FINANCIAL
STATEMENTSANDCORPORATEGOVERNANCE
2006

2
Book

The complete EADS Annual Report Suite 2006 consists of:

ANNUAL REVIEW 2006

Book

1
Book

2
Book

3

TAKE
A
LOOK

Management & Responsibility

FINANCIALSTATEMENTSANDCORPORATEGOVERNANCE
2006

FINANCIAL STATEMENTS ANDCORPORATE GOVERNANCE 2006

BUSINESS,LEGALANDCORPORATERESPONSIBILITY
2006

BUSINESS, LEGAL AND
CORPORATE RESPONSIBILITY 2006

EADS
Annual Review
2006

2

The Full Picture: Transformation
The Business Year 2006
Inside EADS
Useful Information

Registration Document Part 1:
Risk Factors

Book

3

Net Assets Financial Position Results
Corporate GovernanceRegistration Document Part 2:(available on request)

Book

Information on EADS Activities
Corporate Social Responsibility
General Description of the Company
and its Share Capital
Entity Responsible for the Registration Document

The online version of theAnnual Report Suite 2006 is available atwww.reports.eads.com

Back to Contents

financialstatements
and corporate
governance

EADS
Registration Document – Part 1

f i n a n c i a l policy

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Dear shareholders,2006 was a difficult and disappointing year for all of us. The company
was delivering commercial success, making strides on its expansion
path, and our divisions were performing well. But a shockwave of
events at Airbus hit us unexpectedly, most visibly with the A380 program, and forced us to re-examine operations: we realised that, besides long-term issues of competitive pressure on prices and the persistent weakening of the US dollar, many factors of pastaccomplishments need to be either changed or reinforced.

fin an cial p olicy

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The transformation of EADS requires substantial efforts acrossthe group. Airbus in particular, requires an overhaul of theoriginal industrial set-up, a behavioural evolution and moremodesty. Given the nature of our business, we are locked into
certain elements until 2010, such as our backlog or the hedge
portfolio. Reorganisation programs, mostly Power8, are theonly levers that EADS can, and must employ to emerge
stronger.

In the face of these needs, management needs to push forward
for a leaner, less complex and less capital intensive model for
EADS. Proactive portfolio management, implying divestmentsof non-core or non-strategic assets as well as selective
acquisitions, will ensure the flexibility and necessary adaptive
skills.

There are many factors that support us in accomplishing thisindispensable task. Orders still hover at historic heights. The
demand is robust – particularly visible in the Single Aisle
segment. A continuation of this upcycle is expected as US
airlines need to rejuvenate their fleets.

Furthermore, EADS needs to be better equipped to surmounta potential erosion of the business environment, whether adeterioration of the currency environment or a reversal of thecycle, and to maintain a prudent balance sheet structure and an
acceptable credit rating. Debt instruments in the most optimal
form then available will be our preferred course for realisingfinancial and strategic flexibility.

Meanwhile, our other businesses display increasingly better
performance, because past restructuring efforts, such as thoseof the space business, are bearing fruits. Opportunities for
defence sales in the US are more tangible than ever, after thewinning of the Light Utility Helicopter contract. Our hedge
book is valuable, though not a cure to the threat of an
unrelenting weak euro-dollar exchange rate, and our customer
financing exposure has been reduced yet further.

Finally, we retain the option of a capital increase. As we have astrong cash position, and are sensitive to concerns of dilutionof our shareholders, there is no urgency, so this is only
envisaged as a contingent measure. Succesful implementationof initial steps of Power8, success of the A350XWB in its
market, deliveries of A380, and continued momentum of thehelicopter, defence and space businesses are an absolute
prerequisite to such a move, unlikely before 2008.

In organisational terms the integration of the EADS Groupsignificantly progressed with the acquisition of the 20% BAE
Systems stake in Airbus in October 2006. Shortly afterwards,
Louis Gallois and myself respectively became CEO and CFO
of Airbus. This dissolves an important structural impedimentand furthers transparency in the Group. This assimilation
should translate in a better allocation and flow of resources,
infrastructure and capabilities between Airbus and the other
EADS Business Units and Divisions.

EADS’ longer term guidance, to 2010, does not satisfy
management, but it reflects our acknowledgment of substantial
challenges that still need to be overcome. As the businessregains its equilibrium, and achievements inspire newambition, management will seek to raise its sight to higher
targets of growth.

Yours truly,

Impacts of the A380 industrialization delays will still bevisible in 2010, as margin contributions and cash flows fromfull production are now pushed back by two years. But
following the ramp-up, working capital will return to a normal
level and free up financial resources that can then be allocatedelsewhere.
The development of the A350XWB programme, launched in
2006, is one such area of future investment, and ultimately, a
new short range aircraft may also lead to a rush of R&D
spending through the first half of the next decade.

Hans Peter Ring
Chief Operating Officer for FinanceEADS Registration Document
Part 1

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FINANCIal STATEMENTS
AND CORPORATE GOVERNANCE
European Aeronautic Defence and Space Company EADS N.V. (the “Company” or “EADS”) is a Dutch
company, which is listed in France, Germany and Spain. Given this fact, the applicable regulations with respect
to public information and protection of investors, as well as the commitments made by the Company tosecurities and market authorities, are described in this registration document (the “Registration Document”).
This Registration Document was prepared in accordance with Annexe 1 of the EC Regulation 809/2004,
filed in English with, and approved by, the Autoriteit Financiële Markten (the “AFM”) on 25th April 2007
in its capacity as competent authority under the Wet op het financieel toezicht (as amended) pursuant
to the Directive 2003/71/EC. The Registration Document is composed of two parts which must be read
together: (i) this document entitled Financial Statements and Corporate Governance – (Registration
Document Part 1) and (ii) the document entitled Business, Legal and Corporate Responsibility –(Registration Document Part 2). This Registration Document may be used in support of a financialtransaction as a document forming part of a prospectus in accordance with Directive 2003/71/EC only
if it is supplemented by a securities note and a summary approved by the AFM.

EADS F inancial S tatements and Corporate G overnanceBack to Contents

FINANCIALSTATEMENTS
AND CORPORATE
GOVERNANCERISKS FACTORS

1
2
3

NET ASSETS FINANCIAL POSITION RESULTS
Corporate GOVERNANCE
FINANCIAL Calendar

EADS
EADS FIN ANCIA L S TATEMENTS AND CORPORATE GOVERN ANCE

GENE R AL TA B LE OF CONTENTs /REGIST RATION D OCUMENT - P ARTs 1 an d 2

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FINANCIAL STATEMENTS
AND CORPORATE GOVERNANCE
Registration Document - PART 1

Risk Factors

71.

Financial Market Risks82.

Business-Related Risks10

3.

Legal Risks

14

4.

Industrial and Environmental Risks

15

Net Assets - Financial
position - Results

17

1
1.1

Management’s Discussion and Analysisof Financial Condition and Resultsof Operations18

1.1.1	Certain Information
18
Exchange Rate Information
18
Ratings
18
1.1.2	Overview19
1.1.2.1 Significant Programme and Restructuring
Developments in 2006
19
1.1.2.2 Outlook20
1.1.3	Critical Accounting Considerations, Policies
21and Estimates
1.1.3.1 Scope of and Changes in Consolidation Perimeter 21
1.1.3.2 Employee Benefits — IAS 19
22
1.1.3.3 U.K. Pension Commitments22
1.1.3.4 Fair Value Adjustments
23
1.1.3.5 Impairment of Assets23
1.1.3.6 Research and Development Expenses
24
1.1.3.7 Accounting for Hedged Foreign Exchange
Transactions in the Financial Statements
24
1.1.3.8 Foreign Currency Translation
25
1.1.3.9 Accounting for Sales Financing Transactionsin the Financial Statements
25
1.1.4	Measurement of Management’s Performance
26
1.1.4.1 Order Backlog
26
1.1.4.2 Use of EBIT*
28
1.1.4.3 EBIT* Performance by Division
28
1.1.5	EADS Results of Operations31
Consolidated Revenues
31
Consolidated Cost of Sales
34
Consolidated Selling and Administrative Expenses 34
Consolidated Research and Development Expenses35
Consolidated Other Income and Other Expenses 35

E A D S F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV ERN ANCE

Consolidated Share of Profit from Associates
Accounted for under the Equity Method andOther Income (Expense) from Investments
35
Consolidated Interest Result
35
Consolidated Other Financial Result
36
Consolidated Income Taxes
36
Consolidated Minority Interests
36
Consolidated Net Income (Profit for the Period
Attributable to Equity Holders of the Parent)
36
Earnings per Share (EPS)
37
1.1.6	Changes in Consolidated Total Equity
37(including Minority Interests)
IAS 39 Related Impact on AOCI
38
Currency Translation Adjustment Impact on AOCI 39
1.1.7	Liquidity and Capital Resources
39
1.1.7.1 Cash Flows
39
1.1.7.2 Consolidated Cash and Cash Equivalents
41
1.1.7.3 Consolidated Financial Liabilities
42
1.1.7.4 Sales Financing42
1.1.8 Hedging Activities
46
1.1.8.1 Foreign Exchange Rates
46
1.1.8.2 Interest Rates
48

1.2

Financial Statements

1.2.1

EADS N.V. Consolidated Financial Statements (IFRS) 50
Basis of Presentation
56
Notes to the Consolidated Statementsof Income (IFRS)
67
Notes to the Consolidated Balance Sheets (IFRS) 76
Notes to the Consolidated Statementsof Cash-Flows (IFRS)
95
Other Notes to the Consolidated Financial
Statements (IFRS)
97

Appendix: Information on principal
investments - Consolidation Scope

49

113

	Auditors‘ Report on the Consolidated Financial
119Statements (IFRS)
Report on the Consolidated Financial Statements 119
Report on other legal and regulatory requirements120
1.2.2 Company Financial Statements
121

1.3

Statutory Auditors’ Fees

132

1.4

Information Regarding
the Statutory Auditors

133

GENE RAL TAB LE OF CONTENTs/R EGIST R ATION D OCUMENT - P ARTs 1 an d 2

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2

Corporate
Governance

135

2.1

Management and Control

137

2.1.1

Board of Directors, Chairmen
and Chief Executive Officers

145

2.1.3

146

2.1.4	Executive Committee

146

2.1.5	Internal Control and Risk Management Systems
2.1.5.1 Overview
2.1.5.2 RM System
2.1.5.3 IC System
2.1.5.4 Business Processes Covered by the IC System

148
148
150
150
151

2.2

Interests of Directors
and Principal Executive Officers

2.2.1	Compensation Granted to Directors
and Principal Executive Officers
2.2.1.1 General Principles
2.2.1.2 Compensation of the Membersof the Board of Directors
2.2.1.3 Compensation of the Members of the Executive
Committee
2.2.2	Long Term Incentives Granted
to the Two Chief Executive Officers
2.2.3

Related Party Transactions

2.2.4	Loans and Guarantees Granted to Directors

2.3

Employee Profit Sharing
and Incentive Plans

Financial
Calendar

167

2007 Calendar of Financial Communication 168

137

2.1.2	Audit Committee
Remuneration and Nomination Committee

3

154
154
154
154
157

158
158
158

159
159

2.3.2	Employee Share Ownership Plans
2.3.2.1 ESOP 2000
2.3.2.2 ESOP 2001
2.3.2.3 ESOP 2002
2.3.2.4 ESOP 2003
2.3.2.5 ESOP 2004
2.3.2.6 ESOP 2005
2.3.2.7 ESOP 2007
2.3.3	Long Term Incentive Plans

159
159
159
160
160
160
161
161
162

Contents for this book2.3.1	Employee Profit Sharing
and Incentive Agreements

EADS FIN ANCIA L S TATEMENTS AND CORPORATE GOVERN ANCEG E N E R A L TABLE OF CONTENTs /REGI S TRATION DOCUMENT - PARTs 1 and 2

EADS BUSINESS, LEGALAND CORPORATE RESPONSIBILITY

Back to Contents

Registration Document - PART 2
Nonactive summary. Please, go to Book 3

1

Information on EADS
Activities

7

1.1

Presentation of the EADS Group

8

1.1.1

Overview

8

1.1.2

Airbus14

1.1.3

Military Transport Aircraft

23

1.1.4

Eurocopter

26

1.1.5

Defence & Security

30

1.1.6

Astrium

38

1.1.7

Other Businesses

44

1.1.8

Investments

46

1.1.9

Insurance47

1.1.10Legal and Arbitration Proceedings

48

1.1.11

Incorporation by Reference

49

1.2

2
2.1

Recent Developments

Corporate Social
Responsibility
Business Ethics

49

53
56

2.1.1
Proper Business Practices56
2.1.1.1 Policy
56
2.1.1.2 Organisation
56
2.1.1.3 Performance and Best Practices57
2.1.2 Export Control Compliance
58
2.1.2.1 Policy
58
2.1.2.2 Organisation
58
2.1.2.3 Performance and Best Practices59
2.1.3 Compliance with Law Regarding all EADS’ Activities59
2.1.3.1 Policy
59
2.1.3.2 Organisation
60
2.1.3.3 Performance and Best Practices60
2.1.4 Corporate Governance Standards
61
2.1.4.1 Policy
61
2.1.4.2 Organisation
61

2.2

Sustainable Growth

2.2.1 Product Quality and Customer Satisfaction
2.2.1.1 Policy
2.2.1.2 Organisation
2.2.1.3 Performance and Best Practices

EADS F I N A N C I A L S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

62
62
62
62
62

2.2.2	Sustaining and Protecting Innovation
2.2.2.1 Innovation Strategy
2.2.2.2 Protecting Innovation: Intellectual Property
2.2.3	Supplier Management: Fostering a Mutually
Beneficial Relationship with EADS’ Suppliers
2.2.3.1 Policy
2.2.3.2 Organisation
2.2.3.3 Performances and Best Practices

64
64
67

2.3

Environmental Care

71

2.3.1

Policy72

2.3.2

Organisation

72

2.3.3

Performance and Best Practices

73

2.4

Human Resources: Employer –Employee Relationship

75

68
68
68
69

2.4.1

Workforce Information and Organisation of Work 75

2.4.2

Human Resources Organisation

77

2.4.3 Human Resources Policies and Performances
77
2.4.3.1 Health and Safety: Providing a Safe Workplacefor EADS Employees and Subcontractors
77
2.4.3.2 C aring for EADS Employees and EADS Know-How 78
2.4.3.3 D iversity: Commitment to Ensure Equal
Opportunity for all EADS Employees
78
2.4.3.4 C areer Development: Efficient Managementof Skills and Know-How
80
2.4.3.5 Employee Relations: A Proactive Dialogue
82

2.5
2.5.1

Corporate Citizenship

Maintaining an Open Dialogue with EADS’
Stakeholders
2.5.1.1 Policy
2.5.1.2 Organisation
2.5.1.3 Performance and Best Practices
2.5.2 Encompassing Community Interests
in EADS’ Global Strategy
2.5.2.1 Policy
2.5.2.2 Organisation
2.5.2.3 Performance and Best Practices

84
84
84
84
84
85
85
85
85

GENERAL TABLE OF CONTENTs/REGI STRATION DOCUMENT - PARTs 1 and 2

Back to Contents

Nonactive summary. Please, go to Book 3

87

3.1

General Description of the Company 88

3.1.1

Commercial and Corporate Names,
Seat and Registered Office

88

3.1.2

Legal Form

88

3.1.3 Governing Laws
88
3.1.3.1 Periodic Disclosure Obligations89
3.1.3.2 Ongoing Disclosure Obligations90
3.1.4 Date of Incorporation and Duration of the Company 92
3.1.5

Objects of the Company

Changes in the Shareholding of the Company
Since its Incorporation

3.3.5

Persons Exercising Control over the Company

3.3.6	Simplified Group Structure Chart

108
110
110

3.3.7 Purchase by the Company of its Own Shares
112
3.3.7.1 D utch Law and Information on Share Buy-Back
Programmes
112
3.3.7.2 French Regulations112
3.3.7.3 German Regulations112
3.3.7.4 Spanish Regulations113
3.3.7.5 Description of the Share Buy-Back Programme to
be Authorised by the Annual General Shareholders’Meeting to be held on 4th May 2007
113

92

3.4

Dividends

3.4.1

Dividends and Cash Distributions Paid
Since the Incorporation of the Company

116

3.4.2

Dividend Policy of EADS

116

3.4.3

Unclaimed Dividends

117

3.4.4

Taxation

117

3.5

Annual Securities Disclosure Report 118

3.1.6

Commercial and Companies Registry

92

3.1.7

Inspection of Corporate Documents

92

3.1.8

Financial Year

93

3.1.9 Allocation and Distribution of Income
3.1.9.1 Dividends
3.1.9.2 Liquidation
3.1.10 General Meetings
3.1.10.1 Calling of Meetings
3.1.10.2 Right to attend Meetings
3.1.10.3 Majority and Quorum
3.1.10.4 Conditions of Exercise of Right to Vote
3.1.11 Disclosure of Holdings

93
93
93
93
93
94
94
95
95

3.1.12 Mandatory Tender Offers
3.1.12.1 Takeover Directive
3.1.12.2 Articles of Association
3.1.12.3 Spanish Law

96
96
97
98

3.2

General Descriptionof the Share Capital

98

3.2.1

Modification of Share Capital or Rights
Attaching to the Shares

98

3.2.2

Issued Share Capital

99

3.2.3

Authorised Share Capital

99

3.2.4	Securities Granting Access to the Company’s
Capital

3.3.4

99

3.2.5

Changes in the Issued Share Capital Since
Incorporation of the Company

100

3.3

Shareholdings and Voting Rights

101

3.3.1	Shareholding Structure

101

3.3.2

Relationships with Principal Shareholders

103

3.3.3

Form of Shares

108

4

Entity Responsible
for the Registration
Document

116

119

4.1

Entity Responsible
for the Registration Document

4.2

Statement of the Entity Responsible
for the Registration Document
120

4.3

Information Policy

120

4.4

Undertakings of the Company
regarding Information

121

120

EADS FIN ANCIAL S TATEMENTS AND CORPORATE GOVERN ANCE

Contents for this book3

General Descriptionof the Company
and its Share CapitalBack to Contents



EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

Back to Contents

Risk Factors

1. Financial Market Risks

8

2. Business-Related Risks

10

3. Legal Risks

14

4. Industrial and Environmental Risks

15

EADS FIN ANCIA L S TATEMENTS AND CORPORATE GOVERN ANCE



1

2

3

R i s k Fac tors
1.

Financial Market Risks

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EADS is subject to many risks and uncertainties that may affect its financial performance. The business, financial condition or results ofoperations of EADS could be materially adversely affected by the risks described below. These risks are not the only ones facing EADS.
Additional risks not presently known to EADS or that it currently deems immaterial may also impair its business operations.

1.

Financial Market Risks

Exposure to Foreign Currencies
A significant portion of EADS’ revenues is denominated in
U.S. Dollars, while a substantial portion of its costs is incurredin Euro, and to a lesser extent, in Pounds Sterling.
Consequently, to the extent that EADS does not use financial
instruments to cover its exposure resulting from this foreign
currency mismatch, its profits will be affected by market
changes in the exchange rate of the U.S. Dollar against thesecurrencies. EADS has therefore implemented an exchange rate
strategy in order to manage and minimize such exposure. In
order to secure the rates at which U.S. Dollar revenues (arising
primarily at Airbus and in the commercial satellite business) areconverted into Euro or Pounds Sterling, EADS manages a longterm hedging portfolio. There are complexities inherent indetermining whether and when foreign exchange rate exposure
of EADS will materialize, in particular given the possibility of
unpredictable revenue variations arising from ordercancellations and postponements. Furthermore, as a significant
portion of EADS’ foreign currency exposure is hedged throughcontractual arrangements with third parties, EADS is exposedto the risk of non-performance by its hedging counterparties.
No assurances may be given that EADS’ exchange rate hedging
strategy will protect it fully from significant changes in theexchange rate of the U.S. Dollar to the Euro and the Pound
Sterling and that such changes will not affect its results ofoperation and financial condition.
EADS’ consolidated revenues, costs, assets and liabilities
denominated in currencies other than the Euro are translated
into the Euro for the purposes of compiling its financial
statements. EADS’ exchange rate hedging strategy aims to coverits cash flows, and, to a large extent, earnings before interestand taxes, pre-goodwill impairment and exceptionals (“EBIT*”).
Changes in the value of these currencies relative to the Eurowill have an effect on the Euro value of EADS’ reported
revenues, costs, assets and liabilities and, to a lesser extent,
EBIT*.
Currency exchange rate fluctuations in those currencies otherthan the U.S. Dollar in which EADS incurs its principal
manufacturing expenses (mainly the Euro) may have the effect

EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

of distorting competition between EADS and competitors
whose costs are incurred in other currencies. This is particularly
true with respect to fluctuations relative to the U.S. Dollar, as
many of EADS’ products and those of its competitors (e.g., in
the defence export market) are priced in U.S. Dollars. EADS’ability to compete with competitors may be eroded to the extent
that any of EADS’ principal currencies appreciates in value
against the principal currencies of such competitors.
See “1.1.4.3 EBIT* Performance by Division — Hedging Impact
on EBIT*” for a discussion of EADS’ foreign currency hedging
policy. See “1.1.3.7 Accounting for Hedged Foreign Exchange
Transactions in the Financial Statements” for a summary of
EADS’ accounting treatment of foreign currency hedging
transactions.

Exposure to Sales Financing Risk
In support of sales, EADS (primarily through Airbus and ATR
with respect to commercial aircraft) may agree to participate in
the financing of customers. As a result, EADS has a significant
portfolio of leases and other financing arrangements withairlines. The risks arising from EADS’ sales financing activities
may be classified into two categories: (i) credit risk, which
concerns the customer’s ability to perform its obligations undera financing arrangement, and (ii) aircraft value risk, whichprimarily relates to unexpected decreases in the future value ofaircraft. Measures taken by EADS to mitigate these risks
include optimised financing and legal structures, diversification
over a number of aircraft and customers, credit analysis offinancing counterparties, provisioning for the credit and asset
value exposure, and transfers of exposure to third parties. No
assurances may be given that these measures will protect EADS
fully from defaults by its customers or significant decreases inthe value of the financed aircraft in the resale market.
EADS’ sales financing arrangements expose it to aircraft valuerisk, because it retains collateral interests in aircraft for the
purpose of securing customers’ performance of their financial
obligations to EADS, and because it guarantees part of themarket value of certain aircraft during limited periods afterRisk Factors
1.

1

2

3

Financial Market Risks

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their delivery to customers. Under adverse market conditions,the market for used aircraft could become illiquid and themarket value of used aircraft could significantly decrease below
projected amounts. In the event of a financing customer default
at a time when the market value for a used aircraft has
unexpectedly decreased, EADS would be exposed to thedifference between the outstanding loan amount and themarket value of the aircraft, net of ancillary costs (such as
maintenance and remarketing costs, etc.). Similarly, if an
unexpected decrease in the market value of a given aircraft
coincided with the exercise window of an asset value guarantee(“AVG”) with respect to that aircraft, EADS would be exposed
to losing as much as the difference between the market value ofsuch aircraft and the AVG amount. No assurances may be giventhat the provisions taken by EADS will be sufficient to coverthese potential shortfalls.
Through the Airbus Asset Management Division or as a resultof past financing transactions, EADS is the owner of usedaircraft, exposing it directly to fluctuations in the market valueof these used aircraft.

Counterparty Credit Risk
EADS is exposed to credit risk to the extent of nonperformance by its financial instrument counterparties.
However, the Group has policies in place to avoid
concentrations of credit risk and to ensure that credit risk islimited.
Cash transactions and derivative counterparties are limited tohigh credit quality financial institutions. EADS has set up acredit limit system to actively manage and limit its credit risk
exposure. This limit system assigns maximum exposure lines tocounterparties of financial transactions, based at a minimum on
their credit ratings as published by Standard & Poor’s, Moody’s

and Fitch Ratings. The respective limits are regularly monitored
and updated.
As counterparty credit risk also arises in the context of sales
financing transactions, EADS’ general policy is to provide
financing to customers and through structures with anappropriate credit standing. See “1.1.7.4 Sales Financing”.

Exposure on Equity Investment Portfolio
EADS holds several equity investments for industrial or
strategic reasons, the business rationale for which may varyover the life of the investment. Equity investments are either
accounted for using the equity method (associated companies),
if EADS has the ability to exercise significant influence, or atfair value. If fair value is not readily determinable, theinvestment is measured at cost.
EADS’ principal investment in associates is Dassault Aviation.
The net asset value of this investment was €2.0 billion at
31st December 2006. EADS believes that its exposure to therisk of unexpected material adverse changes in the value of
Dassault Aviation and that of other associated companies islimited. For equity investments other than associates, whichmake up only a fraction of EADS’ total assets, EADS regards
the risk of negative changes in fair value or impairments onthese investments as non-significant.
Treasury shares held by EADS are not considered to be equity
investments. Additionally, treasury shares are not regarded as
being exposed to risk, as any change in value of treasury sharesis recognised directly in equity only when sold to the market
and never affects net income. Treasury shares are held to hedge
the dilution risk arising from employee stock ownership plans
and the exercise by employees of stock options.

EADS FIN ANCIA L S TATEMENTS AND CORPORATE GOVERN ANCE

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1

2

3

R i s k Fac tors
2.

Business-Related Risks

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2.

Business-Related Risks

Aircraft Market Cyclicality
In 2006, the combined revenues generated from Airbus and
ATR represented approximately two-thirds of EADS’
consolidated revenues. Historically, the commercial passenger
aircraft market has shown cyclical trends, due in part to thesensitivity of passenger demand in the air travel market to
growth in gross domestic product (“GDP”). Other factors,
however, play an important role, such as (i) the average age andtechnical obsolescence of the fleet relative to new aircraft, (ii)the number and characteristics of aircraft taken out of service
and parked pending potential return into service, (iii) passenger
load factors, (iv) airline pricing policies, (v) airline financial
health and (vi) deregulation. EADS expects that the market forcommercial passenger aircraft will continue to be cyclical, andthat future downturns in broad economic trends may have anegative effect on its future results of operation and financial
condition.

Impact of Terrorism, Epidemics and Catastrophic
Events On Aircraft Market
As the terrorist attacks in New York and Madrid and the spreadof the Severe Acute Respiratory Syndrome (“SARS”) virus andavian flu have demonstrated, terrorism and epidemics may
negatively affect public perception of air travel safety andcomfort, which may in turn reduce demand for air travel andcommercial aircraft. The outbreak of war in a given region may
also affect the willingness of the public to travel by air.
Furthermore, major airplane crashes may have a negative effecton the public’s or regulators’ perceptions of the safety of agiven class of aircraft, form of design, or airline. As aconsequence of terrorism, epidemics and other catastrophic
events, an airline may be confronted with sudden reduced
demand for air travel and be compelled to take costly security
and safety measures. In response to such events, and theresulting negative impact on the airline industry or particular
airlines, EADS may suffer from a decline in demand for all or
certain types of its aircraft, and EADS’ customers may postpone
delivery of new aircraft or cancel orders.

Dependence on Defence Spending and on Certain
Markets
In 2006, approximately 25% of EADS’ consolidated revenues
was derived from defence spending. In any single market,
defence spending depends on a complex mix of geopoliticalconsiderations, budgetary constraints and the ability of the10

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armed forces to meet specific threats and perform certain
missions. Defence spending may be subject to significant
fluctuations from year to year and country to country. Adverse
economic and political conditions as well as downturns in broad
economic trends in EADS’ defence or may have a negative
effect on EADS’ future results of operations and financial
condition.
In the case where several countries undertake to enter together
into defence procurement contracts, economic, political orbudgetary constraints in any one of these countries may have anegative effect on the ability of EADS to enter into or perform
such contracts.
Further, a significant portion of EADS (including Airbus)
backlog is concentrated in certain regions or countries,
including the United States of America, China, India and theUnited Arab Emirates. Adverse economic and politicalconditions as well as downturns in broad economic trends intheses countries or regions may have a negative effect on
EADS’ and Airbus future results of operations and financial
condition.

Dependence
A significant portion of EADS (including Airbus) backlog ismade in certain regions. In 2006, approximately 25% of EADS’
consolidated revenues were derived from certain regions asderived from defence spending. In any single market, defence
spending depends on a complex mix of geopoliticalconsiderations, budgetary constraints and the ability of thearmed forces to meet specific threats and perform certain
missions. Defence spending may be subject to significant
fluctuations from year to year and country to country. Adverse
economic and political conditions as well as downturns in broad
economic trends in EADS’ defence markets may have a negative
effect on EADS’ future results of operations and financial
condition.

Emergence of Public-Private Partnerships and Private
Finance Initiatives
Defence customers, particularly in the U.K., increasingly
request proposals and grant contracts under schemes known as
public-private partnerships (“PPPs”) or private financeinitiatives (“PFIs”). PPPs and PFIs differ substantially from

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traditional defence equipment sales, as they often incorporate
elements such as:●

the provision of extensive operational services over the lifeof the equipment;●

continued ownership and financing of the equipment by aparty other than the customer, such as the equipment
provider;●mandatory compliance with specific customer requirements
pertaining to public accounting or government procurement
regulations; and●provisions allowing for the service provider to seek out
additional customers for unused capacity.

EADS is party to PPP and PFI contracts, for example throughParadigm with Skynet 5 and related telecommunications
services, and involved in additional PFI proposals, such as theAirtanker (FSTA) project. One of the complexities presented by
PFIs lies in the allocation of risks and the timing thereof among
different parties over the lifetime of the project.
There can be no assurances of the extent to which EADS will
efficiently and effectively (i) compete for future PFI or PPP
programmes, (ii) administer the services contemplated under
the contracts, (iii) finance the acquisition of the equipment andthe ongoing provision of services related thereto, or (iv) accessthe markets for the commercialisation of excess capacity. EADS
may also encounter unexpected political, budgetary, regulatory
or competitive risks over the long duration of PPP and PFI
programmes.

Competition and Market Access
Most of EADS’ businesses are subject to significant
competition, and Airbus has been affected by downward pricepressure resulting from such competition. EADS believes thatsome of the underlying causes of such price competition havebeen mitigated by restructuring in the aerospace and defence
industry. Nevertheless, certain customers have had greater
leverage to encourage competition in respect of a variety ofissues, including price and payment terms. No assurance can begiven that competition may not intensify, particularly in thecontext of a prolonged economic downturn in the future.
In addition, the contracts for many aerospace and defence
products are awarded, implicitly or explicitly, on the basis ofhome country preference. Although EADS constitutes amultinational combination which helps to broaden its domestic
market, it may remain at a competitive disadvantage in certain
countries, especially outside of Europe, relative to local
contractors for certain products. The strategic importance andpolitical sensitivity attached to the aerospace and defence

industries means that political considerations will play a role inthe choice of many products for the foreseeable future.

Availability of Government Financing
Since 1992, the E.U. and the U.S. have operated under anagreement that sets the terms and conditions of financial
support that governments may provide to civil aircraft
manufacturers. In late 2004, however, the U.S. sought tounilaterally withdraw from this agreement, which eventually
led to the U.S. and the E.U. making formal claims against eachother before the World Trade Organisation (“WTO”). Whileboth sides have expressed a preference for a negotiatedsettlement that provides for a level playing field when funding
future aircraft developments, they have thus far failed to reachagreement on key issues. The terms and conditions of any new
agreement, or the outcome of the formal WTO proceedings,
may limit access by EADS to risk-sharing-funds for large
projects, or may establish an unfavourable balance of access togovernment funds by EADS as compared to its U.S.
competitors.
In prior years, EADS and its principal competitors have each
received different types of government financing of productresearch and development. For example, EADS received
repayable financing from certain governments in relation to theA380 commercial aircraft programme, and is in discussions
with certain E.U. countries regarding financing for thedevelopment of the A350XWB commercial aircraft programme.
However, no assurances can be given that government financing
will continue to be made available in the future for these andother projects, in part as a result of the proceedings mentioned
above.

Technologically Advanced Products and Services
EADS offers its customers products and services that are often
technologically advanced, the design and manufacturing of
which can be complex and require substantial integration andcoordination along the supply chain. In addition, most of
EADS’ products must function under demanding operating
conditions. Even though EADS believes it employs
sophisticated design, manufacturing and testing practices, there
can be no assurance that EADS’ products or services will be
successfully developed, manufactured or operated or that they
will be developed or will perform as intended.
Certain of EADS’ contracts require it to forfeit part of its
expected profit, to receive reduced payments, to provide a
replacement launch or other product or service, or to reduce theprice of subsequent sales to the same customer if its products
fail to be delivered on time or to perform adequately. No

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assurances can be given that performance penalties or contract
cancellations will not be imposed should EADS fail to meetdelivery schedules or other measures of contract performance.
For example, following the production difficulties that EADS
encountered in 2006 in connection with its
A380 programme — which led it to twice revise its delivery
schedule for the aircraft — certain customers decided to cancel
their A380 orders. In addition, EBIT* at Airbus was also
negatively affected by €2.5 billion in 2006, in part due to thecontractual penalties to be paid to customers as a result of thedelivery delays. See “1.1 Management’s Discussion andAnalysis of Financial Condition and Results of Operations —Overview — Significant Programme and Restructuring
Developments in 2006” for further detail.
There can be no assurances that problems similar to the ones
encountered in connection with development of the A380 will
not occur in the future. In addition to any costs resulting fromproduct warranties, contract performance or required remedialaction, such problems may result in increased costs or loss ofrevenues — in particular as a result of contract cancellations —which could have a negative effect on EADS’ future results ofoperation and financial condition. Any future problems may
also have a significant adverse effect on the competitive
reputation of EADS’ products. See “3. Legal Risks — Product
Liability and Warranty Claims”.

Major Research and Development Programmes
The business environment in many of EADS’ principal
operating business segments is characterised by extensive
research and development costs requiring significant up-front
investments. The business plans underlying such investments
often contemplate a long payback period before theseinvestments are recouped, and assume a certain level of return
over the course of this period in order to justify the initialinvestment. There can be no assurances that the commercial,technical and market assumptions underlying such businessplans will be met, and consequently, the payback period or
returns contemplated therein achieved.
EADS expects that its consolidated research and development
expenses may increase significantly in future years inconnection with the ramp-up of new programmes, in particulardevelopment on the A350XWB.

“Power8” Restructuring Programme
EADS has announced the implementation of a significant cost
reduction and restructuring programme at Airbus, referred to as“Power 8”. This programme looks at all aspects of the company

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to make it leaner, more integrated, more efficient and moreproductive. As part of Power8, Airbus management will
implement cost reduction and cash generating efforts with thegoal of achieving EBIT* contributions of €2.1 billion from 2010
onwards and an additional €5 billion of cumulative cash flowfrom 2007 to 2010. A large part of the cost savings is expected
to be realised through the reduction of Airbus’ headcount by
10,000 employees (with temporary and on-site subcontractors
accounting for approximately 50% of such reduction).
These anticipated cost savings are based on preliminary
estimates, however, and actual savings may vary significantly. In
particular, EADS’ cost reduction measures are based on current
conditions and do not take into account any future cost
increases that could result from changes in its industry or
operations, including new business developments, wage andprice increases or other factors. EADS’ failure to successfully
implement these planned cost reduction measures, or the
possibility that these efforts may not generate the level of costsavings it expects going forward, could negatively affect its
future results of operation and financial condition.
In addition to the risk of not achieving the anticipated level ofcost savings from Power 8, EADS may also incur higher than
expected costs in seeking to implement Power 8, depending on
the outcome of its current negotiations with labour and otherrepresentatives. Restructuring, closures, site sales and job
reductions may also harm EADS’ labour relations and public
relations, and have led and could lead to work stoppages and/or
demonstrations. In the event that EADS is unable to negotiate
effectively with labour representatives and these work
stoppages and/or demonstrations become prolonged, or the costsof implementing Power 8 are otherwise higher than anticipatedfollowing such negotiations, EADS’ future results of operationand financial condition may be negatively affected.

Industrial Ramp-up
As a result of the large number of new orders for aircraft
recorded in recent years, EADS has accelerated its production
rate in order to meet the agreed upon delivery schedules forsuch new aircraft, in particular at Airbus and Eurocopter. As itnears full capacity, EADS’ ability to further increase its
production rate will be dependent upon a variety of factors,
including execution of internal performance plans, availabilityof raw materials and parts (such as aluminum, titanium, andcomposites), conversion of raw materials into parts andassemblies, and performance by suppliers and subcontractors.
The failure of any or all of these factors could lead to missed
delivery commitments, and depending on the length of delay inmeeting delivery commitments, could lead to additional costs
and customers’ rescheduling or terminating their orders.

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certified and meets the range of military qualifications
required by programme customers in each jurisdiction;

Programme-Specific Risks
In addition to the risk factors mentioned above, EADS also
faces the following programme-specific risks in the future(while this list does not purport to be comprehensive, ithighlights the current risks believed to be material bymanagement). The first three items relate to the primary risks
faced at Airbus in particular:●

A380 programme. In connection with the A380 programme
and following the delivery delays announced in 2006, EADS
faces the following main challenges: (i) management of stressin the supply chain as a result of the steep ramp-up in
production in coming years, (ii) avoidance of production
disruptions as a result of the implementation of Power8, inparticular with respect to its effect on labour relations, and(iii) introduction of a new digital mock-up for future
A380 production. EADS’ ability to successfully meet thesechallenges will be critical in ensuring the smooth productionof “wave 2” aircraft, i.e., those beyond the initial 25 aircraft
produced;●

A350XWB programme. In connection with the A350XWB
programme, EADS faces the following main challenges: (i)ensuring — through training or otherwise — the availabilityof key personnel and other resources, particularly withrespect to the industrialisation of certain composites, (ii)conversion on favourable terms of orders for the previous
version of the A350 aircraft into orders for the new XWB
version, and (iii) engagement of risk-sharing partners for the
programme at the level of involvement expected by Airbus;●

A400M programme. In connection with the A400M
programme, EADS faces the following main challenges: (i)management of technical challenges new to Airbus,
particularly the modelling of aircraft behaviour based on useof an extremely powerful turboprop engine mounted on ahigh wing, and on flight in a tactical operations environment,and (ii) ensuring that the aircraft is both commercially●

NH90 programme. In connection with the NH90 programme,
EADS faces the following main challenges: (i) meeting thedevelopment schedule and cost objectives of ongoingdevelopment programmes on the various versions, and (ii)managing the steep industrial ramp-up on the programme
and the associated strain on the supply chain;●

Paradigm programme. In connection with the Paradigm
programme, EADS faces the following main challenges: (i)ensuring the on-time completion of Skynet 5 infrastructuredevelopment, (ii) build-up of third party revenues, and (iii)completing, launching and ensuring the successful
functioning of the Skynet 5A, 5B and 5C satellites, the lossof any of which would result in operational, commercial andaccounting consequences.

Pension Commitments
EADS participates in several pension plans for both executive as
well as non-executive employees, some of which are
underfunded. For further information related to these plans,see “1.1 Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Notes toConsolidated Financial Statements (IFRS) — Note 21b:
Provisions for retirement plans”. Although EADS has recorded
a provision in its balance sheet for its share of theunderfunding based on current estimates, there can be noassurance that these estimates will not be revised upward in the
future, leading EADS to record additional provisions in respectof such plans. These additional provisions would in turn have anegative effect on EADS’ total equity (net of deferred taxes),
which could have a negative effect on its future financial
condition.

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3.

Legal Risks

Dependence On Joint Ventures and Minority Holdings
EADS generates a substantial proportion of its revenues
through various consortia, joint ventures and equity holdings
and believes that its alliances and partnerships are a source ofcompetitive advantage. These arrangements include primarily:●

the Eurofighter and AirTanker consortia;●

three principal joint ventures: MBDA, ATR and Atlas
Electronik;●

majority interest: Dornier GmbH; and●investment in associates: Dassault Aviation.

The formation of partnerships and alliances with other market
players is an integral strategy of EADS and the proportion ofsales generated from consortia, joint ventures and equity
holdings may rise in future years. This strategy may from time
to time lead to changes in the organisational structure, or
realignment in the control, of EADS’ existing joint ventures.
EADS exercises varying and evolving degrees of control in the
consortia, joint ventures and equity holdings in which it
participates. While EADS seeks to participate only in venturesin which its interests are aligned with those of its partners, therisk of disagreement or deadlock is inherent in a jointly
controlled entity, particularly in those entities that require theunanimous consent of all members with regard to majordecisions and specify limited exit rights. The other parties inthese entities may also be competitors of EADS, and thus may
have interests which differ from those of EADS.
In addition, in those holdings in which EADS is a minority
partner or shareholder, EADS’ access to the entity’s books andrecords, and as a consequence, EADS’ knowledge of the entity’s
operations and results, is generally limited as compared toentities in which EADS is a majority holder or is involved in
the day-to-day management.

Product Liability and Warranty Claims
EADS designs, develops and produces a number of high profile
products of large individual value, particularly civil andmilitary aircraft and space equipment. EADS is subject to therisk of product liability and warranty claims in the event thatany of its products fail to perform as designed. While EADS
believes that its insurance programs are adequate to protect itfrom such liabilities and that no material claims have been
made against it, no assurances can be given that claims will not

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arise in the future or that such insurance cover will beadequate.

Intellectual Property
EADS relies upon patent, copyright, trademark and trade secretlaws, and agreements with its employees, customers, suppliers
and other parties, to establish and maintain its intellectual
property rights in technology and products used in its
operations. Despite these efforts to protect its intellectual
property rights, any of EADS’ direct or indirect intellectual
property rights could be challenged, invalidated or
circumvented. Further, the laws of certain countries do notprotect EADS’ proprietary rights to the same extent as the laws
in Europe and the United States. Therefore, in certain
jurisdictions EADS may be unable to protect its proprietary
technology adequately against unauthorized third-party copying
or use, which could adversely affect its competitive position.

Export Controls and Other Regulations
The export market is a significant market for EADS. In addition,
many of the products EADS designs and manufactures formilitary use are considered to be of national strategic interest.
Consequently, the export of such products outside of EADS’
domestic markets may be restricted or subject to licensing andexport controls, notably by the U.K., France, Germany andSpain, where EADS carries out its principal military activities
as well as by other countries where suppliers come from,notably, the U.S. There can be no assurance (i) that the export
controls to which EADS is subject will not become more
restrictive, (ii) that new generations of EADS products will notalso be subject to similar or more stringent controls or (iii) thatgeopolitical factors will not make it impossible to obtain export
licenses for one or more clients or constrain EADS’ ability toperform under previously signed contracts. Reduced access tomilitary export markets may have a material adverse effect on
EADS’ business, financial condition and results of operations.
EADS is also subject to a variety of other governmental
regulations that may adversely affect its business and financial
condition, including among others, regulations relating to theprotection of the environment, the use of its products, labour
practices and dealings with foreign officials. In addition, EADS’ability to market new products and enter new markets may be
dependent on obtaining government certifications and approvals
in a timely manner.

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4.

Industrial and Environmental Risks

Together with other companies in the principal industries inwhich it operates, EADS is subject to numerous E.U., national,
regional and local environmental laws and regulations
concerning emissions into the environment, discharges tosurface and subsurface water and the disposal and treatment ofwaste materials. EADS believes that it is currently capable ofsatisfying the stricter environmental standards for the futurecontemplated by current laws or regulations, including
increasingly stringent environmental product quality standards

that will be implemented over the next few years, without
incurring significant capital expenditure. However, there can be
no assurance that increased capital expenditure and operating
costs resulting from future environmental regulations will notadversely affect the results of EADS’ operations and its
financial condition.
For more information, please see “Part 2/2.3 Environmental
Care”.

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Back to Contents

1
1.1

1.1.1
1.1.2
1.1.3
1.1.4
1.1.5
1.1.6
1.1.7
1.1.8

Net Assets- Financial position - Results

Management’s Discussion and Analysisof Financial Condition and Results ofOperationsCertain Information
Overview
Critical Accounting Considerations, Policies
and Estimates
Measurement of Management’s Performance
EADS Results of Operations
Changes in Consolidated Total Equity(including Minority Interests)
Liquidity and Capital Resources
Hedging Activities

1.2

Financial Statements

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18
19

1.2.2

EADS N.V. Consolidated Financial
Statements (IFRS)
Company Financial Statements
Auditors’ Report

50
121
130

21
26
31

1.3

Statutory Auditors’ Fees

132

37
39
46

1.4

Information Regarding the Statutory
Auditors

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1.1Management’s Discussion and Analysis of Financial Condition and Result of Operations

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1.1 Management’s Discussion and Analysis of Financial Condition
and Results of Operations
1.1.1	Certain Information
In addition to historical information, this document includes
forward-looking statements. The forward-looking statements are
generally identified by the use of forward-looking words, such as“anticipate”, “expect”, “estimate”, “intend”, “plan”, “predict”,“project”, “will”, “believe”, “should”, “may” or other variations ofsuch terms, or by discussion of strategy. These statements relate to
EADS’ future prospects, developments and business strategies andare based on analyses or forecasts of future results and estimatesof amounts not yet determinable. These forward-looking statements
represent the view of EADS only as of the dates they are made,and EADS disclaims any obligation to update forward-looking
statements, except as may be otherwise required by law. The
forward-looking statements in this document involve known andunknown risks, uncertainties and other factors that could cause

EADS’ actual future results, performance and achievements todiffer materially from those forecasted or suggested herein. These
include changes in general economic and business conditions, aswell as the factors described in “Risk Factors” above.
The following discussion is based on the audited consolidated
financial statements of EADS as of and for the years ended
31st December 2006, 2005 and 2004 (together, the “Financial
Statements”) included herein. The Financial Statements havebeen prepared in accordance with International Financial
Reporting Standards (“IFRS”) adopted by the International
Accounting Standards Board as endorsed by the European
Union. The following discussion should be read together with
the Financial Statements.

Exchange Rate Information
The financial information presented in this document is expressed in Euro, U.S. Dollars or Pounds Sterling. The following tablesets out, for the periods indicated, certain information concerning the exchange rate between the Euro and the U.S. Dollar andPound Sterling, calculated using the official European Central Bank fixing rate:
Average

Period End

Year ended€-U.S. $€-£€-U.S. $€-£31st December 2004

1.24380.67871.36210.7051

31st December 2005

1.24410.68381.17970.685331 December 2006

1.2556

0.68171.31700.6715stRatings
EADS is currently rated A1 with a stable outlook by Moody’s Investors Service, A- with a negative outlook by Standard and Poor’s
and A- with a negative outlook by Fitch Ratings.

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net assets, fin an cial position, results
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1.1.2	Overview
With consolidated revenues of €39.4 billion in 2006, EADS isEurope’s premier aerospace and defence company and thesecond largest aerospace and defence company in the world. In
terms of market share, EADS is among the top two
manufacturers of commercial aircraft, civil helicopters,commercial space launch vehicles and missiles, and a leading
supplier of military aircraft, satellites and defence electronics.
In 2006, it generated approximately 75% of its total revenues in
the civil sector (compared to 77% in 2005) and 25% in the
defence sector (compared to 23% in 2005). As of 31st December
2006, EADS’ active headcount was 116,805.

difficulties in the industrialisation of the programme, inparticular in the area of electrical engineering. Currently, thefirst Airbus A380 series aircraft is scheduled to be delivered in
the fourth quarter of 2007. In 2008, Airbus plans to deliver 13
A380 series aircraft, followed by 25 in 2009 and 45 in 2010.
A380-related delivery delays and other items have affected
earnings before interest and taxes, pre-goodwill impairment andexceptionals (“EBIT*”) at Airbus by a negative €2.5 billion in2006. These net charges relate to the following items:●

excess costs above the initially expected learning curve, asdifficulties in the production process have caused Airbus tofall short of the expected improvements in production
efficiency over time;●

the recording of onerous contract provisions, related tocontractual penalties to be paid to customers as a result of
the delivery delays;●

impairment of inventory, where necessary to align bookvalue with net realisable value;●

all other settlement obligations as a result of the delivery
delays and accrued for in 2006. Together with the three
preceding charges, this accounts for approximately€2.0 billion of the €2.5 billion decrease in EBIT*;●

impairment of assets and provision charges recorded
following the freezing of development on the freighter
version of the A380 (€0.3 billion); and●ongoing production support for the programme, representing
recurring expenses unallocated to unit production costs(€0.2 billion).

EADS organises its businesses into the following five operating
divisions:●Airbus: Development, manufacturing, marketing and sale ofcommercial jet aircraft of more than 100 seats and thedevelopment and manufacturing of aircraft for military use;●

Military Transport Aircraft: Development,
manufacturing, marketing and sale of military transport
aircraft and special mission aircraft;●

Eurocopter: Development, manufacturing, marketing andsale of civil and military helicopters, and provision ofmaintenance services;●

Defence & Security: Development, manufacturing,marketing and sale of missile systems, military combat
aircraft and training aircraft; provision of defence electronics
and defence-related telecommunications solutions andlogistics, training, testing, engineering and other related
services; and●Astrium: Development, manufacturing, marketing and saleof satellites, orbital infrastructures and launchers, andprovision of space-based services.

In addition, EADS has four business units (“BUs”) — ATR,EFW (Elbe Flugzeugwerke GmbH), EADS Socata and EADS
Sogerma — which are allocated to “Other Businesses” forpurposes of segment reporting. Their activities comprise thedevelopment, manufacturing, marketing and sale of regional
turboprop aircraft, light commercial aircraft and aircraftcomponents, as well as civil and military aircraft conversion andmaintenance services.

1.1.2.1	Significant Programme and Restructuring
Developments in 2006
A380 programme. During 2006, Airbus twice revised its
delivery schedule for the A380 after having encountered

On 2nd March 2007, UPS announced its intent to cancel its
order for 10 A380 freighters. In connection with thisannouncement, Airbus decided to reschedule development of
the freighter version of the A380 and redeploy existing
resources towards production of the passenger version of theaircraft.
Despite the A380-related delivery delays and resulting aircraft
cancellations, EADS believes that its competitive position in
the very large aircraft market remains sound. While thedelivery delays are expected to result in lower cash flows in2007 and up to 2010 than would otherwise have been recorded,
EADS will invest substantially in seeking to ensure that theinitial wave of A380 aircraft delivered to customers are of thehighest maturity possible, and strive to reinstate the highest
level of customer confidence.

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A400M programme. At the end of 2006, EADS conducted aninternal technical assessment of the A400M programme inorder to verify programme status. This review indicated thatthe programme was contractually on schedule with respect topast and current industrial milestones. However, the review
also indicated that the programme might lag behind plan by up
to three months as aircraft enter the final assembly line, withsignificant challenges lying ahead prior to the first delivery.
In connection with the technical assessment above, Airbus also
performed a financial review of the A400M programme. Basedon the programme’s risks and complexities, Airbus decided torecord a loss-at-completion provision of €352 million in 2006
for its workshare on the programme, with a corresponding
negative impact on its EBIT* for the year.
However, as the other divisions of EADS foresee a positive
contribution from the A400M programme, the provision at
Airbus has been reversed at the EADS group level in 2006.
Due to the overall cost increase for the programme, a negative
catch-up of €(66) million has been recorded at the EADS grouplevel in 2006 in order to adjust EBIT* recognised on the
programme for the years 2003 to 2006.
Discontinuation of the A350 programme and launch of
the A350XWB (Xtra Wide Body) programme. In October
2005, the EADS Board of Directors authorised Airbus tolaunch the industrial programme for a new medium-sized longrange aircraft, the A350 aircraft family. Airbus commenced
marketing of the A350 aircraft family at this time.
In July 2006, in response to customers’ recommendations,Airbus presented technical specifications for a revised aircraft
family, the A350XWB, and placed the original A350
programme on hold. In December 2006, Airbus formallylaunched the A350XWB series and discontinued the original
A350 programme.
The launch of the A350XWB triggered the accrual of aprovision related to the anticipated buy-out of delivery
commitments under firm orders for the original A350 aircraft,which can no longer be fulfilled. This provision has beenrecorded in 2006 for an amount of €505 million.
At the end of 2006, Airbus had 100 firm orders and82 commitments for the original A350 aircraft remaining to bebought out, as well as 2 firm orders and 40 commitments forthe new A350XWB.
EADS Sogerma sale. On 10th January 2007, EADS Sogerma
completed the sale of three of its subsidiaries dedicated to
global support and maintenance — Sogerma Services, Sogerma
Tunisia and Barfield — to the TAT Group. Prior to their sale,
EADS recorded an asset impairment totalling €117 million —including €33 million relating to its retained subsidiaries, Seca
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and Revima — as well as restructuring provisions of€42 million. Combined with an underlying operational loss of€(96) million, EADS Sogerma recorded EBIT* of €(351) million
in 2006, a deterioration of €(114) million compared to 2005.
Power8 programme. In order to address the challenges posed
by U.S. Dollar weakness, increased competitive pressure and thefinancial burden related to the A380 delays, and to meet its
other future investment needs, Airbus has announced theimplementation of the Power 8 programme. As part of Power8,
Airbus management will implement cost reduction and cash
generating efforts with the goal of achieving EBIT*
contributions of €2.1 billion from 2010 onwards and an
additional €5 billion of cumulative cash flow from 2007 to
2010. A significant portion of the cost savings is expected to berealised through the reduction of Airbus’ headcount by
10,000 employees (with temporary and on-site subcontractors
accounting for approximately 50% of such reduction).
Power8 consists of several measures for enhancing profitability:
Reduction of Airbus Overhead Costs, Faster Development, Lean
Manufacturing, Smart Buying, Maximising Cash, Focusing on
the Core Business/Restructuring the Industrial Set-Up,
Streamlining the Final Assembly Lines and Putting the Customer
First. Together, these measures seek to transform Airbus’
business model into one that allows it to devote its resources tocore activities, while eliminating inefficiencies within its current
structure. The transformation will occur progressively over
several years and will be accompanied by the further expansionof Airbus’ global footprint. Integration with the rest of EADS
will also be facilitated through the purchase of BAE Systems’
20% share in Airbus in October 2006, as described below.
For further information related to the Power8 programme, see“Recent Developments”.

1.1.2.2	Outlook
In connection with the planned measures to reduce overhead
costs, and specifically headcount, as part of the implementation ofPower 8, EADS expects to record a provision of approximately€680 million in the first quarter of 2007, along with charges to be
incurred in 2007 for A350XWB onerous contracts and other
A380 charges, though it has not yet finalised its accounts. In
addition, while the prices of delivered aircraft remained stable atAirbus during 2006, EADS expects — based on its experience inthe first quarter of 2007 and until the date of this document —that some deterioration in the price of delivered aircraft will occur
in the future as a result of strong past competition, particularly on
long-range aircraft. Its experience in the first quarter of 2007 anduntil the date of this document also leads it to expect that its
consolidated research and development expenses will increase inconnection with the ramp-up of new programmes, in particulardevelopment on the A350XWB.

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1.1.3	Critical Accounting Considerations, Policies and Estimates
1.1.3.1	Scope of and Changes in Consolidation
Perimeter
Disposals and acquisitions of interests in various businesses canaccount, in part, for differences in EADS’ results of operations
for one year as compared to another year.
Airbus: Airbus has been fully consolidated by EADS since
1st January 2001, in light of the control EADS has exercisedover the assets, liabilities and operations of Airbus since that
date. BAE Systems held a 20% share in Airbus until October
2006, at which time the share was purchased by EADS.
BAE Systems held a put option with respect to its share in
Airbus that was granted to it by EADS as part of the Airbus
business combination in 2001. BAE Systems’ put option was
exercisable at fair value and payable in cash or an equivalentamount of EADS shares. In light of these characteristics,
revised IAS 32 (which EADS retrospectively applied as of
1st January 2005) required EADS to account for the put option
as a liability (“liability for puttable instruments”) in the
consolidated balance sheet, stated at fair value. (Before thischange in accounting policy, EADS recorded BAE Systems’
stake in Airbus as minority interests within equity.)
Pursuant to revised IAS 32, dividend payments to BAE Systems
were treated as partial repayments of the liability, thus reducing
the liability for puttable instruments, without affecting
minority interests. Other changes to the liability’s fair value
were recorded as changes to the liability for puttable
instruments and adjustments of goodwill, without any direct
impact on the consolidated income statement. A corresponding
restatement was made in 2005 to EADS’ 2004 consolidated net
income and earnings per share to account for this change inaccounting policy. At 31st December 2005, the fair value of theliability for puttable instruments was assessed at €3.5 billion.
In June 2006, BAE Systems exercised its put option. An
independent investment bank then determined the fair value ofits 20% share in Airbus at €2.75 billion, a decrease of€750 million from the assessed value at 31st December 2005.
Dividend payments to BAE Systems in 2006 accounted for€129 million of the decrease, while most of the remaining
portion of €621 million led to a corresponding reduction in
Airbus’ goodwill (€613 million). Following payment of the€2.75 billion purchase price in cash by EADS in October 2006,
the liability for puttable instruments was derecognised fromthe balance sheet.
MBDA: EADS and BAE Systems each hold a 37.5% stake in
MBDA, with Finmeccanica holding the remaining 25%.

