Annual Report 2007 (amended version) Technology. Life. for

Transcription

1 Annual Report 2007 (amended version) Technology for Life

2 THE DRÄGER GROUP AT A GLANCE Dräger Group Order intake million 1, , , ,933.9 Revenues million 1, , , ,819.5 EBITDA 1 million EBIT 2 before non-recurring expenses million in % of revenues (EBIT margin) % Non-recurring expenses million EBIT 2 million Result from discontinued operations million Net profit/loss million Minority interests in net profit/loss million Earnings per share after minority interests per preferred share per common share Equity million Equity ratio % Capital employed 3 million EBIT before non-recurring expenses/ capital employed (ROCE) % Net financial debt million Headcount as of December 31 9,706 9,687 9,949 10,345 Germany 4,378 4,325 4,433 4,590 Abroad 5,328 5,362 5,516 5,755 Cash dividend of Drägerwerk AG & Co. KGaA Preferred shares Common shares EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and non-recurring expenses 2 EBIT = Earnings before net interest result and income taxes 3 Capital employed = Total assets less deferred tax assets, cash and cash equivalents and non-interest bearing liabilities 4 Proposed dividend

3 DRÄGER MEDICAL AND DRÄGER SAFETY AT A GLANCE Dräger Medical Order intake million 1, , , ,223.5 Revenues million 1, , , ,209.4 EBIT before non-recurring expenses million in % of revenues (EBIT margin) million Capital employed million EBIT before non-recurring expenses/ capital employed (ROCE) % Headcount as of December 31 5,859 5,856 6,051 6,077 Germany 2,424 2,419 2,492 2,432 Abroad 3,435 3,437 3,559 3,645 Dräger Safety Order intake million Revenues million EBIT 1 million in % of revenues (EBIT margin) % Capital employed million EBIT/capital employed (ROCE) % Headcount as of December 31 3,329 3,620 3,683 3,944 Germany 1,422 1,700 1,727 1,835 Abroad 1,907 1,920 1,956 2,109 1 No non-recurring expenses at Dräger Safety

4 Dräger Medical and Dräger Safety at a glance, Dräger worldwide p DRÄGER WORLDWIDE Production plants, sales and service organizations Europe Plymouth Blyth Best Hagen Lübeck Svenljunga Asia Beijing Shanghai Americas Pittsburgh Telford Andover Danvers Africa King William s Town The global success of the Dräger Group is underpinned by the close ties and ongoing communication we maintain with our customers. This is made possible by the worldwide network of our own sales and service companies in over 40 countries as well as representative offices in a total of 190 countries. Around 80 percent of revenues are now generated outside of Germany. Of the 10,345 employees within the Group, 5,755 work abroad (as of December 31, 2007). Dräger production plants Dräger sales and service organizations

5 Dräger. Technology for Life Dräger gives you the freedom to live, breathe and act. As an internationally leading medical and safety technology Group, Dräger combines pioneering innovations with sustained, long-term value creation for both people and the environment. Customer intimacy, highly qualified, valued employees, and outstanding, uncompromising quality enable Dräger to create world-class technology for life.

6 2 Contents p. 4 Always one step ahead Brampton, Ontario, Canada Dräger Infinity Delta XL p p. 6 p. 6 Life under pressure Kristiansand, Norway Dräger deep-sea diving system p p. 8 p. 36 Ventilation secured high in the sky Lee County, Florida, USA Dräger Oxylog 3000 p p. 10 Product supplement for the 2007 annual report p. 38 Rescuers can breathe easy Yanzhou, Shandong, China Dräger PSS BG 4 p p. 12 p. 44 Shutting down safely Burghausen, Germany Dräger X-am 2000 p p. 14 p The product supplement contains further information on several Dräger products and system solutions read all about them in this year s user stories.

7 Contents 3 CONTENTS SHAREHOLDER INFORMATION Interview with the Chairman of the Executive Board 11 The Executive Board 14 Report of the Supervisory Board 16 Report of the Joint Committee 25 Corporate governance report 27 The Dräger share 40 MANAGEMENT REPORT 2007 OF THE DRÄGER GROUP (AMENDED VERSION) Changes to the financial statements Important changes in fiscal year Group structure 51 Control systems 53 General economic conditions 54 Business performance of the Dräger Group 56 Business performance of Dräger Medical 62 Business performance of Dräger Safety 68 Business performance of Drägerwerk AG & Co. KGaA/other companies 72 Research and development 74 Personnel 75 Procurement, production and logistics 76 Environmental protection 78 Opportunities and risks relating to future development 80 Disclosures pursuant to Sec. 315 (4) HGB and explanations by the general partner 85 Subsequent events 89 Forecast 89 Forward-looking statements 90 GROUP FINANCIAL STATEMENTS 2007 OF THE DRÄGER GROUP (AMENDED VERSION) Consolidated income statement of the Dräger Group January 1 to December 31, Consolidated balance sheet of the Dräger Group as of December 31, Consolidated statement of recognized income and expenses of the Dräger Group 98 Consolidated cash flow statement of the Dräger Group 99 Notes Dräger Group Management compliance statement 169 Auditor s opinion 170 Forward-looking statements 172 Single entity financial statements 2007 of Drägerwerk AG & Co. KGaA (condensed) 173 The Company s Boards 176 Consolidated companies of the Dräger Group 178 Glossary 182 Imprint 186 Financial calendar 186 Review of key events in 2007 U5

8 Always one step ahead N/79 46 W 11:42 a.m. 11 C

9 BRAMPTON, ONTARIO, CANADA p p. 6 in the accompanying product supplement The William Osler Health Centre, one of the largest medical care centers in Ontario, opened the Brampton Civic Hospital in the Greater Toronto Area in It is the biggest medical infrastructure project in Canada, with 650 beds and over 700 doctors. Dräger monitoring and information technologies ensure a continuous data flow; Dräger anesthesia solutions as well as warming therapy equipment improve the quality of care in both perioperative and perinatal care areas.

10 Life under pressure N/8 0 E 03:02 p.m. 12 C

11 KRISTIANSAND, NORWAY p p. 8 in the accompanying product supplement Professional divers in the Dräger deep-sea diving system. This is where the men start out in order to perform their work at depths of up to 300 meters. With the development of a new generation of deep-sea diving systems, Dräger has resurfaced as a specialist for deep-sea diving. Dräger was responsible for planning, designing, constructing and delivering a complete deep-sea diving system for the diving support vessel Bibby Topaz.

12 8 Shareholder information

13 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 9 SHAREHOLDER INFORMATION The Dräger Group is changing so that we can remain true to our principles. The successful change in legal form to a partnership limited by shares (KGaA) is an important move which increases the scope of our possible actions for the future. The turbulent year on the stock market that was 2007 also left its mark on the performance of the Dräger share. We are confident about the future, because change means innovation, and innovation is part of our Company s DNA.

14 10 Shareholder information Interview with the Chairman of the Executive Board 11 The Executive Board 14 Report of the Supervisory Board 16 Report of the Joint Committee 25 Corporate governance report 27 The Dräger share 40

15 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 11 A special year Willingness to change, our employees entrepreneurial way of thinking, and the necessary courage to take new paths is part of the DNA of our Company. In the future, this spirit will continue to help ensure that the Dräger name is synonymous with innovative technology that protects, supports, and saves lives the world over. Stefan Dräger Mr. Dräger, the Dräger share performed disappointingly in How do you plan to win back investors trust? Stefan Dräger: There is no question that share performance was far from satisfactory. But people who invest in Dräger are usually looking for long-term gain and are not focused on the short term. This means that both our investors and the Dräger family have the same goal: We want Dräger to achieve sustained and long-term success. As a listed family company we don t think in terms of quarters, but of decades. We operate in very attractive, high-growth markets and intend to greatly increase our future top and bottom-line growth. We started laying the foundations for this in 2007, and in 2008 we will devote all our energy to increasing the value of our Company. We have huge efficiency reserves and great potential which we want to leverage in the coming years. We will also invest more in research and development. I am convinced that our customers, and therefore our shareholders as well, stand to benefit as a result. Where else do you see the need to implement further changes? Stefan Dräger: Customer value is our key focus, which benefits both employees and customers. We intend to structure our entire organization around this. So together with the Supervisory Board, we have agreed on the next steps to give us more clout in the near, mid and long term. We need to invest first and foremost in three areas: as well as research and development we will focus on production and IT. We want our Corporate IT to be able to make an even greater contribution to improving our value-added processes and at the same time to leveraging cost-reduction potential. There are still latent economies of scope within the Group which we have not used intensely enough in the past. State-of-the-art technologies, the expansion of selective outsourcing strategies and the efficient use of common resources should contribute to substantial improvements in earnings. A second important point is, as I already mentioned, to intelligently boost our research and development. We must deliver our Medical division s

16 12 Interview with the Chairman of the Executive Board new platform project Infinity Acute Care System on time. To do this we will need to invest in additional developer capacity with a promising return on investment. Medium term, we need to increase production capacity in the Medical division to be able to continue meeting market demands. We have already started preparing for this. We intend to significantly improve our efficiency in production processes and especially in logistics. All of this will contribute to high customer value, which is essential for a leading competitive position. So quality and efficiency will drive the strategy for the coming years? Stefan Dräger: Yes, definitely. Quality, combined with innovative strength, is what sets the Dräger brand apart from the competition. We have a lot of catching-up to do, not just in the production area. We plan to introduce a Group-wide regional concept to improve regional control, reduce multiple structures and leverage purchasing potential. In the future, the Executive Board will be organized according to functions to ensure that every key function involved in adding value receives the attention it deserves and has its interests represented on the Board. We will continue to develop our shared service strategy for administrative processes. This will reduce the workload for the operating units, we will be able to make much better use of economies of scope, and improved transparency will facilitate better cost control. What prompted you to consider these far-reaching changes? Stefan Dräger: If you look at our results of the past few years in detail, you will see a lingering cost problem for which we ourselves are responsible. This means, however, and this is the advantage, that we can also solve this problem ourselves. Due to the segregation of the divisions, over the past 15 years what used to be one Group headquarters has become three headquarters, with divisions which have been acting and have been managed completely independently of one another. This has led to all structures being in place threefold, which has generated considerably higher costs. We need to become lean and flexible again, reduce the paperwork for the subsidiaries and concentrate on our customers. What goals have you set yourself for the next few years? Stefan Dräger: One Dräger One Voice symbolizes an established, strong, efficient and thus future-oriented market position. As a listed family company, high expectations of our products go hand in hand with the principle of Technology for Life. A persistently successful company with great innovative strength and high growth requires a considerable amount of financial room to maneuver. And we want to achieve this. To remain at the top of a very competitive market and ensure the highest customer value possible, we need to invest a lot of time and money. But I am confident that this will be worth it for our customers, employees and shareholders. We have set ourselves even tougher goals than in the past. This is necessary to enable us to meet the demands of customers, employees and shareholders. In the mid term, the Dräger Group is aiming for an EBIT margin of 10 percent and a return on capital employed (ROCE) of 20 percent. Our long-term targets are much more ambitious: over 10 percent average revenue growth per year, an EBIT margin of more than 15 percent, an ROCE exceeding 25 percent and an equity ratio not below 35 percent. The keys to success which will enable us to achieve these goals are innovation, quality and efficiency. Our excellent employees, the strong Dräger brand and an IT-based, reliable management information system which facilitates timely manage-

17 Stefan Dräger Chairman of the Executive Board of Drägerwerk AG & Co. KGaA ment of the Company play a crucial role. I am confident that at the end of 2008 we will reap the first fruits of our strategic realignment. Products such as the Medical division s Infinity Acute Care System or the Safety division s tunnel rescue trains demonstrate that Dräger is positioning itself increasingly as a specialist for solutions to complex problems. What are the future plans for these product lines? Will they remain within their current divisions or will they become a third dimension? means leaving the confines of the established, standardized definitions of the medical and safety technology markets. However, such a step must always be well thought through. We need to assess the opportunities and risks. Willingness to change, our employees entrepreneurial way of thinking, and the necessary courage to take new paths is without a doubt part of the DNA of our Company. In the future, this spirit will continue to help ensure that the Dräger name is synonymous with innovative technology that protects, supports, and saves lives the world over. Stefan Dräger: For over 115 years, one of Dräger s strengths has been providing solutions to complex issues. In the first instance, our new structure will ensure that we devote more attention to our strengths again. Dräger produces Technology for Life. So there is untold potential in other markets which we have not tapped at all yet. We must think in terms of our strengths, even if this The interview was held by Stefan ten Doornkaat, lawyer, investor advocate and representative of institutional investors, Düsseldorf, Germany

18 14 The Executive Board The Executive Board Good, responsible corporate governance is one of the principles of Dräger s company culture. In 2007, the management team led by Stefan Dräger plotted the course for a realignment to face the challenges of the future. The pivotal focus is on safeguarding Drägerwerk AG & Co. KGaA and sustainably increasing the value of the Company. Stefan Dräger Born 1963, Chairman, member of the Executive Board since 2003 In my role as Chairman of the Executive Board and majority shareholder of Drägerwerk, I am responsible for designing a strategy to maintain and increase value together with my fellow members of the Executive Board. In 2007, we laid the foundations and we will continue to pursue this path. In doing so, we will be guided by the interests of our customers, our employees, our investors and the public. The different values that are important to these various stakeholder groups will be our points of reference. Prof. Dr. Albert Jugel Born 1948, Dräger Safety, member of the Executive Board since 1999 In 2007, the Safety division continued its successful performance of the past years. Continuous improvements in internal processes meant that new products were developed, produced and launched on time. Thanks to systematic global process standardization, cost savings targets were not only achieved but exceeded.

19 From left to right: Stefan Dräger, Prof. Dr. Albert Jugel, Dr. Ulrich Thibaut, Hans-Oskar Sulzer Dr. Ulrich Thibaut Born 1960, research and development, member of the Executive Board since 2007 Investing in research and development means investing in the future. Dräger had, and has, the energy, potential and ability to develop new solutions for our customers over and over again, as the many innovative milestones in our Company s history prove. Our research and development employees are the key to the Company s future. This means these units must cooperate closely with other Group functions such as marketing, IT and production. In other words: We need networks woven from knowledge, expertise and trust. Hans-Oskar Sulzer Born 1946, CFO, member of the Executive Board since 1997 Drägerwerk AG s change in legal form to a partnership limited by shares carrying the name Drägerwerk AG & Co. KGaA, which was adopted at the annual general meeting of the shareholders last year, took effect at the end of This was essential to enable the Group to determine its own future. The aim of the transformation is to broaden the financial and operating scope of the Group. It ensures we are prepared when decisions are made to expand or make acquisitions.

20 16 Report of the Supervisory Board Report of the Supervisory Board The trust-based working relationship between the Executive Board and the Supervisory Board is a reflection of a corporate culture based on transparency and mutual respect. In fiscal year 2007, the Supervisory Board continued to pay close attention to the Dräger Group s economic situation and perspectives and to advise and continuously monitor the Executive Board and management. Dear Shareholders, The change in legal form of Drägerwerk AG to Drägerwerk AG & Co. KGaA took effect upon entry in the commercial register on December 14, This change has affected the future structure and activities of the Supervisory Board. Effects of the change in legal form on the Supervisory Board The Supervisory Board of the partnership limited by shares is essentially constituted in the same way as the supervisory board of a stock corporation. It is in particular obligated to oversee management of the Company by the general partner, Drägerwerk Verwaltungs AG. By law, the Supervisory Board of the partnership limited by shares is not normally authorized to appoint or remove the general partner, to adopt rules of procedure for the Company s management or to define a catalog of management transactions requiring approval (pursuant to Sec. 111 (4) Sentence 2 AktG [ Aktiengesetz : German Stock Corporation Act]). The decision on this catalog was assigned to the Joint Committee, which was set up as a voluntary, additional body. The Supervisory Board represents the Company in dealings between the Company and the general partner. Following the change in legal form, the Supervisory Board of the Company still comprises twelve members, of whom six are shareholder representatives and six are employee representatives. The members of the Supervisory Board all remained in office after the

21 Prof. Dr. Dieter Feddersen Chairman of the Supervisory Board change in legal form in accordance with Sec. 203 (1) UmwG ( Umwandlungsgesetz : German Law of Reorganizations). Joint Committee as an additional body Since the change in legal form, the Company has had an additional, voluntary body: the Joint Committee. It is made up of eight members, of whom four are appointed by the Supervisory Board of the Company and four by the Supervisory Board of the general partner. It is not the annual general meeting of the shareholders but the Joint Committee that decides on the approval of extraordinary management transactions by the general partner, which are specified in Sec. 23 (2) of the articles of association of the Company. On December 19, 2007, Professor Dr. Dieter Feddersen, Theo Dräger, Dr. Thomas Lindner and Gordon Riske were appointed to the Joint Committee by the Supervisory Board of the general partner, Drägerwerk Verwaltungs AG, whose members are the shareholder representatives on the Supervisory Board of the Company. Dr. Dietrich Schulz and Dr. Martin Posth are the shareholder representatives of Drägerwerk AG & Co. KGaA, and Siegfried Kasang and Thomas Rickers are its employee representatives. Professor Dr. Dieter Feddersen is the Chairman of the Joint Committee. Summary of the Supervisory Board s work In fiscal year 2007, the Supervisory Board continued to pay close attention to the Dräger Group s situation and perspectives, as well as to special matters. In this context, it

22 18 Report of the Supervisory Board advised and oversaw first the Executive Board of Drägerwerk AG, and later the Executive Board of the general partner (hereinafter collectively referred to as the Executive Board ) in the management of the business. The Supervisory Board was involved in all decisions of importance to the Company. The Executive Board regularly provided the Supervisory Board with up-to-date and comprehensive information both orally and in writing. At five regular meetings and one special meeting, the Supervisory Board dealt in detail with the business and strategic development of the Dräger Group, the subgroups and their German and foreign subsidiaries and closely advised the Executive Board on such matters. Between the meetings, the Executive Board provided the Supervisory Board with written information on business performance. The Chairman of the Supervisory Board obtained regular reports on all material transactions and pending decisions at least fortnightly. All meetings were, with a few exceptions, attended by all Supervisory Board members. No member took part in less than half of the Supervisory Board s meetings. Besides statutory rights and duties, supervisory activities are based on the rules of procedure for the Company s executive bodies as well as on the business policies and code of conduct in the Dräger Group. The Company thus ensures that the Executive Board and the Supervisory Board both adhere to the corporate governance and corporate compliance guidelines. At its meeting on December 19, 2007, the Supervisory Board adapted its rules of procedure to the legal requirements of a partnership limited by shares. The rules of procedure of the Executive Board of Drägerwerk AG became invalid when the change in legal form took effect. They were replaced by rules of procedure for the Executive Board of the general partner that it adopted on January 26, 2008 on approval by the Supervisory Board of the general partner. The Joint Committee adopted rules of procedure at its constituent meeting on December 19, Duties of the Supervisory Board committees As in prior years, to improve its efficiency the Supervisory Board set up an Executive Committee, which dealt with tasks defined in Sec. 27 (3) MitbestG ( Mitbestimmungsgesetz : German Codetermination Act) as well as personnel issues, and an Audit Committee. In addition, the Supervisory Board set up a Nomination Committee on September 26, This Committee is charged with proposing suitable candidates for election to the Supervisory Board. Based on these proposals, the Supervisory Board compiles election suggestions for the annual general meeting of the shareholders. Professor Dr. Dieter Feddersen and Theo Dräger sit on the Committee.

23 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 19 Following the change in legal form to Drägerwerk AG & Co. KGaA, all the functions of the Executive Committee were taken over by the Supervisory Board of Drägerwerk Verwaltungs AG. The Supervisory Board of the Company is not authorized to appoint or remove the general partner or its management. For this reason, no Executive Committee was set up or continued to exist at Drägerwerk AG & Co. KGaA after the change in legal form. The Audit Committee and the Nomination Committee are still in place with the same members and substantially the same areas of responsibility. Since 2007, the Audit Committee has not only convened in connection with the financial statements but generally also when the other Supervisory Board meetings take place. The CFO always participates in these meetings. The Audit Committee cooperates on an ongoing basis with the internal audit department and the statutory auditors. Representatives of both the auditors of the financial statements and the internal audit department attend all Audit Committee meetings. When necessary, the CFOs of the subgroups also participate. Since the last meeting of 2007, the Head of Corporate Controlling has also attended in his capacity as the person responsible for structuring and organizing corporate compliance activities. As part of the cooperation, the Chairmen of the Supervisory Board and the Audit Committee have already set audit priorities for the internal audit program. The Audit Committee intensively discussed the financial and risk reports of the Company and the Dräger Group in three meetings. In particular, it dealt with changes to International Financial Reporting Standards (IFRSs) and their implications for the Dräger Group s financial reporting. Moreover, the Audit Committee also explored the audit activities of the internal audit department, its audit programs and the results of the audits in detail and assessed them based on their own review. The Committee also carefully investigated the audit by the statutory auditors and their audit priorities and results. The Committee informed the Supervisory Board in detail about this work. Individual meetings were also held during the year with the Chairman of the Supervisory Board and the Audit Committee and the auditors on audit-related matters. The Executive Committee convened five times in fiscal year 2007 during the period in which it was in office. The Nomination Committee did not meet in fiscal year The Chairman of the Supervisory Board, who was also the Chairman of the Executive Committee, regularly informed the plenary Supervisory Board and the Chairman of the Audit Committee about the results of recent activities.

24 20 Report of the Supervisory Board Focal points of deliberations Written and oral information provided to us by the Executive Board focused on the Group s, its subgroups and individual Group companies revenues, earnings, net assets and financial position, capacity utilization and order situation, in addition to specific events and their development. The Executive Board also provided ongoing variance analyses and revised estimates for the fiscal year, which the Supervisory Board discussed. Updated strategic plans, the mid-term plan derived therefrom and the budget for fiscal year 2008 were the basis for discussions. In fiscal year 2007, the Executive Board prepared, as scheduled, two reports on the Group s risk position which formed the basis for our discussions and reviews. These risk reports are part of the risk early warning system in accordance with Sec. 91 (2) AktG ( Aktiengesetz : German Stock Corporation Act). Our discussions on the reports and the presentations by the statutory auditors led to the conclusion that the system is capable of identifying trends in good time that could jeopardize the Company s ability to continue as a going concern. Our supervisory activities concentrated in particular on the achievement of the 2007 budget approved by us. We also discussed the short, medium and long-term development of the Group, its subgroups and major Group companies, their product groups, cost and revenue situation and the Group s risk and financial position. The Supervisory Board approved the budget submitted for fiscal year 2008 at its meeting on January 26, With the Dräger Group having focused on the core business of the subgroups in prior years, our deliberations centered in particular on the further development of the Group. This includes more extensive use of Shared Services, which now include Corporate IT, Corporate Communications, Training section of the Corporate Human Resources. Further structural improvements are currently under discussion. The business performance of Dräger Medical in the US also remained in our focus. Collaboration between Group companies has in some cases been changed radically. The Supervisory Board discussed product development issues in detail, in particular the Infinity Acute Care System and the possibility of speeding up the launch of certain components. In fiscal year 2007, the Supervisory Board continued to focus on the changing competitive environment for both subgroups and its effects on the growth potential and market prices in the various regions.

25 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 21 High on the agenda were the preparations for and implementation of the transformation of Drägerwerk AG into a partnership limited by shares, which was approved in the annual annual general meeting of the shareholders on May 11, 2007 and entered in the commercial register of the local court of Lübeck on December 14, Prior to the registration, there was an action by a shareholder to set aside the resolution on the change in legal form or, alternatively, have it declared null and void, and the Company initiated court approval proceedings pursuant to Secs. 16 (3), 198 (3) UmwG which led to clearance to register the new legal form. The new legal form is thus effective. The rescission proceedings against the Company, represented by the Executive Board and/ or the general partner and the Supervisory Board, ended on January 21, 2008 when the plaintiff withdrew the action. Equally important to the Dräger Group was the agreement with Siemens on the buyback of a 10 percent limited partner s stake in Dräger Medical AG & Co. KG by Dräger Medical Holding GmbH. This acquisition was agreed in connection with the revision of Siemens contractual put right. The Chairman of the Supervisory Board was informed in a timely manner about both projects and passed this information on to other members. The Supervisory Board deliberated intensively on both matters. In connection with the rules on auditors responsibility to consider fraud in an audit of financial statements (ISA 240), the Chairman of the Supervisory Board discussed the set of rules for Drägerwerk AG & Co. KGaA s administration with the statutory auditors. In discussions with members of the Executive Board, the Head of the Legal Department and the Head of the Tax Department, the Supervisory Board satisfied itself that these internal standards and policies were applied. No significant objections or incidents were identified. The legality and propriety of the Company s actions were thus not called into question. To improve the clarity of the structure of the many corporate compliance activities within the Dräger Group, the Company has started to build up a further improved compliance organization. The Supervisory Board was informed regularly by the Executive Board on the progress and satisfied itself of the efficiency of the organization. Three transactions requiring approval were submitted to the Supervisory Board, which it approved following a review of the Executive Board s submissions. Corporate governance The Supervisory Board regularly deals with the application and enhancement of corporate governance principles within the Dräger Group. In particular, we looked at the revised German Corporate Governance Code. We found that common practice at Drägerwerk AG conforms with numerous provisions of the Code with only a few changes to our prac-

26 22 Report of the Supervisory Board tices having to be made. The declaration of conformity has been reproduced on page 29 of this annual report. We evaluated our supervisory work again in 2007 and took up noteworthy impulses from the self-assessment. Single entity and Group financial statements as of December 31, 2007 The statutory auditors elected by the annual general meeting of the shareholders, Hamburg-based BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, were engaged by the Supervisory Board to audit the financial statements for fiscal year Subject of the audit were the single entity financial statements of Drägerwerk AG & Co. KGaA, prepared in accordance with the German Commercial Code ( Handelsgesetzbuch : HGB), as well as the Group financial statements, prepared in accordance with IFRSs, and the management reports of both Drägerwerk AG & Co. KGaA and the Dräger Group. The auditors examined the single entity financial statements of Drägerwerk AG & Co. KGaA prepared in accordance with the provisions of the German Commercial Code, the IFRS Group financial statements, as well as the management reports of both Drägerwerk AG & Co. KGaA and the Group, and issued an unqualified audit opinion. The auditors confirmed that the Group financial statements prepared in accordance with IFRSs and the group management report conform with IFRSs as adopted by the EU. It was confirmed that both management reports contain the supplementary disclosures pursuant to Secs. 289 (4) and 315 (4) HGB ( Handelsgesetzbuch : German Commercial Code) and that the Executive Board has implemented an efficient risk management system. The members of the Supervisory Board carefully examined the single entity and Group financial statements and accompanying management reports as well as the audit reports. Representatives of the statutory auditors attended the Audit Committee s meeting on March 6, 2008 during which Dräger s single entity and Group financial statements were deliberated on as well as the Supervisory Board s meeting on March 7, 2008 to discuss the financial statements. These representatives reported on the performance of the audit and were available to provide additional information. At these meetings, the Executive Board elucidated the single entity financial statements of Drägerwerk AG & Co. KGaA and the Group financial statements along with the risk management system. On the basis of the audit reports on the single entity and Group financial statements and the management report, the Audit Committee came to the conclusion that both sets of financial statements with their respective management reports give a true and fair view of the net assets, financial position and results of operations in accordance with the applicable financial reporting framework. To do so, the Audit Committee deliberated on significant asset and liability items and their valuation as well as the presentation of the results of

27 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 23 operations and the development of certain key figures. The Chairman of the Audit Committee reported on the discussions to the Supervisory Board. Further questions by members of the Supervisory Board led to a more detailed discussion of the results. The Supervisory Board came to the conclusion that the proposed dividend is fitting considering the net assets, financial position and results of operations, despite the drop in earnings in fiscal year The liquidity of the Company and the interests of the shareholders have been taken into account in equal measure and the decision does not impede the Company s conservative accounting policies. There were no reservations concerning the efficiency of management s actions. The fact that the Chairman and additional Vice-Chairman of the Supervisory Board of Drägerwerk AG & Co. KGaA are also members or Chairman of the Supervisory Boards of the Dräger Medical and Dräger Safety subgroup parents was a considerable advantage during the review of the Group financial statements. In this capacity, they also review the financial statements of Dräger Medical AG & Co. KG and Dräger Safety AG & Co. KGaA and of the two subgroups. Based on the conclusions drawn by the Audit Committee following its own preliminary review and its own examination, the Supervisory Board agrees with the audit conclusion reached by the statutory auditors on the single entity and Group financial statements and management reports of Drägerwerk AG & Co. KGaA. Following our own final examination, we raise no objections to the submitted sets of financial statements and management reports. We reviewed and approved the single entity financial statements of Drägerwerk AG & Co. KGaA prepared by the general partner and the Group financial statements of Drägerwerk AG & Co. KGaA as well as the management reports submitted to us. The financial statements of Drägerwerk AG & Co. KGaA must be approved by the annual general meeting of the shareholders. We agree with the recommendation made by the general partner to approve the financial statements of Drägerwerk AG & Co. KGaA. This also applies to the general partner s proposal concerning the appropriation of net earnings. Conflicts of interests There were no conflicts of interests involving members of the Executive and Supervisory Boards, which must be disclosed to the Supervisory Board without delay and about which the annual general meeting of the shareholders must be informed.

28 24 Report of the Supervisory Board/Report of the Joint Committee Board members Two new members joined the Executive Board in fiscal year Dr. Ulrich Thibaut took over the research and development function. We wish him every success in this position. Dr. Volker Pfahlert took over the Dräger Medical division. By mutual agreement, he left the Company as of December 31, 2007 to take up a new professional challenge. The decision is a result of differing opinions on the strategic direction of the Dräger Medical division. Stefan Dräger had taken over leadership of the Dräger Medical division until August 31, 2007, and he resumed this position as from January 1, Lübeck, Germany, March 7, 2008 Professor Dieter Feddersen Supervisory Board Chairman

29 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 25 Report of the Joint Committee Dear Shareholders, Since the change in legal form to that of a partnership limited by shares took effect on December 14, 2007, the Company has had a Joint Committee as an additional, voluntary body. It is not the annual general meeting of the shareholders but the Joint Committee that decides on the approval of extraordinary management transactions by the general partner, as specified in Art. 23 (2) of the articles of association of the Company. Substantially the same transactions and measures require the approval of the Company s Joint Committee with different thresholds as used to require the approval of the Supervisory Board of Drägerwerk AG. The Joint Committee comprises eight members. Four of the members of the Joint Committee are members of the Supervisory Board of the general partner. They are appointed to the Joint Committee by the Supervisory Board of the general partner based on a resolution that must be passed to this effect. The Supervisory Board of the general partner appoints one of the appointed members as Chairman of the Joint Committee. The other four members of the Joint Committee are members of the Supervisory board of the Company. Two of them are representatives of the shareholders of the Company and two are employee representatives. The members of the Supervisory Board of the Company are appointed to the Joint Committee by the Supervisory Board of the Company based on a resolution that must be passed to this effect. The appointment of the employee representatives is based on recommendations made by the employee representatives on the Supervisory Board of the Company. On December 19, 2007, Dr. Dietrich Schulz and Dr. Martin Posth were appointed to the Joint Committee from the Supervisory Board of the Company as shareholder representatives, and Siegfried Kasang and Thomas Rickers as employee representatives. On December 19, 2007, Professor Dr. Dieter Feddersen, Theo Dräger, Dr. Thomas Lindner and Gordon Riske were appointed to the Joint Committee from the Supervisory Board

30 26 Report of the Joint Committee/Partnership limited by shares of the general partner Drägerwerk Verwaltungs AG. Professor Dr. Dieter Feddersen was appointed the Chairman of the Joint Committee. The Joint Committee convened for the first time and for its only meeting in fiscal year 2007 on December 19, It constituted itself and adopted rules of procedure. There were no other resolutions to be approved by the Joint Committee in the fiscal year. Lübeck, Germany, March 7, 2008 Professor Dieter Feddersen Chairman of the Joint Committee

31 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 27 Corporate governance report The Dräger Group attaches great importance to corporate governance. The German Corporate Governance Code is still being applied following the change in legal form of the stock corporation Drägerwerk AG to Drägerwerk AG & Co. KGaA, a partnership limited by shares. The recommendations of the German Corporate Governance Code Government Commission are applied with only a few exceptions. The Dräger Group attaches great importance to corporate governance. To emphasize this, we will continue to apply the German Corporate Governance Code which is only aimed at stock corporations even after the transformation of Drägerwerk AG into Drägerwerk AG & Co. KGaA. Partnership limited by shares A partnership limited by shares (KGaA) is a company with a separate legal personality where at least one partner is fully liable to the company s creditors (general partner) and the remaining shareholders have a financial interest in the capital stock, which is divided into shares, without being personally liable for the company s liabilities (limited shareholders) (Sec. 278 (1) AktG [ Aktiengesetz : German Stock Corporation Act]). Hence it is a hybrid between a stock corporation and a limited partnership, with a greater emphasis on the stock corporation side. As is the case in a stock corporation, a partnership limited by shares has a two-tier management and oversight structure by law. The general partner manages the company and its operations, and the supervisory board oversees the company s management. Significant differences compared to a stock corporation are the existence of a general partner, which manages operations, the absence of an executive board, and the restriction of the rights and obligations of the supervisory board. The supervisory board is not responsible for appointing the general partner or its management bodies or for determining their contractual conditions, whereas in a stock corporation it appoints the executive board. In a partnership limited by shares, the supervisory board is not legally authorized to adopt rules of procedure for the company s management or a catalog of transactions requiring approval. There are also differences relating to the annual general meeting of the shareholders. Certain of its resolutions must be approved by the general partner (Sec. 285 (2) AktG), in particular the resolution to approve the financial statements (Sec. 286 (1) AktG). Many of the recommendations of the German Corporate Governance Code (hereinafter also referred to as the Code ), which is designed for stock corporations, can thus only be applied by analogy to a partnership limited by shares.

