Global Compact initiative which, with its
ten principles, sets international standards for companies and organizations in the fields of human
rights, labor, environment and anti-corruption. Knorr-Bremse will be engaging in an international ex-
change of experience and contributing to a dialogue on corporate responsibility within the world-
wide network of more than 8,000 Global Compact corporate members, including 140 companies and
organizations in Germany.

Five years on from the founding of the charitable organization Knorr-Bremse Global Care e. V., Knorr-
Bremse has marked a further major milestone in meeting its corporate responsibilities by signing up
to the Compact.

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establishing a central hub will in future halve transportation distances and cut 165 tons of annual CO2
emissions. A program of CO2 audits of company sites has also been launched with the aim of creating
greater transparency about energy consumption and CO2 emissions and identifying scope for reduc-
tions. Following a pilot program to calculate the CO2 footprint of the Munich and Berlin sites, the pro-
gram is now to be rolled out at other locations around the world.

Energy-efficient products
Knorr-Bremse pays great attention to the potential environmental impact of the innovative technolo-
gies it develops. It was, for example, the first company in the rail vehicle sector to market a compressor
that operates without oil lubrication. A more recent example is the newly developed HVAC system
from Knorr-Bremse’s subsidiary Merak, which uses a new ultra-eco-friendly refrigerant – HFO1234yf –
which has a very low global warming potential rating. In the commercial vehicle sector, climate
change and pressure to reduce costs have also boosted demand for energy-efficient technologies in
recent years – which is why Knorr-Bremse has long since made the development of fuel-saving tech-
nologies a priority and has showcased various solutions at trade fairs over the years. These have in-
cluded the LEADER driver information system, which enables the fuel consumption of rail vehicles to
be reduced by up to 15% and – in the truck sector – the Pneumatic Booster System (PBS), which
eliminates turbo-lag and saves 2-3% fuel. At the same time, PBS increases engine power, enabling a
smaller, lighter engine with lower fuel consumption to be used. The year also saw the launch of a fur-
ther development of the Electronic Air Control System (EAC2), which differs from conventional com-

Customers are also increasingly making demands on Knorr-Bremse in this respect, with some even
explicitly quoting the ten principles of the UN Global Compact when placing orders. During the year
under review, Knorr-Bremse started to develop its own standard code of behavior for suppliers, using
the UN Global Compact as an important, globally recognized frame of reference.

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mercial vehicle air systems by switching the air supply compressor on and off according to the driving
situation, saving up to 2.5 tons of CO2 emissions per vehicle per year.

Environmental protection and workplace health & safety


In 2001 Knorr-Bremse launched a process of certifying the Group’s rail and commercial vehicle sites
according to the ISO 14001 environmental management standard. This program continued in 2010,
with sites in Johannesburg (South Africa) and Guangzhou (China) achieving certification. As part of its
global health and safety and environmental policy Knorr-Bremse also takes a systematic approach to
workplace safety. Having long since achieved certification of virtually all its European sites, confirming
their compliance with the international occupational health and safety standard OHSAS 18001, the
company is now rolling out a program of external auditing of its other sites world-wide.

In 2010 the sites in Suzhou and Shanghai (China) as well as Westminster (USA) achieved OHSAS 18001
certification. In order to minimize environmental impact and energy consumption at new sites from
the very outset, Knorr-Bremse has drawn up a list of requirements in the form of a “Green Building
Guideline”. The idea is that intelligent planning can reduce the environmental impact and resource
requirements of new buildings and create a pleasant and healthy working atmosphere for employees.

Health promotion
Knorr-Bremse regards health promotion as an important duty, and its health facilities and measures
are designed for young and old alike. At its European sites the company increasingly has to adjust to
an aging workforce. Many sites run special sports programs and health campaigns aimed at promot-
ing employees’ health and wellbeing, maintaining their ability to give of their best and encouraging
communication and a team spirit. Health days and health fairs are also used to raise awareness and
show employees what is on offer. Knorr-Bremse’s subsidiary Bendix has already attracted several
awards for the measures it has taken at its four North American sites, where health programs include
mammography check-ups provided by the company medical service, a slimming program entitled
“Weight Watchers@Work”, an in-company fitness center, cardiovascular training, free blood tests for

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employees and their families, an annual health fair, breakfast seminars with information on health top-
ics and a monthly health newsletter.

Energy management
When it comes to measures for reducing energy consumption and CO2 emissions in its processes,
Knorr-Bremse adheres closely to the provisions of the international standard for energy management
(ISO 50001). This requires continuous improvement of the energy balance through efficient and sus-
tainable use of energy resources of all kinds.

The concept of energy management thus affects a wide range of different company processes, includ-
ing energy procurement, use and conversion. One important aspect is the fact that efficient energy
use should be taken into account at them planning stage for new company sites and production fa-
cilities, so that the scope for achieving energy savings is identified in advance and can be utilized dur-
ing implementation.

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Providing long-term
assistance
The charitable organization Knorr-Bremse Global Care e. V. was set up by the
Knorr-Bremse Group to provide long-term aid to individuals who, through no
fault of their own, are victims of environmental catastrophes, accidents, armed
conflict, poverty or disease. At the start of 2010, the organization celebrated its
fifth anniversary. Since its foundation five years ago it has implemented 50 aid
projects in 31 countries on four continents, providing assistance to some
200,000 people.

In December 2004 the world witnessed a tragic and shocking event: a tsunami trig-
gered by an earthquake devastated entire coastal areas of Thailand, Indonesia, Sri
Lanka and India as well as many other states in Southeast Asia and East Africa. More
than 230,000 people lost their lives. Knorr-Bremse was quick to react, and on January
18, 2005 the charitable organization Knorr-Bremse Global Care e. V. was set up with
the aim of providing targeted and effective aid to victims of the disaster. The first proj-
ects were launched as early as February, and within a year the organization was sup-
porting no fewer than 13 different programs in the region.

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A new approach
Then as now, the basic approach taken by Knorr-Bremse Global Care e. V. differed from that of other
aid organizations. It is not just funding that is provided – volunteers, including members of the com-
pany’s management, also act as sponsors for individual projects, monitoring their progress closely.
Their input ranges from visits to the regions concerned to collaboration with local partners over draw-
ing up plans for hospitals or schools. Their close involvement with the projects ensures a high degree
of commitment to the people at local level.

The aim is always to provide sustainable, long-term support and the most important criterion when
selecting projects is therefore an emphasis on helping people to help themselves. Project funding is
intended as an investment in an economically independent future for the people concerned.

Expansion of activities
In 2006, Global Care expanded its activities to include Africa, where it funded a number of school projects
in a bid to help improve the often catastrophic situation of education in that part of the world. Since 2007,
Knorr-Bremse sites around the world have also become increasingly involved in projects – around half of
Global Care projects now benefit from the involvement of local Knorr-Bremse employees.

2008 and 2009 saw the organization continue its work in these two regions and also become involved in
Central America. Other areas of focus were emergency aid and reconstruction projects in the aftermath of
the cyclone in Burma, the earthquake in the Chinese province of Sichuan and the cholera epidemic in
Zimbabwe. At the same time, Global Care intensified its involvement in educational projects.

The basic emphasis is on long-term projects that enable people to support themselves and determine
their own lives. In 2010 a total of 35 projects in 24 countries were funded, with more than EUR 1,100,000
donated and over 65,000 people provided with assistance and support. For example Global Care joined
forces with the aid organization Jnana Pradodhini to construct a three-story building with five apartments
per floor to house divorced or widowed women in the rural district of Harali, India. Global Care also de-
cided during 2010 to build and equip two learning centers in the Sabeh region of Borneo. A floating
classroom was also created for teaching children who live in such remote locations that they cannot oth-
erwise attend school on a daily basis. During the year Knorr-Bremse Global Care e. V. also ran five emer-
gency aid projects in Haiti, Chile, Pakistan, the Czech Republic and Hungary.

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Employees
Thanks to the outstanding work ethic and motivation of its employees, in 2010 Knorr-Bremse
was again able to strengthen its position in the global marketplace. The effects of the global
economic crisis had made adjustments in staffing levels inevitable in 2009, particularly in the
commercial vehicle segment. In the year under review, by contrast, the number of employees
rose across the Group.

Employment situation
By the end of 2010, the workforce of the Knorr-Bremse Group had risen to 16,277 employees, 1,845
more than in the previous year. This represents a 12.8% increase in staffing levels compared to 2009.

In the Rail Vehicle Systems division, the number of employees grew by 15.3%, from 8,256 in 2009 to
9,523 in 2010. Due to the global recovery in truck production, the number of employees in the Com-
mercial Vehicle Systems division rose by 9.6%, from 6,014 in the previous year to 6,590 in 2010.

Employees in the regions


In the Europe, Middle East and Africa region, the Knorr-Bremse Group employed 9,243 people at the
end of 2010, 8.0% more than in 2009 (8,555). 56.8% of the Knorr-Bremse workforce was employed in
this region (2009: 59.3%) at the end the year under review. In absolute terms, this represents an in-
crease of 688 employees.

As per December 31, 2010 Knorr-Bremse employed 3,235 people in Germany, 5.3% more than one
year previously (3,071). In 2010, 19.9% of the company’s total workforce was employed in Germany
(2009: 21.3%). In the rest of Europe the number of employees grew from 5,484 to 6,008, which equates
to 36.9% (2009: 38.0%) of the total workforce.

The Group had 2,751 employees in North America on December 31, 2010, up 7.5% from the previous
year (2,559). This represents a decline in the proportion of employees in North America from 17.7% to
16.9%. The Group had 658 employees in South America at the end of 2009, compared to 806 at the
end of the year under review. The Asia/Australia region saw a rise in staffing levels from 2,660 employ-
ees in 2009 to 3,477 at the end of 2010. As a result, the proportion of the Group workforce employed

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in this region climbed to 21.4% (2009: 18.4%). This increase also reflects the extremely positive growth
of Knorr-Bremse’s business in Asia/Australia.