Pursuant to the shareholder agreements relating to the MBDA
group, EADS and BAE Systems together exercise certain
controlling rights over MBDA through MBDA Holdings,
including the right of MBDA Holdings to appoint MBDA’s
Chief Executive Officer (“CEO”), Chief Operational Officer(“COO”) and Chief Financial Officer (“CFO”).
EADS proportionally consolidates 50% of MBDA within the
DS Division, consistent with its ability to jointly control
operations with BAE Systems, with Finmeccanica’s holdingreflected as a 12.5% minority interest.
Acquisitions and Disposals
On 13th October 2006, EADS acquired BAE Systems’ 20%
minority share in Airbus after BAE Systems had exercised theput option it held on its Airbus stake in June 2006, as
described above. Before the transaction, EADS alreadycontrolled Airbus and therefore fully consolidated thissubsidiary.
On 3rd August 2006, EADS acquired 40% of the shares of the
Atlas Elektronik group, specialised in equipment and systems
for naval forces, which is consolidated proportionally. The
difference between the purchase price and the acquired net
assets (not finally determined) led to the recording of€41 million of goodwill.
On 28th February 2006, 81% of LFK GmbH and TDW GmbH,
which had been fully consolidated by EADS, were sold to theEuropean missile group MBDA, which EADS consolidates at50%.
On 30th November 2005, EADS sold TDA — Armements
S.A.S. to Thales. TDA — Armements S.A.S. was proportionallyconsolidated at 50% through the end of November 2005.
On 2nd September 2005, EADS acquired Nokia’s Professional
Mobile Radio (PMR) activities (now known as EADS Secure
Networks Oy) from Nokia.
On 28th February 2005, EADS sold its enterprise telephonybusiness, which comprised its civil telecommunication
activities, to Aastra Technologies Limited.
On 4th October 2004, EADS acquired 100% of the share capitalof RIG Holdings, Inc., the holding company of Racal
Instruments U.S. and Racal Instruments Group Ltd., from RIG
Holdings L.P.

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See “Notes to Consolidated Financial Statements (IFRS) —Note 4: Acquisitions and disposals”.

1.1.3.2	Employee Benefits — IAS 19
Prior to 2006, EADS recognised in its consolidated financial
statements actuarial gains and losses on its pension plans
qualifying as defined benefit plans by applying the “corridor
approach” of IAS 19. Under this approach, any amount ofaccumulated unrecognised actuarial net gains and losses thatexceeded the greater of 10% of the present value of the defined
benefit obligation and 10% of the fair value of plan assets wasamortised through the consolidated income statement on astraight line basis over the expected average remaining working
lives of the employees participating in the respective plan, i.e.
15 years for EADS, thereby affecting EBIT*. In 2006, EADS(in €m)opted to apply the “equity approach” under revised IAS 19,
pursuant to which actuarial gains and losses are recognised infull within retained earnings (net of deferred taxes) during theperiod in which they occur, without affecting the consolidated
income statement. The provision for retirement plans recordedon the balance sheet in turn covers the full amount of thedefined benefit obligation, including accumulated actuarial net
gains and losses. As a result of the retrospective application ofrevised IAS 19, the provision for retirement plans in 2005 and2004 has been restated by €1,118 million and €659 million,
respectively, implying a restatement of €(695) million and€(407) million in total equity (net of deferred taxes), as set forthin the following table (the 2006 figure also includes EADS’share of the BAE Systems pension underfunding in the U.K.
for the first time, as described in “1.1.3.3 U.K. Pension
Commitments” below):
At 31st December 2006

At 31st December 2005

At 31st December 2004

-

4,120

3,947

Unrecognised actuarial losses (old rule)
Provision for retirement plans and similar obligations (new rule)

5,883

1,118
5,238

659
4,606

Total equity movement (net of deferred taxes)(1,409)

(695)

(407)

Provision for retirement plans and similar obligations (old rule)

The 2006 change in accounting policy for the recognition of
actuarial gains and losses from the corridor to the equity
approach resulted in lower net periodic pension costs in 2006,
leading to comparably higher EBIT* of €45 million and higher
net income of €25 million (EBIT* impact: Airbus: €12 million;
Eurocopter €7 million; Astrium €5 million; Defence€16 million; HQ €5 million).
For further information relating to the effect of the change inaccounting policy, see “Notes to Consolidated Financial
Statements (IFRS) — Note 21b: Provisions for retirement
plans”.

1.1.3.3	U.K. Pension Commitments
In the U.K., EADS participates in several funded trusteeadministered pension plans for both executive as well as nonexecutive employees, with BAE Systems being the principal
employer. These plans qualify as multi-employer defined benefit
plans under IAS 19. EADS’ most significant investments interms of employees participating in these BAE Systems U.K.
pension plans are Airbus U.K. and MBDA U.K. For Airbus,
this remains the case even after the acquisition of BAE Systems’
20% stake in Airbus on 13th October 2006. Participating Airbus
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Systems U.K. pension plans as a result of the U.K. pension
agreement between EADS and BAE Systems dated 11 July
2001, as well as a change in U.K. pension legislation enacted in
April 2006 that removes previous restrictions on unassociatedemployers participating in a single pension plan.
Generally, based on the funding situation of the respective
pension plans, the pension plan trustees determine thecontribution rates to be paid by the participating employers toadequately fund the plans. The different U.K. pension plans inwhich EADS investments participate are currently
underfunded. BAE Systems has agreed with the trustees toundertake various measures in order to remedy such
underfunding. These include: (i) making regular contribution
payments for active employees at levels well above those thatwould prevail in the case of adequately funded plans and (ii)making extra contributions totalling GBP 446 million(€664 million) over the next ten years, i.e., up to 2016.
Due to contractual arrangements between EADS and BAE
Systems, the contributions that EADS must make in respect of
its participation in the two largest pension plans are capped fora defined period of time (i.e., until July 2011 for Airbus U.K.
and until December 2007 for MBDA U.K.). Contributions
exceeding the respective capped amounts are paid by BAE
Systems. EADS is therefore neither exposed to increased

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regular contribution payments resulting from the pension
plans’ underfunding, nor to a participation in extra contribution
payments during the period of the contribution caps. Even after
the expiry of the contribution caps, the unique funding
arrangements between BAE Systems and EADS create asituation for EADS different from common U.K. multiemployer plans, with special regulations limiting the regularcontributions that must be paid by EADS U.K. companies torates applicable to all participating employers.
Since 1st January 2005, BAE Systems has prepared its
consolidated financial statements under IFRS. Before that date,
BAE Systems’ consolidated financial statements were prepared
under U.K. GAAP, and as such did not include information
required under IAS 19 to apply defined benefit accounting.
Consequently, EADS accounted for its participation in BAE
Systems U.K. defined benefit schemes as if they were defined
contribution schemes in accordance with IAS 19. In 2005,
EADS requested detailed information from BAE Systems about
the different multi-employer pension plans in order toappropriately and reliably estimate the share of its participationin the plans’ assets, defined benefit obligations and pension
costs. For accounting purposes, the information provided by
BAE Systems in 2005 was judged insufficient for purposes ofidentifying EADS’ share in the U.K. pension plans.
Consequently, EADS continued in 2005 to expense thecontributions made to the pension schemes as if the plans were
defined contribution plans. Information related to these plans
appeared in the contingent liabilities section of the notes to thefinancial statements.
Upon further request in 2006, BAE Systems began to provide
more detailed information regarding these pension plans. The
new information has enabled EADS to estimate its share of thepensions plans’ assets, defined benefit obligations and related
underfunding, which takes into account the impacts of thecontribution caps’ mechanism described above as well as thoseof future extra contributions agreed by BAE Systems with plantrustees. Accordingly, EADS has recorded a provision of€897 million as of 31st December 2006 for its current share of
the net pension underfunding in the U.K. A related amount of€(853) million has been recorded in total equity (net of deferredtaxes) as at 31st December 2006, consistent with the applicationof revised IAS 19 (equity approach) described above.
For further information related to EADS’ participation in
multi-employer pension plans in the U.K., see “Notes toConsolidated Financial Statements (IFRS) — Note 21b:
Provisions for retirement plans”.

1.1.3.4	Fair Value Adjustments
The merger of the operations of Aerospatiale-Matra (“ASM”),
DaimlerChrysler Aerospace (“Dasa”) and Construcciones
Aeronáuticas S.A. (“CASA”), leading to the creation of EADSin 2000, was recorded using the purchase method of accounting
with ASM as the acquirer. Accordingly, the book value ofcertain assets and liabilities, mainly property, plant andequipment and inventories, was adjusted by an aggregate
amount of €1.8 billion, net of income taxes, to allocate a
portion of the respective fair market values of Dasa and CASA
at the time of the merger (the “fair value adjustments”).
These aggregate additions in value are generally being
depreciated over four to fifteen years for fixed assets andamortised over approximately 24 months for inventories. In
addition, in 2001 in connection with the formation of Airbus S.
A.S., EADS adjusted the book value of Airbus fixed assets andinventories by an aggregate amount of €0.3 billion, net ofincome taxes, to reflect their fair market values. The fair value
adjustments lead to a depreciation expense in the consolidated
statements of income classified within cost of sales. For
management reporting purposes, EADS treats these
depreciation charges as non-recurring items in EBIT pregoodwill impairment and exceptionals. See “1.1.4 Measurementof Management’s Performance — Use of EBIT*”.
In 2006, a tax audit of Dasa for the years 1994 until 1999 was
finalised. Pursuant to the EADS shareholders’ agreement, therelated tax expense has been reimbursed by DaimlerChrysler
AG. As a result of this audit, goodwill and deferred tax assets
have been adjusted with respective impacts in the DS division
and at the Headquarters/Consolidation level of €52 million and€12 million, leading to both an other expense and a tax benefitof €64 million in the consolidated statement of income for2006. EADS has treated the charge as a non-recurring item in
EBIT*. See “1.1.4 Measurement of Management’s
Performance — Use of EBIT*”.

1.1.3.5	Impairment of Assets
When a triggering event, such as an adverse material market
event or a significant change in forecasts or assumptions, occurs,
EADS performs an impairment test on the assets, group ofassets, subsidiaries, joint ventures or associates likely to beaffected. In addition, EADS tests goodwill for impairment in
the fourth quarter of each financial year, whether or not there is
any indication of impairment. An impairment loss is recognisedin the amount by which the asset’s carrying amount exceeds its
recoverable amount.
Generally, the discounted cash flow method is used todetermine the value of the assets. The discounted cash flow
method is sensitive to the selected discount rate and estimatesof future cash flows by EADS’ management (“Management”).

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Consequently, slight changes to these elements can materiallyaffect the resulting asset valuation and therefore the amount of
the potential impairment charge.
The discount rate used by EADS is derived from the Group’s
weighted average cost of capital, adjusted to reflect the riskinessof the business concerned. See “Notes to Consolidated Financial
Statements (IFRS) — Note 2: Significant accounting policies —Impairment of non-financial assets” and “Note 12: Intangible
assets”.
The impairment of goodwill has an effect on profitability, as itis recorded in the line item “Other expenses” on EADS’
consolidated statement of income. No goodwill was impaired in
2006, 2005 or 2004. However, in 2006, non-goodwill asset
impairment charges were recorded at EADS Sogerma(€(84) million in respect of its subsidiaries Sogerma Services,
Sogerma Tunisia and Barfield, which were sold to the TATGroup on 10 January 2007, and €33 million relating to theremaining Sogerma subsidiaries, Seca and Revima), and at
Airbus (€250 million) related primarily to impairment of
inventory and fixed assets on the A380 programme. Thesecharges in turn had a negative effect on EBIT* for 2006. See“Notes to Consolidated Financial Statements (IFRS) — Note 12:
Intangible assets” and “Note 13: Property, plant andequipment”.

1.1.3.6 Research and Development Expenses
Since 2003, with the application of IAS 38 “Intangible Assets”,
EADS has assessed whether product-related development costs
qualify for capitalisation as internally generated intangible
assets. Criteria for capitalisation recognition are strictly applied.
Consequently, all research and development costs not meeting
the IAS 38 criteria are expensed as incurred in the consolidated
statement of income.
For 2004, €169 million of product-related development costs
were capitalised in accordance with IAS 38 (including€152 million relating to the Airbus A380 programme), with anadditional €293 million and €411 million capitalised in 2005
and 2006, respectively (including an additional €259 millionand €335 million relating to the Airbus A380 programme,
respectively).
Capitalised development costs are generally amortised over theestimated number of units produced if no other procedurereflects the consumption pattern more appropriately, such as fordevelopment costs that have been capitalised during thedevelopment phase of a new aircraft. These are generally
amortised over the estimated useful life of the internallygenerated intangible asset commencing once type certification
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costs is recognised in cost of sales. Internally generated
intangible assets are reviewed for impairment annually when
the asset is not yet in use and subsequently whenever events orchanges in circumstances indicate that the carrying amount may
not be recoverable.

1.1.3.7	Accounting for Hedged Foreign Exchange
Transactions in the Financial Statements
Approximately two-thirds of EADS’ revenues are denominatedin U.S. Dollars, whereas a substantial portion of its costs isincurred in Euro and, to a significantly lesser extent, Pounds
Sterling. EADS uses hedging strategies to manage and minimise
the impact of exchange rate fluctuations on its profits. See“1.1.8 Hedging Activities — Foreign Exchange Rates” and“1. Financial Market Risks — Exposure to Foreign Currencies”.
Cash flow hedges. The Group applies cash flow hedge
accounting generally to foreign currency derivative contracts on
future deliveries as well as to certain interest rate swaps
hedging the variability of cash flows attributable to recognised
assets and liabilities. Changes in fair value of the hedging
instruments related to the effective part of the hedge arereported in accumulated other comprehensive income(“AOCI”), a separate component of total equity, net of
applicable income taxes and recognised in the consolidated
income statement in conjunction with the result of theunderlying hedged transaction, when realised. See“1.1.6 Changes in Consolidated Total Equity (including
Minority Interests)”. The ineffective portion is immediately
recorded in “Profit for the period”. Amounts accumulated inequity are recognised in profit or loss in the periods when thehedged transaction affects the income statement, such as when
the forecast sale occurs or when the finance income or financeexpense is recognised in the income statement. If hedgedtransactions are cancelled, gains and losses on the hedging
instrument that were previously recorded in equity are
generally recognised in “Profit for the period”. For products
such as aircraft, EADS typically hedges the first forecasted
highly probable future cash inflows for a given month based
upon final payments at delivery. See “1.1.8 Hedging
Activities — Foreign Exchange Rates”.
Cash flow hedges associated with transactions that are cancelled
are generally deemed terminated for accounting purposes. The
sum of (i) changes in the fair value of these hedges since
1st January and (ii) a reversal of the portion of AOCI
corresponding to these hedges prior to 1st January, are thengenerally recorded in revenues and deferred tax benefit(expense) in the consolidated statement of income.

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Revenues in currencies other than the Euro that are not hedged
through financial instruments are translated into Euro at the
spot exchange rate at the date the underlying transaction occurs.

1.1.3.8	Foreign Currency Translation
EADS’ consolidated financial statements are presented in Euro.
The assets and liabilities of foreign entities whose reporting
currency is other than Euro are translated using period-end
exchange rates, while the corresponding income statements aretranslated using average exchange rates during the period. All
resulting translation differences are included as a component of
AOCI.
Transactions in foreign currencies are translated into Euro at theexchange rate prevailing on the transaction date. Additionally,certain unhedged assets and liabilities denominated in foreign
currencies are translated into Euro at the period-end exchange
rate, with all resulting translation differences recorded in the
consolidated income statement.
Goodwill and fair value adjustments arising on the acquisitionof a foreign entity that was acquired after 31st December 2004
are treated as assets and liabilities of the acquired company andare translated into Euro at the period-end rate. Regardingtransactions prior to that date, goodwill, assets and liabilities
acquired are treated as those of the acquirer.
Currency Translation Adjustment Related to Airbus
Following the signing of an Advance Pricing Agreement with
tax authorities in April 2004, the Airbus GIE (a U.S. Dollardenominated entity) was merged into Airbus SAS (a Eurodenominated entity) with retrospective effect as of 1st January
2004. Consequently, as from such date, operations of theformer Airbus GIE are treated as “foreign currency operations”
and accounted for in accordance with EADS’ consistently
applied accounting principles.
Prior to the merger, Airbus GIE operations, with the exceptionof those hedged with financial instruments, were recorded at
the exchange rate prevailing at the time of aircraft delivery,
with outstanding operations being re-valued in the balance
sheet at each period end using the closing exchange rate of such
period. From 1st January 2004, all non-hedged U.S. Dollardenominated operations, including outstanding operations of
the former Airbus GIE, are recorded on the basis of exchange
rates prevailing at the date of receipt or payment of US. Dollars.
In particular, customer advances (and the corresponding
revenues recorded when sales recognition occurs) are now
translated at the exchange rate prevailing on the date they arereceived. U.S. Dollar-denominated costs are converted at theexchange rate prevailing on the date they are incurred. To theextent that U.S. Dollar-denominated customer advances differ,in terms of timing of receipt or amount, from corresponding
U.S. Dollar-denominated costs, there will be a foreign currency
exchange impact on EBIT*. Additionally, the magnitude of any
such difference, and the corresponding impact on EBIT*, will besensitive to variations in the number of deliveries.

1.1.3.9	Accounting for Sales Financing Transactionsin the Financial Statements
In order to support product sales, primarily at Airbus and ATR,EADS may agree to participate in the financing of customers,
on a case-by-case basis, directly or through guarantees provided
to third parties. Certain sales contracts may include theprovision of an asset value guarantee (“AVGs”), whereby EADS
guarantees a portion of the market value of an aircraft during alimited period, starting at a specific date after its delivery (inmost cases, 10 years post-delivery). See “1.1.7 Liquidity andCapital Resources — Sales Financing” and “Notes toConsolidated Financial Statements (IFRS) — Note 29:
Commitments and contingencies”. The accounting treatment ofsales financing transactions varies based on the nature of thefinancing transaction and the resulting exposure.
On Balance Sheet. When, pursuant to a financing transaction,
the risks and rewards of ownership of the financed aircraft
reside with the customer, the transaction is characterised aseither a loan or a finance lease. In such instances, revenues fromthe sale of the aircraft are recorded upon delivery, while
financial interest is recorded over time as financial income. The
outstanding balance of principal is recorded on the balance
sheet in long-term financial assets, net of any accumulated
impairments. See “Notes to Consolidated Financial Statements(IFRS) — Note 14: Investments in associates accounted forunder the equity method, other investments and long-term
financial assets”.
By contrast, when the risks and rewards of ownership remain
with Airbus or ATR, the transaction is characterised as an
operating lease. EADS’ general policy is to avoid, wheneverpossible, operating leases for new aircraft to be delivered tocustomers. Therefore, new operating leases primarily arise inconnection with the re-marketing of repurchased or repossessed
aircraft. Rather than recording 100% of the revenues from the“sale” of the aircraft at the time of delivery, rental income fromsuch operating leases is recorded in revenues over the term of
the respective leases. The leased aircraft are recorded at
production cost on the balance sheet as property, plant andequipment, and the corresponding depreciation and potential
impairment charges are recorded in cost of sales. See “Notes toConsolidated Financial Statements (IFRS) — Note 13: Property,
plant and equipment”.

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If the present value of an AVG exceeds 10% of the sales priceof the aircraft, the sale of the underlying aircraft is accounted
for as an operating lease in the consolidated financial
statements. In this case, upon aircraft delivery, the cash
payment received from the customer is recognised on the
consolidated balance sheet as deferred income and amortised
straight-line up to the amount, and up to the last exercise date,of the AVG. The production cost of the aircraft is recorded on
the balance sheet as property, plant and equipment.
Depreciation expenses are recorded in cost of sales in the
consolidated statement of income. See “Notes to Consolidated
Financial Statements (IFRS) — Note 13: Property, plant andequipment” and “Note 26: Deferred income”.
Off Balance Sheet — Contingent Commitments. Certain
sales financing commitments, such as lease in/lease out
structures and AVGs the present value of which is below the
10% threshold, are not recorded on the balance sheet.
As a result, transactions relating to such AVGs are accounted
for as sales, with the related exposure deemed to be acontingent commitment. To reduce exposure under AVGs andto minimise the likelihood of their occurrence, Airbus and
ATR extend them with prudent guaranteed asset values andrestrictive exercise conditions, including limited exercise
window periods.
Under lease in/lease out structures, which Airbus and ATR
applied in the past to allow customers with weaker credit totake advantage of certain jurisdictions’ leasing-related tax

benefits, the risks and rewards of ownership of the aircraft are
typically borne by a third party, usually referred to as the headlessor. The head lessor leases the aircraft to Airbus or ATR,
which in turn sub-leases it to the customer. To the extent
possible, the terms of the head lease and sub-lease match
payment streams and other financial conditions. Suchcommitments by Airbus or ATR are reported as off-balance
sheet contingent liabilities. See “Notes to Consolidated
Financial Statements (IFRS) — Note 29: Commitments andcontingencies”.
Provisions and Allowances. Under its provisioning policy forsales financing risk, EADS records provisions to fully cover its
estimated financing and asset value net exposure. Provisions
pertaining to sales financing exposure, whether on-balance sheet
or off-balance sheet, are recorded as impairments of the related
assets or in provisions. Provisions recorded as liabilities relate
primarily to off-balance sheet commitments. See “Notes toConsolidated Financial Statements (IFRS) — Note 21(d): Other
provisions”. Provisions are recorded as impairments of therelated assets when they can be directly related to thecorresponding asset. See “Notes to Consolidated Financial
Statements (IFRS) — Note 13: Property, plant and equipment”
and “Note 14: Investments in associates accounted for under theequity method, other investments and long-term financial
assets”. While Management views its estimates of valuations ofcollateral as conservative, changes in provisions reflecting
revised estimates may have a material impact on net income infuture periods.

1.1.4	Measurement of Management’s Performance
1.1.4.1	Order Backlog
Year-end order backlog (valued at catalogue prices forcommercial aircraft activities) consists of contracts signed up tothat date. EADS uses order backlog as a measure of commercial
performance, and growth of EADS’ order backlog is an ongoinggoal of Management to the extent consistent with profitability
criterion. Only firm orders are included in calculating orderbacklog — for commercial aircraft, a firm order is defined as one
for which EADS receives a non-refundable down payment on adefinitive contract not containing a “walk-away” provision.
Defence-related orders are included in the backlog uponsignature of the related procurement contract (and the receipt,
in most cases, of an advance payment). Commitments under

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defence “umbrella” or “framework” agreements bygovernmental customers are not included in backlog until they
are officially notified to EADS.
For civil market contracts, amounts of order backlog reflected in
the table below are derived from catalogue prices, escalated tothe expected delivery date and, to the extent applicable,
converted into Euro (at the corresponding hedge rate for thehedged portion of expected cash flows, and at the period-end
spot rate for the non-hedged portion of expected cash flows).
The amount of defence-related order backlog is equal to thecontract values of the corresponding programs.

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Consolidated Backlog (1) for the year Ended 31 st December 2006, 2005 and 2004
Year ended 31st December 2006
Amount in € bn

In percentage

Year ended 31st December 2005

(3)

Amount in € bn

In percentage

Year ended 31st December 2004

(3)

Amount in € bn

In percentage(3)Airbus(2)

210.1

78%

202.0

77%

136.0

70%

Military Transport Aircraft

20.3

8%

21.0

8%

19.9

10%

Eurocopter

11.0

4%

10.0

4%

9.1

5%

Defence & Security

17.6

6%

18.5

7%

17.3

9%

Astrium

12.3

5%

10.9

4%

11.3

6%

271.3

100%

262.4

100%

193.6

100%

Total Divisional Backlog
Other Businesses

2.3

2.1

1.1

Headquarters/Consolidation(10.8)(11.3)(10.4)

Total

262.8

253.2

184.3

(1) Without options.
(2) Based on catalogue prices for commercial aircraft activities.
(3) Before “Other Businesses” and “Headquarters/Consolidation”.

The €9.6 billion increase in the 31st December 2006 orderbacklog, to €262.8 billion, reflects an order intake at EADS in2006 (€69.0 billion) that was well in excess of revenues
accounted for in the same year (€39.4 billion). However, thisfavourable book-to-bill ratio was partially offset by the effect of
the weaker U.S. Dollar spot rate used for conversion of the
non-hedged portion of the backlog into Euro, which had anegative impact of €17.3 billion at year end.
The Airbus Division’s backlog increased by €8.1 billion from2005, to €210.1 billion, reflecting a book-to-bill ratio of morethan two with net order intake of 790 aircraft in 2006(€53.4 billion). Total order backlog amounted to 2,533 aircraftat the end of 2006 (as compared to 2,177 aircraft at the end of2005). However, the positive book-to-bill ratio was largely
offset by negative net foreign currency adjustments to thebacklog, reflecting the year-end valuation of the non-hedged
portion of Airbus’ order backlog.
The MTA Division’s backlog decreased by €0.7 billion from2005, to €20.3 billion, reflecting a book-to-bill ratio of less thanone. Revenues were driven by the attainment of five contractual
milestones in respect of the A400M programme during 2006
(including one milestone that was shifted from the last quarterof 2005 to the first quarter of 2006), compared to only one in2005. Revenues recognised in the MTA Division (€2.2 billion)
were partially offset by a strong order intake in 2006(€1.6 billion) driven by the Malaysian order of four A400M
aircraft as well as orders for seventeen C-295s, two CN-235s
and one C-212.

The Eurocopter Division’s backlog posted a solid €1.0 billion
increase from 2005, to €11.0 billion, reflecting a book-to-billratio of more than one with new orders of €4.9 billion. Thisstrong order intake consisted of 615 total new orders in 2006
(as compared to 401 in 2005), bringing its order backlog to
1,074 helicopters at the end of 2006 (as compared to840 helicopters at the end of 2005).
The DS Division’s backlog decreased by €0.9 billion from 2005,
to €17.6 billion, primarily reflecting the sale of LFK GmbH to
MBDA during 2006. Nevertheless, new order intake amounted
to €5.2 billion and was driven by orders for military air
systems, missile systems and secured communication networks.
Astrium’s backlog posted a solid €1.3 billion increase from2005, reflecting a book-to-bill ratio of more than one with neworders of €4.4 billion, especially in satellites (with 8 new
telecom satellite orders, including 2 satellites for the Satcom
BW military communication system) and M51 missile systems.
The amounts recorded under “Headquarters/Consolidation”
primarily reflect the elimination of Airbus’ work share in the
A400M program. The MTA Division’s order backlog includes
100% of the value of the A400M order to reflect the Division’s
prime-contractor responsibility over the program. The effect ofinternal subcontracting (corresponding to the work share ofother EADS divisions in the A400M) is therefore eliminated in
EADS’ consolidated order backlog.

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The table below illustrates the proportion of commercial and defence backlog at the end of each of the past three years.
Year ended 31st December 2006
Amount in€ bn(1)

Commercial Sector
Defence Sector

Year ended 31st December 2005

Year ended 31st December 2004

Percentage

Amount in€ bn(1)

Percentage

Amount in€ bn(1)

Percentage

210

80%

201

79%

135

73%

53

20%

52

21%

49

27%

263

100%

253

100%

184

100%

Backlog:

Total(1) Including “Other Businesses” and “Headquarters/Consolidation”.

In 2006, Management achieved its target of €10 billion in
defence-related revenues (which it had initially set for 2007),after taking into account the positive €0.5 billion impact of theshift of revenue recognition for one A400M milestone from2005 to the first quarter of 2006.

1.1.4.2	Use of EBIT*“exceptionals” refers to such items as depreciation expenses offair value adjustments relating to the EADS merger, the Airbus
Combination and the formation of MBDA, as well as
impairment charges thereon.
Set forth below is a table reconciling EADS’ profit before
finance costs and income tax (as reflected in EADS’ IFRS
consolidated income statement) with EADS’ EBIT*.

EADS uses EBIT pre-goodwill impairment and exceptionals as a
key indicator of its economic performance. The term
Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

Profit before finance costs and income tax

278

2,712

2,215

Subsequent adjustment of goodwill

64

0

0

Exceptional depreciation (fixed assets)

57

136

212

Exceptional depreciation (others)

0

4

5

399

2,852

2,432

(in €m)

(1)

EBIT*

(1) Relates to the finalisation of a tax audit for Dasa for the years 1994 until 1999. See “1.1.3 Critical Accounting Considerations, Policies and Estimates — Fair Value Adjustments”.

1.1.4.3	EBIT* Performance by Division
Set forth below is a breakdown of EADS’ consolidated EBIT* by division for the past three years.

(in €m)Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

Airbus

(572)

2,307

1,919

Military Transport Aircraft

75

48

26

Eurocopter

257

212

201

Defence and Security Systems

348

201

226

Astrium

130

58

9

Total Divisional EBIT*

238

2,826

2,381

Other Businesses

(288)

(171)

2

HQ/Consolidation(1)

449

197

49

EADS

399

2,852

2,432

(1) HQ/Consolidation primarily reflects the reversal of the loss at completion provision related to the A400M programme recorded at Airbus and also includes results from headquarters, whichmainly consists of the “share of profit from associates” from EADS’ investment in Dassault Aviation.

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2006 compared to 2005. EADS’ consolidated EBIT* decreased
to €0.4 billion in 2006 from €2.9 billion in 2005, primarilyreflecting the loss at Airbus and the impairment andrestructuring charges recorded at EADS Sogerma. This decrease
was slightly offset by an increase in EBIT* at EADS’ four otheroperating divisions.

€127 million (mainly on the sale of LFK GmbH to MBDA), and(iii) €58 million in lower costs in 2006 relating to unmanned
aerial vehicles (“UAV”) projects, which in 2005 had a€100 million negative impact on EBIT*. The EBIT* increase waspartially offset by restructuring costs that were €73 million
higher than in 2005 and by perimeter effects.

Airbus’ EBIT* decreased to €(0.6) billion in 2006 from
€2.3 billion in 2005, primarily reflecting (i) cost overruns,
provisions and impairment charges recorded in connection with
the A380 programme, (ii) a loss at completion provision
recorded in respect of the A400M programme, and (iii) a
provision recorded for the buy-out of delivery commitments
under firm orders for the former A350 aircraft. See“1.1.2 Overview — Significant Programme and Restructuring
Developments in 2006”. Also contributing to the decrease from2005 to 2006 was (i) an approximate €720 million negative
impact of exchange rate effects relating to (x) generally lessfavourable rates of hedges that matured in 2006 as compared to2005 (based on Airbus’ 2006 compounded conversion rate of €U.S.$1.10, as compared to €-U.S.$1.04 in 2005) which had anegative effect of €820 million, and (y) some positive impact of
the revaluation of certain assets and liabilities and othercurrency translation adjustments explained above under“1.1.3 Critical Accounting Considerations, Policies andEstimates — Foreign Currency Translation”, as well as (ii) a€376 million increase in research and development expenses in2006. The decrease in EBIT* was partially offset by an increasein the number of aircraft delivered (434 in 2006, as compared
to 378 in 2005), as well as operational efficiency gains resulting
mainly from the “Route 06” cost savings programme totalling
approximately €500 million.

Astrium’s EBIT* increased to €130 million for 2006 from
€58 million for 2005, primarily reflecting (i) a volume increase
relating to progress made on Ariane 5 production, ballistic
missile deliveries and Paradigm services and (ii) the positive
impact of operational efficiencies derived from prior years’
restructuring efforts.

The MTA Division’s EBIT* increased to €75 million for 2006
from €48 million for 2005, primarily reflecting the margin
impact on revenue recognition for the completion of fivemilestones under the A400M programme in 2006 (including
the positive €17 million EBIT impact from the shift of revenue
recognition for one milestone to the first quarter of 2006),
compared to only one milestone in 2005.
The Eurocopter Division’s EBIT* increased to €257 million for2006 from €212 million for 2005, primarily reflecting (i) arecord level of deliveries (381 in 2006, as compared to 334 in2005) with a favourable mix effect, (ii) progress made on
military programs and (iii) increased customer support activities.
This volume impact was partially offset by (i) a negative effectfrom the U.S. Dollar, (ii) higher selling and administrative
expenses following activity ramp-up and (iii) increased
production contract costs related to the NH 90.
The DS Division’s EBIT* increased to €348 million for 2006
from €201 million for 2005, due primarily to (i) improved
operating performance, (ii) capital gains in 2006 totalling

The EBIT* of Other Businesses decreased by €117 million
compared to 2005, to €(288) million. The decrease wasprimarily due to asset impairment charges and restructuringprovisions recorded at EADS Sogerma prior to the sale of its
remaining 60% share in Sogerma Services as well as the sharesof the subsidiaries Barfield and Sogerma Tunisia to the TATGroup in January 2007. EADS Sogerma recorded EBIT* of€(351) million in 2006 (compared to €(237) million in 2005),
with an underlying operation loss of €(96) million in addition
to these impairment charges and restructuring provisions. The
loss at EADS Sogerma was partially offset by positive EBIT* at
ATR, EFW and Socata.
Headquarters/Consolidation EBIT* increased to €449 million
for 2006 from €197 million for 2005, primarily reflecting theconsolidation reversal of the provision related to the A400M
programme recorded at Airbus. See “1.1.2 Overview —Significant Programme and Restructuring Developments in2006”. Partially offsetting this increase was a decrease in “shareof profit from associates accounted for under the equity
method” from EADS’ investment in Dassault Aviation,reflecting the absence of a catch-up in 2006 of Dassault
Aviation’s 2005 income (as compared to a €64 million catch-up
in 2005 for 2004 results).
2005 compared to 2004. EADS’ consolidated EBIT* increasedto €2.9 billion for 2005 from €2.4 billion for 2004, primarilyreflecting stronger performance at Airbus.
Airbus’ EBIT* increased to €2.3 billion for 2005 from
€1.9 billion for 2004, reflecting (i) an increase in the number ofaircraft delivered (378 in 2005, as compared to 320 in 2004) and(ii) operational efficiency gains resulting from the “Route 06”
cost savings programme implemented in 2002 (totalling€400 million through year-end 2005). Partially offsetting these
positive factors was a negative €(670) million exchange rate
effect of generally less favourable rates of hedges maturing in2005 as compared to 2004 (based on Airbus’ 2005 compounded
conversion rate of €-U.S.$1.04, as compared to €-U.S.$0.98 in2004).

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The MTA Division’s EBIT* increased to €48 million for 2005
from €26 million for 2004, reflecting a reduction in researchand development expense and the non-recurrence in 2005 ofearly retirement costs recorded in 2004.

€(33) million catch-up in 2004), as well as gains from real estate
disposals totalling €31 million.

EBIT* at the Eurocopter Division increased to €212 million for2005 from €201 million for 2004, reflecting a 20% increase indeliveries (334 in 2005, as compared to 279 in 2004) and theeffects of the first-time consolidation of Australian Aerospace.
This volume impact was partially offset by a (i) negative effectfrom the U.S. Dollar, (ii) a negative mix effect, (iii) higher
selling and administrative expenses and (iv) increased R&D
expenses for the EC 175.
The DS Division’s EBIT* decreased to €201 million for 2005
from €226 million for 2004 (which included the release of a€106 million provision relating to a concluded litigation withThales). Despite improved operational performance at thedivision in 2005, ongoing unmanned aerial vehicles (“UAV”)
projects had a €100 million negative impact on 2005 EBIT*.
Restructuring expenses were €53 million lower than in 2004,
while research and development expenses were €22 million
higher.
Astrium’s EBIT* increased to €58 million for 2005 from€9 million for 2004, primarily reflecting (i) the positive impactof operational efficiencies derived from prior years’
restructuring efforts and (ii) the release of an allowance forreceivables recorded in 2004 relating to Starsem.
Operational and impairment losses, as well as restructuring
charges, at Sogerma in 2005 led to a €173 million decrease in
EBIT* of Other Businesses as compared to 2004. The losses at
Sogerma widened by €198 million and were partially offset by
improved positive EBIT* at ATR, Socata and EFW.
Headquarters/Consolidation EBIT* increased to €197 million for2005 from €49 million for 2004, primarily reflecting theincrease in “share of profit from associates accounted for underthe equity method” from EADS’ investment in Dassault
Aviation, including a positive €64 million catch-up of Dassault
Aviation’s 2004 IFRS results (as compared to a negative

Hedging Impact on EBIT*. Nearly two-thirds of EADS’
consolidated revenues in 2006 were denominated in currencies
other than the Euro. Given the long-term nature of its businesscycles (evidenced by its multi- year backlog), EADS hedges asignificant portion of its net foreign exchange exposure to
mitigate the impact of exchange rate fluctuations on its EBIT*.
See “1.1.8 Hedging Activities — Foreign Exchange Rates” and“1. Financial Market Risks — Exposure to Foreign Currencies”.
In addition to the impact that hedging activities have on EADS’
EBIT*, the latter is also affected to a much smaller extent by the
impact of revaluation of certain trade assets and liabilities at theclosing rate and currency translation adjustments related to
Airbus.
During 2006, cash flow hedges covering approximately
U.S.$14.7 billion of EADS’ U.S. Dollar-denominated revenues
matured. In 2006, the compounded exchange rate at which
hedged U.S. Dollar-denominated revenues were accounted forwas €-U.S.$1.12, as compared to €-U.S.$1.06 in 2005. Thisdifference resulted in an approximate €900 million decrease in
EBIT* from 2005 to 2006, of which approximately €820 million
was at Airbus. This decrease was partially offset by the€100 million positive impact of the revaluation of certain assets
and liabilities and other currency translation adjustments at
Airbus.
During 2005, cash flow hedges covering approximately U.
S.$12.7 billion of EADS’ U.S. Dollar-denominated revenues
matured. In 2005, the compounded exchange rate at which
hedged U.S. Dollar-denominated revenues were accounted forwas €-U.S.$1.06, as compared to €-U.S.$0.99 in 2004. Thisdifference resulted in a €720 million decrease in EBIT* from2004 to 2005, of which approximately €648 million was at
Airbus.
The tables below set forth the notional amount of foreignexchange hedges in place as of 31st December 2006, and theaverage U.S. Dollar rates applicable to corresponding EBIT*.

2007

2008

2009

2010

2011

Total

Total Hedges (in U.S.$ bn)

15.7

13.9

9.3

5.1

1.1

45.1

Of which €-U.S.$

13.9

12.3

7.9

4.2

0.8

39.1

Of which £-U.S.$

1.8

1.6

1.4

0.9

0.3

6.0

€-U.S.$

1.15

1.13

1.17

1.23

1.23

£-U.S.$

1.58

1.57

1.63

1.71

1.74

Forward Rates (in U.S.$)

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Restructuring. Total restructuring charges of €168 million
were recorded in 2006, compared to €62 million in 2005. For
2006, this included new provisions and current year charges
primarily related to (i) the DS Division (€108 million), (ii)

restructuring at Sogerma (€42 million), and (iii) Headquarters(€18 million). The related, yet to be implemented, restructuring
burden is mainly accounted for at year-end both as a provision
and as other liabilities.

1.1.5	EADS Results of Operations
The following table sets forth a summary of the IFRS consolidated statements of income of EADS for the years indicated.
IFRS consolidated statements of income for the years ended 31 st December 2006, 2005 and 2004
Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

Revenues

39,43434,206

31,761

Cost of sales(34,722)(27,530)(25,522)

Gross margin

4,712

6,676

6,239

Selling and administrative expenses(2,274)(2,183)(2,119)Research and development expenses(2,458)(2,075)(2,126)(in €m, except for EPS)

Other income

297

222

314

Other expenses
Share of profit from associates accounted for under the equity method and otherincome (expense) from investments

(188)

(153)

(177)

189

225

84

Profit before finance costs and income taxes

278

2,712

2,215

Interest result

(121)

(155)

(275)

Other financial result

(123)

(22)

(55)

Income taxes

81

(825)

(664)

115

1,710

1,221

Equity holders of the parent (Net Income)

99

1,676

1,203

Minority interests

16

34

18

Earnings per share (basic) (in €)

0.12

2.11

1.50

Earnings per share (diluted) (in €)

0.12

2.09

1.50

Profit for the period
Attributable to:

Set out below are year-to- year comparisons of results ofoperations, based upon EADS’ consolidated statements
of income.

Consolidated Revenues
Consolidated revenues increased by 15.3% in 2006 to€39.4 billion, as compared to €34.2 billion for 2005. Revenues
increased across all divisions as compared to 2005.

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Set forth below is a breakdown of EADS’ consolidated revenues by division for the past three years.

(in €m)Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

Airbus25,19022,17920,224

Military Transport Aircraft

2,200

763

1,304

Eurocopter

3,803

3,211

2,786

Defence and Security

5,864

5,636

5,385

Astrium
Total Divisional Revenues

3,212

2,698

2,592

40,26934,48732,291Other Businesses

1,257

1,155

1,123

HQ/Consolidation(1)(2,092)(1,436)(1,653)

EADS

39,43434,206

31,761

Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

339

289

233

(1) HQ/Consolidation includes, in particular, adjustments and eliminations for intercompany transactions.

AirbusSet forth below is a breakdown of Airbus’ deliveries by aircraft type for the past three years.

Number of aircraft

Single Aisle
Widebody

9912Long-Range

86(1)

80

75

Total

434

378

320(2)(1) Includes internal delivery of green a/c (MRTT for Australia) from Airbus to MTA Division.
(2) In 2004, revenues were recognized in the IFRS consolidated statement of income for only 316 of the 320 planes delivered.

2006 compared to 2005. Airbus’ consolidated revenues
increased by 13.6%, from €22.2 billion for 2005 to €25.2 billion
for 2006, reflecting primarily the increase in aircraft deliveries
recognized in revenues (434 in 2006 as compared to 378 in2005). As in 2005, most of the deliveries in 2006 were forsingle-aisle A319/A320/A321 aircraft. Airbus delivered
50 more aircraft of this type in 2006 (339 aircraft) than in theprevious year. Deliveries of long-range aircraft increased from80 in 2005 to 86 in 2006.
Offsetting these positive factors was an approximate€720 million negative impact resulting primarily from thecontinued decline of the hedge rates used to convert payments
upon deliveries for the portion of such payments which was
hedged, which amounted to negative €820 million, and wasitself partially offset by the €100 million positive impact of therevaluation of certain assets and liabilities and other currencytranslation adjustments. For a discussion of the impact of
exchange rate variations on EADS’ results of operations, see“1.1.3 Critical Accounting Considerations, Policies andEstimates — Accounting for Hedged Foreign Exchange

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Transactions in the Financial Statements”, “1.1.3 Critical
Accounting Considerations, Policies and Estimates — Foreign
Currency Translation”, “1.1.8 Hedging Activities — Foreign
Exchange Rates” and “1. Financial Market Risks — Exposure to
Foreign Currencies”.
2005 compared to 2004. Airbus’ consolidated revenues
increased by 9.7%, from €20.2 billion for 2004 to €22.2 billion
for 2005, reflecting primarily the increase in aircraft deliveries
recognized in revenues (378 in 2005 as compared to 316 in2004). As in 2004, most of the deliveries in 2005 were forsingle-aisle A319/A320/A321 aircraft. Airbus delivered
56 more aircraft of this type in 2005 (289 aircraft) than in theprevious year. Deliveries of long-range aircraft increased from75 in 2004 to 80 in 2005.
Offsetting these positive factors was an approximate€(1.65) billion negative impact resulting primarily from thecontinued decline of the hedge rates used to convert payments
upon deliveries for the portion of such payments which was
hedged.

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Military Transport Aircraft
Set forth below is a breakdown of the MTA Division’s new aircraft deliveries by aircraft type for the past three years.
Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

C-212

0

2

2

CN-2351

1

4Number of aircraft

C-295

7

10

6

Total

8

13

12

For 2006, consolidated revenues of the MTA Division increased
by 188%, from €0.8 billion for 2005 to €2.2 billion for 2006.
The strong increase is primarily related to revenue recognition
for the completion of five milestones under the A400M
programme in 2006 (including the €0.5 billion impact of theshift of revenue recognition for one milestone to the firstquarter of 2006), compared to only one in 2006. Revenues also
increased due to the ramp-up of the Multi Role Tanker
Transport (MRTT) programme.

For 2005, consolidated revenues of the MTA Division
decreased by 41%, from €1.3 billion for 2004 to €0.8 billion for2005. The decrease primarily reflects the negative €(0.5) billion
impact of the shift of revenue recognition for one milestoneunder the A400M programme until the first quarter of 2006,
with no anticipated impact on the overall programme schedule.

Eurocopter
Set forth below is a breakdown of the Eurocopter Division’s deliveries by product type for the past three years.
Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

Tiger

9

12

2

Light

217

183

157

Medium

134

121

102

Heavy

21

18

18

Number of aircraft

Of which NH 90
Total

For 2006, consolidated revenues of the Eurocopter Division
increased by 18.4%, from €3.2 billion for 2005 to €3.8 billion
for 2006, primarily reflecting ramp-up of military programs,
growth in customer services and an overall increase inhelicopter deliveries from 334 in 2005 to 381 in 2006.

3

0

0

381

334

279

For 2005, consolidated revenues of the Eurocopter Division
increased by 15%, from € 2.8 billion for 2004 to €3.2 billion for
2005, primarily reflecting shipsets for the Tiger and NH90
helicopters, and the increase in serial helicopter deliveries. The
first-time consolidation of the Australian subsidiary also had anet positive effect on the Eurocopter Division’s 2005 revenues.

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Defence & Security
Set forth below is a table showing the number of Eurofighter deliveries to Germany and Spain by EADS for the past three years.

Number of aircraftYear ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

17

18

9

Eurofighter(1)(1) Revenues are recognised using the percentage-of-completion (POC) method and not according to deliveries.

For 2006, consolidated revenues of the DS Division increased
by 4.0%, from €5.6 billion for 2005 to €5.9 billion for 2006,
primarily reflecting the ramp-up in Eurofighter production andgrowth in the digital professional mobile radio (PMR) business,acquired from Nokia in 2005. Partially offsetting this increase was
the partial lack of contribution to 2006 consolidated revenues
from LFK GmbH, following its sale to MBDA in early 2006.

For 2005, the DS Division generated consolidated revenuesof €5.6 billion, as compared to €5.4 billion for 2004. The slightincrease is mainly attributable to continued Eurofighter rampup by the Military Air Systems BU, as well as the ramp-up of
the MBDA missile business.

Astrium
Set forth below is a breakdown of Astrium’s deliveries of commercial telecommunications satellites for the past three years.

Commercial Telecommunications Satellites

3 science satellites were delivered in 2006.
For 2006, consolidated revenues of Astrium increased by 19.1%,
from €2.7 billion for 2005 to €3.2 billion for 2006. The
increase was primarily due to the continued ramp-up of
Ariane 5 production, increased M51 ballistic missile activity, an
increase in revenues from the Paradigm business at Astrium
Services and the first revenues recorded in connection with theSatcom BW military communication system.
For 2005, Astrium generated consolidated revenues of€2.7 billion, as compared to €2.6 billion for 2004. The slightincrease reflects increased telecommunications satellitedeliveries and the further ramp-up of Ariane 5 production,
as well as a modest increase in revenues from the Paradigm
business at Astrium Services.

Consolidated Cost of Sales
For 2006, consolidated cost of sales increased by 26.1%, from€27.5 billion for 2005 to €34.7 billion for 2006. Besides thehigher sales activity that occurred in 2006, the increase wasprimarily due to cost overruns relating to the A380 programme
and transition costs related to the A350 programme, as
described above. Asset impairment charges and restructuring

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Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

4

4

3

provisions recorded at EADS Sogerma also had a negative
effect. Mainly as a result of the above stated items and negative
dollar effect at Airbus in respect of revenues, the gross margindecreased from 19.5% in 2005 to 11.9% in 2006.
For 2005, consolidated cost of sales increased to €27.5 billion
from €25.5 billion for 2004. Gross margin remained relatively
unchanged as compared to 2004 at 19.5%.

Consolidated Selling and Administrative Expenses
For 2006, consolidated selling and administrative expenses
increased slightly, from €2.2 billion for 2005 to €2.3 billion
for 2006, primarily reflecting higher expenses at the DS
division (perimeter effect, higher restructuring expenses andEurofighter marketing campaign costs), Eurocopter division(higher marketing expenses) and Airbus (tanker campaign costs
at EADS North America and expanding Airbus subsidiaries
in Japan and the Middle East).
For 2005, consolidated selling and administrative expenses
increased slightly, from €2.1 billion for 2004 to €2.2 billion
for 2005, primarily reflecting an overall increase in selling
activities across most of EADS’ businesses.

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Consolidated Research and Development Expenses
For 2006, consolidated research and development (“R&D”)
expenses increased by 18.5%, from €2.1 billion for 2005 to€2.5 billion for 2006. Most of the increase was attributable
to higher expenses at Airbus, due to development on theformer A350, and later in the year on the new A350XWB.
A380-related R&D expenses continued to decrease from theirpeak of €1,082 million in 2003 to €771 million in 2006 (ascompared to €813 million in 2005), excluding continuing
development costs. The MTA and DS Divisions recordedslightly lower R&D expenses in 2006, whereas Eurocopter andAstrium spent slightly more than in 2005. These changes also
reflect the continued application of IAS 38 at EADS, which
resulted in the capitalisation of an additional €411 million of
R&D in 2006, of which €335 million related to Airbus for
the A380. See “1.1.3 Critical Accounting Considerations,
Policies and Estimates — Research and Development Expenses”.
For 2005, EADS’ consolidated R&D expenses remained stable
as compared to 2004, at €2.1 billion. Airbus R&D expensedecreased by €75 million from 2004 levels. Other consolidated
R&D expenses outside Airbus totalled €416 million — anincrease of €24 million from 2004 — related primarily to thedevelopment of (i) Eurocopter’s EC 175 programme in Chinaand (ii) Military Air Systems’ ISR business. These changes
reflect in part the application of IAS 38 at EADS, which
resulted in the capitalisation of an additional €293 million of
R&D in 2005, of which €259 million related to Airbus for the
A380.

Consolidated Share of Profit from Associates
Accounted for under the Equity Method andOther Income (Expense) from Investments
Consolidated share of profit from associates accounted forunder the equity method and other income (expense) frominvestments principally includes results from companies
accounted for under the equity method and the results
attributable to non-consolidated investments.
For 2006, EADS recorded €189 million in consolidated shareof profit from associates accounted for under the equity method
and other income (expense) from investments as comparedto €225 million for 2005. The €36 million decrease primarily
relates to the results of EADS’ equity investment in Dassault
Aviation, including the non-recurrence of a positive catch-up
in income of €64 million recorded in 2005 relating to Dassault
Aviation’s income of 2004. See “Notes to Consolidated
Financial Statements (IFRS) — Note 9: Share of profit fromassociates accounted for under the equity method and otherincome (expense) from investments”.
For 2005, EADS recorded €225 million in consolidated shareof profit from associates accounted for under the equity method
and other income (expense) from investments as comparedto €84 million for 2004. The €141 million increase primarilyreflects the results of EADS’ equity investment in Dassault
Aviation, including a €64 million positive catch-up in 2005 of2004 income related to EADS’ investment in Dassault Aviation,versus a negative €(33) million catch-up in 2004.

Consolidated Other Income and Other Expenses

Consolidated Interest Result

Consolidated other income and other expenses represent gains
and losses on disposals of investments in fixed assets, income
from rental properties and certain provisions.

Consolidated interest result reflects the net of interest income
and expenses arising from financial assets and liabilities,
including interest expense on refundable advances provided
by European governments to finance research and development
activities.

For 2006, the net of other income and other expenses was
positive €109 million as compared to positive €69 million
for 2005. The increase was mainly attributable to capital gainsof €127 million recorded in the DS division primarily relating
to the sale of LFK GmbH and TDW GmbH to MBDA during
2006.
For 2005, the net of other income and other expense waspositive €69 million as compared to positive €137 million
for 2004, primarily reflecting the non-recurrence ofthe €106 million release of a provision in the DS Division
relating to the Thales Euromissiles litigation reported inconsolidated other income for 2004.

For 2006, EADS reported a consolidated net interest expenseof €121 million, as compared to €155 million of consolidated
net interest expense for 2005. The improvement is primarily
due to more favourable interest rates. See “1.1.7 Liquidity andCapital Resources — Consolidated Financial Liabilities”.
For 2005, EADS reported a consolidated net interest expenseof €155 million, as compared to €275 million of consolidated
net interest expense for 2004. The improvement in consolidated
net interest result primarily reflects the improving net cash
position of EADS as well as the increased interest income fromsales financing.

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Consolidated Other Financial Result
For 2006, consolidated other financial result deteriorated tonegative €(123) million from negative €(22) million for 2005.
This negative €101 million change primarily results from the€136 million negative effect in 2006 from valuation changes of
U.S. Dollar-denominated cash balances on the Eurodenominated balance sheets of Group companies, which had
generated a positive €147 million in other financial results in2005. See “1.1.3 Critical Accounting Considerations, Policies
and Estimates — Foreign Currency Translation”. This negative
factor was partially offset by a positive €46 million effect fromthe mark-to-market valuation of “embedded derivatives”.
“Embedded derivatives” are financial instruments that, foraccounting purposes, are deemed to be embedded in U.
S. Dollar-denominated purchase orders of equipment, where theU.S. Dollar is not conclusively the currency in which the priceof the related equipment is routinely denominated ininternational commerce and is not the functional currency ofthe parties to the transaction.
For 2005, consolidated other financial result increased tonegative €(22) million from negative €(55) million for 2004.
This positive €33 million change primarily results from the€147 million positive effect in 2005 from valuation changes of
U.S. Dollar-denominated cash balances on the Euro- or British
Pound-denominated balance sheets of Group companies, which
had generated negative other financial results in 2004. This
positive factor was partially offset by a negative €(108) million
effect from the mark-to-market valuation of “embedded
derivatives”.

Consolidated Income Taxes
In 2006, income taxes yielded a positive €81 million, compared
to an expense of €(825) million in 2005. The change was due
primarily to a significant reduction in tax expense during 2006,
reflecting the group’s reduced profit before income taxes, as well
as a tax-free gain on the sale of LFK GmbH and TDW GmbHto MBDA in 2006. This decrease was partially offset by higher
valuation allowances on deferred tax assets at Airbus. See“Notes to the Consolidated Financial Statements (IFRS) —Note 11: Income taxes”.

Consolidated Minority Interests
For 2006, consolidated minority interests were €16 million, as
compared to €34 million for 2005, reflecting primarily the

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interests of Finmeccanica (€25 million) and DaimlerChrysler
Luft — und Raumfahrt Holding AG (“DCLRH”) (€15 million)in the results of MBDA and EADS Germany GmbH,
respectively. The decrease in total minority interests for 2006
relates to a consolidation impact from the sale of LFK GmbHand TDW GmbH to MBDA, which amounted to €(27) million
in 2006.
For 2005, consolidated minority interests were €34 million, as
compared to €18 million for 2004, reflecting primarily theinterests of Finmeccanica (€24 million) and DCLRH(€11 million) in the results of MBDA and EADS
Germany GmbH, respectively. The 20% share of BAE Systems
in Airbus’ net income was restated in accordance with theapplication of IAS 32 “Financial Instruments: Disclosure andPresentation”, resulting in a €185 million adjustment tominority interests in 2004. As from 1st January 2005,
consolidated minority interests no longer includes BAE
Systems’ 20% ownership in Airbus. See “1.1.3 Critical
Accounting Considerations, Policies and Estimates — Scope ofand Changes in Consolidation Perimeter” and “Notes toConsolidated Financial Statements (IFRS) — Note 2: Significant
accounting policies — Liability for puttable instruments”.

Consolidated Net Income (Profit for the Period
Attributable to Equity Holders of the Parent)
As a result of the factors discussed above, EADS recorded
consolidated net income of €99 million for 2006 as compared to€1,676 million for 2005 and €1,203 million for 2004. It should
also be note d that if EADS had not changed its accounting
policy in relation to revised IAS 19, its consolidated net income
would have been lower by €25 million in 2006. See“1.1.3 Critical Accounting Considerations, Policies andEstimates — Employee Benefits — IAS 19”.
In 2005, net income for 2004 was restated to reflect theretrospective application of IAS 32 “Financial Instruments:
Disclosure and Presentation” in respect of BAE Systems’ put
option for its 20% stake in Airbus. In addition, net income for2004 was restated to reflect the retrospective application of
IFRS 2 “Share-based Payments”, which required the recognitionof an expense in respect of employee stock option plans.
The table below illustrates the adjustments made in 2005 to
2004 net income as a result of the application of the accounting
principles described in the preceding paragraph.

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Year ended
31st December 2005

Year ended
31st December 2004

1,676

1,030

IFRS 2 Restatement

-

(12)

IAS 32 Restatement

-

185

1,676

1,203

(in €m)Reported Consolidated Net Income (Loss)

Restated Consolidated Net Income(1)(1) 2005 consolidated net income reflects a positive €289 million impact from the application of revised IAS 32 “Financial Instruments: Disclosure and Presentation” and a negative €(33) million
impact from the application of IFRS 2.

Earnings per Share (EPS)
Basic earnings per share decreased by €1.99 per share, from
€2.11 per share in 2005 to €0.12 per share in 2006. If EADS
had not changed its accounting policy in relation to revised
IAS 19, its basic earnings per share in 2006 would have been
lower by €0.03. See “1.1.3 Critical Accounting Considerations,
Policies and Estimates — Employee Benefits — IAS 19”. The
number of outstanding shares at 31st December 2006 was
802,130,993. The denominator used to calculate EPS was
800,185,164 shares, reflecting the weighted average number ofshares outstanding during the year. In 2004, EADS reported
basic earnings per share of €1.50 (after the restatement of net
income described above).

Diluted earnings per share decreased by €1.97 per share, from€2.09 per share in 2005 to €0.12 per share in 2006. If EADS
had not changed its accounting policy in relation to revised
IAS 19, its diluted earnings per share in 2006 would have been
lower by €0.03. The denominator used to calculate diluted EPS
was 804,315,663, reflecting the weighted average number ofshares outstanding during the year, adjusted to assume theconversion of all potential ordinary shares. In 2004, EADS
reported diluted earnings per share of €1.50 (after therestatement of net income described above). See “Notes toConsolidated Financial Statements (IFRS) — Note 20: Total
equity” and “Note 35: Earnings per share”.