32 28 Partnership limited by shares/declaration of conformity DRÄGERWERK AG & CO. KGAA Stefan Dräger GmbH 100% Drägerwerk Verwaltungs AG Executive Board Oversight and appointment of the Executive Board Supervisory Board of Drägerwerk Verwaltungs AG General partner 0% Management/Representation Decision on actions requiring approval Appointment Joint Committee Drägerwerk AG & Co. KGaA Appointment Oversight Supervisory Board of Drägerwerk AG & Co. KGaA Limited shareholders The sole general partner of Drägerwerk AG & Co. KGaA is Dräger Verwaltungs AG, which does not hold an equity interest and is a wholly-owned company of Stefan Dräger GmbH. Drägerwerk Verwaltungs AG manages the operations of Drägerwerk AG & Co. KGaA and represents it. It does so through its Executive Board, which has the same members as the Executive Board of the former Drägerwerk AG apart from one member, who left the Company following the change in legal form for reasons not related to this change. Stefan Dräger GmbH appoints the six members of the Supervisory Board of Drägerwerk Verwaltungs AG. They are currently identical to the shareholder representatives on the Supervisory Board of the former Drägerwerk AG. The Supervisory Board of Drägerwerk Verwaltungs AG does not have any employee representatives. It appoints the Executive Board of Drägerwerk Verwaltungs AG. The Supervisory Board of Drägerwerk AG & Co. KGaA, which has 12 members, still has half of its members elected by employees. Its chief purpose is to oversee the management by the general partner. It cannot appoint or remove the general partner or its Executive Board. Nor is it authorized to define a catalog of management transactions for the general partner which require the approval of the Supervisory Board. Moreover, it is not the Supervisory Board but the annual general meeting of the shareholders that must approve the financial statements of Drägerwerk AG & Co. KGaA. Pursuant to Art. 23 of the Company s articles of association, a Joint Committee has been set up as a voluntary, additional body. It comprises eight members. Four members each are appointed by the Supervisory Boards of Drägerwerk Verwaltungs AG and Drägerwerk AG & Co. KGaA. The Supervisory Board of Drägerwerk

33 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 29 AG & Co. KGaA must appoint two shareholder representatives and two employee representatives. The Joint Committee decides on the extraordinary management transactions by the general partner which require approval as set out in Art. 23 (2) of the articles of association of Drägerwerk AG & Co. KGaA. Declaration of conformity The joint declaration of conformity by the general partner and the Supervisory Board of Drägerwerk AG & Co. KGaA was discussed and approved in the meeting of the Supervisory Board of the Company on December 19, It states that the recommendations of the German Corporate Governance Code Government Commission were applied with only a few exceptions. The following declaration was published on December 19, 2007: The general partner, represented by its Executive Board, and the Supervisory Board declare that Drägerwerk AG, and, since the change in legal form to a partnership limited by shares took effect on December 14, 2007, Drägerwerk AG & Co. KGaA acted on the recommendations of the German Corporate Governance Code Government Commission, as amended on June 12, 2006, from the date of issue of its previous declaration of conformity on December 20, 2006 until July 20, 2007, and that since July 21, 2007, it has acted on the recommendations as amended on June 14, This applies subject to the following exceptions: 1. The Executive Board of Drägerwerk AG has not appointed any corporate voting proxy for exercising the voting right of shareholders on their instructions at the annual general meeting of the shareholders (2.3.3 clause 3 of the Code). The general partner of Drägerwerk AG & Co. KGaA will not appoint one in the future either. The voting (limited) capital stock is solely owned directly or indirectly by the Dräger family and, therefore, it would be redundant to appoint any such proxy for the Company s shareholders. 2. The annual addition to pension provisions or pension funds for members of the Executive Board of Drägerwerk AG or of the general partner was and is not disclosed expressly in the remuneration report in the case of benefit plans (4.2.5 clause 2 sentence 2 of the Code). It can be calculated, however, as the difference between the total of the pension provisions disclosed for these members of the Executive Board in this and the prior fiscal year. 3. Until the Supervisory Board meeting on December 19, 2007, the rules of procedure for the Supervisory Board did not provide for the Audit Committee of the Supervisory Board to deal with compliance issues (5.3.2 of the Code). By the date of the meeting on September 26, 2007, the Supervisory Board had not established a nomination committee (5.3.3 of the Code). 4. No age limit has been specified for Supervisory Board members, nor will it be (5.4.1 of the Code). In view of the knowledge, abilities and professional experience required in sentence 1 of the Code, the specification of an age limit does not appear appropriate. 5. The remuneration of Supervisory Board members was not, and will not be, individually disclosed (5.4.7 clause 3 of the Code). The reasons for the aforesaid exceptions from certain recommendations of the Code are largely explained in the declaration of conformity. In addition, the departures are explained as follows: In the future, the annual additions to pension provisions or pension funds for members of the Executive Board of the general partner will be disclosed separately in the remuneration report. The Company strives to implement changes to the Code in a timely manner. The Nomination Committee was, for example, established in the first Supervisory Board meet-

34 30 Declaration of conformity/investor relations ing after the Code as amended on June 14, 2007 became effective. In connection with the change in legal form coming into effect, the rules of procedure for the Supervisory Board were adapted to the legal requirements of a partnership limited by shares and the amendments to the Code relating to the Audit Committee. The proposal to forego the disclosure of individual Executive Board remuneration for reasons of privacy with the exception of the Chairman was accepted by resolution at the annual general meeting of the shareholders on June 2, The remuneration of individual Supervisory Board members is not disclosed for the same reason. Supervisory Board The Supervisory Board of Drägerwerk AG & Co. KGaA has twelve members, half of whom are elected by shareholders and half by employees in accordance with the German Codetermination Act ( Mitbestimmungsgesetz : MitbestG). Several members of the Supervisory Board hold or held high positions at other companies. The majority of the members of the Supervisory Board are independent of the Company for the purposes of the Corporate Governance Code. Where business relationships exist with Supervisory Board members, transactions are conducted on an arm s length basis as between unrelated parties and do not affect the independence of the members. The Supervisory Board of Drägerwerk Verwaltungs AG has six members who are also the shareholder representatives on the Supervisory Board of Drägerwerk AG & Co. KGaA. The Supervisory Boards of Drägerwerk AG & Co. KGaA and Drägerwerk Verwaltungs AG each appoint four members to the Joint Committee. The Supervisory Board of Drägerwerk AG & Co. KGaA monitors and advises the Executive Board of the general partner in the management of the partnership limited by shares. The Supervisory Board regularly discusses business performance and plans as well as the implementation of the business strategy based on written and oral reports by the Executive Board of the general partner. It reviews the financial statements of Drägerwerk AG & Co. KGaA and the Dräger Group. In doing so, it takes into account the audit reports of the statutory auditors and the results of the review by the Audit Committee. The Supervisory Board makes a recommendation to the annual general meeting of the shareholders for a resolution to approve the financial statements and the Group financial statements of the Company. The Joint Committee makes decisions on extraordinary management transactions by the general partner. The individual transactions requiring approval are defined in Art. 23 (2) of the articles of association of the Company. They mainly relate to the same transactions that required the approval of the Supervisory Board of Drägerwerk AG prior to the change in legal form, although different thresholds apply. Appointing and removing members of the Executive Board of Drägerwerk Verwaltungs AG, which manages the operations of Drägerwerk AG & Co. KGaA as the legal representative of the general partner, is the task of the Supervisory Board of Drägerwerk Verwaltungs AG. To improve its effectiveness and efficiency, the Supervisory Board of Drägerwerk AG & Co. KGaA established an Audit Committee. It comprises two shareholder representatives and two employee representatives. The Supervisory Board ensures that the committee members are independent and places great emphasis on their particular knowledge and experience of application of accounting standards and internal control processes. The Audit Committee monitors the adequacy and functionality of the Company s external and internal financial reporting system. Together with the statutory auditors, the Audit Committee discusses the reports drawn up by the Executive Board during the year, the Company s financial statements and audit reports. On this basis, the Audit Commit-

35 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 31 tee draws up recommendations for the approval of the financial statements by the annual general meeting of the shareholders. It deals with the Company s internal control system and with the procedure for recording risks, for risk control and risk management. The internal audit department reports regularly to the Audit Committee, and is engaged by this Committee to carry out audits as is deemed necessary. Reference is also made to the report of the Supervisory Board. In addition, at its meeting on September 26, 2007 the Supervisory Board also established a Nomination Committee in accordance with of the Code. This Committee is charged with proposing suitable candidates for election to the Supervisory Board. On this basis, the Supervisory Board compiles suggestions for the annual general meeting of the shareholders. An Executive Committee which existed within the Supervisory Board of Drägerwerk AG prior to the change in legal form no longer exists at Drägerwerk AG & Co. KGaA, as the Supervisory Board of Drägerwerk Verwaltungs AG appoints the Executive Board of the general partner and fulfills all the functions of the Executive Committee. Management Drägerwerk Verwaltungs AG manages the operations of Drägerwerk AG & Co. KGaA. The Executive Board of Drägerwerk Verwaltungs AG generally comprises five members, one Executive Board position has been vacant since January 1, In its role as managing body of Drägerwerk AG & Co. KGaA and of the Dräger Group, the Executive Board of Drägerwerk Verwaltungs AG governs corporate policy. It determines the Company s strategic focus, plans and sets budgets, approves resource allocation and monitors business performance. The Executive Board compiles the Company s quarterly reports, the financial statements of Drägerwerk AG & Co. KGaA and the Group financial statements. It works closely with the oversight bodies. The Chairman of the Supervisory Boards of the Company and of the general partner works closely with the Chairman of the Executive Board of the general partner. He regularly provides up-to-date and comprehensive information on all issues relevant to the Company: strategy and its implementation, planning, business performance, financial position and results of operations and business risk. The Supervisory Board of Drägerwerk Verwaltungs AG approved the rules of procedure for the Executive Board at its meeting on January 26, Investor relations Of Drägerwerk AG & Co. KGaA s 12,700,000 shares, 6,350,000 are common shares held by the Dräger family. 6,350,000 non-voting preferred shares are traded on German stock exchanges. Dräger reports to its shareholders on business performance, net assets, financial position and results of operations in two quarterly reports, one half-yearly report and the annual report. The annual general meeting of the shareholders is held in the first eight months of the fiscal year. Following the change in legal form, the resolution on the approval of the financial statements of Drägerwerk AG & Co. KGaA is adopted at the annual general meeting of the shareholders. In addition, the annual general meeting of the shareholders votes on profit appropriation, the exoneration of the general partner and of the Supervisory Board and the election of the statutory auditors. In addition, it also elects the shareholder representatives to the Supervisory Board, approves amendments to the articles of association and changes in capital, which the general partner implements. The shareholders exercise their rights at the annual general meeting of the shareholders in accordance with the legal requirements and the Company s

36 32 Investor relations/corporate compliance/remuneration report articles of association. Insofar as resolutions of the annual general meeting of the shareholders relate to extraordinary transactions and core business, they also require the approval of the general partner. In the course of our investor relations work, the Chairman of the Executive Board and the CFO, as well as the other Executive Board members hold regular meetings with analysts and institutional investors. Besides an annual analysts conference, a conference call also takes place when the quarterly figures are announced or for other important events. Corporate compliance The general partner of Drägerwerk AG & Co. KGaA has established guidelines in the form of business policies and a code of conduct which should ensure that business is conducted responsibly and in accordance with legal requirements. These guidelines apply unchanged at the new legal entity. These binding policies on law-abiding conduct, conflicts of interest, company property and insider trading apply to all employees, as well as the Executive and Supervisory Boards. To enable us to structure our many corporate compliance activities more clearly, the Company has started to build up a compliance organization. Remuneration report The Company still compiles a remuneration report following the change in legal form. Executive Board remuneration refers to reimbursement of members of the Executive Board of Drägerwerk AG up to the date the change in legal form took effect. After that date, it refers to remuneration of members of the Executive Board of Drägerwerk Verwaltungs AG. Supervisory Board remuneration is the remuneration of the members of the Supervisory Board of Drägerwerk AG & Co. KGaA. The remuneration report also includes information on the shares owned by the members of the Executive and Supervisory Boards as defined above. Based on the resolution adopted at the annual general meeting of the shareholders of Drägerwerk AG on June 2, 2006, the remuneration of individual members of the Executive Board is not disclosed, with the exception of the Chairman. The remuneration report provides this information accordingly. The remuneration of the Supervisory Board is also stated in total. Executive Board remuneration Up until the change in legal form, the Executive Committee of the Supervisory Board of Drägerwerk AG determined Executive Board remuneration. Since the change, the Supervisory Board of Drägerwerk Verwaltungs AG has assumed this task. As far as legally possible, the Executive Board members employment contracts originally concluded with Drägerwerk AG have been transferred to Drägerwerk Verwaltungs AG by means of separate agreements. Obligations from the pension plan remain at Drägerwerk AG & Co. KGaA. Remuneration is based on the size and the global activities of the Company, its economic and financial position, and on the amount of remuneration paid by peer group companies. The duties of the respective Executive Board member are also taken into consideration. The Supervisory Board also has the option of granting a special performance-related bonus. Defined benefit plans for members of the Executive Boards are agreed individually.

37 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 33 The remuneration of Executive Board members consists of fixed and variable components. The variable component of the remuneration of the Executive Board members is pegged to the Group s net profit, yet if they concurrently chair a subgroup executive board, their remuneration is mainly pegged to the respective subgroup s earnings and only to a minor degree to the Group s net profit. In addition, certain Executive Board member s contracts provide for the payment of an annual discretionary bonus. There are no long-term incentive components of remuneration. The fixed remuneration is paid monthly as a salary. Executive Board remuneration amounts to (see table below): Fringe benefits awarded to members of the Executive Board encompass private use of the company car they are each provided with and payment of accident insurance, health insurance and pension insurance premiums. The defined benefits under the pension plans offered to the members of the Executive Board are either fixed or based on the basic annual salary and years of service on the Executive Board. The defined benefit offered to Stefan Dräger is based on an annual contribution of 15 percent of his basic annual salary. Under the deferred compensation option, an additional annual contribution of up to 20 percent of the basic annual salary can be made, upon which the Company then pays a further contribution of 50 percent, but no more than 8 percent of the basic annual salary. This top-up payment is only made if consolidated EBIT equals 8 percent or more of revenues. EUR 1,983, in pension provisions for Executive Board members was accrued in the financial statements for fiscal year 2007 (2006: EUR 2,556,402.00), EUR 186, of which for the Chairman of the Executive Board (2006: EUR 147,445.00). In fiscal year 2007, EUR 97 thousand (2006: EUR 483 thousand) was allocated to the pension provisions for members of the Executive Board. The Company pays the premium for the D & O liability insurance policy and legal expense insurance policy for economic loss claims for members of the Executive EXECUTIVE BOARD REMUNERATION (EUR) Fixed Variable Other Total Fixed Variable Other Total Executive Board (total) 1,317,523 2,825,850 4,594,459 8,737,832 1,260,128 3,611,699 76,836 4,948,663 thereof: Chairman of the Executive Board 406,977 1,453,700 6,880 1,867, ,533 1,628,006 9,881 1,938,420

38 34 Remuneration report/directors dealings/related-party transactions Board. In the opinion of the German tax authorities, this does not constitute part of the Executive Board s remuneration. No further payments have been promised in the event of termination of appointment to the Executive Board. The Executive Board contracts do not provide for any severance entitlements. However, a severance payment may be agreed under an individual termination agreement. EUR 5,762, was paid to former members of the Executive Board and their surviving dependants (2006: EUR 2,675,448.62). A total EUR 34,587, provides for the pension obligations to former Executive Board members and their surviving dependants (2006: EUR 36,799,740.00). In fiscal year 2007, severance payments of EUR 6,403, were defined in severance agreements, which is in part included in other remuneration of the Executive Board and in part in the remuneration of former members of the Executive Board. In the fiscal year, no payments were made or promised by a third party to any member of the Executive Board in relation to his duties as member of the Executive Board. If Executive Board reimbursement is paid by Drägerwerk Verwaltungs AG, pursuant to Art. 11 (1) of the Company s articles of association it is entitled to claim reimbursement from the Company monthly. Pursuant to Art. 11 (4) of the Company s articles of association, for the management of the Company and the assumption of personal liability the general partner receives a fee, independent of profit and loss, of six percent of the equity disclosed in its financial statements (2007: EUR 60 thousand) plus any VAT incurred, payable one week after the general partner prepares its financial statements. Supervisory Board remuneration At the annual general meeting of the shareholders of Drägerwerk AG & Co. KGaA on May 9, 2008, a proposal awarding the Supervisory Board total remuneration of EUR 509, (2006: EUR 499,118.00) will be put to vote. Each member of the Supervisory Board receives basic remuneration of EUR 27, (2006: EUR 27,400.00), which is composed of a fixed amount of EUR 10, (2006: EUR 10,000.00) and a dividend-based amount of EUR 17, (2006: EUR 17,400.00), the latter being the product of EUR 600 for each EUR 0.01 above a preferred dividend of EUR 0.26, on the basis of a dividend of EUR 0.55 per preferred share as proposed for the year under review. Pursuant to Art. 21 (1) of the articles of association of Drägerwerk AG & Co. KGaA, the remuneration of members of the Supervisory Board is determined by a Supervisory Board resolution. To date, the Supervisory Board has adopted the following principles for distribution: Its chairman is entitled to 4 times, any vice-chairman 2 times, the other members of the Executive Committee 1.5 times the set amount. The members of the Audit Committee receive an additional EUR 5,000.00, and the chairman of the Audit Committee an additional EUR 10, Moreover, a total per diem of EUR 3, (2006: EUR 3,360.00) is paid. In the opinion of the German tax authorities, the premium for a D&O liability insurance policy and a legal expense insurance policy for economic loss claims is not part of the Supervisory Board s remuneration. In addition, a legal consulting fee of EUR 93, (2006: EUR 59,662.50) was paid to law firm Feddersen Heuer & Partner in the year under review. These amounts do not include VAT. An agreement with Mr. Theo Dräger was concluded allowing him to represent the Company in Germany and abroad. His services under this agreement are not remunerated; however, he shall be reimbursed for any out-of-pocket expenses and provided with secretarial services and transportation. Certain Supervisory Board members received an additional aggre-

39 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 35 gate EUR 177, (2006: EUR 173,400.00) for their membership on Supervisory Boards of subsidiaries. Shares owned by the Executive and Supervisory Boards As of December 31, 2007, the members of the Executive Board of Drägerwerk AG & Co. KGaA and their related parties directly or indirectly held 6,000 preferred shares, equivalent to 0.05 percent of the total, and the members of the Supervisory Board and their related parties a total of 27,762 preferred shares, equivalent to 0.22 percent of the total. Altogether, percent of Drägerwerk AG & Co. KGaA s capital stock is held via Dr. Heinrich Dräger GmbH and the same percentage of voting rights is attributable to Executive Board member Stefan Dräger under the terms of Sec. 22 (1) Sentence 1 No. 1 WpHG ( Wertpapierhandelsgesetz : German Securities Trading Act). Directors dealings In fiscal year 2007, members of the Executive and Supervisory Boards did not purchase or sell any preferred shares (ISIN DE ) from their own portfolio or a private portfolio attributable to them. Related-party transactions Business was transacted in 2007 with the following related companies that are part of the widely diversified share portfolio of the Dräger family, including the Chairman of the Executive Board Stefan Dräger and Supervisory Board member Theo Dräger. Dräger GmbH, Dräger Objekt Finkenstraße GmbH & Co. KG and Dräger Objekt Lachswehrallee GmbH & Co. KG have leased various real properties to Drägerwerk AG & Co. KGaA which are located close to the latter s Moislinger Allee head office. Rent payments amounted to EUR 1,679 thousand (2006: EUR 1,651 thousand). Several companies belonging to the Dräger Medical subgroup will move into a new building in It is anticipated that a portion of the land and buildings with long-term rental agreements will no longer be able to be fully used. As in 2006, a provision of EUR 10 million has been recognized for this eventuality. The tax department of the Company provided tax services amounting to EUR 50 thousand (2006: EUR 168 thousand) to Dr. Heinrich Dräger GmbH and the Dräger Foundation Munich/Lübeck. In addition, Herbert Rehn GmbH generated revenues of EUR 1.5 million (2006: EUR 1.5 million) from glass products and installation contracts. This resulted in receivables of EUR 22.7 thousand (2006: EUR 59 thousand) from Dräger Group companies. Mrs. Claudia Dräger is an employee of Drägerwerk AG & Co. KGaA. Supervisory Board member Theo Dräger has a 44 percent share in Dräger Objekt Lachswehr Allee GmbH & Co. KG, the remaining share (56 percent) is held by siblings of Stefan Dräger. Mr. Theo Dräger has an 18.6 percent share in Dräger Objekt Finkenstraße GmbH & Co. KG, the remaining 81.4 percent is held by other Dräger family members who have no managerial position within the Dräger Group. Other Dräger family members hold a share in Dräger GmbH and in Herbert Rehn GmbH but they do not hold a managerial position within the Dräger Group either. All transactions were conducted at arm s length terms and conditions. Lübeck, February 25, 2008 Drägerwerk AG & Co. KGaA The general partner Drägerwerk Verwaltungs AG The Executive Board

40 LEE COUNTY, FLORIDA, USA p p. 10 in the accompanying product supplement Rescue operations in Lee County in the US state of Florida are always a challenge, particularly as one third of the county is covered with water. MEDSTAR, the helicopter division of Emergency Medical Services in Lee County, is well prepared to deal with these challenges. With state-of-the-art air ambulances and highly trained staff MEDSTAR provides round-the-clock emergency services and air transport. Since 2007 the Dräger Oxylog 3000 ventilator has always been on board to enable quality ventilation at high altitude.

41 Ventilation secured high in the sky N/82 1 W 10:52 a.m. 21 C

42 YANZHOU, SHANDONG, CHINA p p. 12 in the accompanying product supplement It s all about being prepared for an emergency. The miners at the Yanzhou coal mine in the Chinese province of Shandong are about to participate in a mine rescue training exercise. They will wear the legendary Dräger PSS BG 4 closedcircuit breathing apparatus. In the event of a mining accident, it provides each and every rescue worker with air to breathe for up to four hours. Valuable time to rescue trapped miners. Together with oxygen self-rescuers and gas detection technology, Dräger thus offers safety solutions for the mining industry.

43 Rescuers can breathe easy N/ E 11:42 a.m. 11 C

44 40 The Dräger share The Dräger share Overall, the Dräger share performed disappointingly in fiscal year On the one hand, the year will be noted for a historical price rise to an all-time high, but on the other it will be remembered for a generally disappointing share performance. The phases of a turbulent year for the Dräger share The performance of the Dräger preferred share was subject to heavy fluctuation in fiscal year 2007, ending a very turbulent year on the stock exchange at a closing price of EUR (December 28, 2007, XETRA). The share price thus lost EUR 7.30 (12.8%). It opened at EUR on January 2, 2007, slightly below the prior-year high of EUR Following a drop in price to EUR on January 12, the price of the preferred share rose steadily. After the preliminary figures for fiscal year 2006 were published it stood at EUR (February 22, 2007) and following the publication of the final results for 2006 it reached EUR (March 29, 2007). On April 4, the Dräger preferred share exceeded a price of EUR 70 for the first time ever. This means that those who purchased Dräger preferred shares for around EUR 7 in 2000, the crisis year, and remained loyal to the share during the stabilization phase from mid-2003 until the end of 2006 (with prices between EUR 45 and EUR 50) were able to increase their capital tenfold by this time. The Dräger share reached its historical all-time high of EUR (closing price) on May 4, Following the release of the first-quarter figures on May 8, 2007, the price sank to EUR and then returned to hover around the EUR 70 mark until mid-june. By the time the half-year figures were released, the share price had fallen to EUR (August 9, 2007). Shortly afterwards, the trend reversed again and the price of the Dräger share rose back above EUR 70, only to plummet to the annual low of EUR (November 8, 2007) following a profit warning on October 30. A short-lived increase in the price followed the release of the third-quarter results for In line with overall negative share exchange performance at the beginning of the new fiscal year, the price of Dräger share fell to EUR (January 22, 2008). Market capitalization and trading volume Over the year, the Dräger Group s market capitalization of preferred shares decreased from EUR 359 million at the end of 2006 to EUR 316 million as of December 28, 2007 as a result of significant price fluctuation and the ensuing relatively low closing price for the year. The average daily trading volume, on the other hand, increased by more than 30 percent to approximately 39,000 (2006: 29,000).

45 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 41 DRÄGER PREFERRED SHARE PUTS IN SOUND PERFORMANCE (WKN / ISIN DE ) (indexed) in percent Dräger TecDAX DAX Dec. 31, Dec. 31, 2007 Regular communication with capital market players In fiscal year 2007, we continued to inform capital market players regularly, comprehensively, openly and promptly about our business performance, strategy and changes in the Dräger Group. As well as our quarterly, half-yearly and annual reports, in the past reporting year we also informed capital market players by means of ad-hoc reports (further information in the notes on page 168). All publications, reports and press releases were published in a timely manner in accordance with the provisions of the German Corporate Governance Code. Throughout the fiscal year there were also many other opportunities to exchange information on a more personal level, for example numerous interviews, roadshows, presentations, and conference calls. We participated in roadshows at international financial centers, issued invitations to talks with the Executive Board and management at our headquarters in Lübeck and allowed people to experience different areas of our operations first hand. The Dräger stand at Medica 2007, the world s largest medical technology trade fair held in November in Düsseldorf, was particularly popular with visitors. Dräger exhibited at Medica 2007 under the motto Meeting challenges. Yesterday, today and tomorrow. More than 30 analysts and investors accepted our invitation to a tour of our exhibition stand and saw for themselves what Dräger was proudly presenting: With the experience and successes of both the past and the present under its belt, the Lübeck-based company is full of new ideas for the future. We welcome and encourage this direct exchange of information which enables real insight into our operations. In addition, all our publications, press releases, presentations and much more information are available on our website ( Around 1,500 shareholders attend the annual general meeting in Lübeck Stefan Dräger, Chairman of the Executive Board, welcomed around 1,500 shareholders to the Dräger Group s annual general meeting of the shareholders, which was held on May 11, 2007, three weeks earlier than the prior year, in the Lübeck Music and Congress Center. 100 percent of the Company s capital stock and 8.64 percent of its preferred shares were represented. In accordance with Secs. 190 et seq., 226 et seq., and 238 et seq. UmwG ( Umwandlungsgesetz : German Law

46 42 The Dräger share DRÄGER SHARE INDICATORS Share figures No. of shares No. 12,700,000 12,700,000 12,700,000 thereof common No. 6,350,000 6,350,000 6,350,000 thereof preferred No. 6,350,000 6,350,000 6,350,000 Free-floating preferred shares % Trading figures Average daily trading volume 1 No. 30,000 29,000 39,500 Annual high Annual low Share price as of December Market capitalization 2 558,800, ,550, ,460,000 Earnings figures as of December 31 Earnings per common share Earnings per preferred share Cash flow (from operating activities) per share Equity per share Price/equity ratio Price/earnings ratio Dividend figures Dividend per common share Dividend per preferred share Dividend yield (preferred shares) as of December 31 % Dividend payout ratio 4 % All German share exchanges (Source: Deutsche Börse) : dividend proposed to the annual general meeting of the shareholders 2 Total number of shares/share price as of December 31 4 Proposed dividend divided by consolidated net profit after minority interests of Reorganizations), the annual general meeting of the shareholders approved the Company s change in legal form to a partnership limited by shares carrying the name Drägerwerk AG & Co. KGaA and ratified its articles of association. At the same meeting, Drägerwerk Verwaltungs AG, Lübeck, declared its accession as general partner of the converted Drägerwerk AG & Co. KGaA and approved its articles of association. The resolution to change the legal form took effect on December 14, 2007 upon entry in the commercial register at Lübeck local court. In the foyer, shareholders had the chance to explore a presentation of over 115 years of successful Dräger history. The focus was on two important anniversaries: One hun-

47 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 43 dred years ago, Dräger was awarded the patent for the first emergency resuscitator the Pulmotor marked the beginning of a long series of Dräger innovations in ventilation. And our international focus also began 100 years ago when Dräger founded its first US branch in New York. Innovation and an international focus these remain ingredients in the Dräger Group s recipe for success. Change in legal form to Drägerwerk AG & Co. KGaA The change in legal form had no effect on the Company s identity, which continues to exist as such in a different legal form and with an appropriate change to its name. When the change in legal form became effective, the capital stock of Drägerwerk AG became the capital stock of Drägerwerk AG & Co. KGaA. The shareholders of Drägerwerk AG became limited shareholders of Drägerwerk AG & Co. KGaA with the same number of common and/or preferred shares that they held before the change in legal form took effect. The extent and nature of their investment remain unchanged by the accession of Drägerwerk Verwaltungs AG as general partner of the Company, because the general partner has not made a capital contribution (further information on this can be found on page 27 of the corporate governance report in this annual report). The bearer preferred shares in Drägerwerk AG lost their admission to the stock exchange upon entry of the change in legal form in the commercial register. The stock market listing was suspended at the relevant stock exchanges at the end of the day on which the change in legal form became effective. In conjunction with the cessation of trade in Dräger preferred shares, the new Dräger limited preferred shares which the limited shareholders of Drägerwerk AG & Co. KGaA received in return for their Dräger preferred shares were admitted to trade on the regulated market at the stock exchanges in Frankfurt am Main, Berlin, Düsseldorf, Hamburg, Hanover and Munich with concurrent admission to the segment of the regulated market with additional postadmission obligations (Prime Standard) on the Frankfurt Stock Exchange. The Company s inclusion in the TecDax share index was not affected by the change in legal form. Earnings per share Earnings per share (EPS) for preferred shares amounted to EUR 3.60 for fiscal year 2007 (2006: EUR 3.42). Due to the lower dividend, earnings per common share were also lower at EUR 3.54 (2006: EUR 3.36). Minority interests in net profit amounted to EUR 14.6 million in the fiscal year. Dividends The Executive Board of the general partner and the Supervisory Board of Drägerwerk AG & Co. KGaA propose to distribute an unchanged dividend of EUR 0.49 per common share and EUR 0.55 per preferred share and have this approved at the annual general meeting of the shareholders. Dräger of interest to analysts In fiscal year 2007, the Dräger Group continued to be observed and evaluated regularly by equity research analysts. Dräger was covered by a total of 15 analysts: Bankhaus Lampe, Berenberg Bank, CA Chevreux, Deutsche Bank, Dresdner Kleinwort, DZ Banz, equinet, HSBC, LBBW, MainFirst Bank, M.M.Warburg, Nord/LB, Sal. Oppenheim, WestLB, UniCredit. MARKET CAPITALIZATION OF PREFERRED SHARES as of December 31 in million

48 Shutting down safely N/12 49 E 07:41 p.m. 6 C

49 BURGHAUSEN, GERMANY p p. 14 in the accompanying product supplement Managing all safety aspects of stoppages, turnarounds or shutdowns for large industrial facilities is the task of Dräger employees in Shutdown & Rental Management. During typical inspection and maintenance work, Dräger safety compliance officers oversee critical tasks such as angle grinding, welding or working at dangerous heights, for example during the shutdown of the OMV refinery in Burghausen.

50 46 Management report 2007 (amended version)

51 Management report 47 MANAGEMENT REPORT 2007 OF THE DRÄGER GROUP (AMENDED VERSION) In fiscal year 2007, more important steps were taken to safeguard the successful future of the technology group: the change in legal form from a stock corporation to a partnership limited by shares, the 10 percent increase in the stake in Dräger Medical to 75 percent, and improved use of common resources.

52 48 Management report 2007 (amended version) Changes to the financial statements Important changes in fiscal year Group structure 51 Control systems 53 General economic conditions 54 Business performance of the Dräger Group 56 Business performance of Dräger Medical 62 Business performance of Dräger Safety 68 Business performance of Drägerwerk AG & Co. KGaA/other companies 72 Research and development 74 Personnel 75 Procurement, production and logistics 76 Environmental protection 78 Opportunities and risks relating to future development 80 Disclosures pursuant to Sec. 315 (4) HGB and explanations by the general partner 85 Subsequent events 89 Forecast 89 Forward-looking statements 90

53 Management report 49 Management report 2007 of the Dräger Group (amended version) The economic performance of the Dräger Group in the past fiscal year resulted in slight growth in revenues and EBIT (before non-recurring expenses), with varying performance from the Medical and Safety divisions. Changes to the financial statements 2007 In order to comply with the new statutory provisions of IAS 32 on the classification of equity and debt, Dräger evaluated its reporting methods for participation capital and decided they should be amended. As a result and in accordance with IAS 32 and IAS 39, an equity and debt component for each series of participation capital has been retrospectively recognized and measured by choice in the financial statements 2007 (see also Note 3). the Deferred tax liabilities increased by EUR 15.7 million (December 31, 2006: EUR 19.5 million). The net profit for the fiscal years 2007 and 2006 increased by a total of EUR 3.9 million (2006: EUR 4.1 million) due to the interest result, which improved by EUR 6.2 million (2006: EUR 6.3 million), and income taxes, which went up by EUR 2.3 million (2006: EUR 2.2 million). The increase in equity attributable to participation certificates comes to EUR 39.7 million as of December 31, 2007 and EUR 36.9 million as of December 31, The total amount of obligations from participation certificates recognized as liabilities decreased by EUR 39.7 as of December 31, 2007 and by EUR 36.9 million as of December 31, 2006 as a result of the changes applied to the presentation of participation certificates in the IFRS group financial statements. This decrease is caused by a decline of Liabilities from participation certificates by EUR 48.2 million (December 31, 2006: EUR 49.2 million) and of Other current financial liabilities by EUR 7.2 million (December 31, 2006: EUR 7.2 million) whereas Important changes in fiscal year 2007 Drägerwerk AG s change in legal form to Drägerwerk AG & Co. KGaA Increase in stake held in Dräger Medical AG & Co. KG by 10 percent to 75 percent Better use made of joint resources

54 50 Important changes in fiscal year 2007 Drägerwerk AG s change in legal form to Drägerwerk AG & Co. KGaA The annual general meeting of Drägerwerk AG on May 11, 2007 approved the Company s change in legal form to a partnership limited by shares carrying the name Drägerwerk AG & Co. KGaA and ratified its articles of association. At the same meeting, Drägerwerk Verwaltungs AG, Lübeck, declared its accession as general partner of Drägerwerk AG & Co. KGaA and approved its articles of association. An action was brought to set aside or, alternatively, have declared null and void the resolution adopted at the Company s annual general meeting on May 11, 2007, but it was retracted on January 21, In the meantime, Lübeck District Court and Schleswig Regional Court of Appeal ruled that the action brought did not prevent the registration of the change in legal form. The resolution to change the legal form was entered in the Company s commercial register at Lübeck Local Court on December 14, 2007 and is thus effective. The change in legal form has no effect on the identity of the Company, which continues to exist as such in a different legal form under the name of Drägerwerk AG & Co. KGaA. Legal relationships which exist between the Company and third parties remain unchanged. As a result of the change in legal form, the capital stock of Drägerwerk AG became the capital stock of Drägerwerk AG & Co. KGaA. The shareholders of Drägerwerk AG became limited shareholders of Drägerwerk AG & Co. KGaA with the same number of common and/or preferred shares that they held before the change in legal form. The extent and nature of their investment also remain unchanged by the accession of Drägerwerk Verwaltungs AG as general partner of the Company, because the general partner has not made a capital contribution. As a result of the resolution to change the legal form, the annual general meeting ratified a new articles of association for the Company. The terms of office of the members of the Executive Board of Drägerwerk AG ended upon the change in legal form. They were all appointed as members of the Executive Board of Drägerwerk Verwaltungs AG, which, as the general partner, manages the business of Drägerwerk AG & Co. KGaA. As far as legally possible, the Executive Board members employment contracts were transferred to Drägerwerk Verwaltungs AG by means of agreements between the individual members of the Executive Board, Drägerwerk AG and Drägerwerk Verwaltungs AG. The function and composition of the Supervisory Board remain unchanged. A Joint Committee at the Company has been set up as a voluntary, additional body. This Committee is composed of members appointed from the Supervisory Boards of the Company and its general partner. The Joint Committee makes decisions on extraordinary management transactions by the general partner. The catalog of transactions requiring approval is substantially the same as that of Drägerwerk AG prior to its change in legal form to a partnership limited by shares, with different thresholds. The change in legal form should improve the Group s financing options and safeguard the independence of the listed family company for the long term. The change in legal form has not affected the operational management structure. Further details of the management and control structure of Drägerwerk AG & Co. KGaA can be found in the relevant section of the corporate governance report. 10 percent increase in stake held in Dräger Medical AG & Co. KG to 75 percent Drägerwerk AG acquired a 10 percent share in Dräger Medical AG & Co. KG from Siemens on February 28, 2007, increasing its stake in this entity and thus in the entire Medical division from 65 percent to 75 percent. This acquisition was agreed in connection with the revi-

55 Management report 51 sion of Siemens contractual put right. However, it has no effect on the Dräger Medical AG & Co. KG joint venture between Dräger and Siemens. The contractual revision was discussed in detail on page 77 of the annual report The acquisition had the following effects on the Group s net assets, financial position and results of operations: be made in this area until To this end, a Corporate IT department has been set up within Drägerwerk AG & Co. KGaA which will gradually take over the IT activities including managing external service providers. Corporate Communications and the Training section of Human Resources were also centralized. Group structure Change million Purchase price Acquired share in capital 63.3 Acquired goodwill 43.7 Deferred tax assets on the tax goodwill 3.0 The Company financed the purchase price of EUR 110 million primarily by note loans of EUR 100 million due in six, seven and eight years with an average rate of interest of 4.8 percent p.a. The acquired share in capital which previously formed part of minority interests disclosed under equity is subject to capital consolidation following the acquisition. Consequently, the equity of the Group dropped by EUR 63.3 million. Acquired goodwill represents an investment for 2007 and increases intangible assets included in non-current assets and thus capital employed. Better use made of joint resources To leverage the synergies of both the Dräger Medical and Dräger Safety divisions, Dräger intends to expand the shared services of Information Technology, Corporate Communications and Training within the Group, in addition to those services that are already shared, Tax, Legal, Insurance and Treasury. The aim is to enhance efficiency and quality. This in particular applies to the Group s information technology, where costs are currently above benchmark level. Considerable investments are to After the changes in fiscal year 2007, the Group structure is as follows: The Dräger Group is managed by Drägerwerk AG & Co. KGaA. The latter holds as key strategic investments the shares in Dräger Medical AG & Co. KG (75 percent) and Dräger Safety AG & Co. KGaA (100 percent), the parent companies of the divisions consolidated as subgroups, Dräger Medical and Dräger Safety. The remaining share in Dräger Medical is held by Siemens Medical Holding GmbH. In 2003, Siemens AG contributed its Monitoring division to Dräger Medical, thereby closing an important gap in the Dräger product portfolio. Drägerwerk AG & Co. KGaA also holds a few equity investments which do not form part of the two divisions operations (see page 178). All the shareholdings which form part of the global operations of the two divisions are either directly or indirectly owned by the respective parent. The new legal form of the ultimate parent company, Drägerwerk AG & Co. KGaA, increases financing potential through the option of issuing new limited shares. By focusing on the core business of the divisions Dräger Medical and Dräger Safety, the Dräger Group boasts an efficient, market-oriented and transparent organizational structure. The divisions themselves are focused on their core competency and especially on their customer groups and these customers needs. With their globally formatted business processes, they are in a position to act

56 52 Group structure/control systems GROUP STRUCTURE Dräger Group Drägerwerk AG & Co. KGaA* 75% Dräger Medical AG & Co. KG 100% Dräger Safety AG & Co. KGaA Shareholdings in Germany and abroad Shareholdings in Germany and abroad All consolidated companies are listed on pages 178 ff. of this annual report. * Dräger Verwaltungs AG is the general partner. It holds no interest in the Company. and react swiftly and flexibly. They also benefit from the advantages of Group membership which enables them to share know-how. Aside from the traditional areas, such as Tax, Legal, Insurance and Treasury, the new shared services in Corporate IT, Corporate Communications and Human Resources will offer greater scope to increase efficiency. Significant effects are also expected from the coordination of research and development units by the new Research and Development function on the Executive Board of Drägerwerk AG & Co. KGaA. Business activities of Dräger Medical Dräger Medical develops, produces, and markets medical equipment, system solutions and services for the acute point of care ( APOC ) segment from emergency care, perioperative and critical care to perinatal care and home care. The product portfolio enables the highest quality of treatment in ventilation and anesthesia as well as ongoing surveillance of patients vital signs by Dräger monitors. Numerous supplementary products support these functions. The Infinity Acute Care System currently being developed by Dräger Medical is a product range in which monitors and medical treatment equipment can be integrated to form one system. Dräger Medical delivered the first monitors from this range in December Infinity Acute Care System will be the first standardized platform with particularly high-performance individual components for patient monitoring, therapy functions and information management. Information is prepared such that doctors can make swift, informed decisions. The system is scalable, mobile and can be integrated into other systems. The key business processes for Dräger Medical are developing, marketing as well as selling and servicing products. Procurement and logistics processes are particularly important given that production is focused on assembling and testing equipment. Of the 6,077 people employed by the division worldwide (December 31, 2007), almost half are involved in customer-focused sales, marketing and service activities.