Human resources development


Knorr-Bremse stands for outstanding, globally recognized products, processes and services. The
Group’s human resources policy plays an important supporting role by providing for systematic and
targeted HR development and placing particular emphasis on international job assignments around
the entire globe. In the year under review, the HR development instruments defined in the Human
Resources Roadmap and the People Excellence Initiative (PEX) were harmonized worldwide and im-
plemented in all Knorr-Bremse locations.

A comprehensive talent management program develops qualified successors for key management
positions and offers high potentials attractive career opportunities within the Group. The International
Development Center and International Development Programs modules for junior managers were
redesigned and reworked during the period under review. The Development Center, which is held
several times each year, allows Knorr-Bremse to identify individual strengths and areas for improve-
ment and to define targeted and systematic professional development measures for each participant.

The Leadership Feedback initiative, which was successfully completed in November 2010, for the first
time featured a uniform international questionnaire and made use of a supporting online program.
Approximately 1,000 managers in over 50 locations were evaluated by around 13,000 employees. This
confidential and anonymized process aims to promote and optimize cooperation within each team by
allowing managers to receive feedback from their employees on their leadership skills.

2010 also saw the revision of the staff dialogue – the regular performance review process between
supervisor and employee – and the introduction of a uniform global standard for performance review
procedures and timing.

Management Evolution Program (MEP)


Successfully established twelve years ago, Knorr-Bremse’s Management Evolution Program (MEP)
gives new hires the opportunity to participate in three important projects as trainees, gaining valuable
insights into operations in different parts of the Group. The combination of direct project responsibil-
ity and special training courses helps to develop the trainees’ hard and soft skills in a professional
context. In the year under review, strong growth in the Asia region led to the inclusion of two Chinese
and one Indian participant in the program for the first time. Knorr-Bremse has given priority to the
continued internationalization of the MEP.

University marketing
In 2010 Knorr-Bremse again participated in around 40 human resources and recruiting fairs, strength-
ening the awareness and position of the company among university professors and departments as
well as university graduates. Cooperation agreements with well-known universities and colleges in
Germany and other locations around the world allowed early links to be forged between Knorr-Bremse

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and students with key qualifications. This helps the Group to meet its demand for highly qualified
specialists, especially in the technical fields.

International human resources policy


Knorr-Bremse is a successful global corporate player with 87 locations around the world. The expertise,
innovative capabilities and work ethic of the Group’s workforce are important factors in its success. To
safeguard the high quality standard of its products around the globe, Knorr-Bremse actively encour-
ages its employees to participate in job exchanges across all regions. The International Transfers De-
partment, which is located at corporate headquarters in Munich, is responsible for coordinating all
overseas assignments and supporting global networking within the Group. In addition to long-term
international assignments, in the past year Knorr-Bremse sent more employees abroad for shorter
periods of time to receive training in departments in different Group locations. The number of new
international assignments rose again during the year under review after stagnating during the eco-
nomic crisis. While China continues to be the primary destination for international transfers within
Knorr-Bremse, there has also been a steady increase in the number of employees from other countries
coming to work in Germany.

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Trade fairs
Local presence as a global player: Knorr-Bremse was represented by expert teams at all the
major trade fairs and also showcased its innovative products to an international audience at
other national and international events. Over the next few years, the business of both Knorr-
Bremse divisions will be influenced by the major trends of energy efficiency, safety, urbaniza-
tion and globalization.

In 2010, Knorr-Bremse presented innovative products at the two key industry showcases, InnoTrans in
Berlin and the IAA Commercial Vehicles in Hanover, under the motto of “Efficient.Technology.World-
wide“. Also in the year under review, Knorr-Bremse exhibited solutions for current and future market
requirements to a wide audience at the main industry shows.

39th Conference on Modern Rolling Stock, April 2010, Graz


The first event attended by Knorr-Bremse Rail Vehicle Systems in 2010 was the 39th Conference on
Modern Rolling Stock, which was held at the Technical University of Graz in Austria. For the first time,
the Knorr-Bremse Mödling plant had its own stand at the event, which became a popular meeting
point for actual and potential customers.

Metro China, Mai 2010, Shanghai


Metro China is one of China‘s largest and most highly reputed industry showcases for metro technol-
ogy. The event covers all aspects of the metro sector from planning and design through to operation
and maintenance. The trade fair has long been established as a key platform for exhibitors from around
the world. At the show, Knorr-Bremse, IFE, Microelettrica and EMC Traction displayed innovative solu-
tions for the Chinese metro market.

EXPO Ferroviaria and INTERtunnel, June 2010, Turin


Growth of 12% in visitor numbers compared with the previous event confirmed the sustained success
of EXPO Ferroviaria and INTERtunnel. In June 2010, 7,000 visitors from 48 countries attended the only
regular rail and tunnel trade fairs in Italy. IFE and Microelettrica were among the successful partici-
pants.

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Automechanika, September 2010, Frankfurt


Knorr-Bremse Commercial Vehicle Systems organized an exclusive customer event at Automechanika
in Frankfurt. More than 200 guests took part in the chill-out event at the auto industry‘s most impor-
tant meeting point in September. The program at the event was rounded off by brief product presen-
tations given by Knorr-Bremse experts against the backdrop of the world‘s largest automotive after-
market showcase.

Business on Rails Trade Fair, November 2010, São Paulo


In November, more than 7,000 experts from the rail sector exchanged views on the latest rail trends at
the 13th Business on Rails Trade Fair, held in São Paulo, Brazil. 180 exhibitors from across the globe had
their latest developments on show. The Knorr-Bremse Group was represented by its Brazilian subsid-
iary Indústria Freios Knorr and Group company IFE.

Modern Railways und UIC Highspeed, December 2010, Beijing


In December 2010, the 7th World Congress on High Speed Rail (UIC Highspeed) was held in Beijing at
the same time as Modern Railways. Modern Railways is a major platform for interchange between
manufacturers and rail operators from more than 20 countries and regions. UIC Highspeed has also
established itself as the premier major international event for the high-speed rail sector. The congress
provided a good overview of recent successes and developments in high-speed rail systems. Knorr-
Bremse and Group companies IFE, Westinghouse, Merak and Microelettrica took the opportunity to
present themselves and their products to a wide trade audience at the two events.

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Knorr-Bremse a magnet
for visitors
Under the heading of “Efficient.Technology.Worldwide”, Knorr-Bremse show-
cased its leading-edge braking technology and on-board systems to a broad-
based audience at the two key trade fairs of 2010 – both held in Germany. At
the rail transportation fair InnoTrans in Berlin, efficient products and techno-
logical innovations shared the spotlight with solutions that underpinned the
Group’s worldwide systems expertise. At the IAA Commercial Vehicles show in
Hanover, the focus was on energy efficiency, cutting emissions, and boosting
safety through driver assistance systems.

Hundreds of thousands of visitors from across the globe, top level customer con-
tacts and impressive trade fair stands left exhibitors with plenty to talk about at
the InnoTrans and IAA Commercial Vehicles fairs in 2010. With an increase of over
20% in visitor numbers the InnoTrans broke the previous record set in 2008. This
was also reflected at the Knorr-Bremse stand, which at times hosted as many as
300 visitors at once. At the Knorr-Bremse Commercial Vehicle Systems stand at
the IAA too, visitor numbers were up by around 10% compared to the previous
IAA in 2008, despite an overall downturn in attendance at the fair.

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InnoTrans 2010 – top level talks


The main highlight of the InnoTrans fair in Berlin came right at the start with a visit from the German
Federal Minister of Transport Dr. Peter Ramsauer, who also opened the fair. Dr. Dieter Wilhelm, Member
of the Executive Board responsible for Rail Vehicle Systems, showed Dr. Ramsauer around the Knorr-
Bremse stand and explained the latest exhibits. The German Federal Minister of Transport showed a
special interest in the bogie equipment for high-speed trains with integrated eddy current brake. This
exhibit, which was on show in its entirety for the first time at a trade fair, gave an impressive demon-
stration of the perfect interplay between all the Knorr-Bremse components.

In the procurement and operation of rail vehicles and their sub-systems the topic of efficiency is mov-
ing steadily up the agenda. As a result, at this year’s InnoTrans Knorr-Bremse chose to focus on low
life-cycle costs and efficient maintenance. As the world’s leading manufacturer of braking systems for
rail vehicle and the technology leader, Knorr-Bremse also had innovations on show at the fair that are
designed to maximize customer benefits, increase passenger safety and comfort and ensure eco-
friendly operation. On top of this, in the international project business sector Knorr-Bremse is increas-
ingly out to provide customized solutions for the different regional requirements encountered around
the world. At the InnoTrans fair this was impressively documented by the presentation of control
valves, for example, that comply with all of the major globally applicable standards.

IAA 2010 an all-round success


The Knorr-Bremse stand at the IAA Commercial Vehicles 2010 proved a magnet for visitors and hosted
almost 600 meetings with customers. The main topics were cutting fuel consumption, boosting safety
and protecting the environment. One particularly impressive factor was the very high level of our visi-
tors, with a vast increase in the proportion of visitors from Asia. This was clearly a reflection of the
Group’s long-standing and sustained commitment to the Asian region. Around 100 customers from
China and India were welcomed to the Knorr-Bremse stand in the course of the week-long fair.

Along with the Innovation Center, where the latest product developments and future technologies
were presented to selected customers, the Regional Technology Center again proved another crowd-
puller. Here Knorr-Bremse used the IAA 2010 to present a large number of products specially geared
to the requirements of the BRIC markets, in each case adapted precisely to the needs of the respective
region, taking into account the different climates, infrastructures and driving conditions.