1.1.6	Changes in Consolidated Total Equity (including Minority Interests)
The following table sets forth a summary of the changes in consolidated total equity for the period 1st January 2006 through31st December 2006.
(in €m)Balance at 31st December 2005

13,207(1)Change in actuarial gains and losses(714)

Accumulated other comprehensive income

975

thereof currency translation adjustments(324)

Profit for the period

115

Cash distribution to EADS N.V. shareholders / dividends paid to minorities(536)

Capital increase

94

Purchase of treasury shares(35)

Share-based payments (IFRS 2)

40

Others6

Balance at 31 December 2006

13,152st(1) The balance of consolidated total equity at 31 st December 2005 reflects the application of revised IAS 19 “Employee Benefits”. See “Notes to Consolidated Financial Statements (IFRS) —Note 2: Significant accounting policies” and “Note 21b: Provisions for retirement plans”.

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The decrease in consolidated total equity in 2006 primarilyreflects the effects of (i) changes in actuarial gains and losses,
which in turn primarily relate to the first time inclusion of aprovision with respect to the net deficit of BAE Systems
pension plans in the U.K., and (ii) the cash distribution toshareholders and dividends paid to minorities during 2006.
These were partially offset by changes in accumulated othercomprehensive income (“AOCI”) and net profit for the period.
Set forth below is a discussion of AOCI and its impact on
consolidated total equity. For a discussion of the other line
items affecting consolidated total equity, see “Notes toConsolidated Financial Statement (IFRS) — Note 20: Total
equity”.
In 2006, AOCI increased by €975 million. The change in AOCI
was due to the positive variation (after accounting for deferredtaxes) of the year-end mark-to-market valuation of that portionof EADS’ hedge portfolio qualifying for hedge accounting
under IAS 39.

IAS 39 Related Impact on AOCI
At 31st December 2006, the notional amount of the outstanding
portfolio of hedges qualifying for IAS 39 hedge accounting
treatment (“cash flow hedges”) amounted to approximately
U.S.$45.1 billion hedged against the Euro and the Pound
Sterling. The year-end mark-to-market valuation of EADS’
portfolio of cash flow hedges resulted in a positive AOCI
valuation change of €1.2 billion from 31st December 2005,
based on a closing rate of €-U.S.$1.32, as compared to anegative AOCI valuation change of €3.7 billion at
31st December 2005 from 31st December 2004, based on aclosing rate of €-U.S.$1.18.
Positive pre-tax mark-to-market values of cash flow hedges areincluded in other assets, while negative pre-tax mark-to-market
values of cash flow hedges are included in provisions forfinancial instruments. Year-to-year changes in the mark-tomarket value of cash flow hedges are recognised as adjustments
to AOCI. These adjustments to AOCI are net of corresponding
changes to deferred tax assets (for cash flow hedges withnegative mark-to-market valuations) and deferred tax liabilities(for cash flow hedges with positive mark-to-market valuations).
Set out below is a graphic presentation of cash flow hedge
related movements in AOCI over the past three years (in €m).

RfmbufeånpwfnfoutåjoåAOCIåjoånåå




å




°

°

°

OCIåNfuåAttfu

tuåDfdfncfsååUS

DfgfssfeåubyfttuåDfdfncfsååUS

As a result of the positive change in the fair market valuationof the cash flow hedge portfolio in 2006, AOCI-related net
assets increased to €5.0 billion for 2006 from €3.0 billion for

38

EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

NfuåErvjuzåOCI
³jodmvejohåÓåAjscvt´tuåDfdfncfsååUSå

2005. The corresponding €0.6 billion tax effect increased the
AOCI-related deferred tax liability to €1.7 billion at
31st December 2006.

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Currency Translation Adjustment Impact on AOCI
The negative €(324) million currency translation adjustment(CTA) related impact on AOCI in 2006 reflects theconsequences (negative €(78) million) of the merger of Airbus
Groupement d’intérêt économique (“Airbus GIE”) (a U.S. Dollardenominated entity) into Airbus SAS (a Euro-denominatedentity) as well as the negative effects of the weakening U.
S. Dollar. Before the merger, Airbus GIE operations wererecorded at the current exchange rate of the period except for
those hedged with financial instruments. As from 1st January

2004, former Airbus GIE operations are recorded on the basisof historical exchange rates. As a result, no additional CTA isgenerated by former Airbus GIE operations. The portion ofoutstanding CTA as at 31st December 2003, booked in respectof non-monetary balance sheet items relating to transactions
realised as from 1st January 2004 (i.e., mainly aircraft
deliveries), is gradually released to the consolidated statementof income, in line with such deliveries. See “1.1.3 Critical
Accounting Considerations, Policies and Estimates — Foreign
Currency Translation”.

1.1.7	Liquidity and Capital Resources
The Group’s objective is to maintain sufficient cash and cash
equivalents at all times to meet its present and future cash
requirements and maintain a favourable credit rating. It
attempts to achieve this policy objective by:●implementing measures designed to generate cash;●

developing and maintaining access to the capital markets; and●containing its exposure to customer financing.

EADS benefits from a strong positive cash position, with
€10.0 billion of consolidated gross cash (including securities of€1.8 billion) at 31st December 2006. This cash position isfurther supported by a €3.0 billion syndicated back-up facility.
Overall, financial liabilities (short and long-term) amounted to€5.8 billion at 31st December 2006.
EADS defines its consolidated net cash position as thedifference between (i) cash, cash equivalents and securities and(ii) financial liabilities (as recorded in the consolidated balance
sheet). The net cash position at 31st December 2006 was€4.2 billion. The factors affecting EADS’ cash position, andconsequently its liquidity risk, are discussed below.

Pursuant to IAS 7, the definition of “cash and cash equivalents”
now includes only cash items with an original maturity of
3 months. The previous cash definition was based on short-term
maturity of 1 year having insignificant risk of changes in value.
Due to this new interpretation, figures for 2005 below havebeen restated accordingly. €4,160 million of cash and cash
equivalents for the year 2005 have been reclassified as “Current
securities”.

1.1.7.1	Cash FlowsEADS generally finances its manufacturing activities andproduct development programs, and in particular thedevelopment of new commercial aircraft, through a combinationof flows generated by operating activities, customers’ advancepayments, risk-sharing partnerships with sub-contractors andEuropean government refundable advances. In addition, EADS’
military activities benefit from government-financed researchand development contracts. If necessary, EADS may raise funds
in the capital markets.

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The following table sets forth the variation of EADS’ consolidated net cash position over the periods indicated.
Year ended
31st December 2006

Year ended
31st December 2005

Year ended
31st December 2004

Consolidated net cash position at 1st January

5,489

3,961

3,008

Gross cash flows from operations

3,541

3,868

2,858

(in €m)(1)

Changes in other operating assets and liabilities (working capital)

(143)

1,239

2,155

(1,369)(2,694)(3,399)Thereof industrial capital expenditures(2,708)(2,818)(3,017)

Thereof customer financing

1,160

174

(188)

179

(50)

(194)

(35)

(288)

(81)

Cash used for investing activities(2)Thereof others
Treasury share buy-backCash distribution to shareholders/dividends paid to minorities
Payments related to liability for puttable instruments(3)Capital increase
Other changes in financial position

(536)

(396)

(320)

(2,879)

(93)

(64)

94

187

43

67

(295)

(239)

Thereof financial liabilities non-recourse to EADS

(61)

(121)

(369)

Consolidated net cash position at 31st December

4,229

5,489

3,961

Free Cash Flows

2,029

2,413

1,614

869

2,239

1,802

(4)

Thereof Free Cash Flows before customer financing(1) Represents cash flow from operations, excluding variations in working capital.
(2) Does not reflect (i) investments in, or disposals of, available-for-sale securities (addition of €(964) million for 2004; disposal of €1,008 million for 2005; disposal of €3,357 million for 2006), which
are classified as cash and not as investments solely for the purposes of this net cash presentation; (ii) changes in cash from change in consolidation (€9 million for 2004; €12 million for 2005;€0 million for 2006); or (iii) increase in customer financing when it is non-recourse to EADS (€(369) million for 2004; €(121) million for 2005).
(3) Payments include the acquisition price of €2,750 million for the 20% stake in Airbus as well as a dividend payment from Airbus to BAE Systems amounting to €129 million in 2006.

The consolidated net cash position at 31st December 2006 was€4.2 billion, a 23.0% decrease from 31st December 2005. The
decrease primarily reflects: (i) the payment related to theliability for puttable instruments, following BAE Systems’
exercise of its put option of €2.75 billion in relation thereto, (ii)
investing activities that consumed €1.4 billion and (iii) the
dividend payment amounting to €536 million. This decrease
was partially offset by a solid €3.5 billion gross cash flow fromoperations.
Gross Cash Flows from Operations
Gross cash flow from operations was less impacted than EBIT*in 2006 by one time effects, and amounted to €3,541 million in
2006, compared to €3,868 million in 2005 and €2,858 million
in 2004.

Changes in working capital resulted in a negative impact on the
net cash position for 2006 (€(0.1) billion) and a positive impact
on the net cash position for 2005 (€1.2 billion). In 2006, themain net contributor to the negative working capital variation
was the change in gross inventory (€(1.9) billion), primarilyreflecting the ramp-up of Airbus production of the A380,
partially offset by the inflow of overall pre-delivery paymentsfrom customers (€1.6 billion). In 2005, the main net contributor
to the positive working capital variation was the further inflow
of overall pre-delivery payments from customers (approximately€4.2 billion), partially offset by the change in gross inventory(approximately €(3.3) billion), primarily reflecting the ramp-up
of Airbus production of the A380.

Changes in Other Operating Assets and Liabilities(Working Capital)

European Government Refundable Advances. As of
31st December 2006, total European government refundable
advances received, recorded on the balance sheet in the line
items “non-current other liabilities” and “current otherliabilities”, amounted to €5.4 billion, including accrued
interest.

Working capital is comprised of trade receivables, inventory, otherassets and prepaid expenses netted against trade liabilities, otherliabilities (including customer advances) and deferred income.

For 2006, new receipts of European government refundable
advances totalled €0.3 billion and reimbursements totalled

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Back to Contents€0.4 billion. Related accrued interest for 2006 of €0.3 billion was recorded on the balance sheet in the line items “non-current
other liabilities” and “current other liabilities”.
Set out below is a breakdown of total amounts of European government refundable advances outstanding, by product/project.
(in € bn)

2006

2005

2004

Long Range & Wide Body

1.5

1.8

2.0

A380

3.3

2.8

2.5

Eurocopter

0.2

0.2

0.2

Others

0.4

0.5

0.4

Total

5.4

5.3

5.1

Cash Used for Investing Activities
Management categorises cash used for investing activities into
three components: (i) industrial capital expenditures, (ii)customer financing and (iii) others.
Industrial Capital Expenditures. Industrial capital
expenditures (investments in property, plant and equipment andintangible assets) amounted to €2.7 billion for 2006 ascompared to €2.8 billion for 2005. A380-related capital
expenditure totalled €0.7 billion for 2006, as compared to€0.8 billion for 2005 (including capitalised research anddevelopment costs). See “Part 2/1.1.2 Airbus — Products andServices”. To date, total A380-related capital expenditures is€5.2 billion.

The cash inflow of €1,160 million primarily results from thepayments received on sell-downs and repayments ofoutstanding finance leases and loans over the course of the year
more than offsetting additions to customer sales financing.
See “— Sales Financing”.
Others. For 2006, the positive €179 million figure primarilyreflects the sale of LFK GmbH to MBDA and other asset sales.
Free Cash FlowsAs a result of the factors discussed above, positive free cash
flows amounted to €2.0 billion for 2006, as compared to €2.4
billion for 2005 and €1.6 billion for 2004. Positive free cash
flow before customer financing was €0.9 billion for 2006, ascompared to €2.2 billion for 2005 and €1.8 billion for 2004.

The remaining portion of capital expenditures in 2006 related
to other programmes at Airbus of €0.9 billion (including€0.2 billion for the A400M programme) and additional
programmes in the other divisions of €1.1 billion, including thebuild-up of Skynet 5 satellites at Paradigm Secure
Communications Ltd. Excluding Airbus and Paradigm-related
expenditures, EADS’ other divisions incur approximately€0.5 billion annually in capital expenditures related to ongoing
businesses. Investments in aircraft leases are included incustomer financing, and not in industrial capital expenditures,
even though the underlying assets are eventually recorded inproperty, plant and equipment.

Other Changes in Financial Position
In 2004 and 2005, the cash outflows of €(239) million and€(295) million in 2005, respectively, primarily reflects theimpact of non-recourse customer financing. The cash inflow of€67 million in 2006 generally mirrors the currency effects onfinancial liabilities.

For the period 2007 to 2008, it is estimated that the majority of
EADS’ capital expenditures will occur in connection with
Airbus activities — in particular, for the A380, the A350XWB
and the A400M programmes, as well as for construction of an
A320 final assembly line in China. See “Part 2/1.1.2 Airbus —Products and Services”.

Pursuant to IAS 7, the definition of “cash and cash equivalents”
now includes only cash items with an original maturity of
3 months. The previous cash definition was based on short-term
maturity of 1 year having insignificant risk of changes in value.
Due to this new interpretation, €4,160 million of cash and cash
equivalents at year-end 2005 have now been reclassified as“Current securities”.

Customer Financing. Consolidated cash flows generated bycustomer financing amounted to an exceptionally high level of€1,160 million for 2006. EADS aims to structure financing so as
to facilitate the future sell-down or reduction of its exposure.

The cash and cash equivalents and securities portfolio of theGroup is invested mainly in non-speculative financial
instruments, mostly highly liquid, such as certificates of

1.1.7.2	Consolidated Cash and Cash Equivalents

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deposits, overnight deposits, commercial paper and othermoney market instruments which, for cash and cash
equivalents, have an original maturity of less than threemonths. Therefore, EADS assesses its exposure towards pricerisk due to changes in interest rates and spreads as minimal. See“1.1.8 Hedging Activities — Interest Rates” and “Notes toConsolidated Financial Statements (IFRS) — Note 30a:
Information about Financial Instruments — Financial risk
management”.

U.K.) became operational. The cash pooling system enhances
Management’s ability to assess reliably and instantaneously the
cash position of each subsidiary within the Group and enables
Management to allocate cash optimally within the Groupdepending upon shifting short-term needs.
Total cash and cash equivalents (including available-for-salesecurities) includes €0.6 billion from the 50% consolidation of
MBDA. However, EADS’ economic stake in MBDA is only
37.5%, representing only 75% of this consolidated amount.

In 2003, the fully automated cross-border cash pooling system(covering France, Germany, Spain, the Netherlands and the1.1.7.3	Consolidated Financial Liabilities
The following table sets forth the composition of EADS’ consolidated financial liabilities, including both short-and long-term debt,
as of 31st December 2006:
31st December 2006
(in €m)Not Exceeding 1 year

Finance Leases

Over 1 year up to 5 years

More Than 5 years

Total

97

104

74

275

1,157

1,116

453

2,726

Liabilities to financial institutions

140

324

817

1,281

Liabilities to affiliated companies

118

0

0

118

Loans

172

326

347

845

Other

512

0

0

512

Total

2,196

1,870

1,691

5,757(2)(1)

Bonds/Commercial paper(1) This figure reflects the €927 million effect of the netting of defeased bank deposits against sales financing liabilities.
(2) Financial liabilities include non-recourse Airbus debt for €1,058 million.

The outstanding balance of financial liabilities increased from
€5.1 billion at 31st December 2005 to €5.8 billion at
31st December 2006. Financial liabilities include liabilities
connected with sales financing transactions, which totalled€1,702 million at 31st December 2006. See “— Sales Financing”.
Of this total, €480 million bore interest at a fixed rate of 9.88%
while the remainder bore interest primarily at variable rates.
EMTN Programme. In 2003, EADS launched a €3 billion
Euro Medium Term Note (“EMTN”) Programme. It conducted
an initial €1.0 billion issue of notes maturing in 2010 andbearing interest at 4.625% (effective interest rate: 4.686%),
which was later swapped into a variable rate of three-month
EURIBOR plus 1.02%. It then issued an additional €0.5 billionof notes maturing in 2018 and bearing interest at 5.5% (effective
interest rate: 5.6%), which was swapped during 2005 into avariable rate of three-month EURIBOR plus 1.81%.
European Investment Bank Loan. In 2004, the European
Investment Bank granted a long-term loan to EADS in the

42

EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

amount of U.S.$421 million at an interest rate of 5.1% (effective
interest rate: 5.1%).
Commercial Paper Programme. EADS regularly issues
commercial paper on a rolling basis, under a so-called “billet detrésorerie” programme. This commercial paper bears interest atfixed or floating rates with individual maturities ranging from 1
day to 12 months. As of 31 December 2006, the averageinterest rate on these borrowings was 3.3%. The issued volume
at 31 December 2006 amounted to €1,137 million. The
programme has been in place since 2003 and has a maximum
authorised volume limit of €2 billion.

1.1.7.4	Sales Financing
EADS favours cash sales, and encourages independent financing
by customers, in order to avoid retaining credit or asset risk inrelation to delivered products.

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However, in order to support product sales, primarily at Airbus
and ATR, EADS may agree to participate in the financing ofcustomers, on a case-by-case basis, directly or throughguarantees provided to third parties. Dedicated and experienced
teams at headquarters and at Airbus and ATR, respectively
structure such financing transactions and closely monitor total
EADS finance and asset value exposure and its evolution interms of quality, volume and cash requirements intensity.
EADS aims to structure all financing it provides to customers inline with market-standard contractual terms so as to facilitate
any subsequent sale or reduction of such exposure.
In determining the amount and terms of a financing transaction,
Airbus and ATR take into account the airline’s credit rating aswell as risk factors specific to the intended operating

environment of the aircraft and its expected future value.
Market yields and current banking practices also serve tobenchmark the financing terms offered to customers.
Approximately 30% of the €5.8 billion of total consolidated
financial liabilities as at 31st December 2006 are derived fromthe funding of EADS’ sales financing assets, which are of along-term nature and have predictable payment schedules. The
decrease from 40% of total financial liabilities in 2005 reflects
the effects of the weakening U.S. Dollar on these U.S. Dollardenominated liabilities. The following table presents a
breakdown of consolidated financial liabilities related to sales
financing:

Principal Amount
Outstanding 2006

Principal Amount
Outstanding 2005

Principal Amount
Outstanding 2005

Finance Leases(1)

72

118

270

Liabilities to financial institutions

905

1,074

844

(in €m)Loans
Total Sales Financing Liabilities

725

882

780

1,702

2,074

1,894

(1) These figures reflect the effect (€927 million in 2006; €1,102 million in 2005; €1,089 million in 2004) of the netting of defeased bank deposits against sales
financing liabilities.

The amounts of total sales financing liabilities at 31st December
2006, 2005 and 2004 reflect the offsetting of sales financing
liabilities by €0.9 billion (for 2006), €1.1 billion (for 2005) andand €1.1 billion (for 2004) of defeased bank deposits securing
such liabilities. Of the remaining €1.7 billion total sales
financing liabilities at 31st December 2006, €1.1 billion is in theform of non-recourse debt, where EADS’ repayment obligations
are limited to its receipts from transaction counterparties. A
significant portion of financial assets representing noncancellable customer commitments have terms closely matching
those of the related financial liabilities. See “Notes toConsolidated Financial Statements (IFRS) — Note 22: Financial
liabilities”. See also “— 1.1.3 Critical Accounting
Considerations, Policies and Estimates — Accounting for Sales
Financing Transactions in the Financial Statements”.

future value of the financed aircraft. See also “1. Financial
Market Risks — Exposure to Sales Financing Risk”.
Customer Financing Exposure. Airbus Customer Financing
Exposure as of 31st December 2006 is spread over 85 aircraft,
operated at any time by approximately 25 airlines. In addition,other aircraft related assets, such as spare parts, may also serveas collateral security. 63% of Airbus Financing Gross Exposure
is distributed over 5 airlines in 5 countries, not taking backstop
commitments into account.
ATR Customer Financing Gross Exposure as of 31st December
2006 is distributed over 187 aircraft. EADS proportionallyconsolidates only 50% of ATR and shares the risk with its
partner, Alenia.

Sales financing transactions are generally collateralised by theunderlying aircraft. Additionally, Airbus and ATR benefit fromprotective covenants and from security packages tailoredaccording to the perceived risk and the legal environment ofeach transaction.

Gross Customer Financing Exposure: Customer Financing Gross
Exposure is computed as the sum of (i) the net book value ofaircraft under operating leases; (ii) the outstanding principal
amount of finance leases or loans; and (iii) the net present valueof the maximum commitment amounts under financial
guarantees.

EADS classifies the exposure arising from its sales financing
activities into two categories: (i) Financing Exposure, where thecustomer’s credit — its ability to perform its obligations undera financing agreement — constitutes the risk; and (ii) Asset
Value Exposure, where the risk relates to decreases in the

Gross Financing Exposure from operating leases, finance leases
and loans differs from the value of related assets on EADS’balance sheet and related off-balance sheet contingent
commitments for the following reasons: (i) assets are recorded

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in compliance with IFRS, but may relate to transactions where
there is limited recourse to Airbus or ATR; (ii) the value of theassets is impaired or depreciated on the consolidated balance
sheet; (iii) off-balance sheet gross exposure is calculated as thenet present value of future payments, whereas the Financial
Statements present the total future payments in nominal terms;and (iv) exposure related to AVGs recorded as operating leases
in the Financial Statements is categorised under Asset Value
Exposure, not Financing Exposure.
Airbus has reduced Gross Financing Exposure by 70% from its
1998 peak of U.S.$6.1 billion, to U.S.$1.8 billion (€1.4 billion)
as of 31st December 2006, while the Airbus fleet in operation
has increased from 1,838 aircraft to 4,305 aircraft over roughly
the same period. Management believes the current level ofGross Financing Exposure enhances Airbus’ ability to assist its
customers in the context of a tight aircraft financing market.
The chart below illustrates the evolution of Airbus’ Gross
Financing Exposure during 2006 (in U.S. $ millions).
EwpmvujpoåpgåAjscvtåGspttåEyqptvsfåevsjohåDfdfncfså
Dfdfncfså
Aeejujpot°
Anpsujtbujpo°
Djtqptbmt

44 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

ATR as a whole has reduced gross exposure by approximately
56% from a peak of U.S.$1.8 billion in 1997 to U.S.$0.8 billion(€0.6 billion) as of 31st December 2006.
In response to the continued demand by its customers forfinancing, EADS expects to undertake additional outlays inconnection with customer financing of commercial aircraft,mostly through finance leases and loans. Nevertheless, it
intends to keep the amount as low as possible, and expects thenet increase of sales financing gross exposure to be very low in
2007.
Net Exposure. Net exposure is the difference between gross
exposure and the estimated value of the collateral security.
Collateral value is assessed using a dynamic model based on the
net present value of expected future rentals from the aircraft in
the leasing market and potential cost of default. This valuation
model yields results that are typically lower than residual value
estimates by independent sources in order to allow for what
Management believes is its conservative assessment of market
conditions, as well as for repossession and transformation costs.
See “1.1.3 Critical Accounting Considerations, Policies andEstimates — Accounting for Sales Financing Transactions in the
Financial Statements”.

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The table below shows the transition from gross to net financing exposure (which does not include AVGs) as at 31st December
2006, 2005 and 2004. It includes 100% of Airbus’ customer financing exposure and 50% of ATR’s exposure, reflecting EADS’ stakein ATR.
Airbus100%(in €m)Operating Lease
Finance leases andloans

Airbus100%

Airbus100%

ATR 50%12/31/2005 12/31/2004

12/31/2006

ATR 50%Total EADS

Total EADS

12/31/2005 12/31/2004

ATR 50%12/31/2006

12/31/2005 12/31/2004

Total EADS

Note*

12/31/2006

13

1,080

1,308

1,835

136

185

146

1,216

1,493

1,981

14

957

1,616

2,044

29

25

22

986

1,641

2,066

0

1,019

0

87

96

119

87

1,115

119

2,037

3,943

3,879

252

306

287

2,289

4,249

4,166

834

846

732

43

42

46

877

888

778

(1,121)(1,327)(1,135)000(1,121)(1,327)(1,135)

(351)

(244)

(128)

0

0

0

(351)

(244)

(128)

OthersOn Balance sheet
customer financing
Off Balance sheet
customer financing
Non-recourse
transactions onbalance sheet
Off balance sheet
adjustments
Gross customer
financing exposure

29

1,399

3,218

3,348

295

348

333

1,694

3,566

3,681

Collateral Values

29

(521)

(1,819)(1,916)

(270)

(314)

(300)

(791)

(2,133)(2,216)

878

1,399

1,432

25

34

33

903

1,433

1,465

29

Net exposure
Asset impairments
and provisions on:
Operating Lease

29

(272)

(319)

(532)

0

0

0

(272)

(319)

(532)

Finance Lease & loans

29

(199)

(396)

(466)

0

0

0

(199)

(396)

(466)

Inventories

29

0

0

(1)

0

0

0

0

0

(1)

Assets held for sale
Off balance sheet
commitments
On balance sheet
commitments
Asset impairments
and provisions

29

0

(196)

0

0

0

0

0

(196)

0

29

(407)

(488)

(433)

0

0

0

(407)

(488)

(433)

29

0

0

0

(25)

(34)

(33)

(25)

(34)

(33)

(878)

(1,399)(1,432)

(25)

(34)

(33)

(903)

(1,433)(1,465)

-

-

-

-

-

-

-

-

-

Residual exposure(*) The indicated numbers refer to the number of the Notes to Consolidated Financial Statements (IFRS).

The gross value of consolidated operating leases shown in thetable above (€1,216 million in 2006, €1,493 million in 2005 and€1,981 million in 2004) is accounted for in «Property, Plant andEquipment» at net book value of operating leases before
impairment. Corresponding accumulated asset impairments(€272 million in 2006, €319 million in 2005 and €532 million
in 2004) are charged against this net book value. See “Notes toConsolidated Financial Statements (IFRS) — Note 13: Property,
Plant and Equipment” and “Note 29: Commitments andcontingencies”.

Also shown in the table above is the gross value forconsolidated finance leases and loans (€986 million in 2006,€1,641 million in 2005 and €2,066 million in 2004).
Consolidated finance leases (€739 million in 2006, €924 million
in 2005 and €1,120 million in 2004) are accounted for as longterm financial assets, recorded at their book value before
impairment. Loans (€247 million in 2006, €717 million in 2005
and €946 million in 2004) are also accounted for as long-term
financial assets, recorded at their outstanding gross amount.
Corresponding overall accumulated impairments (€199 million
in 2006, €396 million in 2005 and €466 million in 2004) arecharged against the book values. See “Notes to Consolidated

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Financial Statements (IFRS) — Note 14: Investments inassociates accounted for under the equity method, otherinvestments and long-term financial assets”.

transaction basis taking counter guarantees into account. See“Notes to Consolidated Financial Statements (IFRS) —Note 21(d): Other provisions”.

Off-balance sheet customer financing exposure at Airbus andATR (accounted for at 50% by EADS) was €877 million in
2006, €888 million in 2005 and €778 million in 2004. Theseamounts reflect the total nominal value of future payments
under lease in/lease out structures. The corresponding netpresent value of future payments (discounted and net of
mitigating factors) is included in total Gross Financing Exposure
for an amount of €526 million in 2006, €644 million in 2005
and €650 million in 2004. A provision of €407 million has
been accrued for in EADS’ balance sheet as of 31st December
2006 to cover the full amount of the corresponding net
exposure. See “Notes to Consolidated Financial Statements(IFRS) — Note 29: Commitments and contingencies”.

Backstop Commitments. While commitments to provide
financing related to orders on Airbus’ and ATR’s backlog arealso given, such commitments are not considered to be part ofgross exposure until the financing is in place, which occurs
when the aircraft is delivered. This is due to the fact that (i)past experience suggests it is unlikely that all such proposed
financings actually will be implemented (although it is possiblethat customers not benefiting from such commitments may
nevertheless request financing assistance ahead of aircraft
delivery), (ii) until the aircraft is delivered, Airbus or ATR
retain the asset and do not incur an unusual risk in relation
thereto (other than the corresponding work-in-progress), and(iii) third parties may participate in the financing.

Asset Value Exposure. A significant portion of EADS’ asset
value exposure arises from outstanding AVGs, primarily at
Airbus. Management considers the financial risks associatedwith such guarantees to be manageable. Three factors contributeto this assessment: (i) the guarantee only covers a tranche of theestimated future value of the aircraft, and its level is considered
prudent in comparison to the estimated future value of eachaircraft; (ii) the AVG-related exposure is diversified over a large
number of aircraft and customers; and (iii) the exercise periodsof outstanding AVGs are distributed through 2019, resulting in
low levels of exposure maturing in any year. Because exercise
dates for AVGs are on average in the 10th year following aircraft
delivery, AVGs issued in 2006 will generally not be exercisable
prior to 2016, and, therefore, an increase in near-term exposure
is not expected.

See “Notes to Consolidated Financial Statements (IFRS) —Note 29: Commitments and contingencies” for further
discussion of EADS’ sales financing policies and accounting
procedures.

1.1.8 Hedging Activities
1.1.8.1	Foreign Exchange Rates

Gross Exposure. Gross Asset Value Exposure is defined as thesum of the maximum guaranteed tranche amounts (as opposedto the sum of the maximum guaranteed asset value amounts)
under outstanding AVGs. At 31st December 2006, Airbus Gross
Asset Value Exposure (discounted present value of future
guaranteed tranches) was U.S.$3.0 billion (€2.3 billion). The offbalance sheet portion of Airbus Gross Asset Value, representing
AVGs with net present values of less than 10% of the sales priceof the corresponding aircraft, was €1,093 million, excluding€461 million where the risk is considered to be remote. In manycases, the risk is limited to a specific portion of the residual
value of the aircraft. The remaining Airbus Gross Asset Value
Exposure is recorded on-balance sheet.

A significant portion of EADS’ revenues are denominated in
U.S. Dollars (approximately U.S.$27.6 billion at Airbus in 2006),
with approximately half of such currency exposure ‘naturally
hedged’ by U.S. Dollar- denominated costs. The remainder ofcosts is incurred primarily in Euro, and to a lesser extent, inPounds Sterling. Consequently, to the extent that EADS does
not use financial instruments to hedge its net current and futureexchange rate exposure from the time of a customer order to thetime of delivery, its profits will be affected by market changes inthe exchange rate of the U.S. Dollar against these currencies. As
EADS intends to generate profits only from its operations andnot through speculation on foreign currency exchange rate
movements, EADS uses hedging strategies solely to manage andminimise the impact on its EBIT* from the volatility of the U.
S. Dollar. See “1.1.4 Measurement of Management’s
Performance — EBIT* Performance by Division — Hedging
Impact on EBIT*”. See also “1. Financial Market Risks —Exposure to Foreign Currencies”.

Net Exposure. The present value of the risk inherent to thegiven asset value guarantees, where a settlement is considered
to be probable, is fully provided for and included in the total
amount of provisions for asset value risks of €633 million. This
provision covers a potential expected shortfall between theestimated value of the aircraft of the date upon which theguarantee can be exercised and the value guaranteed on a

As EADS uses financial instruments to hedge its net foreign
currency exposure, the portion of its U.S. Dollar-denominatedrevenues not hedged by financial instruments (approximately
30% of total consolidated revenues) is exposed to changes inexchange rates. Of this non-hedged portion of revenues, acertain percentage (relating to customer pre-delivery payments)
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payment was received by EADS. The remainder of non-hedged
U.S. Dollar-denominated revenues (corresponding to payments
upon delivery) are subject to changes in the spot rate at thetime of delivery. See “1.1.3 Critical Accounting Considerations,
Policies and Estimates — Foreign Currency Translation”.
Exposure on aircraft sales. For products such as aircraft,
EADS typically hedges forecasted sales in U.S. Dollars related
to firm commitments and forecasted transactions. The hedged
items are defined as the first forecasted highly probable future
cash inflows for a given month based upon final payments atdelivery. The amount of the first flows to be hedged can cover
up to 100% of the equivalent of the net U.S. Dollar exposure atinception. For EADS, a forecasted transaction is regarded ashighly probable if the future delivery is included in the firm
order book or is very likely to materialise in view of contractual
evidence (e.g., a letter of intent). The coverage ratio is adjusted
to take into account macroeconomic movements affecting the
spot and interest rates, as applicable.
Exposure on non-aircraft business. For the non-aircraftbusiness, EADS typically hedges inflows and outflows of foreign
currencies from sales and purchase contracts in low volumes.
Exposure on treasury operations. In connection with its
treasury operations, EADS enters into foreign exchange swaps(notional amount of €3.8 billion at year-end 2006) to adjust for
short-term fluctuations of non-Euro cash balances at the BU
level. year-to- year changes in the fair market value of theseswaps are recorded on the consolidated statement of income inthe line item “other financial result”. These changes may have amaterial impact on EADS’ net income.
Embedded derivatives. EADS also has foreign currency
derivative instruments which are embedded in certain purchaseand lease contracts denominated in a currency other than thefunctional currency of the significant parties to the contract,
principally USD and GBP. Gains or losses relating to such
embedded foreign currency derivatives are reported in the line
item “other financial result”. These changes may have a material
impact on EADS’ net income. In addition, EADS hedges
currency risk arising from financial transactions in othercurrencies than EUR, such as funding transactions or securities.
Hedge Portfolio. EADS manages a long-term hedge portfoliowith a maturity of several years covering its net exposure to
U.S. Dollar sales, mainly from the activities of Airbus (and to alesser extent, of the Eurocopter Division, ATR, the DS
Division and the MTA Division). The net exposure is definedas the total currency exposure (U.S. Dollar-denominatedrevenues), net of the part that is “naturally hedged” by
U.S. Dollar-denominated costs. The hedge portfolio covers thevast majority of the Group’s hedging transactions.
For financial reporting purposes, EADS mostly designates a
portion of the total firm future cash flows as the hedged
position to cover its expected net foreign currency exposure.
Therefore, as long as the actual gross foreign exchange-cash
inflows (per month) exceed the portion designated as being
hedged, a postponement or cancellation of sales transactions
and corresponding cash inflows have no impact on the hedging
relationship. As hedging instruments, EADS primarily uses
foreign currency forwards.
The contract or notional amounts of EADS’ foreign exchange
derivative financial instruments shown below do not necessarily
represent amounts exchanged by the parties and, thus, are notnecessarily a measure for the exposure of the Group through its
use of derivatives.

The notional amounts of such foreign exchange derivative financial instruments are as follows, specified by year of expectedmaturity:
Year ended 31st December 2006
(in €m)Remaining period
Not exceeding 1 year

1 year up to 5 years

More than 5 years

Total

10,97022,120(4)

33,086

Purchased USD call options

333

295

0

628

Purchased USD put options

885

295

0

1,180

885

295

0

1,180

3,564

38

211

3,813

Foreign Exchange Contracts:
Net forward sales (purchase) contracts
Structured USD forward:

Written USD call options
FX swap contracts

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1.1.8.2	Interest Rates
EADS uses an asset and liability management approach withthe objective of limiting its interest rate risk. EADS attempts tomatch the risk profile of its assets with a corresponding liability
structure. The remaining net interest rate exposure is managed
through several types of instruments in order to minimise risks
and financial impacts. Therefore, EADS may use interest rate
derivatives for hedging purposes.
Hedging instruments that are specifically related to debt
instruments (such as the notes issued under the EMTN
programme and those relating to the financing of Paradigm)
have at most the same nominal amounts, as well as the same
maturity dates, as the corresponding hedged item.

Remaining period
Not exceeding 1 year

1 year up to 5 years

More than 5 years

Total

1,184

1,412

3,116

5,712

Interest rate swaps and caps

Since its creation, EADS has been in a positive net cash
position. As interest rate sensitivity analysis is mostly relevant
to large borrowers, EADS considers that the added value ofsuch analysis to an understanding of the Company’s interest
rate exposure is minimal. Such analysis has therefore not been

48

The contract or notional amounts of EADS’ interest rate
derivative financial instruments shown below do not necessarily
represent amounts exchanged by the parties and, thus, are notnecessarily a measure for the exposure of the Group through its
use of derivatives.
The notional amounts of such interest rate derivative financial
instruments are as follows, specified by expected maturity.

Year ended 31st December 2006
(in €m)Regarding the management of its cash balance, EADS invests
mainly in short-term instruments and/or floating rate
instruments in order to further minimise any interest risk in its
cash and securities portfolio.

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included herein, and the above table of interest rate derivatives
has not been correlated with the preceding table of financial
debt. As circumstances warrant, EADS will consider including
such an analysis in future Registration Documents.

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1.2 Financial Statements
The English versions of the following documents shall bedeemed to be incorporated in and form part of this Registration
Document:●

The consolidated financial statements (IFRS) and the financial
statements (Dutch GAAP) of EADS for the year ended 31st
December 2004 as included in “Part 1/1.2 Financial
Statements” of the Document de Référence filed in Frenchwith the Autorité des marchés financiers on 19th April 2005
and filed in English with the Chamber of Commerce ofAmsterdam; and●The consolidated financial statements (IFRS) and theCompany financial statements of EADS for the year ended
31st December 2005 as included in “Part 1/1.2 Financial
Statements” of the Registration Document filed in English
with, and approved by, the AFM on 26th April 2006 andfiled in English with the Chamber of Commerce ofAmsterdam.
Copies of the above-mentioned Document de Référence andRegistration Document are available free of charge upon request
in English, French, Spanish and German languages at theregistered office of the Company and on www.eads.com. Copiesof the financial statements referred to above are also available
in English on www.eads.com and for inspection at the Chamberof Commerce of Amsterdam.
EADS confirms that the reports of the auditors set forth insections 1.2.1 and 1.2.2 below (as well as those incorporated
by reference herein) have been accurately reproduced and thatas far as EADS is aware and is able to ascertain fromthe information provided by the auditors, no facts havebeen omitted which would render such reports inaccurate or
misleading.

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1.2.1 EADS N.V. Consolidated Financial Statements (IFRS)EADS N.V. Consolidated Income Statements (IFRS) for the years ended December 31st, 2006, 2005 and 2004(in €m)Note

Revenues

5,6

39,43434,206

31,761

Cost of sales

7(34,722)(27,530)(25,522)

Gross margin

4,712

6,676

6,239

Selling expenses

(914)

(832)

(798)

Administrative expenses(1,360)(1,351)(1,321)

Research and development expenses(2,458)(2,075)(2,126)

Other income

8

Other expenses
Share of profit from associates accounted for under the equity method

9

2006

2005

2004

297

222

314

(188)

(153)

(177)

152

210

88

Other income (expense) from investments

9

37

15

(4)

Profit before finance costs and income taxes

5

278

2,712

2,215

454

423

302

Interest expenses

(575)

(578)

(577)

Other financial result

(123)

(22)

(55)

(244)

(177)

(330)

Interest income

Total finance costs

10

Income taxes

11

81

(825)

(664)

115

1,710

1,221

Equity holders of the parent (Net income)

99

1,676

1,203

Minority interests

16

34

18

115

1,710

1,221

Profit for the period
Attributable to:Earnings per share

€

€

€

Basic

35

0.12

2.11

1.50

Diluted

35

0.12

2.09

1.50

20

open

0.65

0.50

Cash distribution per share (2006: proposal)

The accompanying notes are an integral part of these Consolidated Financial Statements (IFRS).

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EADS N.V. Consolidated Balance Sheets (IFRS) at December 31st, 2006 and 2005(in €m)AssetsNon-current assets
Intangible assets
Property, plant and equipment
Investment property
Investments in associates accounted for under the equity method
Other investments and long-term financial assets
Non-current other assets
Deferred tax assets
Non-current securities
Current assets
Inventories
Trade receivables
Current portion of long-term financial assets
Current other assets
Current tax assets
Current securities
Cash and cash equivalents
Non-current assets / disposal groups classified as held for sale
Total assets

Note

2006

2005

12
13
33
14
14
17
11
18

10,855
14,178
137
2,095
1,666
4,231
2,624
1,294
37,08011,052
13,817
134
1,908
1,938
3,610
2,980(1)1,011
36,450

15
16
14
17

16,892
4,852
103
4,014
428
549
8,143
34,981
76
72,137

15,425
4,802
237
3,201
237
4,189(2)5,386(2)33,477881
70,808

816
7,593
4,955
(349)
13,015
137
13,152818
8,699(1)
3,982
(445)
13,054
153(1)
13,207

21
22
24
11
26

9,063
3,561
11,5702,465
1,110
27,7697,997(1)
4,189
9,971
2,376
1,324
25,857

21
22
23
25
24

3,631
2,196
0
7,461
17,160218
486
31,15264
58,985
72,137

2,727
908
3,500
6,634
17,166174
573
31,68262
57,60170,80818

19

Equity and liabilities
Equity attributable to equity holders of the parent
Capital stockReserves
Accumulated other comprehensive income
Treasury shares
Minority interests
Total equity
Non-current liabilities
Non-current provisions
Long-term financial liabilities
Non-current other liabilities
Deferred tax liabilities
Non-current deferred income
Current liabilities
Current provisions
Short-term financial liabilities
Liability for puttable instruments
Trade liabilities
Current other liabilities
Current tax liabilities
Current deferred income
Liabilities directly associated with non-current assets classified as held for sale
Total liabilities
Total equity and liabilities

20

26
19

(1) For the retrospective application of the revised IAS 19 “Employee Benefits“ please refer to “Changes in Accounting Policies“ in Note 2 “Summary of significant accounting policies“.
(2) Regarding the retrospective change in presentation of “Cash and cash equivalents“ please refer to “Changes in Accounting Policies“ in Note 2 “Summary of significant accounting policies“.

The accompanying notes are an integral part of these Consolidated Financial Statements (IFRS).
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EADS N.V. Consolidated Statements of Cash Flows (IFRS) for the years ended December 31st, 2006,
2005 and 2004(in €m)

2006

2005

2004

Profit for the period attributable to equity holders of the parent(Net income)

Note

99

1,676

1,203

Profit for the period attributable to minority interests

16

34

18

1,691

1,653

1,621
(188)

Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortisation
Valuation adjustments and CTA release

426

261

Deferred tax expenses (income)

(193)

386

537

Change in tax assets, tax liabilities and provisions for actual income tax

(160)

63

(202)

Results on disposal of non-current assets

(336)

(170)

(8)

Results of companies accounted for by the equity method

(152)

(210)

(88)

Change in current and non-current provisions

2,150

175

(35)
2,155

Change in other operating assets and liabilities:

(143)

1,239

- Inventories(1,942)(3,264)

366

(7)

(388)

(403)

- Trade receivables- Trade liabilities- Advance payments received

686

666

756

1,564

4,237

1,823

- Other assets and liabilities

(444)

(12)

(387)

Cash provided by operating activities

3,398

5,107

5,013

(2,708)(2,818)(3,017)

76

101

36

(82)

(131)

(100)

86

89

0

(421)

(659)

(482)

813

485

492

46

36

36

- Increase in equipment of leased assets

(147)

(40)

(656)

- Proceeds from disposals of leased assets

215

256

74

- Increase in finance lease receivables

(16)

(219)

(261)

- Decrease in finance lease receivables
Disposals of non-current assets / disposal groups classified as held for sale andliabilities directly associated with non-current assets classified as held for sale

79

85

110

Investments:- Purchase of intangible assets, Property, plant and equipment- Proceeds from disposals of intangible assets, Property, plant and equipment- Acquisitions of subsidiaries and joint ventures (net of cash)

27- Proceeds from disposals of subsidiaries (net of cash)- Payments for investments in associates and other investments and long-term
financial assets- Proceeds from disposals of associates and other investments and long-term
financial assets- Dividends paid by companies valued at equity

Change of securities
Change in cash from changes in consolidation

690

0

0

3,357

1,008(1)(964)(1)0129Cash provided by (used for) investing activities

1,988(1,795)(4,723)

Increase in borrowings

1,252

456

1,302

Repayment of borrowings

(468)

(800)

(828)

Cash distribution to EADS N.V. shareholders

(520)

(396)

(320)

Dividends paid to minorities

(16)

0

0

(2,879)(3)

(93)

(64)

Payments related to liability for puttable instruments

23

Capital increase

94

187

43

Purchase of treasury shares

(35)

(288)

(81)

Cash (used for) provided by financing activities
Effect of foreign exchange rate changes and other valuation adjustments on
cash and cash equivalents(2,572)

(934)

52

(57)

17

(2)

Net increase in cash and cash equivalents

2,757

2,395(1)340(1)Cash and cash equivalents at beginning of period

5,386(1)(2)

2,991(1)(2)

2,651(1)(2)

Cash and cash equivalents at end of period

8,143

5,386

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The following represents supplemental information with respect to cash flows:(in €m)

2006

2005

2004

Interest paid

(271)

(242)

(367)

Income taxes paid, net

(239)

(265)

(302)

Interest received

380

313

329

Dividends received

64

55

57

(1) Regarding the retrospective change in presentation of “Cash and cash equivalents“ please refer to “Changes in Accounting Policies“ in Note 2 “Summary of significant accounting policies“.
(2) The previous figures for “Cash and cash equivalents“ have been reduced in 2005 by 4,160 M € and in 2004 by 5,727 M €.
(3) Payments include the acquisition price of 2,750 M € for the 20% stake in Airbus and in addition a dividend payment from Airbus to BAE Systems amounting to 129 M €.

The accompanying notes are an integral part of these Consolidated Financial Statements (IFRS).
For details, see Note 27, “Consolidated Statement of Cash Flows (IFRS)“.

EADS N.V. Consolidated Statements of Recognised Income and Expenses (IFRS)
for the years ended December 31st, 2006, 2005 and 2004(in €m)

2006

2005

2004

Foreign currency translation differences for foreign operations

(324)

(58)

(439)

Effective portion of changes in fair value of cash flow hedges

3,326(3,849)3,045

Net change in fair value of cash flow hedges transferred to profit or loss

(1,463)(1,875)(2,136)

Net change in fair value of available-for-sale financial assets

76

52

34

Actuarial losses on defined benefit plans(1) (2)

(690)

(459)

(275)

Tax on income and expense recognised directly in equity

(662)

2,203

(191)

Income and expenses recognised directly in equity

263(3,986)

38

Profit for the period

115

1,710

1,221

Total recognised income and expense of the period

378(2,276)1,259

Equity holders of the parent

382(2,295)

1,245

Minority interests

(4)

19

14

378

(2,276)

1,259

2005

2004

Equity holders of the parent

(275)

(163)

Minority interests

(13)

(3)

(288)

(166)

Attributable to:Total recognised income and expense of the period(in €m)Impact of change in accounting policy on other reserves for the year

(1)

Attributable to:Total recognised income and expense of the period(in €m)2004

Impact of change in accounting policy on other reserves at January 1(1)Actuarial losses on defined benefit plans(1)(384)

Tax thereon

143

Total actuarial losses recognised in equity(241)

Attributable to:Equity holders of the parent(235)

Minority interests(6)

Total impact(241)(1) For the retrospective application of the revised IAS 19 “Employee Benefits“ please refer to “Changes in Accounting Policies“ in Note 2 “Summary of significant accounting policies“ andto Note 21 b.) “Provisions for retirement plans“.
(2) Regarding the “Pension UK“ please refer to Note 21 b.) “Provisions for retirement plans“.

The accompanying notes are an integral part of these Consolidated Financial Statements (IFRS).
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Additional Information:
EADS N.V. Reconciliation of Movement in Capital and Reserves (IFRS)
for the years ended December 31st, 2006, 2005 and 2004
Equity attributable to equity holders of the parent(in €m)Accumulated
othercomprehensive
incomeTreasuryshares

Total

813

9,317

(2,268)

7,474

(187)

15,149
(235)

(6)

(241)

813

9,317

(2,503)

7,474

(187)

14,914120

15,034

1,041

204

1,245

14

1,259

Retrospective adjustments(235)

Balance at December 31, 2003, adjusted
Total recognised income and expenses
Capital increase

2

41

31

12

Cash distribution to EADS N.V. shareholders(320)

Purchase of treasury shares(81)

Cancellation of treasury shares

(5)

(86)

Balance at December 31, 2004

810

8,952

9

178

Total recognised income and expenses
Share-based Payment (IFRS 2)

31(1,450)

7,678

1,401

(3,696)

Cancellation of treasury shares

20

Balance at December 31, 2005

(1)

(19)
8,715

5

89

Total recognised income and expenses
Capital increase

20

Share-based Payment (IFRS 2)

31

Cancellation of treasury shares

20

Balance at December 31, 2006

(7)

(124)

816

8,160

(81)
15,947(2,295)0
19(2,276)

187

(16)

3,982

(591)

973

(567)

4,955

187

33

33

(396)

(396)

(288)

(288)

20

0

(445)

13,054153

13,207

382

(4)

378

Change in minorities
20

(320)

(81)
134

(520)

Purchase of treasury shares

(320)
0

40

Cash distribution to EADS N.V. shareholders / dividends
paid to minorities

12

15,813

(288)
818

43

12

91

(396)
20

43

(177)

33

Cash distribution to EADS N.V. shareholders
Purchase of treasury shares

15,275

Other
reserves

(1)

20

126

Share
premium

Note

Capital increaseTotal
equityCapitalstock

Balance at December 31, 2003

Share-based Payment (IFRS 2)

Minority
interests

0

94

94

40

40

(520)

(16)

0

4

(536)
4

(35)

(35)

(35)

131

0

0

(349)

13,015

137

13,152(1) For the retrospective application of the revised IAS 19 “Employee Benefits” please refer to “Changes in Accounting Policies” in Note 2 and to the “Consolidated Statements of Recognised Income
and Expenses”.

The accompanying notes are an integral part of these Consolidated Financial Statements (IFRS).

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Notes to the Consolidated Financial Statements (IFRS)Basis of Presentation
1.
2.
3.
4.

56

The company
Summary of significant accounting policies
Scope of consolidation
Acquisitions and disposals

56
56
66
67

Notes to the Consolidated Statements of Income (IFRS)

67

5. Segment Reporting6. Revenues
7. Functional costs
8. Other income
9. Share of profit from associates accounted for under the equity method and other income (expense) from investments
10. Total finance costs
11. Income taxes

67
71
71
71
72
72
72

Notes to the Consolidated Balance Sheets (IFRS)

76

12. Intangible assets
13. Property, plant and equipment14. Investments in associates accounted for under the equity method, other investments and long-term financial assets
15. Inventories
16. Trade receivables
17. Other assets
18. Securities
19. Non-current assets / disposal groups classified as held for sale
20. Total equity
21. Provisions22. Financial liabilities
23. Liability for puttable instruments
24. Other liabilities
25. Trade liabilities
26. Deferred income

76
80
83
84
85
85
86
86
86
88
92
94
94
95
95

Notes to the Consolidated Statements of Cash-Flows (IFRS)

95

27. Consolidated Statement of Cash Flows

95

Other Notes to the Consolidated Financial Statements (IFRS)

97

28. Litigation and claims
29. Commitments and contingencies
30. Information about financial instruments
31. Share-based Payment
32. Related party transactions33. Investment property
34. Interest in Joint Ventures
35. Earnings per Share
36. Number of Employees
37. Events after the balance sheet date

97
98
100
105
109
110
110
110
111
111

Appendix: Information on principal investments - Consolidation Scope

113

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Basis of Presentation
1. The company
The accompanying Consolidated Financial Statements present
the financial position and the result of the operations ofEuropean Aeronautic Defence and Space Company EADS N.V.
and its subsidiaries (“EADS” or the “Group”), a Dutch public
limited liability company (Naamloze Vennootschap) legallyseated in Amsterdam (Le Carré, Beechavenue 130-132, 1119 PR,
Schiphol-Rijk, The Netherlands). EADS’ core business is the
manufacturing of commercial aircraft, civil helicopters,commercial space launch vehicles, missiles, military aircraft,satellites, defence systems and defence electronics andrendering of services related to these activities. EADS has its
listings at the European Stock Exchanges in Paris, Frankfurt andMadrid. The Consolidated Financial Statements were authorisedfor issue by EADS’ Board of Directors on March 8th, 2007, areprepared and reported in Euro (“€”), and all values are rounded
to the nearest million appropriately, unless otherwise stated.

2. Summary of significant accounting policies
Basis of Preparation — EADS’ Consolidated Financial
Statements are prepared in accordance with International
Financial Reporting Standards (“IFRS”), adopted by theInternational Accounting Standards Board (“IASB”), as
endorsed by the European Union (EU). They comprise (i) IFRS,(ii) International Accounting Standards (“IAS”) and (iii)Interpretations originated by the International Financial
Reporting Interpretations Committee (“IFRIC”) or former
Standing Interpretations Committee (“SIC”). The Consolidated
Financial Statements generally have been prepared on ahistorical cost basis, except for the following items that havebeen measured at fair value: (i) derivative financial instruments,(ii) available-for-sale financial assets, (iii) accumulating Money
Market Funds that have been designated as financial assets atfair value through profit or loss (“Fair Value Option”, see
below) and (iv) assets and liabilities being hedged items in fairvalue hedges that are otherwise carried at cost and whosecarrying values are adjusted to changes in the fair values
attributable to the risks that are being hedged.
Use of Accounting Estimates — The preparation of theGroup Financial Statements in accordance with IFRS requires
management to use certain critical accounting estimates about
the future as well as to make assumptions and perform
judgements in the process of applying accounting policies.
These consequently affect the amounts of assets, liabilities,
income and expenses reported by EADS. Actual results insubsequent periods could differ from those accounting
estimates.
Subjects that involve critical assumptions and estimates and thathave a significant influence on the amounts recognised in EADS
Consolidated Financial Statements are further described anddisclosed in the respective Notes (see in particular below“Significant Accounting Policies” as well as, regarding deferred

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tax assets Note 11 “Income Taxes”; regarding goodwill
impairment Note 12 “Intangible Assets”; for impairment oftangible assets Note 13 “Property, Plant and Equipment”; Note
15 “Inventories”; regarding loss making contracts as well as
constructive obligations for settlement charges Note 21“Provisions”; Note 29 “Commitments and Contingencies” andNote 30 “Information about Financial Instruments”).

New Standards, Amendments to existing Standards
and new Interpretations
The IFRS rules applied by EADS for preparing 2006 year end
Consolidated Financial Statements are the same as for previous
financial year except for those following the application of new
or amended Standards or Interpretations respectively andchanges in accounting policies as detailed below.
a) New Standards
IFRS 6 Exploration for and Evaluation of Mineral Resources(issued 2004)
IFRS 6 became effective beginning of 2006 but is not relevantto the Group’s operations.
b) Amended Standards
The application of the following amended Standards is
mandatory for EADS as of January 1st, 2006.
IAS 19 Employee Benefits (issued 2004)
IAS 21 The Effects of Changes in Foreign Exchange Rates:“Net Investment in a Foreign Operation” (issued 2005)

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IAS 39 Financial Instruments: Recognition and Measurement:“The Fair Value Option” (issued 2005)“Financial Guarantee Contracts” (issued 2005)
The latter amendment also includes amendments to
IFRS 4 Insurance Contracts
The April 2005 amendment (“Cash Flow Hedge Accounting of
Forecast Intragroup Transactions”) to IAS 39, had been early
adopted by EADS and therefore already applied for 2005 year
end Consolidated Financial Statements.
c) New Interpretations
The following two Interpretations have become effective as ofJanuary 1st, 2006:
IFRIC 5 Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds (issued
2004)
IFRIC 6 Liabilities arising from Participating in a SpecificMarket—Waste Electrical and Electronic Equipment (issued
2005)
The two Interpretations are not relevant or material to theGroup’s operations.
IFRIC 4 “Determining whether an Arrangement contains alease” was issued in 2004 and had been early adopted by EADS
for annual periods beginning on January 1st, 2005.

Changes in Accounting Policies
IAS 19 Employee Benefits — Before 2006, EADS has
recognised actuarial gains and losses by applying the corridor
approach. The amendment to IAS 19 introduces the recognitionof actuarial gains and losses outside the income statement
within retained earnings as a third option (“Equity Option”). It
further adds new disclosure requirements. EADS has decided
to apply the newly introduced alternative for the recognition of
actuarial gains and losses arising from defined benefits plans inequity. Prior periods presented have been adjusted accordingly.
The application of this new option also involves thepresentation of the actuarial gains and losses in a Consolidated
Statement of Recognised Income and Expense (“SORIE”) in
EADS Consolidated Financial Statements. Transactions withowners in their capacity as such are excluded from the SORIE
and are presented in the Notes. (For the effect of the change inaccounting policy see Note 21b “Provisions for retirement
plans”).

IAS 21 The Effects of Changes in the Foreign Exchange
Rate — The amendment to IAS 21 results in the recognition of
all exchange differences arising from a monetary item that ispart of the Group’s net investment in a foreign operation in a
separate component of equity regardless of the currency inwhich the monetary item is denominated. This change has had
no significant impact on EADS Consolidated Financial
Statements.
IAS 39 Financial Instrument: Recognition andMeasurement — The IAS 39 amendment regarding the fairvalue option has restricted the latter’s use for financial assets
and liabilities. Within EADS, the fair value option has
previously only been exercised for designated accumulating
Money Market Funds as financial assets through profit or loss
which remains in line with the amended Standard. Hence, theamendment did not have an effect on EADS Consolidated
Financial Statements.
The IAS 39 amendment regarding financial guarantee contracts
amended the scope of IAS 39 to require financial guarantee
contracts that are not considered insurance contracts under
IFRS 4 to be recognised initially at fair value. Subsequent
measurement should equal the higher of the amountdetermined under IAS 37 “Provisions, Contingent Liabilities
and Contingent Assets” and the initial amount recognised less,when appropriate, cumulative amortisation recognised inaccordance with IAS 18 “Revenue”. This change did not yet
affect EADS Consolidated Financial Statements.
The associated amendment to IFRS 4 Insurance Contracts
did not affect EADS Consolidated Financial Statements.
Cash and Cash Equivalents — For 2006 year-end
Consolidated Financial Statements EADS restricted its
interpretation of the cash equivalents’ definition as provided in
IAS 7 “Cash Flow Statements” to better reflect its short term
investment strategy. IAS 7 states that “cash equivalents are held
for short-term cash commitments […], must be readily
convertible to a known amount of cash and be subject to an
insignificant risk of changes in value. Therefore, an investment
normally qualifies as a cash equivalent only when it has a shortterm maturity of, say, three months or less from the date ofacquisition.” EADS now strictly limits its cash equivalents tosuch investments having a maturity of three months or lessfrom acquisition date. Prior periods have been adjusted
accordingly as required under IAS 8 “Accounting Policies,
Changes in Accounting Estimates and Errors”. For the effectsof the revised accounting policy on EADS Consolidated Balance
Sheet and Statement of Cash Flows refer to Note 18“Securities”, Note 27 “Consolidated Statement of Cash Flows”
and Note 30c “Fair value of financial instruments”.