57 Management report 53 The division has development centers and production plants in Germany, the Netherlands, the US, and China. The largest sales and service companies are in Germany as well as the US, France, Italy, Spain, the UK, China and Japan. The division has sales and service subsidiaries in over 40 countries on all continents and is represented in around 190 countries. All consolidated subsidiaries of Dräger Medical are listed on pages 178 ff. of this annual report. The division s objective is to improve patient care and increase the efficiency of hospital processes. By doing so, Dräger Medical helps abate healthcare costs and secure long-term business success. Dräger Medical is one of the world s leading providers in its key market, the APOC segment in hospitals. Business activities of Dräger Safety Dräger Safety develops, produces, and markets safety equipment, system solutions and services for individual personal protection, stationary and mobile gas detection technology and end-to-end hazard management in the Dräger Safety Solutions business field. Dräger Safety s customers include industrial companies, emergency and firefighting services, mining and many other sectors. Dräger Safety s devices and services warn and protect people against life and health threatening hazards and protect our customer s facilities and production plants in critical situations. Many products by Dräger Safety detect gases and protect the human respiratory system. Dräger Safety s full product portfolio allows customers to perform extensive, efficient hazard management. Dräger Safety is one of the leading providers in its markets. The division has sales and service subsidiaries in over 30 countries on all continents and is represented in around 100 countries. The largest companies are in Germany as well as the US, France, the UK, Spain, the Netherlands, Australia and Singapore. Dräger Safety produces in Germany, the UK, the US, Sweden, South Africa and China. Dräger Safety has significant expertise in production as well as developing, marketing, selling and servicing products. As is the case in the Medical division, procurement and logistics processes are key for quality and reliability. Of the 3,944 people (December 31, 2007) employed by the division worldwide, more than 40 percent are involved in customer-focused sales, marketing and service activities. Control systems The planning and control systems are based on the Dräger Group s annually revised strategic plan, which is based on mid and long-term objectives. This plan reflects expected market developments, technological trends and their influence on products and services, as well as the financial means of the Dräger Group. The head offices of the Group and our two divisions are closely linked with the various business units, regions and Group companies in the strategic plan. The results are condensed in a five-year plan, the first year of which is developed into a detailed budget for the coming year including key performance indicators for operating activities. These are the EBIT margin and ROCE. The Dräger Group s medium-term goal is to achieve an EBIT margin of 10 percent and an ROCE of 20 percent. The long-term targets are rather more ambitious: average annual revenue growth exceeding 10 percent, an EBIT margin of more than 15 percent, ROCE of over 25 percent with an equity ratio of at least 35 percent. Target figures for the monthly reports on the development of the net assets, financial position and results of operations of the Group companies, divisions and the Dräger Group as a whole are derived from this budget. These data are supplemented by detailed information required for the management of the Group s operating activities. Comprehensive semi-annual risk reports complement these reports. The reports are discussed during

58 54 General economic conditions Executive and Supervisory Board meetings and are essential for key decisions. The volume and composition of order intake and revenues as well as EBIT and ROCE are important indicators of current performance. Early indicators for strategic development are development projects and their status, market response to new products, the development of regional markets and Dräger s competitive position within these regional markets. Further details of the management and control structure can be found in the corporate governance report (page 27). General economic conditions Overall economic environment 2003 to 2007 saw the longest and strongest period of global economic growth since the end of the 1960s, and at the start of 2008, a sizeable growth rate of 4.9 percent is expected for the real global gross domestic product (GDP) for This includes impressive growth rates recorded in China (11.4 percent), India (9.0 percent), Brazil (5.0 percent), and other countries classified as emerging markets. GDP is expected to have grown by 7.2 percent in Russia. This development is the result of increasing globalization. The major markets, however, remained the driving force behind global economic activity in 2007 despite increasing fears of a recession. GDP growth of 2.5 percent is predicted for the euro area, including Germany at 2.6 percent. GDP growth of 1.5 percent is expected in Japan and 1.9 percent in the US, which is down on the 3.3 percent achieved in However, in light of the situation which arose toward the end of 2007, these developments in the individual economies in 2007 are of only limited importance. The problem which has been known for years in the US consumer housing sector led the market for securitized mortgages for borrowers with poor credit rating (subprime market) to collapse. A credit squeeze in the shortterm interbank market followed, which, among other things, led to significantly higher risk premiums. Energy prices reaching record highs and a fast-weakening dollar added to the dismal picture. Currently, the most important questions are whether there will be a recession in the US and if so, whether it will spread and whether the capital market crisis will spill over into the real economy. Industry trend: Dräger Medical The global market for medical technology is valued at around EUR 250 billion. Around 7 percent is attributable to acute point of care and home respiration, Dräger Medical s core business. This area of business grew by around 2 to 3 percent in Due to the strength of the euro, especially against the US dollar, the trend valued in euros displays a lower growth rate. Mature markets such as Europe and the US are characterized by ongoing growth in demand for healthcare products and services. The reasons for this development are technological advancement and demographic trends as well as a high standard of living. In the US, population growth is also providing an additional boost. This high demand contrasts with a lack of funding in many countries, especially in the public healthcare systems. This leads to under-average growth compared with the world market, and in some countries such as Germany, even to a drop in investment demand. However, a noticeable trend is the increased investment in new process-supporting technologies as a means of increasing efficiency in the healthcare sector. For many emerging economies and eastern European countries, the growing trend toward globalization

59 Management report 55 DRÄGER MEDICAL MARKET VOLUME PER REGION 2007 DRÄGER SAFETY MARKET VOLUME PER REGION % (prior year: 8%) Germany 1 27% (prior year: 26%) Rest of Europe % (prior year: 11%) Germany 1 30% (prior year: 30%) Rest of Europe % (prior year: 43%) Americas % (prior year: 39%) Americas % (prior year: 18%) Asia/Pacific 4 5% (prior year: 5%) Other % (prior year: 17%) Asia/Pacific 4 3% (prior year: 3 %) Other 5 3 offers major opportunities fostering above-average growth rates. The consequent rise in the standard of living is reflected in burgeoning demand for healthcare products and services. Prime examples of such countries are China and, increasingly, India. Average income is still low in these regions, but a growing middle class and small upper class are already generating substantial demand for highquality products and services. These markets share is still small in relation to the market as a whole, but is set to expand considerably given the rapid economic growth in these countries. Industry trend: Dräger Safety The global safety technology segment in which Dräger Safety operates and which represents a market volume of some EUR 5.0 billion also showed signs of tougher competition and increased consolidation in the fiscal year. Factors affecting market expectations include increased environmental awareness as well as a much greater need for safety and the launch of national safety programs. Dräger Safety meets these demands with a distinct customer-oriented approach, as well as innovation, new technologies, and the combination of planning, design, construction and operator concepts. On the supply side, the trend toward consolidation by way of M&A activities continued in The aim of these efforts is to complete portfolios along the hospital process chain in order to support cost-driven hospitals in their efforts to cut costs and/or increase productivity. As such, the tough competitive environment is set to continue in the future, with technological differentiation remaining a key success factor.

60 56 Business performance Business performance of the Dräger Group BUSINESS PERFORMANCE OF THE DRÄGER GROUP Change in % Total order intake million 1, , Germany million Rest of Europe million Americas million (16.0) Asia/Pacific million Other million Total revenues million 1, , Germany million Rest of Europe million Americas million (11.7) Asia/Pacific million Other million EBITDA 1 million Depreciation/amortization million EBIT 2 before non-recurring expenses million Non-recurring expenses million EBIT 2 million (16.1) Net profit million (17.2) R&D costs million Cash flow from operating activities million Net financial debt million Investments million Capital employed 3 million Net working capital 4 million (8.9) EBIT before non-recurring expenses/revenues % EBIT before non-recurring expenses/capital employed % Net financial debt/ebitda 1 Factor Gearing 5 Factor Headcount as of December 31 Germany 4,590 4, Abroad 5,755 5, Total headcount 10,345 9,

61 Management report 57 Slight growth in order intake and revenues The Dräger Group just topped prior-year order intake and revenues in fiscal year 2007 thanks to another strong final quarter. Order intake rose by 3.7 percent to EUR 1,933.9 million (2006: EUR 1,865.0 million), and revenues by 1.0 percent to EUR 1,819.5 million (2006: EUR 1,801.3 million). The driving force behind the growth is the excellent performance of the Dräger Safety division in all regions. Overall, Dräger Safety s revenues in fiscal year 2007 rose by 8.2 percent to EUR million (2006: EUR million) and order intake increased 20.3 percent to EUR million (2006: EUR million). The project orders included in these figures are being completed over a number of years. These results offset the decrease at Dräger Medical, where order intake was down 4.0 percent to EUR 1,223.5 million (2006: EUR 1,275.1 million) and revenues dropped 2.4 percent to EUR 1,209.4 million (2006: EUR 1,239.2 million). Medical business saw an especially sharp drop in the Americas, reflecting the absence of an unusually large project completed in the prior year. All in all, business in the US proved to be weaker than expected. Net of currency effects, order intake decreased 7.3 percent and revenues dropped 2.1 percent year on year. Slight improvement in EBIT Consolidated net profit affected by non-recurring expenses The Dräger Group achieved an improvement in EBIT (before non-recurring expenses) given the slight increase in revenues and stable operating costs overall. However, the non-recurring expenses incurred by Dräger Medical and Drägerwerk AG & Co. KGaA did have a considerable adverse impact on net profit for fiscal year ORDER INTAKE AND REVENUES Order intake Revenues Change Change million million % million million % Dräger Medical 1, ,275.1 (4.0) 1, ,239.2 (2.4) Dräger Safety Drägerwerk AG & Co. KGaA/other (8.6) (12.9) Consolidation (32.8) (30.0) 9.3 (34.8) (35.5) (2.0) Dräger Group 1, , , , Footnotes for page 56 1 EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and non-recurring expenses 2 EBIT = Earnings before net interest result and income taxes 3 Capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities 4 Net working capital = Current, non-interest bearing assets less current, non-interest bearing debt 5 Gearing = Net financial debt/equity

62 58 Business performance These comprise NON-RECURRING EXPENSES GROUP REVENUES BY REGION % (prior year: 21.3%) Germany % (prior year: 40.7%) Rest of Europe % (prior year: 21.4%) Americas % (prior year: 10.4%) Asia/Pacific 4 6.9% (prior year: 6.2%) Other million Personnel measures 13.5 Measures in connection with delays related to Infinity Acute Care System 3.5 Portfolio adjustments 5.0 Impairment losses 1.2 Total for Dräger Medical 23.2 Conversion to partnership limited by shares 1.4 Realignment of IT 3.0 Total for Drägerwerk AG & Co. KGaA 4.4 Non-recurring expenses for the Dräger Group 27.6 These expenses are included in Cost of sales 8.5 Marketing and selling expenses 6.4 General administrative expenses 12.7 Non-recurring expenses for the Dräger Group Due to the changes to the reporting methods for participation certificates, the interest expenses for participation certificates included in the interest result now only includes the distribution of the minimum dividend of EUR 1.30 for series A and K and compounding of participation certificates recognized as debt. Despite a higher financing volume (up by around EUR 68 million) and rising interest rates (up by an average of some 0.3 to 0.5 percentage points), the interest expenses incurred by the Dräger Group remained constant at EUR 35.8 million (2006: EUR 35.6 million) thanks to lower project financing costs. In contrast, the Company generated higher interest income of EUR 9.2 million (2006: EUR 7.3 million) due to rising interest rates and thus improved its net interest result. A slight reduction in the tax load ratio was also achieved again, down to 33.8 percent from 34.9 percent. After all non-recurring effects, the net profit for the Dräger Group of EUR 64.7 million was considerably lower than the EUR 78.1 million recorded in the prior year. EUR 14.6 million is attributable to minority interests (2006: EUR 30.3 million) and EUR 45.4 million to shareholders of Drägerwerk AG & Co. KGaA (2006: EUR 43.1 million). The higher share attributable to Dräger shareholders is partly due to the buyback of the 10 percent stake in Dräger Medical AG & Co. KG. This produces earnings per common share of EUR 3.54 and earnings per preferred share of EUR 3.60, a year-on-year increase of EUR 0.18 in both cases. Steady development of assets, equity and liabilities The Dräger Group s assets remained stable in the past fiscal year, which is reflected in the balance sheet total of EUR 1,637.5 million (2006: EUR 1,636.3 million). A EUR 68.8 million increase in non-current assets is contrasted by a EUR 67.6 million decrease in current assets. Non-current assets were above all influenced by

63 Management report 59 INVESTMENTS/AMORTIZATION AND DEPRECIATION Investments Amortization Investments Amortization and depreciation and depreciation million million million million Intangible assets Property, plant and equipment FINANCIAL FIGURES Dec. 31, 2007 Dec. 31, 2006 Change million million % Total assets 1, , Equity (5.5) Equity ratio 33.3% 35.3% Capital employed Net financial debt goodwill from the buyback of a 10 percent stake in Dräger Medical AG & Co. KG and the new Medical building in Lübeck, whereas current assets were chiefly shaped by a reduction in trade receivables and in cash and cash equivalents. These effects outweighed the increase in inventories. The purchase price for the 10 percent stake in Dräger Medical AG & Co. KG of EUR 110 million was financed by further note loans totaling EUR 100 million due in six to eight years. This increased non-current liabilities and, coupled with the improved cash flow, offset the decrease in equity and the repayment of current bank liabilities. The REVENUES AND EBIT BEFORE NON-RECURRING EXPENSES million in % 1, , , Revenues EBIT before non-recurring expenses x 10 EBIT margin

64 60 Business performance EUR million in equity covers 96 percent of non-current assets. Taking the non-current liabilities into account, non-current assets as well as the entire inventories and 41 percent of trade receivables are financed. Net financial debt rose by EUR 68.5 million to EUR million. As of December 31, 2007, it amounted to 1.3 times EBITDA (2006: 1.0 times EBITDA). Capital employed (total assets excluding cash and cash equivalents and deferred taxes minus non-interest bearing liabilities) increased by EUR 23.1 million to EUR million, with the return on capital employed (ROCE) declining to 13.2 percent year on year (2006: 16.1 percent). Cash flow statement The development of the Group s financial position, net assets and results of operations is also reflected in the cash flow statement. The Group generated a cash flow from operating activities of EUR million, with a net profit of EUR 64.7 million. A net amount of EUR million (including EUR 43.7 million from the increase in goodwill in connection with the acquisition of the shares in Dräger Medical) was used for investing activities, leaving a free cash flow of EUR 39.5 million. After a cash outflow from financing activities of EUR 56.0 million, cash and cash equivalents decreased by EUR 16.5 million. As exchange rate changes between December 31, 2006 and December 31, 2007 had a negative impact of EUR 8.4 million on the cash and cash equivalents translated into euros, the Group s cash and cash equivalents (EUR million) dropped by EUR 24.9 million in the reporting period. Year on year, the cash flow from operating activities improved significantly to EUR million (2006: EUR 95.7 million), despite a lower net profit and an unfavorable development of provisions. Trade receivables in particular decreased during the reporting period, down by EUR 23.4 million. The strong rise in cash used in investing activities to EUR million (2006: EUR 59.8 million) is attributable to the goodwill from the acquisition of Siemens 10 percent share in Medical of EUR 43.7 million and the investments in the new building for Medical (EUR 28.4 million). In contrast to the prior year, the cash outflow from investing activities was not offset by cash received from the sale of Group companies. The cash outflow from financing activities of EUR 56.0 million (2006: EUR 28.8 million) saw a considerable increase, particularly due to the acquisition from Siemens of its 10 percent stake in Medical (EUR 63.3 million). The Dräger Group raised additional debt in order to finance the share acquisition. Overall assessment of the Group s net assets, financial position and results of operations at the time of preparing this management report At the time this management report was prepared, the Group s net assets, financial position and results of operations had seen a steady performance. Its overall position remains very sound. Added value created by the Group The added value created by the Dräger Group is a result of its total operating performance (revenues and other income) less input expenses such as the cost of materials, depreciation and amortization and other expenses. This added value is then broken down into the percentage attributable to the Group s major stakeholders, thus showing the Dräger Group s contribution to the income of the public and private sectors. In 2007, Dräger created added value of EUR million, a 0.9 percent increase on the prior year. The largest portion of this added value, EUR million (81.1 percent), was distributed to Dräger employees

65 Management report 61 ADDED VALUE STATEMENT OF THE DRÄGER GROUP Figures in million Total operating performance 1,834.9 Added value Employees Cost of materials 56.1 Depreciation/ amortization Other input expenses Added value Employees 37.6 Government 34.3 Lenders 8.8 Participation certificate holders 14.6 Minority interests 6.6 Shareholders 43.5 Company 68.8 (11.1%) Research and development (37.2%) Production and service (39.1%) Sales and marketing 78.9 (12.7%) Administration Creation Distribution Share in added value Employees (2006: EUR million; 78.1 percent). Added value per employee (annual average) amounted to EUR 75 thousand, a 2.6 percent decrease on the prior year (2006: EUR 77 thousand). The reason for this is the weaker than expected performance of the Medical division, with personnel capacity developing more or less as budgeted. This means that the added value per employee decreased by 4.8 percent at Medical, while it increased by 2.9 percent at Safety. Personnel expenses per employee, on the other hand, increased by 1.7 percent to EUR 61 thousand (2006: EUR 60 thousand) in the Dräger Group. attributable to research and development and sales and marketing employees. Around another EUR 100 million relates to work performed on site for customers by service engineers and equipment assemblers. Overall, this shows that two thirds of the employee share in added value is attributable to research and development and customer-related activities, thus highlighting the knowledge and customer-oriented focus of the Company. EUR 312 million (50 percent) of personnel expenses was

66 62 Business performance and position of the Company Business performance of Dräger Medical BUSINESS PERFORMANCE OF DRÄGER MEDICAL Change in % Total order intake million 1, ,275.1 (4.0) Germany million (2.0) Rest of Europe million (0.2) Americas million (24.5) Asia/Pacific million Other million Total revenues million 1, ,239.2 (2.4) Germany million (3.3) Rest of Europe million Americas million (18.0) Asia/Pacific million Other million EBITDA 1 million (5.6) Depreciation/amortization million EBIT 2 before non-recurring expenses million (7.5) Non-recurring expenses million EBIT 2 million (28.0) Net profit million (31.1) R&D costs million (0.2) Cash flow from operating activities million Net financial debt million (124.2) (81.5) 52.4 Investments million (39.3) Capital employed 3 million (8.5) Net working capital 4 million (12.8) EBIT before non-recurring expenses/revenues % EBIT before non-recurring expenses/capital employed % Net financial debt/ebitda 1 Factor (1.0) (0.6) Gearing 5 Factor (0.2) (0.1) Headcount as of December 31 Germany 2,432 2,492 (2.4) Abroad 3,645 3, Total headcount 6,077 6,

67 Management report 63 Non-recurring effects push order intake and revenues in 2007 slightly below prior year In fiscal year 2007, Dräger Medical s worldwide order intake came to EUR 1,223.5 million, down 4.0 percent on the prior year (EUR 1,275.1 million). As a result, revenues of EUR 1,209.4 million also fell short of the prior year s figure of EUR 1,239.2 million. The main reason for this development was the absence of unusually large tender contracts completed in 2006 and the failure of US business to meet expectations. In addition, the strength of the euro, especially against the US dollar, reduced order intake and revenues. Net of currency effects, Dräger Medical recorded a 2.1 percent decrease in order intake and a 0.4 percent drop in revenues worldwide year on year. In Germany, the APOC market shrank in 2007 due to the ongoing pressure on customers to cut costs. Dräger Medical was not immune to this market development. However, we succeeded in maintaining our good market position. At EUR million, order intake in Germany was down 2.0 percent on the prior-year figure of EUR million. At the same time, revenues dropped to EUR million, down 3.3 percent (2006: EUR million). In the rest of Europe, Dräger Medical reported a 2 percent increase in revenues to EUR million (2006: EUR million). Dräger Medical was able to defend its market position very well in this region. This is remarkable given the absence of the prior year s good tender business. At EUR million, order intake was more or less on a par with the prior-year figure of EUR million. A large volume of orders came from the sales organizations in Spain and Russia, while most of the other national subsidiaries attained at least the prior-year figures. Business in the Americas put in a much weaker performance in Order intake dropped to EUR million (2006: EUR million), and revenues to EUR million (2006: EUR million). In the prior year, an unusually large tender contract in Latin America was recognized by Direct Export (business conducted directly via Dräger Medical AG & Co. KG in Lübeck and not the sales companies). In addition to business performance, the trend in the US dollar had a significant impact on the figures translated into euros. Valued in US dollars, order intake in the US dropped by 7.3 percent and revenues by 2.1 percent year on year. Footnotes for page 62 1 EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and non-recurring expenses 2 EBIT = Earnings before net interest result and income taxes 3 Capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities 4 Net working capital = Current, non-interest bearing assets less current, non-interest bearing debt 5 Gearing = Net financial debt/equity

68 64 Business performance and position of the Company The Asia/Pacific region generated good growth of 18.3 percent compared with the prior year, recording an order intake of EUR million. Revenues also increased by a substantial 11.0 percent to EUR million. This development was driven by the positive performance of business in China, after renewed growth in investing activities previously dampened by local healthcare policies. Smaller East Asian countries as well as Australia also reported pleasing revenues. The division also achieved good results outside of the abovementioned regions, again predominantly driven by the Direct Export business. In the other countries region, order intake came to EUR 96.1 million compared to EUR 84.7 million in the prior year (up 13.5 percent) and revenues stood at EUR 97.4 million versus EUR 87.6 million in 2006 (up 11.2 percent). The countries of the Middle East made the greatest contribution. The regional distribution of revenues highlights the international focus of Dräger Medical. At 20.9 percent (2006: 21.1 percent) of total global revenues, Germany, our home market, remains our most important market, followed by the US, France, Italy, Spain and the UK. Key growth markets China, South East Asia and South America remain in the focus of Dräger Medical. Dräger Medical was able to defend its position in most key markets in 2007 and even succeeded in improving its position in some of these markets. EBIT affected by non-recurring expenses and down on prior year In fiscal year 2007, Dräger Medical generated EBIT (before non-recurring expenses) of EUR million, falling 7.5 percent short of the prior year s EUR million. The EBIT margin thus also decreased to 8.6 percent (2006: 9.1 percent). EBIT (after non-recurring expenses) of EUR 81.1 million is 28.0 percent below the EUR million achieved in the prior year. The EUR 23.2 million in non-recurring expenses relates to strategic portfolio measures in connection with the launch of the Infinity Acute Care System and to adjustments to the division s organizational alignment with the aim of boosting its operational strength. NON-RECURRING EXPENSES million Personnel measures 13.5 Measures in connection with delays related to Infinity Acute Care System 3.5 Portfolio adjustments 5.0 Impairment losses in connection with the relocation of Dräger Medical 1.2 Total for Dräger Medical 23.2 The division took steps to increase efficiency in order to counter higher production costs in relation to revenues. However, the higher costs could not be offset entirely, especially as some of the measures disclosed as non-recurring effects had an immediate impact on production costs. At the same time, selling expenses rose in line with growth in new markets. With revenues in fiscal year 2007 falling short of expectations, even the rigorous measures taken to increase productivity and reduce costs were not sufficient to fully compensate for the rise in costs.

69 Management report 65 Assets, equity and liabilities, financing, investments Year on year, Dräger Medical recorded a decrease in total assets of 4.4 percent to EUR 1,086.2 million (2006: EUR 1,136.7 million). Behind the decrease was the strong drop in receivables, which itself was partly due to the reduction in receivables from the large tender contracts recognized in the prior year and partly to improved receivables management. Inventories remained fairly unchanged, recording a rise of 1.8 percent. On the liabilities side, there were only minor structural changes. In fiscal year 2007, capital employed decreased by 8.5 percent to EUR million (2006: EUR million). This positive trend is chiefly attributable to the lower receivables, especially given that the prior year s relatively low level of inventories was maintained. Investments amounted to EUR 24.4 million in These mainly related to rationalization and replacement investments. Depreciation/amortization charges totaled EUR 25.3 million in Asset management will remain on the agenda in 2008 after the good progress made by the sales and production companies in this area in Although EBIT (before non-recurring expenses) decreased year on year, the drop in capital employed meant that the return on capital employed (ROCE) remained fairly constant at 17.4 percent (2006: 17.2 percent). Cash flow statement In the reporting period, the division recorded a cash inflow from operating activities of EUR million (2006: EUR 70.6 million) compared with a cash outflow from investing activities of EUR 22.3 million (2006: EUR 33.0 million). The cash outflow from financing activities came to EUR 95.9 million in 2007 (2006: EUR 47.6 million). This was mainly due to dividend distributions of EUR 67.8 million and the repayment of bank liabilities of EUR 27.7 million. Success factor: innovation Research and development expenditure by Dräger Medical amounted to EUR 89.1 million or 7.4 percent of revenues in fiscal year This is on a par with the prior year. Dräger Medical was able to defend its technology leadership again in 2007 and demonstrated its long-term innovative strength. In the field of perioperative care, the Fabius plus unveiled in November 2007 at Medica, the world s most important trade fair of its kind, complemented the Fabius range of anesthesia machines. Its modular design allows individual adjustment to specific customer needs, ranging from simple to highly complex clinical environments. With its Fabius MRI, Dräger Medical now offers an anesthesia machine designed especially for use in strong magnetic fields, for instance in magnetic resonance tomography and proton therapy. New software released for the Zeus anesthesia machine significantly extends functionalities. Thus Dräger Medical continues to set standards in the market for anesthetic machines. Dräger has extended its portfolio of operating room lamps with the new Sola 400. Dräger Medical s Critical Care business unit launched the Carina intensive care ventilator on the market in 2007, a significant addition to the division s ventilation

70 66 Business performance and position of the Company portfolio. The ventilator allows tube ventilation and, above all, non-invasive mask ventilation. The Gas Management Systems (GMS) business unit introduced its newly developed Medical Air Guard System, which allows the purity of medical compressed air to be monitored continuously rather than at certain intervals as was previously the case. The most important innovation and one which will remain immensely important in the years to come is the Infinity Acute Care System showcased at the end of This system incorporates patient monitoring, anesthesia, ventilation and information management for all treatment phases: a cross-departmental, standardized and integrated system setting new standards in the efficiency and quality of patient care. In the course of 2007, Dräger Medical made immense progress on this development. At the end of 2007, the Infinity Omega Widescreen was the first component of the Infinity Acute Care System to be delivered. This monitor offers enhanced functionality and improved performance as well as direct access to patient data management systems and other IT applications, such as radiological images and servers on which medical findings are stored. Customers can thus now purchase their first component of the Infinity Acute Care System and look to the future. The remaining components of this system will be successively launched on the market from 2007 onward. Further improvement in global process structure at Dräger Medical Dräger Medical has implemented a global process organization over the past few years based on through-put times, quality, punctuality of deliveries and customer satisfaction. The processes are being continuously improved and tailored even better to the needs of the organization. A particular focus will be placed on leveraging synergies within the Dräger Group.

71 Management report 67

72 68 Business performance and position of the Company Business performance of Dräger Safety BUSINESS PERFORMANCE OF DRÄGER SAFETY Change in % Total order intake million Germany million Rest of Europe million Americas million Asia/Pacific million Other million Total revenues million Germany million Rest of Europe million Americas million Asia/Pacific million Other million EBITDA 1 million Depreciation/amortization million EBIT 2 before non-recurring expenses million Non-recurring expenses million EBIT 2 million Net profit before profit/loss transfer million R&D costs million Cash flow from operating activities million Net financial debt million (1.9) Investments million (2.9) Capital employed 3 million Net working capital 4 million (1.8) EBIT before non-recurring expenses/revenues % EBIT before non-recurring expenses/capital employed % Net financial debt/ebitda 1 Factor Gearing 5 Factor Headcount as of December 31 Germany 1,835 1, Abroad 2,109 1, Total headcount 3,944 3,

73 Management report 69 Considerable growth in order intake and revenues In fiscal year 2007, the Dräger Safety division s order intake rose by 20.3 percent (22.2 percent net of currency effects) to EUR million. Double-digit growth was recorded across all regions. Global revenues rose to EUR million, up 8.2 percent (9.9 percent net of currency effects) on the prior year (EUR million). Core business and a successful performance in all regions again forged this positive revenue trend. Dräger Safety implemented improvements in internal processes such that new products were developed, produced and launched even more effectively and efficiently. Global revenue growth at Dräger Safety exceeded the average regional market growth rates. This enabled the division to build substantially on its competitive position despite the strained financial situation and the resulting tight rein on public spending as well as increased competition driven by currency effects. All units had a hand in this success: Personal Protection and Gas Detection Technology and Dräger Safety Solutions. Earnings growth even steeper Dräger Safety again increased EBIT (up 26.4 percent) ahead of revenues (up 8.2 percent) in fiscal year The division thus achieved its best ever EBIT of EUR 69.4 million (2006: EUR 54.9 million). The EBIT margin came to 10.9 percent of revenues, a double-digit figure for the first time. The division s greater market segment and customer focus in 2007 led to growth and improved earnings. Making quite sure that innovations cater to market requirements improved the success rate of new products. Services tailored to specific target groups and direct customer relations strengthened Dräger Safety s market position. With cost structures much improved and revenues rising, earnings at the subsidiaries increased. Costcutting measures in the form of process improvements proved most effective. In 2007, Dräger Safety continued to work hard on achieving its strategic goal of improving the efficiency of all its business processes through process improvements and global process standardization. Assets, equity and liabilities The assets, equity and liabilities of Dräger Safety only changed to a minor extent despite the growth of business. Due to investments in intangible assets and property, plant and equipment of EUR 26.5 million, a low rise in receivables and the focused stockpiling of critical supply parts and products, capital employed increased at a lower rate than revenues, to EUR million (2006: EUR million). The process improvements in production and organization and the special focus on greater efficiency of capital employed continued and bore fruit. Endeavors to use just a few logistics locations (HUBs) to Footnotes for page 68 1 EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and non-recurring expenses 2 EBIT = Earnings before net interest result and income taxes 3 Capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities 4 Net working capital = Current, non-interest bearing assets less current, non-interest bearing debt 5 Gearing = Net financial debt/equity

74 70 Business performance and position of the Company ship products directly to customers worldwide has involved significantly improving delivery performance. At the same time, the reduction in inventories and the number of warehouses reduced capital employed. The increase in assets was mainly financed by current liabilities. EBIT came in at EUR 69.4 million, producing a return on capital employed (ROCE) of 31.5 percent (2006: 25.7 percent). Investments The division invested increasingly in production technologies of the future. In Lübeck, Dräger Safety constructed a new automated carbon production facility during the fiscal year. The activated carbon produced here absorbs gaseous contaminants in respiratory filters. The investments in new production facilities reflect the evolution of Dräger Safety into a state-of-the-art production company focused on market requirements. Cash flow statement The cash flow statement illustrates the positive development of net assets and the results of operations. The cash flow from operating activities came to EUR 62.7 million (2006: EUR 32.3 million). Dräger Safety invested EUR 25.8 million of this sum, leaving a free cash flow of EUR 36.8 million. The cash outflow from financing activities, including profit transfer, amounted to EUR 33.6 million, leading to an increase of cash and cash equivalents to EUR 14.6 million, including a negative currency-driven impact of EUR 0.9 million. Growth across all regions In Germany, order intake rose by 12.5 percent and revenues by 8.0 percent. Order intake in Europe (excluding Germany) grew even faster, notching up a 25.5 percent increase. Revenues climbed 8.6 percent. In North America, order intake rose by 14.4 percent (22.1 percent net of currency effects) and revenues by 9.2 percent (16.6 percent net of currency effects). In Asia/Pacific, Dräger Safety generated 21.3 percent growth in order intake (25.1 percent net of currency effects) and 3.6 percent revenue growth (6.5 percent net of currency effects). Here it should be noted that the division completed major project contracts in this region in 2006, such as the aircraft fire simulation and training system for Bangkok airport. All other countries and continents in which Dräger Safety is represented (Africa and other countries) generated higher than proportionate growth of 25.3 percent in order intake (30.9 percent net of currency effects) and 15.7 percent revenue growth (20.6 percent net of currency effects). The subsidiary in South Africa was particularly successful. One-stop shop: Dräger Safety Shutdown & Rental Management Dräger s strategic business field Dräger Safety Solutions provides end-to-end safety planning and management for shutdowns, stoppages or overhauls of large-scale industrial facilities (Safety Shutdown & Rental Management). In this context, Dräger offers end-to-end solutions ranging from providing safety compliance officers to a complete organization with staff and a management team as well as comprehensive safety equipment for their personal protection. Represented at 70 international trade fairs and conferences In 2007, Dräger Safety took part in over 70 exhibitions and trade fairs around the world. At the A+A (Safety, Security and Health at Work), the world s most important occupational health and safety trade fair, Dräger presented the latest developments and services to an international audience in Düsseldorf in September One such example

75 Management report 71 is the portable 4 to 5 gas detector Dräger X-am Its state-of-the-art sensor technology combines extremely high measurement accuracy with very low operating costs. The new XXS sensors have miniaturized gas sensors in a way never seen before. The new PSS 7000 compressed air breathing apparatus, the breathing apparatus for fire departments, and the new Dräger HPS 6200 fire helmet were also showcased in Düsseldorf. They offer the greatest possible protection for rescue and firefighting missions.

76 72 Business performance and position of the Company Business performance of Drägerwerk AG & Co. KGaA/other companies BUSINESS PERFORMANCE OF DRÄGERWERK AG & CO. KGAA/OTHER COMPANIES Change in % Total order intake million (8.6) Germany million (8.6) Rest of Europe million Americas million Asia/Pacific million Other million Total revenues million (12.9) Germany million (12.9) Rest of Europe million Americas million Asia/Pacific million Other million EBITDA 1 million Depreciation/amortization million EBIT 2 before non-recurring expenses million Non-recurring expenses million EBIT 2 million Net profit million R&D costs million Cash flow from operating activities million (3.6) Net financial debt million Investments million Capital employed 3 million Net working capital 4 million (38.6) (43.0) (10.2) EBIT before non-recurring expenses/revenues % EBIT before non-recurring expenses/capital employed % Net financial debt/ebitda 1 Factor Gearing 5 Factor Headcount as of December 31 Germany Abroad Total headcount

77 Management report 73 The business performance of Drägerwerk AG & Co. KGaA and other companies is mainly shaped by the performance of Drägerwerk AG & Co. KGaA. Its functions serve to fulfill the core tasks of the Company as well as to provide services to other Group companies. These functions include the services provided to the Company and the Group by the Legal, Tax, Insurance, Treasury, Corporate Communications, Investor Relations, Financial Control and Accounting departments, as well as the Corporate IT, HR, Internal Audit and Basic Research departments. Real estate management services are provided by a real estate company listed under Other companies. Services rendered for the divisions are charged in accordance with the arm s length principle, as between unrelated parties. To make better use of additional synergy potential within the Group and especially between the two divisions, the Group s shared services were expanded in fiscal year To this end, a Corporate IT department has been set up within Drägerwerk AG & Co. KGaA which will gradually take over the IT activities including managing external service providers. Corporate Communications and the Training section of Human Resources were also centralized. The positive EBIT (before non-recurring expenses) of EUR 62.8 million (2006: EUR 51.2 million) is largely the result of the EUR 82.9 million (2006: EUR 70.2 million) in income from investments of Drägerwerk AG & Co. KGaA less the operating result generated by the companies grouped in this segment. The negative net interest result of EUR 20.3 million is greater than the prior-year figure of EUR 16.8 million. This is mainly attributable to the rise in capital employed and the related increase in net financial debt. Capital employed climbed to EUR million in 2007 (2006: EUR million). This rise is chiefly due to the acquisition by Dräger Medical Holding GmbH of the 10 percent share in Dräger Medical AG & Co. KG and the investment in the new building for Dräger Medical. This, in turn, is responsible for the increase in net financial debt to EUR million (2006: EUR million), which was mostly covered by additional note loans raised by Drägerwerk AG & Co. KGaA. Footnotes for page 72 1 EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and non-recurring expenses 2 EBIT = Earnings before net interest result and income taxes 3 Capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities 4 Net working capital = Current, non-interest bearing assets less current, non-interest bearing debt 5 Gearing = Net financial debt/equity

78 74 Research and development/personnel Research and development Investing in its technological future, the Dräger Group spent a total of EUR million, or 6.7 percent of revenues (2006: EUR million, or 6.6 percent), on research and development. The R&D departments of the Dräger Medical and Dräger Safety divisions employ 902 people worldwide. 47 people work at the Lübeck-based research department of Drägerwerk AG & Co. KGaA. The specialists from the basic research department work closely with the Group companies product developers in Germany, Europe and the US. Our basic research department s main task is to explore new technologies and develop technical solutions for potential applications. Technologies are not transferred to product development until they are sufficiently technologically mature. This reduces technological risk during the development process. The R&D departments cooperate with universities, research institutes and innovative companies worldwide. The comprehensive innovation processes in place within the Group facilitate the inclusion of the latest research findings and cuttingedge technologies which meet our high quality standards in the product development process. Customer value is our key focus from an early stage in development. Information and communication technologies are becoming increasingly important, in particular in the development of software for integrated products, systems and services. Key R&D projects at Dräger Safety include the development and integration of sensors in miniaturized devices and networked instruments for personal protection and contamination monitoring. These projects have led to the development of new detection principles which are used for more sensitive, selective and stable measuring of molecular components in the air and in breathing gas. A new Dräger drug test is proving to be a technological platform which can be used to detect drug consumption easily and reliably in saliva. The new developments in connection with this analysis method include a disposable cartridge with several immunological sensors, an improved optical reader and methods for reliable sample taking and fast interpretation of sensor signals. In the field of personal protection, integrated products consisting of a combination of masks, breathing protection apparatus, protective clothing and sensors are being developed. Developers are looking into suitable technologies for voice and data communication between firefighters and the command center. Dräger Medical s R&D projects involve system solutions for acute and subacute points of care in hospitals and transport solutions for continuous treatment and control. R&D costs in million Dräger Medical Dräger Safety Drägerwerk AG/AG & Co. KGaA Dräger Group in % of revenues Headcount

79 Management report 75 Currently under development is Infinity Acute Care System, a system of integrated workstations in operating rooms and in intensive care units that enable hospital workflows to be structured more efficiently, more simply and to a better standard. The first monitor in this product range was delivered to customers at the end of In addition, a software platform was created into which smart solutions to support treatment decisions can be integrated as the user requires. New graphical displays of acute patient data and simplified user interfaces should enable the user to identify the patient s condition quickly and intuitively. A new tomographic monitor has been developed which, for the first time, constantly measures the air in specific areas of the lungs and displays the data continuously. Dräger Medical is currently collaborating on two research projects sponsored by the German Federal Ministry of Research whose aim is to address the integration of applications in operating rooms and the intensive monitoring of inpatients and outpatients. Dräger Medical spent EUR 89.1 million, or 7.4 percent of revenues, on research and development (2006: EUR 89.3 million, or 7.2 percent), and Dräger Safety EUR 31.2 million, or 4.9 percent of revenues (2006: EUR 28.3 million, or 4.8 percent). Expenses incurred by Drägerwerk AG & Co. KGaA and not charged on to the projects of the divisions amounted to EUR 1.6 million (2006: EUR 0.4 million). Dr. Ulrich Thibaut took charge of the Executive Board s new research and development function on June 18, By introducing a Group-wide function in this crossdivisional area, Dräger is fortifying the Company s sustainable development and innovative strength. Personnel A systematic and comprehensive training and personnel development strategy is essential to safeguard our competitiveness long term. Dräger has always invested substantially in our employees knowledge and professional development. To ensure a consistent strategic focus and the best possible use of resources, in 2007 the Dräger Group pooled the capacities in these areas from all divisions in the Corporate Human Resources department at Drägerwerk AG & Co. KGaA. All areas of personnel development and professional and vocational training, both relating to strategy and operations, now fall under the responsibility of one function. Assessment and feedback systems are a fundamental element of the culture of management and cooperation we all subscribe to at Dräger. On a rotating basis, the employee WORKFORCE TREND OF THE DRÄGER GROUP In 2007, Dräger filed a total of 80 patent applications with the German Patent and Trademark Office, an increase of 8 percent year on year. Altogether, 120 new applications were submitted to international patent offices. Of this figure, 12 applications were filed in the US. Inventors from the basic research department in Lübeck were involved in more than 50 percent of the new applications filed in Germany to 2007 as of December 31 (excluding apprentices and trainees) 12,000 10,000 8,000 6,000 4,000 2,000 5,362 4,325 5,516 4,433 5,755 4,590 Germany Abroad

80 76 Personnel/Procurement, production and logistics Headcount as of the Headcount (average) balance sheet date Dec. 31, 2007 Dec. 31, Dräger Medical 6,077 6,051 6,066 5,991 Dräger Safety 3,944 3,683 3,854 3,660 Drägerwerk AG & Co. KGaA Total for Dräger Group 10,345 9,949 10,192 9,861 thereof: Men 7,329 7,060 7,154 6,967 Women 3,016 2,889 3,038 2,894 Plus trainees and apprentices Turnover in % of employees Sick days in % of work days Training expense in million survey and leadership feedback tools provide all Dräger employees with the opportunity once a year to give their managers and the Company s management feedback on job satisfaction, how they experience management and other topical issues within the Company. The fact that throughout the Group over 80 percent participated in 2007 is proof that our employees continue to be very interested in making an active contribution to improvements. Procurement, production and logistics Dräger Medical pressed ahead with the implementation of a global purchasing strategy and the associated global purchasing processes, instruments and methods, using innovative purchasing concepts to further reduce the cost of raw materials despite difficult market conditions. While the number of suppliers was reduced, the international supplier base was broadened further, with greater consideration given to new suppliers from Asia (especially China, Taiwan and Malaysia). This also mitigates the impact of medium-term currency fluctuation. The expansion of our risk management system puts Dräger in a position to identify and manage supplier risks early on. In addition, the availability of materials was improved and supply bottlenecks were avoided thanks to the extensive introduction of logistics models with suppliers (VMI, KANBAN, flexibility models). Extended payment periods with suppliers and the introduction of consignment stores for purchased parts reduced working capital. The use of synergy potential in purchasing at Group level began to bear fruit. A customization center was set up in Lübeck to respond even faster and more flexibly to customer wishes. Here, Dräger Medical brings together the devices and modules produced at different sites for specific customer orders. The concept will, in particular, support the modular product structure of the future Infinity Acute Care System by consolidating the components fast and reliably. The customization center is already working well for a number of existing product combinations.