Among the visitors to the Knorr-Bremse stand was the President of the Association of the German
Automotive Industry, Matthias Wissmann, who was brought fully up to speed with the latest Knorr-
Bremse technologies and developments by Hans-Peter Moser, Member of the Executive Board of
Knorr-Bremse Systeme für Nutzfahrzeuge GmbH.

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3/ Notes to the Consolidated
Financial Statements

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136

1 Principles and methods

The consolidated financial statements have been drawn up in accordance with generally accepted
accounting principles, complying with the accounting requirements of the German Commercial Code
(HGB) and additional statutory provisions. Figures in the consolidated financial statements are shown
in thousands of euros (TEUR). Certain items on the balance sheet and in the statement of income are
combined for the sake of greater clarity. These items are explained separately in the Notes to the Con-
solidated Financial Statements.

Accounting and valuation


The financial statements of the companies included in the consolidated financial statements are pre-
pared according to uniform principles of accounting and valuation applied to the Group. For the pur-
poses of consolidation according to the equity method, any valuations in the financial statements of
the associated companies that deviate from the uniform principles applied to the Group are retained.

In fiscal year 2010, the provisions of the German Accounting Law Modernization Act are applied for
the first time. Because this is the first time they have been applied, the requirements of §§ 252 (1) no.
6, 265 (1), 284 (2) no. 3 and 313 (1) no. 3 of the German Commercial Code (HGB) have not been applied,
as provided for under Article 67 (8) of the Act Introducing the German Commercial Code (EGHGB). In
accordance with EGHGB Article 67 (8) clause 2 subclause 1, the previous year’s figures have not been
adjusted. Consequently the previous year’s figures are only comparable with the figures for the year
under review to a limited extent, as specified in HGB § 265 (2) clause 2.

Purchased intangible assets are valued at acquisition cost less scheduled depreciation; additional de-
preciation is taken where necessary.

Fixed assets are recorded at acquisition or production cost, less scheduled depreciation in the case of
items subject to wear and tear; additional depreciation is taken where necessary. Depreciation on
fixed assets is generally applied using the linear method, based on useful life. In the case of German
companies included in consolidation, additions prior to January 1, 2008 and after January 1, 2009 are
for the most part depreciated using the declining balance method, switching over to the linear meth-
od as soon as the latter results in higher depreciation. For fiscal year 2010, application of the linear
method results in a difference of TEUR 496. Minor fixed assets are depreciated to the maximum extent
permissible under the respective countries’ tax provisions.

Interests in affiliated, associated and related companies and miscellaneous investments are stated at
cost or, in the event of a probable sustained diminution in value, at fair value (where the latter is lower).

Materials and supplies are carried in inventories at the lower of average acquisition cost or replace-
ment cost. Provision against realization risks is made where necessary.

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Work in process and finished products are stated at production cost, but in no case higher than the
projected sales revenues less any costs accruing prior to sale. Production cost includes direct cost of
materials and labor, as well as production overhead. A reasonable allowance is made where there is a
risk of a decline in inventory values. Receivables are stated at their nominal value, less any necessary
provisions against specific debts. Receivables bearing no or low interest are stated at their net present
value. General charges have been made to cover the general credit risk.

Other assets are stated at the lower of average acquisition cost, net present value or fair value.

Earnings or disbursements prior to the balance sheet date are shown as prepaid income or prepaid
expenses where they represent revenues or expenses for a certain period after the balance sheet date.

Foreign currency items are valued at the rate existing at the transaction date or – if less favorable – at
the rate at the balance sheet date. Where foreign currency items have been hedged, they are valued
at the corresponding hedging rate. In the individual financial statements of companies included in
consolidation, assets and liabilities denominated in foreign currencies are translated at the mean spot
rate at the final balance sheet date. Unrealized currency gains as defined in § 256a clause 2 and § 252
(1) no. 4 of the German Commercial Code (HGB) have no overall significance.

Rate-hedging and option transactions are performed selectively and exclusively for hedging purpos-
es. Wherever possible, financial derivatives covering assets, borrowings, open contracts or transactions
with a high probability of closure are bundled together as single items for valuation purposes (“macro
hedges”).

Accrued liabilities include reasonable and sufficient allowance for all perceivable risks and any contin-
gent liabilities. Accruals are valued in accordance with § 253 (1) and (2) of the German Commercial
Code (HGB), whereby use has been made of the options for retention of control laid out in Article 67
(1) clause 2 and (3) clause 1 of the Act Introducing the German Commercial Code (EGHGB). Transfers
to accrued liabilities are made using the net method.

In Germany, pension plan accruals and similar commitments are set up according to actuarial princi-
ples based on realistic assumptions. Assumptions included in the calculations include future salary
increases and future pension adjustments, as defined in § 16 of the German Law on Occupational Pen-
sions (BetrAVG), as well as assumptions relating to staff turnover. The calculations are based on the
biometric reference values devised by Klaus Heubeck (mortality tables RT 2005 G). The following pa-
rameters were applied:

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138

Interest rate: 5.16% p. a.


Salary increases: 3.00% p. a.
Annuity trend: 1.00% to 1.50% p. a.

Pension plan accruals are determined using the modified discount value method. Our foreign subsid-
iaries cover pension plans and similar commitments by accruals which are calculated according to
principles similar to those used in Germany. Only in the United States of America are pension plans
and similar commitments of major significance to the net worth, financial position and results of the
Group. Here the projected unit credit method has been used, based on the following parameters:

Interest rate: 6.24% p. a.


Salary increases: 3.50% p. a.
Annuity trend: up to 3.00% p. a.

Liabilities are stated at their settlement value.

Consolidated companies
In addition to Knorr-Bremse AG, 19 German and 93 foreign subsidiaries over which Knorr-Bremse AG
can exert a direct or indirect controlling influence are included in the consolidated financial state-
ments.

Investments in one German and two foreign companies are shown in the consolidated financial state-
ments as investments in associated companies. Eight foreign subsidiaries have not been included in
consolidation because of their minor significance with respect to the net worth, financial position and
results of the Group. For the same reason, three German companies are not shown as associated com-
panies, but instead are stated at acquisition cost.

During fiscal year 2010 the Group acquired the following companies, which are included in consolida-
tion:
Heine Resistors GmbH, Dresden/Germany
Heine Resistors (Suzhou) Co. Ltd., Suzhou/China
Sigma Coachair (UK) Ltd., Newhall/Great Britain
Sigma Coachair Group (China) Co. Ltd., Changzhou/China
Sigma Coachair Group Pty. Ltd., Wetherill Park, Sydney/Australia
Sigma Coachair Systems (US) Inc., Chicago/USA
Sigma Transit Systems Pty. Ltd., Wetherill Park, Sydney/Australia

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N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 139

The following companies are also newly established or included in consolidation for the first time:
Knorr-Bremse Rail Systems (Machining) Ltd., Melksham, Wiltshire/Great Britain
Knorr-Bremse SA Holding Company (UK) Ltd., Melksham, Wiltshire/Great Britain
Merak Knorr Climatizacion S.A., Buenos Aires/Argentina

The following companies have been renamed:


Knorr-Bremse IT-Services GmbH, Munich/Germany (formerly KB Delta Beteiligungs
GmbH, Munich/Germany)
Knorr-Bremse Rail Systems Italia S.r.l., Campi Bisenzio/Italy (formerly Frensistemi S.r.l.,
Florence/Italy)

The following companies have been merged or wound up:


Hasse & Wrede North America Inc., North Aurora, IL/USA
Di-Pro Inc., Fresno, California/USA

This means that compared to the previous year, the number of companies included in consolidation
has increased by one German and seven foreign companies. On the following pages, a detailed list of
affiliated and associated companies appears in a separate breakdown of the Group’s shareholdings.

The above-mentioned changes in the scope of consolidation had no significant impact on the Group’s
net assets, financial position and operating results. The newly consolidated companies caused the
balance sheet total to increase by MEUR 46.9.

Principles of consolidation
Until December 31, 2009, the book value method was used to consolidate investments in subsidiaries.
This entailed offsetting book values against the value of our interests in the shareholders’ equity of the
subsidiaries at the time of the initial consolidation. Companies were included in consolidation at the
date of acquisition or at the balance sheet date. Since fiscal year 2010, investments in subsidiaries have
been consolidated using the revaluation method. This entails reporting shareholders’ equity at the
value corresponding to the market value of the assets and borrowings to be included in the consoli-
dated financial statements. Companies are included in consolidation at the date of acquisition. Since
2002, any resulting goodwill has been capitalized in compliance with GAS standards. Scheduled de-
preciation is applied on the basis of operational considerations relating to useful life, which may not
exceed 20 years in the Group. The useful life of goodwill is determined using the subsidiaries’ longer-
term, strategic business models.

Wherever possible, a negative goodwill resulting from the consolidation in investments is released for
the year in which it arises, as permitted by German commercial law and accounting standards.

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140

Associated companies are consolidated using the equity method, with goodwill generally included as
part of the cost of acquiring interests in associated and related companies. Associated companies ac-
quired prior to January 1, 2010 were consolidated at the date of acquisition or the balance sheet date.
As from year-end 2010, companies are included in consolidation at the date of acquisition.

Our share in the annual results of companies consolidated in accordance with this method, including
amortization on goodwill, is shown in the statement of income under Financial results. Receivables
and liabilities are offset between consolidated companies. Unrealized intercompany profits resulting
from intercompany trade in goods and services are eliminated in the consolidated statements. In the
consolidated statement of income, revenues from intercompany sales and other intercompany in-
come are offset against the corresponding expenses.