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New or amended IFRS Standards and Interpretations
issued but not yet applied
IFRS 7 “Financial Instruments: Disclosures” was issued in 2005
and becomes mandatory for EADS as of January 1st, 2007.
IFRS 8 “Operating Segments” (not yet endorsed) will replace
IAS 14 “Segment Reporting” for accounting periods beginningon or after January 1st, 2009.
EADS has decided not to opt for early adoption of these two
Standards.
The application of IFRS 7 will lead to additional disclosures
regarding the significance of EADS’ different financial
instruments as well as to the disclosure of sensitivity analysesof market risks arising from those financial instruments.
IFRS 8 requires the presentation of information regarding
operating segments and follows a pure management approach.
The impact, if any, of its application for the preparation of
EADS Consolidated Financial Statements has not yet been
finally assessed.
Amendment to IAS 1 “Presentation of Financial Statements”
that introduces new qualitative and quantitative disclosure
requirements regarding managing capital has been released inAugust 2005 and becomes mandatory to EADS as ofJanuary 1st, 2007.
IFRIC 7 “Applying the Restatement Approach under IAS 29”(issued 2005), IFRIC 8 “Scope of IFRS 2” (issued 2006),
IFRIC 9 “Reassessment of Embedded Derivatives” (issued
2006) and IFRIC 10 “Interim Financial Reporting andImpairment” (issued 2006 – not yet endorsed) will become
mandatory for EADS for annual periods beginning on January
1st, 2007, and are not expected to have an impact on the Group’s
accounts.
IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions”(issued 2006, not yet endorsed) and IFRIC 12 “Service
Concession Arrangements” (issued 2006, not yet endorsed) will
become mandatory for EADS for annual periods beginning on
January 1st, 2008. The impact of their application on EADS
Consolidated Financial Statements has not been definitively
assessed.

Significant Accounting Policies
The principal accounting policies applied in the preparation ofthese Consolidated Financial Statements are set out below.
These policies have been consistently applied to all years
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Consolidation — The Consolidated Financial Statements
include the subsidiaries of EADS. Subsidiaries are all entities
controlled by the Group, i.e. over which it has the power togovern financial and operating policies. An entity is presumed
to be controlled by EADS when EADS owns more than 50% of
the voting power of the entity which is generally accompaniedwith a respective shareholding. Potential voting rights currently
exercisable or convertible are also considered when assessing
control over an entity.
Special purpose entities (“SPEs”) are consolidated as any
subsidiary, when the relationship between the Group and the
SPE indicates that the SPE is in substance controlled by theGroup. SPEs are entities which are created to accomplish anarrow and well-defined objective. Subsidiaries are fully
consolidated from the date control has been transferred to
EADS and de-consolidated from the date control ceases.
Acquisitions of subsidiaries with an agreement date on or
before December 31st, 2003 have been accounted for by using
the purchase accounting method in accordance with IAS 22“Business combinations”.
Since January 1st, 2004, business combinations are accounted
for under the purchase accounting method as required by
IFRS 3 “Business combinations”; all identifiable assets acquired,liabilities and contingent liabilities incurred or assumed arerecorded at fair value at the date control is transferred to EADS
(acquisition date), irrespective of the existence of any minority
interest. The cost of a business combination is measured at thefair value of assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus
costs directly attributable to the acquisition. Any excess of thecost of the business combination over the Group’s interest in
the net fair value of the identifiable assets, liabilities andcontingent liabilities recognised is capitalised as goodwill andtested for impairment in the fourth quarter of each financial
year and whenever there is an indication for impairment. Afterinitial recognition goodwill is measured at cost less accumulated
impairment losses. For impairment testing goodwill is allocatedto those Cash Generating Units (“CGUs”) or group of CGUs within EADS on Business Unit (“BU”) level - that are expected
to benefit from the synergies arising from the businesscombination. If the cost of an acquisition is less than the fairvalue of the net assets of the subsidiary acquired, theidentification and measurement of the identifiable assets,
liabilities and contingent liabilities is reassessed as well as themeasurement of the cost of the combination. Any remaining
difference is immediately recognised in the Consolidated
Income Statement.
For investments EADS jointly controls (“joint ventures”) with
one or more other parties (“venturers”), EADS recognises its
interest by using the proportionate method of consolidation.

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Joint control is contractually established and requires
unanimous decisions regarding the financial and operating
strategy of an entity.
Investments in which EADS has significant influence(“investments in associates“) are accounted for using the equity
method and are initially recognised at cost. Significant influencein an entity is presumed to exist when EADS owns 20% to 50%of the entity’s voting rights. EADS’ share of the recognised
income and expenses of investments in associates is included in
the Consolidated Financial Statements from the date significant
influence has been achieved until the date it ceases to exist.
The effects of intercompany transactions are eliminated.
Acquisitions (disposals) of interest in entities that are controlled
by EADS without gaining (ceasing) control, irrespective ofwhether sole or joint control, are treated as transactions withparties external to the Group in accordance with the Parent
Company Approach. Consequently, gains or losses on purchases(disposals) from (to) minority shareholders or other venturers
respectively are recorded in goodwill (within the income
statement).

Foreign Currency Translation — The Consolidated Financial
Statements are presented in Euro, EADS’ functional andpresentation currency. The assets and liabilities of foreign
entities, where the reporting currency is other than Euro, aretranslated using period-end exchange rates, whilst thestatements of income are translated using average exchange rates
during the period, approximating the foreign exchange rate at
the dates of the transactions. All resulting translationdifferences are included as a separate component of total equity(“Accumulated other comprehensive income” or “AOCI”).
Transactions in foreign currencies are translated into Euro at theforeign exchange rate prevailing at transaction date. Monetary
assets and liabilities denominated in foreign currencies at thebalance sheet date are translated into Euro at the exchange ratein effect at that date. These foreign exchange gains and losses
arising from translation are recognised in the Consolidated
Income Statement. Non-monetary assets and liabilities
denominated in foreign currencies, which are stated at historicalcost, are translated into Euro at the foreign exchange rate ineffect at the date of the transaction.
Goodwill and fair value adjustments arising on the acquisitionof a foreign entity occurring after December 31st, 2004 aretreated as assets and liabilities of the acquired company and aretranslated at the closing rate. Regarding transactions prior tothat date, goodwill, assets and liabilities acquired are treated as
those of the acquirer.

Revenue Recognition — Revenue is recognised to the extent
that it is probable that the economic benefit arising from theordinary activities of the Group will flow to EADS, revenue canbe measured reliably and recognition criteria as stated below
have been met. Revenue is measured at the fair value of theconsideration received or receivable after deducting any
discounts, rebates and value added tax. For the preparation of
the Consolidated Income Statement intragroup sales are
eliminated.
Revenues from the sale of goods are recognised upon thetransfer of risks and rewards of ownership to the buyer whichis generally on delivery of the goods.
Revenues from services rendered are recognised in proportion
to the stage of completion of the transaction at the balance
sheet date. For construction contracts, when the outcome canbe estimated reliably, revenues are recognised by reference tothe stage (percentage) of completion (“PoC”) of the contract
activity. The stage of completion of a contract may be
determined by a variety of ways. Depending on the nature of
the contract, revenue is recognised as contractually agreed
milestones are reached, as units are delivered or as the work
progresses. Whenever the outcome of a construction contract
cannot be estimated reliably, revenue is only recognised to theextent of the expenses incurred that are recoverable. Changes in
profit rates are reflected in current earnings as identified.
Contracts are reviewed regularly and in case of probable losses,
provisions are recorded.
Sales of aircraft that include asset value guarantee commitments
are accounted for as operating leases when these commitments
are considered substantial compared to the fair value of therelated aircraft. Revenues then comprise lease income from suchoperating leases.
Interest income is recognised as interest accrues, using theeffective interest rate method.
Dividend income is recognised when the right to receive
payment is established.

Leasing — The determination of whether an arrangement is orcontains a lease is based on the substance of the arrangement
and requires an assessment of whether (i) the fulfilment of thearrangement is dependent on the use of a specific asset or assets,and (ii) the arrangement conveys a right to use the asset.
The Group is a lessor and a lessee of assets, primarily inconnection with commercial aircraft sales financing. Leasetransactions where substantially all risks and rewards incident
to ownership are transferred from the lessor to the lessee areaccounted for as finance leases. All other leases are accounted
for as operating leases.

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Assets held for leasing out under operating leases are included
in property, plant and equipment at cost less accumulated
depreciation (see Note 13 “Property, plant and equipment”).
Rental income from operating leases (e.g. aircraft) is recorded asrevenue on a straight-line basis over the term of the lease.
Assets leased out under finance leases cease to be recognised in
the Consolidated Balance Sheet after the inception of the lease.
Instead, a finance lease receivable representing the discounted
future lease payments to be received from the lessee plus any
discounted unguaranteed residual value is recorded as long-term
financial assets (see Note 14 “Investments in associates
accounted for under the equity method, other investments andlong-term f﻿﻿inancial assets”). Unearned finance income isrecorded over time in “Interest result”. Revenues and therelated cost of sales are recognised at the inception of thefinance lease.
Assets obtained under finance leases are included in property,
plant and equipment at cost less accumulated depreciation andimpairment if any (see Note 13 “Property, Plant andEquipment”), unless such assets have been further leased out tocustomers. In such a case, the respective asset is either qualified
as an operating lease or as a finance lease with EADS being thelessor (headlease-sublease-transactions) and is recorded
accordingly. For the relating liability from finance leases see
Note 22 “Financial liabilities”. When EADS is the lessee underan operating lease contract, rental payments are recorded when
they fall due (see Note 29 “Commitments and Contingencies”
for future operating lease commitments). Such leases often
form part of commercial aircraft customer financing transactions
with the related sublease being an operating lease (headleasesublease-transactions).
EADS considers headlease-sublease-transactions which are set
up for the predominant purpose of tax advantages and which
are secured by bank deposits (defeased deposits) that correspondwith the contractual headlease liability to be linked andaccounts for such arrangements as one transaction in accordancewith SIC 27 “Evaluating the Substance of Transactions
Involving the Legal Form of a Lease”. To reflect the substanceof the transaction, the Group consequently offsets (head)finance lease obligations with the matching amount of defeased
deposits.

Product-Related Expenses — Expenses for advertising andsales promotion and other sales-related expenses are charged to
expense as incurred. Provisions for estimated warranty costs arerecorded at the time the related sale is recorded.
Research and Development Expenses — Research anddevelopment activities can be (i) contracted or (ii) self-initiated.
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development contracts, are expensed when the related
revenues are recorded.
ii) Costs for self-initiated research and development activities
are assessed whether they qualify for recognition asinternally generated intangible assets. Apart from complying
with the general requirements for and initial measurementof an intangible asset, qualification criteria are met only
when technical as well as commercial feasibility can bedemonstrated and cost can be measured reliably. It must also
be probable that the intangible asset will generate future
economic benefits and that it is clearly identifiable andallocable to a specific product.
Further to meeting these criteria, only such costs that relatesolely to the development phase of a self-initiated project arecapitalised. Any costs that are classified as part of the researchphase of a self-initiated project are expensed as incurred. If theresearch phase cannot be clearly distinguished from thedevelopment phase, the respective project related costs aretreated as if they were incurred in the research phase only.
Capitalised development costs are generally amortised over theestimated number of units produced if no other procedurereflects the consumption pattern more appropriately, such as fordevelopment costs that have been capitalised during thedevelopment phase of a new aircraft. These are generally
amortised over the estimated useful life of the internallygenerated intangible asset commencing once type certification
has been achieved. Amortisation of capitalised development
costs is recognised in cost of sales. Internally generated
intangible assets are reviewed for impairment annually when
the asset is not yet in use and further on whenever events orchanges in circumstances indicate that the carrying amount may
not be recoverable.
Income tax credits granted for research and development
activities are deducted from corresponding expenses or from
capitalised amounts when earned.

Intangible Assets — Intangible assets comprise (i) internallygenerated intangible assets, i.e. internally developed softwareand other internally generated intangible assets (see above:“Research and Development Expenses”), (ii) acquired intangible
assets, and (iii) goodwill (see above: “Consolidation”).
Separately acquired intangible assets are initially recognised atcost. Intangible assets acquired in a business combination arerecognised at their fair value at acquisition date. Acquired
intangible assets are generally amortised over their respective
estimated useful lives (3 to 10 years) on a straight-line basis.
Intangible assets having an indefinite useful life are notamortised but tested for impairment at the end of each financial
year as well as whenever there is an indication that the carrying
amount exceeds the recoverable amount of the respective asset

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Back to Contents(see below “Impairment of non-financial assets”). For suchintangible assets the assessment for the indefinite useful life isreviewed annually on whether it remains supportable. A change
from indefinite to finite life assessment is accounted for aschange in estimate.

Property, Plant and Equipment — Property, plant andequipment is valued at acquisition or manufacturing costs lessany accumulated depreciation and any accumulated impairment
losses. Such costs include the estimated cost of replacing,
servicing and restoring part of such property, plant andequipment. Items of property, plant and equipment are
generally depreciated on a straight-line basis. The costs ofinternally produced equipment and facilities include directmaterial and labour costs and applicable manufacturing
overheads, including depreciation charges. Borrowing costs are
not capitalised. The following useful lives are assumed:buildings 6 to 50 years; site improvements 6 to 20 years;
technical equipment and machinery 3 to 20 years; and otherequipment, factory and office equipment 2 to 10 years. The
useful lives and depreciation methods applying to property,
plant and equipment are reviewed periodically and in case theychange significantly, depreciation charges for current and future
periods are adjusted accordingly. If the carrying amount of anasset exceeds its recoverable amount an impairment loss isrecognised immediately in profit or loss. At each reporting date,
it is assessed whether there is any indication that an item ofproperty, plant and equipment may be impaired (see also below“Impairment of non-financial assets”).
When a major inspection is performed, its cost is recognised in
the carrying amount of the plant and/or equipment as areplacement if the recognition criteria are satisfied. The carrying
amount of the replaced part is derecognised.
Costs of an item of property, plant and equipment initiallyrecognised comprise the initial estimate of costs of dismantling
and removing the item and restoring the site on which it islocated at the end of the useful life of the item on a present
value basis. A provision presenting the asset retirement
obligation is recognised in the same amount at the same date inaccordance with IAS 37 “Provisions, Contingent Liabilities andContingent Assets”.
Property, plant and equipment also includes capitalised
development costs for tangible developments of specialised
tooling for production such as jigs and tools, design,
construction and testing of prototypes and models. In caserecognition criteria are met, these costs are capitalised andgenerally depreciated using the straight-line method over 5
years or, if more appropriate, using the number of production
or similar units expected to be obtained from the tools (sum-ofthe-units method). Especially for aircraft production programs
such as the Airbus A380 with an estimated number of aircraft

to be produced using such tools, the sum-of-the-units method
effectively allocates the diminution of value of specialised tools
to the units produced.

Investment Property — Investment property is property, i.e.
land or buildings, held to earn rentals or for capital appreciation
or both. The Group accounts for investment property using thecost model. Investment property is initially recognised at costand subsequently measured at cost less any accumulated
depreciation and any accumulated impairment losses. Buildings
held as investment property are depreciated on a straight-line
basis over their useful lives. The fair value of investment
property is reviewed annually by using cash-flow models or bydeterminations of open market prices.
Inventories — Inventories are measured at the lower ofacquisition cost (generally the average cost) or manufacturing
cost and net realisable value. Manufacturing costs comprise allcosts that are directly attributable to the manufacturing process,such as direct material and labour, and production related
overheads (based on normal operating capacity and normal
consumption of material, labour and other production costs),
including depreciation charges. Borrowing costs are notcapitalised. Net realisable value is the estimated selling price inthe ordinary course of the business less applicable variable
selling expenses.
Impairment of Non-Financial Assets — The Group assesses
at each reporting date whether there is an indication that a nonfinancial asset may be impaired. In addition, intangible assets
with an indefinite useful life, intangible assets not yet available
for use and goodwill are tested for impairment in the fourth
quarter of each financial year irrespective of whether there is
any indication for impairment. An impairment loss isrecognised in the amount by which the asset’s carrying amountexceeds its recoverable amount.
The recoverable amount of an asset or a Cash Generating Unit
(CGU) is the higher of its fair value less costs to sell and its
value in use. The recoverable amount is determined for anindividual asset, unless the asset does not generate cash inflowsthat are largely independent of those from other assets or groupof assets. In such a case the recoverable amount is determined
for the CGU the asset belongs to. Where the recoverable
amount of a CGU to which goodwill has been allocated islower than the CGU’s carrying amount, the related goodwill is
impaired accordingly.
The value in use is assessed by the present value of the future
cash flows expected to be derived from an asset or a CGU. Cashflows are projected based on a detailed forecast approved bymanagement over a period reflecting the operating cycle of thespecific business. The discount rate used for determining an
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assessment of (i) the time value of money and (ii) the risk
specific to the asset for which the future cash flow estimateshave not been adjusted.
An asset’s fair value less costs to sell reflects the amount anentity could obtain at balance sheet date from the asset’s
disposal in an arm’s length transaction between knowledgeable,
willing parties, after deducting the costs of disposal. If there isno binding sales agreement or active market for the asset its fairvalue is assessed by the use of appropriate valuation models
dependent on the nature of the asset, such as by the use of
discounted cash flow models.
Impairment losses recognised for goodwill are not reversed infuture periods. For any other non-financial asset an impairment
loss recognised in prior periods is reversed through profit orloss up to its recoverable amount provided that there has been achange in estimates used to determine the asset’s recoverable
amount since the last impairment loss has been recognised. The
respective asset’s carrying amount is increased to its recoverable
amount, taking into account any amortisation or depreciationthat would have been chargeable on the asset’s carrying amountsince the last impairment loss.

Investments and Other Financial Assets — EADS’
investments comprise investments in associates accounted forunder the equity method, other investments and long-term
financial assets as well as current and non current securities andcash equivalents. The Group classifies its financial assets in thefollowing three categories: i) at fair value through profit or loss,ii) loans and receivables and iii) available-for-sale financial assets.
Their classification is determined by management when firstrecognised and depends on the purpose for their acquisition.
Financial assets are initially recognised at fair value plus, in thecase of an investment not at fair value through profit or loss,
directly attributable transaction costs. Financial assets at fairvalue through profit or loss are initially recognised at fair value,transaction costs are recognised in the Consolidated Income
Statement.
Within EADS, all investments in unconsolidated entities areclassified as non-current available-for-sale financial assets. They
are included in the line other investments and long-term
financial assets in the Consolidated Balance Sheet.

gain or loss previously recognised in equity is recorded as partof “other income (expense) from investments” in theConsolidated Income Statement for the period. Interest earnedon the investment is presented as interest income in theConsolidated Income Statement using the effective interest
method. Dividends earned on investment are recognised as“Other income (expense) from investments” in theConsolidated Income Statement when the right to the payment
has been established.
Financial assets may be designated at initial recognition at fairvalue through profit or loss if any of the following criteria ismet: (i) the financial asset contains one or more embedded
derivatives that otherwise had to be accounted for separately; or(ii) the designation eliminated or significantly reduces ameasurement or recognition inconsistency that would otherwise
arise from measuring the assets or recognising the gains andlosses on them on a different basis (sometimes referred to as“natural hedge”); or (iii) the financial assets are part of a groupof financial assets that is managed and its performance isevaluated on a fair value basis, in accordance with adocumented risk management or investment strategy. Within
EADS, investments in accumulating Money Market Funds aredesignated at “fair value through profit or loss” in accordancewith above criterion (iii).
The fair value of quoted investments is based on current market
prices. If the market for a financial asset is not active (and forunlisted securities), the Group establishes fair value by using
generally accepted valuation techniques on the basis of market
information available at the reporting date. Available-for-sale
equity investments that do not have a quoted market price in an
active market and whose fair value cannot be reliably estimatedby alternative valuation methods, such as discounted cash flow
model, are measured at cost, less any accumulated impairment
losses. All purchases and sales of securities are recognised on
settlement date according to market conventions. The
settlement date is the date an asset is delivered to or by anentity.

The majority of the Group’s securities are debt securities andclassified as available-for-sale financial assets.

Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money, goods orservices directly to a debtor with no intention of trading thereceivable. Loans and receivables are classified as tradereceivables and other investments and long-term financial
assets.

Financial assets classified as available-for-sale are accounted forat fair value. Unrealised gains and losses on available-for-salefinancial assets are recognised directly within AOCI, a separate
component of total equity, net of applicable deferred income
taxes. As soon as such financial assets are sold or otherwise
disposed of, or are determined to be impaired, the cumulative

The Group assesses at each balance sheet date whether there is
any objective evidence that a financial asset or a group offinancial assets may be impaired. Equity investments classified
as available-for-sale are considered for impairment in case of asignificant or prolonged decline of their fair value below theircost. Any impairment loss recognised in the Consolidated

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Income Statement on equity instruments is not reversed
through the Consolidated Income Statement.

Trade Receivables — Trade receivables include claims arisingfrom revenue recognition that are not yet settled by the debtor
as well as receivables relating to construction contracts. Trade
receivables are initially recognised at fair value and, provided
they are not expected to be realised within one year, aresubsequently measured at amortised cost using the effective
interest method less any allowance for impairment. Gains andlosses are recognised in the Consolidated Income Statement
when the receivables are derecognised or impaired as well as
through the amortisation process. If it is probable that theGroup is not able to collect all amounts due according to theoriginal terms of receivables, an impairment charge has to berecognised. The amount of the impairment loss is equal to thedifference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the original
effective interest rate, i.e. the rate that exactly discounts the
expected stream of future cash payments through maturity or
the next market-based repricing date to the current net carrying
amount of the financial asset. The carrying amount of the tradereceivable is reduced through use of an allowance account. The
loss is recognised in the Consolidated Income Statement. If, in
a subsequent period, the amount of impairment decreases andthe decrease is objectively related to an event occurring after
the impairment was recognised, the recognised impairment loss
is reversed through profit or loss.
Cash and Cash Equivalents — Cash and cash equivalents
consist of cash on hand, cash in bank, checks, fixed deposits andsecurities having maturities of three months or less from thedate of acquisition, that are readily convertible to known
amounts of cash and which are subject to an insignificant riskof changes in value.
Non-current Assets held for sale — Non-current assets (ordisposal groups) are classified as assets held for sale and statedat the lower of carrying amount and fair value less costs to sell
if their carrying amount is recovered principally through a saletransaction rather than through a continuing use. Liabilities
directly associated with non-current assets held for sale in adisposal group are presented separately on the face of theConsolidated Balance Sheet.
Derivative Financial Instruments — Within EADS
derivative financial instruments are (a) used for hedging
purposes in micro-hedging strategies to offset the Group’s
exposure to identifiable transactions and are (b) a component ofhybrid financial instruments that include both the derivativeand host contract (“Embedded Derivatives”).
In accordance with IAS 39 “Financial Instruments: Recognition
and Measurement”, derivative financial instruments arerecognised and subsequently measured at fair value. The
method of recognising resulting gains or losses depends onwhether the derivative financial instrument has been designatedas hedging instrument, and if so, on the nature of the item
being hedged. While derivative financial instruments withpositive fair values are recorded in current and non-current“other assets”, such derivative financial instruments withnegative fair values are recorded as current and non-current“Provisions for financial instruments”.

a) Hedging: The Group seeks to apply hedge accounting to all
its hedging activities. Hedge accounting recognises
symmetrically the offsetting effects on net profit or loss ofchanges in the fair values of the hedging instrument and therelated hedged item. The conditions for such a hedging
relationship to qualify for hedge accounting include: The hedgetransaction is expected to be highly effective in achieving
offsetting changes in fair value or cash flows attributable to thehedged risk, the effectiveness of the hedge can be reliably
measured and there is formal designation and documentation of
the hedging relationships and EADS’ risk management
objective and strategy for undertaking the hedge at the
inception of the hedge. The Group further documents
prospectively at the inception of the hedge as well as at eachclosing retrospectively and prospectively its assessment of
whether the derivatives used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows ofhedged items with regard to the hedged risk.
Depending on the nature of the item being hedged, EADS
classifies hedging relationships that qualify for hedge
accounting as either (i) hedges of the fair value of recognised
assets or liabilities (“Fair Value Hedges”), (ii) hedges of thevariability of cash flows attributable to recognised assets or
liabilities, highly probable forecast transactions or unrecognised
firm commitments (“Cash Flow Hedges”) or(iii) hedges of a net investment in a foreign entity.
i) Fair Value Hedge: Fair value hedge accounting is mainly
applied to certain interest rate swaps hedging the exposure
to changes in the fair value of recognised assets andliabilities. For derivative financial instruments designated asfair value hedges, changes in fair value of both the hedging
instrument and the hedged asset or liability attributable tothe hedged risk are simultaneously recognised in theConsolidated Income Statement.
ii) Cash Flow Hedge: The Group applies cash flow hedge
accounting generally to foreign currency derivative contracts
on future sales as well as to certain interest rate swaps
hedging the variability of cash flows attributable torecognised assets and liabilities. Changes in fair value of thehedging instruments related to the effective part of thehedge are reported in AOCI, a separate component of total
equity, net of applicable income taxes and recognised in the

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Consolidated Income Statement in conjunction with theresult of the underlying hedged transaction, when realised.
The ineffective portion is immediately recorded in “Profit
for the period”. Amounts accumulated in equity arerecognised in profit or loss in the periods when the hedgedtransaction affects the income statement, such as when theforecast sale occurs or when the finance income or financeexpense is recognised in the income statement. If hedgedtransactions are cancelled, gains and losses on the hedging
instrument that were previously recorded in equity are
generally recognised in “Profit for the period”.
iii) Net investment Hedge: Hedges of net investments inforeign entities are accounted for similarly to cash flow
hedges. Any gain or loss on the hedging instrument relating
to the effective portion of the hedge is recognised in AOCI;
the gain or loss relating to the ineffective portion isrecognised immediately in the Consolidated Income
Statement. Gains and losses accumulated in AOCI are
included in the Consolidated Income Statement when theforeign entity is disposed of.
In case certain derivative transactions, while providing effective
economic hedges under the Group’s risk management policies,
do not qualify for hedge accounting under the specific rules of
IAS 39 “Financial Instruments: Recognition and Measurement“,changes in fair value of such derivative financial instruments arerecognised immediately in “Profit for the period”.
b) Embedded derivatives: Derivative components embedded
in a non-derivative-host contract are separately recognised andmeasured at fair value if they meet the definition of a
derivative and their economic risks and characteristics are notclearly and closely related to those of the host contract.
Changes in the fair value of the derivative component of these
instruments are recorded in “Other financial result”.
See Note 30 “Information about financial instruments” for a
description of the Group’s financial risk management strategies,
the fair values of the Group’s derivative financial instruments
as well as the methods used to determine such fair values.
Income Taxes — Tax expense (tax income) is the aggregate
amount included in the determination of net profit or loss forthe period in respect of (i) Current tax and (ii) Deferred tax.
i) Current tax is the amount of income taxes payable orrecoverable in a period. Current income taxes are calculated
applying respective tax rates on the periodic taxable profit or
tax loss that is determined in accordance with rules
established by the competent taxation authorities. Current
tax liabilities are recognised for current tax to the extent
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due to current and prior periods. The benefit of a tax loss
that can be carried back to recover current tax of a previous
period is recognised as an asset provided that the related
benefit is probable and can be measured reliably.
ii) Deferred tax assets and liabilities reflect lower or higher
future tax consequences that result from temporary
valuation differences on certain assets and liabilities between
their financial statements’ carrying amounts and theirrespective tax bases, as well as from net operating losses andtax credit carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates to be applied to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognisedin the period the new rates are enacted or substantiallyenacted. As deferred tax assets anticipate potential future tax
benefits, they are recorded in the Consolidated Financial
Statements of EADS only to the extent that it is probablethat future taxable profits will be available against which
deferred tax assets will be utilised. The carrying amount ofdeferred tax assets is reviewed at each financial year end.

Provisions — Provisions are recognised when the Group has apresent obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation and a
reliable estimate of the obligation’s amount can be made.
When the effect of the time value of money is material,
provisions are measured at the present value of the expenditure
expected to be required to settle the Group’s present obligation.
As discount factor, a pre-tax rate is used that reflects current
market assessments of the time value of money and the risks
specific to the obligation. The provision’s increase in each period
reflecting the passage of time is recognised as finance cost.
Provisions are reviewed at each closing and adjusted as
appropriate to reflect the respective current best estimate. Thechange in the measurement of a provision for an asset
retirement obligation (see above “Property, Plant andEquipment”) is added or deducted from the cost of therespective asset that has to be dismantled and removed at theend of its useful life and the site on which it is locatedrestored.
Provisions for financial guarantees corresponding to aircraft
sales are recorded to reflect the underlying risk to the Group in
respect of guarantees given when it is probable that an outflow
of resources embodying economic benefits will be required tosettle the obligation and reliable estimates can be made of theamount of the obligation. The amount of these provisions is
calculated to cover the difference between the Group’s exposureand the estimated value of the collateral.

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Outstanding costs are provided for at the best estimate of
future cash outflows. Provision for other risks and charges
relate to identifiable risks representing amounts expected to berealised.
Provisions for contract losses are recorded when it becomesprobable that estimated contract costs based on a total cost
approach will exceed total contract revenues. Contractual
penalties are included in the contractual margin calculation.
Provisions for loss making contracts are recorded as writedowns of work-in-process for that portion of the work which
has already been completed, and as provisions for theremainder. Losses are determined on the basis of estimatedresults on completion of contracts and are updated regularly.
Provisions for i) constructive obligations and liquidated
damages caused by delays in delivery and for ii) terminating
existing customer orders are based on best estimates of future
cash outflows for anticipated payments to customers. Provisions
for litigation and claims are set in case legal actions,
governmental investigations, proceedings and other claims are
pending or may be instituted or asserted in the future against
the Group which are a result of past events, where it isprobable that an outflow of resources embodying economic
benefits will be required for the settlement and a reliable
estimate of the obligation’s amount can be made.
Restructuring provisions are recognised when a detailed
formal plan for the restructuring has been developed and theplan’s main features have already been announced to thoseaffected by it.

Employee Benefits — The valuation of pension and postretirement benefits classified as defined benefit plans is based
upon the projected unit credit method in accordance with IAS
19 “Employee Benefits”.
EADS now recognises actuarial gains and losses in accordancewith the equity approach of IAS 19.93A that has been newly
introduced with the 2004 amendment of IAS 19. Consequently,
the Group recognises periodical actuarial gains and losses in full
for all its defined benefit plans immediately in retained earnings
and presents them in its SORIE.
Past Service Costs are recognised as an expense in EADS
Consolidated Income Statements on a straight-line basis over
the average period until the benefits become vested. Past service
costs relating to benefits already vested are expensed
immediately.
When sufficient information is available to apply defined
benefit accounting in conjunction with a defined benefit multiemployer plan, the Group proportionally accounts for the plan
according to its share in the related defined benefit plan.

Contributions to defined contribution plans are recognised as
expenses in profit or loss when they are due.
Several German Group companies provide life time working
account models, being employee benefit plans with a promised
return on contributions or notional contributions that qualify
as other long-term employee benefits under IAS 19. The
employees’ periodical contributions into their life time working
accounts lead to according personnel expense in that period in
the income statement but to no recognition of plan assets orprovision in the balance sheet.
Termination benefits are payable whenever an employee’s
employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy inexchange for these benefits. The Group recognises termination
benefits when it is demonstrably committed to either terminate
the employment of current employees according to a detailed
formal plan without possibility of withdrawal or to provide
termination benefits as a result of an offer made to encourage
voluntary redundancy.
Stock options are accounted for in accordance with IFRS 2“Share-based Payment” and qualify as equity settled sharebased payments. Associated services received are measured atfair value and are calculated by multiplying the number of
options expected to vest with the fair value of one option as ofgrant date. The fair value of the option is determined byapplying the Black Scholes Option Pricing Model.
The fair value of the services is recognised as personnel expense
and a corresponding increase in consolidated retained earnings
over the vesting period of the respective plan.
Part of the grant is conditional upon the achievement of nonmarket performance objectives and will only vest provided thatthe performance conditions are met. If it becomes obvious
during the vesting period that some of the performance
objectives will not be met and, hence, the number of equity
instruments expected to vest differs from that originally
expected, the expense is adjusted accordingly.
EADS offers to its employees to buy under the employee stock
ownership plan (ESOP) EADS shares at a certain discount. The
difference between the exercise price and the corresponding
share price is recognised as personnel expense in EADS
Consolidated Income Statements at grant date.

Emission Rights and Provisions for in-excess-emission —Under the EU Emission Allowance Trading Scheme (EATS)
national authorities have issued on January 1st, 2005 permits(emission rights), free of charge, that entitle participatingcompanies to emit a certain amount of greenhouse gas over thecompliance period.

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The participating companies are permitted to trade thoseemission rights. To avoid a penalty a participant is required todeliver emission rights at the end of the compliance period
equal to its emission incurred.
EADS recognises a provision for emission in case it has caused
emissions in excess of emission rights granted. The provision ismeasured at the fair value (market price) of emission rights
necessary to compensate for that shortfall at each balance sheet
date.
In absence of any specific authoritative guidance under IFRS,
emission rights held by EADS are generally accounted for as
intangible assets, wherebyi) Emission rights allocated for free by national authorities areaccounted for as a non-monetary government grant at its
nominal value of nil.
ii) Emission rights purchased from other participants areaccounted for at cost or the lower recoverable amount; if
they are dedicated to offset a provision for in excess
emission, they are deemed to be a reimbursement right andare accounted for at fair value.

Trade Liabilities — Trade liabilities are initially recorded atfair value. Trade liabilities having a maturity of more thantwelve months are subsequently measured at amortised costusing the effective interest method.
Financial Liabilities — Financial liabilities are recorded
initially at the fair value of the proceeds received, net oftransaction costs incurred. Subsequently, financial liabilities aremeasured at amortised cost using the effective interest-methodwith any difference between proceeds (net of transaction costs)
and redemption amount being recognised in “Other financial
result” over the period of the financial liability.

Liability for Puttable Instruments — Since January 1st, 2005,
EADS applies revised IAS 32 “Financial Instruments: Disclosureand Presentation”. Amongst others, revised IAS 32 provides
modified guidance whether a share in an entity should beclassified as equity or as financial liability. Accordingly, undercertain circumstances, an entity shall record a financial liability
rather than an equity instrument for the exercise price of awritten put option on the entity’s equity.
Refundable Advances — Refundable advances from European
Governments are provided to the Group to finance research anddevelopment activities for certain projects on a risk-sharing
basis, i.e. they have to be repaid to the European Governments
according to the success of the project. Because of their risksharing basis, such refundable advances are recorded as “Other
Liabilities”.
Litigation and Claims — Various legal actions, governmental
investigations, proceedings and other claims are pending or may
be instituted or asserted in the future against the Group.
Litigation is subject to many uncertainties, and the outcome ofindividual matters is not predictable with assurance. EADS
believes that it has made adequate provisions to cover current orcontemplated litigation risks. It is reasonably possible that the
final resolution of some of these matters may require the Groupto make expenditures, in excess of established reserves, over an
extended period of time and in a range of amounts that cannot
be reasonably estimated. The term “reasonably possible” is usedherein to mean that the chance of a future transaction or event
occurring is more than remote but less than likely. Although
the final resolution of any such matters could have an effect on
the Group’s profit for the period for the particular reporting
period in which an adjustment of the estimated reserve would
be recorded, the Group believes that any such potential
adjustment should not materially affect its Consolidated
Financial Statements. For further details please refer to Note 28“Litigation and claims”.

3. Scope of consolidation
Perimeter of consolidation (December 31st, 2006) – The
Consolidated Financial Statements include, in addition to
EADS N.V.:●

212 (2005: 228) companies which are fully consolidated;●

31 (2005: 21) companies which are proportionately
consolidated;

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26 (2005: 21) companies which are investments in associates
and are accounted for using the equity method.

Significant subsidiaries, associates, and joint ventures are listed
in the appendix entitled “Information on principal
investments”.

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4. Acquisitions and disposalsa) Acquisitions
EADS acquired on August 3 , 2006 40% of the shares of the
Atlas Elektronik group, specialised in equipment and systems
for naval forces, which is consolidated proportionally. The
difference between the purchase price and the acquired net
assets (not finally determined) led to the recognition of a
goodwill of 41 M €.
rd

On October 13th, 2006, EADS acquired BAE Systems’ 20%
minority share in Airbus after BAE Systems had exercised theput option it held on its Airbus stake in June 2006. Before thetransaction, EADS was already controlling Airbus andconsequently fully consolidated this subsidiary.
In 2005, the Group acquired Nokia’s Professional Mobile
Radio- PMR activities (EADS Secure Networks Oy) from
Nokia.
Apart from those mentioned, other acquisitions by the Group
were not significant.

b) Disposals
On February 28th, 2006, 81% of LFK GmbH and TDW GmbH,
which had been fully consolidated by EADS, were sold to theEuropean Missile Group MBDA. MBDA is jointly owned by

BAE Systems (37.5%), EADS (37.5%) and Finmeccanica (25%). In
EADS consolidated financial statements, MBDA Group is
proportionately consolidated with 50%.
In 2005 EADS sold its 50% participation in TDA – Armements
S.A.S to Thales. Furthermore, EADS sold its Enterprise
Telephony Business, which comprises its civil
telecommunication activities to Aastra Technologies Limited,
Concord / Canada.
Apart from those mentioned, other disposals by the Group
were not significant.

c) Subsequent changes in value of assets and liabilities
acquired and cost of acquisition
For details regarding BAE Systems’ exercise of its put option
please refer to Note 23 “Liability for puttable instruments”.
In the current year, a tax audit of DASA for the years 1994
until 1999 was finalised. According to the EADS shareholders
agreement, the related tax expense was reimbursed byDaimlerChrysler AG. Thus deferred tax assets and goodwill
have been adjusted as of December 31st, 2006 in Defence &Security by 52 M € and in Headquarters by 12 M €.

Notes to the Consolidated Statements of Income (IFRS)
5. Segment Reporting
The Group operates in five divisions (segments) which reflect
the internal organisational and management structure according
to the nature of the products and services provided.
●

Airbus — Development, manufacturing, marketing and saleof commercial jet aircraft of more than 100 seats and thedevelopment and manufacturing of aircraft for military use.

●

Military Transport Aircraft — Development,
manufacturing, marketing and sale of military transport
aircraft and special mission aircraft.

●

Eurocopter — Development, manufacturing, marketing andsale of civil and military helicopters and maintenanceservices.

●

Defence & Security — Development, manufacturing,marketing and sale of missiles systems; military combat andtraining aircraft; provision of defence electronics, defencerelated telecommunications solutions; and logistics, training,
testing, engineering and other related services.
●

Astrium — Development, manufacturing, marketing andsale of satellites, orbital infrastructures and launchers; andprovision of space services.

The following tables present information with respect to theGroup’s business segments. Consolidation effects, the holding
function of EADS Headquarters and other activities notallocable to the divisions are disclosed in the column “HQ /Conso.”. “Other Businesses” comprises the development,
manufacturing, marketing and sale of regional turboprop
aircraft and light commercial aircraft, aircraft components aswell as civil and military aircraft conversion and maintenanceservices.
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Back to Contentsa) Business Segment Information for the year ended December 31st, 2006

(in €m)AirbusMilitary
Transport
Aircraft

Total revenues

25,190

2,200

3,803

5,864

3,212

1,257

30

41,556

Internal revenues

(820)

(226)

(155)

(557)

(10)

(336)

(18)

(2,122)

24,370

1,974

3,648

5,307

3,202

921

12

39,434

0

0

0

17

5

0

130

152

(572)

75

257

348

130

(288)

449

399

(148)(4)

0

0

0

0

(45)(2)0(193)(2,479)

(2)

(267)

(549)

(83)

(178)

227

(3,331)

Revenues
Income from associates
EBIT pre-goodwill impairment and exceptionals(see definition in Note 5c)thereof impairment charge for intangible assets
and property, plant and equipment
thereof additions to other provisions(see Note 21d)

Eurocopter

Defence &Security

Astrium

Other
Businesses

HQ/Conso.

Consolidated

Exceptionals(121)

Total finance costs(244)

Income tax benefit

81

Profit for the period

115

Attributable to:Equity holders of the parent (Net income)99

Minority interest

16

Other information
Identifiable segment assets (incl. goodwill)(1)thereof goodwill
Investments in associates
Segment liabilities(3)33,958

1,716

4,595

9,679

5,498

1,178

2,475

59,099

6,374

12

111

2,476

575

0

17

9,565

0

0

2

88

10

10

1,985

2,095

24,096

1,515

3,847

10,398

4,563

1,095

91

45,605

thereof provisions (see Note 21)

6,272

13

1,070

3,224

936

300

879

12,694

Capital expenditures (incl. leased assets)

1,750

121

110

214

462

68

130

2,855

Depreciation, amortisation

1,140

30

74

131

126

88

102

1,691

Research and development expenses

2,035

13

78

195

71

6

60

2,458

(1) Segment assets exclude current and deferred tax assets as well as cash and cash equivalents and securities.
(2) Impairment charges relate to Sogerma.
(3) Segment liabilities exclude current and deferred tax liabilities and interest bearing liabilities.
(4) Impairment charge relates mainly to the A380 program.

The “EBIT pre-goodwill impairment and exceptionals” includes
on HQ/Conso. level the elimination of an addition to theprovision for loss making contracts (352 M €) recognised in the
Airbus division in order to account for the positive margin of

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the A 400M contract on EADS group level. Due to the cost
increase of the contract, a negative catch-up in the amount of(66) M € had to be recognised on group level to adjust
previously accounted for EBIT for the years 2003 to 2006.

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Back to Contentsb) Business Segment Information for the year ended December 31st, 2005
Military
Transport
AircraftEurocopter

Defence &Security

Astrium

Other
Businesses(in €m)AirbusTotal revenues

22,179

763

3,211

5,636

2,698

1,155

33

35,675Internal revenues

(238)

(234)

(134)

(509)

(10)

(329)

(15)

(1,469)21,941

529

3,077

5,127

2,688

826

18

34,206

0

0

0

4

0

0

206

210

2,307

48

212

201

58

(171)

197

2,852

Revenues
Income from associates
EBIT pre-goodwill impairment and exceptionals(see definition below)

HQ/Conso.

Consolidated

Exceptionals(140)

Total finance costs(177)

Income tax charge(825)

Profit for the period

1,710

Attributable to:Equity holders of the parent (Net income)

1,676

Minority interest

34

Other information
Identifiable segment assets (incl. goodwill)(1)thereof goodwill
Investments in associates
Segment liabilities(2) (3)thereof provisions and employee benefit liabilities(3)33,226

1,642

4,076

9,287

4,911

1,320

2,543

57,005

6,987

12

111

2,469

559

0

29

10,167

0

0

0

31

0

10

1,867

1,908

20,553

1,581

3,209

10,218

4,512

989

4,094

45,156

4,205

14

927

3,031

1,006

247

1,294

10,724

Capital expenditures (incl. leased assets)

1,864

93

79

205

467

64

86

2,858

Depreciation, amortisation

1,131

41

68

146

117

55

95

1,653

Research and development expenses

1,659

18

70

207

58

6

57

2,075

(1) Segment assets exclude current and deferred tax assets as well as cash and cash equivalents and securities.
(2) Segment liabilities exclude current and deferred tax liabilities and interest bearing liabilities.
(3) For the retrospective application in the amount of 1,118 M € due to the revised IAS 19 “Employee Benefits” please refer to Note 2 “Changes in accounting policies”.

As a rule, inter-segment transfers are carried out on an arm´slength basis. Inter-segment sales predominantly take place between
Eurocopter, Defence & Security and Airbus; as the Eurocopter andDefence & Security divisions act as suppliers for Airbus aircraft.
Moreover, Airbus acts as a main supplier for the A400M program
which is led by the Military Transport Aircraft division.

Capital expenditures represent the additions to property, plantand equipment and to intangible assets (excluding additions togoodwill of 64 M € in 2006 and 168 M € in 2005; for further
details see Note 5e) “Capital expenditures”).

c) EBIT pre-goodwill impairment and exceptionals
EADS uses EBIT pre-goodwill impairment and exceptionals as a key indicator of its economic performance. The term “exceptionals”
refers to such items as depreciation expenses of fair value adjustments relating to the EADS merger, the Airbus Combination andthe formation of MBDA, as well as impairment charges thereon. EBIT pre-goodwill impairment and exceptionals is treated bymanagement as a key indicator to measure the segments’ economic performances.
(in €m)

2006

2005

2004

Profit before finance costs and income tax

278

2,712

2,215

Subsequent adjustment of goodwill (see Note 4 c.)

64

0

0

Exceptional depreciation (fixed assets)

57

136

212

Exceptional depreciation (others)
EBIT pre-goodwill impairment and exceptionals

0

4

5

399

2,852

2,432

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Back to Contentsd) Revenues by destination(in €m)

2006

2005

2004

France

4,271

3,511

3,326

Germany

4,126

3,235

4,322

United Kingdom

2,953

2,682

2,653

Spain

1,361

1,017

1,253

Other European Countries

4,465

3,126

2,974

North America

9,425

9,026

8,715

Asia/Pacific

7,857

7,734

4,938

Middle East

3,334

1,860

2,286

Latin America

1,213

645

505

Other Countries

429

1,370

789

Consolidated

39,43434,206

31,761

Revenues are allocated to geographical areas based on the location of the customer.

e) Capital expenditures(in €m)

2006

2005

France968

946

Germany789

962

United Kingdom

715

707

Spain

187

150

Other Countries

49

53

2,708

2,818

147

40

2,855

2,858

(in €m)

2006

2005

Capital expenditures excluding leased assets
Leased assets
Capital expendituresf) Property, plant and equipment by geographical area
Germany

3,909

3,852

France

3,548

3,140

United Kingdom

3,177

2,682

937

901

Spain
Other Countries
Property, plant and equipment by geographical area

615

857

12,186

11,432

Property, plant and equipment split by geographical area excludes leased assets (2006: 1,992 M € and 2005: 2,385 M €).

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6. Revenues
Revenues in 2006 reached 39,434 M € compared to 34,206 M €in 2005 and 31,761 M € in 2004. Revenues in 2006 increased incomparison to 2005 in all divisions. Despite less favourable
hedges compared to 2005, revenues increased mainly at Airbus,
Military Transport Aircraft, Eurocopter and Astrium.

Revenues are mainly comprised of sales of goods and services,
as well as of revenues associated with construction contracts
accounted for under the percentage-of-completion method,
contracted research and development and customer financing
revenues. For a breakdown of revenues by business segment
and geographical region, refer to Note 5 “Segment Reporting”.

Detail of Revenues:(in €m)

2006

2005

2004

39,43434,206

31,761

Thereof revenues from the delivery of goods & services

31,48728,64926,208Thereof revenues from construction contracts

7,001

4,706

4,816

Total revenues

The revenues from construction contracts increase in 2006 mainly in the Military Transport Aircraft division resulting from the
A400M as well as in Defence & Security, Eurocopter and Astrium.

7. Functional costs
Included in cost of sales and other functional costs are Cost of materials (including changes in inventories) of 26,267 M € (2005:
20,800 M €; 2004: 19,734 M €).
Cost of sales include the amortisation expenses of fair value adjustments of fixed assets and inventories in the amount of 57 M €(2005: 136 M €; 2004: 217 M €); these are relating to the EADS merger, the Airbus Combination and the formation of MBDA.
Personnel expenses are:(in €m)

2006

2005

2004

Wages, salaries and social contributions

8,397

8,108

7,617

Net periodic pension cost (see Note 21 b)
Total

334

377

327

8,731

8,485

7,944

The decrease in the EADS gross margin from 6,676 M € to 4,712 M € reflects among others charges for A380 / A350 programs.

8. Other income(in €m)

2006

2005

2004

Other income

297

222

314

Thereof rental income

47

48

42

Thereof income from sales of fixed assets

23

39

20

Thereof release of allowances

3

9

34

Other income in 2006 includes the gain from the sale of LFK GmbH and TDW GmbH in the amount of 111 M €, whereas in2004 the release of the provision for the VT 1 claim in the amount of 106 M € was included.

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9. Share of profit from associates accounted for under the equity method and other income(expense) from investments(in €m)

2006

2005

Share of profit from associates

152

210

88

Other income (expense) from investments

37

15

(4)

189

225

84

Total

The share of profit from associates accounted for underthe equity method in 2006 is mainly derived from the resultof the equity investment in Dassault Aviation of 130 M €(2005: 205 M €; 2004: 78 M €). The Dassault Aviation Group
reported in 2006 a net income of 281 M € of which EADS
recognised an amount of 130 M € according to its share of
46.3%. In 2005 the equity investment income from Dassault

2004

Aviation also included a positive catch up of 64 M € relating toprior year financial performance in accordance with IFRS.
In 2006, other income from investments includes the capitalgain of 17 M € from the sale of the 13% stake in Diehl BGTDefence GmbH & Co. KG.

10. Total finance costs
Interest result in 2006 comprises interest income of 454 M €(2005: 423 M €; 2004: 302 M €) and interest expense of(575) M € (2005: (578) M €; 2004: (577) M €). Included ininterest income is the return on cash and cash equivalents,
securities and financial assets such as loans and finance leases.
The previous years’ interest income and interest expense havebeen netted by 53 M € in 2005 and 50 M € in 2004 to becomparable with the current presentation for interest rate
swaps. Interest expense includes interest on European

Government refundable advances of 266 M € (2005: 236 M €;2004: 245 M €) and on financial liabilities.
Other financial result in 2006 includes among others negative
exchange effects of Airbus (136) M € (positive impact in 2005:
147 M €) which was only partly compensated by a positive
impact from the fair value measurement of embedded
derivatives not used in hedging relationships in the amount of
46 M € (2005: (108) M €; 2004: (10) M €).

11. Income taxes
The benefit from (expense for) income taxes is comprised of the following:(in €m)

2006

2005

2004

Current tax expense

(112)

(439)

(127)

Deferred tax benefit / (expense)

193

(386)

(537)

Total

81

(825)

(664)

The Group’s parent company, EADS N.V., legally seated in
Amsterdam, The Netherlands, applies Dutch tax law using an
income tax rate of 29.6% for December 31st, 2006 (for 2005:
31.5% and for 2004: 34.5%). In 2006, a new tax law was enacted
reducing the income tax rates from 2007 onwards to 25.5%.
Accordingly, deferred tax assets and liabilities for the Group’s
Dutch entities were calculated using the respective enacted
rates. All foreign subsidiaries however apply their national tax
rates, among others Great Britain 30%.

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In France, the corporate tax rate in effect for 2004 was 33 1/3%
plus surcharges of 3% (“contribution additionelle”) and 3.3%(“contribution sociale”). In 2004, the French Finance Law (FFL)
for 2005 was enacted resulting in a reduction of the“contribution additionelle” to 1.5% in 2005 and nil for 2006
onwards. Accordingly, the applied tax rate for 2006 in France is34.43% (2005: 34.93%; in 2004: 35.43%). Deferred tax assets
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calculated at December 31st, 2006 and 2005 using the enacted
tax rate of 34.43% for temporary differences.
For the Group’s German subsidiaries, income taxes arecalculated using a federal corporate tax rate of 25.0% for
December 31st, 2006, plus (i) an annual solidarity surcharge of
5.5% on the amount of federal corporate taxes payable and (ii)the after federal tax benefit rate for trade tax of 12.125% for2006. In aggregate, the tax rate applied to German income taxes
amounts to 38.5% in 2006, 2005 and 2004.
With respect to the Spanish subsidiaries, the Spanish
government enacted on November 28th, 2006 a change in thecorporate income tax rate for the years 2007 and 2008. As ofJanuary 1st, 2007 the corporate income tax rate in Spain will
decrease from 35% to 32.5% and from 2008 onwards to 30%.
(in €m)Accordingly, deferred tax assets and liabilities of the Group’s
Spanish entities were calculated using the enacted tax rate of
32.5% for temporary differences that reverse in 2007 and 30.0%
for temporary differences with a reversal scheduled in 2008 or
later.
The following table shows a reconciliation from the theoreticalincome tax expense – using the Dutch corporate tax rate of
29.6% as at December 31st, 2006, 31.5% at December 31st, 2005
and 34.5% at December 31st, 2004 – to the reported tax expense.
The reconciling items represent, besides the impact of tax rate
differentials and changes, non-taxable benefits or nondeductible expenses arising from permanent differences
between the local tax base and the reported financial statements
according to IFRS rules.

2006

2005

2004

Profit before income taxes

34

2,535

1,885

* Corporate income tax rate

29.6%

31.5%

34.5 %

Expected (expense) for income taxes

(10)

(799)

(650)

Change in valuation allowances

(198)

(14)

(11)

Change of tax rate

85

(1)

(21)

Effects from tax rate differentials

65

(54)

(15)

Income from investments

103

62

26

Tax credit for R&D expenses

34

35

80

Other

2

(54)

(73)

Reported tax income (expense)

81

(825)

(664)

The change in valuation allowances reflects the updated
assessment regarding the recoverability of the deferred tax
assets for a tax paying entity in the foreseeable future. In 2006,
valuation allowances have increased for Airbus while some werepartly released in Astrium.

Deferred income taxes are the result of temporary differences
between the carrying amounts of certain assets and liabilities in
the financial statements and their tax bases. Future tax impacts
from net operating losses and tax credit carry forwards are also
considered in the deferred income tax calculation.

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Deferred income taxes are related to the following assets and liabilities:
Deferred tax assets(in €m)2006

Deferred tax liabilities
2005

2006

Net, December 31,

2005

2006

2005

Intangible assets

14

14

(209)

(157)

(195)

(143)

Property, plant and equipment

106

114

(1,224)(1,270)(1,118)(1,156)

Investments and long-term financial assets

51

56

(97)

(234)

(46)

(178)

Inventories

669

470

(227)

(445)

442

25

Receivables and other assets

87

54(2,445)(1,733)(2,358)(1,679)Prepaid expenses

1

2

(23)

(30)

(22)

(28)

Provision for retirement plans

1,043

1,101

0

0

1,043

1,101

Other provisions

944

974

(71)

(70)

873

904

Liabilities

782

977

(508)

(288)

274

689

Deferred income

529

504

(24)

(24)

505

480

(1)

Net operating loss and tax credit carry forwards

1,425

1,122

0

0

1,425

1,122

Deferred tax assets / (liabilities) before netting(1)

5,651

5,388

(4,828)(4,251)

823

1,137

Valuation allowances on deferred tax assets
Set-off
Net Deferred tax assets / (liabilities)(1)

Thereof less than one year
Thereof more than one year

(1)

(664)

(533)

0

0

(664)

(533)

(2,363)(1,875)

2,363

1,875

0

0

2,624

2,980

(2,465)(2,376)

159

604

416

864

(616)

(432)

(200)

432

2,208

2,116

(1,849)(1,944)359

172(1) In the course of the retrospective application of the revised IAS 19 “Employee Benefits” (see Note 2 “Summary of significant accounting policies”) deferred tax assets of the prior year have beenadjusted in the amount of 423 M €.
In 2006 no deferred tax asset has been recognised for the Airbus part with regard to the BAE Systems UK pension plans.

The amount of the Group’s deferred tax assets’ allowances isbased upon management’s estimate of the level of deferred tax
assets that will be realised in the foreseeable future. In future
periods, depending upon the Group’s financial results,
management’s estimate of the amount of the deferred tax assets
considered realisable may change, and hence the write-down ofdeferred tax assets may increase or decrease. Companies in
deficit situations in two or more subsequent years recorded a

total deferred tax asset balance of 102 M € (in 2005: 83 M €).
Assessments show that these deferred tax assets will berecovered in future through either (i) own projected profits, or(ii) profits of other companies integrated in the same fiscal group(“regime integration fiscal” in France, “steuerliche Organschaft”
in Germany) or (iii) via the “loss surrender-agreement” in GreatBritain.

Deferred taxes on Net Operating Losses and Tax Credit carry forwards:(in €m)FranceGermany

Spain

UK

Other
countries

December31, 2006

December31, 2005

Net Operating Losses (NOL)

1,160

920

4

1,292

138

3,514

2,780

Trade tax loss carry forwards

-

880

-

-

-

880

612

Tax credit carry forwards

-

-

249

-

-

249

217

Tax effect

399

350

250

388

38

1,425

1,122

Valuation allowances

(46)

(128)

-

(333)

(6)

(513)

(307)

Deferred tax assets on NOL’s and tax
credit carry forwards

353

222

250

55

32

912

815

NOLs, capital losses and trade tax loss carry forwards are indefinitely usable in France, Germany and in Great Britain. In Spain,
NOLs and tax credit carry forwards expire after 15 years. The first tranche of tax credit carry forwards (2 M €) will expire in 2014.