81 Management report 77 In the order fulfillment process, Dräger improved delivery excellence in production and along the entire supply chain, achieving a further gain in efficiency. In addition, the continued pursuit of the direct delivery concept in close collaboration with the subsidiaries improved customer deliveries. A positive by-product was the reduction of inventories at the subsidiaries. Improved deliveries led to greater customer satisfaction. Dräger Medical, Dräger Safety and Dräger Interservices GmbH also optimized transport processes and costs by pooling requirements for joint projects and tenders. Dräger Safety also continued to expand its global materials group management, achieving the related objectives of further reducing the number of suppliers and the cost of materials. At the same time, Dräger Safety saw better quality and improved adherence to delivery deadlines on the part of suppliers. The supply of materials was considerably stabilized, both for new product developments and for current series, thanks to a new risk management system. A key problem single source electronic components was addressed with the assistance of suppliers. uniform, high quality standard worldwide. The fluctuating demand in individual product categories, which can be substantial during the year, was efficiently addressed through greater flexibility in global production capacities. It even proved possible to optimize production and sales company inventories at the same time. More and more subsidiaries are handling their orders through the regional HUBs in Europe and North America. Concentrating global order delivery and storage of products and parts at the regional HUBs led to improved delivery performance at the participating subsidiaries and the new joiners. Inventories and logistics costs were also cut substantially. The most important materials groups and the share attributable to the top 10 suppliers for Dräger Medical and Dräger Safety are shown below: Dräger Safety continued to build on its global production strategy. Production quality management introduced a MATERIALS GROUPS PURCHASED/PERCENTAGE ATTRIBUTABLE TO TOP 10 SUPPLIERS ( MILLION) Dräger Medical Dräger Safety Electronics Metal Plastic Other Total Top 10 suppliers 36% 37% 29% 26%

82 78 Environmental protection Environmental protection Environmental protection and sustainable operations are key objectives of the Dräger Group that are not only integrated in the processes of our companies in Lübeck, our biggest site with the most important production plants, but also anchored in our global quality and environmental policies applicable to all Dräger companies. At Dräger, we also apply the tried-and-tested management instruments we have been using for years to continuously improve plant and product-related environmental protection to actively contribute to CO 2 reduction and climate protection. In the past years, this has in particular led to a steady reduction in specific CO2 emissions at the Lübeck plants. In the new Dräger building, we also succeeded in remaining more than 25 percent below the ambitious Energy Conservation Regulations thanks to energy-saving concepts for building insulation, air-conditioning and heating. Dräger is thus helping to reduce CO2 emissions long term. Thanks to the block-type thermal power plant with a furnace thermal output of 2.4MW which was taken into operation at the end of 2007, we are now using the latest combined heat and power technology which, with a total effectiveness of around 85 percent, makes a noticeable contribution to the efficient use of primary energy and the competitiveness of the Company in times of increasing electricity and energy prices. Resolute focus on climate protection considerations will continue to be a key feature of future construction and modernization projects as well as concepts to improve local infrastructure, and will impact the activities of our employees the world over. The systematic, DIN EN ISO environmental management certification of all German Dräger companies we have practiced for years continues to contribute to upholding high environmental standards. Association certification is not limited to our own companies: Third-party firms on our site which are customers or important suppliers are also included in our environmental management system in Lübeck. High environmental standards at Dräger companies again contributed to Dräger s ranking as one of the best of 10 companies that participated in an external corporate responsibility rating process. Electricity, water, natural gas and heating oil consumption and total solid waste remain the most important measures of direct environmental considerations at the Lübeck site. Raw materials are only processed in small quantities, apart from a few exceptions such as calcium oxide (for soda lime production), activated carbon (for the production of breathing filters), potassium superoxide (for Oxy K breathing apparatus) and packaging materials. The most important environmental data is presented in the chart on page 79 and shows that we have again succeeded in remaining below the prior-year values in all areas. A further reduction in the absolute consumption of heating energy will only be possible in certain areas by means of additional building insulation measures. The production processes were evaluated in terms of their primary consumption of energy and resources. The resulting saving measures from an ecological and cost perspective have been almost fully implemented. Where there is no change in production technology, increases and decreases in consumption primarily result from fluctuations in production output. This applies in particular to Dräger Safety, whose production requires a significant amount of energy and water consumption. At Dräger Medical, production processes chiefly consist of low-emission device assembly. In Lübeck, Dräger s carbon dioxide emissions primarily arise from the use of natural gas and oil to generate heat, which comprise around 55 percent of the total energy consumption and, as a result of their low CO2 equivalent, contribute to the fact that the average workstationspecific CO2 emissions per employee are around 3 metric

83 Management report 79 REDUCTION OF ENVIRONMENTAL LOAD IN RELATION TO REVENUES (in %, reference year 1995 = 100%) Total solid waste CO2 emissions Water consumption Energy consumption A continuous decline in environmental load indices at the Lübeck site as measured against revenues tons (mt) per year (excluding personal CO2 emissions, for example from the use of public transport and cars to get to work). Electricity consumption, which has a greater effect on the climate, has steadily increased in relation to total energy consumption over the past years and now makes up around 45 percent of the total. This is, however, more a result of extensive heating energy savings than of an increase in electricity consumption. Adjusted for special effects from construction work in 2006, water consumption fell by 14,000m 3 to 82,000m 3 in Consumption per employee in office and production areas of Dräger Medical is stable at around 35l per day, which is on a par with standard household consumption. At 160l per employee per day, consumption at Dräger Safety is considerably higher, mainly as a result of water-intensive production processes for filter paper and suction filters for which there is currently no significant savings potential. Waste per location remained constant year on year, both in terms of the volumes recorded per waste category and the total volume. There were no significant differences in the volumes of waste per company either. In Lübeck, both Dräger Medical and Dräger Safety generated waste of approximately 1,000mt, of which more than 99 percent was recycled. A further reduction in waste volume, which in part is process-related, could potentially mean compromising on quality in important production areas. For this reason, our waste management has taken measures which will improve the efficient separation of waste, will contribute to a further reduction in costs and enable higher quality recycling of waste. Dräger uses target-groupspecific leaflets on waste for all employees to improve communication on our waste processes. All external requirements on product-related environmental protection, for example the Chinese RoHS, have been implemented at all Dräger companies, which meant that there were no delays or environmental disputes in connection with the delivery of Dräger products. Both divisions are carefully observing the changes evolving in the exceptions to the EU RoHS for medical and safety electronic and electrical devices. The special requirements for medical

84 80 Environmental protection/opportunities and risks relating to future development devices, for example, as well as the risks and additional costs resulting from a tightening of bans on the use of certain substances, in particular lead, are discussed in constant dialog with the European authorities in order to explore the possibility of being able to make use of the existing exceptions long term, safeguard the competitiveness of Dräger products and clear the way for innovative technologies. The new European chemicals law, the REACH regulation, will have an effect on Dräger and our products, since our companies will be affected as producers or importers and as downstream users. Dräger has set up an expert working group to implement the requirements of REACH, for example pre-registration obligations, and to ensure the long-term supply and utilization of materials and preparations. The group has conducted an initial material and volume analysis and will arrange for the necessary steps to be taken together with suppliers and the European Chemicals Agency to ensure that proven Dräger technologies can still be delivered to our customers without reductions in quality resulting from REACH. Opportunities and risks relating to future development Risk and opportunity management The Dräger Group s risk and opportunity management system allows it to take a responsible approach to dealing with the inevitable uncertainties of doing business. The system enables Dräger to meet its targets by consistently taking advantage of opportunities without losing sight of the associated risks. Our risk policies are based on the goal of securing and by exploiting our opportunities building on our market position and increasing the value of the Group on a sustainable basis. This involves doing our utmost to avoid or insure against risk, and responsibly managing those risks which we have to bear. The risk management system comprises all measures that allow us to identify, measure, monitor and manage potential strategic and operational risks at an early stage. Based on the Group s and divisions annually revised strategic plans and the resultant short and medium-term plans, systematic risk control covers business units, companies and regions, divisions and the Group through monthly reports. Our risk reports, which are routinely compiled twice a year or ad hoc as required and detail economic, market and currency risks, the competitive situation and environment, as well as risks specific to the business units, are a key part of this process. Risk management is rounded off by the activities of the Group internal audit function and the statutory audit of the financial statements. As a matter of course, Dräger Medical and Dräger Safety submit their products and services to quality inspections and ongoing checks in accordance with stringent national and international standards and always with the special quality and risk orientation of these sectors in mind.

85 Management report 81 The long-term basis for our opportunity management is the strategic planning process and the resulting development and market positioning plans for products over their respective life cycles. This includes regularly adapting and improving our structure. The greater use of shared services within the Group is an example of this. There are also significant opportunities within the measures to strengthen the Dräger brand which, together with the guiding philosophy Technology for Life, conveys the high standard of technology, quality and reliability. Short-term options are identified by regularly monitoring the market and the competition. Our systems ensure that information on risks and opportunities flows to the respective process owners, the Executive Board and the Supervisory Board and, if necessary, enable action to be taken at short notice. The Dräger Group s risk management process complies fully with the objectives of the German Act on Corporate Control and Transparency ( Gesetz zur Kontrolle und Transparenz im Unternehmensbereich : KonTraG). Both the risks presented below and risks of which we may currently be unaware can have an impact on the Dräger Group. Overall economic risks Economic activity in most industrialized nations has been shaped by uncertainty of late, despite the continued stable development of the real economy. The precarious situation prevalent in the past years on the US real estate market triggered a crisis on global financial markets last year, the overall scale of which is still unknown. To date, repercussions for national and international services in the economic cycle have been kept to a minimum. It is still unclear just how the US economy will develop and how it will affect other countries. The double deficit on government budget and current account in the US means that the dollar is expected to remain weak. For export-oriented eurozone companies, the current state of the weak US dollar, coupled with uncertainty as to how the exchange rate will develop, are major risk factors. Growth is expected to continue in emerging markets. The danger of a recession in key industrial economies still exists. By strengthening its global business, the Dräger Group has achieved a broad regional diversification of revenues. Our growth targets are still focused on the Americas and Asia. Key production sites in the US, UK and in China are instrumental in reducing the currency risks associated with global business. Numerous other factors such as global, political and cultural conflicts, including the situation in the Middle East, can affect macroeconomic factors and international capital markets and shape demand for our products and services. Strategic risks The industries in which Dräger Medical and Dräger Safety operate are considered future-oriented, but within each industry, further consolidation processes are expected that are likely to affect the structure and intensity of competition. We are up against strong competitors, some of whom have access to extensive resources. In both divisions, the Dräger Group is dependent on the investment capacity of public bodies, since the majority of customers both in Germany and abroad are public hospitals and other institutions, for example the fire service, the police force, the military and public disaster response. A trend toward lower public spending has emerged in many industrialized nations in the past years, for example in the US, China and also in Germany. In response to these challenges, we are cementing and further expanding our position in the traditional and emerging markets through customer focus, innovation, the high quality and reliability of our products and services and, where expedient to business,

86 82 Opportunities and risks relating to future development active involvement in the consolidation process. The focus we have placed on the core businesses of Dräger Medical and Dräger Safety and a constant review of their limitations over the last few years is a key pillar of this strategy. Operational risks One important challenge is keeping the product portfolio of the Dräger Group divisions up to date, incorporating both technological leadership and products which appeal to a large section of the market. Together with technology, excellent cost structures are important for the market position and business success of the Dräger Group. This requires not only a high quality product portfolio in line with market requirements but also the ability to control operating processes, from development, sales and order fulfillment through to maintenance of the product portfolio. In line with the increase in project business in the divisions of the Dräger Group, cost accounting and costrelated risks for single orders are increasing. Research and development are of prime importance in the Dräger Group, both in the divisions and at the headquarters. In order to maintain the current product portfolio and those products that are being developed, we need to work closely with reliable, competent suppliers. Our suppliers are integrated into our processes, since the level of vertical production in our business model has been reduced to the necessary core technologies and the assembly of purchased parts and components. To manage the risks this entails, information processes are structured, the necessary internal and external interfaces in the global processes are optimized and the performance of external partners is carefully reviewed. Quality standards safeguard the supplier selection and procurement processes. Our operating processes are continuously being improved; the action taken in recent years is proof that the Dräger Group has responded to these challenges in the divisions and at the headquarters. IT risks Our business processes require a reliable, cost-effective IT solution. To improve our position, IT activities have been pooled in the Corporate IT department within Drägerwerk AG & Co. KGaA. As a shared service, this unit will provide IT services to all Group companies. In connection with this, parts of the outsourced IT services were taken over by external providers. IT management, coordination, project management and control are the functions which will first and foremost be strengthened. A role concept links the business and IT processes. Coordination with external service providers is still of prime importance. These service providers are highly competent companies. The most important project for the next three/four years is the creation and implementation of a common IT platform for all Dräger companies. Personnel risks Competition for highly qualified staff is fierce in the industries in which our divisions operate. Recruiting and retaining well-qualified staff for all functions and regions is crucial for our further development. This is therefore very important to cultivate and improve our attractiveness as an employer. Regulatory and legal risks The companies of the Dräger Group are subject to varying and ever-increasing regulation in all of the countries they operate in, regardless of the extent of their operations. The extensive measures necessary to comply can generate considerable operating costs. The obligations can arise from public law, such as tax law, or civil law. Also important for our business are laws to protect intellectual property and third-party concessions, varying licensing regulations for products, competition law regulations, regula-

87 Management report 83 tions in connection with awarding contracts, provisions on export control, and much more. Drägerwerk AG & Co. KGaA is also subject to legal regulations governing capital markets. Companies in the Dräger Group are currently and may in the future be involved in lawsuits in connection with their business activities. To counter such legal risks, we have taken out liability insurance policies with coverage which the Executive Board of the general partner considers appropriate and customary for the industry. In some regions, legal uncertainty could result from us only having limited possibilities to assert our rights. The Dräger Group endeavors to comply with all legal and regulatory obligations and corresponding internal regulations and directives are in place. A compliance organization is being set up to improve and increase transparency. Risks from financial instruments The aim of the Dräger Group is to control liquidity risk and risk from financial instruments, i.e. interest rate, currency and credit risk. The liquidity risk and the interest rate risk are hedged centrally by Drägerwerk AG & Co. KGaA, whereas the currency risk is the joint responsibility of Drägerwerk AG & Co. KGaA and the divisions. The credit risk with regard to cash investments and derivatives is mitigated centrally, while the credit risk from receivables from operating activities is the responsibility of the divisions. Our Treasury Committee receives a monthly report on the financial situation of the Dräger Group. A treasury system documenting financing arrangements, interest rate and currency derivatives supports the management of risks from financial instruments. Marketable hedging instruments contracted with reputable banks as counterparties are the only financial derivatives we use. Derivatives may only be traded by members of the Dräger Group if they have been approved beforehand. We mitigate our liquidity risk by diversifying the maturity structure of our financing instruments. In addition to participation certificates, we have raised note loans which are due in one to eight years. We also have non-current and current liabilities to banks as well as a liquidity reserve comprising freely available credit facilities with numerous banks with which we have concluded bilateral agreements. Due to the maturity structure of these financing instruments, there is only a limited repricing risk. Substantial cash and cash equivalents and trade receivables also provide us with additional financial scope. The solid financing structure of the Dräger Group is also evidenced by our equity ratio of 33.3 percent. The Dräger Group is mainly exposed to interest rate risks in relation to the euro. We counter these risks using a combination of fixed and variable-interest financial liabilities, hedging a portion of the variable interest with interest rate caps. Cash investments are made exclusively on the money market or in short-term, fixed-income investment grade securities. We counteract the currency risk by hedging based on the net balances of budgeted income and expenses as well as on receivables and liabilities in foreign currencies. Production in the US has proven a favorable factor by almost zeroing the net balance of US dollar income and expenses of Dräger Medical. Production in the US is also bolstering Dräger Safety.

88 84 Opportunities and risks relating to future development/disclosures pursuant to Sec. 315 (4) HGB and explanations by the general partner Going by our experience over the last few years, the credit risk from operating activities is extremely low given the customer structure of the Dräger Group. The management of financial risks is detailed under Note 47 of the notes to the financial statements. The joint venture agreement between the participating companies of Drägerwerk AG & Co. KGaA (Dräger) and Siemens AG (Siemens) and the articles of association of Dräger Medical AG & Co. KG originally granted Siemens a put option upon whose exercise Dräger would have to buy the entire stake held by Siemens in the limited partnership at a determined formula price. In fiscal year 2006, the agreement was amended to the effect that Dräger is no longer obligated to buy the limited shares. Now, Dräger must either agree to buy the limited shares offered by Siemens at the formula price or else support a sale by Siemens to a third party by selling some of its own limited shares if necessary. Both parties have since agreed that Dräger will increase its stake in Dräger Medical AG & Co. KG from 65 percent to 75 percent in 2007 by acquiring limited shares held by Siemens. Siemens also plans to acquire a 2.5 percent stake in Drägerwerk AG & Co. KGaA. If Siemens offers to sell its remaining share back and Drägerwerk AG & Co. KGaA accepts this offer, it could result in a high financial liability. Following its transformation into a partnership limited by shares, Dräger is permitted to finance such a purchase using debt and, to a considerable extent, equity. Overall risk Overall, it is the strategic risks, especially those stemming from consolidation processes that affect the competitive structure, that are the most important of all risks facing the Group. However, this risk is mitigated both by the regional spread and the diversification of the product and service offerings of the Dräger Group. The performance risks from the completion of orders are well spread and are therefore limited. All in all, the risks to the Dräger Group are limited and, based on the information currently known to us, the Group s management, the Dräger Group s continued existence as a going concern is secure.

89 Management report 85 Disclosures pursuant to Sec. 315 (4) HGB and explanations by the general partner The following disclosures pursuant to Secs. 289 (4) and 315 (4) HGB ( Handelsgesetzbuch : German Commercial Code) describe the conditions as they were on the balance sheet date. These disclosures are explained in individual sections in accordance with Sec. 120 (3) Sentence 2 AktG ( Aktiengesetz : German Stock Corporation Act). Composition of capital stock The capital stock of Drägerwerk AG & Co. KGaA amounts to EUR 32,512,000. It consists of 6,350,000 voting bearer common shares and 6,350,000 non-voting bearer preferred shares each with a EUR 2.56 share in capital stock. Shares of the same type carry the same rights and obligations. The rights and obligations of the shareholders are laid down in the German Stock Corporation Act, in particular in Secs. 12, 53a et seq., 118 et seq. and 186 AktG, as well as in the articles of association of the Company. As compensation for the lack of voting rights, an advance dividend of EUR 0.13 per preferred share is distributed from net earnings. If sufficient profits are available, a dividend of EUR 0.13 per common share is then paid. Any profit in excess of this amount, if distributed, is allocated so that preferred shares receive EUR 0.06 more than common shares. If the profit is not sufficient to distribute the advance dividend for preferred shares in one or more years, the amounts are paid from the profit of subsequent fiscal years before a dividend is paid on common shares. If amounts in arrears are not paid in the next year along with the full preferred dividend for that year, the preferred shareholders have voting rights until the arrears have been paid. In the event of liquidation, the preferred shareholders receive 25 percent of net liquidation proceeds in advance. The remaining liquidation proceeds are distributed evenly to all shares. Restrictions relating to voting rights or the transfer of shares Legal structures at Dr. Heinrich Dräger GmbH mean that neither Stefan Dräger nor Stefan Dräger GmbH, which he controls, have any influence on the exercise of the voting rights of common shares held by Dr. Heinrich Dräger GmbH at the annual general meeting of Drägerwerk AG & Co. KGaA for resolutions within the meaning of Sec. 285 (1) Sentence 2 AktG. There are no further restrictions which relate to voting rights or the transfer of shares, even though they could arise from agreements between shareholders. Direct or indirect shareholdings exceeding 10 percent percent of the common shares of Drägerwerk AG & Co. KGaA, equivalent to 6,215,000 common shares or percent of the total capital stock, belong to Dr. Heinrich Dräger GmbH, Lübeck percent of its shares are held by Stefan Dräger GmbH, Lübeck, percent by the Dräger Foundation Munich/Lübeck, and the remainder by various members of the Dräger family. Stefan Dräger GmbH is wholly owned by Stefan Dräger, Lübeck. Stefan Dräger, Stefan Dräger GmbH, the Dräger Foundation Munich/Lübeck, and Dr. Heinrich Dräger GmbH informed us in accordance with Sec. 21 WpHG ( Wertpapierhandelsgesetz : German Securities Trading Act) that their share in the voting rights of Drägerwerk AG & Co. KGaA, Lübeck, equals percent. The voting rights are attributed to Stefan Dräger GmbH and the Dräger Foundation Munich/Lübeck via the jointly controlled company Dr. Heinrich Dräger GmbH; the voting rights are attributed to Stefan Dräger via Stefan Dräger GmbH and Dr. Heinrich Dräger GmbH, which he controls. Through Stefan Dräger GmbH, Stefan Dräger also holds all shares in Drägerwerk Verwaltungs AG, Lübeck, the general partner of Drägerwerk AG & Co. KGaA. Thus Stefan Dräger is both the shareholder of the gen-

90 86 Disclosures pursuant to Sec. 315 (4) HGB and explanations by the general partner eral partner and also common shareholder of Drägerwerk AG & Co. KGaA. In the cases covered by Sec. 285 (1) Sentence 2 AktG he would therefore not be entitled to vote. Legal structures at Dr. Heinrich Dräger GmbH ensure that, for such resolutions, Stefan Dräger does not exert any influence on the exercise of the voting rights of limited shares held by Dr. Heinrich Dräger GmbH. Nature of control over voting rights by employee shareholders who do not directly exercise their control rights No employees hold voting shares in the capital stock of the Company. If employees of the Company or the Dräger Group wish to acquire shares in the Company, they can purchase preferred shares on the stock exchange. Preferred shares do not confer any control rights. Shares with special rights conferring control There are no shares with special rights conferring control or special controls over voting rights. Appointment and removal of management and amendments to the articles of association In the legal form of a partnership limited by shares (KGaA), the general partner is authorized to manage and represent the Company, a regulation derived from partnership law. Drägerwerk Verwaltungs AG is the general partner of Drägerwerk AG & Co. KGaA, and acts through its Executive Board. The Supervisory Board of Drägerwerk AG & Co. KGaA, which has half of its members elected by employees, is not authorized to appoint or remove the general partner or its Executive Board. The general partner joined the Company by declaration of accession; it withdraws from the Company in the cases defined under Art. 14 (1) of the articles of association. The general partner s Executive Board, which is authorized to manage and represent Drägerwerk AG & Co. KGaA, is appointed and removed pursuant to Secs. 84 and 85 AktG and Art. 8 of the articles of incorporation and bylaws of Drägerwerk Verwaltungs AG. The Executive Board of the general partner comprises at least two persons, the Supervisory Board of the general partner determines how many other members there are. The Supervisory Board of the general partner, elected by its annual general meeting, is responsible for appointing and removing members of the Executive Board. It appoints members of the Executive Board for a maximum of five years. Repeat appointments or extensions of the term of office are permissible. The Supervisory Board of Drägerwerk AG & Co. KGaA is not authorized to adopt rules of procedure for management or to define a catalog of management transactions requiring approval. The Joint Committee comprising four members of each of the Supervisory Boards of the Company and its general partner and not the annual general meeting, decides on the management transactions by the general partner which require approval as set out in Art. 23 (2) of the articles of association of Drägerwerk AG & Co. KGaA. The Supervisory Board of Drägerwerk AG & Co. KGaA represents the Company in dealings with the general partner. Pursuant to Secs. 133, 179, 278 (3) AktG, amendments to the articles of association must be approved by the annual general meeting, which requires a simple majority of votes cast as well as a majority of at least three quarters of the capital stock represented upon adoption of the resolution. The articles of association may stipulate a different majority of capital stock, but for changes in the purpose of the Company this can only be a greater majority (Sec. 179 (2) Sentence 2 AktG). At Drägerwerk AG & Co. KGaA, pursuant to Art. 30 (3) of the articles of association, resolutions by the annual general meeting are adopted by a simple majority of votes cast (simple voting majority) if this does not conflict with any legal provisions, and if the law additionally

91 Management report 87 requires a majority of capital they are adopted by a simple majority of the capital stock represented upon adoption of the resolution (simple capital majority). The Company has not made use of the possibility pursuant to Sec. 179 (2) Sentence 3 AktG to define further requirements in the articles of association for amendments to the same agreement. As well as the relevant majority of limited shareholders, amendments to the articles of association also require the approval of the general partner (Sec. 285 (2) AktG). Pursuant to Art. 20 (7) of the articles of association of the Company, the Supervisory Board is authorized to make amendments and additions to the articles of association which relate only to its wording. Power of the general partner to issue or buy back shares At present, Drägerwerk AG & Co. KGaA has neither approved nor conditional capital at its disposal. As such, the general partner is currently not in a position to increase the Company s capital unless this is agreed by resolution at the annual general meeting and, if applicable, approved by the Supervisory Board. In accordance with the resolution of the annual general meeting of May 11, 2007, the general partner is authorized to buy back preferred shares of up to 10 percent of the capital stock until November 10, The authorization can be exercised fully or in partial amounts, on one or more occasions, for one or more purposes, by the Company or Group companies or for their account by a third party. The purchase is made, as elected by the Executive Board, either on the stock exchange or by means of a public purchase offer or a public request for the submission of such an offer. If the purchase is made on the stock exchange, the price paid for each preferred share (excluding acquisition charges) may not be more than 5 percent above or below the mean of the closing prices of the preferred shares in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange during the last five trading days preceding the sale. If the purchase is made by means of a public purchase offer to all preferred shareholders or a public request for the submission of a purchase offer, the purchase price offered or the start or end values of the purchase price range per share (excluding acquisition charges) may not be more than 20 percent above or below the mean of the closing prices of the preferred shares in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange during the last five trading days preceding the announcement of the purchase offer or the public request for the submission of a purchase offer. If, following the announcement of a purchase offer or its publication or the public request for the submission of a purchase offer, significant changes occur in the underlying stock market price, the offer or the request for the submission of such an offer can be adjusted. In this case, the mean of the closing prices of the preferred shares in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange during the last five trading days preceding the announcement of the purchase offer may be adjusted. If the offer is oversubscribed or if, following a request for the submission of an offer, not all of several offers submitted of the same value are accepted, such offers must be accepted on a proportionate basis. It is permitted to give preferential treatment to small volumes of up to 100 preferred shares per shareholder. In respect of treasury shares acquired pursuant to the abovementioned authorization, the Executive Board is also authorized, with the approval of the Supervisory Board, to either redeem them without a further annual general meeting resolution being necessary for the execution of the redemption, or to dispose of the shares again in a way other than on the stock exchange or by means of an offer to all shareholders, i.e. as consideration to a third party as part of a business combination or the acquisition of equity investments, or, if the sale price payable in cash per share is not significantly lower than the mean

92 88 Disclosures pursuant to Sec. 315 (4) HGB and explanations by the general partner/subsequent events/forecast of the closing prices in Xetra trading (or a comparable successor system) of substantially equivalent shares already listed on the Frankfurt Stock Exchange during the last five trading days preceding the sale of the shares and the number of the shares sold in this way, together with the number of new shares which are issued from approved capital as a result of concurrently existing authorizations under exclusion of subscription rights pursuant to Sec. 186 (3) Sentence 4 AktG and the number of new shares which are issued after the conversion of convertible bonds as a result of concurrently existing authorizations under exclusion of subscription rights pursuant to Sec. 186 (3) Sentence 4 AktG, does not exceed 10 percent of the capital stock. The authorization can also be exercised fully or in partial amounts, once or several times, by the Company or Group companies, or for their account by a third party. acquired by one or more third parties and a limited partner falls under the influence of one or more third parties to the extent that the third party or parties are in a position, directly or indirectly, to appoint the majority of the members of the executive board of said limited partner. An alternative option is also granted to the other limited partner, whereby it may demand that the limited partner under the influence of a third party acquires its shares in the partnership. This is a provision typical of joint venture agreements. Compensation agreements made by the Company with members of the Executive Board of the general partner or employees in the event of a takeover bid There are no agreements in place in the Dräger Group with members of the Executive Board of the general partner or employees in the event of a takeover bid. The annual general meeting granting authorization to purchase treasury shares is common practice at listed stock corporations in Germany. The authorization to buy and sell treasury shares is intended to enable the Company to quickly and flexibly offer treasury shares to national and international investors, to extend its group of investors and stabilize share value. In addition, the Company can use treasury shares in order to offer these as consideration for business combinations or equity investments. As of December 31, 2007, the Company had no treasury shares. Material arrangements made by the Company subject to a change of control in the wake of a takeover bid In a joint venture agreement dated December 28, 2006 regarding Dräger Medical AG & Co. KG, the limited partners Dräger Medical Holding GmbH and Siemens Medical Holding GmbH agreed to grant each other an option to purchase the limited shares. This option will take effect if more than 50 percent of the voting rights of one of the limited partners is directly or indirectly

93 Management report 89 Subsequent events The general partner and the Supervisory Board of Lübeckbased Drägerwerk AG & Co. KGaA propose to distribute out of the net earnings of Drägerwerk AG & Co. KGaA of EUR 78.1 million for fiscal year 2007 an unchanged cash dividend of EUR 0.55 per preferred share and EUR 0.49 per common share, hence a total EUR 6.6 million, and carry forward the balance of EUR 71.5 million. The preferred share dividend also governs the dividend for participation certificates, which will amount to EUR 5.50 each. Participation certificates entitle the holder to a dividend 10 times the preferred share dividend since their arithmetic par value is 10 times that of a preferred share. Forecast As stated in the report on the opportunities and risks relating to future development on page 80 ff. of this annual report, the Dräger Group is well equipped to continue its success story. For 2008 and 2009, the most important questions are whether there will be a recession in the US and, if so, whether it will spread, whether the capital market crisis will spill over into the real economy and whether this will have direct ramifications for individual economies. Nevertheless, economic researchers currently expect Europe s export economy to remain strong. A continued growth story is also expected in Asia, especially in China and India. However, the economic trend in the US, as an importer of goods from these countries, remains a key determinant of their economic development. In a basic scenario, a UN growth forecast for 2008 expects global GDP growth of 3.4 percent, with a range of +2.0 percent for the US and +7.1 percent for emerging economies. Under a pessimistic scenario in the same forecast, only 1.6 percent growth is expected (range 0.1 percent for the US and +5.0 percent for emerging economies). In addition to these macroeconomic factors, the wave of consolidation is set to continue in 2008 and 2009 in Dräger Medical s and Dräger Safety s markets, with the newly formed providers positioning themselves in various regions to varying degrees. We will keep a close eye on developments. For the mature markets of North America and western Europe, we expect growth of 2 percent to 3 percent for the next two years for our divisions Dräger Medical and Dräger Safety. In the growth markets of Latin America, Asia, southeast and eastern Europe, we anticipate more than 5 percent. The Dräger Group is represented in all relevant markets mostly by its own companies and has an up-to-date, market-driven product portfolio. The Company is also working on promising innovations. By continuously improving our global processes, we will ensure that Dräger Medical and Dräger Safety and their product ranges remain a reliable partner for our customers and have a solid basis for further expanding our position in the respective markets. We will further develop our shared service strategy for administrative processes to reduce the workload for the operating units, make better use of economies of scope, and achieve better cost control as a result of improved transparency. In 2008, the Company will above all invest in innovative strength, quality and efficiency. These measures are expected to lead to non-recurring expenses of between EUR 20 million and EUR 25 million in For the current fiscal year, the Executive Board expects EBIT (before non-recurring expenses) to remain stable while revenues increase slightly. The non-recurring expenses and a continued high level of research and development expenditure will contribute to particularly strong

94 90 Forecast/Forward-looking statements income growth mid and long term. The Dräger Group s medium-term goal is to achieve an EBIT margin of 10 percent and an ROCE of 20 percent. The long-term targets are rather more ambitious: average revenue growth exceeding 10 percent, an EBIT margin of more than 15 percent, ROCE of over 25 percent with an equity ratio of at least 35 percent. The Executive Board expects EBIT (before non-recurring expenses) to remain stable for Dräger Medical during the launch phase of further Infinity Acute Care System components, and to level out at around 10 percent for Dräger Safety following an outstanding year in Operations are financed by cash flow from operating activities, such that the Executive Board has not planned any special financing. Investments for 2008 have been budgeted at the level of depreciation and amortization and will likewise not require any special financing. We anticipate that revenues and earnings will increase in Forward-looking statements This management report contains statements and forecasts referring to the Dräger Group s and its companies future development, as well as economic and political trends. These statements are estimates based on all information available to date. If the underlying assumptions do not materialize, or if further risks surface, actual results may differ from current expectations. We therefore do not give any warranty for such statements and estimates.

95 Management report 91

96 92 Group financial statements 2007 (amended version)

97 Financial statements Notes The Company s Boards Consolidated companies 93 GROUP FINANCIAL STATEMENTS 2007 OF THE DRÄGER GROUP (AMENDED VERSION) The Dräger Group has prepared its Group financial statements in accordance with International Financial Reporting Standards (IFRSs) since fiscal year The Group financial statements and the Group management report were audited by the statutory auditors and an unqualified opinion was rendered thereon. The financial statements and the management report document and explain the performance of the Dräger Group in the past fiscal year.