Foreign currency translation


The individual financial statements of the foreign companies included in consolidation are translated
into euros at the mean spot rate at the balance sheet date, with the exception of shareholders’ equity,
which is translated into euros at the historic rate. Income statement items are translated into euros at
the mean rate. Any resulting translation difference is shown in Group equity as the equity difference
arising on currency translation.

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Deferred taxes
Deferred taxes as defined under §§ 274 and 306 of the German Commercial Code (HGB), resulting from
temporary differences between the amount stated in the tax accounts of individual group companies
and the amount stated in the consolidated balance sheet (including differences arising as a result of
accounting and valuation adjustments or during the consolidation process), are netted wherever pos-
sible, in accordance with legal requirements. In the individual balance sheets prepared according to the
uniform principles of accounting and valuation applied to the Group (”Financial statements II“), the op-
tion to capitalize assets to the amount of probable tax relief in the following years is used in individual
cases. The calculation of deferred taxes is based on the tax rates that are expected to be valid at the time
of their realization.

Deferred taxes on losses carried forward are capitalized in individual cases, where there is sufficient
probability that the tax benefits can be realized. At each balance sheet date, the book value of deferred
tax assets is reviewed and, if necessary, adjusted as appropriate.

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142

2 Changes in intangibles, fixed assets and investments


Acquisition or production cost
Additions to purchased fixed and intangible assets amounted to TEUR 197,271 in fiscal year 2010.
This figure includes investments in the amount of TEUR 113,369.

In EUR thousands (TEUR) Carried forward Additions *) Reclassifications *) Disposals *)


Jan. 1, 2010 *)

Industrial property rights/trademarks 246,017 10,039 58 (4,027)

Goodwill 177,734 70,326 0 (1,427)

Purchased intangibles 423,751 80,365 58 (5,454)

Land, equivalent rights to real property, and build- 256,525 11,073 31,055 (802)
ings, including buildings on land not owned

Technical equipment and machinery 439,969 27,958 8,206 (13,947)

Other equipment, plant and office equipment 340,140 30,115 28,688 (9,814)

Advances to suppliers and construction in 75,411 47,760 (68,007) (931)


progress

Fixed assets 1,112,045 116,906 (58) (25,494)

Investments in affiliated companies 6,301 0 0 0

Investments in associated companies 330 4,500 0 (260)

Miscellaneous investments 46,482 22,851 0 (32)

Investments 53,113 27,351 0 (292)

Intangibles, fixed assets and investments 1,588,909 224,622 0 (31,240)

*) valued at acquisition or production cost

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Currency Balance Accrued depreci- Net value Net value Depreciation/


differences *) Dec. 31, 2010 *) ation/amortization Dec. 31, 2010 Dec. 31, 2009 amortization during
the fiscal year

9,627 261,714 (179,581) 82,133 90,914 (21,843)

10,117 256,750 (121,606) 135,144 99,788 (38,437)

19,744 518,464 (301,187) 217,277 190,702 (60,280)

5,540 303,391 (121,904) 181,487 143,451 (7,665)

13,963 476,149 (301,835) 174,314 163,237 (43,339)

14,517 403,646 (291,364) 112,282 101,921 (35,389)

623 54,856 (5,938) 48,918 69,630 (190)

34,643 1,238,042 (721,041) 517,001 478,239 (86,583)

309 6,610 (2,788) 3,822 5,584 (2,046)

0 4,570 0 4,570 330 0

3,953 73,254 (16,077) 57,177 30,437 (32)

4,262 84,434 (18,865) 65,569 36,351 (2,078)

58,649 1,840,940 (1,041,093) 799,847 705,292 (148,941)

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144

3 Intangibles
This heading includes primarily the acquisition of goodwill, patents, rights to the use of names and
trademarks, and IT software. IT software and goodwill account for the majority of additions. Any result-
ing goodwill is subject to scheduled depreciation over a period of not more than 20 years. Other intan-
gibles are subject to scheduled depreciation over periods of between three and 10 years.

In fiscal year 2010 a TEUR 29,137 provision was made against goodwill from the acquisition of the Sigma
Group. All intangible assets have a limited useful life.

4 Fixed assets
Movements of fixed assets are presented in the compilation on the preceding pages. To take technical
and economic factors into account, scheduled depreciation was applied to acquisition costs.

During the fiscal year, unscheduled depreciation amounting to TEUR 522 was applied to a plot of land.

5 Investments
Investment movements are set out in the compilation above. Miscellaneous investments consist of
miscellaneous loans (TEUR 21,237), loans to affiliated companies (TEUR 33,956), long-term invest-
ments (TEUR 1,829), and investments in other companies (TEUR 155).

During the fiscal year a TEUR 2,046 provision was made against the Group’s shareholding in Knorr-
Bremse RUS OOO, Nizhny Novgorod/Russia, an affiliated company which is not included in consolida-
tion.

List of shareholdings

1 Consolidated affiliated companies Share in


capital in %

Albatros GmbH, Munich/Germany 100.0


Anchor Brake Shoe Company LLC, West Chicago/USA 100.0
BCVS Canadian Holdings LLC, Anjou, Quebec/Canada 100.0
BCVS Mexican Holdings LLC, Cd Acuña, Coah/Mexico 100.0
Bendix Commercial Vehicle Systems LLC, Elyria, Ohio/USA 100.0

Bendix CVS Canada Inc., Anjou, Quebec/Canada 100.0


Bendix CVS de Mexico SA de CV, Cd Acuña, Coah/Mexico 100.0
Bendix Spicer Foundation Brake Canada, Inc., Kingston, Ont./Canada 100.0
Bendix Spicer Foundation Brake LLC, Elyria, Ohio/USA 80.0
Bost Ibérica S.L., Madrid/Spain 100.0
BSFB Holdings, Inc., Elyria, Ohio/USA 100.0
Dr. techn. Josef Zelisko Ges.m.b.H., Mödling/Austria 100.0
EMC Traction S.r.l., Milan/Italy 100.0
Freinrail Systèmes Ferroviaires S.A., Reims/France 100.0

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1 Consolidated affiliated companies Share in


(continued) capital in %

Hasse & Wrede CVS Dalian, China Ltd., Dalian/China 70.0


Hasse & Wrede GmbH, Berlin/Germany 100.0
Heine Resistors GmbH, Dresden/Germany 51.0
Heine Resistors (Suzhou) Co. Ltd., Suzhou/China 100.0
IFE ČR a.s., Brno/Czech Republic 100.0
IFE North America LLC, Westminster, Md./USA 100.0
IFE-Tebel Australia Pty. Ltd., Granville/Australia 100.0
IFE-Tebel Technologies B.V., Leeuwarden/The Netherlands 100.0
IFE-VICTALL Railway Vehicle Door Systems (Qingdao) Co. Ltd., Qingdao/China 59.0
IGE-CZ s.r.o., Brno/Czech Republic 100.0
Indústria Freios Knorr Ltda., São Paulo/Brazil 100.0
KB Gamma Beteiligungs GmbH, Munich/Germany 100.0
KB Lambda Beteiligungs GmbH, Munich/Germany 100.0
KB Media GmbH Marketing und Werbung, Munich/Germany 100.0
KB Sigma Beteiligungs GmbH, Munich/Germany 100.0
KB Omikron Beteiligungs GmbH, Munich/Germany 100.0
Knorr Amabhiliki (Pty.) Ltd., Kempton Park/South Africa 74.0
Knorr Brake Corporation, Westminster, Md./USA 100.0
Knorr Brake Holding Corporation, Watertown, NY/USA 89.3
Knorr Brake Ltd., Kingston, Ont./Canada 100.0
Knorr Brake Truck Systems Company, Watertown, NY/USA 100.0
Knorr-Bremse / Nankou Air Supply Unit (Beijing) Co., Ltd., Nankou/China 55.0
Knorr-Bremse Asia Pacific (Holding) Ltd., Hong Kong/China 100.0
Knorr-Bremse Australia Pty. Ltd., Granville/Australia 100.0
Knorr-Bremse Benelux B.V.B.A., Heist-op-den-Berg/Belgium 100.0
Knorr-Bremse Beteiligungsgesellschaft mbH, Munich/Germany 100.0
Knorr-Bremse Brake Equipment (Shanghai) Co., Ltd., Shanghai/China 100.0
Knorr-Bremse Braking Systems for Commercial Vehicles (Dalian) Co., Ltd., Dalian/China 100.0
Knorr-Bremse CARS LD Vehicle Brake Disc Manufacturing (Beijing) Co., Ltd., Daxing/China 50.0
Knorr-Bremse Commercial Vehicle Systems Japan Ltd., Tokyo/Japan 80.0
Knorr-Bremse Fékrendszerek Kft., Kecskemét/Hungary 100.0
Knorr-Bremse Ges.m.b.H., Mödling/Austria 100.0
Knorr-Bremse India Pvt. Ltd., Faridabad/India 100.0
Knorr-Bremse KAMA Systems for Commercial Vehicles OOO, Naberezhnye Chelny/Russia 50.0
Knorr-Bremse Investment GmbH, Munich/Germany 100.0
Knorr-Bremse IT-Services GmbH, Munich/Germany 100.0
Knorr-Bremse Nordic Rail Services AB, Lund/Sweden 75.0
Knorr-Bremse Polska SfN Sp. z o.o., Warsaw/Poland 100.0
Knorr-Bremse Rail Systems Italia S.r.l., Campi Bisenzio/Italy 100.0
Knorr-Bremse Rail Systems Japan Ltd., Tokyo/Japan 94.0
Knorr-Bremse Rail Systems Korea Ltd., Seoul/South Korea 100.0
Knorr-Bremse Rail Systems OOO, Moscow/Russia 100.0
Knorr-Bremse Rail Systems (Machining) Ltd., Melksham, Wiltshire/Great Britain 100.0
Knorr-Bremse Rail Systems (UK) Ltd., Melksham, Wiltshire/Great Britain 100.0