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Roll forward of deferred taxes:(in €m)

2006

2005

Net deferred tax asset / (liability) beginning of the year604

(1,586)

-

252

604

(1,334)Retrospective change in accounting policy regarding IAS 19 (for further details please see in Note 2“Changes in accounting policies”)
Restated net deferred tax asset / (liability) beginning of the year
Deferred tax income (expense) in income statement

193

(386)

Deferred tax recognised directly in AOCI (IAS 39)

(638)

2,032

Variation of Defined benefit plan actuarial losses

(68)

171

Change in accounting estimate regarding IAS 19 BAES pension plan (MBDA UK)

44-

OthersNet deferred tax asset at year end

24

121

159

604

2006

2005

The deferred tax recognised directly in equity is as follows:(in €m)Available-for-sale investments
Cash flow hedges
Defined benefit plan actuarial losses(1) (2)
Total

(6)

(3)

(1,705)(1,070)399

423(1,312)(650)(1) For the retrospective application of the revised IAS 19 “Employee Benefits” please refer to “Changes in accounting policies” in Note 2 “Summary of significant accounting policies” and to
Note 21 b) “Provisions for retirement plans”.
(2) Regarding the “Pension UK” please refer to Note 21 b) “Provisions for retirement plans”.

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Notes to the Consolidated Balance Sheets (IFRS)
12. Intangible assets
A schedule detailing gross values, accumulated depreciation and net values of intangible assets as of December 31st, 2006
is as follows:
Cost
Exchangedifferences

Additions

Changes in
consolidation
scope

Reclassification(in €m)Balance atJanuary 1,
2006

Goodwill

11,306

2

64

15

0

Capitalised development costs

Disposals(677)(1)Balance at
December 31,
2006

10,710

466

3

411

0

5

0

885

1,023

0

161

23

(8)

(59)

1,140

12,795

5

636

38

(3)

(736)

12,735

Exchangedifferences

Amortisation
chargeChanges in
consolidation
scope

Reclassification

Disposals(in €m)Balance atJanuary 1,
2006

Balance at
December 31,
2006

Goodwill(1,139)

0

0

(6)

0

0

(1,145)

Other intangible assets
Total

Amortisation/Impairment

Capitalised development costs

(4)

0

(7)

0

(1)

0

(12)

(600)

0

(196)

10

8

55

(723)

(1,743)

0

(203)

4

7

55

(1,880)Exchangedifferences

Additions

Changes in
consolidation
scope

Reclassification

Disposals(in €m)Balance atJanuary 1,
2006

Balance at
December 31,
2006

Goodwill

10,167

2

64

9

0

Capitalised development costs

462

3

404

0

Other intangible assets

423

0

(35)

33

11,052

5433

42Other intangible assets
Total

Net book value

Total(677)(1)

9,565

4

0

873

0

(4)

417

4

(681)

10,855(1) Subsequent adjustment of cost of Airbus business combination in the amount of (613) M € and finalisation of tax audit of (64) M € (see below for further details).

Additions to goodwill in 2006 mainly concern the acquisitionof 40% of the shares of the Atlas Elektronik group. The
difference between the purchase price and the preliminary
estimated value of the acquired net assets led to the recognitionof a goodwill of 41 M €.

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On June 7th, 2006 BAE Systems exercised a put option to sell
its 20% stake in Airbus at a fair value of 2,750 M € to EADS
(accounted at December 31st, 2005 with 3,500 M €).
The transaction became effective as of October 13th, 2006. In
accordance with the Airbus shareholders’ agreement, an

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independent investment bank has determined the purchaseprice. Compared to 2005’s contingent consideration of the
Airbus business combination, the acquisition cost of the 20%
stake in Airbus was reduced, leading to a decrease in goodwill
by 613 M € after taking into consideration a dividend payment
to BAE Systems of 129 M € in 2006 and transaction costs.

In the current year, a tax audit of DASA for the years 1994
until 1999 was finalised. According to the EADS shareholders
agreement the related tax expense was reimbursed byDaimlerChrysler AG. Thus deferred tax assets and goodwill
have been adjusted as of December 31st, 2006 in Defence &Security by 52 M € and Headquarters by 12 M €.

A schedule detailing gross values, accumulated depreciation and net values of intangible assets as of December 31st, 2005
is as follows:
Cost
Balance at
December31, 2004(as reported)

Change inaccounting
policies(1)Balance atJanuary 1,
2005(restated)

Exchangedifferences

10,607541

11,1481

168

Capitalised development costs

172

0

172

1

292

0

2

(1)

466

Other intangible assets

837

0

837

4

212

(3)

35

(62)

1,023

11,616541

12,157

6

672

(12)

37

(65)

12,795

Balance at
December31, 2004(as reported)

Change inaccounting
policies(1)Balance atJanuary 1,
2005(restated)

Exchangedifferences

AmortiChanges insation consolidation
chargescope

Reclassi­
fication

Disposals

Balance at
December31, 2005(1,147)0(1,147)

(3)

0

9

0

2

(1,139)

(3)

0

(3)

0

(2)

0

0

1

(4)

(458)

0

(458)

(2)

(185)

2

(14)

57

(600)

(1,608)0(1,608)

(5)

(187)

11

(14)

60

(1,743)

Balance at
December31, 2004 (asreported)

Change inaccounting
policies(1)Balance atJanuary 1,
2005(restated)

Exchangedifferences

Changes in
Additions consolidation
scope

Reclassi­
fication

Disposals

Balance at
December31, 2005

9,460

541

10,001

(2)

168

0

0

0

10,167

169

0

169

1

290

0

2

0

462

(in €m)Goodwill

Total

Changes in
Additions consolidation
scope

(9)

Reclassi­
fication

Disposals

Balance at
December31, 2005

0(2)

11,306

Amortisation/Impairment(in €m)Goodwill
Capitalised development costs
Other intangible assets
Total

Net book value(in €m)Goodwill
Capitalised development costs
Other intangible assets
Total

379

0

379

2

27

(1)

21

(5)

423

10,008541

10,549

1

485

(1)

23

(5)

11,052(1) The change in accounting policy relates to the “Liability for puttable instruments”, please refer to “Changes in accounting policy” in Note 23 “Liability for puttable instruments”.

Additions to goodwill in 2005 mainly concern the contingent
consideration with regard to the Airbus business combinationin the amount of 93 M € resulting from the application of
IAS 32 “Financial Instruments: Disclosure and Presentation”(revised 2004) regarding the “Liability for puttable instruments”.
Furthermore the acquisition of Nokia’s Professional Mobile
Radio – PMR activities (EADS Secure Networks Oy)
contributed an addition to goodwill of 44 M €.
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Goodwill impairment tests
EADS performed impairment tests on Cash Generating Unit (CGU) level (on segment level or one level below) in the fourth
quarter of the financial year.
As of December 31st, 2006 and 2005, goodwill was allocated to Cash Generating Units, which is summarised in the following
schedule on segment level:

Airbus(in €m)Military
Transport
AircraftEurocopter

Defence& Security

Astrium

Other
Businesses

HQ/
Conso.

Consolidated

Goodwill as of December 31, 2006

6,374

12

111

2,476

575

0

17

9,565

Goodwill as of December 31, 2005

6,987

12

111

2,469

559

0

29

10,167The discounted cash flow method has been applied as a primaryvaluation approach to determine the value in use of the CGUs.
Generally, cash flow projections used for EADS impairment testing
are based on current operative planning.
The current operative planning takes into account general economic
data derived from external macroeconomic and financial studies.
The operative planning assumptions reflect for the periods underreview specific inflation rates and future labour expenses in theEuropean Countries where the major production facilities arelocated. Regarding the expected future labour expenses, an increaseon average of 3% was implied. In addition, future interest rates arealso projected per geographical market, for the European Monetary
Union, Great Britain and the USA.
EADS follows an active policy of foreign exchange risk hedging. As
of December 31st, 2006 the total hedge portfolio with maturities up
to 2011 amounts to 45 billion US$ and covers a major portion of
the foreign exchange exposure expected over the period of theoperative planning (2007 to 2011). The average US$/€ hedge rate of
the total hedge portfolio until 2011 amounts to 1.16 US$/€. For thedetermination of the operative planning in the Cash Generating
Units other than Airbus (for Airbus, see below), management
assumed future exchange rates of 1.30 US$/€ for 2007 and 1.35
US$/€ from 2008 onwards and 0.69 GBP/€ for 2007 and 0.70
GBP/€ from 2008 to convert in € the portion of future US$ and
GBP denominated revenues which are not hedged. Foreign exchange
exposure arises mostly from Airbus and to a lesser extent from theother EADS divisions.
The assumption for the perpetuity growth rate used to calculate theterminal values in general amounts to 2% and has remained
unchanged from prior years. These current forecasts are based on
past experience as well as on future expected market developments.
Airbus segment

For the purpose of impairment testing, Airbus segment is
considered as a single CGU. The goodwill allocated to Airbus

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relates to the contribution of Airbus UK, Airbus Germany andAirbus Spain into Airbus as of 2001.
The impairment test for Airbus has been conducted based on a fairvalue less cost to sell methodology. The main assumptions and therecoverable amount obtained have been compared for reasonablenessto market data.
The assessment was based on the following key specificassumptions, which represent EADS management current best
assessment as of the date of these consolidated financial statements:●

To reflect the Airbus long-term operating cycle, the detailed
planning period for Airbus’ projected cash flows has been
extended from the current 2007 operative planning to 14
years using Airbus long term product policy. The terminal
value has been based on a normative view extrapolated fromthis internal current long term plan. Eventually, the market
is assumed to be equally shared between Airbus and Boeing
over the long term plan period.

●

Cash flow projections include all of the estimated costs
savings of the Power 8 program.

●

The US$ denominated cash flows were discounted using aweighted average cost of capital after-tax (WACC) of 9.2%,
while the Euro denominated cash flows’ after-tax WACC was
8.5%. US$ discounted flows were then converted into € using
the Euro/US Dollar market spot rate (for the terminal value,
the forward rate applied is 1.50 US$/€).

With regard to the assessment of the fair value less cost to sell
for the Cash Generating Unit Airbus, EADS management
believes that no reasonably possible change in the above key
assumptions would cause the carrying value of Airbus toexceed its then-determined recoverable amount. However, therecoverable amount is highly dependent on the achievement of
the Power 8 cost savings’ program and the terminal value.

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Other EADS segments

The impairment test for all other Cash Generating Units was
based on the value in use calculation computed by applying a
pre-tax discount rate of 11.2%. Cash flow projections are basedon current operative planning covering a five-year planning
period.
For the Defence & Security division, an increase in revenues isassumed in the operative planning. This is fuelled by today’sorder book, as for example Eurofighter deliveries backed by
Tranche two contract and by expected awards of futurecontracts. Operating margin of the division is expected toincrease over the operative planning period thanks to the
expected volume growth and benefits from initiatedrestructuring measures.
The order book of the Astrium division as of December 31st,
2006 (including satellites, launchers, ballistic missiles andmilitary telecom services) supports the strong revenue increase

which is assumed for this division over the operative planning
period. The current development and production of the Skynet
V satellites and ground infrastructure is weighing on EADS
Astrium Division’s cash flows until these spacecraft arelaunched and operated to generate a ramped up level ofrevenues from the UK Ministry of Defence (MoD).
The recoverable amounts based on value in use have exceeded
the carrying amounts of the Cash Generating Units underreview, indicating no goodwill impairment for 2006 and 2005.

Development Costs
EADS has capitalised development costs in the amount of
873 M € as of December 31st, 2006 (462 M € as of December
31st, 2005) as internally generated intangible assets mainly for
the Airbus A380 program.

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13. Property, plant and equipment
Schedules detailing gross values, accumulated depreciation and net values of property, plant and equipment show the following asof December 31st, 2006:
Cost
Balance atJanuary 1,
2006

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassification

Disposals

Balance at
December31, 2006

Land, leasehold improvements and buildings
including buildings on land owned by others

5,739

(2)

175

1

314

(85)

6,142

Technical equipment and machinery

8,178

(28)

385

17

1,653(1)(142)

10,063

Other equipment, factory and officeequipment

6,238

(233)

315

(30)

(767)(1)

(456)

5,067

Advance payments relating to plant andequipment as well as construction in progress

3,474

27

1,404

(8)

(1,259)

(20)

3,618

23,629

(236)

2,279

(20)

(59)

(703)

24,890

Balance atJanuary 1,
2006

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassification

Disposals

Balance at
December31, 2006

Land, leasehold improvements and buildings
including buildings on land owned by others(2,096)

2

(285)

0

(8)

68

(2,319)Technical equipment and machinery(4,568)

3

(869)

(11)

(576)(2)135(5,886)

Other equipment, factory and officeequipment(3,104)

103

(289)

30

619(2)

179(2,462)

(44)

0

0

0

(1)

0

(45)

(9,812)108(1,443)

19

34

382

(10,712)

Balance atJanuary 1,
2006

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassification

Disposals

Balance at
December31, 2006

Land, leasehold improvements and buildings
including buildings on land owned by others

3,643

0

(110)

1

306

(17)

3,823

Technical equipment and machinery

3,610

(25)

(484)

6

1,077(3)

(7)

4,177

Other equipment, factory and officeequipment

3,134

(130)

26

0

(148)(3)

(277)

2,605

Advance payments relating to plant andequipment as well as construction in progress

3,430

27

1,404

(8)

(1,260)

(20)

3,573

13,817

(128)

836

(1)

(25)

(321)

14,178(in €m)

Total

Depreciation(in €m)Advance payments relating to plant andequipment as well as construction in progress
Total

Net book value(in €m)Total(1) Reclassification of the at cost value from “other equipment, factory and office equipment” to “technical equipment and machinery” to harmonise presentations in the amount of 848 M €.
(2) Reclassification of the cumulative depreciation from “other equipment, factory and office equipment” to “technical equipment and machinery” to harmonise presentations in the amount of 587 M €.
(3) Reclassification of the net book value from “other equipment, factory and office equipment” to “technical equipment and machinery” to harmonise presentations in the amount of 261 M €.

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Schedules detailing gross values, accumulated depreciation and net values of property, plant and equipment show the following asof December 31st, 2005:
Cost
Balance at
December31, 2004(as reported)

Change inaccounting
policies(1)/Presentation

Balance atJanuary 1,
2005(restated)

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassi­
fication

Disposals

Balance at
December31, 2005

Land, leasehold improvements andbuildings including buildings on land
owned by others

5,496

(172)

5,324

21

185

(5)

252

(38)

5,739

Technical equipment and machinery

6,682

44

Other equipment, factory and officeequipment

6,726

199

632

(4)

666

(41)

8,178

6,321

9

6,330

390

214

(8)

(205)

(483)

6,238

Advance payments relating to plant andequipment as well as construction inprogress

3,236

0

3,236

24

1,323

0

(1,103)

(6)

3,474

21,735(119)21,616

634

2,354

(17)

(390)

(568)

23,629Balance at
December31, 2004(as reported)

Change inaccounting
policies(1)/Presentation

Balance atJanuary 1,
2005(restated)

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassi­
fication

Disposals

Balance at
December31, 2005

Land, leasehold improvements andbuildings including buildings on land
owned by others(1,973)87(1,886)

0

(243)

5

18

10

(2,096)

Technical equipment and machinery(3,934)0(3,934)

(82)

(583)

4

3

24

(4,568)Other equipment, factory and officeequipment(2,879)(76)(2,955)

(169)

(411)

17

143

271

(3,104)

(44)

0

(44)

0

0

0

0

0

(44)

(8,830)11(8,819)(251)(1,237)

26

164

305

(9,812)

Balance at
December31, 2004(as reported)

Change inaccounting
policies(1)/Presentation

Balance atJanuary 1,
2005(restated)

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassi­
fication

Disposals

Balance at
December31, 2005

Land, leasehold improvements andbuildings including buildings on land
owned by others

3,523

(85)

3,438

21

(58)

0

270

(28)

3,643

Technical equipment and machinery

2,748

44

2,792

117

49

0

669

(17)

3,610

Other equipment, factory and officeequipment

3,442

(67)

3,375

221

(197)

9

(62)

(212)

3,134

Advance payments relating to plant andequipment as well as construction inprogress

3,192

0

3,192

24

1,323

0

(1,103)

(6)

3,430

12,905(108)

12,797

383

1,117

9

(226)

(263)

13,817(in €m)

Total

Depreciation(in €m)Advance payments relating to plant andequipment as well as construction inprogress
Total

Net book value(in €m)Total(1) Through the application of the revised IAS 16 “Property, Plant and Equipment” (component approach and asset retirement obligation) the opening balance as of December 31 st, 2004 wasadjusted retrospectively by an amount of (46) M €.
Due to the adoption of IFRIC 4 “Determining whether an Arrangement contains a Lease” (released 2004), Property, plant and equipment includes a restatement at December 31st, 2004, in the net amount of 97 M €.

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The 2006 depreciation of Property, plant and equipment
includes impairment charges of 189 M € mainly related to
Airbus (A380) and Sogerma.

respectively; related accumulated depreciation is 1,509 M € and
1,653 M €. Depreciation expense for 2006 amounts to 137 M €(2005: 231 M €; 2004: 327 M €).

Property, plant and equipment include at December 31st,
2006 and 2005, buildings, technical equipment and otherequipment accounted for in fixed assets under finance leaseagreements for net amounts of 140 M € and 170 M €, net ofaccumulated depreciation of 399 M € and 367 M €. The related
depreciation expense for 2006 was 35 M € (2005: 31 M €; 2004:
19 M €). For investment property please refer to Note 33“Investment property”.

The “aircraft under operating lease” include:i) Group’s sales finance activity in the form of aircraft whichhave been leased out to customers and are classified as
operating leases: They are reported net of the accumulated
impairments. These sales financing transactions are generally
secured by the underlying aircraft used as collateral(see Note 29 “Commitments and contingencies” for details
on sales financing transactions).

Other equipment, factory and office equipment include thenet book value of “aircraft under operating lease” for 1,992 M €and 2,381 M € as of December 31st, 2006 and 2005,
The corresponding non-cancellable future operating lease payments (not discounted) due from customers to be included inrevenues, at December 31st, 2006 are as follows:(in €m)not later than 2007

148

later than 2007 and not later than 2011

342

later than 2011

155

Total

645

ii) Aircraft which have been accounted as “operating lease”
because they were sold under terms that include asset value
guarantee commitments with the present value of theguarantee being more than 10% of the aircraft’s sales price(assumed to be the fair value). Upon the initial sale of theseaircraft to the customer, their total cost previously

recognised in inventory is transferred to “Other equipment,
factory and office equipment” and depreciated over its
estimated useful economic life, with the proceeds received
from the customer being recorded as deferred income (seeNote 26 “Deferred income”).

The total net book values of aircraft under operating lease are as follows:
December 31,

December 31,(in €m)

2006

2005

(i) Net book value of aircraft under operating lease before impairment charge

1,216

1,493

Accumulated impairment

(272)

(319)

Net book value of aircraft under operating lease

944

1,174

(ii) Aircraft under operating lease with the present value of the guarantee being more than 10%

1,048

1,207

Total net book value of aircraft under operating lease

1,992

2,381

For details please refer to Note 29 “Commitments and contingencies”.

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14. Investments in associates accounted for under the equity method, other investments
and long-term financial assets
The following table sets forth the composition of investments in associates accounted for under the equity method, otherinvestments and long-term financial assets:
December 31,

December 31,(in €m)

2006

2005

Investments in associates accounted for under the equity method

2,095

1,908

Non-current other investments and long-term financial assets
545

541

Long-term financial assets

Other investments

1,121

1,397

Total

1,666

1,938

103

237

Current portion of long-term financial assets

Investments in associates accounted for under the equity
method as of December 31st, 2006 and 2005, mainly contain
EADS’ interest in Dassault Aviation Group (46.30% at
December 31st, 2006 and at December 31st, 2005) of 1,985 M €and 1,867 M €. The Dassault Aviation Group reported in 2006
a net income of 281 M € of which EADS recognised an amountof 130 M € according to its share of interest.

The 2005 equity investment income from Dassault Aviation
also included a positive catch up of the prior year financial
performance in accordance with IFRS, which amounted to
64 M €. In addition as at December 31st, 2006, 34 M €(in 2005: (18) M €) were recognised in AOCI in relation with
the Dassault Aviation equity investment.

The following table illustrates summarised financial information of the EADS investment of 46.3% in Dassault Aviation as ofDecember 31st, 2006 and 2005:
December 31,

December 31,

2006

2005

Non-current assets

1,549

1,231

Current assets

2,353

2,395

(in €m)Share of the associate’s balance sheet:

Non-current liabilities

175

165

Current liabilities

2,126

1,978

Total equity

1,601

1,483

Revenues

1,529

1,587

Net Income

130

141

1,985

1,867

Share of the associate’s revenues and profit:

Carrying amount of the investment

A list of major investments in associates and the proportion ofownership is included in Appendix “Information on principal
investments”.
Other investments comprise EADS’ investment in various nonconsolidated entities, the most significant being at December 31st,
2006, the investment in Embraer of 123 M € (2005: 106 M €) anda participation of 10% in Irkut amounting to 77 M € (2005: 54 M€). Regarding the investment in Embraer, please refer to Note 37“Events after the balance sheet date”.

Long-term financial assets of 1,121 M € (in 2005: 1,397 M €)and the current portion of long-term financial assets of
103 M € (in 2005: 237 M €) encompass mainly the Group’s
sales finance activities in the form of finance lease receivables
and loans from aircraft financing. They are reported net ofaccumulated impairments. These sales financing transactions are
generally secured by the underlying aircraft used as collateral(see Note 29 “Commitments and contingencies” for details onsales financing transactions).

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Loans from aircraft financing are provided to customers to finance the sale of aircraft. These loans are long-term and normally havea maturity which is linked to the use of the aircraft by the customer. The calculation of the net book value is:
December 31,

December 31,(in €m)

2006

2005

Outstanding gross amount of loans to customers

247

717

Accumulated impairment

(90)

(274)

Total net book value of loans

157

443

December 31,

December 31,

Finance lease receivables from aircraft financing are as follows:(in €m)

2006

2005

Minimum lease payments receivables

901

1,245

Unearned finance income

(162)

(321)

Accumulated impairment

(109)

(122)

Total net book value of finance lease receivables

630

802

Future minimum lease payments from investments in finance leases to be received are as follows (not discounted):(in €m)not later than 2007

95

later than 2007 and not later than 2011

310

later than 2011

496

Total

901

Additionally included are 437 M € and 389 M € of other loans as of December 31st, 2006 and 2005, e.g. loans to employees.
Defeased bank deposits of 927 M € and 1,102 M € as of December 31st, 2006 and 2005, respectively have been offset against
financial liabilities.

15. Inventories
Inventories at December 31st, 2006 and 2005 consist of the following:
December 31,

December 31,(in €m)

2006

2005

Raw materials and manufacturing supplies

1,283

1,159

Work in progress

11,26010,655

Finished goods and parts accounted for at lower of cost and net realisable value

1,224

1,161

Advance payments to suppliers
Total

Raw materials and manufacturing supplies at Airbus increasedby 121 M €. The increase in work in progress of 605 M € wasmainly driven by Airbus’ A380 program and the ramp up of
the Eurocopter NH 90 program. The increase of advancepayments provided to suppliers mainly reflects activities in theEurofighter program and in Astrium Transportation.

84 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

3,125

2,450

16,892

15,425The at cost value of finished goods and parts for resale amounts
to 1,559 M € in 2006 (2005: 1,505 M €) and for work inprogress amounts to 12,186 M € (2005: 11,192 M €). Write
downs for finished goods and services are recorded when it
becomes probable that total estimated contract costs will exceed
total contract revenues. The impairment charge in 2006 forwork in progress mainly relates to the A380 program.

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16. Trade receivables
Trade receivables at December 31st, 2006 and 2005 consist of the following:
December 31,

December 31,(in €m)

2006

2005

Receivables from sales of goods and services

5,227

5,209

Allowance for doubtful accounts

(375)

(407)

Total

4,852

4,802

Trade receivables are classified as current assets. As of
December 31st, 2006 and 2005, respectively, 132 M € and
237 M € of trade receivables are not expected to be collected
within one year.

In application of the percentage of completion method, as ofDecember 31st, 2006 an amount of 1,477 M € (in 2005:
1,489 M €) for construction contracts is included in the tradereceivables net of related advance payments received.

17. Other assets
Other assets at December 31st, 2006 and 2005 consist of the following:(in €m)December 31,

December 31,

2006

2005

Non current other assets
Positive fair values of derivative financial instruments

3,235

2,762

Prepaid expenses

683

526

Capitalised settlement payments to German Government

198

231

Others

115

91

Total

4,231

3,610

Current other assets
Positive fair values of derivative financial instruments

2,032

1,191

Value Added Tax claims

595

585

Prepaid expenses

384

332

Receivables from related companies

289

267
165

Receivables from affiliated companies

125

Loans

37

32

Others

552

629

Total

4,014

3,201

The capitalised settlement payments to the German Government are attributable to refundable advances which are amortised
through the income statement (in cost of sales) at the delivery pace of the corresponding aircraft.

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18. Securities
The Group’s security portfolio amounts to 1,843 M € and
5,200 M € as of December 31st, 2006 and 2005, respectively.
The security portfolio contains a non-current portion ofavailable-for-sale-securities of 1,294 M € (in 2005: 1,011 M €)and a current portion of 549 M € (in 2005: 4,189 M €). In
order to align the presentation of “Cash and cash equivalents”,
having maturities of three months or less from the date ofacquisition, the previous year’s figure has been reclassified by anamount of 4,160 M € (for further details please refer to theConsolidated Statements of Cash Flows and Note 2 “Summaryof significant accounting policies”).
Included in the securities portfolio at the end of 2006 arecorporate bonds bearing either fixed rate coupons (489 M €nominal value) or floating rate coupons (993 M € nominal
value) as well as credit instruments bearing floating rate
coupons (294 M € nominal value) and equity instruments(51 M € nominal value).

19. Non-current assets / disposal groups classified as held for saleNon-current assets / disposal groups classified as held forsale in the amount of 76 M € (in 2005: 881 M €) concern assets
and disposal groups mainly related to Sogerma. The previous
year’s figure relates mainly to sales financing activities in Airbus
which have been disposed in current year. The disposal group
includes liabilities directly associated with non-current
assets classified as held for sale amounting to 64 M € (in2005: 62 M €).
At December 31st, 2006, EADS held three subsidiaries for salein the Group’s financial statements. The net assets were written
down to the lower of their carrying amount or fair value lesscosts to sell resulting in an impairment loss of (84) M €.
As of December 1st, 2006, EADS carried out a spin-off of the
MRO business located in Bordeaux into a separate legal entity“Sogerma Services” and sold 40% of the shares for no
consideration. The remaining 60% shares of Sogerma Services aswell as the shares of the subsidiaries Barfield and Sogerma

Tunisia were sold beginning of January 2007. The
corresponding assets and liabilities of these companies are thus
presented as held for sale as of December 31st, 2006.
The non-current assets and disposal groups classified as held forsale comprise as of December 31st, 2006 trade receivables of
34 M €, inventories of 15 M € and other assets in the amountof 10 M € for the Sogerma business. Included are also Airbus
assets of 17 M € (in 2005: 881 M €) concerning mainly sales
financing activities.
The corresponding liabilities for the Sogerma business,accounted for as Liabilities directly associated with noncurrent assets classified as held for sale amount to 64 M €and comprise current other liabilities (27 M €), provisions(14 M €), short term financial liabilities (12 M €) and otherliabilities (11 M €). As at December 31st, 2005 the disposalgroup included liabilities of 62 M € for Airbus.

20. Total equity
With regard to the movement in equity, please refer to the table “Reconciliation of Movement in Capital and Reserves (IFRS)” at
the beginning of the Notes to the Consolidated Financial Statements.
The following table shows the development of the number of shares outstanding:Number of shares

Issued as at January 1,
Issued for ESOP
Issued for exercised options
Cancelled

2006

2005

817,743,130

809,579,069

0

1,938,309

4,845,364

7,562,110(6,656,970)(1,336,358)

Issued as at December 31,

815,931,524

817,743,130

Treasury shares as at December 31,(13,800,531)(20,602,704)

Outstanding as at December 31,

802,130,993

797,140,426

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EADS’ shares are exclusively ordinary shares with a par valueof 1.00 €. The authorised share capital consists of
3,000,000,000 shares.

with power of substitution, to cancel up to a maximum of
6,656,970 shares. On July 20th, 2006, the Chief Executive
Officers decided to cancel 6,656,970 treasury shares.

The Shareholders’ General Meeting of EADS held on May 11th,
2005 renewed the authorisation given to the Board of Directors
to repurchase shares of the Company, by any means, including
derivative products, on any stock exchange or otherwise, as longas, upon such repurchase, the Company will not hold morethan 5% of the Company’s issued share capital. The Group’s
Board of Directors decided on June 3rd, 2005, to set up andimplement plans for the repurchase of up to 1,012,500 shares
related to ESOP 2005. On December 12th, 2005 the Group’s
Board of Directors decided to set up and implement plans forthe repurchase of up to 3,990,880 shares related to the 2005
Stock Option Plan (7th tranche).

On May 4th, 2006 the Shareholders’ General Meeting alsodecided to pay a cash distribution related to the fiscal year 2005
for a gross amount of 0.65 € per share, which was paid on June
1st, 2006.

Furthermore, the Shareholders’ General Meeting authorised
both the Board of Directors and the Chief Executive Officers,
with powers of substitution, to cancel up to a maximum of
1,336,358 shares. On July 25th, 2005, the Chief Executive
Officers decided to cancel 1,336,358 treasury shares.
The Shareholders’ General Meeting also decided to pay a cash
distribution related to the fiscal year 2004 for a gross amount of
0.50 € per share, which was paid on June 8th, 2005.
On May 4th, 2006, the Shareholders’ General Meeting of EADS
renewed the authorisation given to the Board of Directors to
issue shares of the Company, representing up to 1% of theCompany’s authorised share capital for a period expiring at the
Shareholders’ General Meeting to be held in 2007.
The Shareholders’ General Meeting on May 4th, 2006 also
renewed the authorisation given to the Board of Directors for a
new period of 18 months from the date of the Annual General
Meeting, to repurchase shares of the Company, by any means,including derivative products, on any stock exchange orotherwise, as long as, upon such repurchase, the Company will
not hold more than 10% of the Company’s issued share capitaland at a price not less than the nominal value and not morethan the higher of the price of the last independent trade andthe highest current independent bid on the trading venues of
the regulated market of the country in which the purchase iscarried out. This authorisation supersedes and replaces theauthorisation given by the Annual General Meeting of
May 11th, 2005.

The 2006 Employee Stock Ownership Plan was cancelled (seeNote 31 “Share-based Payment“), consequently EADS did notissue new shares (in 2005: 1,938,309 representing a nominal
value of 1,938,309 €).
In total EADS sold in 2006 145,203 treasury shares (in 2005:
purchase of 11,910,287 treasury shares) and cancelled 6,656,970
shares (in 2005: 1,336,358 shares), resulting in an amount of
13,800,531 treasury shares at December 31st, 2006 (in 2005:
20,602,704 treasury shares).
Capital stock comprises the nominal amount of shares
outstanding. The addition to capital stock represents thecontribution for exercised options of 4,845,364 € (in 2005:
7,562,110 €) in compliance with the implemented stock option
plans and in 2005 1,938,309 € by employees under the 2005
Employee Stock Ownership Plan.
Share premium mainly results from contributions in kind in thecourse of the creation of EADS, cash contributions from theInitial Public Offering, capital increases and reductions due tothe issuance and cancellation of shares as well as cash
distributions to EADS N.V. shareholders. Other reserves
include among others retained earnings, reduced by therecognition of actuarial gains and losses of pension obligations,net of deferred taxes. Accumulated other comprehensive
income consists of all amounts recognised directly in equity
resulting from changes in fair value of financial instrumentsthat are classified as available-for-sale or that form part ofhedging relationships in effective cash-flow hedges as well asfrom currency translation adjustments of foreign entities.
Treasury shares represent the amount paid for own shares heldin treasury.
Equity attributable to the equity holders of the parent as ofDecember 31st, 2003 was adjusted due to the application ofrevised IAS 19 “Employee benefits” in the amount of (235) M €(please refer to Note 2 “Summary of significant accounting
policies” and Note 21 b) “Provisions for retirement plans”).

Furthermore, the Shareholders’ General Meeting authorised
both the Board of Directors and the Chief Executive Officers,

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21. Provisions
Provisions are comprised of the following:
December 31,

December 31,(in €m)

2006

2005

Provision for retirement plans (see Note 21 b)

5,747

5,124

Provision for deferred compensation (see Note 21 a)
Retirement plans and similar obligations
Financial instruments (see Note 21 c)
Other provisions (see Note 21 d)
Total

136

114

5,883

5,238

231

921

6,580

4,565

12,694

10,724

Thereof non-current portion

9,063

7,997

Thereof current portion

3,631

2,727

As of December 31st, 2006 and 2005, respectively, 5,602 M €and 5,018 M € of retirement plans and similar obligations,
152 M € and 472 M € of financial instruments as well as
3,309 M € and 2,507 M € of other provisions mature after
more than one year.
Due to the retrospective application of the equity approach in
the revised IAS 19 “Employee Benefits” previous year’s figures
have been adjusted in an amount of 1,118 M € (for further
details please refer to “Changes in accounting policies” inNote 2).

a) Provisions for deferred compensation
This amount represents obligations that arise if employees electto convert part of their remuneration or bonus into an
equivalent commitment for deferred compensation.

b) Provisions for retirement plans
When Group employees retire, they receive indemnities as
stipulated in retirement agreements, in accordance withregulations and practices of the countries in which the Group
operates.
French law stipulates that employees are paid retirement
indemnities on the basis of the length of service.
In Germany, EADS introduced a new pension plan (P3) for
non-executive employees in 2004. Under the new plan, theemployer makes contributions during the service period, which
are dependent on salary in the years of contribution and yearsof service. These contributions are converted into components
which become part of the accrued pension liability at the endof the year. Accrued benefits under the old plan are considered

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through an initial component. Total benefits are calculated as acareer average over the entire period of service.
Certain employees that are not covered by the new plan receive
retirement indemnities based on salary earned in the last year
or on an average of the last three years of employment. For
executive employees, benefits are depending on final salary at
the date of retirement and the time period as executive.
In the UK, EADS participates in several funded trusteeadministered pension plans for both executive and nonexecutive employees with BAE Systems being the principal
employer. These plans qualify as multi-employer defined benefit
plans under IAS 19 “Employee Benefits”. EADS’ mostsignificant investments in terms of employees participating inthese BAE Systems UK pension plans are Airbus UK and
MBDA UK. For Airbus, this remains the case even subsequent
to the acquisition of BAE Systems’ 20% minority interests on
October 13th, 2006. Participating Airbus UK employees havecontinued to remain members in the BAE Systems UK pension
plans due to the UK pension agreement between EADS andBAE Systems and a change in UK pensions legislation enacted
in April 2006.
Generally, based on the funding situation of the respective
pension schemes, the pension plan trustees determine thecontribution rates to be paid by the participating employers toadequately fund the schemes. The different UK pension plansin which EADS investments participate are currently
underfunded. BAE Systems has agreed with the trustees
various measures designed to make good the underfunding.
These includes i) regular contribution payments for active
employees well above such which would prevail for fundedplans and ii) extra employers’ contributions amounting to a totalof GBP 446 M (664 M€) over the next ten years until 2016.

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Due to the contractual arrangements between EADS and BAE
Systems, EADS’ contributions in respect of its investments forthe most significant pension scheme (Main Scheme) are capped
for a defined period of time (until July 2011 for Airbus UK and
until December 2007 for MBDA UK). Contributions exceeding
the respective capped amounts are paid by BAE Systems. EADSis therefore neither exposed to increased regular contribution
payments resulting from the pension plans’ underfunding nor
to a participation in extra contribution payments during theperiod of the contribution caps. Even after the expiry of thecontribution caps the unique funding arrangements between
BAE Systems and EADS create a situation for EADS different
from common UK multi-employer plans with special
regulations limiting regular contributions that have to be paid
by EADS UK companies to rates applicable to all participating
employers.
Since January 1st, 2005, BAE Systems prepared its Consolidated
Financial Statements under IFRS. Before that date, BAE
Systems Consolidated Financial Statements were prepared
under UK GAAP and as such did not include information
required under IAS 19 to apply defined benefit accounting.
Consequently, EADS accounted for its participation in BAE
Systems UK defined benefit schemes as if they were defined
contribution schemes in accordance with IAS 19. In 2005,
EADS requested detailed information from BAE Systems about
the different multi-employer pension schemes in order toappropriately and reliably estimate the share of its participationin the schemes’ plan assets, defined benefit obligations (“DBO”)
and pension costs. For accounting purposes, the information
provided by BAE Systems in 2005 was judged not to be
sufficient to identify EADS’ share in the UK pension schemes.
Consequently, EADS continued in 2005 to expense thecontributions made to the pension schemes as if the plans were
defined contribution plans. Adequate information was provided
until 2005 in the contingent liabilities section of the notes.
As a result of further requests in 2006, BAE Systems started toshare more detailed information for each individual plan inwhich EADS investments participate. This new information
now results in a change in accounting estimates from 2006 yearend closing and is accounted for accordingly under IAS 8“Accounting Policies, Changes in Accounting Estimates andErrors”. The new information now enables EADS to derive
keys per plan to allocate for accounting purposes an appropriate
proportion in plan assets, DBO and pension costs to its UK
investments as of December 31st, 2006, taking into account the
impact of the capped contributions as well as future extra
contributions agreed by BAE Systems with the Trustees.
Actuarial assessments are regularly made to determine theamount of the Group’s commitments with regard to retirement
indemnities. These assessments include an assumption
concerning changes in salaries, retirement ages and long-term
interest rates. It comprises all the expenses the Group will be
required to pay to meet these commitments.

The weighted-average assumptions used in calculating the actuarial values of the retirement plans are as follows:

Assumptions in %Discount rate
Rate of compensation increase
Inflation rate
Expected return on plan assets

Euro-countries

EADS UK

BAE Systems UK

December 31,

December 31,

December 31,

2006

2005

2004

2006

2005

2004

2006

4.5

4.0

4.75 - 5.0

5.1

4.7

5.2

5.2

3.0

3.0

3.0

3.8

3.7

4.2

4.0

1.9-2.0

1.75 - 2.0

1.5-2.0

2.8

2.7

2.7

3.0

6.5

6.5

6.5

5.8

5.8

5.8

7.0

Before 2006, EADS applied the corridor approach for therecognition of actuarial gains and losses. With the applicationof amended IAS 19 in 2006, EADS opted for the newly
introduced equity approach and retrospectively changed EADS
accounting policy for the recognition of actuarial gains andlosses. Under the equity approach, actuarial gains and losses are– net of deferred taxes - in full recognised in retained earnings

in the period in which they occur and accordingly reflected in
the retirement provision recognised in the balance sheet.
Actuarial gains and losses are not recognised in profit or loss insubsequent periods. Prior periods have been adjusted
accordingly leading to a higher provision for year-end 2002,
2003, 2004 and 2005 respectively (see table “Recognised
Provision” below).

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The amount recorded as provision on the balance sheet can be derived as follows:
Change in defined benefit obligations(in €m)

2006

2005

2004

Defined benefit obligations at beginning of year

5,927

5,198

4,735

Service cost

162

153

125

Interest cost

230

252

243

Plan amendments

2

8

0

Plan curtailments and settlements

0

0

(4)

Actuarial losses

(185)

517

281

Acquisitions and other

(20)

7

3

Benefits paid

(228)

(208)

(185)

Additions

3,696

0

0

9,584

5,927

5,198

Change in plan assets(in €m)

2006

2005

2004

Fair value of plan assets at beginning of year

799

658

619

(1)

Defined benefit obligations at end of year
(1) Additions reflect EADS’ share in BAE Systems’ pension schemes.

Actual return on plan assets

84

82

52

Contributions

212

111

45

Acquisitions and other

11

8

0

Benefits paid

(72)

(60)

(58)

Additions(1)

2,799

0

0

3,833

799

658

Fair value of plan assets at end of year
(1) Additions reflect EADS’ share in BAE Systems’ pension schemes.

Based on past experience, EADS expects a rate of return for plan assets of 6.5%.
The fair value of plan assets of EADS plans at end of the year mainly comprises assets held by long-term employee benefit funds
that exist solely to pay or fund employee benefits. About 46% (2005: 44%) of plan assets are invested in equity securities.
Recognised Provision(in €m)

2006

2005

2004

2003

2002

Funded status

5,751

5,128

4,540

4,116

3,755

(4)

(4)

(5)

(14)

0

5,747

5,124

4,535

4,102

3,755

(1)

Unrecognised past service cost
Provision recognised in Balance Sheet(2)(1) Difference between the defined benefit obligations and the fair value of plan assets at the end of the year.
(2) Due to the application of IAS 19.93A the provision as of 2005, 2004, 2003 and 2002 was adjusted retrospectively by an amount of 1,118 M €, 659 M €, 384 M € and 398 M € respectively.

The defined benefit obligation at the end of the year is the present value, without deducting any plan assets, of expected future
payments required to settle the obligation resulting from employee service in the current and prior periods. The provision contains
the funded status less any unrecognised past service cost.

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The components of the net periodic pension cost, included in “Profit before finance costs and income taxes”, are as follows:(in €m)

2006

2005

2004

Service cost

162

153

125

Interest cost

230

252

243

Expected return on plan assets

(58)

(42)

(41)

Net actuarial loss
Net periodic pension cost

The 2006 change in the accounting policy for the recognition of
actuarial gains and losses from the corridor to the equity
approach resulted in lower net periodic pension cost in 2006,
leading to a comparably higher EBIT of 45 M € and a 25 M €higher Net Income than from prior periods’ accounting
principle.

0

14

0

334

377

327

Payments to the multi-employer plans with BAE Systems thathave been treated as defined contribution plans until end of
2006 amounted to 67 M € (in 2005: 56 M €).

Actuarial gains and losses, net of deferred taxes recognised in equity amount to (1,409) M € and developed as follows:
Actuarial gains and losses recognised directly in equity(in €m)Cumulative amount at January 1
Recognised during the period(1)Cumulative value at December 31
Deferred Tax Asset at December 31
Actuarial gains and losses recognised directly in equity, net

2006

2005

2004

(1,118)

(659)

(384)

(690)

(459)

(275)

(1,808)(1,118)

(659)

399

423

252

(1,409)

(695)

(407)

(1) Included in 2006 is the allocated pension deficit from UK pension schemes with BAE Systems as of December 31st, 2006 amounting to 897 M €.

c) Financial instruments
The provision for financial instruments amounts to 231 M € as of December 31st, 2006 (921 M € as of December 31st, 2005) andincludes in 2006 mainly the negative fair market value of foreign currency forwards (see Note 30 c) “Fair value of financial
instruments”).

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Movements in provisions during the year were as follows:
Balance atJanuary 1,
2006

Exchangedifferences

Additions

Reclassification/
Change inconsolidated
group

Used

Released

Balance at
December31, 2006

539

8

(243)

(26)

1,104

(in €m)Outstanding costs
Aircraft financing risks

826
1,169

(129)

69

0

(39)

(6)

1,064

Contract losses

397

0

181

2

(137)

(22)

421

Personnel charges

436

(2)

179

(32)

(161)

(10)

410

Restructuring measures/pre-retirement part-time work

232

0

195

(15)

(65)

(21)

326

Litigations and claims

230

0

14

8

(7)

(7)

238

Obligation from services and maintenance agreements

254

(1)

87

(3)

(126)

0

211

Warranties

176

0

87

(5)

(50)

(21)

187

Asset retirement

62

0

18

0

0

0

80

Other risks and charges
Total

783

(5)

1,962

(28)

(122)

(51)

2,539

4,565

(137)

3,331

(65)

(950)

(164)

6,580

The addition to outstanding costs mainly relates to Defence &Security and Eurocopter.
The provision for aircraft financing risks fully covers, in linewith the Group’s policy for sales financing risk, the net
exposure to aircraft financing of 432 M € (522 M € at December
31st, 2005) and asset value risks of 633 M € (647 M € at
December 31st, 2005) related to Airbus and ATR (see Note 29“Commitments and contingencies”).

The use of the provision for restructuring measures / preretirement part-time work mainly relates to the divisions
Defence & Security and Airbus.
The provision for litigations and claims covers various legal
actions, governmental investigations, proceedings and otherclaims, which are pending or may be instituted or asserted in
the future against the Group.
The additions to provisions for other risks and charges mainlycomprises constructive obligations for settlement charges in
conjunction with the A380 and A350 programs.

22. Financial liabilities
In 2004, the EIB (European Investment Bank) granted a longterm loan to EADS in the amount of 421 M US$, bearing afixed interest rate of 5.1% (effective interest rate 5.1%). In 2003,
EADS issued two Euro denominated bonds under its EMTN
Programme (Euro Medium Term Note Programme). The firstissue of 1 billion € with expected final maturity in 2010 carriesa coupon of 4.625% (effective interest rate 4.686%) which was
swapped into variable rate of 3M-Euribor +1.02%. The second
issue of 0.5 billion € maturing in 2018 carries a coupon of 5.5%
(effective interest rate 5.6%) which was swapped during 2005
into variable rate of 3M-Euribor +1.81%.

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On a rolling basis EADS issues regularly commercial paper
under the so called “billet de trésorerie” program at floating or
fixed interest rates corresponding to the individual maturities
ranging from 1 day to 12 months bearing as of December 31st,
2006 an average interest rate of 3.3%. The issued volume at
December 31st, 2006 amounted to 1,137 M €. The programme
has been set up in 2003 with a maximum volume of 2 bn €.
EADS has decided to manage more pro-actively its money
market investor base. EADS has therefore decided to have an
outstanding debt in line with this objective and to issue thesecommercial papers on a regular basis.

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Financial liabilities include liabilities connected with sales
financing transactions amounting to 1,702 M €, thereof
480 M € at a fixed interest rate of 9.88% and the remaining
amount mainly at variable interest rates.

Non recourse Airbus financial liabilities (risk is supported byexternal parties) amount to 1,058 M € (in 2005: 1,247 M €).
Defeased bank deposits for aircraft financing of 927 M € and1,102 M € as of December 31st, 2006 and 2005 respectively
have been offset against financial liabilities.
December 31,

December 31,(in €m)

2006

2005

Bonds

1,569

1,659

1,141

1,352

673

937

178

241

Long-term financial liabilities

3,561

4,189

Commercial Papers / Bonds

1,157

0

Liabilities to financial institutions

140

146

Liabilities to affiliated companies

118

112

Loans

172

207

Liabilities from finance leases

97

87

thereof due in more than five years: 453 (December 31, 2005: 519)
Liabilities to financial institutions
thereof due in more than five years: 817 (December 31, 2005: 972)
Loans
thereof due in more than five years: 347 (December 31, 2005: 528)
Liabilities from finance leases
thereof due in more than five years: 74 (December 31, 2005: 78)

Others512

356

Short-term financial liabilities (due within one year)

2,196

908

Total

5,757

5,097

Included in “Others” are financial liabilities against joint ventures.
The aggregate amounts of financial liabilities maturing during the next five years and thereafter are as follows:(in €m)Financial liabilities

2007

2,196

2008

257

2009

306

2010

1,159

2011

148

Thereafter

1,691

Total

5,757

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23. Liability for puttable instruments
As of January 1st, 2005 EADS adopted retrospectively IAS 32“Financial Instruments: Disclosure and Presentation” (revised2004) and accounted for the option granted to BAE Systems inthe 2001 Airbus business combination to put its 20% minority
stake in Airbus as a liability presented in a separate line of the
EADS Consolidated Balance Sheet as liability for puttable
instruments.
The option has been exercisable at fair value during annual
window periods. Whilst dividend payments to BAE Systems
have been considered as partial repayments of the liability any
changes to its fair value have been treated as adjustments to thecost of the Airbus business combination leading to according
changes in goodwill in line with IFRS 3 “Business
Combinations”. Airbus’ 20% stake has been measured byapplying a choice of different valuation techniques, based onbest estimates available at measurement date. For EADS 2005
year end Financial Statements, the fair value of the written put
has been determined at €3.5 billion. In June 2006, BAE
Systems exercised its put option. An independent investmentbank then determined the fair value of the 20% of Airbus at€2.75 billion. The liability for puttable instruments wasderecognised from EADS Consolidated Balance Sheet after thetransaction has been approved by BAE Systems’ shareholders in
October 2006. While dividend payments to BAE Systems in2006 amounting to 129 M € have been accounted for as a
reduction of the liability, the additional 621 M € of thedecrease in the option’s fair value led to a corresponding
reduction in Airbus’ goodwill.

24. Other liabilities
December 31,

December 31,

2006

2005

Thereof customer advance payments

6,308

4,911

Thereof European Governments refundable advances

5,029

4,950

233

110

11,5709,971(in €m)Non-current other liabilities

Others
Total
Current other liabilities
Thereof customer advance payments

14,172

14,078Thereof European Governments refundable advances

389

343

Thereof tax liabilities (excluding income tax)

600

690

Thereof liabilities to affiliated companies

44

93

Thereof liabilities to related companies

14

31

1,941

1,931

17,16017,166

OthersTotal

The increase in European Governments refundable advances
relates mostly to accrued interest. Regarding the interest
expense on European Governments refundable advances see
Note 10 “Total finance costs”. Due to their specific nature,
namely their risk-sharing features and the fact that such
advances are generally granted to EADS on the basis ofsignificant development projects, European Governments
refundable advances are accounted for by EADS within “Other
Liabilities” on the balance sheet including accrued interest.

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Included in “Other liabilities” are 15,573 M € (15,986 M € asof December 31st, 2005) due within one year and 6,330 M €(5,621 M € as of December 31st, 2005) maturing after morethan five years. Included in the “Current other liabilities” areliabilities relating to construction contracts having a maturity ofmore than one year.
Advance payments received relating to construction contracts
amount to 2,198 M € (2,363 M € as of December 31st, 2005).

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25. Trade liabilities
As of December 31st, 2006, trade liabilities amounting to 184 M € (54 M € as of December 31st, 2005) mature after more than one
year.

26. Deferred income
December 31,

December 31,(in €m)

2006

2005

Non-current deferred income

1,110

1,324

Current deferred income
Total

486

573

1,596

1,897

The main part of deferred income is related to sales of Airbus and ATR aircraft that include asset value guarantee commitments
and that are accounted for as operating leases (1,248 M € and 1,467 M € as of December 31st, 2006 and 2005, respectively).

Notes to the Consolidated Statements of Cash-Flows (IFRS)
27. Consolidated Statement of Cash Flows
As of December 31st, 2006, EADS’ cash position (stated as cash
and cash equivalents in the Consolidated Statement of CashFlows) includes 597 M € (579 M € and 602 M € as ofDecember 31st, 2005 and 2004, respectively) which represent
EADS’ share in MBDA’s cash and cash equivalents, deposited at

BAE Systems and Finmeccanica and which are available upon
demand. Additionally included were 1,202 M € as of December
31st, 2005 and 687 M € as of December 31st, 2004 representing
the amount Airbus had deposited at BAE Systems.

The following charts provide details on acquisitions (resulting in additional assets and liabilities acquired) of subsidiaries and joint
ventures:December 31,

December 31,(in €m)

2006

2005

Total purchase price

(108)

(131)

(108)

(131)

26

0

(82)

(131)

thereof paid in cash and cash equivalents
Cash and cash equivalents included in the acquired subsidiaries and joint ventures
Cash Flow for acquisitions, net of cash

In 2006 the aggregate cash flow for acquisitions, net of cash of(82) M € includes mainly the acquisition of Atlas Elektronik
Group (43) M €, Sofrelog (12) M €, IFR France (8) M € andDynamic Process Solutions Inc. (8) M €.

Professional Mobile Radio – PMR activities (EADS Secure
Networks Oy). In addition, there have been cash investments
mainly in Dornier GmbH which had been already fully
consolidated.

Included in the aggregate cash flow for acquisitions, net of cash
in 2005 of (131) M € is mainly the acquisition of Nokia’s

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December 31,

December 31,

2006

2005

Intangible assets; property, plant and equipment

59

21

Financial assets

40Inventories

44

4

Trade receivables

60

11

Other assets

427

Cash and cash equivalents

26

0Assets

197

63

Provisions

(91)

(4)

Trade liabilities

(46)

0

Financial liabilities(3)0

Other liabilities

(13)

(1)

(153)

(5)

Fair value of net assets

44

58

Goodwill arising on acquisitions

64

73

Less own cash and cash equivalents of acquired subsidiaries and joint ventures

(26)

0

Cash Flow for acquisitions, net of cash

82

131

(in €m)Liabilities

The following charts provide details on disposals (resulting in assets and liabilities disposed) of subsidiaries:(in €m)Total selling pricethereof received by cash and cash equivalents

December 31,

December 31,

2006

2005

87

110

87

110

Cash and cash equivalents included in the (disposed) subsidiaries

(1)

(21)

Cash Flow from disposals, net of cash

86

89

The aggregate cash flow from disposals, net of cash, in 2006 of
86 M € includes the sale of LFK GmbH and TDW GmbHamounting to 81 M € and Seawolf of 2 M €. After the disposalof LFK the cash of LFK was reallocated to the shareholders of
MBDA in proportion to their interest.

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Included in the aggregate net selling price in 2005 of 89 M € are
the sale of the 50% participation in TDA – Armements S.A.S. toThales and the sale of the Enterprise Telephony Business to
Aastra.

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December 31,

December 31,(in €m)

2006

2005

Intangible assets; property, plant and equipment

(18)

(12)

Financial assets(4)0Inventories

(89)

(34)

Trade receivables

(17)

(64)

Other assets

(22)

(34)

Cash and cash equivalents

(1)

(21)

Assets

(151)

(165)

Provisions

132

16

Trade liabilities

18

18

Financial liabilities

1

13

Other liabilities

52

45

Liabilities

203

92

Book value of net assets

52

(73)

Goodwill arising from disposals

0

(6)

(139)

(31)

Result from disposal of subsidiaries
Less own cash and cash equivalents of disposed subsidiaries
Cash Flow from disposals, net of cash

1

21

(86)

(89)

Other Notes to the Consolidated Financial Statements (IFRS)
28. Litigation and claims
EADS is involved in a number of claims and arbitrations thathave arisen in the ordinary course of business. EADS believes
that it has made adequate provisions to cover current orcontemplated general and specific litigation risks.
Following its unilateral withdrawal from the 1992 EU-U.S.
Agreement on Trade in Large Civil Aircraft, the U.S. lodged arequest on October 6th, 2004 to initiate settlement proceedings
before the World Trade Organisation (“WTO”). On the sameday, the EU launched a parallel WTO case against the U.S. in
relation to its subsidisation of Boeing. Despite several
negotiation attempts, the parties have not been able to reach asatisfactory agreement. On May 31st, 2005, the U.S. and the EUeach requested the establishment of a panel. At its meeting on
July 20th, 2005, the Dispute Settlement Body established thepanels. Numerous procedural steps, including new filings
by the EU and the U.S. in 2006 have delayed commencementof the litigation. However, on November 15th, 2006, the U.S.
filed its first written submission, to which the EU responded on
February 9th, 2007. The EU is scheduled to file its first written
submission challenging Boeing subsidies in March 2007, towhich the U.S. is scheduled to respond in May 2007. Exacttiming of further steps in the WTO litigation process is subject
to ruling of the panels and to negotiations between the U.S.
and the EU. Unless a settlement, which is currently not underdiscussion, is reached between the parties, the WTO panels
will render decisions on the merits of the cases sometime in the
future.
The French Autorité des Marchés Financiers (the “AMF”) and
the German Federal Financial Supervisory Authority (the“BaFin”) have started in 2006 investigations for alleged breaches
of market regulations and insider trading rules with respect to
the A380 delays in 2005 and 2006. Following criminal
complaints filed by a shareholders’ association and by anindividual shareholder (also including a civil claim for damages),
French investigating judges are also carrying out investigations
on the same grounds. In Germany, several individual
shareholders have filed civil actions against the Company torecover their alleged losses in connection with the disclosure of
A380 program delays. On October 3rd, 2006, the EADS Boardof Directors also decided to conduct an independent assessmentof individual discharge of duties in the situation that led to theA380 delays. This investigation will extend to scrutinising

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potential responsibilities at the management level. The
Company reserves all its rights in the circumstances. As of
March 8th, 2007, all such assessments are still ongoing.
EADS is not aware of any exceptional items or pending or
threatened legal or arbitration proceedings that may have, or
may have had in a recent period, a material adverse effect on
the financial position, the activities or the results of its grouptaken as a whole, except as stated above.

EADS recognises provisions for litigation and claims when(i) it has a present obligation from legal actions, governmental
investigations, proceedings and other claims resulting from past
events that are pending or may be instituted or asserted in the
future against the Group, (ii) it is probable that an outflow ofresources embodying economic benefits will be required tosettle such obligation and (iii) a reliable estimate of the amountof such obligation can be made. For the amount provided forrisk due to litigations and claims, see Note 21 d.) “Other
provisions”.