98 94 Group financial statements 2007 (amended version) Consolidated income statement of the Dräger Group January 1 to December 31, Consolidated balance sheet of the Dräger Group as of December 31, Consolidated statement of recognized income and expenses of the Dräger Group 98 Consolidated cash flow statement of the Dräger Group 99 Glossary 182 Imprint 186 Financial calendar 186 Review of key events in 2007 U5 Notes Dräger Group Management compliance statement 169 Auditor s opinion 170 Forward-looking statements 172 Single entity financial statements 2007 of Drägerwerk AG & Co. KGaA (condensed) 173 The Company s Boards 176 Consolidated companies of the Dräger Group 178

99 Financial statements Notes The Company s Boards Consolidated companies 95 Group financial statements 2007 of the Dräger Group (amended version) CONSOLIDATED INCOME STATEMENT OF THE DRÄGER GROUP FOR THE PERIOD FROM JANUARY 1 TO DECEMBER 31 Note thousand thousand thousand Revenues 11 1,819,469 1,801,300 Cost of sales 12 (953,409) (929,722) Gross profit 866, ,578 Research and development costs 13 (121,933) (117,996) Marketing and selling expenses 14 (493,926) (476,758) General administrative expenses 15 (120,591) (126,380) Other operating income 16 6,220 6,878 Other operating expenses 16 (11,169) (8,887) (741,399) (723,143) 124, ,435 Profit from investments in associates Profit from other investments 168 1,571 Other financial result (697) (1,926) Financial result (before interest result) 17 (382) (193) EBIT 124, ,242 Interest result 17 (26,638) (28,344) Earnings before income taxes 97, ,898 Income taxes 18 (32,970) (41,837) Net profit 64,671 78,061 Net profit (64,671) (78,061) thereof minority interests in net profit 14,630 30,284 thereof earnings attributable to participation certificates (excluding minimum dividend) 4,682 4,682 earnings attributable to shareholders 45,359 43,095 Earnings per share 21 per preferred share (in ) per common share (in )

100 96 Balance sheet CONSOLIDATED BALANCE SHEET OF THE DRÄGER GROUP AS OF DECEMBER 31 Assets Note thousand thousand thousand Intangible assets , ,117 Property, plant and equipment , ,880 Investments in associates Other non-current financial assets 25 19,498 8,523 Non-current tax refund claims 26 1,237 1,830 Deferred tax assets 27 70,614 76,578 Other non-current assets 28 10,074 11,377 Non-current assets 566, ,645 Inventories , ,275 Trade receivables and construction contracts , ,321 Other current financial assets 31 16,061 25,652 Cash and cash equivalents , ,638 Current tax refund claims 33 14,293 18,250 Other current assets 34 21,833 21,477 Current assets 1,071,057 1,138,613 Total assets 1,637,500 1,636,258

101 Financial statements Notes The Company s Boards Consolidated companies 97 Equity and liabilities Note thousand thousand thousand Capital stock 32,512 32,512 Capital reserve 38,867 38,867 Reserves retained from earnings 262, ,236 Participation capital 56,086 56,086 Other comprehensive income (29,995) (27,857) Group net earnings 6,604 6,604 Minority interests , ,488 Equity , ,936 Liabilities from participation certificates 37 26,581 25,592 Provisions for pensions and similar obligations , ,005 Other non-current provisions 39 28,758 23,337 Non-current interest-bearing loans , ,037 Other non-current financial liabilities 41 7,291 7,932 Deferred tax liabilities 42 18,800 25,159 Other non-current liabilities Non-current liabilities 552, ,556 Other current provisions , ,613 Current loans and liabilities to banks , ,263 Trade payables , ,188 Other current financial liabilities 44 63,175 58,869 Current tax liabilities 45 34,032 33,716 Other current liabilities 46 72,929 51,117 Current liabilities 540, ,766 Total equity and liabilities 1,637,500 1,636,258

102 98 Statement of recognized income and expenses/cash flow statement CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSES OF THE DRÄGER GROUP thousand thousand Actual gains/losses from defined benefit pension plans 15,330 2,495 Change in the fair value of financial instruments recognized directly in equity Deferred taxes on changes in value recognized directly in equity (6,550) (576) Effect of deferred tax rate changes on participation capital 3,554 0 Currency translation adjustment for foreign subsidiaries (12,016) (10,497) Changes in value recognized directly in equity 1,139) (8,355) Earnings after taxes 64,671 78,061 Earnings after taxes and changes in value recognized directly in equity 65,810 69,706 minority interests 14,353 27,861 earnings attributable to participation certificates (excluding minimum dividend, after taxes) 4,682 4,682 earnings attributable to shareholders 46,775 37,163

103 Financial statements Notes The Company s Boards Consolidated companies 99 CONSOLIDATED CASH FLOW STATEMENT OF THE DRÄGER GROUP thousand thousand Operating activities Group net profit 64,671 78,061 + Depreciation/amortization of non-current assets 56,084 52,354 /+ Decrease/increase in provisions (14,010) 41,943 + Other non-cash expenses 12,577 15,716 Gain from the disposal of non-current assets (370) (2,748) Increase in inventories (26,558) (11,280) +/ Decrease/increase in trade receivables 23,441 (94,819) +/ Decrease/increase in other assets 16,157 (23,792) + Increase in trade payables 4,783 15,313 + Increase in other liabilities 28,199 24,979 Net cash provided by operating activities 164,974 95,727 Investing activities Cash outflow for investments in intangible assets (54,053) (21,714) + Cash inflow from the disposal of intangible assets Cash outflow for investments in property, plant and equipment (74,484) (60,623) + Cash inflow from disposals of property, plant and equipment 3,101 5,305 Cash outflow for investments in financial assets (240) (1,887) + Cash inflow from the disposal of financial assets 1,241 1,996 Cash outflow from the acquisition of subsidiaries (1,508) 0 + Cash inflow from the sale of subsidiaries 62 16,974 Net cash used in investing activities (125,462) (59,782) Financing activities Distribution of dividends (including dividends for participation certificates) (13,831) (12,489) + Net balance of bank loans raised/redeemed and other liabilities to banks 46,789 6,698 Net balance of finance lease liabilities repaid/incurred (881) (1,430) Cash outflows from capital decreases (63,253) (1,592) Profit distributed to minority interests (24,788) (20,033) Net cash used in financing activities (55,964) (28,846) Change in cash and cash equivalents in the fiscal year (16,452) 7,099 Effect of exchange rates on cash and cash equivalents (8,439) (4,144) + Cash and cash equivalents at the beginning of the fiscal year 185, ,683 Cash and cash equivalents as of December 31 of the fiscal year 160, ,638

104 100 Notes 2007 of the Dräger Group CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Contributed capital Earned equity Minority Equity interests Capital Capital Partici- Reserves Group net Other stock reserve pation retained earnings comprecapital from hensive earnings income thousand thousand thousand thousand thousand thousand thousand thousand January 1, ,512 38, ,256 5,969 (21,925) 245, ,809 Changes to reporting methods for participation certificates 56,086 (19,283) 36,803 January 1, 2006 after adjustments 32,512 38,867 56, ,973 5,969 (21,925) 245, ,612 Distributions (6,520) (5,969) (20,033) (32,522) Changes in fair values Actuarial gains and losses recognized directly in equity 1,242 1,253 2,495 Deferred taxes recognized directly in equity (311) (265) (576) Currency translation differences (7,012) (3,485) (10,497) Group net profit 78,061 78,061 Minority interests in net profit (30,284) 30,284 0 Transfer to reserves 41,173 (41,173) 0 Change in consolidated group/other 1,610 (1,470) 140 December 31, ,512 38,867 56, ,236 6,604 (27,857) 251, ,936 Distributions (7,227) (6,604) (24,788) (38,619) Changes in fair values Actuarial gains and losses recognized directly in equity 13,420 1,910 15,330 Deferred taxes recognized directly in equity 3,554 (6,143) (407) (2,996) Currency translation differences (10,042) (1,974) (12,016) Group net profit 64,671 64,671 Minority interests in net profit (14,630) 14,630 0 Transfer to reserves 43,437 (43,437) 0 Buyback of 10 percent interest in Dräger Medical AG & Co. KG (63,253) (63,253) Change in consolidated group/other 3,041 1,285 4,326 December 31, ,512 38,867 56, ,041 6,604 (29,995) 179, ,200

105 Financial statements Notes The Company s Boards Consolidated companies 101 Notes Dräger Group General The Dräger Group is managed by Drägerwerk AG & Co. KGaA (formerly Drägerwerk AG), Moislinger Allee 53 55, D Lübeck, Germany. Drägerwerk AG & Co. KGaA is entered in the commercial register of the Local Court of Lübeck under HR B No HL. The financial statements are published in electronic form in the Federal Gazette. Drägerwerk AG was transformed into Drägerwerk AG & Co. KGaA with effect as of December 14, Please see our comments in the management report of this annual report for more information on the change in legal form. The Group s business activities are described in the management report of this annual report. Basis of preparation of the Group financial statements As in 2006, Drägerwerk AG & Co. KGaA prepared its Group financial statements for fiscal year 2007 in accordance with International Financial Reporting Standards (IFRSs) promulgated by the International Accounting Standards Boards (IASB) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC). As regards the effects of first-time adoption of IFRSs as of the transition date (January 1, 2003), we refer to our annual report Drägerwerk AG & Co. KGaA applied all the IASs/IFRSs adopted by the IASB as of December 31, 2007 to its 2007 Group financial statements provided that these standards were endorsed by the European Commission and published in the Official Journal of the European Union by the date of publication of the Group financial statements and application of such standards is mandatory. The amendments to IAS 1, IAS 23, IAS 27, IFRS 3 and IFRS 8 and the new IFRIC 11, IFRIC 12, IFRIC 13 and IFRIC 14, which are not required to be applied until fiscal year 2008 or later, were not applied in these financial statements. Voluntary early adoption would not have had any significant effects on the financial statements. The provisions of Art. 4 EC Regulation No. 1606/2002 of the European Parliament in conjunction with Sec. 315a HGB ( Handelsgesetzbuch : German Commercial Code) governing a company s exemption from its obligation to prepare group financial statements in accordance with German commercial law have been met. To ensure that the Group financial statements are equivalent to consolidated accounts prepared in accordance with the German Commercial Code, all disclosures and explanations required by German commercial law above and beyond the provisions of the IFRSs have been provided in accordance with Sec. 315a HGB. The Group financial statements were prepared in euros. Unless stated otherwise, all figures are disclosed in thousands of euros (EUR thousand); rounding differences may arise as a result. The balance sheet is classified according to the current/non-current distinction; the income statement was prepared according to the cost of sales method. Where certain items of the financial statements have been grouped with a view to enhancing the transparency of presentation, they are disclosed separately in these notes. The single entity financial statements of the companies included in consolidation, with the

106 102 Notes 2007 of the Dräger Group exception of two minor companies (2006: three), were prepared as of the balance sheet date of the Group financial statements on the basis of uniform accounting policies. To increase the informative value of the financial statements, the structure of the balance sheet was altered slightly in the items pertaining to (financial) assets and liabilities. The prior-year figures were adjusted accordingly. 3 Changes to the financial statements 2007 In order to comply with the new statutory provisions of IAS 32 on the classification of equity and debt, Dräger evaluated its reporting methods for participation capital and decided they should be amended. As a result and in accordance with IAS 32 and IAS 39, an equity and debt component for each series of participation capital has been retrospectively recognized and measured by choice in the financial statements 2007 (see also Note 10). EFFECTS FROM CHANGES TO THE FINANCIAL STATEMENTS 2006 AND before after effect before after effect changes changes changes changes Income statement Interest result (32,877) (26,638) 6,239 (34,639) (28,344) 6,295 Income taxes (30,624) (32,970) (2,346) (39,660) (41,837) (2,177) Net profit 60,778 64,671 3,893 73,943 78,061 4,118 Earnings per preferred share (in ) (0.06) (0.06) per common share (in ) (0.06) (0.06) Statement of recognized income and expenses Changes in value recognized directly in equity (2,415) 1,139 3,554 (8,355) (8,355) 0 Earnings after taxes and changes in value recognized directly in equity 58,363 65,810 7,447 65,588 69,706 4,118 Balance sheet Equity 505, ,200 39, , ,936 36,946 Liabilities from participation certificates (formerly participation capital) 74,797 26,581 (48,216) 74,797 25,592 (49,205) Deferred tax liabilities 3,069 18,800 15,731 5,674 25,159 19,485 Other current financial liabilities 70,402 63,175 (7,227) 66,095 58,869 (7,226) Cash flow statement Net cash provided by operating activities 157, ,974 7,227 89,207 95,727 6,520 Net cash used in financing activities (48,737) (55,964) (7,227) (22,326) (28,846) (6,520) 4 Change in accounting policy and effects on the balance sheet In connection with the convergence project of the IASB and the FASB to harmonize the provisions of US GAAP and IAS, the IASB revised IAS 23 (Borrowing Costs) and abolished the choice between direct expensing and capitalization of borrowing costs, making capitalization mandatory. These amendments have yet to be endorsed by the Com-

107 Financial statements Notes The Company s Boards Consolidated companies 103 mission of the European Union and published in the Official Journal of the European Union. The revised IAS 23 therefore cannot be applied yet. To account for this situation and ensure that transactions are appropriately presented, Drägerwerk AG & Co. KGaA has elected to capitalize borrowing costs in accordance with the unrevised version of IAS 23. IAS 8 requires retrospective adjustment of the entity s carrying values in the event of a change in accounting policy, without affecting profit or loss. We did not perform a retrospective adjustment of the carrying values and the earnings of Drägerwerk AG & Co. KGaA as the effects would have been immaterial. 5 Recognition of equity/disclosure of minority interests within the scope of changes to IAS 32 On October 31, 2005, Dräger Medical AG & Co. KGaA was transformed into Dräger Medical AG & Co. KG. The accepted recognition of limited shares as equity in the single entity financial statements of this entity in accordance with German commercial law was maintained in the IFRS Group financial statements even after the amendment of IAS 32. Dräger Medical Verwaltungs AG as general partner of Dräger Medical AG & Co. KG, its shareholder Drägerwerk AG & Co. KGaA, Siemens AG and the limited partners Dräger Medical Holding GmbH and Siemens Medical Holding GmbH agreed in the partnership agreement to waive all termination options with the exception of those due to the basis of the company s business ceasing to exist. Accordingly, the limited liability capital of this company continues to be recognized as equity. As a result, the interests held by Siemens Medical Holding in Dräger Medical AG & Co. KG continue to be disclosed as minority interests under equity in the consolidated balance sheet. The joint venture agreement between the participating companies of the Dräger Group and the Siemens Group and the partnership agreement of Dräger Medical AG & Co. KG originally granted Siemens a put option upon whose exercise Dräger would have to buy the entire stake held by Siemens in the limited partnership at a determined formula price. In fiscal year 2006, the agreement was amended to the effect that Dräger is no longer obligated to buy the limited shares. Now, Dräger can either agree to buy the limited shares offered by Siemens at the formula price or else it must support a sale by Siemens to a third party by selling some of its own limited shares if necessary. Following the acquisition from Siemens of a 10 percent interest in Dräger Medical AG & Co. KG on February 28, 2007, the interest held in the latter company and thus in the Dräger Medical division rose from 65 percent to 75 percent. This purchase was agreed as part of the revision of Siemens contractual put option and has no effect on the Dräger Medical AG & Co. KG joint venture between Dräger and Siemens. The acquisition had the following effects on the Group s net assets, financial position and results of operations: million Purchase price Acquired share in capital 63.3 Acquired goodwill 43.7 Deferred tax assets 3.0

108 104 Notes 2007 of the Dräger Group The purchase price of EUR 110 million was primarily financed by note loans of EUR 100 million due in six, seven and eight years with an average rate of interest of 4.8 percent p.a. 6 Consolidated group The consolidated group of Drägerwerk AG & Co. KGaA is composed of the following entities: CONSOLIDATED GROUP Germany Abroad Total Drägerwerk AG & Co. KGaA and consolidated companies January 1, Additions Newly formed entities Disposals Business combinations December 31, Associates January 1, Disposals December 31, Total As well as Drägerwerk AG & Co. KGaA, fully consolidated companies include all subsidiaries in which Drägerwerk AG & Co. KGaA holds a direct or indirect majority of voting rights and is therefore able to govern financial and operating policies so as to obtain benefit from their activities. Drägerwerk AG & Co. KGaA indirectly exerts a significant influence on its associates. Associates are accounted for according to the equity method. The two domestic associates shown under disposals were reclassified to other investments, as the Group no longer has significant influence over these entities due to the shareholder structure. The consolidated group includes four real estate companies (2006: five) and two other special purpose entities (SPEs) whose assets are attributable in substance to the Group. The consolidated companies of the Dräger Group as of December 31, 2007 are listed on pages 178 to 181 of the annual report. 7 8 Effects of the change in the consolidated group There was no significant impact on the Group s net assets, financial position and results of operations as a result of the change to the consolidated group in fiscal year Consolidation principles Capital consolidation is performed according to the purchase method. On initial consolidation of subsidiaries, the identifiable assets and liabilities are measured at their fair values at the date on which control of the subsidiary is obtained. The excess of the cost

109 Financial statements Notes The Company s Boards Consolidated companies 105 of the investment over the acquirer s interest in the net fair value of the identifiable assets and liabilities is recognized as goodwill. Goodwill is subject to an annual impairment test pursuant to IAS 36 (impairment-only approach). Any excess of the Group s share in equity over the cost of the investment is recognized in profit or loss at the date of acquisition after reassessment. Any minority interests in equity are shown in the consolidated balance sheet as such (see Note 36). When swapping or exchanging shares or in similar transactions, the fair value of the shares given is attributed to the shares received. Any resulting step-ups in fair value are transferred to the reserves retained from earnings. The cost of investments accounted for according to the equity method is adjusted to reflect the Group s share in net profit or loss for the period and dividend distributions. The goodwill is included in the carrying values of the investments. Impairments are accounted for separately. Intercompany receivables and liabilities are netted (elimination of intercompany balances). The carrying values of assets from intercompany goods and services are adjusted for unrealized intercompany profits and losses (elimination of intercompany profits and losses); therefore, these assets are measured at Group cost. For associates, elimination of intercompany profits and losses is waived due to immateriality. Internal revenues are eliminated. Any other intercompany income and expenses are mutually offset (elimination of income and expenses). Deferred tax assets or liabilities from consolidation entries that affect profit or loss are recognized whenever differences in tax expenses or income are expected to reverse in subsequent years. Group net earnings agree with Drägerwerk AG & Co.KGaA s distributable earnings. The portion of net profit not destined for distribution or attributable to minority interests is transferred to reserves retained from earnings. The capital reserve of the Dräger Group and of Drägerwerk AG & Co. KGaA reflects the share premiums earned from increases in capital. Capital reserve and earned equity are thus disclosed separately in the consolidated balance sheet. 9 Currency translation In the single entity financial statements of Drägerwerk AG & Co. KGaA and its subsidiaries, foreign currency transactions are translated at the mean exchange rate at the date of initial recognition. Exchange differences from the settlement of monetary items in foreign currencies during the year and the measurement of open foreign currency positions at the rate at the balance sheet date are recognized in profit or loss. The foreign consolidated subsidiaries prepare their financial statements in the local currency in which they mainly operate (functional currency). These financial statements are translated into the Group reporting currency, the euro, at the mean exchange rate at the balance sheet date (closing rate) for assets and liabilities and at the annual average rate for the items of the income statement. All resulting translation differences are recognized under other comprehensive income. To account for the effects of inflation, the financial statements and comparative figures of foreign entities operating in a hyperinflationary environment and reporting in a currency of a hyperinflationary economy are restated in terms of the measuring unit current at the balance sheet date pursuant to IAS 29 using a general price index for the country

110 106 Notes 2007 of the Dräger Group in question. No subsidiaries had their registered office in a hyperinflationary economy in the year under review or the prior year. The exchange gains/losses on operating foreign currency items included in cost of sales and in functional costs gave rise to expenses of EUR 2,430 thousand (2006: EUR 4,625 thousand). The exchange gains/losses on foreign currency items disclosed in the financial result led to a loss of EUR 388 thousand (2006: EUR 2,243 thousand). Currency translation for foreign subsidiaries gave rise to a reduction in other comprehensive income of EUR 10,042 thousand as of the balance sheet date (2006: EUR 7,012 thousand). The major Group currencies and their exchange rates developed as follows: CURRENCIES/EXCHANGE RATES Closing rate Average rate 1 = Dec. 31, 2007 Dec. 31, USA USD UK GBP Japan JPY People s Republic of China CNY Accounting policies The single entity financial statements of Drägerwerk AG & Co. KGaA and its consolidated German and foreign subsidiaries as of December 31 of the fiscal year are prepared on the basis of uniform accounting policies and included in the Group financial statements. The following accounting policies are applied: Intangible assets Group-controlled intangible assets from which future economic benefits are expected to flow to the Group and which can be reliably measured are recognized at cost less straight-line amortization over their expected useful lives. Borrowing costs that are material and directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset in accordance with IAS 23. Purchased and internally developed software not disclosed under inventories is recognized as a separate asset unless it is an integral part of the related hardware. Costs incurred for the continuing use of an existing software system are recognized as an expense (e.g. a new release). Internal development costs are recognized as an asset if the asset s future economic benefit is sufficiently probable. However, due to the strict safety requirements for Dräger Group products, this means that the product must have already been approved for sale in the major markets. Until all criteria for recognition as an asset are met, internal development costs and research costs are expensed as incurred. Intangible assets generally have a useful life of four years, patents and trademarks are amortized over their term (11 years on average). Amortization is charged straightline.

111 Financial statements Notes The Company s Boards Consolidated companies 107 Goodwill recognized as an intangible asset is disclosed at cost less accumulated impairment losses. Under IAS 36, amortization is no longer charged on a systematic basis. Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of purchase of an item of property, plant and equipment includes its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended. The cost of conversion comprises all direct and overhead costs, including depreciation, attributable to production. Borrowing costs that are material and directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset in accordance with IAS 23. Subsequent expenditure incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, are charged to income in the period in which the costs are incurred. Whenever it is probable that the expenditure will result in future economic benefits in excess of the originally assessed standard of performance of the existing asset flowing to the Company, the expenditure is recognized as an additional cost of property, plant and equipment. Depreciation is computed on a straight-line basis over the following estimated useful lives: Office and factory buildings 20 to 40 years Other buildings 15 to 20 years Production plant and machinery 5 to 8 years Other plant, factory and office equipment 2 to 15 years Where significant parts of property, plant and equipment contain components with substantially different useful lives, such components are recorded separately and depreciated over their useful lives. The useful life and depreciation methods used for property, plant and equipment are reviewed annually to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. Assets under construction are stated at cost. Low-value assets are fully expensed in the year of their addition and recognized as disposals in the statement of changes in non-current assets. Investment allowances (government grants) Investment allowances (government grants) for assets are deducted from the carrying value of the relevant asset. Grants are therefore recognized in profit or loss through a reduced depreciation charge over the useful life of the depreciable asset.

112 108 Notes 2007 of the Dräger Group Impairment losses on intangible assets and property, plant and equipment If there are signs of impairment of intangible assets or property, plant and equipment due to reduced technical or economic use at the balance sheet date, these items are subjected to an impairment test pursuant to IAS 36. If the carrying value of the asset exceeds its recoverable amount (the higher of its value in use and net selling price), an impairment loss is charged. An impairment test is performed annually on goodwill and intangible assets with indefinite useful lives. The impairment test for goodwill is performed on the basis of cash generating units. The discounted cash flow method based on the operational five-year plan without assuming further growth in the subsequent period is used to test the goodwill of the individual cash generating units. A risk-adjusted interest rate is used for discounting. The business segments form the basis for the cash generating units for the purposes of goodwill. If the reasons for an impairment loss cease to apply, write-ups are performed, except in the case of goodwill. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The following items in particular are recognized as financial assets: investments in associates, other investments, securities, loans and other receivables, derivative financial assets, other financial assets and cash and cash equivalents. The following items are recognized as financial liabilities: liabilities to banks, loan liabilities, trade payables, derivative financial liabilities and other financial liabilities. Financial assets Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and receivables are recognized at amortized cost less any impairment losses and discounting (effective interest method). Impairment losses are charged on loans and receivables when there is objective evidence that the amount is not fully recoverable (i.e. it is highly probable that the borrower will become insolvent or the obligor is in considerable financial difficulties). The carrying values of loans and receivables are generally adjusted through the use of allowance accounts. If loans and receivables are classified as having a high probability of being uncollectible, they are derecognized. The effects of the impairment loss and of the application of the effective interest method are recognized in profit or loss. Securities with fixed or determinable payments and fixed maturity that the Dräger Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments and recognized at amortized cost using the effective interest method.

113 Financial statements Notes The Company s Boards Consolidated companies 109 Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale and are not classified as any of the other categories. This category comprises investments in associates that are not accounted for in accordance with the equity method due to immateriality as well as other investments and securities. They are measured at fair value or, if not determinable, at amortized cost. Unrealized gains and losses from the change in fair value are recorded in equity, taking the tax effects into account. Changes in fair value are not recognized in profit or loss until the asset is permanently impaired or sold. Financial liabilities After initial recognition, financial liabilities are disclosed at amortized cost (amount repayable). Non-current liabilities that do not bear interest or bear interest at a rate substantially below market rates are disclosed at present value. Premiums and discounts are allocated over the term of the liability using the effective interest method. Financial liabilities due in more than 12 months are disclosed as non-current financial liabilities. Derivative financial instruments The Dräger Group uses derivatives as part of its risk management to hedge currency and interest rate risks. Derivatives are recognized at fair value. For derivative financial instruments that meet the hedge accounting criteria of IAS 39, the changes in fair value are recognized depending on the type of hedge. In a hedge of the exposure to changes in fair value of a recognized asset or liability (fair value hedge), the changes in the fair value of both the hedged item and the derivative are recognized in profit or loss. Changes in the fair value of the exposure to variability in future cash flows (cash flow hedge) are recognized directly under equity, taking tax effects into account, if the hedge is effective. These amounts are not removed from equity and recognized in profit or loss until the hedged item affects profit or loss. Changes in the fair value of derivatives used to hedge future cash flows between Group companies are recognized as cash flow hedges if they fulfill the relevant criteria. Derivative financial instruments that are not designated as effective hedging instruments in accordance with IAS 39 are classified as held for trading and recognized at fair value, or, if not determinable, at amortized cost. The fair value of listed derivatives is the positive or negative market value. In the absence of a market value, the fair value is determined according to recognized methods of financial mathematics.

114 110 Notes 2007 of the Dräger Group In hedging foreign currency risks posed by recognized assets or recognized liabilities, the Dräger Group does not use hedge accounting in accordance with IAS 39 to recognize hedges as the profit or loss from the currency translation of the hedged item pursuant to IAS 21 affects the income statement at the same time as the profit or loss from the measurement of the hedging instrument. Financial assets held for or due in more than 12 months are disclosed as non-current financial assets. In addition, any financial assets and liabilities may be classified, upon initial recognition, at fair value through profit or loss if they fulfill the requirements of the IASB (fair value option). This option has not been exercised by the Dräger Group to date. We refer to Note 47 for details of the nature and scope of the Dräger Group s existing financial instruments. Construction contracts Construction contracts are recognized using the percentage of completion method. The percentage of completion in the case of fixed price contracts is determined using the cost-to-cost method (input-based method). This method determines the percentage of completion based on the costs incurred as of the balance sheet date in relation to the estimated total cost. If the outcome of a construction contract can be estimated reliably, the revenues are recorded at the amount of contract costs incurred plus a profit margin. The contracts are recognized under receivables from construction contracts or, if a loss is expected, under liabilities from construction contracts. Prepayments are deducted from the recognized receivable. If the prepayments exceed the receivable, the balance is recognized under liabilities. Inventories Inventories comprise raw materials, consumables and supplies, work in process and finished goods and merchandise. They are measured at the lower of average cost and net realizable value. Cost comprises production-related full costs calculated on the basis of normal capacity utilization. In addition to direct materials and production costs, it includes materials and production overheads as well as special direct production costs allocable to the manufacturing process. Depreciation on items of property, plant and equipment used in the production process is also included. Borrowing costs that are material and directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset in accordance with IAS 23. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Unrealizable inventories are written off. Finished goods and merchandise comprise loan and demo equipment. Two percent straight-line depreciation is charged monthly for the decrease in the net realizable value of these items.

115 Financial statements Notes The Company s Boards Consolidated companies 111 Cash and cash equivalents Cash and cash equivalents comprise cash in hand and bank balances, including shortterm deposits. Participation capital In accordance with IAS 32 and IAS 39, the individual Dräger participation certificate series are recognized pursuant to the commercial value of their contractual agreements. Series A certificates must generally be classified as equity; however, they include an obligation with a value to the amount of the minimum return which is recognized as liability. Series K and D certificates are always classified as debt, but the premium on the issue price exceeding Dräger s obligation is recognized as equity. Effects recognized in equity reflect the participation certificates equity component (including deferred tax effects) and corresponding past compounding effects. The components recognized as debt are measured at amortized cost using the effective interest method (present value of repayment obligation using an interest rate of 6 percent). Please refer to Note 37 for further information on the individual Dräger participation certificate series. The compounding of liabilities from participation certificates to the amount of the effective interest rate and the minimum dividend for series A and K are included in the interest expense of the period in question. The dividend for series D certificates and the amount exceeding the minimum dividend for series A and K certificates are paid with equity capital. Provisions for pensions and similar obligations Provisions for pension obligations and similar obligations are calculated according to IAS 19 using the projected unit credit method allowing for future adjustments to salaries and pensions and employee turnover. The provisions were measured on the basis of pension reports. The Dräger Group has decided to exercise the option under IAS 19.93A of fully recognizing actuarial gains or losses in equity immediately, taking account of deferred taxes. The actuarial gains or losses recognized in equity are reconciled in a separate statement of recognized income and expenses presented before the notes. The interest portions contained in pension expenses are disclosed in interest and similar expenses and the expected return on plan assets in interest and similar income. With effect as of December 2007, funds from the German pension plan were paid into a new fund and secured in favor of the employees via a contractual trust arrangement (CTA), meaning that they only serve to cover and finance the Company s direct pension obligations in Germany. Any excess of plan assets over the pension obligations is recognized as an asset at a maximum of the present value of the economic benefit to the Company (due to a refund of contributions or reduction of future contributions) plus any past service cost not yet recognized (asset ceiling).

116 112 Notes 2007 of the Dräger Group Other provisions A provision is recognized when, and only when, the entity has a present obligation to a third party as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are stated at the amount expected to be required to settle the obligation. Non-current provisions are discounted to the balance sheet date using appropriate market rates. Deferred taxes Deferred taxes are recognized for differences between the IFRS financial statements and the tax accounts of the consolidated companies as well as for consolidation entries and loss carryforwards. The deferred taxes are measured at the amount expected to be paid or recovered in subsequent fiscal years. Deferred tax assets are only recognized if it is sufficiently probable that they will be realized. Deferred tax assets and liabilities are only netted if they relate to the same taxation authority. Leases Leases are all agreements whereby the lessor conveys to the lessee in return for payment the right to use an asset for an agreed period of time. a) Finance leases Dräger Group as lessee At inception of the lease, finance leases are recognized as assets and liabilities in the balance sheet at amounts equal at the inception of the lease to the fair value of the leased property or, if lower, at the present value of the minimum lease payments. In calculating the present value of the minimum lease payments, the discount factor is the interest rate implicit in the lease if this is practicable to determine. If this is not the case, the lessee s incremental borrowing rate is used. Initial direct costs are included as part of the asset. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. A finance lease gives rise to a depreciation expense for the recognized asset as well as a finance expense for each period. The depreciation policy for leased assets is consistent with that for corresponding depreciable assets which are owned by the Company.

117 Financial statements Notes The Company s Boards Consolidated companies 113 Dräger Group as lessor Assets held under a finance lease are recognized in the balance sheet and presented as a receivable at an amount equal to the net investment (present value of the gross investment) in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the lessor s net investment outstanding in respect of the finance lease. Initial direct costs are capitalized and allocated as an expense over the term of the lease. b) Operating leases Dräger Group as lessee Leases of assets under which substantially all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are recognized as an expense. Dräger Group as lessor Assets subject to operating leases are presented in the balance sheet according to the nature of the asset. Lease income from operating leases is recognized in profit or loss on a straight-line basis over the lease term. Fair value of financial assets and liabilities Where the fair value of financial assets and liabilities is disclosed or stated, it is derived from the market or stock exchange value. In the absence of an active market, the fair value is determined according to recognized methods of financial mathematics. Use of estimates and assumptions In preparing the Group financial statements in accordance with IFRSs, assumptions and estimates have to be made which have an effect on the recognition of assets and liabilities, the disclosure of contingent liabilities as of the balance sheet date and the recognition of income and expenses. Actual amounts may differ from these assumptions and estimates.

118 114 Notes Dräger Group 2007/Notes to the income statement Significant accounting policies and consolidation methods that differ from German law Development costs and internally developed software are recognized as an asset if their future economic benefit is sufficiently probable. Goodwill undergoes an annual impairment test according to the impairment-only approach. The pension provisions are calculated according to IAS 19 based on the projected unit credit method taking future salary and pension increases into account. Actuarial gains or losses are recognized directly in equity. Qualifying plan assets (including assets secured by a contractual trust arrangement) may be netted with the related pension obligations. Participation certificates are recognized as equity or debt pursuant to the commercial value of their contractual agreements. Non-current provisions are carried at their present value. Provisions for accrued expenses may not be recognized. Deferred taxes are calculated according to the temporary concept, with deferred tax assets recognized for loss carryforwards that are highly likely to be used in the future. Derivatives are recognized at fair value even if their cost is lower. The gains and losses on the measurement of financial derivatives used to hedge balance sheet items (fair value hedges) are recognized immediately in profit or loss. The effective portion of gains and losses on the measurement of derivative financial instruments used to hedge future cash flows (cash flow hedge) is recognized directly in equity. Securities are recognized as available-for-sale financial assets at fair value, which may exceed cost. Receivables and liabilities in foreign currencies are measured at the mean exchange rate at the balance sheet date, contrary to the German imparity principle. General bad debt allowances are not recognized. Inventories are measured at the lower of average cost and net realizable value. Revenues and profit from construction contracts may be recognized using the percentage of completion method. Special purpose entities are included in the consolidated group.

119 Financial statements Notes The Company s Boards Consolidated companies 115 Notes to the income statement In line with the changes to reporting methods for participation certificates (Note 3), the following items in the income statement were adjusted: Interest result Income taxes Net profit Earnings per share 11 Revenues Revenues are recognized when control, i.e. the risks and rewards incident to ownership, has been transferred to the buyer, if the amount of income can be determined reliably and it is probable that the economic benefit will flow to the entity. Revenues are net of sales deductions, if any. Revenues from services are recognized when the service has been rendered. For the breakdown of revenues by business segment and geographical segment, please see the tables below. A detailed segment report is provided in Note 50 and in the management report. REVENUES DIVISIONS Breakdown by division Change in million in % Dräger Medical 1, ,239.2 (2.4) Dräger Safety Drägerwerk AG & Co. KGaA and other companies (12.9) Segment revenues 1, , Internal revenues service companies (34.8) (35.5) (2.0) Revenues 1, , REVENUES REGIONS Breakdown by region in million Change (sales areas) in % Germany Rest of Europe Americas (11.7) Asia/Pacific Other Revenues 1, ,

120 116 Notes to the income statement Revenues include EUR 23.5 million (2006: EUR 9.4 million) from construction contracts that were recognized according to the percentage of completion as of the balance sheet date. This amount is disclosed in the divisions revenues from the following regions: Germany EUR 11.0 million (2006: EUR 0.0 million), rest of Europe EUR 11.0 million (2006: EUR 4.9 million), Americas EUR 1.1 million (2006: EUR 0.0 million) and Asia/ Pacific EUR 0.4 million (2006: EUR 4.5 million) Cost of sales Cost of sales comprises direct materials, direct labor, special direct production costs, inventory allowances, production overheads (including amortization of productionrelated intangible assets and depreciation of property, plant and equipment as well as costs of internal transportation until delivery to the sales depot), materials overheads, cost of warranties and other cost of sales. The cost of sales also includes price differences, consumption variances, cost of underutilization, inventory variances, measurement differences and scrapping. Income from the reversal of previously impaired inventories reduces the cost of sales. Any borrowing costs included in the valuation of inventories are contained in the cost of sales at the time of delivery or performance. Research and development costs Research and development costs comprise all costs incurred during the research and development process, including registration costs, costs of prototypes and the costs of the first series, if they are not capitalized as separate development costs. Marketing and selling expenses Marketing expenses comprise all costs associated with corporate marketing, product marketing and business unit marketing, including expenses for advertising and trade fairs. Selling expenses include the costs of sales management, logistics costs, where they relate to the sales depot or shipping, and the costs of the internal and external sales force, including order processing. The costs of the sales companies are allocated to selling expenses, unless they belong to the cost of sales. Income arising in direct connection with the costs is netted. General administrative expenses General administrative expenses comprise the costs of administrative activities not related to other functions. This includes in particular the cost of management, corporate controlling, legal and consulting fees, audit fees, general infrastructure costs, etc. Income arising in direct connection with the costs is netted.

121 Financial statements Notes The Company s Boards Consolidated companies Other operating income/expenses OTHER OPERATING INCOME/EXPENSES Reversal of bad debt allowances 2,498 1,676 Rental income 2,947 2,914 Gains on the disposal of non-current assets 775 2,288 Other operating income 6,220 6,878 Allocations to bad debt allowances and write-downs on receivables 8,939 6,198 Expenses for leased assets 1,630 1,574 Losses on the disposal of non-current assets 600 1,115 Other operating expenses 11,169 8,887

122 118 Notes to the income statement 17 Financial result FINANCIAL RESULT Income from investments in associates Income from the disposal of associates 12 0 Write-downs on investments in associates (66) 0 Profit from investments in associates Income from the disposal of subsidiaries 117 1,526 Income from other investments Write-downs on other investments 0 (5) Profit from other investments 168 1,571 Net expenses from foreign exchange transactions (388) (2,243) Profit/loss on the disposal of other financial assets and securities (368) 243 Write-downs on other financial assets (24) (135) Write-ups on other financial assets Other financial income Other financial expenses (2) (129) Other financial result (697) (1,926) Financial result (before interest result) (382) (193) Income from other securities and loans Interest income from bank balances 4,647 4,523 Income from interest hedges Interest contained in lease payments Other interest and similar income 2,503 2,306 Interest and similar income 9,157 7,278 Interest expenses from bank liabilities (20,260) (18,162) Other interest and similar expenses (4,425) (6,605) Expenses from interest hedges (9) (12) Interest contained in lease payments (225) (188) Interest portion contained in pension provisions (9,341) (9,176) Distribution for participation certificates (547) (547) Compounding of participation certificates (988) (932) Interest and similar expenses (35,795) (35,622) Interest result (26,638) (28,344)

123 Financial statements Notes The Company s Boards Consolidated companies Income taxes COMPOSITION OF TAX EXPENSE Current tax expense (32,007) (46,491) Deferred tax expense/income from temporary differences (4,683) (850) Deferred tax expense/income from loss carryforwards 3,720 5,504 Deferred tax expense (963) 4,654 Income taxes (32,970) (41,837) Deferred tax expense includes taxes of EUR 5,137 thousand (2006: EUR 1,068 thousand) from the change in tax rates. EUR 5,399 thousand of this amount is tax expense from the adjustment of recognized deferred taxes of domestic companies due to the lower tax rates for corporate income tax and trade tax that will apply in the future. Tax rate changes for foreign companies lead to tax income of EUR 262 thousand. A deferred tax liability of EUR 1,574 thousand (2006: EUR 629 thousand) was recognized for temporary differences in connection with retained profits of foreign subsidiaries. Payment of dividends to the shareholders of the parent companies does not have any income tax consequences. RECONCILIATION OF EXPECTED INCOME TAX EXPENSE TO RECOGNIZED INCOME TAX EXPENSE Earnings before income taxes 97, ,898 Expected income tax expense (tax rate: 39.6%; 2006: 39.6%) (38,666) (47,480) Reconciliation: Effects from other periods 1,965 (6,660) Effect from change in tax rates (5,137) (1,068) Effect from different tax rates 2,931 7,356 Tax effect of non-deductible expenses and tax-free income (4,447) (10,519) Recognition and measurement of deferred tax assets 4,635 8,322 Effect from the change in legal form of Dräger Medical AG & Co. KG 5,590 7,014 Other tax effects 159 1,198 Recognized income tax expense (32,970) (41,837) Effective tax rate (%) overall

124 120 Notes to the income statement The parent company s tax rate of 39.6 percent was used as the expected tax rate. This has remained unchanged since the prior year. The expected tax rate is composed of a corporate income tax component of percent (including the 5.5 percent solidarity surcharge) and a trade tax component of percent. Due to the change in legal form of Dräger Medical AG & Co. KGaA to an AG & Co. KG, with effect for tax purposes as of January 1, 2005, its net profit is no longer directly subject to corporate income tax but rather indirectly in that its income subject to corporate income tax is attributed to the partners in accordance with their percentage interest. The Dräger Group therefore has a corporate income tax liability in respect of its 75 percent interest. The following deferred tax assets and deferred tax liabilities relate to recognition and measurement differences in the individual balance sheet items: DEFERRED TAX ASSETS/DEFERRED TAX LIABILITIES Deferred tax assets Deferred tax liabilities Intangible assets 22,870 19,634 9,724 7,496 Property, plant and equipment 1,627 1,383 10,278 12,162 Other non-current financial assets , Other non-current assets 5, Inventories 12,694 6,449 2,678 4,403 Trade receivables and construction contracts 2,182 2,087 1,659 1,871 Other current financial assets ,569 1,768 Other current assets Liabilities from participation certificates ,909 19,485 Pension provisions 5,710 15, Other non-current provisions 4,791 4, Non-current interest-bearing loans 4,630 6, Other non-current financial liabilities 1,648 1, Other current provisions 7,439 10,987 1, Current loans and liabilities to banks 442 1, Trade payables Other current financial liabilities 6,537 6,029 3,114 3,798 Other current liabilities 2,520 2,321 6,654 7,100 Tax loss carryforwards after valuation adjustments 18,849 16, Valuation adjustments on deferred tax assets from temporary differences (4,867) (6,581) 0 0 Gross amount 93,175 88,563 55,927 60,774 Netting (50,319) (43,737) (50,319) (43,737) Deferred taxes from consolidation entries 27,758 31,752 13,192 8,122 Carrying amount 70,614 76,578 18,800 25,159

125 Financial statements Notes The Company s Boards Consolidated companies 121 The deferred taxes on consolidation entries mainly relate to deferred taxes from the elimination of intercompany profits in inventories as well as in intangible assets and property, plant and equipment. Deferred taxes are determined on the basis of the tax rates which, under the legislation in force, apply in the individual countries at the time of realization or which are expected. The deferred tax assets of the domestic companies were therefore measured using a tax rate of percent in view of the expected reduction in the trade and corporate income tax rates. The Dräger Group recognized deferred tax assets on corporate income tax loss carryforwards of EUR 77,836 thousand (2006: EUR 47,970 thousand) as of December 31, Of these, loss carryforwards of EUR 59,952 thousand (2006: EUR 19,526 thousand) can be used indefinitely; the others expire in a maximum of 20 years. Deferred tax assets on trade tax loss carryforwards of EUR 1,675 thousand (2006: EUR 74 thousand) were recognized. The trade tax loss carryforwards expire in a maximum of 10 years. Deferred taxes were recognized on loss carryforwards of EUR 22,331 thousand (2006: EUR 21,870 thousand) of US companies subject to state tax. The loss carryforwards expire in a maximum of 20 years. No deferred tax assets were recognized for corporate income tax loss carryforwards of EUR 76,563 thousand (2006: EUR 107,424 thousand) and trade tax loss carryforwards of EUR 111,124 thousand (2006: EUR 83,601 thousand). Despite losses in the current and prior years, deferred tax assets of EUR 18,456 thousand (2006: EUR 16,878 thousand) were recognized for loss carryforwards and temporary differences as the companies in question are expected to generate taxable profits in the future. The income from the reversal of a previous valuation adjustment on deferred tax assets came to EUR 13,674 thousand in fiscal year 2007 (2006: EUR 12,512 thousand). The deferred tax assets recognized directly in equity decreased by EUR 2,996 thousand (2006: EUR 576 thousand) during the period and mainly comprised deferred taxes due to the recognition of actuarial gains and losses and deferred taxes from participation capital. EUR 2,231 thousand of this amount is attributable to the reduction of deferred taxes recognized directly in equity due to the future changes in tax rates for domestic companies. On the other hand the change of the deferred tax rate on the participation capital had an increasing effect of EUR 3,554 thousand. 19 Personnel expenses/headcount PERSONNEL EXPENSES Wages and salaries 522, ,645 Social security taxes and related employee benefits 88,761 88,656 Pension expenses 11,088 12, , ,684

126 122 Notes to the income statement HEADCOUNT AS OF THE BALANCE SHEET DATE Germany 4,590 4,433 Abroad 5,755 5,516 Total headcount 10,345 9,949 Production and customer service 5,301 5,166 Other 5,044 4,783 Total headcount 10,345 9,949 HEADCOUNT (AVERAGE) Germany 4,528 4,399 Abroad 5,664 5,462 Total headcount 10,192 9,861 Production and customer service 5,244 5,141 Other 4,948 4,720 Total headcount 10,192 9,861 Please see our comments in the management report contained in this annual report for more information on the development of headcount. 20 Amortization of intangible assets and depreciation of property, plant and equipment AMORTIZATION/DEPRECIATION Intangible assets 14,768 13,622 Property, plant and equipment 41,285 38,751 56,053 52,373 EUR 19,652 thousand in amortization and depreciation charges is contained in cost of sales (2006: EUR 19,483 thousand), EUR 4,657 thousand in research and development costs (2006: EUR 5,811 thousand), EUR 10,123 thousand in marketing and selling expenses (2006: EUR 11,531 thousand) and EUR 21,621 thousand in general administrative expenses (2006: EUR 15,548 thousand). In fiscal year 2007, impairment losses of EUR 1,150 thousand (2006: EUR 0 thousand) were charged on property, plant and equipment.