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146

1 Consolidated affiliated companies Share in


(continued) capital in %

Knorr-Bremse SA Holding Company (UK) Ltd., Melksham, Wiltshire/Great Britain 100.0


Knorr-Bremse S.A. (Pty.) Ltd., Kempton Park/South Africa 75.0
Knorr-Bremse S.R.L., Bucharest/Romania 70.0

Knorr-Bremse Sistemas para Veículos Comerciais Brasil Ltda., São Paulo/Brazil 100.0
Knorr-Bremse Sistemas para Veículos Ferroviários Ltda., São Paulo/Brazil 100.0
Knorr-Bremse Sistemi per Autoveicoli Commerciali S.p.A., Arcore/Italy 100.0
Knorr-Bremse System för Tunga Forden AB, Malmö/Sweden 100.0
Knorr-Bremse Systeme für Nutzfahrzeuge GmbH, Munich/Germany 80.0
Knorr-Bremse Systeme für Schienenfahrzeuge GmbH, Munich/Germany 100.0
Knorr-Bremse Systeme für Schienenfahrzeuge Ibero Holding GmbH, Munich/Germany 100.0
Knorr-Bremse Systèmes pour Véhicules Utilitaires France S.A., Lisieux/France 100.0
Knorr-Bremse Systems for Commercial Vehicles India Pvt. Ltd., Pune/India 100.0
Knorr-Bremse Systems for Commercial Vehicles OOO, Moscow/Russia 100.0
Knorr-Bremse Systems for Commercial Vehicles Ltd., Bristol/Great Britain 100.0
Knorr-Bremse Systems for Rail Vehicles (Suzhou) Co., Ltd., Suzhou/China 100.0
Knorr-Bremse Systemy dla Kolejowych Środków Lokomocji PL Sp. z o.o., Cracow/Poland 100.0
Knorr-Bremse Systémy pro uzitková vozidla ČR s.r.o., Hejnice/Czech Republic 100.0
Knorr-Bremse Ticari Arac Fren Sistemieri Limited Sirketi, Istanbul/Turkey 100.0
Knorr-Bremse US Beteiligungs GmbH, Munich/Germany 100.0
Knorr-Bremse US Investment GmbH, Munich/Germany 100.0
Knorr-Bremse Vasúti Jármü Rendszerek Hungária Kft., Budapest/Hungary 100.0
Knorr-Bremse Verwaltungsgesellschaft mbH, Munich/Germany 100.0
Maquiladora de Acuña SA de CV, Cd Acuña, Coah/Mexico 100.0
Merak Jinxin Air Conditioning Systems (Wuxi) Co., Ltd., Wuxi/China 51.0
Merak Knorr Climatizacion S.A., Buenos Aires/Argentina 100.0
Merak North America LLC, Albany/USA 100.0
Merak Railway Technologies (Shanghai) Co., Ltd., Shanghai/China 100.0
Merak Sistemas Integrados de Climatización S.A., Getafe/Spain 100.0
Microelettrica Power Devices (Pty) Ltd., Johannesburg/South Africa 100.0
Microelettrica Power (Pty) Ltd., Johannesburg/South Africa 74.0
Mircoelettrica Scientifica (Pty) Ltd., Johannesburg/South Africa 100.0
Microelettrica Scientifica S.p.A., Rozzano/Italy 100.0
Microelettrica USA LLC, Randolph, New Jersey/USA 100.0
MicroEner S.A.S., Noisy le Grand/France 89.9
M.S. Resistances S.A.S., Saint Chamond/France 51.0
New York Air Brake Corporation, Watertown, NY/USA 100.0
Oerlikon-Knorr Eisenbahntechnik AG, Niederhasli/Switzerland 100.0
Officine De Zan S.R.L., Rozzano, Milan/Italy 100.0
Sigma Coachair (UK) Ltd., Newhall/Great Britain 100.0
Sigma Coachair Group (China) Co. Ltd., Changzhou/China 100.0
Sigma Coachair Group Pty. Ltd., Wetherill Park, Sydney/Australia 100.0
Sigma Coachair Systems (US) Inc., Chicago/USA 100.0
Sigma Transit Systems Pty. Ltd., Wetherill Park, Sydney/Australia 100.0
Skach Ges.m.b.H., Mödling/Austria 100.0

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1 Consolidated affiliated companies Share in


(continued) capital in %

Sociedad Española de Frenos, Calefacción y Señales S.A., Getafe/Spain 100.0


Stahlwerk Volmarstein GmbH, Wetter (Ruhr)/Germany 100.0

STE Schwingungs-Technik GmbH, Klieken/Germany 100.0


SYDAC PTY. LTD., Adelaide/Australia 100.0
Sydac Ltd., Manchester/Great Britain 100.0
Techtrain Associates Limited, Doncaster/Great Britain 100.0
Unicupler GmbH, Niederurnen/Switzerland 100.0
Westinghouse Brakes Australia Pty. Ltd., Concord West/Australia 100.0
Westinghouse Platform Screen Doors (Guangzhou) Ltd., Guangzhou/China 65.0
Westinghouse Platform Screen Doors Ltd., Walsall/Great Britain 100.0

2 Associated companies valued using the equity method Share in


capital in %

Gorilla Brake & Components, Inc., Brantford, Ont./Canada 20.0


Icer Brakes S.A., Pamplona/Spain 25.0
Webasto Kiekert Bustüren GmbH, Karlsfeld/Germany 50.0

3 Affiliated companies not included in consolidation Share in


capital in %

Black River Air Logistics Corp., Watertown, NY/USA 100.0


Di-Pro LLC., Fresno, California/USA 100.0
Freios Knorr Argentina S.A., Buenos Aires/Argentina 100.0
KB Investment UK Ltd., Chippenham/Great Britain 100.0
Knorr-Bremse RUS OOO, Nizhny Novgorod/Russia 100.0
Metco Technical Consulting AG, Zug/Switzerland 100.0
Sigma Coachair (UK) Holdings Ltd., London/Great Britain 100.0
Sigma Transit Systems (Taiwan) Co. Ltd./Taiwan 100.0

4 Associated companies valued without using the equity method Share in


capital in %

Megalith Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs KG, Mainz/Germany 100.0


– Deutsche-Anlagen-Leasing GmbH holds majority voting rights
OLB Oberlandbahn Fahrzeugbereitstellungs GmbH, Munich/Germany 24.8
Sanctor Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Marzahn KG, Düsseldorf/Germany 99.0
– Deutsche-Anlagen-Leasing GmbH holds majority voting rights

After reporting an annual net loss for the year of TEUR 402, OLB shows a net deficit of TEUR 11,199 which
is not covered by equity capital (as at 2008, based on most recently available figures). Icer Brakes S.A. is
headquartered in Pamplona/Spain. The company was included in consolidation for the first time as at
September 30, 2010. The purchase price amounted to TEUR 4,500. The TEUR 2,869 goodwill included in
the purchase price will be amortized over a 20-year period. As at the balance sheet date, there are no
other differences for companies valued using the equity method.

KB_GB_2010_Konzernanhang_EN_V3.indd 15 18.03.11 19:43


148

6 Inventories
2010 TEUR 2009 TEUR

Materials and supplies 184,402 132,980


Work in process 60,164 43,021
Finished products, merchandise 195,916 161,290
less advances received on orders (221,145) (204,306)

Total 219,337 132,985

7 Receivables and other asset


2010 TEUR 2010 TEUR 2009 TEUR
Remaining term in total in total
more than 1 year

Accounts receivable, trade 8,425 689,066 493,974


Other assets 7,660 92,133 96,748

Total 16,085 781,199 590,722

8 Cash and cash equivalents


This item includes cash at bank, checks and cash on hand.

9 Prepaid expenses
Group prepaid expenses amounted to TEUR 12,182. In the previous year (TEUR 80,765) this heading
comprised primarily deferred tax assets and liabilities.

Following implementation of the German Accounting Law Modernization Act, the deferred taxes re-
ported in this item in 2009 now appear under Deferred taxes. In accordance with Article 67 (8) clause 2
subclause 1 of the Act Introducing the German Commercial Code (EGHGB), values for the previous year
have not been adjusted.

10 Deferred taxes
At the balance sheet date deferred tax assets amounted to TEUR 68,713 (2009: TEUR 70,382), while de-
ferred tax liabilities totaled TEUR 1,636 (2009: TEUR 0). In compliance with the legal requirements, de-
ferred tax assets and liabilities are stated at the netted amount. Of the deferred tax assets, TEUR 39,169
(2009: TEUR 46,137) relate to deferred taxes on individual balance sheets of group companies and TEUR
29,544 (2009: TEUR 24,245) relate to consolidation entries affecting net income. Deferred tax
assets on individual balance sheets result primarily from temporary differences in accrued liabilities,
receivables and other assets. Deferred tax assets relating to consolidation adjustments are primarily the
result of eliminating unrealized intercompany profits. Deferred tax liabilities relate solely to deferred
taxes on individual balance sheets of group companies. At individual company level and at Group level,
deferred taxes are stated at the projected tax rate in the respective countries at the time of realization.
Tax rates range from 0% to 40%, while the rate on consolidation activities is ca. 35%.

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N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 149

11 Capital stock
The capital stock of Knorr-Bremse AG is divided up into 2,600,000 bearer shares, each with a nominal
value of EUR 26. Stella Vermögensverwaltungs-GmbH and KB Holding GmbH, both based in Grünwald/
Germany, have informed Knorr-Bremse AG that directly or indirectly, they hold a majority interest in
Knorr-Bremse AG.