29. Commitments and contingencies
Commitments and contingent liabilities
Sales financing – In relation to its Airbus and ATR activities,
EADS is committing itself in sales financing transactions withselected customers. Sales financing transactions are generally
collateralised by the underlying aircraft. Additionally, Airbus and
ATR benefit from protective covenants and from security
packages tailored according to the perceived risk and the legal
environment. EADS believes that the estimated fair value of theaircraft securing such commitments will substantially offset any
potential losses from the commitments. Any remaining
difference between the amount of financing commitments given
and the collateral value of the aircraft financed is provided for as
an impairment to the relating asset, if assignable, or as a provision
for aircraft financing risk. The basis for this write-down is a riskpricing-model, which is applied at every closing to closely
monitor the remaining value of the aircraft.
Depending on which party assumes the risks and rewards ofownership of a financed aircraft, the assets relating to sales

financing are accounted for on the balance sheet either as(i) an operating lease (see Note 13 “Property, plant andequipment”) or (ii) a loan from aircraft financing or (iii) a financelease receivable (see Note 14 “Investments in associates
accounted for under the equity method, other investments andlong-term financial assets”) or (iv) non-current assets classified
as held for sale. As of December 31st, 2006, related accumulated
impairment amounts to 272 M € (2005: 319 M €) for operatinglease, 199 M € (2005: 396 M €) for loans and finance leasereceivables and 0 M € (2005: 196 M €) for non-current assets
classified as held for sale. As part of provisions for aircraft
financing risks 25 M € (2005: 34 M €) are recorded (see Note 21d.) “Other provisions”).
Certain sales financing transactions include the sale and leaseback of the aircraft with a third party lessor under operatinglease. Unless the Group has sold down the relating operatinglease commitments to third parties, which assume liability forthe payments, it is exposed to future lease payments.

Future nominal operating lease payments that result from aircraft sales financing transactions are recorded off balance sheet andare scheduled to be paid as follows:(in €m)not later than 2007

181

later than 2007 and not later than 2011702

later than 2011

645

Total

1,528

Of which commitments where the transaction has been sold to third parties(882)

Total aircraft lease commitments where EADS bears the risk (not discounted)

646

Total aircraft lease commitments of 1,528 M € as of December
31st, 2006, arise from aircraft head-leases and are typicallybacked by corresponding sublease income from customers with
an amount of 1,096 M €. A large part of these leasecommitments (882 M € as of December 31st, 2006) arises fromtransactions that were sold down to third parties, which assume
liability for the payments. EADS determines its gross exposure
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to such operating leases as the present value of the related
payment streams. The difference between gross exposure andthe estimated value of underlying aircraft used as collateral, thenet exposure, is provided for in full with an amount of
407 M € as of December 31st, 2006, as part of the provision foraircraft financing risk (see Note 21 d.) “Other provisions”).

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As of December 31st, 2006 and 2005, the total consolidated – on and off balance sheet – Commercial Aviation Sales Financing
Exposure is as follows (Airbus 100% and ATR 50%):
December 31,

December 31,(in €m)

2006

2005

Total gross exposure

1,694

3,566

Estimated fair value of collateral (aircraft)(791)(2,133)Net exposure (fully provided for)

903

1,433

Details of provisions / accumulated impairments are as follows:
December 31,

December 31,(in €m)

2006

2005

Accumulated impairment on operating leases (see Note 13 “Property, plant and equipment”)

272

319

Accumulated impairment on loans from aircraft financing and finance leases (see Note 14 “Investments inassociates accounted for under the equity method, other investments and long-term financial assets”)

199

396

Non-current assets classified as held for sale0

196

Provisions for aircraft financing risk (on balance sheet) (see Note 21 d.) “Other provisions”)

25

34

Provisions for aircraft financing risk (commitment off balance sheet) (see Note 21 d.) “Other provisions”)

407

488

Total provisions / accumulated impairments for sales financing exposure

903

1,433

Asset value guarantees – Certain sales contracts may include
the obligation of an asset value guarantee whereby Airbus or
ATR guarantee a portion of the value of an aircraft at a specificdate after its delivery. Management considers the financial risks
associated with such guarantees to be manageable. Three factors
contribute to this assessment: (i) the guarantee only covers a
tranche of the estimated future value of the aircraft, and its
level is considered prudent in comparison to the estimatedfuture value of each aircraft; (ii) the asset value guarantee
related exposure is diversified over a large number of aircraft
and customers; and (iii) the exercise dates of outstanding asset
value guarantees are distributed through 2019. If the present
value of the guarantee given exceeds 10% of the sales price of
the aircraft, the sale of the underlying aircraft is accounted foras an operating lease (see Note 13 “Property, plant andequipment” and Note 26 “Deferred income”). In addition,
EADS is contingently liable in case asset value guarantees withless than 10% are provided to customers as part of aircraft sales.
Counter guarantees are negotiated with third parties and reduce
the risk to which the group is exposed. As of December 31st,
2006 the nominal value of asset value guarantees provided toairlines, that do not exceed the 10% criteria, amount to 1,093 M€, excluding 461 M € where the risk is considered to be remote.
In many cases the risk is limited to a specific portion of theresidual value of the aircraft. The present value of the risk
inherent to the given asset value guarantees where a settlement
is being considered as probable is fully provided for andincluded in the total amount of provisions for asset value risksof 633 M € (see Note 21 d.) “Other provisions”). This provision
covers a potential expected shortfall between the estimatedvalue of the aircraft of the date upon which the guarantee canbe exercised and the value guaranteed on a transaction basis
taking counter guarantees into account.
Because exercise dates for asset value guarantees are on averagein the 10th year following aircraft delivery, asset value
guarantees issued in 2006 will generally not be exercisable prior
to 2016, and, therefore, an increase in near-term exposure is notexpected.
With respect to ATR, EADS and Finmeccanica are jointly andseverally liable to third parties without limitation. Amongst theshareholders, the liability is limited to each partner’s
proportionate share.
While backstop commitments to provide financing related toorders on Airbus’ and ATR’s backlog are also given, suchcommitments are not considered to be part of gross exposure
until the financing is in place, which occurs when the aircraft isdelivered. This is due to the fact that (i) past experiencesuggests it is unlikely that all such proposed financings actually
will be implemented (although it is possible that customers notbenefiting from such commitments may nevertheless request
financing assistance ahead of aircraft delivery), (ii) until theaircraft is delivered, Airbus or ATR retain the asset and do notincur an unusual risk in relation thereto, and (iii) third parties
may participate in the financing. In order to mitigate Airbus and
ATR credit risks, such commitments typically contain financial
conditions which guaranteed parties must satisfy in order tobenefit therefrom.

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Other commitments – Other commitments comprise contractual guarantees and performance bonds to certain customers as wellas commitments for future capital expenditures.
Future nominal operating lease payments (for EADS as a lessee) for rental and lease agreements (not relating to aircraft sales
financing) amount to 1,025 M € as of December 31st, 2006, and relate mainly to procurement operations (e.g., facility leases, carrentals). Maturities are as follows:(in €m)Not later than 2007

126

Later than 2007 and not later than 2011

342

Later than 2011

557

Total

1,025

30. Information about financial instrumentsa) Financial risk management
By the nature of the activities carried out, EADS is exposed toa variety of financial risks, especially foreign currency exchange
rate risks and interest rate risks, as explained below. The
management and limitation of the foreign exchange currency
risks at EADS is generally carried out by a central treasury
department at EADS Headquarters under policies approved by
the Board of Directors. The identification, evaluation andhedging of the financial risks is in the responsibility of
established treasury committees and the Group’s Divisions andBusiness Units.
Market risk
Currency risk – EADS manages a long-term hedge portfoliowith a maturity of several years covering its net exposure to US
Dollar sales, mainly from the activities of Airbus. This hedge
portfolio covers the majority of the Group’s highly probabletransactions.
Significant parts of EADS’ revenues are denominated in US
Dollars, whereas a major portion of its costs is incurred inEuros and to a smaller extent in GBP. Consequently, to theextent that EADS does not use financial instruments to coverits current and future foreign currency exchange rate exposure,its profits are affected by changes in the Euro-US Dollar
exchange rate. As the Group intends to generate profits only
from its operations and not through speculation on foreign
currency exchange rate movements, EADS uses hedging
strategies to manage and minimise the impact of exchange rate
fluctuations on these profits.
For financial reporting purposes, EADS mostly designates a
portion of the total firm future cash flows as the hedged
position to cover its expected foreign currency exposure.

100 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

Therefore, as long as the actual gross foreign currency cash
inflows (per month) exceed the portion designated as being
hedged, a postponement or cancellation of sales transactions
and corresponding cash inflows have no impact on the hedging
relationship. As hedging instruments, EADS primarily uses
foreign currency forwards.
EADS endeavours to hedge the majority of its exposure basedon firm commitments and forecasted transactions. For products
such as aircraft, EADS typically hedges forecasted sales in US
Dollar. The hedged items are defined as first forecasted highly
probable future cash inflows for a given month based upon final
payments at delivery. The amount of the flows to be hedged cancover up to 100% of the equivalent of the net US Dollar
exposure at inception. For EADS, a forecasted transaction isregarded as highly probable if the future delivery is included in
the internally audited order book or is very likely to materialisein view of contractual evidence. The coverage ratio is adjusted
to take into account macroeconomic movements affecting the
spot rates and interest rates, as applicable. For the non-aircraftbusiness EADS hedges in- and outflows in foreign currencies
from sales and purchase contracts typically in low volumes.
The company also has foreign currency derivative instruments
which are embedded in certain purchase and lease contracts
denominated in a currency other than the functional currencyof the significant parties to the contract, principally USD and
GBP. Gains or losses relating to such embedded foreign
currency derivatives are reported in other financial result. In
addition EADS hedges currency risk arising from financialtransactions in other currencies than EUR, such as fundingtransactions or securities.

Interest rate risk – The Group uses an asset-liability
management approach with the objective to limit its interest

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rate risk. The Group undertakes to match the risk profile of its
assets with a corresponding liability structure. The remaining
net interest rate exposure is managed through several types ofinterest rate derivatives in order to minimise risks and financial
impacts.
Hedging instruments that are specifically designated to debt
instruments have at the maximum the same nominal amounts
as well as the same maturity dates compared to the hedged
item. Regarding cash, EADS is mainly investing in short-term
instruments and/or instruments that are related to a floatinginterest index in order to further minimise any interest risk in
its cash and securities portfolio.

Price Risk – The cash and cash equivalents and securities
portfolio of the Group is invested mainly in non-speculative
financial instruments, mostly highly liquid, such as certificatesof deposits, overnight deposits, commercial papers and othermoney market instruments which generally are short term andsubject to only an insignificant price risk. Therefore, the Groupassesses its exposure towards price risk as minor.
Liquidity risk
The Group’s policy is to maintain sufficient cash and cash
equivalents at any time to meet its present and futurecommitments. This is safeguarded by the reported total amountof the Group’s cash and cash equivalents, which is further
supported by a substantial amount of unused committed credit
facility (3.0 billion € as of December 31st, 2006). On a daily
basis, EADS invests any surplus cash mainly in non-speculative
highly liquid financial instruments, such as certificates ofdeposits, overnight deposits, commercial papers and othermoney market instruments which are generally short term.
Credit risk
EADS is exposed to credit risk to the extent of nonperformance by either its customers (e.g. airlines) or its
counterparts with regard to financial instruments. However, theGroup has policies in place to avoid concentrations of credit risk
and to ensure that credit risk is limited.
Cash transactions and derivative counterparts are limited tohigh credit quality financial institutions. For such financialtransactions EADS has set up a credit limit system to actively
manage and limit its credit risk exposure. This limit systemassigns maximum exposure lines to counterparts of financialtransactions, based at a minimum on their credit ratings as
published by Standard & Poors, Moody’s and Fitch IBCA. The
respective limits are regularly monitored and updated.
Sales of products and services are made to customers after
having conducted an appropriate internal credit risk assessment.
In order to support product sales, primarily at Airbus and ATR,EADS may agree to participate in the financing of customers,
on a case-by-case basis, directly or through guarantees provided
to third parties. In determining the amount and terms of thefinancing transaction, Airbus and ATR take into account theairline’s credit rating as well as risk factors specific to theintended operating environment of the aircraft and its expected
future value. Market yields and current banking practices also
serve to benchmark the financing terms offered to customers,
including price.

b) Notional amounts
The contract or notional amounts of derivative financial instruments shown below do not necessarily represent amounts exchangedby the parties and, thus, are not necessarily a measure for the exposure of the Group through its use of derivatives.
The notional amounts of foreign exchange derivative financial instruments are as follows, specified by year of expected maturity:
Year ended December 31, 2006
(in €m)Remaining period

Total

2007

2008

2009

2010

2011

2012

2013

2014

10,97010,358

7,000

3,907

855

0

(1)

(3)

33,086

Purchased USD call options

333

181

114

0

0

0

0

0

628

Purchased USD put options

885

181

114

0

0

0

0

0

1,180

Written USD call options

885

181

114

0

0

0

0

0

1,180

3,564

23

15

0

0

0

0

211

3,813

Foreign Exchange Contracts:
Net forward sales (purchase) contracts
Structured USD forward:

FX swap contracts

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Remaining period

Year ended December 31, 2005(in €m)Total

not exceeding 1 year

1 year up to 5 years

more than 5 years

9,653

27,076365

37,094Purchased USD call options

119

573

0

692

Purchased USD put options

1,495

1,190

0

2,685

Written USD call options

1,495

1,190

0

2,685

625

0

117

742

Foreign Exchange Contracts:
Net forward sales contracts
Structured USD forward:

FX swap contracts

The notional amounts of interest rate contracts are as follows, specified by year of expected maturity:
Remaining period

Year ended December 31, 2006
(in €m)

2008

2009

2010

2011

2012 -17

2018

2019

184

257

140

1,000

15

0

1,542

1,574

4,712

1,000

0

0

0

0

0

0

0

1,000

Interest Rate Contracts
Caps

Total

2007

Year ended December 31, 2005(in €m)Remaining period

Total

not exceeding 1 year

1 year up to 5 years

more than 5 years

105

1,504

2,921

4,530

0

1,000

0

1,000

Interest Rate ContractsCapsc) Fair value of financial instruments
The fair value of a financial instrument is the price at which
one party would assume the rights and/or duties of anotherparty. Fair values of financial instruments have been determinedwith reference to available market information at the balance

sheet date and the valuation methodologies discussed below.
Considering the variability of their value-determining factors
and the volume of financial instruments, the fair values
presented herein may not be indicative of the amounts that theGroup could realise in a current market environment.

The following interest rate curves are used in the determination of the fair value in respect of the financial instruments as ofDecember 31st, 2006 and 2005:
December 31, 2006
Interest rate in %

EUR

USD

GBP

6 months

3.85

5.33

5.45

1 year

4.00

5.29

5.62

5 years

4.13

5.10

5.45

10 years

4.20

5.18

5.18

December 31, 2005
Interest rate in %

EUR

USD

GBP

6 months

2.61

4.68

4.54

1 year

2.84

4.83

4.53

5 years

3.21

4.87

4.53

10 years

3.45

4.96

4.46

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The carrying amounts and fair values of the Group’s major financial instruments are as follows:
December 31,
2006(in €m)2005

Carrying amount

Fair value

Carrying amount

Fair value

1,294

1,294

1,011

1,011

Current portion of long-term financial assets

103

103

237

237

Current securities(1)

549

549

4,189

4,189

8,143

8,143

5,386

5,386

5,757

5,909

5,097

5,381

Currency contracts with positive fair values

5,190

5,190

3,913

3,913

Currency contracts with negative fair values

(67)

(67)

(749)

(749)

Interest rate contracts with positive fair values

52

52

40

40

(164)

(164)

(151)

(151)

25

25

(21)

(21)

Non-derivative Financial Instruments
Assets:Non-current securities

Cash and cash equivalents(1)Liabilities:
Financial liabilities (long-term and short-term)
Derivative Financial Instruments

Interest rate contracts with negative fair values
Embedded foreign currency derivatives with (negative) positive
fair values(1) Regarding the retrospective accounting change of “Current securities” and “Cash and cash equivalents” please refer to Note 2 “Summary of significant accounting policies” and to Note 18“Securities”.

The fair value of financial liabilities as of December 31st, 2006
has been estimated including all future interest payments andalso reflects the interest rate as stated in the tables above. The
fair value of the EMTN bonds has been assessed using public
price quotations.
The European Governments refundable advances of 5,418 M €(in 2005: 5,293 M €) are measured at amortised cost; a fairvalue can not be measured reliably due to their risk sharing
nature and uncertainty about the repayment dates.
Derivative financial instruments regarding currency contracts
with a positive fair value of 5,190 M € are designated as cash

flow hedges in the amount of 5,067 M €; the currency contracts
with a negative fair value of (67) M € are designated as cash
flow hedges in the amount of (66) M €. Interest rate derivative
financial instruments with a positive fair value of 52 M €include derivatives not designated in a hedging relationship in
the amount of 37 M € and derivatives designated as fair value
hedges in the amount of 15 M €. Interest rate derivative
financial instruments with a negative fair value of (164) M € aredesignated as cash flow hedges in the amount of (86) M € and44 M € as fair value hedges. Embedded foreign currency
derivatives are not designated in a hedge relationship.

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The development of the foreign exchange rate hedging instruments recognised in AOCI is as of December 31st, 2006 and 2005 asfollows (for previous year figures adjustments please refer to Note 2 “Summary of significant accounting policies” chapter“Derivative Financial Instruments”):(in €m)Equity attributable
to equity holders of
the parent

Minority interests

January 1, 2005

Total

5,647

0

5,647

Unrealised gains and losses from valuations, net of tax(2,476)0(2,476)

Transferred to profit or loss for the period, net of tax(1,209)0(1,209)Changes in fair values of hedging instruments recorded in AOCI, net of tax(3,685)0(3,685)

December 31, 2005 / January 1, 2006

1,962

0

1,962

2,170

1

2,171

Unrealised gains and losses from valuations, net of tax

(943)

0

(943)

Changes in fair values of hedging instruments recorded in AOCI, net of tax

Transferred to profit or loss for the period, net of tax

1,227

1

1,228

December 31, 2006

3,189

1

3,190

Financial Assets and Liabilities – Generally, fair values are
determined by observable market quotations or valuation
techniques supported by observable market quotations.
By applying a valuation technique, such as present value of
future cash flows, fair values are based on estimates. However,methods and assumptions followed to disclose data presented
herein are inherently judgmental and involve various
limitations like estimates as of December 31st, 2006 and 2005,
which are not necessarily indicative of the amounts that theCompany would record upon further disposal/ termination of
the financial instruments.
The methodologies used are as follows:

Short-term investments, cash, short-term loans,
suppliers – The carrying amounts reflected in the annual
accounts are reasonable estimates of fair value because of therelatively short period of time between the origination of the
instruments and its expected realisation.

Long-term debt; short-term debt – Neither long term nor
short term debt is classified as liabilities held for trading and assuch accounted for at amortised cost.
Securities – The fair value of securities included in availablefor-sale investments is estimated by reference to their quoted
market price at the balance sheet date. If a quoted market priceis not available, fair value is determined on the basis ofgenerally accepted valuation methods on the basis of market
information available at the reporting date.
Currency and Interest Rate Contracts – The fair value ofthese instruments is the estimated amount that the Company
would receive or pay to settle the related agreements as ofDecember 31st, 2006 and 2005.

The following types of financial assets held at December 31st, 2006 are recognised at fair value through profit or loss:(in €m)Nominal amount at initial recognition

Fair value as of December 31st, 2006

3,418

3,459

Money Market Funds (accumulating)
Bond Funds
Total

18

17

3,436

3,476

The cumulative unrealised gain recognised in finance income amounts to 37 M €.
In addition EADS invests in Money Market Funds paying interest on a monthly basis. The fair value of those funds corresponds totheir nominal amount at initial recognition date amounting to 1,598 M €.
All types of Money Market Funds are presented in Cash and cash equivalent.

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31. Share-based Paymenta) Long Term Incentive Plans
Based on the authorisation given to it by the shareholders’meetings (see dates below), the Group’s Board of Directors
approved (see dates below) stock option plans in 2006, 2005,
2004, 2003, 2002, 2001 and 2000. These plans provide to themembers of the Executive Committee as well as to the Group’s
senior management the grant of options for the purchase of
EADS shares. At its 18th, December 2006 meeting, the Board of
Directors of the Company, using the authorisation given to it
by the shareholders’ meeting of 4th, May 2006 approved the
granting of performance shares and restricted shares to eligible
employees of the Company.

For the 2006 Stock Option Plan, analogous to all of EADS’
previous existing stock option plans, the granted exercise price
was exceeding the share price at grant date.
In 2006, compensation expense for Stock Option Plans wasrecognised for an amount of 40 M € (2005: 24 M €).
The fair value of one option granted under the 8th tranche
amounts to €8.37, the fair value of one performance andrestricted shares amounts to €24.26 as of grant date,respectively.

The following major input parameters where used in order to calculate the fair value of the stock options granted:
Input parameters for the Black Scholes Option Pricing Model
SOP 2006

SOP 2005

SOP 2004

25.34

32.79

22.83

25.65

33.91

24.32

Risk-free interest rate (%)

4.13

3.24

3.35

Expected volatility (%)

30.7

24.8

27.0

Estimated option life (years)

5.5

5.5

5.5

Share price (€)
Exercise price (€)

(1)
(2)

(1) The exercise price for the performance and restricted shares are 0 €.
(2) The risk-free interest rate is based on a 5 years zero coupon yield curve.

EADS uses the historical volatilities of its share price as anindicator to estimate the volatility of its stock options granted.
To test whether those historical volatilities sufficiently
approximate expected future volatilities, they are compared tothe implied volatilities of EADS options, which are traded at
the market as of grant date. Such options typically have ashorter life of up to two years. In case of only minor differences
between the historical volatilities and the implied volatilities,

EADS uses historical volatilities as input parameters to theBlack Scholes Option Pricing Model (please refer to Note 2“Summary of significant accounting policies”). For valuation
purposes performance criteria are considered to be met.
The estimated option life of 5.5 years is based on historicalexperience and incorporates the effect of expected early
exercises.

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The principal characteristics of these options, performance and restricted shares as at 31st, December 2006 are summarised in
the tables below:
First Tranche

Second Tranche

Third Tranche

Date of shareholders’ meeting

May 24th, 2000

May 24th, 2000

May 10th, 2001

Date of Board of Directors meeting (grant date)

May 26th, 2000

October 26th, 2000

July 12th, 2001

Number of options granted

5,324,884

240,000

8,524,250

Number of options outstanding

1,743,489

32,0003,856,519

850

34

1,650

Total number of eligible employees
Exercise date

50% of options may be exercised after a period of two years and four weeks from the date of grant of theoptions; 50% of options may be exercised as of the third anniversary of the date of grant of the options(subject to specific provisions contained in the Insider Trading Rules see “Part 2/3.1.3 Governing Law - Dutch Regulations”.

Expiry dateJuly 8th, 2010

Conversion right

July 12th, 2011

One option for one share

Vested

100%

100%

100%

Euro 20.90

Euro 20.90

Euro 24.66

110% of fair market value ofthe shares at the date of grant

110% of fair market value ofthe shares at the date of grant

110% of fair market value ofthe shares at the date of grant

2,856,911

188,000

3,490,831

Exercise price
Exercise price conditions

July 8th, 2010

Number of exercised options

Fourth Tranche

Fifth Tranche

Sixth Tranche

Date of shareholders’ meeting

May 10th, 2001

May 6th, 2003

May 6th, 2003

Date of Board of Directors meeting (grant date)August 9th, 2002

October 10th, 2003

October 8th, 2004

Number of options granted

7,276,700

7,563,980

7,777,280

Number of options outstanding

2,911,916

5,229,965

7,599,700

1,562

1,491

1,495

Total number of eligible employees

Exercise date

50% of options may be exercised after a period of two years and four weeks from the date of grant of theoptions; 50% of options may be exercised as of the third anniversary of the date of grant of the options(subject to specific provisions contained in the Insider Trading Rules see “Part 2/3.1.3 Governing Law - Dutch Regulations”).
As regards to the sixth tranche, part of the options granted to the top EADS Executives are performance related.

Expiry dateAugust 8th, 2012

Conversion rightOctober 7th, 2014

One option for one share

Vested100%

Exercise price
Exercise price conditions

October 9th, 2013
100%

50%

Euro 16.96

Euro 15.65

Euro 24.32

110% of fair market value of theshares at the date of grant

110% of fair market value of theshares at the date of grant

110% of fair market value of theshares at the date of grant

4,115,534

2,116,545

2,400

Number of exercised options

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Seventh Tranche

Eighth Tranche

May 11th, 2005

May 4th, 2006

December 9th, 2005

December 18th, 2006(1)Number of options granted

7,981,760

1,747,500

Number of options outstanding

7,907,600

1,747,500

1,608

221

Date of shareholders’ meeting
Date of Board of Directors meeting(grant date)

Total number of eligible employees

Exercise date

50% of options may be exercised after a period of two years from the date of grant of the options; 50% of
options may be exercised as of the third anniversary of the date of grant of the options(subject to specific provisions contained in the Insider Trading Rules see “Part 2/3.1.3 Governing Law - Dutch Regulations”).
As regards to the seventh tranche, part of the options granted to the top EADS Executives are
performance related.

Expiry date

December 8th, 2015

Conversion right

One option for one share

Vested0%0%Euro 33.91

Euro 25.65

110% of fair market value of the shares at the date of
grant

110% of fair market value of the shares at the date of
grant

0

0

Exercise price
Exercise price conditions

December 16th, 2016

Number of exercised options

Eighth Tranche
Performance share plan

Restricted share plan

1,344,625

391,300

December 18th, 2006(1)December 18th, 2006(1)Number of shares granted
Date of Board of Directors meeting(grant date)
Total number of eligible employees
Vesting date

1,637
The performance and restricted shares will vest if the participant is still employed by an EADS company and, inthe case of performance shares, upon achievement of mid-term business performance. The vesting period willend at the date of publication of the 2009 annual results, expected in March 2010.

(1) The eighth tranche was published to the employees up to January 8 th, 2007.

The following table summarises the development of the number of stock options:
Number of OptionsFirst & Second Tranche

Options granted

Balance at January 1

Exercised

Forfeited

Balance at
December 31

2000

5,564,884--(189,484)

5,375,400

2001-

5,375,400--

5,375,400

2002-

5,375,400--

5,375,400

2003-

5,375,400-(75,000)

5,300,400

2004-

5,300,400(90,500)(336,000)

4,873,900

2005-

4,873,900(2,208,169)(121,000)

2,544,731

2,544,731(746,242)(23,000)

1,775,489

2006

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Number of Options
Third Tranche

Options granted

Balance at January 1

Exercised

Forfeited

Balance at
December 31

2001

8,524,250--(597,825)

7,926,425

2002-

7,926,425--

7,926,425

2003-

7,926,425-(107,700)

7,818,725

2004-

7,818,725-(328,500)

7,490,225

2005-

7,490,225(2,069,027)(132,475)

5,288,723

5,288,723(1,421,804)(10,400)

3,856,519

2006

Number of Options
Fourth Tranche

Options granted

Balance at January 1

Exercised

Forfeited

Balance at
December 31

2002

7,276,700

-

-

(600)

7,276,100

2003-

7,276,100-(70,125)

7,205,975

2004-

7,205,975(262,647)(165,500)

6,777,828

2005-

6,777,828(2,409,389)(9,250)4,359,189

4,359,189(1,443,498)(3,775)2,911,916

Forfeited

Balance at
December 31

2006

Number of Options
Fifth Tranche

Options granted

Balance at January 1

Exercised2003

7,563,980---

7,563,980

2004-

7,563,980(9,600)(97,940)

7,456,440

2005-

7,456,440(875,525)(87,910)

6,493,005

6,493,005(1,231,420)(31,620)

5,229,965

2006

Number of Options
Sixth Tranche

Options granted

Balance at January 1

Exercised

Forfeited

Balance at
December 31

2004

7,777,280---

7,777,280

2005-

7,777,280-(78,220)

7,699,060

7,699,060(2,400)(96,960)

7,599,700

Forfeited

Balance at
December 31

2006

Number of Options
SeventhTranche

2005

Options granted

Balance at January 1

Exercised---

7,981,760

7,981,760-(74,160)

7,907,600

7,981,760

2006

Number of Options
EighthTranche

2006

Total options for all Tranches

Options granted

Balance at January 1

Exercised

Forfeited

Balance at
December 31

1,747,500---

1,747,500

46,436,354-(12,770,221)(2,637,444)

31,028,689

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Number of Shares
Performance/restricted shares plan

Forfeited

Balance at
December 31--

1,344,625--

391,300--

1,735,925

Shares granted

Balance at January 1

VestedPerformance shares in 2006

1,344,625-

Restricted shares in 2006

391,300-

1,735,925-

Total sharesb) Employee Stock Ownership Plan (ESOP)In 2006, no ESOP was issued by the company. Therefore, no compensation expense was recognised in 2006 (2005: 9 M €) inconnection with the ESOPs.

32. Related party transactions
Related parties – The Group has entered into varioustransactions with related companies in 2006, 2005 and 2004 thathave all been carried out in the normal course of business. As is
the Group’s policy, all related party transactions have to be
carried out at arm’s length. Transactions with related parties
include the French State, DaimlerChrysler, Lagardère and SEPI
(Spanish State). Except for the transactions with the French Stateand SEPI, the transactions are not considered material to theGroup either individually or in the aggregate. The transactions
with the French State include mainly sales from the Eurocopter,
Astrium and Defence & Security divisions for programs like
Tiger, M51 / M45 ballistic missiles and SCALP naval cruise
missiles. The transactions with Spanish State include mainly
sales from the MTA division for programs like the A400M.
Remuneration – Remuneration and related compensation costsof all of the members of the Board of Directors in office as at
December 31st, 2006 amounted to 6 M € for the period ended
December 31st, 2006 (in 2005: 8 M €). These amounts do notcomprise the amounts of the estimated cost of stock-based
compensation of Directors.
The 2006 amount does not comprise either the amounts
granted in 2006 to the former Director Noël Forgeard in
remuneration for his membership with the Board of Directors
and under the terms of his employment contract as termination
package. For more information in respect of remuneration offormer Director, see “Notes to the Company Financial
Statements - Note 11: Remuneration”.
EADS has not provided any loans to/advances to/guarantees onbehalf of Directors or former Directors.

In 2006, total remuneration of EADS Executive Committee
members in office as at December 31st, 2006 (therefore
excluding former Executive Committee members, but including
those Executive Board Directors who are also Executive
Committee members) amounted to 11 M € (2005: 13 M €).
Additionally, stock-options granted in 2006 for this group of
managers represented 475,000 options and performance shares
granted in 2006 represented 133,750 shares.
The Executive Committee members have pension promises aspart of their employment agreements. The general policy is to
give them annual pension of 50% of their annual base salary
after five years in the Executive Committee of EADS at the ageof 60 to 65. In case of the CEOs, the retirement age is 60. Thisobligation increases to 60% after ten years of service in the
EADS Executive Committee.
For those Executive Committee members in office as at
December 31st, 2006, the amount of the pension net defined
benefit obligation amounted to 18 M € while the cumulative
amount of current service cost and interest cost related to theirbenefit obligation accounted for during fiscal year 2006
represented an expense of 2 M €.
The Executive Committee members are furthermore entitled to atermination package when they leave the Company as a result ofa decision of the Company. The employment contracts for the
Executive Committee members are concluded for an indefinite
term with an indemnity of up to a maximum of 24 months of
their target income. The maximum 24 months indemnity can be
reduced prorata depending on the age of departure.
Executive Committee members are also entitled to a company car.

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33. Investment property
The Group owns investment property, that is leased to third
parties. For the purposes of IAS 40 “Investment property” thefair values have been determined by using market based

multipliers for estimated rental income or using available
market prices.

Buildings held as investment property are depreciated on a linear basis over their useful life up to 20 years. The values assigned toinvestment property are as follows:

Historicalcost(in €m)Book value of Investment Property

253

AccumulatedBook value
depreciation
December 31,
December 31,
2005
2005

(119)

134

Transfer
Historicalcost

Depreciation
Amortisation

Transfer
Accumulated
depreciation

Accumulated
depreciation
December 31,
2006

Net atDecember 31,
2006

18

(12)

(3)

(134)

137

As of December 31st, 2006, the fair value of the Group’s investment property amounts to 154 M € (in 2005: 134 M €). Related
rental income in 2006 is 15 M € (in 2005: 15 M €) with direct operating expenses amounting to 7 M € (in 2005: 8 M €).

34. Interest in Joint Ventures
The Group’s principal investments in joint ventures and the proportion of ownership are included in Appendix “Information on
principal investments”. Joint ventures are consolidated using the proportionate method.
The following amounts represent the Group’s aggregate share of the assets and liabilities and income and expenses of the significant
joint ventures (MBDA, Atlas and ATR):(in €m)

2006

2005

Non current assets

830

680

3,503

3,379

612

362

Current liabilities

3,245

3,162

Revenues

2,006

1,828

170

121

Current assets

Non current liabilities

Profit for the period

35. Earnings per Share
The profit for the period attributable to equity holders of theparent (Net income) for 2004 was adjusted due to retrospective
application of IFRS 2 “Share-based Payment” amounting to(12) M € and due to IAS 32 “Financial Instruments: Disclosureand Presentation” (revised 2004) in 2004 with an amount of
185 M €.

110 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

Basic earnings per share – Basic earnings per share arecalculated by dividing profit for the period attributable toequity holders of the parent (Net income) by the weighted
average number of issued ordinary shares during the year,
excluding ordinary shares purchased by the Group and held astreasury shares.

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2006

Profit for the period attributable to equity holders of the parent (Net income)Weighted average number of ordinary shares
Basic earnings per share

The effect from applying in 2006 the IAS 19 equity approachinstead of the corridor approach contributes 0.03 € to basic
earnings per share. For further details please refer to Note 2“Summary of significant accounting policies” and Note 21 b)“Provisions for retirement plans”.

Diluted earnings per share – For the calculation of thediluted earnings per share, the weighted average number ofordinary shares is adjusted to assume conversion of all potential

Profit for the period attributable to equity holders of the parent (Net income)Weighted average number of ordinary shares
Diluted earnings per share

2005

2004

99 M €

1,676 M €1,203 M €800,185,164

794,734,220

801,035,035

0.12 €

2.11 €

1.50 €

ordinary shares. The Group’s only category of dilutive potential
ordinary shares is stock options. In 2006, the average shareprice of EADS exceeded the exercise price of the stock options
under the 1st, 2nd, 3rd, 4th, 5th and 6th stock option plan (in 2005:
1st, 2nd, 3rd, 4th, 5th, and 6th stock option plan; in 2004: 4th and5th stock option plan). Hence, 4,130,499 shares (2005: 5,482,133
shares; 2004: 3,047,837 shares) were considered in thecalculation of diluted earnings per share.

2006

2005

2004

99 M €

1,676 M €1,203 M €804,315,663

800,216,353

804,082,872

0.12 €

2.09 €

1.50 €The effect from applying in 2006 the IAS 19 equity approach instead of the corridor approach contributes 0.03 € to diluted
earnings per share. For further details please refer to Note 2 “Summary of significant accounting policies” and Note 21 b)“Provisions for retirement plans”.

36. Number of Employees
The number of employees at December 31st, 2006 is 116,805 as compared to 113,210 at December 31st, 2005.

37. Events after the balance sheet date
Following an agreement dated January 10th, 2007, EADS soldits remaining 60% shares of Sogerma Services as well as theshares of the subsidiaries Barfield and Sogerma Tunisia (pleasealso refer to Note 19 “Non-current assets / disposal groups
classified as held for sale”).
EADS sold on February 12th, 2007 its 2.1% share in EMBRAER
Empresa Brasileira de Aeronáutica S.A. for a total proceed(before taxes and bank fees) of 124 M €.
On February 28th, 2007, the Airbus management disclosed therestructuring portion of its program called ”Power 8“ to the
public and to the Airbus European Works Council. The Airbus
management will implement strong cost reductions and cash
generating efforts leading to expected EBIT contributions of

2.1 billion € from 2010 onwards and additional 5 billion € ofcumulative cash flow from 2007 to 2010. The restructuring
program includes a progressive headcount reduction of 10,000
overhead positions over four years of which 5,000 are
temporary or on-site subcontractors. Furthermore, Airbus will
focus on its core activities in the future, therefore is seeking
partners for sites like for Nordenham, Filton and Méaulte toinvest into composite technology. The sites of Varel, Laupheimand St. Nazaire-Ville will be offered for sale or gathered withnearby sites. In addition, Airbus will streamline for future andexisting programs its final assembly lines in the different
countries. This includes a third A320 family final assembly line
in Hamburg in order to manage the steep ramp-up of thisprogram. The A350XWB will be assembled in Toulouse andthe future New Short Range in Hamburg. Also, Airbus will

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introduce a fully integrated and transnational organisation.
Therefore, Airbus will replace the current organisation of eightnationally structured Centres of Excellence by fourtransnational centres of excellence. Finally, Airbus will makeuse of shared services within EADS. Regarding the expected
restructuring costs related to the Power 8 program, Airbus will
set up restructuring provisions in its first quarter of 2007
accounts.
EADS published on March 2nd, 2007 that the A380F program
has been re-scheduled but remains an active part of the A380
aircraft family. Therefore, activities for the A380F program havebeen interrupted, including activities of the suppliers. The U.S.
logistics company UPS subsequently cancelled its order of ten
A380F aircraft.
These consolidated financial statements have been authorisedfor issuance by the Board of Directors on March 8th, 2007.

112 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

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Appendix: Information on principal investments - Consolidation Scope
2006

%

2005

%

F

80.00

Company

Head office

Airbus128829 Canada Inc.

CanadaAD Grundstückgesellschaft GmbH

Pöcking (Germany)F

100.00F

80.00

AFS (Cayman) Ltd

IrelandF

100.00F

80.00

AFS Cayman 11 Limited

Cayman Isle

F

100.00F

80.00

AFS Cayman Aerospace Limited

IrelandF

80.00

AFS USA 1 inc

U.S.A.

F

100.00F

80.00

AI leasing Inc.

U.S.A.

F

100.00F

80.00

AI Participations S.A.R.L.

Blagnac (France)

F

80.00

AIFI LLC

Isle Of Man

F

100.00F

80.00

AIFS (Cayman) ltd.

Cayman Isle

F

100.00F

80.00

AIFS Cayman Liquidity ltd.

Cayman Isle

F

100.00F

80.00

AIFS Leasing Company Limited

IrelandF

100.00F

80.00

Airbus North American Holdings Inc. (AINA Inc.)

U.S.A.

F

100.00F

80.00

Airbus A320 Financing limited

IrelandF

100.00F

80.00

Airbus China limited

Hong-KongF

100.00F

80.00

Airbus Deutschland GmbH

Hamburg (Germany)F

100.00F

80.00

Airbus Espana SL

Madrid (Spain)F

100.00F

80.00

Airbus Finance Company Ltd

Dublin (Ireland)

F

100.00F

80.00

Airbus Financial Service Holdings B.V.

Netherlands

F

80.00

Airbus Financial Service Holdings ltd.

IrelandF

100.00F

80.00

Airbus Financial Service Unlimited

IrelandF

100.00F

80.00

Airbus France S.A.S

Toulouse (France)F

100.00F

80.00

Airbus Holding SA

FranceF100.00F

80.00

Airbus Invest

Toulouse (France)F

100.00F

80.00

Airbus North America Engineering

U.S.A.

F

100.00F

80.00

Airbus North American Holdings Inc. (AINA)

U.S.A.

F

100.00F

80.00

Airbus S.A.S

Toulouse (France)F

100.00F

80.00

Airbus North America Customer Service, Inc. (ASCO)

U.S.A.

F

100.00F

80.00

Airbus Transport International S.N.C. (ATI)

Blagnac (France)

F

80.00

Airbus Treasury Company

IrelandF

100.00F

80.00

Airbus UK Limited

UK

E

16.00

Alexandra Bail G.I.E

FranceF

80.00

Avaio Aerospace Limited

IrelandF

80.00

Avaio Aviation Limited

IrelandF

80.00

Avaio International Limited

IrelandF

80.00

Avaio Leasing Limited

IrelandF

100.00F

80.00

Avaio Limited

Isle Of Man

F

100.00F

80.00

Aviateur Aerospace Limited

IrelandF

100.00F

80.00

Aviateur Eastern Limited

IrelandF

100.00F

80.00

Aviateur Finance Limited

Ireland

F: Fully consolidated.
P: Proportionate. E: Equity method.
The stated percentage of ownership is related to the respective parent company.

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2006

2005

%

Company

Head officeF

100.00F

80.00

Aviateur International Limited

IrelandF

100.00F

80.00

Aviateur Leasing Limited

IrelandF

80.00

Aviateur Limited

IrelandE

26.40

Avion Capital Limited

IrelandF

80.00

Avion Finance Limited

IrelandF

80.00

AVSA Canada Inc.

CanadaF

80.00

AVSA SARL

Blagnac (France)

NorbusU.S.A.

E
F

%

26.40
100.00F

100.00

F

80.00

F

100.00F

80.00

Star Real Estate SAS

Boulogne (France)F

100.00F

80.00

Total Airline Service Company

United Arab Emirates

Additionally consolidated are 41 SPEs.
Military Transport Aircraft
F

90.00

F

76.12

Airbus Military S.L.

Madrid (Spain)F

100.00F

100.00EADS CASA North America, Inc

Chantilly / Virginia (USA)F

100.00F

100.00EADS CASA S.A. (Unit: EADS CASA Military Transport
Aircraft)

Madrid (Spain)

F

77.21

F

76.41

EADS PZL “WARSZAWA-OKECIE” S.A.

Warsaw (Poland)

F

100.00F

100.00AA military maintenance Pty. Ltd.

Brisbane (Australia)

F

100.00F

100.00AA New Zealand Pty. Ltd.

Bankstown (Australia)

F

100.00F

100.00American Eurocopter Corp.

Dallas, Texas (USA)

F

60.00

F

60.00

American Eurocopter LLC

Dallas, Texas (USA)F

100.00F

100.00Australian Aerospace Ltd.

Bankstown (Australia)

F

100.00F

100.00EIP Holding Pty. Ltd.

Bankstown (Australia)

F

75.00

F

75.00

Eurocopter South East Asia Pte. Ltd.

Singapore (Singapore)F

100.00F

100.00Eurocopter Canada Ltd.

Ontario (Canada)F

100.00F

100.00Eurocopter Deutschland GmbH

Donauwörth (Germany)F

100.00F

100.00Eurocopter España S.A.

Madrid (Spain)F

100.00F

100.00Eurocopter Holding S.A.

Paris (France)F

100.00F

100.00Eurocopter S.A.S.

Marignane (France)F

100.00Eurocopter Training Services SAS

Marignane (France)

Eurocopter

F

76.52

E

25.00

F

F

100.00

F

P

37.50

F

100.00E

76.52

Helibras - Helicopteros do Brasil S.A.

Itajuba (Brazil)

HFTS Helicopter Flight Training Services GmbH

Hallbergmoos (Germany)

100.00Aircraft Services Lemwerder GmbH

Lemwerder (Germany)

P

37.50

ALKAN

Valenton (France)F

100.00

Apsys

Suresnes (France)

13.20

Arbeitsgemeinschaft Marinelogistik

Bremen (Germany)

Defence & Security

E

12.00

Atlas Defence Technology SDN.BHD

Kuala Lumpur (Malaysia)

P

40.00

Atlas Elektronik PTY Limited

St. Leonards (Australia)

P

40.00

Atlas Elektronik GmbH

Bremen (Germany)

P

40.00

Atlas Hydrographic Holdings PTY Limited

St. Leonards (Australia)

P

40.00

Atlas Hydrographic GmbH

Bremen (Germany)

P

40.00

Atlas Maridan ApS

Horsholm (Denmark)

P

40.00

Atlas Naval Systems Malaysia SDN.BHD.

Kuala Lumpur (Malaysia)

F: Fully consolidated.
P: Proportionate. E: Equity method.
The stated percentage of ownership is related to the respective parent company.
114 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

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2006

2005

%

Company

Head office

F

55.00

F

55.00

Aviation Defense Service S.A.

Saint-Gilles (France)

P

50.00

P

50.00

Bayern-Chemie Gesellschaft für flugchemische Antriebe mbH

Aschau/Inn (Germany)

E

16.00

CybiCOM Atlas Defence (Proprietary) Limited

Umhlanga Rocks, South Africa

F

100.00F

100.00

Defense Security Systems Solutions Inc.

San Antonio, Texas (USA)F

100.00F

100.00Dornier Consulting GmbHFriedrichshafen (Germany)F

100.00F

100.00Dornier Flugzeugwerft GmbHFriedrichshafen (Germany)F

100.00F

100.00EADS CASA S.A. (Unit: Military Aircraft)

Madrid (Spain)F

100.00F

100.00EADS CASA S.A. (Unit: Operations Service)

Madrid (Spain)F

100.00F

100.00EADS Defence & Security Systems Limited

Newport, Wales (UK)F

100.00F

100.00EADS Defence & Security Systems Limited - Holding

Newport, Wales (UK)F

100.00F

100.00EADS Defence & Security Systems SA

Velizy (France)F

100.00EADS Deutschland GmbH – Defence Headquarter [before:
VA Restaktivitäten]Unterschleißheim (Germany)F

100.00EADS Deutschland GmbH - Dornier Services

Friedrichshafen (Germany)F%

100.00F

100.00F

100.00EADS Deutschland GmbH - Dornier Verteidigung und Zivile
SystemeFriedrichshafen (Germany)F

100.00F

100.00EADS Deutschland GmbH - Military Aircraft TB 51

Munich (Germany)F

100.00F

100.00EADS Deutschland GmbH – Verteidigung und Zivile Systeme

Ulm (Germany)F

100.00F

100.00EADS Deutschland GmbH (Unit: Operations Services)

Unterschleißheim (Germany)F

100.00F

100.00EADS North America Defense Company

Wilmington, Delaware (USA)F

100.00F

100.00EADS Operations & Services UK

Yeovil, Somerset (UK)F

100.00F

100.00EADS Secure Networks Oy

Helsinki (Finland)

F

100.00F

100.00EADS Secure Networks SAS

Bois d’Arcy (France)F

100.00F

100.00EADS Services

Boulogne (France)F

100.00F

100.00EADS System & Defence Electronics Belgium

Oostkamp (Belgium)

F

100.00F

100.00EADS Telecom Deutschland GmbHUlm (Germany)F

100.00F

100.00EADS Telecom Deutschland GmbH

Unterschleißheim (Germany)F

100.00F

100.00EADS Telecom Espana

Madrid (Spain)F

100.00F

100.00EADS Telecom Mexico SA de CV

Mexico DF (Mexico)F

100.00ECATSParis (France)

E

30.00

E

30.00

ESG Elektroniksystem- und Logistikgesellschaft

Munich (Germany)F

100.00EUROBRIDGE Mobile Brücken GmbHFriedrichshafen (Germany)F

100.00Ewation GmbHUlm (Germany)F

100.00F

100.00Fairchild Controls Corporation

Frederick Maryland (USA)F

100.00F

100.00FmElo Elektronik- und Luftfahrtgeräte GmbHUlm (Germany)F

100.00F

100.00Germantown Holding Company

Frederick Maryland (USA)F

100.00F

100.00Gesellschaft für Flugzieldarstellung mbH

Hohn, Germany

F

100.00Get Electronique S.A.

Castres (France)F

100.00F

100.00Hagenuk Marinekommunikation GmbH

Flintbek (Germany)F

100.00IFR France S.A.

Blagnac (France)F

100.00F

100.00Integrated Defense Systems NA

Wilmington, Delaware (USA)

P

37.50

F

81.25

LFK – Lenkflugkörpersysteme GmbH

Unterschleißheim (Germany)F

100.00F

100.00

M.P. 13

Paris (France)

P

50.00

P

50.00

Maîtrise d’Oeuvre SyStème

Issy les Moulineaux (France)F

100.00F

100.00Manhattan Beach Holdings Co.

Frederick Maryland (USA)

F: Fully consolidated.
P: Proportionate. E: Equity method.
The stated percentage of ownership is related to the respective parent company.
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2006

2005

%

Company

Head office

P

37.50

%

P

37.50

Marconi Overside Ldt.

Chelmsford (UK)F

100.00F

100.00

Matra Aerospace Inc.

Frederick Maryland (USA)F

100.00F

100.00

Matra Défense

Velizy (France)

P

37.50

P

37.50

Matra Electronique

La Croix Saint-Ouen (France)F

100.00F

100.00

Matra Holding GmbH

Frankfurt (Germany)

P

37.50

P

37.50

MBDA France

Velizy (France)

P

37.50

P

37.50

MBDA Holding

Velizy (France)

P

37.50

P

37.50

MBDA Inc

Westlack, CA (USA)

P

37.50

P

37.50

MBDA Italy SpA

Roma (Italy)

P

37.50

P

37.50

MBDA M S.A.

Chatillon sur Bagneux (France)

P

37.50

P

37.50

MBDA SAS

Velizy (France)

P

37.50

P

37.50

MBDA Services

Velizy (France)

P

37.50

P

37.50

MBDA Treasury

Jersey (UK)

P

37.50

P

37.50

MBDA UK Ltd.

Stevenage, Herts (UK)

E

26.80

Patria Industries Oyj

Finland

F

80.00

F

80.00

Pentastar Holding

Paris (France)F

100.00F

100.00

Proj2

Paris (France)

P

50.00

P

50.00

Propulsion Tactique S.A.

La Ferte Saint Aubin (France)F

100.00F

100.00

Racal Instruments US

San Antonio, Texas (USA)F

100.00F

100.00

Racal Instruments UK

Wimborne, Dorset (UK)

E

33.00

E

33.00

Reutech Radar Systems (Pty) Ltd.

Stellenbosch (South Africa)

E

18.75

E

18.75

Roxel

Saint-Médard-en-Jalles (France)F

100.00

Sofrelog S.A.

Bozons (France)

P

40.00

Sonartech Atlas Pty Ltd.

St. Leonards (Australia)

F

100.00F

100.00Sycomore S.A.

Boulogne-Billancourt (France)F

100.00F

100.00

Talon Instruments

San Dimas, CA (USA)

P

25.13

F

67.00

TAURUS Systems GmbH

Schrobenhausen (Germany)

P

37.50

F

100.00

TDW- Ges. für verteidigungstechnische Wirksysteme GmbH

Schrobenhausen (Germany)

E

25.00

Telefunken Radio Communication Systems GmbH & Co. KG

Ulm (Germany)F

100.00F

100.00

Test & Services France

Velizy (France)

F

99.99

F

99.99

Test & Services North America

Wilmington, Delaware (USA)F

100.00F

100.00TYX Corp.

Reston, VA (USA)

E

50.00

E

50.00

United Monolithic Semiconductors France SAS

Orsay (France)

E

50.00

E

50.00

United Monolithic Semiconductors Holding

Orsay (France)

E

50.00

E

50.00

United Monolithics Semiconductor GmbHUlm (Germany)

F

90.00

F

90.00

UTE CASA A.I.S.A.

Madrid (Spain)F

100.00F

100.00Astrium GmbH - Satellites (in 2005: EADS Astrium GmbH)

Munich (Germany)F

100.00F

100.00Astrium GmbH - Space Transportation (in 2005: EADS SpaceTransportation GmbH)

Munich (Germany)F

100.00F

100.00Astrium Holding SAS (in 2005: EADS Space Transportation(Holding) SAS)

Paris (France)F

100.00F

100.00Astrium Ltd. - Satellites (in 2005: EADS Astrium Ltd.)

Stevenage (UK)

Astrium

F: Fully consolidated.
P: Proportionate. E: Equity method.
The stated percentage of ownership is related to the respective parent company.

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2006

2005

%

Company

Head officeF

100.00%F

100.00Astrium SAS - Satellites (in 2005: EADS Astrium SAS)

Toulouse (France)F

100.00F

100.00Astrium SAS - Services (in 2005: EADS Space Management &Services SAS)

Paris (France)F

100.00F

100.00Astrium SAS - Space Transportation (in 2005: EADS SpaceTransportation SAS)

Les Muraux (France)F

100.00Astrium Services GmbH

Ottobrunn (Germany)F

100.00F

100.00Computadoras, Redes e Ingenieria SA (CRISA)

Madrid (Spain)F

100.00Dutch Space B.V.

Leiden (Netherlands)

F

100.00F

100.00EADS Astrium Jersey Ltd.

Jersey (UK)F

100.00F

100.00EADS Astrium N.V.

The Hague (Netherlands)

F

100.00EADS Astrium SL

Madrid (Spain)F

100.00F

100.00EADS CASA Espacio S.L.

Madrid (Spain)F

100.00F

100.00EADS Deutschland GmbH – Space Services

Munich (Germany)F

100.00EADS Space B.V.

Amsterdam (Netherlands)

F

100.00EADS Space Transportation N.V.

Amsterdam (Netherlands)

F

100.00F

100.00

Infoterra GmbHFriedrichshafen (Germany)F

100.00F

100.00

Infoterra Ltd

Southwood (UK)F

100.00

Infoterra SAS

Toulouse (France)F

100.00F

100.00

Matra Marconi Space UK Ltd.

Stevenage (UK)MilSat Services GmbH

Bremen (Germany)

100.00MMS Systems Ltd

Stevenage (UK)

F

75.00

F

100.00

F

E

47.40

E

47.40

Nahuelsat S.A.

Buenos Aires (Argentina)

F

100.00F

100.00

Paradigm Secure Communications (Holding) Ltd.

Stevenage (UK)F

100.00F

100.00

Paradigm Secure Communications Ltd

Stevenage (UK)F

100.00F

100.00

Paradigm Services Ltd

Stevenage (UK)

F

89.98

Sodern S.A.

Limeil Brevannes (France)

E

40.03

Spot Image

Toulouse (France)F

100.00F

100.00TESAT-Spacecom Geschäftsführung GmbH

Backnang (Germany)F

100.00F

100.00TESAT-Spacecom GmbH & Co. KG

Backnang (Germany)

Other Businesses
F

80.00

F

80.00

Aerobail GIE

Paris (France)

P

50.00

P

50.00

ATR Eastern Support

Singapore (Singapore)

P

50.00

P

50.00

ATR GIE

Toulouse (France)

P

50.00

P

50.00

ATR International SARL

Toulouse (France)

P

50.00

P

50.00

ATR North America Inc.

Washington D.C. (USA)

P

50.00

P

50.00

ATR Training Center SARL

Toulouse (France)

P

50.00

P

50.00

ATRiam Capital Ltd.

Dublin (Ireland)

F

50.10

F

50.10

Composites Aquitaine S.A.

Salaunes (France)

F

50.00

F

50.00

Composites Atlantic Ltd.

Halifax (Canada)

F

88.00

EADS Aeroframe services LLC

Lake Charles, Louisiana (USA)F

100.00F

100.00EADS ATR S.A.

Toulouse (France)

E

49.99

E

49.99

EADS Revima APU S.A.

Caudebec en Caux (France)F

100.00F

100.00EADS Revima S.A.

Tremblay en France (France)F

100.00F

100.00EADS Seca S.A.

Le Bourget (France)F

100.00F

100.00EADS Socata S.A.

Le Bourget (France)

F: Fully consolidated.
P: Proportionate. E: Equity method.
The stated percentage of ownership is related to the respective parent company.
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2006

2005

%

Company

Head office100.00F

100.00EADS Sogerma S.A.

Mérignac (France)

F

50.10

F

50.10

EADS Sogerma Tunisie

Monastir (Tunisia)F

100.00F

100.00Elbe Flugzeugwerke GmbH

Dresden (Germany)F

100.00F

100.00

Maroc Aviation S.A.

Casablanca (Morocco)F

100.00F

100.00Noise Reduction Engineering B.C.

Washington D.C. (USA)F

100.00F

100.00

Socata Aircraft Inc.

Miami, Florida (USA)F

100.00F

100.00

Sogerma America Barfield B.C.

Miami, Florida (USA)F

100.00

Sogerma Drawings S.A.

Mérignac (France)

Sogerma Services S.A.

Mérignac (France)

Aero Precision

(USA)

F

F

%

60.00

Additionally consolidated are 23 SPCs.
Headquarters
E

23.15

F

75.00

E

F

100.00Airbus Financial Company Holding B.V.

Dublin (Ireland)

F

75.00

DADC Luft- und Raumfahrt Beteiligungs AG

Munich (Germany)

E

46.30

Dassault Aero Service(France)

Dassault Aircraft Services

(USA)

E

46.30

Dassault Assurances Courtage(France)

46.30

E

46.30

E

46.30

Dassault Aviation

Paris (France)

E

46.30

E

46.30

Dassault Falcon Jet

Teterboro N.J. (USA)

E

46.30

E

46.30

Dassault Falcon Jet

Wilmington (USA)

E

46.30

E

46.30

Dassault Falcon Service

Bonneuil en France

E

46.30

E

46.30

Dassault lnternational (USA) lnc

Paramus N.J. (USA)

E

46.30

E

46.30

Dassault Procurement Services lnc

Paramus N.J. (USA)

E

46.30

Dassault Sagem Tactical U A V(France)E

46.30

Dassault-Reassurance(France)F

97.11

Dornier Zentrale

Friedrichshafen (Germany)

F

97.11

F

88.00

EADS Aeroframe Services LLC

Lake Charles, Louisiana (USA)F

100.00EADS Airbus Holding SAS

Paris (France)F

100.00F

100.00EADS CASA France

Paris (France)F

100.00F

100.00EADS CASA S.A. (Headquarters)

Madrid (Spain)F

100.00F

100.00EADS Deutschland GmbH – Zentrale

Munich (Germany)F

100.00F

100.00EADS Deutschland GmbH, FO - Forschung

Munich (Germany)F

100.00F

100.00EADS Deutschland GmbH, LO - Liegenschaften OTN

Munich (Germany)F

100.00F

100.00EADS Dornier Raumfahrt Holding GmbH

Ottobrunn (Germany)F

100.00F

100.00EADS Finance B.V.