127 Financial statements Notes The Company s Boards Consolidated companies Earnings/dividend per share EARNINGS/DIVIDEND PER SHARE Net profit 64,671 78,061 Minority interests in net profit (14,630) (30,284) Earnings attributable to participation certificates (excluding minimum dividend, after taxes) (4,682) (4,682) Earnings attributable to shareholders 45,359 43, (2006: 0.55) cash dividend for 6,350,000 preferred shares 3,493 3, (2006: 0.49) cash dividend for 6,350,000 common shares 3,111 3,111 Total dividends 6,604 6,604 Earnings after dividends attributable to shareholders 38,755 36,491 thereof attributable to 6,350,000 preferred shares 19,378 18,246 thereof attributable to 6,350,000 common shares 19,377 18,245 Distribution of earnings attributable to shareholders for preferred shares 22,871 21,739 Dividends 3,493 3,493 50% of net profit after dividends 19,378 18,246 for common shares 22,488 21,356 Dividends 3,111 3,111 50% of net profit after dividends 19,377 18,245 Earnings per preferred share (in ) Earnings per common share (in ) Proposed dividends Drägerwerk AG & Co. KGaA has issued 1,413,425 participation certificates for which the holder receives either 10 common or preferred shares per certificate or 10 times the current stock market price of preferred shares upon termination. The factor 10 is due to the share split, which did not apply to the participation certificates. Diluted earnings per share do not have to be calculated, as Drägerwerk AG & Co. KGaA cannot offer shares without carrying out a capital increase or creating conditional or approved capital. Such a step, however, must be decided by the annual general meeting rather than the Executive Board. Likewise, the possibility of acquiring treasury shares cannot lead to dilution due to the provisions governing the use of such shares. The participation certificate holders themselves are not entitled to exchange their certificates for shares. Drägerwerk AG & Co. KGaA itself does not intend to make use of its right of termination.

128 124 Notes to the consolidated balance sheet Notes to the consolidated balance sheet In line with the changes to reporting methods for participation certificates (Note 3), the following items in the balance sheet were adjusted: Retained earnings Participation capital Other comprehensive income Liabilities from participation certificates Deferred tax liabilities Other current financial liabilities 22 Intangible assets INTANGIBLE ASSETS AS OF DECEMBER 31, 2007 Goodwill Patents, Purchased Internally Leased Prepay trademarks software generated assets ments Total and intangible (finance made licenses assets lease) Cost January 1, ,629 34,333 55,971 12, , ,451 Additions 44, ,909 1, ,003 Disposals 0 0 (1,383) 0 0 (123) (1,506) Reclassifications 0 (4,987) 6, (1,578) 568 Currency translation effects 305 (2,294) (912) (71) 0 (2) (2,974) December 31, ,272 27,387 67,279 14, ,542 Accumulated amortization and impairment losses January 1, ,819 18,002 34,050 5, ,334 Additions 0 2,065 10,806 1, ,768 Disposals 0 0 (1,310) 0 0 (2) (1,312) Reclassifications 0 (4,560) 4, Currency translation effects (303) (1,237) (697) (1,926) December 31, ,516 14,270 47,400 7, ,864 Net carrying value 182,756 13,117 19,879 6, ,678

129 Financial statements Notes The Company s Boards Consolidated companies 125 INTANGIBLE ASSETS AS OF DECEMBER 31, 2006 Goodwill Patents, Purchased Internally Leased Prepay trademarks software generated assets ments Total and intangible (finance made licenses assets lease) Cost January 1, ,124 38,293 48,146 4, ,509 Additions 1, ,223 7, ,568 21,610 Disposals 0 (2,107) (2,236) 0 (8) (4) (4,355) Reclassifications (763) 44 Change in consolidated group 0 0 (268) (268) Currency translation effects 207 (2,592) (701) 0 0 (3) (3,089) December 31, ,629 34,333 55,971 12, , ,451 Accumulated amortization and impairment losses January 1, ,197 18,113 26,973 4, ,650 Additions 0 2,744 9,774 1, ,622 Disposals 0 (2,107) (2,120) 0 (8) 0 (4,235) Reclassifications 0 0 (5) (5) Change in consolidated group 0 0 (187) (187) Currency translation effects (378) (748) (385) (1,511) December 31, ,819 18,002 34,050 5, ,334 Net carrying value 137,810 16,331 21,921 7, , ,117 Goodwill mainly resulted from the transfer in fiscal year 2003 of the Electromedical Systems business unit of Siemens Medical Solutions to Dräger Medical AG & Co. KGaA (now Dräger Medical AG & Co. KG; hereinafter also referred to as the joint venture ) and the patents accruing to the company as part of the joint venture. The change in goodwill is primarily due to the acquisition from Siemens of the additional 10 percent interest in Dräger Medical AG & Co. KG (see Note 5). The amortization of intangible assets is contained in the cost of sales and the other functional costs. On conversion to IFRSs, the Dräger Group made use of the option under IFRS 1 to disclose goodwill at the amount resulting after amortization and deduction directly from equity prior to January 1, At the same time, IAS 36 has been applied since fiscal year Accordingly, goodwill is no longer amortized on a straight-line basis over its useful life, but is written down whenever an impairment test indicates that the carrying

130 126 Notes to the consolidated balance sheet value of goodwill is higher than its recoverable amount (higher of value in use and net selling price). The discounted cash flow method based on the operational five-year plan without assuming further growth in the subsequent period is used to test the goodwill of the individual cash generating units. The business segments form the basis for the cash generating units. The main planning assumptions are market growth, development of market shares, price trends and the discount rate. These assumptions are backed up by external sources of information on market development. No impairment loss was required on the basis of this multi-year plan. Even if the assumed growth rate were to drop by 1 percent p.a. and the discount rate were to increase by another 2 percentage points, no impairment loss would have to be recognized. As of December 31, 2007, goodwill was made up of EUR million for Dräger Medical (2006: EUR million) and EUR 2.1 million for Dräger Safety and Drägerwerk AG & Co. KGaA (2006: EUR 1.6 million). 23 Property, plant and equipment PROPERTY, PLANT AND EQUIPMENT AS OF DECEMBER 31, 2007 Land, Production Other plant, Leased Prepayments 2007 equivalent plant and factory assets made and Total titles, and machinery and office (finance assets under buildings equipment lease) construction Cost January 1, ,730 86, ,676 7,202 25, ,571 Additions 2,852 4,541 26, ,805 74,578 Disposals (68) (3,471) (21,117) (2,138) (806) (27,600) Reclassifications 1,102 4,410 4,206 (31) (10,255) (568) Change in consolidated group Currency translation effects (3,196) (3,271) (2,889) (28) (414) (9,798) December 31, ,540 88, ,734 5,707 54, ,483 Accumulated depreciation and impairment losses January 1, ,114 66, ,880 3, ,691 Additions 8,750 6,215 25,293 1, ,285 Disposals (34) (3,460) (20,442)) (1,068) 0 (25,004) Reclassifications (34) Change in consolidated group Currency translation effects (1,349) (2,505) (2,377) (21) 0 (6,252) December 31, ,534 66, ,437 2, ,870 Net carrying value 105,006 21,488 57,297 2,746 54, ,613

131 Financial statements Notes The Company s Boards Consolidated companies 127 PROPERTY, PLANT AND EQUIPMENT AS OF DECEMBER 31, 2006 Land, Production Other plant, Leased Prepayments 2006 equivalent plant and factory assets made and Total titles, and machinery and office (finance assets under buildings equipment lease) construction Cost January 1, ,356 86, ,096 6,020 10, ,773 Additions 7,398 4,062 25,663 1,802 22,970 61,895 Disposals (2,270) (4,476) (19,506) (537) (1,065) (27,854) Reclassifications 3,844 1,657 1,045 (71) (6,519) (44) Change in consolidated group (163) 0 (1,389) 0 0 (1,552) Currency translation effects (2,435) (1,810) (3,233) (12) (157) (7,647) December 31, ,730 86, ,676 7,202 25, ,571 Accumulated depreciation and impairment losses January 1, ,202 66, ,924 2, ,341 Additions 8,252 5,949 23,102 1, ,642 Disposals (666) (3,897) (18,190) (403) 0 (23,156) Reclassifications 725 (152) (530) (38) 0 5 Change in consolidated group (49) 0 (845) 0 0 (894) Currency translation effects (1,350) (1,312) (2,581)) (4) 0 (5,247) December 31, ,114 66, ,880 3, ,691 Net carrying value 111,616 19,543 52,796 4,179 25, ,880 The assets leased under finance leases mainly comprise factory and office equipment (also see Note 48). For assets leased under operating leases, we refer to our comments in Note 48. EUR 27.0 million of the increase in prepayments made and assets under construction (2006: EUR 12.5 million) is attributable to the new Dräger Medical building under construction. The cost of constructing this building recognized as an asset has thus risen to EUR 41.5 million. Prepayments were also made totaling EUR 1.4 million for this building s external facilities. The additions relating to this new building under construction comprise borrowing costs of EUR 1.6 million. The underlying capitalization rate is between 4.45 percent and 5.11 percent. Investment allowances (government grants) of EUR 3.7 million (2006: EUR 3.1 million) for this building were deducted from the carrying value. 24 Investments in associates Drägerwerk AG & Co. KGaA holds shares in two (2006: six) companies over which it has indirect significant influence. These entities are included as associates in the Group financial statements according to the equity method (over 20 percent interest).

132 128 Notes to the consolidated balance sheet 25 Other non-current financial assets NON-CURRENT FINANCIAL ASSETS Trade receivables 8, Finance lease receivables (lessor) 5,581 1,704 Other loans 2,724 3,650 Positive fair values of derivatives 2,091 1,605 All other non-current financial assets 885 1,465 19,498 8,523 The fair values are not substantially different from the carrying values. No risks have been identified relating to the non-current receivables. It was thus not necessary to recognize specific bad debt allowances. The increase in non-current finance lease receivables is primarily due to new lease agreements concluded by the Dräger Medical division in Germany and Spain. The positive fair values of derivatives are exclusively derived from interest rate hedges relating to the new Dräger Medical building under construction. For more information on finance lease receivables, please refer to our comments on the recognition of finance leases by the lessor (Note 48) Non-current tax refund claims The non-current tax refund claims are solely attributable to a subsidiary in the US and relate to refunds that will not be made until after fiscal year Deferred tax assets Deferred tax assets are explained in Note 18 (income taxes). Other non-current assets OTHER NON-CURRENT ASSETS Equipment leased out 3,735 6,252 All other non-current assets 6,339 5,125 10,074 11,377 Other non-current assets contain the available excess of plan assets over pension obligations totaling EUR 1,751 thousand (2006: EUR 0 thousand, see also Note 38).

133 Financial statements Notes The Company s Boards Consolidated companies Inventories INVENTORIES Finished products and merchandise 151, ,556 Work in process 48,184 55,577 Raw materials, consumables and supplies 96,198 89,821 Prepayments made 12,422 4, , ,275 The carrying value of inventories written down to their net realizable value as of December 31, 2007 is EUR 35,419 thousand (2006: EUR 31,686 thousand). Impairment losses of EUR 12,445 thousand (2006: EUR 9,246 thousand) were charged on inventories in the fiscal year and recognized in cost of sales. In addition, EUR 857 thousand of impairments recognized in prior years were reversed. Finished goods and merchandise comprise loan equipment and demo equipment lent to customers in the short term worth EUR 31,682 thousand (2006: EUR 29,901 thousand). Loan and demo equipment is usually only lent to customers for a short period of time and is therefore disclosed in inventories. Appropriate allowances are made for wear and tear over the period of use. 30 Trade receivables and construction contracts TRADE RECEIVABLES AND CONSTRUCTION CONTRACTS Trade receivables 543, ,150 Receivables from construction contracts 6,765 7, , ,321 The risks associated with trade receivables are adequately accounted for by bad debt allowances. Bad debt allowances developed as follows: SPECIFIC BAD DEBT ALLOWANCES January 1 19,003 16,579 Allocation 8,897 6,130 Utilization (1,042) (1,228) Reversal (2,498) (1,676) Change in consolidated group 3 (369) Currency translation effects (238) (433) December 31 24,125 19,003

134 130 Notes to the consolidated balance sheet The remaining credit risk from trade receivables after specific bad debt allowances is as follows, according to the age of the receivables: AGING OF OVERDUE RECEIVABLES NOT SUBJECT TO BAD DEBT ALLOWANCES Receivables not impaired or overdue 333, ,811 Receivables subject to bad debt allowances 32,898 23,722 Overdue receivables not subject to bad debt allowances less than 30 days 61,831 61,816 between 30 and 59 days 23,943 32,127 between 60 and 89 days 21,891 16,971 between 90 and 119 days 19,488 16,510 more than 120 days 49,714 48, , ,617 Carrying value 543, ,150 Receivables from construction contracts relate to projects in Germany EUR 4,033 thousand (2006: EUR 0 thousand), the rest of Europe EUR 1,567 thousand (2006: EUR 4,944 thousand), the Americas EUR 777 thousand (2006: EUR 0 thousand) and Asia EUR 388 thousand (2006: EUR 2,227 thousand). The figure disclosed takes account of prepayments made in an amount equivalent to EUR 16,719 thousand (2006: EUR 2,273 thousand). The cost incurred for the contracts in process plus the profits recognized according to the percentage of completion method amount to EUR 23,492 thousand (2006: EUR 9,444 thousand) as of the balance sheet date. No specific bad debt allowances were recognized on receivables from construction contracts. There are no overdue receivables which require bad debt allowances. 31 Other current financial assets OTHER CURRENT FINANCIAL ASSETS Positive fair values of derivatives 4,933 2,909 Receivables from investment allowances 4,081 4,775 Notes receivable 2,593 2,512 Receivables from employees 2,323 2,933 Finance lease receivables (lessor) 1, Receivables from associates Securities 0 11,009 Other ,061 25,652 For an explanation of finance lease receivables, please refer to our comments on recognition of finance leases by the lessor (Note 48).

135 Financial statements Notes The Company s Boards Consolidated companies 131 For the derivative financial instruments recognized as other financial assets, please refer to the table of derivative financial instruments in the Dräger Group presented in Note 47. The receivables from investment allowances relate exclusively to claims to investment allowances for the Dräger Medical building under construction. In the prior year, EUR 10,830 thousand of securities were investments made in connection with new pension plan, which are therefore subject to special restraints on disposal. This securities portfolio was sold in December 2007 and the income this generated as well as the employee contributions from fiscal year 2007 were paid into a new plan and secured in favor of the employees via a contractual trust arrangement (CTA). EUR 12,095 thousand was offset against the corresponding gross pension obligations (see the explanations in Note 38). Only a minimal amount of specific bad debt allowances have been recognized for current financial receivables. There are no overdue receivables which require bad debt allowances Cash and cash equivalents Cash and cash equivalents comprise cash in hand and balances at various banks in different currencies. Cash and cash equivalents which were subject to restrictions as of the balance sheet date amount to EUR 6,177 thousand (2006: EUR 3,623 thousand). Current tax refund claims CURRENT TAX REFUND CLAIMS Tax refund claims 14,293 18, Other current financial assets OTHER CURRENT FINANCIAL ASSETS Prepaid expenses 10,189 9,407 Other 11,644 12,070 21,833 21,477

136 132 Notes to the consolidated balance sheet 35 Equity For the breakdown and changes in equity in fiscal years 2006 and 2007, see the statement of changes in equity. Capital stock The capital stock of Drägerwerk AG & Co. KGaA remains unchanged at EUR 32,512 thousand. The capital stock is divided into 6,350,000 limited no-par bearer shares each of common and non-voting preferred shares. Drägerwerk Verwaltungs AG, the general partner, holds no shares in capital. All shares have been fully paid in. As before, the preferred shares are traded on the capital market. Other than voting rights, the preferred shares have the same rights as those attached to the common shares. As compensation for the lack of voting rights, an advance dividend of EUR 0.13 per preferred share is distributed from net earnings. If sufficient profits are available, a dividend of EUR 0.13 per common share is then paid. Any profit in excess of this amount, if distributed, is allocated, so preferred shares receive EUR 0.06 more than common shares. If the profit is not sufficient to distribute the advance dividend for preferred shares in one or more years, the amounts are paid from the profit of subsequent fiscal years before a dividend is paid on common shares. If amounts in arrears are not paid in the next year along with the full preferred dividend for that year, the preferred shareholders have voting rights until the arrears have been paid. In the event of liquidation, the preferred shareholders receive 25 percent of net liquidation proceeds in advance. The remaining liquidation proceeds are distributed evenly to all shares. At the time of preparing the financial statements for fiscal year 2007, Drägerwerk AG & Co. KGaA had neither conditional nor approved capital at its disposal. Drägerwerk AG & Co. KGaA does not grant any share-based payments (share option plan) to its employees. Capital reserve The capital reserve originated from share premiums from Drägerwerk AG & Co. KGaA s (trans)formation in 1970 and from capital increases in 1979, 1981 and Reserves retained from earnings Reserves retained from earnings comprise the earnings generated until fiscal year 2007 by the companies included in the Group financial statements, where they were not attributed to minority interests or paid as a dividend by Drägerwerk AG & Co. KGaA. The portion of Group earnings for fiscal year 2007 to be distributed as a dividend by Drägerwerk AG & Co. KGaA is disclosed under Group net earnings rather than under this item. Participation capital In terms of the recognized equity component for each participation certificate series in the financial statements, we refer to our comments in Notes 3 and 37 for more information.

137 Financial statements Notes The Company s Boards Consolidated companies 133 Other comprehensive income OTHER COMPREHENSIVE INCOME Currency translation adjustment (23,781) (13,739) Fair value of financial instruments in the available-for-sale category Actuarial gains and losses from pension plans recognized directly in equity (10,560) (23,980) Deferred taxes recognized directly in equity 3,577 9,720 (29,995) (27,857) Group net earnings The amount proposed for distribution as a dividend by Drägerwerk AG & Co. KGaA is recognized as Group net earnings in the Group financial statements. The proposal by the general partner and the Supervisory Board of Drägerwerk AG & Co. KGaA for the appropriation of the net earnings of Drägerwerk AG & Co. KGaA is presented in the condensed financial statements of Drägerwerk AG & Co. KGaA included in this annual report. 36 Minority interests The minority interests mostly relate to the following subsidiaries: MINORITY INTERESTS Minority interests thereof minority interests in net profit Dräger Medical AG & Co. KG 175, ,455 14,325 29,178 Shanghai Dräger Medical Instrument Co. Ltd. 1,766 2, Dräger Medical South Africa Dräger Medical Ticaret ve Servis Limited Sirketi Dräger Safety MSI GmbH Dräger Arabia Co. Ltd. (84) 1,026 (1,099) 218 Other 138 (39) 68 (498) 179, ,488 14,630 30,284

138 134 Notes to the consolidated balance sheet 37 Participation capital/liabilities from participation certificates PARTICIPATION CAPITAL Number Par Value Premium Payments thereof recog- thereof recogreceived nized as debt nized in equity Series A until June ,600 8,066, ,353, ,420, ,839, ,581, Series K until June ,205 2,689, ,758, ,447, ,657, ,790, Series D from June ,620 25,371, ,557, ,929, ,215, ,714, ,413,425 36,127, ,670, ,797, ,711, ,085, Accumulated interest effect until ,880, Recognition as of December 31, ,592, ,085, Compounding , Recognition as of December 31, ,580, ,085, No participation certificates were issued in fiscal year FAIR VALUE Number As on Fair value Number As on Fair value December December Series A until June , ,616, , ,772, Series K until June , ,311, , ,205, Series D from June , ,424, , ,864, ,413, ,352, ,413, ,842, PARTICIPATION CAPITAL CONDITIONS Termination Termination Loss share Minimum Dividend for right of right of return participation certificates Drägerwerk participation AG & Co. KGaA certificate owner Series A Yes No No 1.3 Dividend on preferred share x 10 Series K Yes Yes No 1.3 Dividend on preferred share x 10 Series D Yes Yes Yes Dividend on preferred share x 10

139 Financial statements Notes The Company s Boards Consolidated companies 135 Drägerwerk AG & Co. KGaA does not intend to terminate the participation certificates. On termination by the participation certificate holder, the maximum amount repaid is the average amount paid in for the series. Series K may be terminated for the first time as of December 31, 2021 with five years notice; the period of termination thereafter is again five years. Series D may be terminated for the first time as of December 31, Series D participation certificates share in losses. The proportionate loss attributable to the participation capital is offset by future profits. The cases in which the minimum return is not paid are the same as those in which the preferred dividend is not paid. As with the subsequent payment of preferred dividends, the dividend for participation certificates is paid in arrears. The dividend for participation certificates is 10 times the preferred share dividend, as the par value of the securities was originally identical, but the arithmetic par value of the preferred share has since been reduced to one tenth of the original par value. For details, please refer to the terms and conditions of series A, K and D participation certificates. 38 Provisions for pensions and similar obligations As of December 31, 2007, the Dräger Group mainly had defined benefit pension plans and similar obligations in addition to a small number of defined contribution pension plans. Defined benefit pension plans and similar obligations Under the Group s defined benefit pension plans, provisions for pensions and similar obligations have been accrued for benefits payable in the form of old-age, disability and surviving dependent pensions. The amount of the obligations is determined using the projected unit credit method. The obligations are partly funded by plan assets. The Dräger Group has decided to exercise the option under IAS 19.93A of disregarding the 10 percent corridor and fully recognizing actuarial gains or losses in equity immediately, taking account of deferred taxes. The actuarial gains or losses recognized in equity are reconciled in the separate statement of recognized income and expenses. The defined benefit pension plans of the German companies account for some 97 percent (2006: 96 percent) of the provisions for pensions and similar obligations disclosed as of the balance sheet date. As of January 1, 2005, the new company pension plans Rentenplan 2005 for almost all employees of the Dräger Group s German subsidiaries and Führungskräfteversorgung 2005 for management came into effect, superseding the former Versorgungsordnung 90 and Ruhegeldordnung 90 schemes. Under the old pension plan, employees received pensions based on their salaries and period of employment. As part of the transition to the new plan, employees were guaranteed a pension based on the old plan for their years of service prior to the transition. The new plan is now composed of three levels: the employer-funded basic level, the employee-funded top-up level (deferred compensation) and the employer-funded supplementary level. The pension cost for the employer-funded basic level is based on the respective employee s income. The employee funded top-up level allows employees to increase their pension entitlement through deferred compensation.

140 136 Notes to the consolidated balance sheet The contribution made at the employer-funded supplementary level depends on the employee contribution through deferred compensation and on the Company s business performance (EBIT). In prior fiscal years, the funds resulting from the new pension plan were held in separate bank accounts or invested in securities. The employees pension accounts have a minimum guaranteed return of 2.75 percent. In December 2007, these funds from the pension plan as well as the employee contributions from fiscal year 2007 were paid into a new fund and secured in favor of the employees via a contractual trust arrangement (CTA), meaning that they only serve to cover and finance the Company s direct pension obligations. Since the assets of this fund fulfill the criteria of plan assets pursuant to IAS 19, the EUR 12,095 thousand in assets secured by the CTA were offset against the gross pension obligations for the first time in fiscal year 2007.

141 Financial statements Notes The Company s Boards Consolidated companies 137 The changes in the projected benefit obligation and plan assets are as follows: CHANGES IN THE PROJECTED BENEFIT OBLIGATION AND PLAN ASSETS Defined Similar Total Defined Similar Total benefit obliga- benefit obligaplans tions plans tions Changes in the projected benefit obligation Projected benefit obligation as of January 1 218,652 4, , ,955 4, ,436 Service cost 3, ,971 4, ,157 Interest expense 9, ,342 8, ,176 Past service cost Actuarial gains (15,472) (323) (15,795) (1,295) (128) (1,423) Actuarial losses Benefits paid (9,985) (433) (10,418) (9,750) (340) (10,090) Employee contributions 2, ,411 1, ,687 Transfer of obligations and other effects (53) 0 (53) (1,197) 0 (1,197) Currency changes (877) 0 (877) (1,071) 0 (1,071) Projected benefit obligation as of December ,701 4, , ,652 4, ,486 thereof with plan assets 42, ,557 31, ,100 thereof without plan assets 165,144 4, , ,552 4, ,386 Changes in plan assets Fair value of plan assets as of January 1 29, ,380 28, ,070 Expected return on plan assets 1, ,287 1, ,178 Actuarial gains , ,923 Actuarial losses (278) 0 (278) (144) 0 (144) Employer contributions Employee contributions Benefits paid (759) 0 (759) (711) 0 (711) Contribution to new fund (CTA) 13, , Transfer of obligations and other effects (9) 0 (9) (1,153) 0 (1,153) Currency changes (853) 0 (853) (933) 0 (933) Plan assets as of December 31 43, ,895 29, ,380 Funding status Unrecognized past service cost (6) 0 (6) (125) 0 (125) Allowance for the limit on assets Other amounts stated in the balance sheet 16 (351) (335) Net obligation as of December ,061 4, , ,171 4, ,005 thereof: Available excess of plan assets 1, , Provision for pensions and similar obligations (165,812) (4,106) (169,918) (189,171) (4,834) (194,005)

142 138 Notes to the consolidated balance sheet Plan assets comprise land held by Swiss subsidiaries 65 percent (2006: 95 percent), securities 29 percent (2006: 1 percent) and other assets 6 percent (2006: 4 percent). The change primarily results from the fact that, for the first time, plan assets also include funds from the German subsidiaries new pension plan. These assets are held in a restricted fund set up especially for Dräger and chiefly comprise fixed-interest securities. The obligations similar to pensions of EUR 4,106 thousand (2006: EUR 4,834 thousand) mainly comprise obligations to employees based on local regulations governing the departure of employees from the Company. The expense for defined benefit pension plans is made up as follows: EXPENSES FOR DEFINED BENEFIT PENSION PLANS AND SIMILAR OBLIGATIONS Defined Similar Total Defined Similar Total benefit obliga- benefit obligaplans tions plans tions Current service cost 3, ,971 4, ,157 Interest expense on obligation 9, ,342 8, ,176 Expected return on plan assets (1,287) 0 (1,287) (1,178) 0 (1,178) Past service cost Other effects on profit or loss (5) (350) (355) (29) 0 (29) 11, ,843 12, ,274 The actual income from plan assets totaled EUR 1,105 thousand (2006: EUR 2,957 thousand). The following actuarial assumptions were made in measuring the projected benefit obligation: ACTUARIAL ASSUMPTIONS Discount rate % % Future wage and salary increases % % Future pension increases % % Average employee turnover % % A discount rate of 5.25 percent, a future increase in wages and salaries of 2.5 to 3.5 percent, a future increase in pensions of 1.0 to 2.0 percent and average employee turnover of 3 percent are applicable to the German companies, representing around 97 percent (2006: 96 percent) of pension obligations. The discount rate reflects the effective market return on high-quality corporate bonds with the same term as the pension obligations as of the balance sheet date.

143 Financial statements Notes The Company s Boards Consolidated companies 139 The expected return on plan assets was based on the assumption of a long-term trend of between 3.5 and 4.5 percent. In fiscal year 2007, additional benefits of EUR 1,052 thousand (2006: EUR 1,074 thousand) were paid out to pensioners. The projected benefit obligation and plan assets have changed as follows in recent years: MULTI-YEAR OVERVIEW OF DEFINED BENEFIT PENSION PLANS Projected benefit obligations 207, , , , ,628 Plan assets (fair value) 43,895 29,380 28,070 26,354 35,485 Total projected benefit obligations and plan assets 163, , , , ,143 thereof: Unfunded obligations 165, , , , ,143 Available excess of plan assets 1, As of the balance sheet date, the defined benefit obligations were 7.3 percent (2006: 0.04 percent) lower and the plan assets (excluding the newly contributed funds from the German subsidiaries new pension plan) were 1.1 percent (2006: 7.13 percent) higher than forecast for 2007 by the actuaries in The differences are largely attributable to actuarial differences in the obligations and the plan assets. Defined contribution plans In addition to the defined benefit plans and similar obligations described above, some companies in the Dräger Group sponsor defined contribution plans based on local practice and regulations. The cost of defined contribution plans came to EUR 6,249 thousand in fiscal year 2007 (2006: EUR 6,033 thousand).

144 140 Notes to the consolidated balance sheet 39 Other non-current and current provisions OTHER PROVISIONS Tax Provisions Warranty Provisions Provisions Provisions 2007 provisions for provisions for for for other Total personnel potential commis- obligations and losses sions in the welfare normal obliga- course of tions business January 1, ,631 63,993 21,548 11,467 5,091 52, ,950 Allocation 11,909 55,421 7,650 1,205 3,878 32, ,932 Unwinding of the discount 0 1, ,115 Utilization (14,687) (44,750) (6,157) (600) (3,814) (34,719) (104,727) Reversal (2,000) (3,947) (667) (420) (169) (7,836) (15,039) Change in consolidated group Currency translation effects (373) (1,202) (658) 0 (282) (893) (3,408) December 31, ,658 70,686 21,716 11,652 4,704 42, ,638 Provisions for personnel and welfare obligations were mainly recognized to cover bonuses as well as the current portion of phased retirement and long-service awards. The warranty provisions were measured by reference to the warranty claims made in the past and specific known risks. In addition, obligations in the normal course of business were mainly covered by provisions for customer bonuses, sales commissions, audit of financial statements, litigation costs and risks, rent obligations and purchase guarantees. The expected utilization of other provisions is as follows: OTHER PROVISIONS BY MATURITY Up to 1 to Over Total 1 year 5 years 5 years Tax provisions 26, ,658 Provisions for personnel and welfare obligations 53,768 11,007 5,911 70,686 Warranty provisions 21, ,716 Provisions for potential losses 11, ,652 Provisions for commissions 4, ,704 Provisions for other obligations in the normal course of business 30,382 5,961 5,879 42, ,880 16,968 11, ,638

145 Financial statements Notes The Company s Boards Consolidated companies Non-current interest-bearing loans NON-CURRENT INTEREST-BEARING LOANS to 5 years Over 5 years Total 1 to 5 years Over 5 years Total Non-current liabilities to banks 13,633 32,668 46,301 14,475 17,917 32,392 Note loans a) issued in 2002/03 24, ,924 49, ,917 b) issued in , ,721 74,876 54, ,728 c) issued in ,767 99, , , , ,268 72, ,037 The fair values are not substantially different from the carrying values. Note loans of EUR 50.0 million (discounted: EUR 49.9 million, thereof EUR 25.0 million disclosed in current loans and bank liabilities ) issued in 2003 may be terminated when the equity ratio, net of deferred tax assets and liabilities, falls below 16 percent and net financial debt is five times the result from ordinary operations before depreciation and amortization. As of December 31, 2007, these ratios were percent (2006: percent) and 1.66 (2006: 0.92), respectively. The interest terms and conditions for the non-current interest-bearing loans are as follows: INTEREST TERMS AND CONDITIONS FOR THE NON-CURRENT INTEREST-BEARING LOANS Currency Fixed/variable Interest rate Amount interest repayable Liabilities to banks EUR variable ,037 EUR fixed ,750 JPY fixed Other variable ,301 Note loans EUR variable ,645 EUR fixed , , ,713 The variable interest rates are partly hedged. Please see our information on derivative financial instruments (Note 47). None of the liabilities shown in the consolidated balance sheet are collateralized by mortgages on land and buildings or assignment as security.

146 142 Notes to the consolidated balance sheet 41 Other non-current financial liabilities OTHER NON-CURRENT FINANCIAL LIABILITIES to 5 years Over 5 years Total 1 to 5 years Over 5 years Total Finance lease liabilities (lessee) 2, ,662 2, ,990 All other non-current liabilities 2,424 2,205 4,629 4, ,942 4,718 2,573 7,291 7, ,932 The fair values are not substantially different from the carrying values. For an explanation of finance lease liabilities, please refer to our comments on recognition of finance leases by the lessee (Note 48) Deferred tax liabilities Deferred tax liabilities are explained in Note 18 (income taxes). Current loans and liabilities to banks CURRENT LOANS AND LIABILITIES TO BANKS Liabilities to banks 82, ,462 Note loans 25,000 34, , ,263 For information on the terms and conditions of the note loans of EUR 25.0 million (2006: EUR 34.8 million), please see our comments in Note 40. Interest terms and conditions for the current loans and liabilities to banks are as follows: INTEREST TERMS AND CONDITIONS Currency Fixed/variable Interest rate Amount interest repayable EUR variable ,123 EUR fixed ,264 USD variable ,571 JPY variable ,807 Other variable 1, ,275 The variable interest rates are partly hedged. Please also see our comments on derivative financial instruments (Note 47).