12 Capital reserves
Capital reserves are unchanged from the previous year. Like the legal reserve, they are subject to the
restrictions of § 150 of the German Corporation Law (AktG).

13 Retained earnings
In addition to the legal reserve, retained earnings include the accumulated earnings of the companies
included in consolidation, where these have not been distributed. Furthermore this heading reflects all
Group items that exert an influence on shareholders’ equity. The legal reserve for Knorr-Bremse AG is
unchanged at TEUR 6,607. Combined with TEUR 153 in capital reserves, the legal reserve stands at its
statutory maximum.

14 Pension plan accruals


Pension plan accruals are valued according to the provisions of the German Accounting Law Modern-
ization Act.
2010 TEUR 2009 TEUR
Pension plan accruals 192,257 160,390

As a result of adjustments made to comply with the German Accounting Law Modernization Act, a
special allocation was made in the amount of TEUR 31,840. The voting option in Article 67 (1) clause 1
of the Act Introducing the German Commercial Code (EGHGB) was not used. The special allocation was
made in full in 2010. The shortfall in cover for pension funds in the USA and Great Britain amounted to
TEUR 23,867 as at year-end 2010.

15 Other accrued liabilities


2010 TEUR 2009 TEUR
Provisions for taxes 59,109 31,829
Miscellaneous accruals 469,412 368,599

Total 528,521 400,428

The taxation provisions include projected income tax payments for the year under review or, where the
fiscal year diverges from the financial year, an income tax charge allocated on an accrual basis. Tax charg-
es are also shown for preceding assessment periods. Miscellaneous accruals relate primarily to warranty
and product liability commitments, personnel costs, restructuring activities, anticipated losses on con-
tracts and other risks in connection with current operations, as well as invoices outstanding. Use of the
retention option specified in Article 67 of the Act Introducing the German Commercial Code (EGHGB)
means that surplus cover for accrued liabilities amounts to TEUR 4,122.

KB_GB_2010_Konzernanhang_EN_V4.indd 149 19.03.11 11:57


150

16 Liabilities
2010 TEUR 2010 TEUR 2009 TEUR
Remaining term in total in total
less than 1 year

Accounts payable, banks 3,053 110,615 167,346


Accounts payable, trade 492,022 492,782 337,768
Other liabilities:
Liabilities from accepted bills 114 114 488
Miscellaneous liabilities 96,626 111,353 62,191

(thereof for taxes) (37,281) (37,281) (22,743)


(thereof for social security) (11,530) (11,530) (10,144)
96,740 111,467 62,679
Total liabilities 591,815 714,864 567,793
(thereof with a remaining term of more than (101,758) (102,662)
5 years)

17 Contingencies and miscellaneous financial commitments


2010 TEUR 2009 TEUR
Warranties 8,601 7,288
Guarantees 8,474 9,937
Land charge 11,000 11,000
Leasing commitments 195,697 183,292

The Knorr-Bremse Group has entered into leasing contracts primarily for office buildings and produc-
tion facilities in which the leased asset is assignable to the lessor. These off-balance-sheet leasing trans-
actions represent an alternative form of finance to borrowing. Commitments associated with these
leasing agreements are carried under miscellaneous financial commitments and amount to TEUR
195,697; maturities range from one year (TEUR 30,587), to between one and five years (TEUR 82,096), to
over five years (TEUR 83,014). The agreements do not include any unusual termination or renewal op-
tions.

A long-term purchase agreement exists between Group company Bendix Spicer Foundation LLC, Elyria,
Ohio/USA and Gorilla Brake & Components, Inc., Brantford, Ontario/Canada. Under the terms of this
agreement, Bendix Spicer Foundation LLC undertakes to purchase from Gorilla Brake & Components, Inc.
85% of the spare part deliveries made within the latter company’s regional sphere of influence. Thanks
to the risk management system in place, the risk of a claim arising on contingent liabilities is rated as
minimal.

18 Other operating income


Other operating income consists primarily of gains on currency exchange, income from the reversal of
reserves, income from disposals of fixed assets and rental income. The heading also carries gains on
currency differences amounting to TEUR 70,799 (2009: TEUR 37,946), as well as income relating to other
accounting periods in the amount of TEUR 16,016, primarily from the reversal of reserves.

KB_GB_2010_Konzernanhang_EN_V4.indd 150 19.03.11 11:57


N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 151

19 Cost of materials
2010 TEUR 2009 TEUR

Expenditure on materials, supplies and merchandise 1,836,789 1,335,788


Expenditure on services purchased 75,956 54,455

Total 1,912,745 1,390,243

20 Personnel expenses/staff
2010 TEUR 2009 TEUR

Wages and salaries 580,733 518,762


Statutory social welfare contributions and expenses relating to 140,131 121,769
pensions and employee benefits
Personnel costs 720,864 640,531
(thereof for retirement benefits) (33,225) (24,462)

Average number of employees during the fiscal year Number Number


Wage earners 7,211 6,700
Salary earners 7,851 7,400
Apprentices 201 172

Total 15,263 14,272

21 Depreciation
2010 TEUR 2009 TEUR
Depreciation and amortization on purchased intangibles and on 146,863 117,670
fixed assets

In addition, rental and leasing expenses totaling TEUR 47,499 (2009: TEUR 44,590) were incurred during
the reporting period.

22 Other operating expenses


Other operating expenses consist primarily of maintenance costs, direct sales costs, legal and consult-
ing fees, commissions, travel expenses and miscellaneous administrative expenses. Other taxes for the
Group amount to TEUR 12,078 (2009: TEUR 10,523). Expenses resulting from foreign exchange fluctua-
tions during the fiscal year amounted to TEUR 72,354 (2009: TEUR 46,076). The fee paid to the indepen-
dent auditors, KPMG AG Wirtschaftsprüfungsgesellschaft, amounted to TEUR 660 for fiscal year 2010. Of
this TEUR 570 was paid out for audit services, TEUR 10 for tax advice and TEUR 80 for other services.

KB_GB_2010_Konzernanhang_EN_V3.indd 19 18.03.11 19:43


152

23 Financial results
2010 TEUR 2009 TEUR
Miscellaneous interest and similar income 6,163 5,129
Depreciation on investments (2,078) (3)
Interest and similar expenses (14,818) (8,742)
(thereof for discounts on accruals) (8,044)
Income from associated, affiliated and other companies (239) 80

Total (10,972) (3,536)

24 Extraordinary result
Extraordinary expenses reflect the one-off effect of adjustments in compliance with the German
Accounting Law Modernization Act.

25 Net income
2010 TEUR 2009 TEUR
Net income 239,381 98,729
Minority interests in earnings of consolidated subsidiaries (30,690) (6,398)
Retained earnings brought forward from the previous year (after 180,670 107,762
distribution of dividends)
Withdrawals from retained earnings (126,805) 32,577

Unappropriated consolidated net income (Knorr-Bremse 262,556 232,670


AG unappropriated retained earnings)

26 Financial derivatives
Financial instruments are not held for trading purposes.

Underlying transactions and their derivatives are bundled together as single items for valuation pur-
poses (“macro hedges”). These bundled derivatives are netted out without affecting net income wher-
ever the respective impact on income of the underlying transaction (hedged item) and the related
hedge offset each other (net hedge presentation method).

Forward exchange and option transactions are performed purely and exclusively in order to hedge cur-
rent and future foreign currency payables and receivables from the sale and purchase of goods and
services and the elimination of exchange rate risk for selected assets. The aim of hedging operations at
Knorr-Bremse is to reduce the risks posed by foreign exchange fluctuations to the ordinary course of
business. Currency hedging is based on the volume of open commitments arising or expected to arise
from core business activities. Maturities are based on the lifespans of the underlying business transac-
tions, whereby highly probable transactions are hedged over a rolling three-year planning period. Be-
cause the conditions and parameters of the hedges match those of the hedged items, any payment

KB_GB_2010_Konzernanhang_EN_V3.indd 20 18.03.11 19:43


N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 153

flows or changes in value are offset in full. The Knorr-Bremse Group uses forward exchange contracts,
currency options and cross currency swaps as hedging instruments.

Not included in the hedging report are forward exchange derivatives with a nominal value of
MEUR 28.0 and a negative net present value totaling MEUR 3.4. Currency futures contracts amounting
to MEUR 876.6 in total (representing hedged risks) are included in macro hedges. Of this amount,
MEUR 295.0 is attributable to the hedging of assets (micro hedges), MEUR 221.8 to the hedging of open
contracts (micro hedges) and MEUR 359.8 to the hedging of high-probability transactions (portfolio
hedges).

Commodity futures contracts are used exclusively to hedge price risks arising on fluctuations in the
purchase prices of raw materials used in Knorr-Bremse Group products (portfolio hedges). The volume
of underlying transactions (hedged items) is calculated on the basis of high-probability requirements
for raw materials over a rolling two-year planning period. The derivatives are based on reference indices
traded on commodity futures exchanges. The effectiveness of the hedging relationship is retrospec-
tively analyzed using statistical correlation techniques, showing a correlation in excess of 80%. Con-
cluded contracts totaling MEUR 13.9 are carried in full in macro hedges.

The nominal and market values of financial instruments as at December 31, 2010 break down as follows:
Total Total Total Total
Dec. 31, 2010 Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2009
in EUR millions Nominal value Market value Nominal value Market value

Foreign exchange contracts


Forward exchange transactions 652 (8) 668 (7)
Currency options 113 1 112 2
Interest rate contracts
Cross currency swaps 140 (26) 140 (12)

Commodity-related contracts
Swaps 14 1 10 1

Negative market values correspond to the risks associated with financial derivatives; of these, MEUR 3.4
are recorded under accrued liabilities. Positive market values are offset by risks associated with the un-
derlying transactions (hedged items) in the respective macro hedges.