Amsterdam (Netherlands)

F

100.00F

100.00EADS France

Paris (France)F

100.00F

100.00EADS North America Inc.

Washington D.C. (USA)

F

97.11

F

97.11

EADS Real Estate Dornier Grundstücke GmbH & Co. KG

Taufkirchen (Germany)F

100.00F

100.00EADS Real Estate Objekt Nabern GmbH & Co. KG

Taufkirchen (Germany)F

100.00EADS Sogerma Participant

Lake Charles, Louisiana (USA)

E

23.15

Falcon Training CenterFranceE

46.30

Midway

USA

E

46.30

Sogitec Industries

Suresnes (France)

E

46.30

F: Fully consolidated.
P: Proportionate. E: Equity method.
The stated percentage of ownership is related to the respective parent company.

118 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

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Auditors‘ Report on the Consolidated Financial Statements (IFRS)
To: The European Aeronautic Defence and Space Company EADS N.V. shareholders.

Report on the Consolidated Financial Statements
We have audited the accompanying 2006 consolidated financial statements which are part of the financial statements of European
Aeronautic Defence and Space Company EADS N.V., Amsterdam, authorised for issue on March 8, 2007, which comprise theconsolidated balance sheets as at December 31st, 2006, the income statements, the statements of changes in equity and thestatements of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management’s responsibility
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil
Code, and for the preparation of the report of the Board of Directors in accordance with Part 9 of Book 2 of the Netherlands Civil
Code. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fairpresentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit inaccordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, theauditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements give a true and fair view of the financial position of European Aeronautic
Defence and Space Company EADS N.V. as at December 31st, 2006, and of its result and its cash flows for the year then ended inaccordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of book 2 of theNetherlands Civil Code.

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Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the extent of ourcompetence, that the report of the Board of Directors is consistent with the company financial statements as required by 2:391 sub
4 of the Netherlands Civil Code.
Rotterdam, March 19, 2007

Amsterdam, March 19, 2007

KPMG Accountants N.V

Ernst & Young Accountants

L.A. Blok

F.A.L. van der Bruggen

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1.2.2 Company Financial Statements
Balance Sheet of the Company Financial Statements(in €m)Assets

Note

December 31,

December 31,

2006

2005

Fixed assets
Goodwill

2

4,354

4,354

Financial fixed assets

2

12,29812,706

16,652

17,060Non-fixed assets
Receivables and other assets

3

4,387

3,959

Securities

4

1,660

5,005

Cash and cash equivalents

4

6,862

3,093

Total assets

12,90912,05729,561

29,117

Liabilities and stockholders’ equity
Stockholders’ equity (1)5Issued and paid up capital

816

818

Share premium

8,160

8,715

Revaluation reserves

3,657

2,359

Other legal reserves

1.472

1.993

Treasury shares

(349)

(445)

Retained earnings

(741)

(386)

13,015

13,054

320357

Non-current liabilities
Financial liabilities

6

Non current other liabilities

6

1,518

1,523

1,838

1,880

Current liabilities
Liability for puttable instruments

7

-

3,500

Current other liabilities

8

14,708

10,683

14,70814,18329,561

29,117

2006

2005

Income from investments

95

1,692

Other results

4

(16)

Net result

99

1,676

Total liabilities and stockholders` equity(1) The balance sheet is prepared after appropriation of the net result.

Income Statement of the Company Financial Statements(in €m)EADS FIN ANCIA L S TATEMENTS AND CORPORATE GOVERN ANCE 121

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Notes to the Company Financial Statements
1.1 General
EADS N.V., having its legal seat in Amsterdam, theNetherlands, is engaged in the holding, coordinating andmanaging of participations or other interests in and to financeand assume liabilities, provide for security and/or guarantee
debts of legal entities, partnerships, business associations andundertakings that are involved in the aeronautic, defence, space
and/or communication industry or activities that arecomplementary, supportive or ancillary thereto.
The company financial statements are part of the 2006 financial
statements of EADS N.V.
The description of the company’s activities and the groupstructure, as included in the notes to the consolidated financial
statements, also apply to the company financial statements. In
accordance with article 402 Book 2 of the Dutch Civil Code thestatement of income is presented in abbreviated form.

1.2 Principles for the measurement of assets andliabilities and the determination of the result
For setting the principles for the recognition and measurementof assets and liabilities and determination of the result for its
company financial statements, EADS N.V. makes use of theoption provided in section 2:362 (8) of the Netherlands Civil
Code. As from 2005, the Netherlands Civil Code allows thatthe principles for the recognition and measurement of assets
and liabilities and determination of the result (hereinafterreferred to as principles for recognition and measurement) of
the company financial statements of EADS N.V. are the same as
those applied for the consolidated EU-IFRS financial
statements. These consolidated EU-IFRS financial statements
are prepared according to the standards laid down by theInternational Accounting Standards Board and adopted by the

122 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

European Union (hereinafter referred to as EU-IFRS). Please see
note 2 of the consolidated financial statements for a descriptionof these principles. Participating interests, over whichsignificant influence is exercised, are stated on the basis of theequity method.
The share in the result of participating interests consists of theshare of EADS N.V. in the result of these participatinginterests. Results on transactions, where the transfer of assets
and liabilities between EADS N.V. and its participatinginterests and mutually between participating interests
themselves, are not incorporated insofar as they can be deemed
to be unrealised.
Undistributed results from investments are included in theother legal reserves.

1.3 Changes in accounting principles
The amendment to IAS 19 introduces the accounting for
actuarial gains and losses in connection with pension plansoutside the income statement within retained earnings as athird option. EADS has decided to apply the newly introduced
alternative for the accounting for actuarial gains and losses
arising from defined benefit plans. Consequently, EADS now
recognises changes in actuarial gains and losses in full for all its
defined benefit plans immediately in retained earnings. Thechange in accounting principles relates to subsidiaries. EADS
NV itself does not have defined benefit pension arrangements.
Prior periods had been presented using the corridor approach .
For purpose of comparison, the comparative figures have beenadjusted on the basis of modified accounting principles.
For further information, please see note 2 of the consolidated
IFRS financial statements.

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1.4 Summary of the effect of changes in accounting principle
The effect of the modified accounting principle in the company balance sheets is presented in the summary below:
1st January 2005(in €m)Reported in prior year

31st December 2005

Financial
Fixed Assets

Stockholders’EquityFinancial
Fixed Assets

Stockholders’Equity14,63916,21013,37813,726

Effect change in accounting principle

(397)

(397)

(672)

(672)

Prior year adjusted

14,242

15,813

12,706

13,054

In 2006, the change contributes € 25 million to net income. Actuarial gains and losses in the shareholders’ equity at year-end 2006
amount to € -1,363 million.
The prior years’ company income statements were not affected by the change in accounting principle.

2. Fixed assets
The goodwill acquisition costs end of 2006 amount to € 5,676 million (2005: € 5,676 million) and the cumulative amortisation andimpairments to € 1,322 million (2005: € 1,322 million).
The movements in financial fixed assets are detailed as follows:(in €m)Balance at December 31, 2005

Affiliated Companies

Participations

Loans

Total

10,88977

1,740

12,706

5

548

553

(96)

(833)

Acquisitions/additions
Reductions/redemptions
SOP/ESOP

(737)
40

40

Net income from investments

92

Actuarial gains/losses IAS 19(691)

Dividends received

(529)

(2)

Translation differences/other changes

993

(7)

(27)

959

10,05776

2,165

12,298

Balance at December 31, 2006

3

95
(691)
(531)

The translation differences/other changes reflect mainly the impact in the other comprehensive income related to the application of
IAS 39.
The reductions in affiliated companies relates mainly to a decrease of the determined fair value of the 20% Airbus share inconnection with the put option BAE Systems exercised in June 2006. Further information is provided in note 4 of the consolidated
financial statements.
Significant subsidiaries, associates and joint ventures are listed in the appendix “Information on principal investments” to theconsolidated financial statements.
The loans are provided to affiliated companies.

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3. Receivables and other assets(in €m)

2006

2005

Receivables from affiliated companies

4,253

3,841

Receivables from related companies

22

26

Other assets

112

92

4,387

3,959

Total receivables and other assets

The receivables from affiliated companies include mainly receivables in connection with the cash pooling in EADS N.V.
All receivables and other assets mature within one year.

4. Securities, Cash and cash equivalents
The securities comprise mainly available-for-sale Securities.
For 2006 year-end financial statements, EADS restricted its
interpretation of cash equivalents definition. EADS now strictly
limits its cash equivalents to such investments having amaturity of three months or less from acquisition date. The
previous year figures have been reclassified in an amount of€ 4,159 million to Securities. For further information, pleasesee note 2 of the consolidated financial statements.

5. Stockholders’ equity
Capital
stock

Share
premium
fromcontributions

Sharepremiumfromcash

Revaluation
reserves

Other
legal
reserves

TreasurysharesRetainedearnings

Total
equity

810

8,459

493

5,999

1,836

(177)

(1,607)

15,813

1,676

1,676

(in €m)Balance at December 31, 2004
Capital increase

9

178

187

Net income
ESOP/SOP IFRS 2

33

Cash distribution(396)

Transfer to other legal reserves

488

Purchase of treasury shares
Cancellation of shares
Balance at December 31, 2005
Capital increase

(488)
(288)

(1)

(19)

Others
818

8,459

5

256

33
(396)
(288)

20
(3,640)

(331)

2,359

1,993

(3,971)
(445)

(386)

89

13,05494

Net income

99

99

ESOP/SOP IFRS 2

40

40

Cash distribution

(299)

(221)

(520)

Transfer to other legal reserves

494

Purchase of treasury shares
Cancellation of shares

(35)
(7)

(124)

OthersBalance at December 31, 2006

(494)

816

8,160

-

131
1,298

(1,015)

3,657

1,472

283
(349)

For further information to the Stockholders’ equity, please see note 20 of the consolidated financial statements.

124 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

(35)

(741)

13,015

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The revaluation reserves result from positive reserves of €3,188 million (2005: € 1,962 million) resulting from changes in
the fair values of financial instruments, recognised directly inequity and € 469 million (2005: € 397 million) resulting fromthe fair value of Securities classified as available for sale. An
amount of € 15 million belongs to revaluation reserves related
to EADS N.V. activities.

The other legal reserves are related to EADS’ share in theundistributed results from investments for € 664 million (2005:€ 580 million) internally generated capitalised development
costs of € 873 million (2005: € 462 million), € 1,298 million(2005: € 1,623 million) resulting from currency translation
effects of affiliated companies, compensated by the recognitionof actuarial losses arising from defined benefit plans in equityof € 1,363 million (2005: € 672 million).

6. Non current liabilities
The financial liabilities include a long term loan, granted by theEuropean Investment Bank to EADS in the amount of US$ 421
million. The decrease in 2006 reflects the currency translation
impact. For further details, please see note 22 of theconsolidated financial statements.

The non current other liabilities are mainly liabilities toaffiliated companies and included in the cash pooling.

7. Liability for puttable instruments
The liability for puttable instruments in 2005 was related to
the written put option granted to BAE System to put its 20%
stake in Airbus. In June 2006, BAE Systems exercised its put

option and the related liability was settled in October 2006 foran amount of € 2,750 million. For further information pleasesee note 23 of the consolidated financial statements.

8. Current other liabilities(in €m)

2006

2005

Liabilities to affiliated companies

13,726

9,904

Liabilities to related companies

874

703

Other liabilities
Total

108

76

14,708

10,683The liabilities to affiliated companies include mainly liabilities in connection with the cash pooling in EADS N.V.

9. Financial instruments
By the nature of the activities carried out, EADS is exposed toa variety of financial risks, especially foreign currency exchange
rate risks and interest risks. EADS uses financial instruments inorder to limit these financial risks. Information to the terms andconditions of the financial instruments and the respective fairvalues is provided in note 30 of the consolidated financial
statements.

10. Commitments and contingent liabilities
EADS N.V. issues guarantees on behalf of consolidated companies. The commitments of these companies to third parties mainly
relate to their operating business as described in note 29 to the consolidated financial statements. The company is heading a fiscal
unity, which also includes EADS Finance B.V.

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11. Remuneration
The total cash remuneration and related compensation costs of the members of the Board of Directors and former directors in2006 and 2005 can be specified as follows:
2006

2005

(in €)(in €)

Fixum

4,564,086

4,908,190

Bonus (related to reporting period)

2,361,451

4,850,449

395,000

260,000

7,320,537

10,018,639

Fees

The cash remuneration of the members of the Board of Directors was as follows:
2006

Fixum

Directors
Manfred Bischoff

Bonus related to 2006

Fees

Total

(in €)(in €)(in €)(in €)

60,00043,750100,000

203,750

Arnaud Lagardère

60,00043,750100,000

203,750

Thomas Enders

1,195,225

542,468-

1.737,693

450,000

257,612-707,612

-

-

-

-

Jean-Paul Gut

943,693456,527-

1,400,220

Hans Peter Ring

951,193456,527-

1,407,720

Francois David

30,00021,87540,00091,875

Rüdiger Grube

30,00021,87575,000*126,875

Michael Rogowski

30,00021,87530,00081,875

Juan Manuel Eguiagaray Ucelay

18,75021,87550,00090,625795,225

473,317-

1,268,542

4,564,086

2,361,451

395,000

7,320,537

Louis Gallois (since July 06)
Louis Gallois (until end of June)

Former director**Noël Forgeard
Total(*) Including regularisation of € 30,000 relating to the 2005 attendance fees paid in 2006.
(**) Prorata in accordance with his membership with the Board of Directors.

126 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

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2005

Fixum

Bonus related to 2005

Fees

Total

Directors(in €)(in €)(in €)(in €)

Manfred Bischoff

60,000184,250

90,000334,250

Arnaud Lagardère

60,000184,250

80,000324,250

Thomas Enders(**)

737,560

820,556-

1,558,116Noël Forgeard

1,136,928

1,201,408-

2,338,336

Jean-Paul Gut(**)

777,568

769,583-

1,547,151

Hans Peter Ring

780,062789,762-

1,569,824

Francois David

20,00092,12530,000142,125

-

-

-

-

Rüdiger Grube

20,00092,125(***)

112,125

Michael Rogowski

30,00092,12535,000157,125-

57,57825,00082,578

Philippe Camus

624,911

227,685-

852,596

Rainer Hertrich

624,911

227,685-

852,596

Eckhard Cordes

10,00030,708-40,708Pedro Ferreras

16,25049,901-

66,151

Louis Gallois

Juan Manuel Eguiagaray Ucelay
Former directors(*)

Jean-René Fourtou
Total

10,00030,708-40,7084,908,190

4,850,449

260,000

10,018,639(*)		 Prorata in accordance with their membership with the Board of Directors.
(**) Full Year remuneration.
(***) Regularised in 2006.

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The table below gives an overview of the interests of the members of the Board of Directors under the various long term
incentive plans of EADS:Stock option plans
Number of options
Initially
granted

As atJan. 1 2006

Granted in2006

Exercisedduring 2006

As at
Dec. 31 2006

Exercise
price (in €)2000

50,00050,000--50,000

20.90

July 8, 2010

2001

50,00050,000--50,000

24.66

July 12, 2011

2002

50,000

-

-

-

-

16.96

August 8, 2012

2003

50,00025,000--25,00015.65

October 9, 2013

Year of plan

Expiry dateThomas Enders

2004

50,00050,000--50,00024.32

October 7, 2014(*)

2005

135,000

135,000--

135,000

33.91

Dec. 8, 2015(*)

2006

-

-

67,500-67,50025,65

Dec. 16, 2016--

67,500-67,50025,65

Dec. 16, 2016

2000

50,000

-

-

-

-

20.90

July 8, 2010

2001

50,000

-

-

-

-

24.66

July 12, 2011

2002

50,00050,000-50,000-16.96

August 8, 2012

2003

50,00050,000-25,00025,00015.65

October 9, 2013Louis Gallois
2006
Jean-Paul Gut

2004

50,00050,000--50,00024.32

October 7, 2014(*)

2005

100,000

100,000--

100,000

33.91

Dec. 8, 2015(*)

2006

-

-

50,000-50,00026.65

Dec. 16, 2016

2000

10,00010,000--10,000

20.90

July 8, 2010

2001

28,00028,000--28,000

24.66

July 12, 2011

2002

37,00037,000--37,00016.96

August 8, 2012

2003

50,00050,000--50,00015.65

October 9, 2013

Hans Peter Ring

2004

50,00050,000--50,00024.32

October 7, 2014(*)

2005

100,000

100,000--

100,000

33.91

Dec. 8, 2015(*)

25,65

Dec. 16, 2016

2006

-

-

50,000-50,000Total

1,010,000

835,000

235,000

75,000995,000

2000

110,000

43,000-43,000-20,90July 8, 2010

2001

88,00088,000-88,000-24,66July 12, 2011

2002

108,000

108,000-

108,000-

16,96

August 8, 2012

2003

108,000

108,000-

54,00054,00015,65

Oct. 9, 2013

2004

108,000

108,000--

108,000

24,32

Oct. 7, 2014(*)

2005

135,000

135,000--

135,000

33,91

Dec. 8, 2015(*)

Total

657,000

590,000-

293,000

297,000

Former Director:Noël Forgeard(*) As regards to the 2004 and 2005 stock options plans, vesting of half of the options granted to Directors is subject to performance conditions.

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Performance shares plan

Number of performance shares(**):

Granted in 2006

Vesting dateThomas Enders

16,875

Publication of the 2009 annual results, expected in March 2010Louis Gallois

16,875

Publication of the 2009 annual results, expected in March 2010

Jean-Paul Gut

12,500Publication of the 2009 annual results, expected in March 2010

Hans Peter Ring

12,500Publication of the 2009 annual results, expected in March 2010

Total

58,750(**) Vesting of all performance shares granted to Directors is subject to performance conditions.

As detailed above, the number of outstanding stock options
granted to the Executive Board Directors was 995,000 as at
31st December 2006. To the other members of the Executive
Committee, to the Group’s senior management and to former
members of the Board of Directors, the number of the outstanding
stock options amounted to 30,033,689 at the same date.
The number of outstanding performance shares granted to the
Executive Board Directors, subject to achievement of performance
results, was 58,750 as at 31st December 2006. To the othermembers of the Executive Committee and to the Group’s senior
management, the number of the outstanding performance andrestricted shares amounted to 1,677,175 at the same date.

annual pension of 50% of their annual base salary after five years in
the Executive Committee of EADS at the age of 60 to 65. In caseof the CEOs, the retirement age is 60. This obligation increases to
60% after ten years of service in the EADS Executive Committee.
These pension schemes have been implemented and financed
through collective executive pension plans in France and Germany.
These pension promises have also separate rules e.g. for minimum
length of service and other conditions to comply with national
regulations.

For further information, please see note 31 of the consolidated
IFRS financial statements.

For the Executive Board Directors, the amount of the pension
defined benefit obligation, amounted to 23 million as of
31st December 2006. This obligation has been partly funded andaccrued for in the consolidated financial statements for its
unfunded portion.

Former Director

Other benefits

In 2006, Noël Forgeard was no longer eligible to grants of stockoptions, nor to grants of performance shares.

The amounts reported above for the Executive Board Directors arefree of benefits in kind they are entitled to, as well as all nationalsocial and income tax impacts.

Under the term of his employment contract, Noël Forgeard wasentitled to:●a 6 months notice period, which represents an amount of€ 1,223,317 (salary and bonus);●a termination package of € 4,893,268 (i.e. 24 months of total
annual income);●a 2-year non competition indemnity, which represents amonthly gross amount of € 101,917 (from 2007 onwards).

The pension benefit obligation for the Executive Board Directors
is as follows:
The Executive Board Directors have pension promises as part oftheir employment agreements. The general policy is to give themSuch executives are entitled to a company car. The value of thecompany cars of appointed Executive Board Directors is as follows:
For Thomas Enders € 81,772, for Louis Gallois € 23,752, for JeanPaul Gut € 69,483 and for Hans Peter Ring € 96,400.
Mr. Thomas Enders benefits also from a free accommodation in
France. The monthly lease amounts to € 3,878 on average.
EADS has not provided any loans to / advances to / guarantees onbehalf of directors.
For further information to the remuneration, please see note 32 of
the consolidated financial statements.

12.	Employees
The number of persons employed by the company at year-end 2006 was 3 (2005: 2)
EADS FIN ANCIA L S TATEMENTS AND CORPORATE GOVERN ANCE 129

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Financial Statements

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Supplementary Information
Auditors’ Report
To: The European Aeronautic Defence and Space Company EADS N.V. shareholders

Report on the company financial statements
We have audited the accompanying 2006 company financial statements which are part of the financial statements of European
Aeronautic Defence and Space Company EADS N.V., Amsterdam, authorised for issue on March 8, 2007, which comprise thebalance sheet as at December 31, 2006, the income statement for the year then ended, and the notes.
Management’s responsibility
Management is responsible for the preparation and fair presentation of the company financial statements and for the preparation of
the report of the Board of Directors, both in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility
includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of thecompany financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express an opinion on the company financial statements based on our audit. We conducted our audit inaccordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance whether the company financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the company financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the company financial statements, whether due to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity’s preparation and fair presentation of the company financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the company
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the company financial statements give a true and fair view of the financial position of European Aeronautic Defence
and Space Company EADS N.V. as at December 31, 2006, and of its result for the year then ended in accordance with Part 9 ofBook 2 of the Netherlands Civil Code.

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Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the extent of ourcompetence, that the report of the Board of Directors is consistent with the company financial statements as required by 2:391 sub
4 of the Netherlands Civil Code.
Rotterdam, March 19, 2007

Amsterdam, March 19, 2007

KPMG Accountants N.V.

Ernst & Young Accountants

L.A. Blok

F.A.L. van der Bruggen

Other Supplementary Information
Appropriation of result
Articles 30 and 31 of the Articles of Association provide that the board of directors shall determine which part of the result shallbe attributed to the reserves. The general meeting of shareholders may dispose of a reserve only upon a proposal of the Board of
Directors and to the extent it is permitted by law and the Articles of Association. Dividends may only be paid after adoption of theannual accounts from which it appears that the shareholders’ equity of the company is more than the amount of the issued andpaid-in part of the capital increased by the reserves that must be maintained by law.
It will be proposed at the Annual General Meeting of Shareholders that the net profit of € 99 million as shown in the income
statements for the financial year 2006 is to be added to retained earnings.

Subsequent events
For further information please see note 37 of the consolidated financial statements.

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Statutory Auditors’ Fees

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1.3 Statutory Auditors’ Fees
Services of Statutory Auditors and Members of their Network rendered to the Group for the financial years 2006, 2005 and 2004.
KPMG Accountants N.V.
2006

Audit
Audit process, certification,
examination of individualand consolidated accounts

Amount
in €K

2005
%

Amountin €K

Ernst & Young Accountants
2004%

Amount
in €K

2006
%

Amount
in €K

2005
%

Amount
in €K

2004
%

Amount
in €K

%

6,181

75.2

5,533

68.3

5,073

57.3

4,843

82.5

4,923

77.3

4,795

70.0

Additional tasks

630

7.7

1,416

17.5

3,048

34.5

646

11.0

1,163

18.3

1,747

25.5

Sub-total
Other services as
relevant

6,811

82.9

6,949

85.8

8,121

91.8

5.489

93.5

6,086

95,6

6,542

95.5

Legal, tax, employment

1,051

12.8

958

11.8

729

8.2

271

4.6

281

4.4

294

4.3

Information Technology
Other (to be specified if>10% of the fees for theaudit)

50

0.6

-

-

-

-

30

0.5

-

-

-

-

301

3.7

194

2.4

-

-

83

1.4

-

-

13

0.2

Sub-total

1,402

17.1

1,152

14.2

729

8.2

384

6.5

281

4.4

307

4.5

Total

8,213

100.0

8,101

100.0

8,850

100.0

5,873

100.0

6,367

100.0

6,849

100.0

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1.4	 Information Regarding the Statutory Auditors
Date of First Appointment

Term of Current Office

10th May 2000

4th May 2007*

24th July 2002

4th May 2007*

KPMG Accountants N.V..
Van der Mandelelaan 41-433062 MB Rotterdam — The Netherlands
Represented by L.A. Blok
Ernst & Young Accountants
Drentestraat 20, 1083 HK Amsterdam — The Netherlands
Represented by F.A.L. van der Bruggen(*) A resolution will be submitted to the shareholders’ General Meeting of EADS called for 4 th May 2007, in order to resolve that the Company’s auditors for the accounting period being thefinancial year 2007 shall be Ernst &Young Accountants and KPMG Accountants N.V.

KPMG Accountants N.V., Ernst & Young Accountants and their respective representatives are registered with the Royal NIVRA(Nederlands Instituut van Register Accountants).

EADS FIN ANCIA L S TATEMENTS AND CORPORATE GOVERN ANCE 133

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2

Corporate Governance

2.1

Management and Control

2.1.1

Board of Directors, Chairmen and Chief
Executive Officers

137

Audit Committee

145

2.1.2

137

2.3

Employee Profit Sharing and Incentive
Agreements

159

Employee Share Ownership Plans

159

Long Term Incentive Plans

162

2.1.3

Remuneration and Nomination Committee

146

2.1.4

Executive Committee

146

2.3.3

2.1.5

Internal Control and Risk Management Systems 148

2.2

Interests of Directors and Principal
Executive Officers

154

Compensation Granted to Directors andPrincipal Executive Officers

154

Long Term Incentives Granted to the Two
Chief Executive Officers

158

2.2.3

Related Party Transactions

158

2.2.4

Loans and Guarantees Granted to Directors

158

2.2.2

159

2.3.1
2.3.2

2.2.1

Employee Profit Sharing and Incentive
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EADS is a company registered in the Netherlands and listed in
France, Germany and Spain. Given the myriad of Corporate
Governance regimes applicable to it, EADS applies a set ofcommon Corporate Governance principles andrecommendations in order to be in line with the Corporate
Governance best practices applicable in these jurisdictions.
In particular and in accordance with Dutch law, the Company
applies the provisions of the Dutch Corporate Governance
Code (the “Dutch Code”), or, if applicable, explains in its
annual Board of Directors Report the reasons for nonapplication of such provisions in accordance with the “apply or
explain” principle. EADS has provided the relevant
explanations in paragraph 4.2 “Dutch Corporate GovernanceCode” of its Board Report for the 2004 financial year which
was approved by the Annual General Meeting held on 11th May
2005. These explanations give the detailed reasons for nonapplication of provisions III.2.1, III.3.6, III.4.1(f), III.5.1, III.5.6,
III.5.11, III.5.12, III.8.3, III.5.13(a), III.5.13(d) (essentially as aresult of EADS being a controlled company and, therefore,
most of the members of the Board of Directors, Audit
Committee and Remuneration and Nomination Committee
could be designated and possibly be removed by its controllingshareholders), II.2.6, III.7.3, III.7.2, II.1.1, III.3.5, IV.3, IV.2 andIV.1.7 (essentially as a result of EADS being listed on the
Frankfurt, Paris and Spanish stock exchanges and endeavouring
to strictly comply with the relevant regulations and following
the general practices on these markets protecting all its
stakeholders) and remain valid. In addition, EADS modified its
statements in its Board Report for the 2005 financial year which
was approved by the Annual General Meeting held on 4th May
2006.
These explanations give the detailed reasons for non applicationof provisions II.1.4, II.1.6, II.2.1, II.2.2 and II.2.7. The two lastyears’ statements (available on EADS web-site (www.eads.com) inthe section on “Corporate Governance”) are modified as follows:

1. As for remuneration of Members of the Boardof Directors
EADS applies different rules for the remuneration of Executive
and Non-Executive Members of the Board.
a) EADS is compliant with the general principles applicable inthe markets where it is listed. Regarding future Long-Term
Incentive Plan to Executive Members of the Board, it is planned
that for Stock options a 10% premium will be taken into
account when determining the granting price. In addition,
Executive Members of the Board will have to hold a specified
number of shares resulting from the exercise of their stock
options until the end of their mandate (whereas provision II.2.1of the Dutch Code recommends that options to acquire shares
be a conditional remuneration component, and become
136 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

unconditional only when the Members of the Board havefulfilled predetermined performance criteria after a period of atleast three years from the grant date and provision II.2.2
recommends that if the company, notwithstanding provision
II.2.1, grants unconditional options to Executive Members of
the Board, it shall apply performance criteria when doing so
and the options should, in any event, not be exercised in thefirst three years after they have been granted). It is planned that
Performance Shares would be based on mid-term performance
criteria. It is also planned that Executive Members of the Board
will have to hold a specified number of the vested shares until
the end of their mandate or for a minimum period of 2 years
whichever is appropriate. Vesting should take place 3 years after
grant (whereas provision II.2.3 of the Dutch Corporate
Governance Code recommends that shares granted to
management board members without financial consideration
shall be retained for a period of at least five years or until atleast the end of the employment, if this period is shorter; thenumber of shares to be granted shall be dependent on theachievement of clearly quantifiable and challenging targets
specified beforehand);b) In case of dismissal from the Company of Executive
Members of the Board, a termination package equal to twice theannual total target salary would be paid. However thistermination package would be reduced prorata depending on
the age of retirement (whereas provision II.2.7 of the Dutch
Corporate Governance Code recommends that the maximum
remuneration in the event of dismissal be one year’s salary (the‘fixed’ remuneration component), and that if the maximum of
one year’s salary would be manifestly unreasonable for an
Executive Board Member who is dismissed during his first termof office, such board member be eligible for severance pay notexceeding twice the annual salary).

2. EADS maintains an integrated Group-wide Internal
Control and Risk Management System with the
purpose of providing reasonable assurance thatrisks are effectively managed
One of management’s fundamental missions is to foster apositive Internal Control (“IC”) and Risk Management (“RM”)
environment at EADS, in line with corporate governancerequirements and best practices in the Netherlands, France,
Germany and Spain. Having recognised that continuing changes
in the multi-jurisdictional legal and regulatory provisions
applicable to EADS required a strategic approach to IC and RM,
EADS began to implement a group-wide IC and RM system atthe beginning of 2004. This system is based on the Internal
Control and Enterprise Risk Management Frameworks of theCommittee of Sponsoring Organisations of the Treadway
Commission (“COSO”).

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The IC and RM system provides the management with aframework for attempting to manage the uncertainty andassociated risks inherent in EADS’ business. It serves as thebasis for all sub-IC and sub-RM procedures present throughout
EADS at the divisional and Business Unit (“BU”) levels. By
employing a uniform approach to IC and RM, EADS seeks togain reasonable assurance about:●

the reliability of its financial reporting;●efficiency and effectiveness of operations; and●compliance with applicable laws and regulations.

No matter how well designed, all IC and RM systems haveinherent limitations, such as vulnerability to circumvention or
management overrides of the controls in place. Consequently,
no assurance can be given that EADS’ IC and RM system andprocedures are or will be, despite all care and effort, entirely
effective.

3. Ethics Alert System

EADS compliance organisational structure which is currently
being formalised.
Some consultations with the works councils have started
regarding the implementation of such procedure. After decisionof the Board on the organisational structure for compliance andthe completion of the various proceedings with respective
Works Council regarding the introduction of an Ethics Alert
System, will be implemented, thus allowing the Company tocomply with provision II.1.6 of the Dutch Code which
recommends that a company ensures that its employees havethe possibility of reporting alleged irregularities of a general,
operational and financial nature in the company or concerning
the functioning of the Executive Members of the Board to the
Chairmen of the Board or to an official designated by them andthat such arrangements for whistleblowers be posted on the
Company’s website.
EADS consequently complies with the Dutch Code since theCompany’s annual shareholders’ meeting approved the section
relating to Corporate Governance included in the Board of
Directors Report since 2003.

EADS is in the process of putting in place a procedure forreceiving, in full confidentiality, concerns regarding e.g.
financial reporting, internal risk management and control
systems, as well as regarding general operational matters. The
EADS Ethics Alert System architecture will be part of a global

2.1 Management and Control
2.1.1 Board of Directors, Chairmen and Chief Executive Officers
Pursuant to the Articles of Association of the Company, theBoard of Directors is responsible for the management and theaffairs of the Company.

specify the creation of two committees (the Audit and theRemuneration and Nomination Committees) and specify theircomposition, role and operating rules.

The Board of Directors consists of a maximum of elevenmembers appointed and removed by the shareholders’ meeting.
The Board of Directors adopted rules governing its internalaffairs (the “Rules”) at a Board of Directors’ meeting held on
7th July 2000. The Rules were amended at a Board of Directors’
meeting held on 5th December 2003 to take into accountrecommendations for changes to Corporate Governance. The
Rules specify the composition, the role and the key
responsibilities of the Board of Directors, and also determine
the manner of appointment and the responsibilities of the
Chairmen and the Chief Executive Officers. The Rules also

The Board of Directors has also adopted specific Insider Trading
Rules, which restrict its members from trading in EADS sharesin certain circumstances (for more information, please see“Part 2/3.1.3 Governing Laws”).
The parties to the Participation Agreement (as defined in the
opening paragraph of “Part 2, section 3.3.2 Relationships with
Principal Shareholders”) have agreed that the voting rights
attached to the Indirect EADS Shares shall be exercised by
EADS Participations B.V. to ensure that the Board of Directorsof EADS comprises the Directors of EADS Participations B.V.

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and two additional independent Directors who are not officers,
directors, employees or agents of or otherwise have nosignificant commercial or professional connection either with
the DaimlerChrysler, Société de Gestion de Participations
Aéronautiques (“SOGEPA”) or Lagardère Groups or the French
State. Pursuant to the Participation Agreement, the Board of
Directors comprises ten members of whom:●

Four nominated by DaimlerChrysler;●

Four nominated by Société de Gestion de l’Aéronautique, dela Défense et de l’Espace (“SOGEADE”); and●Two independent Directors, one nominated byDaimlerChrysler and one nominated by SOGEADE.

In addition, although from 8th July 2003, Sociedad Estatal deParticipaciones Industriales (“SEPI”) no longer has a right tonominate a Director, based upon the proposal ofDaimlerChrysler and SOGEADE, the shareholders’ meeting of
EADS held on 11th May 2005 appointed an additional Spanish
Director bringing the total number of Directors to eleven.
Pursuant to the Articles of Association, each member of theBoard of Directors held office for a term expiring at the Annual
General Meeting of the Company held on 11th May 2005. Such
Annual General Meeting reconstituted the Board of Directors
for a term of five years ending at the close of the Annual
General Meeting which will be held in the year 2010. Membersof the Board of Directors will be elected at each fifth Annual
General Meeting thereafter.
The shareholders’ meeting may at all times suspend or dismiss
any member of the Board of Directors. There is no limitationon the number of terms that a Director may serve.
The Board of Directors appointed two Chairmen, one chosenfrom the DaimlerChrysler-nominated Directors and one chosenfrom the SOGEADE-nominated Directors.
The Chairmen ensure the smooth functioning of the Board of
Directors in particular with respect to its relations with theChief Executive Officers whose efforts they support withregard to top level strategic discussions with outside partners.
The Board of Directors also appointed two Chief Executive
Officers to be responsible for the day-to-day management of theCompany, one chosen from the DaimlerChrysler-nominatedDirectors and one chosen from the SOGEADE-nominatedDirectors.
The Company is represented by the Board of Directors or by
the Chief Executive Officers acting jointly. Furthermore, theCompany has granted general powers to each of the Chief

138 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

Executive Officers, authorizing them to each individually
represent the Company.
In the event of a deadlock between the two Chief Executive
Officers, the matter shall be referred to the two Chairmen.
The Chief Executive Officers shall not enter into transactions
which form part of the key responsibilities of the Board of
Directors unless these transactions have been approved by the
Board of Directors.
The key responsibilities of the Board of Directors include
amongst others:●

Approving any change in the nature and scope of theactivities of the Group;●

Approving the overall strategy and the strategic plan of theGroup;●

Approving the business plan and the yearly budget of theGroup;●

Setting the major performance targets of the Group;●

Appointing the members of the Executive Committee (seebelow) and the Corporate Secretary;●

Approving proposals for appointments of members of Airbus
Shareholders’ Committee and Executive Committee andchairmen of the Supervisory Board (or similar bodies) andthe chief executive officers (or equivalent position) ofimportant Group companies and BUs;●

Approving material changes to the organisational structure of
the Group;●

Approving major investments, projects or product decisions
or divestments of the Group contemplated in the businessplan with a value exceeding €200 million;●

Approving major strategic alliances and cooperations of theGroup;●

Approving any material decision affecting the ballistic
missiles activity of the Group;●

Approving matters of shareholder policy, major actions or
major announcements to the capital markets; and●Approving other measures and business of fundamental
significance for the Group or which involve an abnormal
level of risk.

The Board of Directors met ten times during 2006 and wasregularly informed of developments through business reports
from the Chief Executive Officers, including rolling forecasts aswell as strategic and operational plans. The average attendance
rate at such meetings was 95%.

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Following a detailed review of the A380 production anddelivery program, Airbus informed the Board of Directors on
13th June that the A380 delivery schedule for the period 2006
to 2009 was revised. According to this, the Board of Directors
decided immediately to release this new schedule and its
financial impact, and subsequently on 3rd October 2006 (EADS
statement and more detailed information about the ongoingregulatory and judicial proceedings can be found on “Note to
the Financial Statements — Note 28: Litigation and claims”).
On 2nd July 2006, the Board of Directors appointed a new CoChief Executive Officer, Louis Gallois, replacing Noël Forgeard
in his functions, as well as Chrisitian Streiff as new President
and Chief Executive Officer of Airbus, Members of the
Executive Committee. After the resignation of the President
and Chief Executive Officer of Airbus, Christian Streiff, threemonths later, the Board of Directors changed significantly the
management structure of EADS by appointing on the 9th
October 2006, EADS Co-Chief Executive Officer Louis Gallois
additionally as Airbus President and Chief Executive Officer,
the non-Airbus Divisions reporting to EADS Co-Chief
Executive Officer Thomas Enders. Subsequently, on the
31st October 2006, the Board of Directors appointed EADS
Chief Operating Officer Finance, Hans-Peter Ring, additionallyas Airbus Chief Financial Officer. The Board of Directors also
appointed on that date a new Chief Operating Officer of
Airbus, Fabrice Brégier, and a new head of Eurocopter Division,
Lutz Bertling, as Members of the Executive Committee.
Overall, in 2006, nine Board of Directors meetings covered
Airbus related matters. On 5th April 2007, Manfred Bischoff
presented his resignation as chairman of the EADS Board of
Directors and the Board of Directors decided to designate
Rüdiger Grube as his successor in this position. Manfred
Bischoff also presented his resignation as member of the Boardof Directors.
Topics intensively discussed, and operations authorised at themeetings included: EADS’ strategy (comprising, in M&A
matters, European industry consolidation and the buy-back of
BAE Systems’ stake in Airbus), major business issues such as
the A380 recovery efforts and the Power8 program, the A350
industrial launch decision and Airbus future product strategy,
the reviews of the EADS UAV programs and of the A400M
program, the review of Sogerma future strategy, the approval or
postponement of operational plans, reorganisation topics,
budgets, the Group’s financial results and forecasts, as well as
financial optimisations and the discussions regarding theimplementation of an ethics alert system. The Board of
Directors also dealt with topics regarding personnel and humanresources, such as management qualification, remuneration(including a long-term incentive plan and an employee shareownership plan) as well as attracting, retaining and developing
individuals with high potential in order to ensure the future
quality of EADS’ management and the multinational leadership
structure.

Each Director shall have one vote, provided that if there is avacancy on the Board of Directors’ in respect of a
DaimlerChrysler-nominated Director or a SOGEADEnominated Director, the DaimlerChrysler-nominated Directors
being present or represented at the meeting can jointly exercise
the same number of votes that the SOGEADE-nominatedDirectors who are present or represented at the meeting can
exercise and vice versa. All decisions of the Board of Directors
require a vote in favor by at least seven Directors voting inperson or by proxy.
The quorum for the transaction of business at meetings of theBoard of Directors requires the presence of at least one of the
SOGEADE-nominated Directors and one of theDaimlerChrysler-nominated Directors.
In the event of a deadlock in the Board of Directors, other thana deadlock giving DaimlerChrysler the right to exercise the put
option granted to it by SOGEADE (see “Part 2/3.3.2
Relationships with Principal Shareholders — Put Option”), thematter shall be referred to Arnaud Lagardère (or such person as
shall be nominated by Lagardère) as representative of
SOGEADE and to the chief executive officer ofDaimlerChrysler. In the event that the matter in question,
including a deadlock giving DaimlerChrysler the right toexercise the put option (but in this case with the agreement of
SOGEPA and DaimlerChrysler) is a matter within thecompetence of the General Meeting of EADS, a resolution on
the issue shall be put to the General Meeting, with the voting
rights of SOGEADE, DaimlerChrysler and SEPI being negated.
Pursuant to the Rules, the Board of Directors is empowered toform committees from its members. In addition to the Audit
Committee and the Remuneration and Nomination Committee,
the Board of Directors may form other committees to which it
may transfer certain minor or ancillary decision-making
functions although such assignment does not negate the joint
responsibility of all Directors. The quorum for the transactionof business at any meeting of a committee shall be at least one
Director appointed by SOGEADE and at least one Director
appointed by DaimlerChrysler. All decisions of a committee
require the simple majority of the members.
In addition to the Rules, the work of the Board of Directors isgoverned by internal directors’ guidelines (the “Directors’
Guidelines”) adopted, in a meeting dated 10th December 2004,
in light of Corporate Governance best practices. The Directors
Guidelines are composed of a Directors’ charter (the“Directors’ Charter”) detailing the rights and duties of themembers of the Board of Directors, an Audit Committee
charter (the “Audit Committee Charter”) and a Remuneration
and Nomination Committee charter (the “Remuneration and
Nomination Charter”) each such charter setting forth therespective committees’ enhanced roles.

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The Directors’ Charter sets out core principles, which bind each and every Director, such as acting in the best interest of theCompany and its stakeholders, devoting necessary time and attention to the carrying out of their duties and avoiding any and all
conflicts of interest.
Composition of the Board of Directors

Name

Age

Term started(as member of theBoard of Directors)

Term expires

Principal function in the Group

Rüdiger Grube

55

2005

2010

Chairman of EADS

Arnaud Lagardère

46

2005

2010

Chairman of EADS

Thomas Enders

48

2005

2010

Chief Executive Officer of EADSLouis Gallois

63

2005

2010

Jean-Paul Gut

45

2005

2010

Hans Peter Ring

56

2005

2010

Chief Executive Officer of EADS and Head of Airbus
Chief Operating Officer for Marketing, Strategy
and Global Development of EADS
Chief Operating Officer for Finance of EADS and
Chief Financial Officer of Airbus

Juan Manuel Eguiagaray Ucelay

61

2005

2010

Member of the Board of Directors of EADS

François David

65

2005

2010

Member of the Board of Directors of EADS

Michael Rogowski

68

2005

2010

Member of the Board of Directors of EADS

Nota:The professional address of all members of the Executive Committee for any matter relating to EADS is Le Carré, Beechavenue 130-132, 1119 PR, Schiphol-Rijk, The Netherlands.

Two additional members of the Board of Directors, Michel
Pebereau and Bodo Uebber will be proposed for appointment
during the Annual General Meeting of Shareholders to be held
on 4th May 2007, with immediate effect as from the end ofsuch meeting.
Curriculum Vitae and other Mandates and Duties
Performed in any Company by the Members of the Boardof Directors

Current mandates in addition to the one listed in the chart above
are set forth below:● Chairman of the Board of Directors of EADS Participations
B.V.;●

Member of the Board of Management of DaimlerChrysler;●

Chairman of the Supervisory Board of MTU
Friedrichshafen GmbH and DaimlerChrysler Offhighway GmbH;●

Chairman of the Board of Directors of DaimlerChrysler
China limited, Beijing;●

Vice Chairman of the Board of Directors of Beijing Benz
DaimlerChrysler Automotive (BBDC-A);●

Member of the Board of Directors of McLaren Group Ltd;●

Member of the Supervisory Board of DaimlerChrysler
Financial Services AG;●

Member of the Advisory Board of DaimlerChrysler
Fleetboard;●

Member of the Advisory Board of DaimlerChrysler
Aviation; and●Member of the Supervisory Board of “Hamburg Port
Authority” (“HPA GmbH”).

Rüdiger Grube

Dr. Rüdiger Grube is a member of the Board of Management ofDaimlerChrysler AG since October 1, 2001, responsible for
Corporate Development. He is also responsible for all North
East Asia activities of DaimlerChrysler AG including China.
Dr. Grube holds an engineers’ degree in aircraft constructionand engineering from the University of Hamburg and adoctorate in industrial science.
He started his career in 1989 at MBB in Munich. In 1995, hebecame Director of Corporate Planning and Technology ofDeutsche Aerospace AG. In 1996, he was appointed Senior Vice
President and Head of Corporate Strategy at Daimler-Benz AG
and subsequently of DaimlerChrysler AG. In 2000, he became
Senior Vice President for Corporate Development.

Former mandates for the last five years:● Member of the Board of Directors of the Hyundai Motor
Company (resigned 13th May 2004); and140 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

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Member of the Board of Directors of the Mitsubishi Motors
Company (resigned 24th November 2005).

Arnaud Lagardère

Mr. Arnaud Lagardère has been General Partner and Chief
Executive Officer of Lagardère since 2003. He began his careerin 1986 as General Manager of MMB, the holding company ofHachette and Europe 1. In 1987, he was appointed Vice
President of the Supervisory Board of Arjil bank followed byhis appointment as Head of emerging activities and electronic
media for Matra. In 1994 he became Chief Executive Officer ofGrolier Inc. in the U.S. He has been Managing Partner of
Lagardère since 1998. In 1999, he was appointed Chief
Executive Officer of both Lagardère Media and Lagardère
Active. Arnaud Lagardère graduated in Economics from the
University of Paris Dauphine.
Current mandates in addition to the one listed in the chart above
are set forth below:
Current executive mandates:● General Partner and Chief Executive Officer of Lagardère;●

Chairman and Chief Executive Officer of Lagardère Media(corporate name: Hachette S.A.);●

Director of Hachette Livre (S.A.);●

Director of Hachette Distribution Services (S.A.);●

Chairman of the Supervisory Board of Hachette Filipacchi
MedIAS (S.A.S.);●

Permanent Representative of Lagardère Active Publicité tothe Board of Directors of Lagardère Active RadioInternational (S.A.);●

Director of Lagardère Ressources (S.A.S.);●

Director of France Télécom (S.A.);●

Director of LVHM Moet Hennessy Louis Vuitton (S.A.);●

Member of the Supervisory Board of Lagardère Sports(S.A.S.);●

Director of Lagardère Managmement, Inc; and●Chairman of the Board of Directors of Lagardère Active
North America, Inc.

Former mandates for the last five years:● Member of the Supervisory Board of T. Online InternationalAG;●

Chairman of the Supervisory Board of Lagardère Active(S.A.S.);

Member of the Board of Directors of LCM Expression S.A.
(resigned June 2002);●

President (Chief Executive Officer) of Lagardère Active
Broadband (S.A.S.);

Member of the Board of Directors of Multithematiques S.A.
(resigned December 2002);●

Co-Manager of I.S.-9 (resigned May 2003);●

Chairman and Chief Executive Officer of Lagardère (S.A.S.);●●

Chairman and Chief Executive Officer of Lagardère
Capital & Management (S.A.S.);Manager of Lagardère Active Publicité (SNC) (resigned May
2003);●

Chairman and Chief Executive Officer of Arjil
Commanditée — ARCO (S.A.);

Member of the Board of Directors of the Society d’Agences
et de Diffusion S.A. (resigned June 2003);●

Manager of the Nouvelles Messagerie de la Presse Parisienne— N.M.P.P. SARL (resigned July 2003);●

Member of the Board of Directors of Canalsatellite S.A.
(resigned December 2003);●

Member of the Board of Directors of Lagardère-Sociétés
S.A.S (resigned December 2003);●

Member of the Board of Directors of the Editions P.
Amaury S.A. (resigned December 2003);●

Chairman and Chief Executive Officer of Lagardère Images
S.A.S (resigned October 2004);●

Chairman and Chief Executive Officer of Lagardère
Thematiques S.A. (resigned November 2004);

●

●

●

●

Chairman of Fondation Jean-Luc Lagardère;●

President of the “Association des Amis de Paris Jean-Bouin
C.A.S.G.”;●

President of the “Association Nouvel Elan Croix Catelan”;
and●President of the “Association Lagardère Paris Racing”.

Current non-executive mandates:● Chairman of the Board of Directors of EADS Participations
B.V.;●

Member of the Supervisory Board of Virgin Stores (S.A.);●

Member of the Supervisory Board of DaimlerChrysler;●

Manager of Lagardère Elevage (resigned March 2005);●

Member of the Supervisory Board of Le Monde (S.A.);●

Deputy-Chairman of the Supervisory Board of BanqueArjil & Cie (resigned April 2005);

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President of the “Club des enterprises Paris 2012” (resigned
January 2006);●

Member of the Board of Directors of Fimalac (resigned
January 2006);●

President (Chief Executive Officer) of Lagardère Active S.A.S.
(resigned October 2006);●

Director of Hachette Filipacchi MedIAS S.A. (resigned
October 2006);

●

●

●

Member of the Supervisory Board of IndustrieanlagenBetriebsgesellschaft mbH (“IABG”) (resigned December2005);●

Permanent Representative of Hachette S.A. to theManagement Committee of SEDI TV-TEVA (S.N.C.)(resigned December 2006); andChairman of the Supervisory Board of Dornier GmbH
(resigned March 2006); and●President of AeroSpace and Defence Industries Associationof Europe (“ASD”) (resigned October 2006).

Chairman and Chief Executive Officer of Lagardère Active
Broadcast (S.A.) (resigned March 2007).

Louis Gallois

Thomas Enders

Mr. Enders joined MBB (“Messerschmitt-Boelkow-Blohm”)/
Dasa AG in 1991, after various posts in international research
institutes, the German Parliament and the Planning Staff of theGerman Minister of Defense. After several years in thecompany’s marketing sector, he became Corporate Secretary of
Dasa AG in 1995. From 1996 he was in charge of Corporate
Strategy & Technology and in 2000 with the creation of EADS,
he became the Head of Defence & Security Division. In June
2005 he was appointed Chief Executive Officer of EADS.
Mr. Enders holds degrees from the University of Bonn and
UCLA, California.
Current mandates in addition to the one listed in the chart above
are set forth below:● Member of the Board of Directors of EADS Participations
B.V. and Chief Executive Officer of EADS Participations B.V.;●

Former mandates for the last five years:● Chairman of the Supervisory Board of DADC Luft undRaumfahrt Beteiligungs AG (“DADC”) (resigned October2005);

President of the German Association of the Aerospace
Industries-BDLI;

Mr. Louis Gallois was Chairman of SNCF since 1996. From1972 he worked in various posts for the Ministry of Economy
and Finance, the Ministry of Research and Industry and theMinistry of Defense. In 1989 he was nominated Chairman andChief Executive Officer of SNECMA and subsequently, in
1992 Chairman and Chief Executive Officer of Aerospatiale. In
2006 he was subsequently appointed Chief Executive Officer of
EADS and of Airbus. He graduated from the Ecole des Hautes
Etudes Commerciales (HEC) in Economic sciences and is analumnus of the Ecole Nationale d’Administration (ENA).
Current mandates in addition to the one listed in the chart above
are set forth below:● Member of the Board of Directors of EADS Participations
B.V. and Chief Executive Officer of EADS Participations B.V.;●

Member of the Board of Directors of Stichting
Administratiekantoor EADS (the “Foundation”);●

Member of the Board of Directors of École Centrale des Arts
et Manufactures; and●President of the Fondation Villette-Entreprises.

●

Chairman of the Supervisory Board of EADS Deutschland
GmbH;

●

Chairman of the Shareholders Committee of Airbus S.A.S;●

Chairman of the Supervisory Committee of Eurocopter
S.A.S;●●

Member of the Board of Directors of EADS North
America Inc.;

Jean-Paul Gut●

Member of the Board of Directors of Bundesverband derDeutschen Industrie (“BDI”);●

Member of the Supervisory Board of Deutsche BP; and●President of Atlantikbrücke.

142 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

Former mandates for the last five years:● Member of the Board of Directors of Thales (resigned
30th June 2005); andPresident of SNCF (resigned 2nd July 2006).

Since 1983, Mr. Gut has held various executive positions in thefield of export and international operations for Matra Defense,
Matra Defense Espace and the Lagardère Group. In 1998,
Mr. Gut integrated the Lagardère Group Management Board as
responsible for International Operations and the HighTechnology sector. At the creation of EADS, in 2000, he wasappointed Head of EADS International and in 2005 Chief
Operating Officer for Marketing, Strategy and International.

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He graduated from the Institut d’Études Politiques de Paris
with a Master’s degree in Economics.

●

Member of the Advisory Board of Deutsche Bank (Region
Munich);Current mandates in addition to the one listed in the chart above
are set forth below:● Member of the Board of Directors of Arjil CommanditéeArco S.A.;●

Member of the “Wirtschaftsbeirat” of the BayernLB;●

Member of the Supervisory Board of ESMT; and●Member of the “Außenwirtschaftsbeirat (AWB)“of the“Bundesministerium für Wirtschaft und Technologie”.

●

Member of the Shareholders Committee of Airbus S.A.S;●

Member of the Board of Directors of Dassault Aviation S.A.;●

Member of the Board of Directors of EADS CASA;●

Member of the Board of Directors of EADS North America
Inc (USA);●

Director of GIE AMLI;●Permanent representative of MBDA France in the Board of
Directors of Eurotradia International (S.A.); and●Member of the Supervisory Board of Eurocopter (S.A.S).

Former mandates for the last five years:● None.
Hans Peter Ring

Mr. Hans Peter Ring began his career at MBB in 1977. In 1987
he was appointed Head of Controlling of the company’s
Missiles business and subsequently of the Aviation andDefense Division of Dasa AG. From 1992-1995, he was Chief
Financial Officer and member of the board of Dornier
Luftfahrt. In 1996, he was appointed Senior Vice President ofControlling of Dasa and subsequently of EADS. Hans Peter
Ring was appointed Chief Financial Officer of EADS in 2002
and Chief Operating Officer for Finance in 2005. In addition,in 2007 he became Airbus CFO. Mr. Hans Peter Ring has adegree in business administration.
Current mandates in addition to the one listed in the chart above
are set forth below:● Member of the Supervisory Board (Aufsichtsrat) and
Shareholder Committee of M+W Zander — D.I.B Facility
Management GmbH;●

Member of the Shareholders Committee of Airbus S.A.S;●

Member of the Board of Directors of EADS Space B.V.;●

Member of the Supervisory Committee of Eurocopter S.A.S;●

Member of the Board of Directors of EADS CASA;●

Member of the Board of Directors of EADS North
America Inc.;●

EADS’ Representative at the ATR assembly of members;

Former mandates for the last five years:● Member of the Advisory Board of TravelManagement GmbH (resigned 31st March 2003); and●Member of the Supervisory Board of ATR GIE (resigned
31st December 2003).

Juan Manuel Eguiagaray Ucelay

Mr. Juan Manuel Eguiagaray Ucelay is Director of Studies at
the think tank Fundación Alternativas. Between 1970 and 1982
he taught economics at Deusto University in Bilbao. Since the1970’s he held various political mandates in Spain; amongst
others he was Minister for Public Administration (1991-1993)
and Minister for Industry and Energy (1993-1996). He resigned
from Parliament in 2001. Mr. Eguiagaray Ucelay holds a degree
in Economics as well as in Law by Deusto University and a
Ph.D. degree by the same University.
Current mandates in addition to the one listed in the chart above
are set forth below:● Director of the Service of Studies of the Fundación
Alternativas;●

President of Solidaridad Internacional (NGO);●

Economic Adviser of Arco Valoraciones S.A.;●

Member of the Council Adviser of Creation, Advising andDevelopment (Creade), S.L.; and●Member of the Council Adviser of the Foundation
Group EP.

Former mandates for the last five years:● Member of the Advisory Board of Futurspace S.A. (resigned
5th July 2004); and●Associate Professor of Macroeconomics at the University ofCarlos III in Madrid (resigned 30th September 2006).

François David

Mr. François David is Chairman and Chief Executive Officer of
Coface, an international credit insurance and credit management
service provider since 1994. He started his career in 1969 in the
French Ministry of Finance as Civil Administrator at theforeign economic relations department in which he held various

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responsibilities. In 1986, he was named Director of the Cabinetof the Minister of Foreign Trade. In 1987, he was appointed
Director of external economic relations within the Ministry of
Economy, Finance and Budget. In 1990, he was named
International Managing Director of the Aerospatiale company.
Mr. David is an alumnus of the École Nationaled’Administration, a graduate of the Institut d’Études Politiques deParis, and he holds a degree in sociology.
Current mandates in addition to the one listed in the chart above
are set forth below:● Chairman and Chief Executive Officer of Coface;●

Member of the Board of Directors of Stichting
Administratiekantoor EADS (the “Foundation”);●

Chairman and Chief Executive Officer of Coface Scrl;●

Chairman of the Board of Directors of Viscontea Coface(Italy);●Chairman of the Board of Directors of Coface Services;●

Chairman of the Supervisory Board of AK Coface(Allgemeine Kreditversicherung Aktiengesellschaft Coface)(Germany);●

Member of the Board of Directors of Vinci;●

Member of the Board of Directors of the association Coface
Trade Aid;●

Chairman of Coface ORT;●

Chairman of La Librairie Electronique (LLE);●

Chairman of Centre d’études financières;●Chairman of Or Informatique; and●Censor in Rexel.