147 Financial statements Notes The Company s Boards Consolidated companies Current financial liabilities CURRENT FINANCIAL LIABILITIES Trade payables to third parties 113, ,188 Other current financial liabilities Other liabilities to employees and for social security 36,407 32,496 Distribution for participation capital Finance lease liabilities (lessee) 1,366 1,225 Negative fair values of derivative financial instruments 370 3,212 Liabilities to associates Other liabilities 24,482 21,076 63,175 58, , ,057 For the derivative financial instruments recognized as other financial liabilities, please refer to the table of derivative financial instruments in the Dräger Group presented in Note 47. For an explanation of finance lease liabilities, please refer to our comments on recognition of finance leases by the lessee (Note 48). 45 Current tax liabilities CURRENT TAX LIABILITIES Liabilities for taxes 34,032 33,716 This item contains liabilities from income tax and VAT. 46 Other current liabilities OTHER CURRENT LIABILITIES Prepayments received 51,161 34,779 Deferred income 21,768 16,338 72,929 51,117

148 144 Notes to the consolidated balance sheet 47 Financial instruments Structure of financial instruments and their measurement The structure of financial instruments in the Group, and therefore the basis for their measurement, was as follows as of the balance sheet date: FINANCIAL INSTRUMENTS AS OF DECEMBER 31, 2007 ASSETS Financial instruments Other Total Measurement Measurement in in accordance accordance with with IAS 39 other IFRSs Fair value Fair value Amortized Amortized Fair value (Amortized) cost cost cost (held for (available (loans and (held to trading) for sale) receivables) maturity) Intangible assets 223, ,678 Property, plant and equipment 240, ,613 Investments in associates Other non-current financial assets 2, , ,581 19,498 Tax refund claims 1,237 1,237 Deferred tax assets 70,614 70,614 Other non-current assets 10,074 10,074 Inventories 308, ,168 Trade receivables and construction contracts 549, ,955 Other current financial assets 4,933 9,894 1,234 16,061 Cash and cash equivalents 160, ,747 Tax refund claims 14,293 14,293 Other current assets 21,833 21,833 Total assets 7, , , ,510 1,637,500

149 Financial statements Notes The Company s Boards Consolidated companies 145 FINANCIAL INSTRUMENTS AS OF DECEMBER 31, 2007 EQUITY AND LIABILITIES Financial instruments Other Total Measurement Measurement in in accordance accordance with with IAS 39 other IFRSs Fair value Amortized Fair value (Amortized) cost cost (held for (other trading) liabilities) Equity 545, ,200 Liabilities from participation certificates 26,581 26,581 Provisions for pensions and similar obligations 169, ,918 Other non-current provisions 28,758 28,758 Non-current interest-bearing loans 300, ,713 Other non-current financial liabilities 4,629 2,662 7,291 Deferred tax liabilities 18,800 18,800 Other non-current liabilities Current provisions 148, ,880 Current loans and liabilities to banks 107, ,275 Trade payables 113, ,812 Other current financial liabilities ,439 1,366 63,175 Tax liabilities 34,032 34,032 Other current liabilities 72,929 72,929 Total equity and liabilities , ,918 4, ,735 1,637,500

150 146 Notes to the consolidated balance sheet FINANCIAL INSTRUMENTS AS OF DECEMBER 31, 2006 ASSETS 1 Financial instruments Other Total Measurement Measurement in in accordance accordance with with IAS 39 other IFRSs Fair value Fair value Amortized Amortized Fair value (Amortized) cost cost cost (held for (available (loans and (held to trading) for sale) receivables) maturity) Intangible assets 185, ,117 Property, plant and equipment 213, ,880 Investments in associates Other non-current financial assets 1, , ,704 6,918 Tax refund claims 1,830 1,830 Deferred tax assets 76,578 76,578 Other non-current assets 12,982 12,982 Inventories 289, ,275 Trade receivables and construction contracts 598, ,322 Other current financial assets 2,909 11,009 6, ,876 Cash and cash equivalents 185, ,638 Tax refund claims 18,250 18,250 Other current assets 26,252 26,252 Total assets 4,514 11, , , ,164 1,636,258 1 Prior-year figures have been adapted to the new balance sheet structure. In addition, cash and cash equivalents have been reclassified as loans and receivables.

151 Financial statements Notes The Company s Boards Consolidated companies 147 FINANCIAL INSTRUMENTS AS OF DECEMBER 31, 2006 EQUITY AND LIABILITIES 1 Financial instruments Other Total Measurement Measurement in in accordance accordance with with IAS 39 other IFRSs Fair value Amortized Fair value (Amortized) cost cost (held for (other trading) liabilities) Equity 576, ,936 Liabilities from participation certificates 25,592 25,592 Provisions for pensions and similar obligations 194, ,005 Other non-current provisions 23,337 23,337 Non-current interest-bearing loans 212, ,037 Other non-current financial liabilities 4,942 2,990 7,932 Deferred tax liabilities 25,159 25,159 Other non-current liabilities Current provisions 162, ,613 Current loans and liabilities to banks 153, ,263 Trade payables 111, ,188 Other current financial liabilities 3,212 54,432 1,225 58,869 Tax liabilities 33,716 33,716 Other current liabilities 51,117 51,117 Total equity and liabilities 3, , ,005 4, ,372 1,636,258 1 Prior-year figures have been adapted to the new balance sheet structure. The measurement categories are explained in our comments on the measurement of financial assets and liabilities in Note 10 of this annual report.

152 148 Notes to the consolidated balance sheet Net profit/loss from financial instruments The net profit/loss from financial instruments recognized in profit or loss in fiscal year 2007 is summarized below (by measurement category): NET PROFIT/LOSS BY MEASUREMENT CATEGORY Held for trading (financial assets/liabilities) 13,593 2,676 Loans and receivables (11,228) (8,246) Available for sale (423) 187 Other liabilities 685 (1,149) 2,627 (6,532) The net profit/loss of the financial assets and liabilities in the held for trading category comprises profit and loss from changes in fair value as well as interest income/expenses for these assets and liabilities. The net profit/loss in the category loans and receivables contains impairment losses of EUR 8,939 thousand (2006: EUR 6,187 thousand) and the net profit/loss in the category available for sale contains impairment losses of EUR 90 thousand (2006: EUR 135 thousand). Interest income/expenses from financial instruments In fiscal year 2007, interest income/expenses from financial instruments not measured at fair value through profit or loss was as follows: INTEREST INCOME/EXPENSES FROM FINANCIAL INSTRUMENTS Interest income 4,846 4,639 Interest expenses (20,484) (18,352) (15,638) (13,713) Financial risk management As an international company, the Dräger Group, in addition to liquidity risks, is especially exposed to exchange rate and interest rate risks. The aim of financial risk management is to mitigate these market risks arising in the course of operating and financial activities. Derivative financial instruments are used to hedge the currency and interest exposure of current and forecast transactions. Derivatives are only transacted with banks of prime standing. Financial risk management is based on the annually revised strategic plans of the Group and divisions and the resultant short and medium-term plans. Financial risk management of liquidity and interest rate risk is implemented centrally at Drägerwerk AG & Co. KGaA, whereas currency risk management based on regular risk reports is the joint responsibility of Drägerwerk AG & Co. KGaA and its divisions.

153 Financial statements Notes The Company s Boards Consolidated companies 149 Please see our comments in the management report for more general information on risk management. Liquidity risk Drägerwerk AG & Co. KGaA mitigates its liquidity risk by diversifying the maturity structure of its financing instruments. These include in particular participation certificates and note loans due in one to eight years. Drägerwerk AG & Co. KGaA also has non-current and current liabilities to banks as well as a liquidity reserve comprising freely available credit facilities with numerous banks with which it has concluded bilateral agreements. Due to the maturity structure of these financing instruments, Drägerwerk AG & Co. KGaA has only a limited repricing risk. The following analysis of the maturities of financial liabilities (contractually agreed, non-discounted payments) shows the influence on the Group s liquidity situation: MATURITIES OF FINANCIAL LIABILITIES From 2013 Total to 2012 Financial liabilities held for trading Other financial liabilities Loans and liabilities to banks 107,275 31, , , ,594 Trade payables 113, ,812 Liabilities to employees 36, ,612 Finance lease liabilities 1,366 1,137 1, ,183 Other liabilities 25,032 1,495 1, , ,892 34, , , , ,262 34, , , ,593 Currency Risk The Group s currency risks within the meaning of IFRS 7 relate to the financial instruments used in connection with operating activities or investing and financing activities. Drägerwerk AG & Co. KGaA mainly counters any risk that remains after offsetting cash inflows and outflows in the same foreign currency by entering into derivatives. In order to better illustrate existing currency risks, the effects of hypothetical changes in relevant currencies on net profit and equity are discussed below on the basis of a currency sensitivity analysis. For this purpose, it was assumed that most monetary financial instruments are already denominated in the functional currency or have been converted into the functional currency using derivative financial instruments. Currency risks therefore lie in the remaining unhedged financial instruments in foreign currencies in respect of which currency fluctuations affect profit and loss. On the other hand, currency hedges tied to cash flow hedges give rise to currency risks recognized directly in equity. If the euro were up (down) 10 percent against the US dollar, the main foreign currency in the Dräger Group, as of the balance sheet date, with all other variables remaining the same, earnings before taxes would be EUR 4.4 million lower (higher).

154 150 Notes to the consolidated balance sheet Interest rate risk As well as variable rate non-current receivables and liabilities from operations, variable rate non-current loan liabilities also give rise to an interest rate risk due to changes in market rates. Drägerwerk AG & Co. KGaA counters this risk with a combination of fixed and variable rate financial liabilities and by using interest rate caps. Changes in the market interest rates for primary financial instruments with fixed interest only affect the Group s profit or loss if such instruments are recognized at fair value. Thus none of the fixed-interest financial instruments recognized at amortized cost pose an interest rate risk for the purposes of IFRS 7. In order to better illustrate existing interest rate risks, the effects of hypothetical changes in market interest rates on net profit and equity are discussed below on the basis of an interest rate sensitivity analysis. For this purpose, it was assumed that interest rate changes affect primary financial instruments measured at fair value and derivative financial instruments that are not part of a hedging relationship, whose changes in value are recognized in profit or loss. Derivative financial instruments that are part of a cash flow hedge are also affected by interest rate changes, with the changes in value recognized directly in equity. Due to the fact that the existing variable rate net financial debt was fully hedged by interest rate caps as of the balance sheet date, a hypothetical increase/decrease of 100 basis points in market interest rates as of the balance sheet date, with all other variables remaining the same, would not have any effect on earnings after taxes or the remaining components of equity. Credit risk The maximum exposure to credit risk is represented by the carrying value of each financial asset, including financial derivatives, in the balance sheet. Because counterparties to derivatives consist of prime financial institutions, the Group does not expect any counterparties to fail to meet their obligations. Consequently, the Group considers that its maximum exposure is reflected by the amount of trade receivables and other current assets, net of valuation adjustments recognized as of the balance sheet date.

155 Financial statements Notes The Company s Boards Consolidated companies 151 Derivative financial instruments Like the hedged items, derivative financial instruments are recognized at fair value, and resulting unrealized gains and losses are recognized in profit or loss as part of the cost of sales or the financial result providing the instruments are not part of a cash flow hedge. If a derivative financial instrument serves as a cash flow hedge, the unrealized gains and losses are recognized directly in equity. The following positions were held as of the balance sheet date: DERIVATIVE FINANCIAL INSTRUMENTS Nominal Fair value volume Positive Negative December 31, 2007 Currency hedges 208,504 3, Interest rate caps 125,000 2,091 0 Interest rate swaps 25,350 1, ,854 7, December 31, 2006 Currency hedges 359,648 2,909 3,206 Interest rate caps 125,000 1,282 0 Interest rate swaps 31, ,998 4,514 3,212 The positive fair values of the derivatives are disclosed as current and non-current financial assets, the negative fair values as current financial liabilities. The currency hedges cover selected foreign currency cash flows from operating activities over the next 12 months. The interest rate hedges have terms of up to five years (interest rate caps) or 15 years (interest rate swaps). Currency hedging mainly relates to operations in US dollars and pounds sterling as well as dividends distributed in Swiss francs. 48 Leases The contracts recognized under IFRIC 4 as leases are explained below. Lessee finance leases Property leased by the Dräger Group primarily includes machinery and equipment. The most significant obligations assumed under the lease terms, other than the rental payments themselves, are the upkeep of the facilities and equipment, insurance and taxes on capital. Lease terms generally range from one to five years with options to renew at varying conditions.

156 152 Notes to the consolidated balance sheet The Group had no finance leases with conditional payments in the fiscal year or the prior year. For a list of assets used under finance leases, please see our explanations in connection with the statement of non-current assets in Notes 22 and 23. Minimum lease payments for the above finance leases are as follows: MINIMUM LEASE PAYMENTS During the first year 1,380 1,363 From the second to the fifth year 2,437 2,723 After five years Minimum lease payments 4,197 4,609 During the first year 1,366 1,225 From the second to the fifth year 2,294 2,491 After five years Present value of minimum lease payments 4,028 4,215 Interest portion contained in the minimum lease payments No future income from non-cancelable subleases was expected as of December 31, 2007, as in the prior year. Lessee operating leases Drägerwerk AG & Co. KGaA and its subsidiaries have various operating lease agreements for buildings, machinery, office equipment and other facilities and equipment. Most leases contain renewal options. Some of the leases contain escalation clauses and provide for contingent rents based on percentages of revenues derived from assets held under operating leases. Lease conditions do not contain restrictions concerning dividends, additional debt or further leasing. Lease expenses comprise the following: LEASE EXPENSES Basic lease costs 33,319 31,987 Contingent costs 24 0 Income from subleases (1,019) (1,928) 32,324 30,059

157 Financial statements Notes The Company s Boards Consolidated companies 153 Future minimum lease payments outstanding under non-cancelable operating leases are as follows: MINIMUM LEASE PAYMENTS During the first year 27,808 29,749 From the second to the fifth year 42,737 38,960 After five years 26,887 16,940 Minimum lease payments 97,432 85,649 1 Minimum lease payments stated are not discounted. The prior-year figures were adjusted accordingly. Total expected future minimum income from subleases under non-cancelable operating leases amounted to EUR 1,774 thousand as of December 31, 2007 (2006: EUR 2,125 thousand). Lessor finance leases The Dräger Group s main finance leases relate to medical equipment of the Dräger Medical division and solutions and personal protection products of the Dräger Safety division. A receivable was recognized equal to the present value of the minimum lease payments. Receivables from future lease payments outstanding are shown below: RECEIVABLES FROM FUTURE LEASE PAYMENTS OUTSTANDING During the first year 1, From the second to the fifth year 5,742 1,369 After five years Total gross investment in finance leases 7,873 2,468 During the first year 1, From the second to the fifth year 5,066 1,126 After five years Present value of minimum lease payments outstanding as of the balance sheet date 6,815 2,069 Unearned finance income 1, As in the prior year, bad debt allowances for uncollectible minimum lease payments were not required as of December 31, 2007.

158 154 Notes to the consolidated balance sheet/other financial obligations Lessor operating leases The Dräger Group s main operating lease agreements relate to medical equipment of the Dräger Medical division and solutions and gas detection products of the Dräger Safety division. The lessor fully depreciates the cost of the leased assets over the term of the lease. Hence there is no residual value risk for the Dräger Group. A minor positive fair value, if any, can be expected to remain at the end of the leases. The following table shows the assets leased out under operating leases: OPERATING LEASES Equipment 15,568 14,577 Accumulated depreciation (11,833) (8,325) Net carrying value 3,735 6,252 Future minimum lease payments outstanding under non-cancelable operating leases are as follows: MINIMUM LEASE PAYMENTS During the first year 4,849 3,392 From the second to the fifth year 3,369 1,335 8,218 4,727 1 Minimum lease payments stated are not discounted. The prior-year figures were adjusted accordingly. In fiscal year 2007, agreements were increasingly concluded as long-term contracts, meaning that the ratio of minimum lease payments to the net carrying values of leased equipment has increased. As in the prior year, no contingent rents were recognized in profit or loss in fiscal year Contingent liabilities and other financial obligations CONTINGENT LIABILITIES Guarantees 4,684 6,500 Contingent liabilities under warranty/indemnity contracts ,684 6,570 EUR 4,000 thousand (2006: EUR 6,500 thousand) of guarantees were given as part of phased retirement agreements.

159 Financial statements Notes The Company s Boards Consolidated companies 155 Other financial obligations a) Rental and lease agreements For other financial obligations from rental and lease agreements, please refer to our comments in Note 48 (lessee operating leases). b) Purchase obligations As part of the sale of the IT companies in fiscal year 2004, Drägerwerk AG & Co. KGaA (formerly Drägerwerk AG), Dräger Medical AG & Co. KG (formerly Dräger Medical AG & Co. KGaA) and Dräger Safety AG & Co. KGaA agreed with an IT services company to purchase IT services for the entire Dräger Group until February This obligation amounted to EUR 10.0 million as of December 31, This volume is within the usual requirements of the Dräger Group. Dräger Safety has also agreed to purchase global IT services worth EUR 12.0 million from another service provider by the end of This volume is within the usual requirements of Dräger Safety. As a result of outstanding orders, the Group has obligations to purchase intangible assets of EUR 333 thousand (2006: EUR 1,799 thousand) and items of property, plant and equipment of EUR 4,006 thousand (2006: EUR 7,755 thousand) as of December 31, c) Investment allowance for Molvina Based on the decision of Investitionsbank Schleswig Holstein on November 1, 2005, Dräger Medical AG & Co. KG and MOLVINA Vermietungsgesellschaft mbh & Co. Finkenstraße KG, both jointly and severally liable, were granted an allowance for investment costs of EUR 7,829 thousand for Dräger Medical s new building, EUR 3,748 thousand of which had been paid out as of the balance sheet date 2007 (2006: EUR 3,055 thousand). The allowance can only be used for this specific purpose and is subject to the fulfillment of specific conditions, all of which relate to Dräger s use of the building. If these conditions are not fulfilled, the amount paid out must be repaid. d) Litigation Companies of the Dräger Group are involved in litigation and claims for damages in connection with business activities as of December 31, The Executive Board believes that the outcome of such litigation and claims will not have a material adverse effect on the Company s net assets, financial position or results of operations.

160 156 Segment report 50 Segment report BUSINESS PERFORMANCE OF THE SEGMENTS Dräger Medical Order intake million 1, ,275.1 Revenues million 1, ,239.2 thereof intersegment revenues million EBITDA million Depreciation/amortization million Impairment losses 1.2 EBIT before non-recurring expenses million Non-recurring expenses million 23.2 EBIT million Net profit (Safety: before profit/loss transfer) million thereof profit/loss from investments in associates million Net profit after minority interests million Earnings per share per preferred share per common share Research and development expenses million Cash flow from operating activities million Capital employed million Assets million thereof investments in associates million Liabilities million Net financial debt million (124.2) (81.5) Investments million Non-cash expenses million EBIT before non-recurring expenses/revenues % EBIT before non-recurring expenses/capital employed % Gearing factor Factor (0.2) (0.1) Headcount as of December 31 6,077 6,051 Germany 2,432 2,492 Abroad 3,645 3,559 1 Different from prior-year figure following deduction of EUR 25,6 million in Liabilities from participation certificates. Consolidation amounts essentially relate to elimination of order intake and revenues between segments, the elimination of income from investments and, in the case of assets, capital consolidation effects.

161 Financial statements Notes The Company s Boards Consolidated companies 157 Dräger Safety Drägerwerk AG & Co. KGaA Consolidation Dräger Group Other companies (32.8) (30.0) 1, , (34.8) (35.5) 1, , (34.8) (35.4) (84.6) (70.6) (84.6) (70.6) (84.6) (70.6) (82.9) (66.8) (87.8) (60.3) (544.0) (485.6) (563.5) (501.5) 1, , (19.9) (16.7) (4.7) (0.7) ,944 3, ,345 9,949 1,835 1, ,590 4,433 2,109 1, ,755 5,516 The investments of EUR 43.7 million disclosed under consolidation entries comprise goodwill from the acquisition of a 10 percent interest in Dräger Medical AG & Co. KG (see Note 5).

162 158 Segment report The key figures from the segment report are as follows: EBIT/EBITDA Net profit Interest result Income taxes EBIT Non-recurring expenses 27.6 EBIT before non-recurring expenses Depreciation/amortization EBITDA CAPITAL EMPLOYED Total assets 1, ,636.3 Deferred tax assets (70.6) (76.6) Cash and cash equivalents (160.7) (185.6) Current securities (11.0) Non-interest bearing liabilities (465.1) (445.1) Capital employed ASSETS Total assets 1, ,636.3 All other financial assets (3.6) (4.5) Deferred tax assets (70.6) (76.6) Tax refund claims (15.4) (20.1) Current securities (11.0) Cash and cash equivalents (160.7) (185.6) Assets 1, ,338.5 LIABILITIES Liabilities 1, ,059.4 Pension provisions (169.9) (194.0) Tax liabilities (52.8) (58.9) Interest-bearing liabilities (465.4) (426.7) Liabilities

163 Financial statements Notes The Company s Boards Consolidated companies 159 NET FINANCIAL DEBT Liabilities from participation certificates Non-current interest-bearing loans Current loans and liabilities to banks Cash and cash equivalents (160.7) (185.6) Net financial debt NON-CASH EXPENSES Write-downs on inventories Losses from bad debt allowances Allocations to provisions Non-cash expenses Gearing is the ratio of net financial debt to equity. The business performance of the individual segments is detailed in the management report of this annual report. Services rendered between the divisions follow the arm s length principle.

164 160 Segment report SEGMENT PERFORMANCE BY REGION Dräger Medical Revenues by region million 1, ,239.2 Germany million Rest of Europe million Americas million Asia/Pacific million Other million Assets 1 by region million Germany million Rest of Europe million Americas million Asia/Pacific million Other million Investments 2 by region million Germany million Rest of Europe million Americas million Asia/Pacific million Other million Excluding other financial assets, tax assets and interest-bearing assets. 2 Intangible assets and property, plant and equipment

165 Financial statements Notes The Company s Boards Consolidated companies 161 Dräger Safety Drägerwerk AG & Co. KGaA Consolidation Dräger Group Other companies (34.8) (35.5) 1, , (34.8) (35.5) (563.5) (501.5) 1, , (566.8) (503.6) (6.4) (6.6) (0.1) (0.7) (0.4) (3.6)

166 162 Notes to the consolidated balance sheet Notes to the cash flow statement The consolidated cash flow statement is presented separately in this annual report on page 99. The cash flows are broken down according to net cash provided by/used in operating activities (using the indirect method), investing activities and financing activities. Due to the consideration of exchange rate effects, the underlying changes recognized in the cash flow statement cannot be directly reconciled with the items of the published balance sheet. The cash flow from operating activities includes EUR 34,087 thousand (2006: EUR 27,491 thousand) in income taxes paid, EUR 7,408 thousand (2006: EUR 6,962 thousand) in interest received, and EUR 21,389 thousand (2006: EUR 24,736 thousand) in interest paid. Cash and cash equivalents include EUR 6,177 thousand in cash (2006: EUR 3,623 thousand) which is subject to restrictions. The changes in the cash flow statement are explained in the management report of this annual report. Total remuneration of and shares owned by the Executive and Supervisory Boards The members of the Executive and Supervisory Boards of Drägerwerk AG & Co. KGaA and their memberships are presented in The Company s Boards. Remuneration report The Company still compiles a remuneration report following the change in legal form. Executive Board remuneration refers to remuneration of members of the Executive Board of Drägerwerk AG up to the date the change in legal form took effect. After that date, it refers to remuneration of members of the Executive Board of Drägerwerk Verwaltungs AG. Supervisory Board remuneration is the remuneration of the members of the Supervisory Board of Drägerwerk AG & Co. KGaA. The remuneration report also includes information on the shares owned by the members of the Executive and Supervisory Boards as defined above. Based on the resolution adopted at the annual general meeting of Drägerwerk AG on June 2, 2006, the remuneration of individual members of the Executive Board is not disclosed, with the exception of the Chairman. The remuneration report provides this information accordingly. The remuneration of the Supervisory Board is also stated in total. Executive Board remuneration Up until the change in legal form, the Executive Committee of the Supervisory Board of Drägerwerk AG determined Executive Board remuneration. Since the change, the Supervisory Board of Drägerwerk Verwaltungs AG has assumed this task. As far as legally possible, the Executive Board members employment contracts originally concluded with Drägerwerk AG have been transferred to Drägerwerk Verwaltungs AG by means of separate agreements. Obligations from the pension plan remain at Drägerwerk AG & Co. KGaA. Remuneration is based on the size and the global activities of the Company, its economic and financial position, and on the amount of remuneration paid by peer group companies. The duties of the respective Executive Board member are also taken into considera-

167 Financial statements Notes The Company s Boards Consolidated companies 163 tion. The Supervisory Board also has the option of granting a special performance-related bonus. Defined benefit plans for members of the Executive Boards are agreed individually. The remuneration of Executive Board members consists of fixed and variable components. The variable component of the remuneration of the Executive Board members is pegged to the Group s net profit, yet if they concurrently chair a subgroup executive board, their remuneration is mainly pegged to the respective subgroup s earnings and only to a minor degree to the Group s net profit. In addition, certain Executive Board member s contracts provide for the payment of an annual discretionary bonus. There are no long-term incentive components of remuneration. The fixed remuneration is paid monthly as a salary. Executive Board remuneration amounts to: EXECUTIVE BOARD REMUNERATION (EUR) Fixed Variable Other Total Fixed Variable Other Total Executive Board (total) 1,317,523 2,825,850 4,594,459 8,737,832 1,260,128 3,611,699 76,836 4,948,663 thereof: Executive Board Chairman 406,977 1,453,700 6,880 1,867, ,533 1,628,006 9,881 1,938,420 Fringe benefits awarded to members of the Executive Board encompass private use of the company car they are each provided with and payment of accident insurance, health insurance and pension insurance premiums. The defined benefits under the pension plans offered to the members of the Executive Board are either fixed or based on the basic annual salary and years of service on the Executive Board. The defined benefit offered to Mr. Stefan Dräger is based on an annual contribution of 15 percent of his basic annual salary. Under the deferred compensation option, an additional annual contribution of up to 20 percent of the basic annual salary can be made, upon which the Company then pays a further contribution of 50 percent, but no more than 8 percent of the basic annual salary. This top-up payment is only made if consolidated EBIT equals 8 percent or more of revenues. EUR 1,983, in pension obligations for Executive Board members was accrued in the financial statements for fiscal year 2007 (2006: EUR 2,556,402.00), EUR 186, of which for the Chairman of the Executive Board (2006: EUR 147,445.00). In fiscal year 2007, EUR 97 thousand (2006: EUR 483 thousand) was allocated to the pension provisions for members of the Executive Board. The Company pays the premium for the D&O liability insurance policy and legal expense insurance policy for economic loss claims for members of the Executive Board. In the opinion of the German tax authorities, this does not constitute part of the Executive Board s remuneration. No further payments have been promised in the event of termination of appointment to the Executive Board.

168 164 Notes to the consolidated balance sheet The Executive Board contracts do not provide for any severance entitlements. However, a severance payment may be agreed under an individual severance agreement. EUR 5,762, was paid to former members of the Executive Board and their surviving dependants (2006: EUR 2,675,448.62). A total EUR 34,587, provides for the pension obligations to former Executive Board members and their surviving dependants (2006: EUR 36,799,740.00). In fiscal year 2007, severance payments of EUR 6,403, were defined in severance agreements, which is in part included in other remuneration of the Executive Board and in part in the remuneration of former members of the Executive Board. In the fiscal year, no payments were made or promised by a third party to any member of the Executive Board in relation to his duties as member of the Executive Board. Where Executive Board remuneration is paid by Drägerwerk Verwaltungs AG, pursuant to Art. 11 (1) of the Company s articles of association it is entitled to claim reimbursement from the Company monthly. Pursuant to Art. 11 (4) of the Company s articles of association, for the management of the Company and the assumption of personal liability the general partner receives a fee, independent of profit and loss, of 6 percent of the equity disclosed in its financial statements (2007: EUR 60 thousand) plus any VAT incurred, payable one week after the general partner prepares its financial statements. Supervisory Board remuneration At the annual general meeting of Drägerwerk AG & Co. KGaA on May 9, 2008, a proposal awarding the Supervisory Board total remuneration of EUR 509, (2006: EUR 499,118.00) will be put to vote. Each member of the Supervisory Board receives basic remuneration of EUR 27, (2006: EUR 27,400.00), which is composed of a fixed amount of EUR 10, (2006: EUR 10,000.00) and a dividend-based amount of EUR 17, (2006: EUR 17,400.00), the latter being the product of EUR for each EUR 0.01 above a preferred dividend of EUR 0.26, on the basis of a dividend of EUR 0.55 per preferred share as proposed for the year under review. Pursuant to Art. 21 (1) of the articles of association of Drägerwerk AG & Co. KGaA, the remuneration of members of the Supervisory Board is determined by a Supervisory Board resolution. To date, the Supervisory Board has adopted the following principles for distribution: Its chairman is entitled to 4 times, any vice-chairman 2 times, the other members of the Executive Committee 1.5 times the set amount. The members of the Audit Committee receive EUR 5,000.00, and the chairman of the Audit Committee an additional EUR 10, Moreover, a total per diem of EUR 3, (2006: EUR 3,360.00) is paid. In the opinion of the German tax authorities, the premium for a D&O liability insurance policy and a legal expense insurance policy for economic loss claims is not part of the Supervisory Board s remuneration. In addition, a legal consulting fee of EUR 93, (2006: EUR 59,662.50) was paid to the law firm Feddersen Heuer & Partner in the year under review. These amounts do not include VAT. An agreement with Mr. Theo Dräger was concluded allowing him to represent the Company in Germany and abroad. His services under this agreement are not remunerated; however, he shall be reimbursed for any out-of-pocket expenses and provided with secretarial services and transportation. Certain Supervisory Board members received an additional aggregate EUR 177, (2006: EUR 173,400.00) for their membership on supervisory boards of subsidiaries.

169 Financial statements Notes The Company s Boards Consolidated companies 165 Shares owned by the Executive and Supervisory Boards As of December 31, 2007, the members of the Executive Board of Drägerwerk AG & Co. KGaA and their related parties still directly or indirectly held 6,000 preferred shares, equivalent to 0.05 percent of the total, and the members of the Supervisory Board and their related parties a total of 27,762 preferred shares, equivalent to 0.22 percent of the total. Altogether, percent of Drägerwerk AG & Co. KGaA s limited common stock is held via Dr. Heinrich Dräger GmbH and the same percentage of voting rights is attributable to Executive Board member Stefan Dräger under the terms of Sec. 22 (1) Sentence 1 No. 1 WpHG ( Wertpapierhandelsgesetz : German Securities Trading Act). 53 Further information on the Corporate Governance Code Directors dealings In fiscal year 2007, members of the Executive and Supervisory Boards did not purchase or sell any preferred shares (ISIN DE ) from their own portfolio or a private portfolio attributable to them. Related party transactions Business was transacted in 2007 with the following related companies that are part of the widely diversified share portfolio of the Dräger family, including the Chairman of the Executive Board Stefan Dräger and Supervisory Board member Theo Dräger. Dräger GmbH, Dräger Objekt Finkenstraße GmbH & Co. KG and Dräger Objekt Lachswehrallee GmbH & Co. KG have leased various real properties to Drägerwerk AG & Co. KGaA which are located close to the latter s Moislinger Allee head office. Rent payments amounted to EUR 1,679 thousand (2006: EUR 1,651 thousand). Several companies belonging to the Dräger Medical division will move into a new building in It is anticipated that a portion of the land and buildings with long-term rental agreements will no longer be able to be fully used. As in 2006, a provision of EUR 10 million has been recognized for this eventuality. The tax department of the Company provided tax services amounting to EUR 50 thousand (2006: EUR 168 thousand) to Dr. Heinrich Dräger GmbH and the Dräger Foundation Munich/Lübeck. In addition, Herbert Rehn GmbH generated revenues of EUR 1.5 million (2006: EUR 1.5 million) from glass products and installation contracts. This resulted in receivables of EUR 22.7 thousand (2006: EUR 59 thousand) from Dräger Group companies. Mrs. Claudia Dräger is an employee of Drägerwerk AG & Co. KGaA. Supervisory Board member Theo Dräger has a 44 percent share in Dräger Objekt Lachswehr Allee GmbH & Co. KG, the remaining share (56 percent) is held by siblings of Stefan Dräger. Mr. Theo Dräger has an 18.6 percent share in Dräger Objekt Finkenstrasse GmbH & Co. KG, the remaining 81.4 percent is held by other Dräger family members who have no managerial position within the Dräger Group. Other Dräger family members hold a share in Dräger GmbH and in Herbert Rehn GmbH but they do not hold a managerial position within the Dräger Group either. All transactions were conducted at arm s length terms and conditions.

170 166 Notes to the consolidated balance sheet Auditor s fee The fee expensed in fiscal year 2006 for the audit of the Group financial statements amounted to EUR 1,359 thousand (2006: EUR 1,125 thousand) for the audit of the financial statements of Drägerwerk AG & Co. KGaA and its subsidiaries. In 2007, the amount also includes the fee for the audit of the stock exchange prospectus for the transformation of Drägerwerk AG into Drägerwerk AG & Co. KGaA. Fees for further audit work were not incurred. Corporate governance declaration Drägerwerk AG & Co. KGaA s declaration of conformity under the terms of Sec. 161 AktG ( Aktiengesetz : German Stock Corporation Act) has been issued and made available to the shareholders at (also see the corporate governance report). Annual document in accordance with Sec. 10 WpPG ( Wertpapierprospektgesetz : German Securities Prospectus Act) The German Securities Prospectus Act came into force on July 1, Under Sec. 10 WpPG, listed companies are obligated to inform investors at least once a year of the capital market publications they have issued over the last 12 months. For this reason, all the information required by Sec. 10 WpPG that Drägerwerk AG & Co. KGaA published or made available to the public in the 12 months prior to publishing this annual report has been summarized below. Ad hoc reports in accordance with the German Securities Trading Act Ad hoc report dated January 23, 2007 Drägerwerk AG considers change in legal form to a KGaA. Ad hoc report dated June 15, 2007 Drägerwerk AG strengthens Executive Board. Two new members for the management team. Ad hoc report dated October 30, 2007 Dräger Group earnings in 2007 are not expected to quite match the level of the prior year further measures for long-term improvement are planned for Ad hoc report dated December 14, 2007 Change in legal form to Drägerwerk AG & Co. KGaA has taken effect. Ad hoc report dated December 20, 2007 Change in the Executive Board of Dräger Medical AG & Co. KG. The ad hoc reports are available on the website of Drägerwerk AG & Co. KGaA at under the heading Group/English/Press Center/Ad hoc.

171 Financial statements Notes The Company s Boards Consolidated companies 167 Publications on securities transactions by persons with management functions in accordance with Sec. 15a WpHG In fiscal year 2007 and since then until the publication of this annual document, Drägerwerk AG & Co. KGaA did not publish any information on securities transactions by persons with management functions in accordance with Sec. 15a WpHG. Transactions by persons with management functions (directors dealings) in accordance with Sec. 15a WpHG are published for one month on the website of Drägerwerk AG & Co. KGaA at under the heading Group/English/Investor Center/Director Dealings. Publications regarding significant voting rights in accordance with Sec. 26 WpHG The publications in accordance with Sec. 41 (3) in conjunction with Sec. 26 (1) WpHG (information on voting rights of the Dräger Foundation Munich/Lübeck) was published on April 24, 2007 at under the heading Voting Rights. The publication in accordance with Sec. 26 (1) WpHG (information on voting rights of Dr. Heinrich Dräger GmbH, Stefan Dräger GmbH, Stefan Dräger, and the Dräger Foundation Munich/Lübeck) was published on December 14, 2007 and in an amended version on December 19, 2007 at under the heading Voting Rights. Interim reports of the Dräger Group The Q1 report as of March 31, 2007 was published on May 8, 2007, the H1 report as of June 30, 2007 on August 9, 2007 and the Q3 report as of September 30, 2007 on November 13, The interim reports are available on the website of Drägerwerk AG & Co. KGaA at under the heading Group/English/Investor Center/Financial Reports. Annual report containing the single entity and Group financial statements for fiscal year 2006 The annual report as of December 31, 2006 was published on March 29, The annual reports are available on the website of Drägerwerk AG & Co. KGaA at under the heading Group/English/Investor Center/Financial Reports. Preliminary announcements for financial reports The publications in accordance with Secs. 37v, 37w, 37x et seq. WpHG (preliminary announcements on the publication of financial reports) were made on February 21, 2007 and an amendment announced on October 12, 2007 at under the heading Preliminary Announcements. Other publications pursuant to Secs. 30b et seq. WpHG The convocation and agenda of the 2007 annual general meeting of the shareholders was published on March 30, 2007 in the electronic version of the German Federal Gazette and a short version on March 30, 2007 in the Börsen-Zeitung. The current agenda for the annual general meeting is available on the website of Drägerwerk AG & Co. KGaA at under the heading Group/English/Investor Center/Annual Shareholders Meeting.

172 168 Notes to the consolidated balance sheet Notification of the distribution of dividends for 2007 was published in the electronic version of the German Federal Gazette on May 14, 2007 and in the Börsen-Zeitung on May 12, The publication in accordance with Sec. 30e (1) Sentence 1 No. 1 WpHG (change in legal status of securities) was published on December 14, 2007 at under the heading Other Capital Market Information. Company calendar The company calendar is available on the website of Drägerwerk AG & Co. KGaA at under the heading Group/English/Investor Center/Financial Calendar. If the respective internet link or path is not available or not working, you can obtain a free printed copy from Drägerwerk AG & Co. KGaA. 54 Subsequent events The Executive and Supervisory Boards of Lübeck-based Drägerwerk AG & Co. KGaA will propose to distribute out of the net earnings of Drägerwerk AG & Co. KGaA of EUR 78.1 million for fiscal year 2007 a cash dividend of EUR 0.55 per preferred share (2006: EUR 0.55) and EUR 0.49 per common share (2006: EUR 0.49), hence a total EUR 6.6 million, and carry forward the balance of EUR 71.5 million. The preferred share dividend also governs the dividend for participation certificates, which will amount to EUR 5.50 each (2006: EUR 5.50). Participation certificates entitle the holder to a dividend 10 times the preferred share dividend since their arithmetic par value is 10 times that of a preferred share. Lübeck, Germany, April 28, 2010 The general partner Drägerwerk Verwaltungs AG represented by its Executive Board Stefan Dräger Herbert Fehrecke Gert-Hartwig Lescow Dieter Pruss Ulrich Thibaut

173 Financial statements Notes The Company s Boards Consolidated companies 169 Management compliance statement We confirm to the best of our knowledge that, in accordance with the applicable financial reporting framework, the Group financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, the Group management report presents business performance including business results and the situation of the Group so as to give a true and fair view, and that the significant opportunities and risks relating to the Group s development have been described. Lübeck, Germany, April 28, 2010 The general partner Drägerwerk Verwaltungs AG represented by its Executive Board Stefan Dräger Herbert Fehrecke Gert-Hartwig Lescow Dieter Pruss Ulrich Thibaut

174 170 Auditor's opinion Auditor s opinion We have audited the Group financial statements prepared by Drägerwerk AG & Co. KGaA, Lübeck, comprising the balance sheet, the income statement, the statement of recognized income and expenses, the cash flow statement, and the notes to the financial statements, together with the Group management report for the fiscal year from January 1, 2007 to December 31, The preparation of the Group financial statements and the Group management report in accordance with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to Sec. 315a HGB ( Handelsgesetzbuch : German Commercial Code) and supplementary provisions of the articles of association, is the responsibility of the Company s management. Our responsibility is to express an opinion on the Group financial statements and the Group management report based on our audit. We conducted our audit of the Group financial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the Group financial statements in accordance with the applicable financial reporting framework 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 supporting the disclosures in the Group 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 principles used and significant estimates made by management, as well as evaluating the overall presentation of the Group financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations.