While cross currency swaps generally come under the heading of interest rate instruments, in terms of
content they are used exclusively to hedge foreign currency risks, because the interest rates in the un-
derlying currencies are exchanged at fixed rates.

The market value of financial derivatives is best defined as the price one party is prepared to pay in or-
der to assume the rights and/or obligations of another party. Market values are calculated on the basis
of market information available at the balance sheet date and by applying standard market valuation
methods as follows:

KB_GB_2010_Konzernanhang_EN_V3.indd 21 18.03.11 19:43


154

• Currency hedging contracts are valued on the basis of reference rates, taking account of
forward premiums and discounts.

• Cross currency swaps are valued analogously to pure interest rate contracts or currency
hedging contracts, on the basis of discounted, projected cash flows using market interest
rates and reference rates for the remaining life spans of the instruments.

• Commodity contracts are used to hedge risks associated with steel and aluminum price
fluctuations. The contracts are valued at market price.

• Options are valued using recognized models for calculating option prices (e. g. Black-Scholes).

Paid option premiums are carried under “Other assets”. As at the balance sheet date, the book value of
call option premiums paid out amounted to MEUR 2.0.

27 Research and development expenditure


In fiscal year 2010, Group expenditure on research and development amounted to TEUR 175,284 (2009:
TEUR 152,610).

28 Miscellaneous
The Group financial statements are published in the official electronic Federal Gazette and in the Com-
mercial Register at the local first-instance court in Munich, Germany. Under the terms of § 264 (3) of the
German Commercial Code (HGB), the subsidiary companies Knorr-Bremse Systeme für Schienen-
fahrzeuge GmbH (Munich/Germany) and Hasse & Wrede GmbH (Berlin/Germany) are exempt from the
obligation to publish their figures pursuant to § 325 of the German Commercial Code.

29 Total remuneration of the Supervisory Board and Executive Board


The total remuneration of members of the Supervisory Board amounted to TEUR 257 and the total re-
muneration of the Executive Board to TEUR 4,651. Pension commitments to former members of the
Executive Board and their surviving dependents are covered by an accrual of TEUR 24,228; payments in
the fiscal year amounted to TEUR 2,926.

Munich, March 2, 2011

Knorr-Bremse AG
Executive Board

Dr. Raimund Klinkner Klaus Deller Dr. Dieter Wilhelm Dr. Lorenz Zwingmann
Chairman

KB_GB_2010_Konzernanhang_EN_V3.indd 22 18.03.11 19:43


C O N S O L I D AT E D C A S H F L O W S TAT E M E N T 155

Consolidated Cash flow Statement in Compliance with GAS 2


(German Accounting Standard)
Cash funds are comprised of the Group’s cash and cash equivalents, and marketable securities.

2010 TEUR 2009 TEUR


Result for the period (including minority interests in consolidated 239,381 98,729
results)
Depreciation and amortization on intangibles and fixed assets 148,941 117,673
Increase in accruals 134,927 53,634
Profit on disposals of intangibles, fixed assets and investments 1,908 4,057
Decrease (2009: increase) in inventories, receivables and other (208,489) 112,850
assets not related to investing or financing activities
Increase (2009: decrease) in payables and other liabilities not 139,716 (40,544)
related to investing or financing activities

Cash flows from operating activities 456,384 346,399

Disbursements for investments in intangible assets (8,344) (6,467)


Proceeds from disposals of intangible assets 1,294 1,197
Disbursements for investments in fixed assets (105,025) (94,148)
Proceeds from disposals of fixed assets 2,313 9,188
Disbursements for investments in financial assets (27,347) (16,344)
Disbursements for the acquisition of consolidated companies and (42,672) (11,595)
other business units

Cash flows from investing activities (179,781) (118,169)

Proceeds from additions to shareholders’ equity 956 17,608


Disbursements to company owners and minority shareholders (64,737) (124,104)
Proceeds from borrowings 43,557 80,903
Disbursements for the redemption of borrowings (118,491) (107,968)

Cash flows from financing activities (138,715) (133,561)

Change in cash funds resulting from exchange rate movements 20,335 1,347
and changes in group structure

Changes in cash funds resulting from cash-relevant 158,223 96,016


transactions
Cash funds at the beginning of the period 154,656 58,640
Cash funds at the end of the period 312,879 154,656

KB_GB_2010_Konzernanhang_EN_V3.indd 23 18.03.11 19:43


156 SEGMENT REPORT

Segment Report in Compliance with GAS 3


(German Accounting Standard)
In order to comply with GAS 3, Knorr-Bremse AG has compiled the following report on three segments
that are subject to reporting requirements. The breakdown by segment is based on the Group’s activi-
ties in the three major geographical regions that provide the geographical framework for the Group’s
internal organizational and reporting structures. The operating segments cover three regions: Europe,
the Americas and Asia/Australia, each of which is characterized by different market and customer de-
mands. The Knorr-Bremse Group’s main product lines – braking systems for rail and commercial vehicles
– are represented in all three regions.

Fiscal Year 2010 Europe America Asia/ Knorr-Bremse


Australia Group

in EUR thousands (TEUR)

Sales by region 2,288,048 891,346 1,041,295 4,220,689

thereof net sales with third parties 1,886,009 826,977 999,177 3,712,163

thereof net sales with other segments 402,039 64,369 42,118 508,526

Net income 109,783 47,320 82,278 239,381

Income tax charge 59,754 25,758 44,783 130,295

Investments (excluding financial investments) 74,751 21,337 17,281 113,369

Depreciation (excluding financial investments) 72,350 33,134 41,379 146,863

Result for associated companies 0 (252) 0 (252)

Result for affiliated and other companies 13 0 0 13

Assets 998,130 523,777 672,250 2,194,157

Fiscal Year 2009 Europe America Asia/ Knorr-Bremse


Australia Group

in EUR thousands (TEUR)

Sales by region 1,841,381 661,232 529,313 3,031,926

thereof net sales with third parties 1,626,013 620,437 514,497 2,760,947

thereof net sales with other segments 215,368 40,795 14,816 270,979

Net income 65,180 7,493 26,056 98,729

Income tax charge 32,014 3,681 12,797 48,492

Investments (excluding financial investments) 70,796 16,732 13,087 100,615

Depreciation (excluding financial investments) 77,442 32,066 8,162 117,670

Result for associated companies 0 74 0 74

Result for affiliated and other companies 6 0 0 6

Assets 871,718 455,984 336,718 1,664,420

KB_GB_2010_Konzernanhang_EN_V3.indd 24 18.03.11 19:43


SEGMENT REPORT 157

Fiscal Year 2010 Net sales Investments Depreciation Assets


(excl. (excl.
financial financial in-
investments) vestments)

in EUR thousands (TEUR)

Rail vehicle systems 2,024,389 61,236 82,941 1,435,022

Commercial vehicle systems 1,700,682 50,361 61,043 967,908

Miscellaneous/consolidations (12,908) 1,772 2,879 (208,773)

Knorr-Bremse Group 3,712,163 113,369 146,863 2,194,157

Fiscal Year 2009 Net sales Investments Depreciation Assets


(excl. (excl.
financial financial
investments) investments)

in EUR thousands (TEUR)

Rail vehicle systems 1,552,550 66,649 51,253 1,061,758

Commercial vehicle systems 1,221,460 33,362 63,403 809,847

Miscellaneous/consolidations (13,063) 604 3,014 (207,185)

Knorr-Bremse Group 2,760,947 100,615 117,670 1,664,420

The analysis does not show borrowings or interest payable by region, because these items are con-
trolled centrally across the Group by the parent company, thus are not dependent on regional decisions
associated with day-to-day business operations.

The usual prices apply as agreed between counterparties.

KB_GB_2010_Konzernanhang_EN_V3.indd 25 18.03.11 19:43


158 S TAT E M E N T O F C H A N G E S I N G R O U P E Q U I T Y

Statement of Changes in Group Equity in Compliance with GAS 7


(German Accounting Standard)

Changes in group equity 2010 Capital stock Capital Retained Net income Minority Knorr-Bremse
reserves earnings interests Group

in EUR thousands (TEUR)

As at Dec. 31, 2009 67,600 153 153,717 232,670 78,639 532,779

Dividend payments (52,000) (9,882) (61,882)

Net income 2010 208,691 30,690 239,381

Transfers to retained earnings 126,805 (126,805) 0

Currency fluctuations 37,319 4,565 41,884

Other fluctuations (4,833) 6,532 1,699

As at Dec. 31, 2010 67,600 153 313,008 262,556 110,544 753,861

Changes in group equity 2009 Capital stock Capital Retained Net income Minority Knorr-Bremse
reserves earnings interests Group

in EUR thousands (TEUR)

As at Dec. 31, 2008 67,600 153 279,071 211,762 80,753 639,339

Dividend payments (104,000) (20,104) (124,104)

Net income 2009 92,331 6,398 98,729

Withdrawals from retained earnings (32,577) 32,577 0

Currency fluctuations 17,167 (176) 16,991

Offsetting of goodwill (138,544) (138,544)

Other fluctuations 28,600 11,768 40,368

As at Dec. 31, 2009 67,600 153 153,717 232,670 78,639 532,779

Group equity includes capital differences arising on foreign currency translation in the amount of
TEUR -1,534, of which TEUR -1,047 relates to minority interests.

Other changes in minority interests result primarily from the purchase of former minority interests in
Knorr-Bremse Systems for Commercial Vehicles India Pvt. Ltd., Pune/India. Following the purchase, the
Group holds a 100% interest as at the balance sheet date.

Minority interests also reflect the first-time inclusion in consolidation of Heine Resistors GmbH, Dres-
den/Germany and Heine Resistors (Suzhou) Co. Ltd., Suzhou/China, as well as a capital increase for
Knorr-Bremse KAMA Systems for Commercial Vehicles OOO, Naberezhnye Chelny/Russia.

KB_GB_2010_Konzernanhang_EN_V3.indd 26 18.03.11 19:43


INDEPENDENT AUDITOR’S REPORT 159

Independent Auditors’ Report


We have audited the consolidated financial statements prepared by Knorr-Bremse Aktiengesellschaft,
Munich, comprising the balance sheet, income statement, notes to the financial statements, cash flow
statement, statement of changes in equity and segment report, together with the group management
report, for the business year from January 1 to December 31, 2010. The preparation of the consolidated
financial statements and the group management report in accordance with German commercial law is
the responsibility of the parent company’s management. Our responsibility is to express an opinion on
the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB [Ger-
man Commercial Code] and German generally accepted standards for the audit of financial statements
promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and per-
form the audit such that misstatements materially affecting the presentation of the net assets, financial
position and results of operations in the consolidated financial statements in accordance with German
principles of proper accounting and in the group management report are detected with reasonable
assurance. Knowledge of the business activities and the economic and legal environment of the Group
and expectations as to possible misstatements are taken into account in the determination of audit
procedures. The effectiveness of the accounting-related internal control system and the evidence sup-
porting the disclosures in the consolidated financial statements and the group management report are
examined primarily on a test basis within the framework of the audit.

The audit includes assessing the annual financial statements of those entities included in consolidation,
the determination of entities to be included in consolidation, the accounting and consolidation prin-
ciples used and significant estimates made by management, as well as evaluating the overall presenta-
tion of the consolidated financial statements and group management report. We believe that our audit
provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with
the legal requirements and give a true and fair view of the net assets, financial position and results of
operations of the Group in accordance with these requirements. The group management report is
consistent with the consolidated financial statements and as a whole provides a suitable view of the
Group’s position and suitably presents the opportunities and risks of future development.

Munich, March 2, 2011

KPMG AG
Wirtschaftsprüfungsgesellschaft

signed Rupprecht signed Peth


Independent auditor Independent auditor

KB_GB_2010_Konzernanhang_EN_V3.indd 27 18.03.11 19:43


160 C O N S O L I D AT E D B A L A N C E S H E E T

Consolidated Balance Sheet as at December 31, 2010

Assets Notes Dec. 31, 2010 TEUR Dec. 31, 2009 TEUR

Purchased intangibles (3) 217,277 190,702

Fixed assets (4) 517,001 478,239

Investments (5) 65,569 36,351

Intangibles, fixed assets and invest- (2) 799,847 705,292


ments

Inventories (6) 219,337 132,985

Accounts receivable, trade (7) 689,066 493,974

Other assets (7) 92,133 96,748

Other marketable securities 12 6

Cash and cash equivalents (8) 312,867 154,650

Current assets 1,313,415 878,363

Prepaid expenses (9) 12,182 80,765

Deferred tax assets (10) 68,713 0

Balance sheet total 2,194,157 1,664,420

Equity and Liabilities Notes Dec. 31, 2010 TEUR Dec. 31, 2009 TEUR

Capital stock (11) 67,600 67,600

Capital reserves (12) 153 153

Retained earnings (13) 313,008 153,717

Unappropriated consolidated net income (25) 262,556 232,670

Minority interests 110,544 78,639

Group equity 753,861 532,779

Pension plan accruals (14) 192,257 160,390

Other accrued liabilities (15) 528,521 400,428

Accruals 720,778 560,818

Accounts payable, banks 110,615 167,346

Accounts payable, trade 492,782 337,768

Other liabilities 111,467 62,679

Liabilities (16) 714,864 567,793

Deferred income 3,018 3,030

Deferred tax liabilities (10) 1,636 0

Balance sheet total 2,194,157 1,664,420

KB_GB_2010_Konzernanhang_EN_V3.indd 28 18.03.11 19:43


C O N S O L I D AT E D S TAT E M E N T O F I N C O M E 161

Consolidated Statement of Income for the Fiscal Year from January 1


to December 31, 2010

Notes 2010 TEUR 2009 TEUR

Net sales 3,712,163 2,760,947

Changes in inventories 2,832 (25,831)

Own work capitalized 272 162

Total operating performance 3,715,267 2,735,278

Other operating income (18) 154,943 94,951

Cost of materials (19) (1,912,745) (1,390,243)

Personnel expenses (20) (720,864) (640,531)

Depreciation and amortization on purchased (21) (146,863) (117,670)


intangibles and fixed assets

Other operating expenses (22) (677,250) (531,028)

Financial results (23) (10,972) (3,536)

Income before taxes 401,516 147,221

Extraordinary expenses (24) (31,840) 0

Taxes on income (130,295) (48,492)

Net income (25) 239,381 98,729

Minority interests in results of consolidated 30,690 6,398


subsidiaries

KB_GB_2010_Konzernanhang_EN_V3.indd 29 18.03.11 19:43


Main Majority-owned
Subsidiaries
of Knorr-Bremse AG

The Americas
Asia – Australia
Knorr Brake Holding Corporation Indústria Freios Knorr Ltda.
Watertown, NY (USA)* São Paulo (BR) Knorr-Bremse Asia Pacific
(Holding) Ltd. Hong Kong (CHN)

Anchor Brake Shoe Company LLC (USA) Knorr-Bremse Sistemas para


Veículos Comerciais Brasil Ltda. (BR) Hasse & Wrede CVS Dalian, China Ltd. (CHN)*
Bendix Commercial Vehicle
Systems LLC (USA) Knorr-Bremse Sistemas para Europe – Middle East – Africa IFE-VICTALL Railway Vehicle Door Systems
Veículos Ferroviários Ltda. (BR) (Qingdao) Co., Ltd. (CHN)*
Bendix Spicer Foundation
Knorr-Bremse Systeme für Knorr-Bremse Systeme für
Brake LLC (USA)* Knorr-Bremse Australia Pty. Ltd. (AUS)
Schienenfahrzeuge GmbH Nutzfahrzeuge GmbH
IFE North America LLC (USA) Munich (D) Munich (D)** Knorr-Bremse Brake Equipment (Shanghai) Co.,
Ltd. (CHN)
Knorr Brake Corporation (USA)
Freinrail Systèmes Ferroviaires S.A. (F) Bost Ibérica S.L. (E) Knorr-Bremse CARS LD Vehicle Brake Disc
Knorr Brake Ltd. (CDN)
Manufacturing (Beijing) Co., Ltd. (CHN)*
Merak North America LLC (USA) Knorr-Bremse Rail Systems Italia S.r.I. (I) Hasse & Wrede GmbH (D)
Knorr-Bremse Commercial Vehicle Systems
New York Air Brake Corporation (USA) IGE-CZ s.r.o. (CZ) Knorr-Bremse Benelux B.V.B.A. (B)
Japan Ltd. (J)**
Knorr-Bremse Ges.m.b.H. (A) Knorr-Bremse Fékrendszerek Kft. (H)
Knorr-Bremse India Pvt. Ltd. (IND) Contact
Knorr-Bremse Nordic Rail Services AB (S)* Knorr-Bremse KAMA Systems for
Knorr-Bremse / Nankou Air Supply Unit (Beijing)
Commercial Vehicles OOO (RUS)* Knorr-Bremse AG
Knorr-Bremse Systemy dla Kolejowych Co., Ltd. (CHN)*
Moosacher Strasse 80
Srodków Lokomocji PL Sp. z o.o. (PL) Knorr-Bremse Polska SfN Sp. z o.o. (PL)
Knorr-Bremse Rail Systems Japan Ltd. (J)* 80809 Munich
Knorr-Bremse Rail Systems (UK) Ltd. (UK) Knorr-Bremse Sistemi per Autoveicoli Germany
Knorr-Bremse Rail Systems Korea Ltd. (ROK)
Commerciali S.p.A. (I)
Knorr-Bremse S.A. (Pty.) Ltd. (RSA)*
Knorr-Bremse Braking Systems for Commercial Corporate Communications
Knorr-Bremse Systèmes pour Véhicules
Knorr-Bremse Vasúti Jármű Rendszerek Vehicles (Dalian) Co., Ltd. (CHN) Christoph Günter
Utilitaires France S.A. (F) Tel: +49 89 3547-1402
Hungária Kft. (H)
Knorr-Bremse Systems for Commercial Vehicles
Knorr-Bremse System för Tunga Fax: +49 89 3547-1403
Merak Sistemas Integrados de India Pvt. Ltd. (IND) E-Mail: public.relations@knorr-bremse.com
Fordon AB (S)
Climatización S.A. (E)
Knorr-Bremse Systems for Rail Vehicles
Knorr-Bremse Systems for
Microelettrica Scientifica S.p.A. (I) (Suzhou) Co., Ltd. (CHN)
Commercial Vehicles Ltd. (UK) Additional information about Knorr-Bremse:
* Minority holding in subsidiary by Oerlikon-Knorr Eisenbahntechnik AG (CH) Sigma Transit Systems Pty. Ltd. (AUS) www.knorr-bremse.com
Knorr-Bremse Systémy pro užitková vozidla
non-group companies
** 20 % stake held by Robert Bosch Sociedad Española de Frenos, Calefacción y ČR, s.r.o. (CZ) SYDAC PTY. LTD. (AUS)
GmbH, Stuttgart (D) Señales S.A. (E)*
Westinghouse Platform Screen Doors
As per December 31, 2010 Dr. techn. Josef Zelisko Ges.m.b.H. (A) (Guangzhou) Ltd. (CHN)*

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