175 Financial statements Notes The Company s Boards Consolidated companies 171 In our opinion, based on the findings of our audit, the Group financial statements comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB and supplementary provisions of the articles of association 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 Group financial statements and as a whole provides a suitable view of the Group s position and suitably presents the opportunities and risks relating to future development. We are issuing this auditor s opinion after duly concluding our audit of the group financial statements on February 27, 2008 and our subsequent audit, which focused on changes to the items Liabilities from particitpation certificates, Equitity, Deferred tax liabilities, Other current financial libalities, Interest result, Income taxes, Net profit and the resulting changes to the group financial statements and group management report. Please refer to the reasons given by the Group for these changes in the amended notes to the group financial statements, Sec. 3. Our subsequent audit has not led to any reservations. Hamburg, February 27, 2008/April 29, 2010 BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Dyckerhoff Wirtschaftsprüfer (German Public Auditor) Dr. Probst Wirtschaftsprüfer (German Public Auditor)

176 172 Forward-looking statements Forward-looking statements This annual report contains statements concerning the future development of the Dräger Group and its companies, as well as economic and political trends. These statements are estimates based on all information available to date. If the underlying assumptions do not materialize, or if further risks surface, actual results may differ from current expectations. We therefore do not give any warranty for such statements and estimates.

177 Financial statements Notes The Company s Boards Consolidated companies 173 Single entity financial statements of Drägerwerk AG & Co. KGaA for 2007 (condensed) The single entity financial statements of Drägerwerk AG & Co. KGaA have been prepared in accordance with the provisions of the German Commercial Code ( Handelsgesetzbuch : HGB). Drägerwerk AG & Co. KGaA discloses a net profit of EUR 32.1 million for fiscal year 2007 (2006: EUR 22.2 million). The positive result is attributable to the significant rise in income from investments. Including the profit of EUR 46.0 million brought forward from the prior year, Drägerwerk AG & Co. KGaA reports net earnings of EUR 78.1 million. Drägerwerk Verwaltungs AG as general partner and the Supervisory Board of Drägerwerk AG & Co. KGaA propose to distribute out of the net earnings an unchanged cash dividend of EUR 6.6 million (EUR 0.49 per common share, EUR 0.55 per preferred share) and carry forward the balance of EUR 71.5 million. PROPOSED APPROPRIATION OF NET EARNINGS 0.49 cash dividend for 6,350,000 common shares 3,111, cash dividend for 6,350,000 preferred shares 3,492, A dividend of 10 times the preferred share dividend will be paid for participation certificates since their arithmetic par value is 10 times that of a preferred share. Based on the proposed dividend, the dividend for participation certificates will be EUR 5.50 per certificate. The dividend for participation certificates has been included in the interest expense item of these financial statements. The complete financial statements of Drägerwerk AG & Co. KGaA, with an unqualified opinion from the auditor, will be published in the electronic version of the German Federal Gazette under HR B No HL. A hard copy may be requested from Drägerwerk AG & Co. KGaA or a copy downloaded on the internet at

178 174 Single entity financial statements of Drägerwerk AG & Co. KGaA for 2007 (condensed) INCOME STATEMENT OF DRÄGERWERK AG & CO. KGAA FOR THE PERIOD FROM JANUARY 1 TO DECEMBER thousand thousand Other operating income 42,366 38,380 Personnel expenses (28,415) (17,876) Amortization of intangible assets and depreciation of property, plant and equipment (6,948) (5,515) Other operating expenses (37,484) (33,275) Income from investments 82,888 70,219 Write-downs on financial assets and current securities 0 (885) Interest result (14,170) (14,336) Result from ordinary operations 38,237 36,712 Income taxes 1,932 (6,221) Other taxes (277) (485) Profit before distribution for participation capital 39,892 30,006 Distribution for participation capital (7,774) (7,774) Net profit 32,118 22,232 Profit brought forward from prior year 45,998 30,371 Net earnings 78,116 52,603

179 Financial statements Notes The Company s Boards Consolidated companies 175 BALANCE SHEET OF DRÄGERWERK AG & CO. KGAA AS OF DECEMBER 31 Assets thousand thousand Intangible assets 3,356 3,648 Property, plant and equipment 43,812 41,737 Financial assets 603, ,162 Non-current assets 650, ,547 Trade receivables All other receivables and other assets 171,689 59,432 Receivables and other assets 171,840 59,484 Securities Cash and cash equivalents 75, ,330 Current assets 247, ,397 Prepaid expenses 1, Total assets 899, ,318 BALANCE SHEET OF DRÄGERWERK AG & CO. KGAA AS OF DECEMBER 31 Equity and liabilities thousand thousand Capital stock 32,512 32,512 Capital reserve 38,867 38,867 Reserves retained from earnings 160, ,477 Net earnings 78,116 52,603 Participation capital par value: 36,127 thousand 74,797 74,797 Equity 384, ,256 Provisions for pensions and similar obligations 73,893 74,339 Other provisions 26,134 35,290 Provisions 100, ,629 Liabilities to banks 285, ,374 Trade payables 5,874 2,205 All other liabilities 123, ,854 Liabilities 414, ,433 Total equity and liabilities 899, ,318

180 176 The Company s Boards The Company s Boards Supervisory Board of Drägerwerk AG & Co. KGaA Chairman Prof. Dr. Dieter Feddersen Lawyer at Feddersen Heuer & Partner, Kronberg Supervisory board membership: Membership on statutory supervisory boards: ASKLEPIOS Kliniken Verwaltungsgesellschaft mbh, Königstein (Chairman) ASKLEPIOS Kliniken Hamburg GmbH, Hamburg (formerly LBK Hamburg GmbH, Hamburg) (Chairman) Drägerwerk Verwaltungs AG, Lübeck (Chairman), since March 23, 2007 Dräger Medical Verwaltungs AG, Lübeck Dräger Safety AG & Co. KGaA, Lübeck Vice-Chairman Siegfrid Kasang Works Council Chairman of Dräger Medical AG & Co. KG, Lübeck Group Works Council Chairman of Dräger Medical Group Works Council Chairman of Drägerwerk AG & Co. KGaA, Lübeck Supervisory board membership: Dräger Medical Verwaltungs AG, Lübeck (Vice-Chairman) Additional Vice-Chairman: Theo Dräger Former Executive Board Chairman of Drägerwerk AG, Lübeck Supervisory board membership: Drägerwerk Verwaltungs AG, Lübeck (Vice-Chairman), since March 23, 2007 Dräger Medical Verwaltungs AG, Lübeck (Chairman), until December 31, 2007 Dräger Safety AG & Co. KGaA, Lübeck Dräger Safety Verwaltungs AG, Lübeck Dr. Jens Ehrhardt Kapital AG, Pullach L. Possehl & Co. mbh, Lübeck Sparkasse zu Lübeck AG, Lübeck Daniel Friedrich District secretary of the metalworkers union IG Metall Küste, Hamburg Dr. Thomas Lindner Management Chairman of Groz-Beckert KG, Albstadt Supervisory board membership: Drägerwerk Verwaltungs AG, Lübeck, since March 23, 2007 HDI Haftpflichtverband der Deutschen Industrie VAG, Hanover Talanx AG, Hanover Bernd Mussmann Works Council Vice-Chairman and Group Works Council Vice-Chairman of Dräger Safety AG & Co. KGaA, Lübeck Supervisory board membership: Dräger Safety AG & Co. KGaA, Lübeck Walter Neundorf Officer of Dräger Medical AG & Co. KG, Lübeck Regina Pawils Works Council Vice-Chairperson of Dräger Medical AG & Co. KG, Lübeck Supervisory board membership: Dräger Medical Verwaltungs AG, Lübeck Dr. Martin Posth Business consultant Supervisory board membership: Berlinwasser International AG, Berlin, until December 31, 2007 Demag Cranes AG, Düsseldorf Drägerwerk Verwaltungs AG, Lübeck, since March 23, 2007 Membership on comparable foreign boards: Deininger Management Consulting (Shanghai) Co. Ltd., Shanghai (Chairman of the Board of Directors), since July 1, 2007 Iberia Motor Company S. A., Piastów, Poland (Vice Chairman of the Board of Directors), since October 1, 2007 MSM Mandarin Strategic Management Consulting GmbH, Düsseldorf/Beijing (Chairman of the Global Advisory Council) Thomas Rickers 1st Delegate of the metalworkers union IG Metall Lübeck/Wismar, Lübeck Supervisory board membership: Aker MTW Werft GmbH, Wismar Dräger Medical Verwaltungs AG, Lübeck Minimax Management GmbH, Bad Oldesloe

181 Financial statements Notes The Company s Boards Consolidated companies 177 Gordon Riske Executive Board Chairman of Linde Material Holding GmbH, Aschaffenburg, since October 1, 2007 Supervisory board membership: Drägerwerk Verwaltungs AG, Lübeck, since March 23, 2007 ISRA Vision Systems AG, Darmstadt Dr. Dietrich Schulz Former CEO of L. Possehl & Co. mbh, Lübeck Supervisory board membership: Süd-Chemie AG, Munich (Chairman) Ad Capital AG, Stuttgart Drägerwerk Verwaltungs AG, Lübeck, since March 23, 2007 Membership on comparable foreign boards: Possehl México, S. A. de C. V., Mexico City (Chairman of the Board) ACC Resources, New Jersey, USA Members of the Executive Committee: All until December 14, 2007 Prof. Dr. Dieter Feddersen (Chairman) Siegfrid Kasang (Vice-Chairman) Theo Dräger Thomas Rickers Since December 14, 2007, duties performed jointly by members of the Supervisory Board of Drägerwerk Verwaltungs AG Members of the Audit Committee: Dr. Dietrich Schulz (Chairman) Theo Dräger Prof. Dr. Dieter Feddersen Walter Neundorf Regina Pawils Members of the Nomination Committee: All since September 26, 2007 Prof. Dr. Dieter Feddersen Theo Dräger Members of the Joint Committee: All since December 19, 2007 Representatives of Drägerwerk Verwaltungs AG: Prof. Dr. Dieter Feddersen (Chairman) Theo Dräger Dr. Thomas Lindner Gordon Riske Representatives of Drägerwerk AG & Co. KGaA: Dr. Dietrich Schulz Dr. Martin Posth Siegfrid Kasang Thomas Rickers Members of the Executive Board of Drägerwerk Verwaltungs AG, acting for Drägerwerk AG & Co. KGaA Stefan Dräger Chairman of the Executive Board CEO Medical, until August 31, 2007 and since January 1, 2008 Chairman of the Executive Board of Drägerwerk Verwaltungs AG, Lübeck, (general partner of Drägerwerk AG & Co. KGaA), since March 23, 2007 Chairman of the Executive Board of Dräger Medical Verwaltungs AG, Lübeck (general partner of Dräger Medical AG & Co. KG) until August 31, 2007 and since January 1, 2008 Supervisory board membership: Dräger Medical Verwaltungs AG, Lübeck, from September 1 to December 31, 2007 Dräger Medical Deutschland GmbH, Lübeck (Chairman) Dräger Safety AG & Co. KGaA, Lübeck (Chairman) Dräger Safety Verwaltungs AG, Lübeck (Chairman) Prof. Dr. Albert Jugel CEO Safety CEO of Dräger Safety Verwaltungs AG, Lübeck (general partner of Dräger Safety AG & Co. KGaA) Member of the Executive Board of Drägerwerk Verwaltungs AG, Lübeck, (general partner of Drägerwerk AG & Co. KGaA), since March 23, 2007 Supervisory board membership: GEHE Pharma Handel GmbH, Stuttgart Dr. Volker Pfahlert from September 1 to December 31, 2007 CEO Medical Chairman of the Executive Board of Dräger Medical Verwaltungs AG, Lübeck (general partner of Dräger Medical AG & Co. KG) Member of the Executive Board of Drägerwerk Verwaltungs AG, Lübeck, (general partner of Drägerwerk AG & Co. KGaA), since September 26, 2007 Hans-Oskar Sulzer Finance (CFO) Member of the Executive Board of Drägerwerk Verwaltungs AG, Lübeck, (general partner of Drägerwerk AG & Co. KGaA), since March 23, 2007 Supervisory board membership: Dräger Medical Verwaltungs AG, Lübeck, until September 1, 2007 and since January 1, 2008 Dräger Safety AG & Co. KGaA, Lübeck Dräger Safety Verwaltungs AG, Lübeck Dr. Ulrich Thibaut since June 18, 2007 Research and development Member of the Executive Board of Drägerwerk Verwaltungs AG, Lübeck, (general partner of Drägerwerk AG & Co. KGaA), since September 26, 2007

182 178 Consolidated companies Consolidated companies of the Dräger Group CONSOLIDATED COMPANIES Germany Name and registered office Consolidated in Capital stock Share- Medical 2 Safety in holding LCU thousand in % Dräger Medical AG & Co. KG, Lübeck X EUR 78, Dräger Safety AG & Co. KGaA, Lübeck X EUR 25, Dräger Medical Deutschland GmbH, Lübeck X EUR 2, Dräger Electronics GmbH, Lübeck EUR 2, Dräger Medizin System Technik GmbH, Lübeck EUR 1, Dräger Medical Verwaltungs AG, Lübeck EUR 1, Dräger Safety Verwaltungs AG, Lübeck EUR 1, I&D Gesellschaft für Organisationsentwicklung und Beratung im Gesundheits- und Sozialwesen mbh, Lübeck X EUR Dräger TGM GmbH, Lübeck X EUR Draeger Safety MSI GmbH, Hagen X EUR Dräger Medical ANSY GmbH, Lübeck X EUR Dräger Interservices GmbH, Lübeck X EUR Dräger Immobilien GmbH, Lübeck EUR Dräger Medical Holding GmbH, Lübeck EUR DrägerDive Vertriebs & Service GmbH, Lübeck X EUR Dräger Medical International GmbH, Lübeck X EUR Dräger Consulting & Management GmbH, Lübeck X EUR MAPRA Assekuranzkontor GmbH, Lübeck 1 EUR Fachklinik für Anästhesie und Intensivmedizin Vahrenwald GmbH, Lübeck EUR Dräger Energie GmbH, Lübeck EUR FIMMUS Grundstücks-Vermietungs GmbH, Lübeck EUR Dräger Finance Services GmbH & Co. KG, Bad Homburg v.d. Höhe (SPE) 3 EUR OPTIO Grundstücks-Verwaltungsgesellschaft mbh & Co. KG, Grünwald (SPE) 3 EUR FIMMUS Grundstücks-Vermietungsgesellschaft mbh & Co. Objekt Lübeck KG, Lübeck (SPE) 3 EUR HAMUS Grundstücks-Vermietungsgesellschaft mbh & Co. Objekt Lübeck KG, Düsseldorf (SPE) 3 EUR MOLVINA Vermietungsgesellschaft mbh & Co. Objekt Finkenstraße KG, Lübeck (SPE) 3 EUR DEGESUDO Grundstücksverwaltungsgesellschaft mbh & Co. Immobilien-Vermietungs KG, Eschborn (SPE) 3 EUR

183 Financial statements Notes The Company s Boards Consolidated companies 179 CONSOLIDATED COMPANIES Name and registered office Consolidated in Capital stock Share- Medical 2 Safety in holding LCU thousand in % Europe Austria Dräger Medical Austria GmbH, Vienna X EUR 2, Dräger Safety Austria GmbH, Vienna X EUR Belgium Dräger Medical Belgium NV, Wemmel X EUR 1, Dräger Safety Belgium NV, Wemmel X EUR Bulgaria Draeger Medical Bulgaria EOOD, Sofia X BGN Draeger Safety Bulgaria EOOD, Sofia X BGN Croatia Dräger Medical Croatia d.o.o., Zagreb X HRK 4, Dräger Safety d.o.o., Zagreb X HRK 2, Czech Republic Dräger Medical s.r.o., Prague X CZK 18, Dräger Safety s.r.o., Prague X CZK 29, Denmark Dräger Safety Danmark A/ S, Herlev X DKK 5, Dräger Medical Danmark A/ S, Allerod X DKK 4, France Dräger Médical SAS, Antony X EUR 8, Draeger Safety France SAS, Strasbourg X EUR 1, AEC SAS, Antony X EUR Hungary Dräger Safety Hungaria Kft., Budapest X HUF 66, Dräger Medical Hungary Kft., Budapest X HUF 94, Ireland Draeger Medical Ireland Ltd., Dublin X EUR Italy Draeger Medical Italia S.p.A., Corsico-Milano X EUR 7, Draeger Safety Italia S.p.A., Corsico-Milano X EUR 1, Netherlands Dräger ST-Holding Nederland B.V., Zoetermeer X EUR 10, Dräger Medical B.V., Best X EUR 1, Dräger Beheer B.V., Zoetermeer EUR W.S.P. Safety Equipment B.V., Rotterdam X EUR W.S. Poppeliers Brandblusmaterialen B.V., Rotterdam X EUR Safety Service Center B.V., Rotterdam X EUR Dräger Finance B.V., Zoetermeer EUR Dräger MT-Holding Nederland B.V., Zoetermeer X EUR Dräger Safety Nederland B.V., Zoetermeer X EUR Dräger Medical Netherlands B.V., Zoetermeer X EUR Norway Dräger Safety Norge AS, Oslo X NOK 1, Dräger Medical Norge AS, Drammen X NOK These companies are treated as associates as defined by IAS Siemens AG holds an indirect 25 percent stake in these companies via Dräger Medical AG & Co. KG. 3 These companies were consolidated as special purpose entities pursuant to SIC 12 in conjunction with IAS in the limited shares

184 180 Consolidated companies CONSOLIDATED COMPANIES Name and registered office Consolidated in Capital stock Share- Medical 2 Safety in holding LCU thousand in % Europe (continued) Poland Dräger Polska sp.zo.o., Bydgoszcz X PLN 4, Dräger Safety Polska sp.zo.o., Bydgoszcz X PLN 1, Romania Dräger Medical Romania SRL, Bucharest X RON Dräger Safety Romania SRL, Bucharest X RON 1, Russia Draeger Medizinskaja Technika ooo, Moscow X RUB Serbia Draeger Tehnika d.o.o., Belgrade X RSD 21, Slovakia Dräger Slovensko s.r.o., Piestany X SKK 18, Slovenia Dräger Slovenija d.o.o., Ljubljana-Crnuce X EUR Spain Dräger Medical Hispania SA, Madrid X EUR 3, Dräger Safety Hispania SA, Madrid X EUR 2, Sweden Dräger Safety Sverige AB, Svenljunga X SEK 6, Dräger Medical Sverige AB, Bromma X SEK 2, ACE Protection AB, Svenljunga X SEK Switzerland MTec Services AG, Liebefeld-Bern X CHF Dräger Beteiligungen AG, Zug X CHF 25, Carbamed AG, Liebefeld-Bern X CHF 3, Dräger Safety Schweiz AG, Dietlikon X CHF 1, Dräger Finanz AG, Zug CHF Turkey Draeger Medikal Ticaret ve Servis Limited Sirketi, Istanbul X TRY 1, Draeger Safety Koruma Teknolojileri Limited Sirketi, Ankara X TRY UK Draeger Safety UK Ltd., Blyth X GBP 7, Draeger Medical UK Ltd., Hemel Hempstead X GBP 4, Africa South Africa Dräger South Africa (Pty.) Ltd., Bryanston X ZAR 4, Dräger Medical South Africa (Pty.) Ltd., Johannesburg X ZAR 1 69 Dräger Safety Zenith (Pty.) Ltd., King Williams Town X ZAR Americas Argentina Dräger Medical Argentina S.A., Buenos Aires X ARS 4, Brazil Dräger do Brasil Ltda., São Paulo BRL 27, Dräger Industria e Comércio Ltda., São Paulo X BRL 8, Dräger Safety do Brasil Ltda., São Paulo X BRL 5, Canada Draeger Safety Canada Ltd., Mississauga / Ontario X CAD Draeger Medical Canada Inc., Richmond Hill / Ontario X CAD 2, Draeger Safety Systems Ltd., Napanee / Ontario X CAD 1, Chile Dräger Medical Chile Ltda., Santiago X CLP 1,284,

185 Financial statements Notes The Company s Boards Consolidated companies 181 CONSOLIDATED COMPANIES Name and registered office Consolidated in Capital stock Share- Medical 2 Safety in holding LCU thousand in % Americas (continued) Mexico Draeger Safety S.A. de C.V., Queretaro X MXN Dräger Medical Mexico S.A. de C.V., Mexico D.F.D. X MXN US Draeger Medical, Inc., Telford X USD Draeger Safety, Inc., Pittsburgh X USD Draeger Safety Diagnostics, Inc., Durango X USD Draeger Medical Systems, Inc., Telford X USD Draeger Interservices, Inc., Pittsburgh X USD Draeger Safety Systems, Inc., Encinitas X USD Asia/Australia People s Republic of China Shanghai Dräger Medical Instrument Co., Ltd., Shanghai X CNY 22, Beijing Fortune Draeger Safety Equipment Co., Ltd., Beijing X CNY 15, Dräger Medical Equipment (Shanghai) Co., Ltd., Shanghai X CNY 3, Draeger Medical Hong Kong Limited, Wanchai X HKD Draeger Medical Systems (Shanghai) Co., Ltd., Shanghai X CNY 70, India Joseph Leslie Drager Mfg., Pvt. Ltd., Mumbai 1 X INR 2, Draeger Medical (India) Pvt. Ltd., Mumbai X INR 15, Indonesia PT Draegerindo Jaya, Jakarta X IDR 3,384, Japan Draeger Medical Japan Ltd., Tokyo X JPY 549, Draeger Safety Japan Ltd., Tokyo X JPY 81, Saudi-Arabia Draeger Arabia Co. Ltd., Riyadh X SAR 2, Singapore Draeger Safety Asia Pte. Ltd., Singapore X SGD 3, Draeger Medical South East Asia Pte. Ltd., Singapore X SGD 1, South Korea Draeger Medical Korea Co., Ltd., Seoul X KRW 2,100, Taiwan Draeger Safety Taiwan Co., Ltd., Hsinchu City X TWD 5, Draeger Medical Taiwan Ltd., Taipei X TWD 10, Thailand Draeger Medical (Thailand) Ltd., Bangkok X THB 3, Draeger Safety (Thailand) Ltd., Bangkok X THB 15, Australia Draeger Safety Pacific Pty. Ltd., Notting Hill X AUD 5, Draeger Medical Australia Pty. Ltd., Notting Hill X AUD 3, As of December 31, These companies are treated as associates as defined by IAS Siemens AG holds an indirect 25 percent stake in these companies via Dräger Medical AG & Co. KG. 3 These companies were consolidated as special purpose entities pursuant to SIC 12 in conjunction with IAS in the limited shares

186 182 Glossary Glossary AktG Abbreviation of Aktiengesetz (German Stock Corporation Act) Anesthesia stations Systems for administering anesthetic gas including the related monitoring, alarm and protection equipment. Arm s length principle Principle used in tax law for business conducted as if between unrelated parties. Audit Committee Supervisory Board committee which deals with audit matters. Audit of financial statements The audit of a company s annual financial statements by a public auditor. Capital employed The interest-bearing capital used in a company. At Dräger, this is total assets less deferred tax assets, cash and cash equivalents, other interest-bearing assets, and non-interest-bearing liabilities. Capital stock Capital stock is the nominal value of all shares issued by a stock corporation or partnership limited by shares. At Drägerwerk AG & Co. KGaA, the capital stock is the nominal value of all common and preferred shares issued. Cash flow Shows the change in cash and cash equivalents during a specific reporting period, and provides information on a company s financial strength. Cash management All measures taken as part of short-term financial management of cash investments with the aim of safeguarding liquidity and achieving the highest possible efficiency in payment transactions. Change management All tasks, measures and activities which are intended to bring about comprehensive, cross-departmental and substantial change within the company (e.g. the implementation of new strategies or structures). Closed-circuit breathing apparatus A closed-circuit breathing apparatus supplies the user with up to four hours of breathable air irrespective of the ambient atmosphere. It is particularly suitable for lengthy operations in toxic environments. Common share Common shares (or stock) guarantee the shareholder the shareholder rights defined in the German Stock Corporation Act, in particular the right to vote at the annual shareholders meeting. Corporate compliance Corporate compliance is the adherence by a company, its bodies and employees to all legal obligations and prohibitions, corporate values and policies, and general morals and ethics. Corporate governance International parlance, meaning the responsible governance and control of a company with the sustained creation and addition of value in mind. Creditworthiness Creditworthiness is the credit standing of an individual or legal entity and forms the basis of a third-party decision on whether to grant the person/entity credit. Currency option Risks from exchange rate fluctuations can be hedged using a currency option. When purchasing a currency option, the buyer acquires the right, but not the obligation, to buy or sell a currency at a defined exchange rate on a defined date. Current assets Accounting term used in the German Commercial Code ( Handelsgesetzbuch : HGB) for assets which are not destined for longterm use in and by the company (e.g. inventories, receivables, cash and cash equivalents). This term is not exactly equivalent to the same term used in IFRSs. DAX Abbreviation of Deutscher Aktienindex (German stock index). The DAX comprises the 30 largest (in terms of trading volume and market capitalization) listed companies on the Prime Standard of the Frankfurt Stock Exchange. Declaration of conformity Declaration by the Executive Board and Supervisory Board on the current and future extent of conformity with the German Corporate Governance Code. Derivatives Instruments whose value is mainly derived from a specified price and price fluctuations and expectations of an underlying asset (e.g. shares, foreign currency, interest securities).

187 Financial statements Notes The Company s Boards Consolidated companies 183 Directors dealings Directors dealings are securities transactions conducted by persons with management functions at a listed stock corporation in that corporation s own shares or in related financial instruments. According to Sec. 15a WpHG ( Wertpapierhandelsgesetz : German Securities Trading Act), these persons, including those who are closely related to them, must report securities transactions of this kind immediately. Dividends Portion of net earnings distributed to shareholders. EBIT Abbreviation of earnings before interest and taxes. Earnings before net interest result and income taxes. Any earnings from discontinued operations are not included in this item. EBITDA Abbreviation of earnings before interest, taxes, depreciation and amortization. Earnings before net interest result, income taxes, depreciation, amortization and non-recurring expenses. Any earnings from discontinued operations are not included in this item. EBIT margin Figure used to evaluate the profitability of a company. The EBIT margin is given in percent and is the EBIT (if applicable, before non-recurring expenses) divided by revenues. Emerging market Up-and-coming markets in emerging economies whose economic strength is growing steadily and which are on the verge of becoming a modern industrial or service economy. Environmental management system An environmental management system is the part of a company s management system which defines in a structured manner areas of responsibility, conduct, processes and provisions for the implementation of the corporate environmental policy. Equity A company s net assets equal to the balance of assets and liabilities. Equity is made available by the owners on the foundation of a company and changes over time, mainly as a result of retained earnings. Equity ratio The equity ratio is the ratio of equity to total capital. The more equity a company has, the better its creditworthiness, the greater its financial stability and independence from external lenders. Financial statements The financial statements are the accounts that must be prepared by a company at the end of each fiscal year according to commercial law. Under HGB, the financial statements for stock corporations comprise a balance sheet, income statement and notes, as well as a management report. Under IFRSs, they also include a cash flow statement and a statement of changes in equity. Firefighting and rescue trains Firefighting and rescue trains are firefighting, equipment and rescue containers mounted on railcars. They are used by the fire service in the event of fires in railroad tunnels to transport firefighters to the scene and evacuate people safely. Forward exchange contract Risks from exchange rate fluctuations can be hedged using a forward exchange contract. This is a binding agreement to exchange one currency for another currency on a date and at an exchange rate fixed when the contract is entered into. Free float Shares of a company which are traded freely on the stock exchange. GDP Abbreviation of gross domestic product. GDP is a measure of the total output of an economy. It is the value, expressed in terms of a monetary unit, of all goods and services produced within a year. General partner Partner of a limited partnership with full personal liability. German Corporate Governance Code The German Corporate Governance Code is an important piece of legislation governing the management and oversight of German listed companies and contains nationally and internationally recognized standards for proper and responsible corporate governance. The purpose of the Code is to make the corporate governance system clearer and easier to understand and to foster the trust of investors, customers, employees and the public in the management and oversight of German stock corporations. HGB Abbreviation of Handelsgesetzbuch (German Commercial Code). Income statement The income statement is a comparison of expenses and income used to determine the earnings of a company. It is a mandatory element of the financial statements under HGB and IFRSs.

188 184 Glossary Incubator Self-contained incubator for premature and sick babies which regulates the microclimate (including temperature, humidity, concentration of oxygen, light, noise level). IFRSs Abbreviation of International Financial Reporting Standards. Standards for the preparation of financial statements by companies. In the EU, the application of IFRSs for the consolidated financial statements of listed companies has been mandatory since Interest rate cap Interest rate caps are interest derivatives which offer an upper ceiling on the variable interest rate on underlying transactions. Interest rate swaps An interest rate swap is an agreement between two contractual parties to exchange different interest cash flows with each other. As an interest rate derivative, it can be used both to hedge interest rate risk and as a speculative investment which benefits from certain changes in interest rates. Joint venture In this instance, the term joint venture refers to the collaboration between Siemens and the Dräger Medical subgroup, in which Siemens has a 25 percent stake via the parent company. KGaA Abbreviation of Kommanditgesellschaft auf Aktien (partnership limited by shares). KonTraG Abbreviation of Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (German Act on Corporate Control and Transparency). Market capitalization The current stock market value of a company. The stock market value is the number of shares issued multiplied by the share price. Market capitalization gives an indication of the price payable or realizable by a company for all of its outstanding shares. It should be noted, however, that the purchase or sale of large quantities of shares tends to make the share price rise or fall. Mark to market valuation The valuation of financial instruments at current market prices. Monitoring Displaying and monitoring patient data. Net earnings Net earnings (or accumulated loss) pursuant to Sec. 158 AktG ( Aktiengesetz : German Stock Corporation Act) is the net profit/loss for the year plus/minus the following items: +/ Profit/loss brought forward from prior year + Transfers from additional paid-in capital +/ Transfers from/to reserves retained from earnings Net financial debt Interest-bearing debt (e.g. participation capital, loans, other liabilities to banks) less cash and cash equivalents and interest-bearing assets. Net loss The net loss is the negative result of a fiscal year, disclosed in the income statement. It is the (negative) difference between the income and expenses of the fiscal year in question. Net profit The net profit is the positive result of a fiscal year, disclosed in the income statement. Net profit margin The net profit margin is the ratio of net profit to revenues. It is the percentage share of revenues left over as profit for a company. Non-current assets Accounting term used in the German Commercial Code ( Handelsgesetzbuch : HGB) for assets which are destined for long-term use in and by the company. This includes property, plant and equipment, long-term financial assets and intangible assets. This term is not exactly equivalent to the same term used in IFRSs. Outsourcing Subcontracting company services or functions to specialized service providers. Participation certificate Participation certificates are a type of investment somewhere between a share and a bond. They entitle the bearer to redeem the nominal amount and usually also grant a share in net profits or liquidation proceeds. Voting and other rights granted to shareholders, however, are excluded. The profit participation of these certificates usually exceeds the return on fixed-interest securities. Participation capital is subordinate to all other company creditors. Consequently, in the event of liquidation all of the company s other creditors are satisfied first. Under HGB, participation certificates are recognized in equity; under IFRSs, they are disclosed in debt.

189 Financial statements Notes The Company s Boards Consolidated companies 185 Partnership limited by shares A partnership limited by shares is a form of corporation of which at least one partner (general partner), which can also be a legal entity such as a stock corporation, is fully liable. The remaining partners (limited shareholders) have an interest in the capital stock, which is divided into shares, and are only liable up to the amount of their investment. The company is managed and represented by the general partner. R&D Abbreviation of research and development. Preferred share The preferred share grants the bearer preferences compared to a common share, which can involve a certain type of voting right (but not a majority voting right), the dividend claim or the distribution of liquidation assets. The Dräger preferred shares traded on the stock exchange are non-voting preferred shares with a cumulative preferential right to the distribution of profit. No more than half of the capital stock may be issued as non-voting preferred shares. Premium Premium is a markup on the nominal value of a security and is generally quoted in percent. REACH Abbreviation of registration, evaluation, authorization and restriction of chemicals. EC regulation. RoHS Abbreviation of restriction of the use of certain hazardous substances in electrical and electronic equipment. EC directive. Supply chain management Process-oriented, effective and efficient management of the supply chain. The aim is to optimize procurement, production and the supply of products and services to the customer. TecDAX Leading stock index for the technology sector, which reflects the value growth of the 30 largest technology stocks, in terms of trading volume and market capitalization, on the Prime Standard of the Frankfurt Stock Exchange. Warming therapy Support for premature babies in regulating their body temperature provided by radiant warmers, heated mattresses or incubators. WpHG Abbreviation of Wertpapierhandelsgesetz (German Securities Trading Act). Xetra Electronic trading platform operated by Deutsche Börse AG for shares, exchange-traded funds and subscription rights. Reserves retained from earnings Reserves retained from earnings are amounts disclosed under equity recognized from earnings which were not distributed in the current or past fiscal years. Resource allocation The allocation of scarce resources (e.g. raw materials, energy, cash) to various uses. Shared services Centralized service processes within a company. Similar processes from different areas of a company are pooled and provided by a centralized department. Risk management Systematic approach to identifying and evaluating potential risks and selecting and implementing steps to address such risks. ROCE Abbreviation of return on capital employed. The figure shows how effectively and profitably a company employs its capital. It is the ratio of EBIT before non-recurring expenses to capital employed.

190 186 Imprint/Financial Calendar Imprint Drägerwerk AG & Co. KGaA Corporate Communications Moislinger Allee Lübeck, Germany Concept and design Heisters & Partner, Büro für Kommunikationsdesign Mainz, Germany Publication March 18, 2008 Reproductions Koch Lichtsatz und Scan GmbH, Wiesbaden, Germany Printed by Dräger + Wullenwever pm GmbH & Co. KG, Lübeck, Germany Photos Dipl. Des. Claudia Kempf, Wuppertal Thomas Grütter, Lübeck, Germany Helmuth Humphrey, Sterling, USA Mark Leong, Beijing, China Sven Posin, Krefeld, Germany Axel Kirchhof, Hamburg, Germany Not all products mentioned in this publication are for sale in every country of the world. FINANCIAL CALENDAR 2008 Preliminary group result 2007 Press release End of February 2008 Annual accounts press conference, Lübeck March 18, 2008 Analysts meeting, Frankfurt/Main March 18, 2008 Q1/2008 report, conference call, Lübeck May 8, 2008 Annual general meeting, Lübeck May 9, 2008 H1/2008 report, conference call, Lübeck August 7, 2008 Q3/2008 report, conference call, Lübeck November 6, 2008 Annual general meeting, Lübeck May 8, 2009

191 Review of key events for the Dräger Group 2007 p REVIEW OF KEY EVENTS IN 2007 January February March April May June One Dräger One Voice At the annual kick-off event for the new fiscal year, Stefan Dräger sets a clear direction for the Dräger Group: One Company. One Brand. Dräger at Arab Health in Dubai Over 33,000 visitors from more than 100 countries visit the world s second-largest medical technology exhibition in 2007 a record number of visitors, with 13 percent more exhibitors than in Dräger is there for its customers. Topping out ceremony for the new Dräger building On February 16, the topping out ceremony is celebrated in Lübeck for the new Dräger building: a EUR 50 million investment in the future. Shorter distances and flexible space concepts in a structure flooded with light will create more transparency and improved knowledge and information sharing. Media interest high at the annual accounts press conference At the end of March, Dräger presents the 2006 figures. An unmistakable trend: increasing value creation in the areas of research and development, and sales and service. Swiss Federal Railways turns to tunnel specialist Dräger Dräger will design, plan and supply a further eight firefighting and rescue trains over the next two years. Also possible in Switzerland: realistic training for firefighters to teach them how to control fires in tunnels. Successful Dräger tubes celebrate their 70 th birthday It all started with the detection of carbon dioxide. Nowadays, more than 500 different gases and vapors can be detected quickly and accurately using Dräger tubes. Together at the world congress on emergency and disaster medicine Under the motto be prepared Dräger presents in Amsterdam its product and system solutions for disasters, which range from disaster training, control center software and equipment for rescue vehicles through to masks and portable or stationary breathing apparatus. Comprehensive solutions from safety through to medical aid. Annual general meeting gives its approval Shareholders say yes to the Dräger Group s change in legal form. A new market Only a few months after its establishment, the Argentinean Dräger subsidiary wins a big hospital project in Buenos Aires. Dräger s commitment to China Celebrations in Shanghai and Beijing: groundbreaking ceremony for the new state-of-the-art building for the Medical division; Safety division celebrates its 10-year anniversary in China. Decision in favor of Infinity Acute Care System The new Johannes Wesling hospital in Minden will use the Dräger Infinity Acute Care System.

192 July August September October November December Zurich University Hospital equipped with Dräger Monitoring Dräger monitoring and the cross-departmental Pick & Go concept for continuous patient monitoring and process optimization will be installed throughout the hospital. Dräger Infinity Empowered anesthesia stations have also been ordered. Committed to training Dräger offers professional and vocational training in 12 different fields. In 2007, numerous young school leavers started their working lives at Dräger. All is rosy down under too Hospitals in the Australian state of Queensland have also chosen Dräger monitoring. In Tasmania, they have opted for Dräger incubators and warming therapy. Dräger emergency ventilators are on board with the Flying Doctors. Future-oriented production technology In Lübeck, we are investing in new production technologies with the construction of automated carbon production facilities. Great show at the A+A Dräger exhibits its latest developments and services at the A+A (Safety, Security and Health at Work), the world s most important occupational health and safety trade fair. Technology for life in the Arctic Bringing warmth to the cold of the polar region: The Canadian government commissions Dräger to supply transport incubators to Nunavut, the northernmost region of Canada. 100 years of innovation in ventilation One hundred years ago, the Imperial Patent Office in Berlin awarded Heinrich Dräger the patent for the Pulmotor, the world s first automatic resuscitator and the beginning of numerous Dräger innovations in the field of ventilation. Opening in Zagreb At the end of October, the university hospital Kliniki Bolnicki Centar KBC opens in Zagreb. Dräger supplies extensive medical technology to the 1,600-bed university hospital. Dräger centennial in the US 100 years ago, Dräger founded its own branch in the US. Dräger closed-circuit breathing apparatus for use in mining gives mine rescuers the name draegermen. A special squad of the New York Fire Department is kitted out with the BG 4, the modern long-term breathing apparatus, in The challenge: Medica 2007 In 2007, Dräger puts in another convincing performance at the largest medical technology trade fair in the world. For four days, the Group presents its current product portfolio as well as an outlook for the future. Gas Detection Systems: Steep upward trend In 2007, Dräger supplies customers with the highest number of transmitters (measuring heads for stationary gas monitoring systems) ever in the history of the Company, exceeding the prior-year volume by 25 percent. 50,000 th Evita Sustained success for the current flagship of the Dräger product family in intensive care ventilation. Change of legal form Transformation of Drägerwerk AG into Drägerwerk AG & Co. KGaA takes effect.

193 Drägerwerk AG & Co. KGaA Moislinger Allee Lübeck, Germany Corporate Communications Tel Fax Investor Relations Tel Fax