Former mandates for the last five years:● Member of the Board of Directors of Rexel (resigned in 2005).

Michael Rogowski

Dr. Michael Rogowski has been Chairman of the Supervisory
Board of Voith AG since 2000 and was also the President of
the Association of German Industry from 2000 to 2004.
Dr. Michael Rogowski joined Voith GmbH in 1974, where he
was responsible for human resources as well as materials
management. In 1982 he took over responsibility for the powertransmission engineering Division and was named Chairman of
the Management Board of Voith GmbH in 1986 and then Voith
AG in 1997. He studied economical engineering and earned adoctorate at the University of Karlsruhe in 1969.
Current mandates in addition to the one listed in the chart above
are set forth below:● Chairman of the Supervisory Board of Voith AG;●

Member of the Board of Directors of Stichting
Administratiekantoor EADS (the “Foundation”);●

Member of the Supervisory Board of Talanx AG/HDI
Versicherung;●Member of the Supervisory Board of IKB Deutsche
Industrie-Bank AG;●

Member of Shareholder’s Committee of Freudenberg & Co.;●

Member of the Supervisory Board of Carl Zeiss AG; and●Member of the Supervisory Board of Kloeckner & Co. AG

Former mandates for the last five years:● President of the Federation of German Industries, BDI(resigned 31st December 2004);●

Member of the Supervisory Board of KSB AG (resigned 30th
April 2005);●

Member of the Supervisory Board of KfW Kreditanstalt fürWiederaufbau (resigned 31st May 2005);●

Member of the Supervisory Board of Deutsche Messe AG(resigned 30th June 2005); and●Vice President of the Federation of German Industries, BDI(resigned 31st December 2005).

The Company has not appointed observers to the Board of
Directors. Pursuant to applicable Dutch law, the employees are
not entitled to elect a Director. There is no minimum numberof shares that must be held by a Director.
Independent Directors

The two independent directors appointed pursuant to thecriteria of independence set out above are François David andMichael Rogowski.

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Prior Offences and Family Ties

To the Company’s knowledge, none of the Directors (in either
their individual capacity or as director or senior manager of anyof the entities listed above) has been convicted in relation to
fraudulent offences, been the subject of any bankruptcy,
receivership or liquidation, nor been the subject of any official
public incrimination and/or sanction by a statutory or
regulatory authority, nor been disqualified by a court fromacting as a member of the administrative, management or
supervisory bodies of any issuer or conduct of affairs of any
company, during at least the last five years. As of the date ofthis document, there are no family ties among any of the
Directors.
Assessment of the Performance of the Board of Directors

At the meeting dated 5th December 2003, the Board of
Directors decided to carry out a self-assessment of its
performance on an annual basis and a more thoroughassessment every three years, possibly with the assistance of
external consultants.
Pursuant to this decision, in late 2006 the Board of Directors
has commissioned an independent and internationally reputableconsulting firm (SpencerStuart) to assist the Directors inevaluating the functioning of the Board of Directors within thespecific framework of the shareholders agreement. In the courseof the evaluation, the outside consultant held individual
meetings with all EADS Directors (Executive and nonExecutive).
The results of the self-assessment were reported to anddiscussed by the Board of Directors with the clear objective tofurther improve the Board of Directors´ effectiveness andefficiency. The main outcomes of the self-assessment read as
follows.

It appeared that the Board of Directors has been working as acohesive entity, in an open, constructive and interactive
atmosphere. The frequency of Board of Directors’ meetings andthe set-up of the Committees (Audit Committee, Remuneration
and Nomination Committee) have been judged as adequate by
the members of the Board of Directors. The duration of
meetings as well as the attendance rate was assessed assatisfactory.
Members of the Board of Directors almost unanimously
indicated that the efficiency of the meetings was overallsatisfactory and that the Board of Directors deals with the rightissues, even if from time to time, urgent operational matterstook too much time, compared to the discussions of long-term,
strategic matters.
The members of the Board of Directors acknowledged thespecific shareholding structure with strong shareholding blocks.
Nevertheless they emphasized that decisions are always taken
to the best interest of the company.
The review identified a number of possible areas of
improvement for the future, such as the skill set and experiencein the Board of Directors’ room (where specific financial
expertise could bring added value), more regular reviews of thestrategy and performance of the major divisions and theimplementation of a more structured succession planning
process for key executives, thanks to a stronger involvement of
the Remuneration and Nomination Committee.
It has also been underlined that in order to streamline thedecision making process, the documentation and information
supplied beforehand to Board members should be reshaped.

2.1.2	Audit Committee
Pursuant to the Rules, the Audit Committee makes
recommendations to the Board of Directors on the appointmentof auditors and the determination of their remuneration, theapproval of the annual financial statements and the interim
accounts, discusses with the auditors their audit program andthe results of their audit of the accounts and monitors theadequacy of the Group’s internal controls, accounting policies
and financial reporting. The Audit Committee has responsibility
for ensuring that the internal and external audit activities arecorrectly directed and that the audit matters are given due

importance at meetings of the Board of Directors. The rules andresponsibilities of the Audit Committee have been set out inmore detail in the Audit Committee Charter.
The Audit Committee reviews the quarterly, half and full year
accounts on the basis of the documents distributed in advanceand discussions with the auditors. The Head of accounting andthe Chief Operating Officer Finance are invited to meetings of
the Audit Committee to answer any question.

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In 2006, the Audit Committee was chaired by Manfred
Bischoff and Arnaud Lagardère and also included Rüdiger
Grube.
The Audit Committee meets twice a year, or more frequently
according to requirements. It met five times during 2006, with a

100% attendance rate, to review the 2005 results as well as thefirst half-year results for 2006 of the Company, together with
the quarterly financial reviews. As decided by the Board of
Directors on 5th December 2003, the role of the Audit
Committee was increased with new tasks such as, in particular,
the review of the quarterly financial reports.

2.1.3 Remuneration and Nomination Committee
Pursuant to the Rules, the Remuneration and Nomination
Committee makes recommendations to the Board of Directors
regarding appointments of the Executive Committee members,
the chairmen of the Supervisory Board (or similar bodies), theChief Executive Officers (or equivalent positions) of main
Group companies and BUs and the Corporate Secretary, humanresources and remuneration related strategy and long-term
remuneration plans (including playing a central role indetermining and reviewing the variable portion of the
remuneration of the members of the Board of Directors and the
Executive Committee) and decides the service contracts andother contractual matters in relation to the Board of Directors
and Executive Committee members. The rules andresponsibilities of the Remuneration and Nomination
Committee have been set out in more detail in the
Remuneration and Nomination Charter. In 2006, theRemuneration and Nomination Committee was chaired by

Manfred Bischoff and Arnaud Lagardère and also included
Thomas Enders, Louis Gallois and Rüdiger Grube.
The Remuneration and Nomination Committee meets twice ayear, or more frequently according to requirements. It met fivetimes during 2006, with a 95% average attendance rate. On top
of making recommendations to the Board of Directors for major
appointments within the Group, the Remuneration and
Nomination Committee reviewed the compensation policy(including pension schemes), the new Executive Committee
members remunerations, the bonus payments for 2005, thelong-term incentive plan and the employee share ownershipplan for 2006/07 (originally scheduled for June 2006 but
postponed to March 2007, see “2.3.2.7 Employee ShareOwnership Plan 2007”), as well as the remuneration review ofthe members of the Executive Committee for 2006.

2.1.4	Executive Committee
The Chief Executive Officers, supported by an Executive
Committee (the “Executive Committee”), are responsible formanaging the day-to-day operations of the Company. The
Executive Committee, chaired by the Chief Executive Officers,
also comprises the Heads of the major Functions and Divisionsof the Group. The Executive Committee met ten times during
2006.
The following matters are discussed, amongst others, at the
Executive Committee meetings:●

Setting up and control of the implementation of the strategy
for EADS businesses;●

Management, organisational and legal structure of the Group;

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Performance level of the Group’s businesses and support
functions; and●All business issues, including the operational plan of theGroup and its Divisions and BUs.

The internal organisation of the Executive Committee is definedby the business allocation among the members under thesupervision of the Chief Executive Officers. Notwithstanding
the joint responsibilities as defined above, each member of the
Executive Committee is individually responsible for the
management of his portfolio and must abide by decisions takenby the Chief Executive Officers and the Executive Committee,
as the case may be.

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The Chief Executive Officers endeavour to reach consensus
among the members of the Executive Committee on the matters
discussed at the Executive Committee meetings. In the event ofconsensus not being reached, the Chief Executive Officers areentitled to decide the matter. If there is a fundamental orsignificant disagreement with respect to any undecided matter,the dissenting Executive Committee member may request that

the Chief Executive Officers submit such matter to the
Chairmen for their opinion.
The term of office for the Executive Committee members isfive years.

The Executive Committee members are appointed by the Board of Directors.
Composition of the Executive Committee
Name

Age

Term started

Term expires

Principal Occupation

Thomas Enders

48

2005

2010

Chief Executive Officer EADSLouis Gallois

63

2006

2010

Jean-Paul Gut

45

2005

2010

Hans Peter Ring

56

2002

2007

Chief Executive Officer EADS and Head of Airbus
Chief Operating Officer Marketing, Strategy
and Global Development
Chief Operating Officer Finance EADS
and Chief Financial Officer Airbus

François Auque

50

2005

2010

Head of Astrium

Lutz Bertling

44

2006

2011

Head of Eurocopter

Jean J. Botti

50

2006

2011

Chief Technical Officer

Fabrice Brégier

45

2005

2010

Chief Operating Officer Airbus

Ralph D Crosby Jr.

59

2002

2007

Head of EADS North America

Francisco Fernández Sáinz

61

2002

2007

Head of Military Transport Aircraft

Jussi Itävuori

51

2002

2007

Head of Human Resources

Stefan Zoller

49

2005

2010

Head of Defence & Security

Nota:The professional address of allamembers of the Executive Committee for any matter relating to EADS is Le Carré, Beechavenue 130-132, 1119 PR, Schiphol-Rijk, The Netherlands.

Thomas Enders, Chief Executive Officer EADS

See “2.1.1 Board of Directors, Chairmen and Chief Executive
Officers — Curriculum Vitae and other Mandates and Duties
Performed in any Company by the Members of the Board of
Directors”.
Louis Gallois, Chief Executive Officer EADS and Head ofAirbusSee “2.1.1 Board of Directors, Chairmen and Chief Executive
Officers — Curriculum Vitae and other Mandates and Duties
Performed in any Company by the Members of the Board of
Directors”.
Jean-Paul Gut, Chief Operating Officer Marketing, Strategy
and Global Development

Hans Peter Ring, Chief Operating Officer Finance EADS
and Chief Financial Officer Airbus

See “2.1.1 Board of Directors, Chairmen and Chief Executive
Officers — Curriculum Vitae and other Mandates and Duties
Performed in any Company by the Members of the Board of
Directors”.
François Auque, Head of Astrium

Mr. Auque joined Aerospatiale as Chief Financial Officer in
1991, after a career with the Suez Group and the French Courdes Comptes. He held various top management functions
within Aerospatiale and Matra until becoming Chief Financial
Officer of Aerospatiale Matra together with Managing Director
for satellites. Since 2000, he is Chief Executive Officer of the
EADS Space Division. Mr. Auque graduated from HEC, fromthe IEP of Paris, and from the ENA.

See “2.1.1 Board of Directors, Chairmen and Chief Executive
Officers — Curriculum Vitae and other Mandates and Duties
Performed in any Company by the Members of the Board of
Directors”.

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Lutz Bertling, Head of Eurocopter

Since 1988, Mr. Bertling has held various positions at
Braunschweig University and DaimlerChrysler Rail Systems. In
1999, he joined the Military Aircraft Business of Dasa as Vice
President Augsburg Plant and Aerostructure Programs. Since
2003 he works in Eurocopter, became Chief Executive Officerof Eurocopter Deutschland in April 2006 and Head ofEurocopter Division in October. Mr. Bertling studied
Engineering at the Braunschweig University and holds a PhD.
Jean J. Botti, Chief Technical Officer

Mr. Botti started his career in 1978 as product engineer for
Renault France. From 1989 on, he worked in the USA for
General Motors, before becoming Chief Technologist andsubsequently Business Line Executive of the Powertrain
Business at Delphi. In May 2006, he was appointed Chief
Technical Officer of EADS. Mr. Botti holds degrees from INSA
Toulouse, an MBA from Central Michigan University and a
PhD from the Conservatoire des Arts et Métiers.
Fabrice Brégier, Chief Operating Officer Airbus

Mr. Brégier joined Matra Défense in 1993 as Chairman of the
Apache MAW and Eurodrone GIEs. In 1996, he was appointed
Director for the Stand-Off activities of Matra BAe Dynamics
before becoming Chief Executive Officer of MBD in 1998 andChief Executive Officer of MBDA in 2001. Since April 2003,
he was President and Chief Executive Officer of Eurocopter andMember of the EADS Executive Committee, before being
appointed Airbus Chief Operating Officer in October 2006.
Ralph D. Crosby Jr., Head of EADS North America

Mr. Crosby has been Chairman and Chief Executive Officer of
EADS North America since 2002. He is EADS’ senior
executive in the U.S. and Chief Executive of the company
operating all U.S. subsidiaries of the group. Previously,

Mr. Crosby was President of the Integrated Systems Sector at
Northrop Grumman Corporation. Mr. Crosby holds degrees
from the U.S. Military Academy, the Graduate Institute ofInternational Studies in Geneva and Harvard University.
Francisco Fernández Sáinz, Head of Military Transport
Aircraft

Mr. Fernández Sáinz joined CASA in 1971 as a Stress Engineer.
Between 1975 and 2002 he held various positions such as
Engineering Development Director, Vice President ofEngineering, Executive Vice President Programs and finally as
Airbus España General Manager. Since 2002, he has been Headof the Military Transport Aircraft Division. Mr. Fernández
Sáinz holds an MBA from ICADE and is a Senior AeronauticalEngineer.
Jussi Itävuori, Head of Human Resources

Mr. Itävuori joined EADS in September 2001. Previously, heworked for KONE Corporation since 1982 and was appointed in
1989 as Head of Human Resources and member of the
Executive Committee of KONE Elevators. In 1995, he wasappointed member of the Executive Committee and Head of
Human Resources of KONE Corporation. Mr. Itävuori
graduated from the Vaasa School of Economics, Finland andserved in the Airforce as pilot.
Stefan Zoller, Head of Defence & Security

Mr. Zoller joined Dasa in 1996 as Chief of Staff of the
President and Chief Executive Officer of the company.
Previously, he held various management positions within
DaimlerChrysler, Dornier and Senstar/Canada. Since 2000, he
has held top management positions within EADS’ defence
business and was appointed Head of the Defence & Security
Division in 2005. Mr. Zoller graduated from the University
Tübingen and holds a PhD in company law.

2.1.5	Internal Control and Risk Management Systems
2.1.5.1	Overview
One of Management’s fundamental missions is to foster apositive Internal Control (“IC”) and Risk Management (“RM”)
environment at EADS, in line with corporate governancerequirements and best practices in the Netherlands, France,
Germany and Spain. Having recognised that continuing changes
in the multi-jurisdictional legal and regulatory provisions

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applicable to EADS required a strategic approach to IC and RM,
EADS began to implement a group-wide IC and RM system atthe beginning of 2004. This system is based on the Internal
Control and Enterprise Risk Management Frameworks of theCommittee of Sponsoring Organisations of the Treadway
Commission (“COSO”).

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The IC and RM system provides Management with aframework for attempting to manage the uncertainty andassociated risks inherent in EADS’ business. It serves as thebasis for all sub-IC and sub-RM procedures present throughout
EADS at the divisional and Business Unit (“BU”) levels.
Limitations
No matter how well designed, all IC and RM systems haveinherent limitations, such as vulnerability to circumvention or
management overrides of the controls in place. Consequently,
no assurance can be given that EADS’ IC and RM system andprocedures are or will be, despite all care and effort, entirely
effective.
Developments in 2006 and outlook
During 2006, EADS’ main objective with respect to its IC andRM system was to increase awareness of IC and RM principles
at the divisional, BU and Headquarters (“HQ”) level. This
included the rollout across several Divisions and BUs ofstandardised IC and RM training covering basic and refresher
concepts. In addition, process coordinators benefited fromindividual coaching sessions and workshops relating to theperformance of yearly IC procedures. Working groups were alsoestablished throughout 2006 in order to enhance crossdepartmental and cross-organisational knowledge exchange.
During the second half of 2006, most Divisions, BUs and HQ
departments conducted a self-assessment of their IC systems toevaluate the design and operational effectiveness of internal
controls. The results are currently in the process of being
analysed. The independent review process launched in 2005 to
substantiate the self-assessments and to assess the effectivenessof the IC and RM systems also continued during 2006.
Finally, following the purchase of BAE Systems’ 20% minority
stake in Airbus in October 2006, the appointment of common
chief executive officer (“CEO”) and chief financial officer(“CFO”) at EADS and Airbus and the production difficulties
encountered with the A380 in 2006, EADS is currently
reviewing the IC and RM system in place at Airbus in order tofurther align it with that of the group as a whole. Prior to BAE
Systems’ divestment of its stake, Airbus operated an IC andRM system, customised to their specific business. As a wholly
owned subsidiary, Airbus’ IC and RM system will be further
integrated with that of the group over the long-term.
Building on the comprehensive IC and RM review andevaluation procedures carried out in 2006, EADS will assess
the results over the course of 2007. As a result of the ongoing
monitoring activities of the IC and RM systems’ effectiveness,further modifications to the IC and RM systems are expected
throughout 2007.
Responsibility for the IC and RM System — Interaction
with EADS Management
Overall responsibility for the IC and RM system and therelated reporting to stakeholders lies with the EADS Board of
Directors (“BoD”). EADS’ CEOs and CFO are responsible for
ensuring that the IC and RM system and related procedures are
implemented throughout the Group. In addition, the Audit
Committee oversees the group-wide functioning of the IC andRM system.
A general management principle at EADS is the delegation ofentrepreneurial responsibility and powers to the operational
units. This principle of subsidiarity entails a clear separation of
responsibilities between EADS Headquarters and the Divisions
or BUs. EADS Headquarters sets the overall strategic andoperational targets for EADS and assumes the ultimate
responsibility. The Divisions and BUs retain responsibility for
all operational matters and activities within their scope, subject
to audit.
Consequently, the responsibility for operating and monitoring
the IC and RM system and for risk and IC reporting lies withthe respective management of the Divisions, BUs and HQ
departments. They must seek to ensure transparency andeffectiveness of their local sub-IC and RM systems and theadherence to the objectives defined by the EADS BoD. The
management of Divisions, BUs and HQ departments is
responsible for the implementation of appropriate mitigation
activities to reduce the probability and impact of risk exposuresand for the communication of risks which affect others within
EADS.
In principle, risk and IC management as well as ensuring
overall effectiveness of the IC and RM system is the
responsibility of all members of the staff. The Group seeks tointegrate risk and IC management into all activities when
conducting business transactions.
Sources and Standards for IC and RM System andProcedures
The core policies, procedures and thresholds that define EADS’IC and RM environment are communicated throughout theGroup through:●Codes of conduct (e.g., EADS Code of Ethics, Corporate
Social Responsibility policies (see “Part 2/Chapter 2
Corporate Social Responsibility”));

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Handbooks (e.g., “EADS Corporate Management Principles
and Responsibilities”, the “Financial Control Handbook”);

assurance to the BoD, the CEOs and the CFO regarding theachievement of the following objectives:●

Manuals (e.g., Treasury Procedures, “Accounting Manual”,“Reporting Manual”); and●●Guidelines (e.g., Risk Management Guidelines, “Funding
Policy”).

The quality of financial reporting, including design andimplementation of processes to generate a flow of timely,
relevant and reliable financial information;●

Compliance with laws and regulations applicable to theGroup, as well as with internal Group policies; and●Identification and response to significant operational, financial
and compliance risks throughout EADS.

External standards influencing the EADS IC and RM system
include the IC and Enterprise Risk Management (ERM)
Frameworks of COSO, as well as industry-specific standards as
defined by the International Standards Organisation (ISO).

2.1.5.2 RM System
RM at EADS covers all types of risk such as operational,
financial, strategic and compliance risks, quantifiable andunquantifiable risks, short-, middle- and long-term risks, andrisks with financial, health and safety, and reputational
implications. The RM system requires that all risks be identified
and that their likelihood of occurrence and the possible extent
of damage be assessed, usually in terms of their effect on
operating profit. Early identification and professional
management of these risks is fundamental to business success.
See “Risk Factors” for information on certain risks to which theGroup is exposed.
The management of the Divisions, BUs and HQ departments is
responsible for developing and initiating appropriate measures
to avoid, reduce, or hedge the probability and/or impact of theidentified risks. Information on risks is gathered and updated
regularly to provide Division, BU and HQ management with ananalysis of the significant risks within the Group, as well aswith information on the activities initiated to mitigate or avoid
such risks. This information is used for decision making
throughout the relevant EADS management processes. In
addition, the evolution of major risks and the development of
the countermeasures taken in response are monitored on aregular basis by Division and BU management, who in turnreport to the CEOs and CFO.
The RM system attempts to cover all risks to which EADS is
exposed, including risks inherent in the day-to-day businessprocesses of the Group. EADS’ IC system as described below
seeks to provide reasonable assurance that process-inherent risks
arising from the Group’s activities are managed effectively. The
relevant risks are subject to a management discussion process at
the Group level.

2.1.5.3	IC System
The IC system is based on a variety of IC policies andprocedures within EADS. It is designed to provide reasonable

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The IC system covers all three objectives with the main focus
on the reliability of financial reporting to reasonably assure thatit does not contain any material inaccuracies.
The management of the Divisions, BUs and HQ departments is
responsible for the operating and monitoring of the IC system
within their area of duty. They seek to ensure that theappropriate controls to achieve the control objectives defined by
EADS HQ and listed in IC templates are in place and operate
effectively on an ongoing basis.
EADS has established formalized internal control selfassessment mechanisms, to be applied by each identified
process/control owner on a regular basis, who must assess theoperating and design effectiveness of the internal controls inplace for his process. Identified control deficiencies are evaluatedand prioritised into “deficiencies”, “significant deficiencies” and“material weaknesses”. For each deficiency, a remediation action
is defined and implemented. The progress is monitored by therespective Division, BU and HQ department management andreported to EADS HQ. To verify the successful implementationof the remediation actions, the remedied controls are
periodically re-assessed. Each year, corporate audit provides an
independent review of the status of the IC systems in selected
Divisions, BU and HQ department. Generally, relevant
personnel (e.g., IC coordinators, process owners) receive training
in order to be informed of new/changed laws and regulations
regarding IC and to be updated on relevant process steps andactivities regarding the IC system.
Based on the self-assessments, management of each Division,
BU and HQ department prepares formal statements as to theadequacy and effectiveness of the IC systems within their scopeof responsibility.
Joint ventures, such as MBDA, operate separate IC systems.
Alignment with the EADS IC system is facilitated, inter alia,
through EADS’ presence on such affiliates’ supervisory andmanagement bodies (e.g., MBDA Board of Directors, audit
committees).

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Monitoring of Internal Controls — Management
discussions
In addition to regular monitoring activities at the Divisional,
BU and HQ levels, their assessments about the adequacy andeffectiveness of the IC systems are discussed in depth between
EADS CEOs and CFO and the respective Division/BU CEOs
and CFOs or the HQ-functions heads. These discussions serve
to prioritise potential issues at EADS level, define and commit
appropriate actions if needed, and draw conclusions for theoverall EADS IC and RM report.
Management Sign-Off Process — Sub-representation
Once every year, identified significant deficiencies and material
weaknesses are reported in sub-representation letters, providing
assurance in the form of management assessment of the qualityof the IC systems and of the IC risk exposure. Since the 2004
reporting cycle, a formalised sign-off process is in place
whereby EADS’ CEOs and CFO confirm to the BoD, to thebest of their knowledge, whether:●

the IC system is adequately structured to ensure thereliability of financial reporting within EADS;●

the control activities in place are completely and accurately
described in the IC templates and/or other relevant process
documentation and guidelines;●

the owner of each control activity is clearly identified; and●the controls in place are appropriate for EADS’ business andmeet the defined control objectives.

The CEOs’ and the CFO’s IC statement is mainly based on the
self-assessments, independent reviews and management
discussions described above, and is substantiated by subrepresentation letters provided to the CEOs and CFO by all
Divisional and BU management.

2.1.5.4 Business Processes Covered by
the IC System
Based on EADS’ activities, seventeen high-level businessprocesses have been identified within EADS. They are
categorized into core processes (research and development,
production, sales, after sales and program management), support
processes (procurement, human resources, accounting, fixed
assets, treasury, information technology, mergers &acquisitions, legal and insurance) and management processes(internal audit, controlling and management controls). Set out
below is a description of certain of these business processes inplace during 2006, and the correlating IC procedures, coveringrisks that have a significant potential of affecting the Group’s
financial condition and results of operations.

Accounting
At the core of EADS’ IC system are accounting processes andcontrols designed to ensure the reliability of the financial
statements and other financial information used by managementand disclosed to EADS’ investors and other stakeholders. These
processes and controls are part of an overall financial control
model integrating strategic planning, operative planning,measurement and reporting, decisions/actions and financial
market communication. This integrated approach to planningand reporting aims to improve internal communication andtransparency across departments and organisational units within
EADS, which are essential to the preparation of accurate andreliable financial statements.
Consolidation Procedures — External Financial Reporting

The EADS financial control model defines the planning andreporting procedures that apply to all operational units of theGroup, as well as the responsibilities of the CFO, who ischarged with developing, implementing and monitoring theseprocedures. Among the CFO’s primary tasks is overseeing the
preparation of consolidated financial statements for EADS,
which are prepared under the direct supervision of the Chief
Accounting Officer (“CAO”). The CAO is responsible for theoperation of the Group’s consolidation systems and rules andfor the definition of Group-wide accounting policies, reporting
rules and financial guidelines that ensure the consistency andquality of financial information reported by the BUs andDivisions. EADS’ accounting policies are set out in a written
accounting manual, which is agreed with the Company’s
external auditors. Changes to the EADS accounting manual
require approval by the CAO, and, where significant changes are
involved, the CFO or the Board of Directors (based upon theadvice of the Audit Committee).
Control of the financial reporting process is effected not only
through the elaboration of Group-wide accounting systems andpolicies, but also through an organized process for extracting
quality information from the reporting units on a timely basis.
The EADS reporting process is briefly summarized below:
BU accounting departments record information using the EADS
accounting consolidation software, following centrally defined
EADS accounting policies which comply with IFRS, the Groupwide applied accounting principle. Accountants at EADS
headquarters, who are responsible for each Division, monitor
and verify the work of the relevant BU accounting
departments. The Division accountants also provide direct
support to the BUs to ensure the correct application of the
EADS accounting policies.

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During the course of each reporting cycle, BU CFOs frequently
meet with the EADS CAO to discuss the financial information
generated by the BUs.

provides management with the information required to oversee
the Group’s cash profile and to initiate necessary corrective
action in order to ensure overall liquidity.

Prior to being disclosed to the public and subsequently
submitted for approval to the shareholders, theconsolidated year-end financial statements are audited by theCompany’s external auditors, reviewed by the Audit Committee
and submitted for approval by the Board of Directors. Similar
procedure is used for the quarterly closing. Group auditors are
involved before EADS financial statements are submitted to theBoard of Directors.

To maintain targeted liquidity levels, and to safeguard cash,
EADS has implemented a cash pooling system with daily cash
sweeps from the controlled subsidiaries to centrally managed
accounts. Payment fraud prevention procedures have beenstandardized throughout the Group.

Controlling
The controlling function has developed a value-driven
economic and financial corporate measurement system andmethodology on an industry benchmark level. Supported by
the CFOs from Divisions, the core planning, tracking andreporting tasks of the controlling department provides
management with a global overview of the Group. The
controlling department is also called on to interact with otherheadquarters functions to ensure that corporate activities, suchas mergers and acquisitions (“M&A”) and sourcing, are carriedout in accordance with the Group-level policies and strategies.
This global overview also makes controlling an integral elementof the risk assessment process.
The EADS financial reporting policies and procedures,
described above, are also designed to provide Management with
updated (at least monthly) decision-oriented management
information to control the operational performance of theGroup. This information includes regular cash and treasury
reports, as well as other financial information used for future
strategic and operative planning and control and supervision of
economic risks arising from the Group’s operations.

Hedge Management

Commercial operations generate material foreign exchange andinterest rate exposures. A Group hedging policy is defined andupdated regularly by the Board of Directors. In order to ensurethat all hedging activity is undertaken in line with the Group
hedging policy, the central treasury department executes all
hedging transactions. The central treasury department conducts
ongoing risk analysis and proposes appropriate measures to theDivisions and BUs with respect to foreign exchange and interest
rate risk. Subsidiaries are required to calculate, update andmonitor their foreign exchange and interest rate exposure with
the EADS central treasury department on a monthly basis, inaccordance with defined treasury procedures. See“1.1.8 Hedging Activities”.
Sales Financing

In connection with certain commercial contracts, EADS may
agree to enter into sales financing arrangements. In respect ofsales financing at Airbus, an annual sales financing budget isdefined as part of the EADS operative planning process. Sales
financing transactions are approved on a case-by-case basis, inline with certain risk assessment guidelines.
Procedures for Monitoring Off-Balance Sheet Liabilities

Treasury
Treasury management procedures, defined by EADS’ central
treasury department at Group headquarters, enhance
management’s ability to identify and assess risks relating toliquidity, foreign exchange rates and interest rates. Controlledsubsidiaries fall within the scope of the centralized treasury
management procedures, with similar monitoring procedures
existing for jointly controlled affiliates, such as MBDA.
Cash Management

Management of liquidity to support operations is one of the
primary missions of the EADS central treasury department.
Monthly cash planning and reporting by the central treasury
department, in conjunction with the controlling department,

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Within EADS, off-balance sheet liabilities mainly arise inconnection with lease arrangements, extensions of guarantees
and pending or threatened litigation. Divisions and BUs are
required to record, or to provide information on, all financial
guarantees in a tracking system. Guarantees for amounts inexcess of a certain threshold must be approved by the CFO, theCEOs or the Board of Directors, as the case may be.
Management has instituted procedures to monitor the level ofcertain off-balance sheet liabilities throughout the Group. In
particular, a specialized guarantee tracking system has beenrolled out to monitor exposure arising from guarantees
throughout the Group.
For jointly controlled affiliates, such as MBDA, summary
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captured by EADS Headquarters based on regular reports ofthis exposure and discussed in the MBDA treasury committee.

and definition of the legal framework and concluding with afinal review of the overall transaction.

Sales
Commercial contracts entered into by EADS’ operating
subsidiaries have the potential to expose the Group tosignificant financial, operational and legal risks. To control theserisks, Management has implemented contract proposal review
procedures to ensure that EADS does not enter into material
commercial contracts that expose it to unacceptable risk or are
not in line with the Group’s overall objectives. These
procedures include (i) Board of Directors-approved thresholds
and criteria for determining the risk and profitability profile ofproposed contracts and (ii) a mandated pre-approval process forcontracts defined as “high-risk”.

Legal
EADS is subject to myriad legal requirements in eachjurisdiction in which it conducts business. The EADS Legal
Affairs directorate, in coordination with the Division and BU
legal departments, is responsible for implementing andoverseeing the procedures designed to ensure that EADS’
activities comply with all applicable laws, regulations andrequirements. It is also responsible for overseeing all litigation
affecting the Group, as well as for the legal safeguarding of theGroup’s assets, including intellectual property.

Contracts falling within the defined threshold categories requireapproval by the CFO. Contracts that are deemed “high-risk”
must be submitted to a standing Commercial Committee (withthe COO for Finance and the COO of Marketing, Strategy andGlobal Development serving as permanent members). This
committee is responsible for reviewing the proposal andsubmitting a decision-leading recommendation to the CEOs. Its
specific role and responsibilities are defined in a set of internal
rules adopted by the EADS Executive Committee.
In the case of Airbus, contracts are approved in accordance with
Airbus’ own Corporate Governance policy, based on EADS
guidelines. In general, where EADS shares control of a
subsidiary with a third party, the Commercial Committee is
responsible for forming the EADS position on proposedcommercial contracts.
Mergers and Acquisitions
With respect to merger, acquisition and divestiture activities of
the Group, Management has implemented transaction review
and approval procedures centralized at EADS headquarters. The
IC procedures require all M&A transactions to be reviewed by
an M&A Committee. The M&A Committee is chaired by thehead of Strategic Coordination, and includes the CFO and the
directors of Group headquarters level M&A and controlling
departments. Legal Affairs is permanently represented on the
M&A Committee, and representatives of other departments arealso invited to attend meetings.
Projects that are considered non-strategic and fall under adefined value threshold are reviewed and approved by the M&A
Committee. Strategic and high-value projects require additional
approval by the CEOs or the Board of Directors. This review
and approval procedure is carried out at four critical stages ofthe M&A process, beginning with an analysis of the strategic fit

Legal Affairs, together with the Corporate Secretary, also plays
an essential role in the design and administration of (i) the
EADS Corporate Governance procedures and (ii) the legal
documentation underlying the delegation of powers andresponsibilities and defining the EADS management and IC
environment.
Internal Audit
The EADS Internal Audit department, under the direction of
the Corporate Secretary, provides Management with a riskbased evaluation of the effectiveness of the Group’s IC
procedures. Based upon an approved annual audit plan and a
global risk assessment of the Group’s activities, the Internal
Audit department (i) reviews operational processes for risk
management and operating efficiency improvement
opportunities and (ii) monitors compliance with legal
requirements and internal policies, process guidelines andprocedures. Internal Audit also involves ad hoc reviews,
performed at the request of management, focusing on current(e.g., suspected fraudulent activities) and future (e.g., contract
management) risks.
Procurement
A group with the size and complexity of EADS requires acommon sourcing policy to maximize market effort andminimize inefficiencies in the procurement process. To ensurethat corporate sourcing is carried out in an efficient and ethicalmanner, a set of common purchasing processes, in line with acommon sourcing strategy, is defined and implemented by thehead of Corporate Sourcing and the Chief Procurement Officers
Council.

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2.2 Interests of Directors and Principal Executive Officers
2.2.1	Compensation Granted to Directors and Principal Executive Officers
2.2.1.1	General Principles
EADS’ remuneration policy aims at attracting and retaining
talents that will contribute to the Group’s business success.
Shareholders expect a strong commitment from members of theBoard of Directors; the compensation policy is therefore
designed to focus efforts on what the Group wants to value andreward. To meet these objectives, a significant portion of thecompensation is variable and linked to key performancemeasures and individual objectives. The remuneration isbenchmarked regularly against the practice of other global

Compensation element

Base salary

Short-term

Variable pay

Stock option plan

Mid- and Long-term Performance share plan

Main drivers

companies based in Europe and the USA to ensure fairness andcompetitiveness.
The Board of Directors is composed of Non-Executive Directors
and Executive Directors (who are also members of the Executive
Committee).
The compensation of the Executive Directors and of themembers of the Executive Committee combines short-term andlong-term reward and is summarized as follows:

Performance measures

Individual performance/
Market practice- Collective part (50% of Target
variable pay): EBIT* (75%) and cash(25%) achievement
Achievement of Group business and- Individual bonus (50% of Target
financial yearly objectives and reward
variable pay): achievement of annualof individual performance
individual objectives
Variation of the value of EADS share
Alignment with shareholders’ interest compared to a grant price set at 110% of
for value creation
the Fair Market Value at grant date
Position/job value

Achievement of long-term operational
profit, measured through cumulative
EBIT* achievement

2.2.1.2	Compensation of the Membersof the Board of Directors- The Non-Executive Directors are entitled to receive an
accumulated total target compensation as a group of NonExecutive Directors on a full year basis of €900,000. This target
compensation includes (i) a fixed part of €30,000 per directorand €60,000 per chairman, (ii) a fee for participation in Board of
Directors’ meetings and Committee meetings (if such
Committee meetings take place on a different date than the
Board of Directors’ meetings) of €5,000 per director and€10,000 per chairman, per meeting and (iii) a variable partcomposed of a collective part (bonus) calculated, on the basis of
EBIT* (75%) and cash (25%) results of the Group, of €50,000 per
director and €100,000 per chairman at 100% target achievement.
The rules for the collective part calculation on the basis of

154 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

The number of Performance shares
which will vest is based on 2nd and3rd year cumulative EBIT* achievement

Variation of payment as % of Total
target income / % of vesting

Chief Executive Officers:
55% of Total target income(range from 0% to 175%)
Other members of the Executive
Committee: 50% of Total target
income (range from 0% to 175%)

Vested Performance shares will
range from 0% to 100%of initial grant

EBIT* (75%) and cash (25%) results of the Group for the NonExecutive Directors are the same as for the members of the
Executive Committee (see below “2.2.1.3 Compensation of theMembers of the Executive Committee”). The Non-Executive
Directors do not have termination packages.
- The Executive Directors receive neither fees forparticipation in Board of Directors’ meetings nor any dedicatedcompensation as members of the Board of Directors in addition
to their compensation as members of the Executive Committee(see below “2.2.1.3 Compensation of the Members of the
Executive Committee”). The Executive Directors are eligible forbenefits under Long Term Incentive Plans including stock
option plans and performance share plans (see “2.3.3 Long Term
Incentives Plans”) and under employee share ownership plans intheir capacity as qualifying employees (see also “2.3.2 EmployeeCorp orate G ove rn an ce
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Share Ownership Plans”). Additionally, the Executive Directors
are entitled to pension benefits.

information such as the number of stock options andperformance shares (see “2.3.3 Long Term Incentives Plans”)
and details of the pension benefits entitlements of the
Executive Directors are set out in “Notes to the Company
Financial Statements — Note 11: Remuneration” page 126.

The amounts of the various components constituting thecompensation granted to Executive Directors and NonExecutive Directors during 2006 together with additional
They are summarized below:●

Total remuneration and related compensation costs:

The total remuneration and related compensation costs of the members of the Board of Directors and former directors in 2006 canbe specified as follows:
2006

2005

in €

in €

Fixum

4,564,086

4,908,190

Bonus (related to reporting period)

2,361,451

4,850,449

395,000

260,000

7,320,537

10,018,639

Fees

The cash remuneration of the members of the Board of Directors was as follows:
2006

Fixum

Bonus

Fees

Total

in €

in €
related to 2006

in €

in €

Directors
Manfred Bischoff

60,00043,750100,000

203,750

Arnaud Lagardère

60,00043,750100,000

203,750

Thomas Enders

1,195,225

542,468-

1,737,963

-

-

-

-

Louis Gallois (since July 06)

450,000

257,612-707,612Jean-Paul Gut

943,693456,527-

1,400,220

Hans-Peter Ring

951,193456,527-

1,407,720

Francois David

30,00021,87540,00091,875

Rüdiger Grube

30,00021,875(*)

75,000126,875

Michael Rogowski

30,00021,87530,00081,875

Juan Manuel Eguiagaray Ucelay

18,75021,87550,00090,625795,225

473,317-

1,268,542

4,564,086

2,361,451

395,000

7,320,537

Louis Gallois (until end of June 06)

Former director(**)

Noël Forgeard
Total(*) Including €30,000 relating to the 2005 Meeting fees paid in 2006.
(**) Prorata in accordance with his membership with the Board of Directors.

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Back to Contents●Long term incentives

The table below gives an overview of the Long term Incentive Plans (stock-options and performance shares) granted by EADS to
the Executive Members of the Board of Directors in 2006:

Stock option plan: number of stock-options

Shares plan: number of performance shares(*)

granted in 2006

exercise price in €expiry dategranted in 2006

vesting dateThomas Enders

67,50025,65

16th Dec. 2016

16,875

Publication of the 2009
annual results, expected in
March 2010Louis Gallois

67,50025,65

16th Dec. 2016

16,875

Publication of the 2009
annual results, expected in
March 2010

Jean-Paul Gut

50,00025,65

16th Dec. 2016

12,500Publication of the 2009
annual results, expected in
March 2010

Hans Peter Ring

50,00025,65

16th Dec. 2016

12,500Publication of the 2009
annual results, expected in
March 2010

Total

235,000

58,750(*) Vesting of all performance shares granted to Directors is subject to performance conditions.

In 2006, former Director Mr. Noël Forgeard was no longer
eligible to grants of stock-options, nor to grants of performance
shares.
●Pension benefits:

The pension benefit obligation for the Executive Directors is asfollows:
The Executive Directors have pension promises as part of theiremployment agreements. The general policy is to give themannual pension of 50% of their annual base salary after five
years in the Executive Committee of EADS at the age of 60
to 65. In case of the Chief Executive Officers, the retirement
age is 60. This obligation increases to 60% after ten years ofservice in the EADS Executive Committee.
These pension schemes have been implemented and financed
through collective executive pension plans in France andGermany. These pension promises have also separate rules e.g.
for minimum length of service and other conditions to comply
with national regulations.

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For the Executive Directors, the amount of the pension defined
benefit obligation amounted to €23 million as of 31st December
2006. This obligation has been partly funded and accrued for in
the consolidated financial statements for its unfunded portion.
●

Termination package:

The Executive Directors are also entitled to a termination
package when they leave the Company as a result of a decisionof the Company. The employment contracts for Executive
Directors are concluded for an indefinite term with anindemnity of up to a maximum of 24 months of their target
income. The maximum 24 months indemnity can be reduced
pro rata depending on the age of retirement.
●

Non competition clause:

A non-competition clause is included in the contracts of the
Executive Directors. This clause is applicable for a 2-year
period, starting at the end of the employment contract. If thecompany does not revoke the application of the said clause, theExecutive Directors will receive a compensation based on hismonthly salary (including variable pay) in return for his
obligation not to compete.

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Other benefits:

Executive Directors are entitled to a company car. The value ofthe company cars of appointed Executive Directors is as follows:
For Thomas Enders €81,772, for Louis Gallois €23,752, for
Jean-Paul Gut €69,483 and for Hans-Peter Ring €96,400.
Mr. Thomas Enders benefits also from a free accommodation in
France. The monthly lease amounts to €3,878 on average.

2.2.1.3	Compensation of the Members of the
Executive Committee
The members of the Executive Committee, including Executive
Directors but also members of the Executive Committee whoare not members of the Board of Directors, are entitled toreceive for the year 2006 an accumulated total target
compensation on a full year basis of €11,373,997. This target
compensation is calculated pro rata for the Executive Directors
present in the Company on 31 December 2006. This
compensation is divided for the Chief Executive Officers into a
45% fixed part and a 55% variable part and for the othermembers of the Executive Committee into a 50% fixed part anda 50% variable part (in practice, the variable part can exceed 55%
and 50% respectively of the total compensation in case of
overachievement of the targets). The variable part is calculatedon the basis of two equal components: (i) a collective part
calculated on the basis of EBIT* (75%) and cash (25%) results of
the Group and (ii) a bonus corresponding to individual
achievements.
The variable part is calculated on the basis of two equal
components:●●

Collective part (50% of the variable part) to reward businessperformance at Group level or division level (if applicable).
Cash and EBIT* are the financial indicators chosen to measurecollective performance (EBIT* represents 75% of thecollective part and cash represents 25% of the collectivepart);
Individual bonus (50% of the variable part) to reward
individual performance measured against the achievement of
individual objectives.

The Group is committed to setting individual and financial
targets, the achievement of which would reflect the real
performance of EADS. The choice of EBIT* and cash financial
indicators ensures the alignment of Directors and top Executive
with EADS priorities.

Based on the level of performance, the collective as well as theindividual payout can vary from 0% to 175% of the target
payment.
On target payment at 100% for both individual and financial
targets would indicate strong personal and company
performance.
The Remuneration and Nomination Committee reviews andmakes recommendations to the Board of Directors on bonus
payments to the members of the Board of Directors and to themembers of the Executive Committee; the Board of Directors
makes the final decision.
The total compensation paid by EADS and all its Group
companies to Mr. Thomas Enders, Chief Executive Officer,
during the year 2006, was €2,015,781 (this sum includes thepayments of his January to December 2006 fixum and the 2005
variable pay paid in May 2006, which is calculated pro rata forthe periods as Head of Defence & Security Division and Chief
Executive Officer of EADS).
The total compensation paid by EADS and all its Group
companies to the new Chief Executive Officer, Mr. Louis
Gallois, appointed in July 2006, during the year 2006, was€450,000 (this sum includes the payments of his July to
December 2006 fixum).
●

Former Chief Executive Officer:

The total compensation paid by EADS and all its Group
companies to Mr. Noël Forgeard, in his role as Chief Executive
Officer of the Company, during the year 2006 was €2,469,950(this sum includes the payments of his January to June 2006
fixum, the 2005 variable pay paid in May 2006, which is
calculated pro rata for the periods as Chief Executive Officer of
Airbus and Chief Executive Officer of EADS, the 2006 variable
pay paid in 2006, which is calculated pro rata for the period as
Chief Executive Officer of EADS).
Under the terms of his employment contract, Noël Forgeard
was entitled to:●

A 6 month notice period, which represents an amount of€1,223,317 (gross salary and bonus);●

A termination package of €4,893,268 (i.e. 24 months of total
gross annual income);●

A 2-year non-compete indemnity, which represents amonthly gross amount of €101,917 gross (from 2007
onwards).

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2.2.2	Long Term Incentives Granted to the Two Chief Executive Officers
See “2.3.3 Long Term Incentive Plans”.

2.2.3 Related Party Transactions
Article 2:146 of the Dutch Civil Code provides as follows:“Unless the articles of association provide otherwise, a company(naamloze vennootschap) shall be represented by its board of
supervisory directors in all matters in which it has a conflict ofinterest with one or more of the members of its Board of
Directors. The shareholders’ meeting shall at all times havepowers to designate one or more persons for this purpose”. In
the case of EADS, the Articles of Association do provide
otherwise since they enable the Board of Directors to havepower to represent the Company in matters where the Company
has a conflict of interest with one or more members of theBoard of Directors.
During the year 2006, no agreement was entered into by theCompany with one of its directors or principal officers or ashareholder holding more than 5% of the voting rights of theCompany outside the ordinary course of business and in
conditions other than arm’s length conditions.
For a description of the relationships between the Company andits principal shareholders, see “Part 2/3.3.2 Relationships with
Principal Shareholders”. Other than the relationships between
the Company and its principal shareholders described inPart 2/3.3.2, to the Company’s knowledge, there are no
potential conflicts of interest relative to the Company between
the duties of the Directors and their respective private interests
or other duties.

As indicated in “Part 2/3.1.3.1 Periodic Disclosure Obligations”,
according to Article 35 of the Spanish Securities Market
Act 24/1988, of 28th July 1988, as amended (the “Spanish
Securities Act”) and Order EHA/3050/2004 of 15th
September 2004, the Company must provide detailed
information, including, without limitation, the number andamount of the transactions, in relation to every transaction
carried out with any related party in the half-yearly
information which the Company is required to file with the
Comisión Nacional del Mercado de Valores (the “CNMV”) andthe Spanish Stock Exchanges, without prejudice to information
to be included in the annual Corporate Governance report to be
filed with the CNMV on an annual basis (the “Annual
Corporate Governance report” pursuant to the Ministry of
Economy Order 3722/2003 dated 26th December 2003 (the“Ministerial Order”)).
Pursuant to the Spanish Securities Act, the Company has toprovide detailed information about transactions carried out
with (i) directors which are outside the ordinary activity of theCompany or which are not in market conditions; and (ii) any
related party which are material due to their amount or for anadequate understanding of the public economic information.

2.2.4	Loans and Guarantees Granted to Directors
EADS has not granted any loans to its Directors or members of the Executive Committee.

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2.3 Employee Profit Sharing and Incentive Plans
2.3.1	Employee Profit Sharing and Incentive Agreements
EADS’ remuneration policy is strongly linked to theachievement of individual and Company objectives, both foreach Division and for the overall Group. A stock option plan
and a performance and restricted shares plan have been
established for the senior management of the Group (see“2.3.3 Long Term Incentives Plans”) and employees were
offered shares at favourable conditions at the time of the public
offering and listing of EADS (see “2.3.2 Employee ShareOwnership Plans”).
EADS France has profit sharing plans (accords de participation),in accordance with French law, and specific incentive plans(accords d’intéressement), which provide bonuses to employees

based on the achievement of productivity, technical oradministrative milestones.
EADS Deutschland GmbH’s remuneration policy is, to a large
extent, flexible and strongly linked to the EBIT* of the company,
the increase in value of the company and the achievement of
individual objectives.
EADS CASA, which does not have a profit sharing policy,
allows technicians and management to receive profit-related pay,
subject to the achievement of the general company objectives
and individual performance.

2.3.2	Employee Share Ownership Plans
2.3.2.1	ESOP 2000
As part of its initial public offering, EADS offered toqualifying employees approximately 1.5% of its total sharecapital after the global offering. This employee offering of up
to 12,222,385 shares included an option allowing qualifying
employees to leverage their investment in the shares theypurchased. Under this option, the investment consisted of theamount paid plus an amount resulting from a swap agreementof the investment management company for this option, that
equalled nine times such amount paid. Qualifying employees
were offered shares at a price of €15.30, being the price for theretail offering, less a discount of 15%.
The employee offering was open only to employees who:●

had at least three months’ seniority;●

had French, German or Spanish employment contracts; and●were employed by companies incorporated under French,
German or Spanish law in which EADS held (i) the majorityof the share capital or (ii) at least 10% of the share capital,
provided such minority-owned companies were designated as
eligible by EADS.

Depending on whether the employee purchased shares througha French, German or Spanish plan, directly or via a mutual

fund, the employee is restricted from selling the shares for oneof the following lock-up periods: 18 months, three years, five
years or six years.
A total number of 11,769,259 shares were subscribed for in theemployee offering. Shares were delivered on 21st September 2000.

2.3.2.2	ESOP 2001
In October 2001, EADS offered to qualifying employees amaximum of 0.25% of its total issued share capital before theoffering. This employee offering was for up to 2,017,894 sharesof a nominal value of €1 each.
The employee offering (note d’opération préliminaire approvedby the COB (former name of the Autorité des marchés financiers(the “AMF”)) on 8th October 2001 under number 01-1200 andnote d’opération définitive approved by the COB on 13th October
2001 under number 01-1209) was open only to employees who:●

had at least three months’ seniority;●

were employed by (i) EADS or (ii) one of its subsidiaries or(iii) a company in which EADS holds at least 10% of the

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share capital and over whose management it has adetermining influence and whose registered office is locatedin South Africa, Germany, Brazil, Canada, Spain, the UnitedStates, the United Kingdom, France, Italy, Morocco, Mexicoand Singapore.
The employee offering was divided into two tranches:●

shares subscribed for by qualifying employees in Group
employee savings plan were offered for a price of €10.70 per
share;●

shares subscribed for by qualifying employees directly were
offered for a price of €10.70 per share.

The employees are generally restricted from selling the shares
offered in this employee offering for one year and sometimes
more in certain countries.

A total number of 2,022,939 shares were subscribed for in theemployee offering. Shares were delivered on 4th December 2002.

2.3.2.4	ESOP 2003
In October 2003, EADS offered to qualifying employees amaximum of 0.25% of its total issued share capital before theoffering. This employee offering was for up to 2,027,996 sharesof a nominal value of €1 each.
The employee offering (note d’opération approved by the COB
on 25th September 2003 under number 03-836) was given only
to employees who:●

had at least three months’ seniority;●

were employed by (i) EADS or (ii) one of its subsidiaries or(iii) a company in which EADS holds at least 10% of theshare capital and over whose management it has adetermining influence and whose registered office is locatedin Germany, Belgium, Canada, Spain, the United States, theUnited Kingdom, France, Ireland, Mexico, the Netherlands
and Singapore.

A total number of 2,017,894 shares were subscribed for in theemployee offering. Shares were delivered on 5th December 2001.

2.3.2.3	ESOP 2002
In October 2002, EADS offered to qualifying employees amaximum of 0.25% of its total issued share capital before theoffering. This employee offering was for up to 2,022,939 sharesof a nominal value of €1 each.
The employee offering (note d’opération préliminaire approvedby the COB on 30th September 2002 under number 02-1062
and note d’opération définitive approved by the COB on 11th
October 2002 under number 02-1081) was open only toemployees who:●

had at least three months’ seniority;●

were employed by (i) EADS or (ii) one of its subsidiaries or(iii) a company in which EADS holds at least 10% of theshare capital and over whose management it has adetermining influence and whose registered office is locatedin Germany, Brazil, Canada, Spain, the United States, theUnited Kingdom, France, Italy, Mexico and Singapore.

The employee offering was divided into two tranches:●●

shares subscribed for by qualifying employees in Group
employee savings plan were offered for a price of €8.86 pershare;
shares subscribed for by qualifying employees directly were
offered for a price of €7.93 per share.

The employees are generally restricted from selling the shares
offered in this employee offering for one year and sometimes
more in certain countries.

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The employee offering was divided into two tranches:●

shares subscribed for by qualifying employees in Group
employee savings plan were offered for a price of €12.48 pershare;●

shares subscribed for by qualifying employees directly were
offered for a price of €12.48 per share.

The employees are generally restricted from selling the shares
offered in this employee offering for one year and sometimes
more in certain countries.
A total number of 1,686,682 shares were subscribed for in theemployee offering. Shares were delivered on 5th December 2003.

2.3.2.5	ESOP 2004
In October 2004, EADS offered to qualifying employees amaximum of 0.25% of its total issued share capital before theoffering. This employee offering was for up to 2,018,000 sharesof a nominal value of €1 each.
The employee offering (note d’opération approved by the AMF
on 10th September 2004 under number 04-755) was given only
to employees who:●

had at least three months’ seniority;

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were employed by (i) EADS or (ii) one of its subsidiaries or(iii) a company in which EADS holds at least 10% of theshare capital and over whose management it has adetermining influence and whose registered office is locatedin Germany, Belgium, Canada, Spain, the United States, theUnited Kingdom, France, Ireland, Mexico, the Netherlands,
Singapore, Australia and Finland.

The employee offering was divided into two tranches:●●

shares subscribed for by qualifying employees in Group
employee savings plan were offered for a price of €18 pershare;
shares subscribed for by qualifying employees directly were
offered for a price of €18 per share.

The employees are generally restricted from selling the shares
offered in this employee offering for one year and sometimes
more in certain countries.
A total number of 2,017,822 shares were subscribed for in theemployee offering. Shares were delivered on 3rd December 2004.

2.3.2.6	ESOP 2005
In June 2005, EADS offered to qualifying employees amaximum of 0.25% of its total issued share capital before theoffering. This employee offering was for up to 2,025,000 sharesof a nominal value of €1 each.
The employee offering (note d’opération approved by the AMF
on 4th May 2005 under number 05-353) was given only toemployees who:●

had at least three months’ seniority;●

were employed by (i) EADS or (ii) one of its subsidiaries or(iii) companies in which EADS holds at least 10% of theshare capital and over whose management it has adetermining influence and whose registered offices arelocated in Germany, Australia, Belgium, Canada, Spain, theUnited States, Finland, France, the United Kingdom, Ireland,
Mexico, the Netherlands, Poland and Singapore.

The employee offering was divided into two tranches:●

shares subscribed for by qualifying employees in Group
employee savings plan were offered for a price of €18.86 pershare;●

shares subscribed for by qualifying employees directly were
offered for a price of €18.86 per share.

The employees are generally restricted from selling the shares
offered in this employee offering for one year and sometimes
more in certain countries.
A total number of 1,938,309 shares were subscribed for in theemployee offering. Shares were delivered on 29th July 2005.

2.3.2.7	ESOP 2007
In 2006 no employee offering took place. The employee
offering originally scheduled for June 2006 was postponed toMarch 2007.
In March 2007, EADS offered to qualifying employees amaximum of 0.25% of its total issued share capital before theoffering. This employee offering was for up to 2,040,000 sharesof a nominal value of €1 each.
The employee offering was given only to employees who:●

had at least three months’ seniority;●

were employed by (i) EADS or (ii) one of its subsidiaries or(iii) companies in which EADS holds at least 10% of theshare capital and over whose management it has adetermining influence and whose registered offices arelocated in Germany, Australia, Belgium, Canada, Spain, theUnited States, Finland, France, the United Kingdom, Ireland,
Mexico, the Netherlands, Poland and Singapore.

The employee offering was divided into two tranches:●

shares subscribed for by qualifying employees in Group
employee savings plan were offered for a price of €19.62 pershare;●

shares subscribed for by qualifying employees directly were
offered for a price of €17.16 per share.

The employees are generally restricted from selling the shares
offered in this employee offering for one year and sometimes
more in certain countries.
A total number of 2,037,835 shares were subscribed for in theemployee offering. Shares will be delivered on 9th May 2007.

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2.3.3	Long Term Incentive Plans
At its 26th May 2000, 20th October 2000, 12th July 2001,
9th August 2002, 10th October 2003, 8th October 2004,
9th December 2005 and 18th December 2006 meetings, theBoard of Directors of the Company, using the authorisation
given to it by the shareholders’ meetings of 24th May 2000,
10th May 2001, 6th May 2003, 11th May 2005 and 4th May 2006
approved the granting of stock options for subscription ofshares in the Company.

At its 18th December 2006 meeting, the Board of Directors of
the Company, using the authorisation given to it by theshareholders’ meeting of 4th May 2006 approved the granting of
performance shares and restricted shares in the Company.
The principal characteristics of these options and performanceand restricted shares as at 31st December 2006 are set out in the“Notes to the Consolidated Financial Statements (IFRS) —Note 31: Share-based Payment” page 105. They are also set out
in the table below:
First tranche

Second tranche

Date of shareholders’ Meeting

24 May 2000

24th May 2000

Date of Board of Directors Meeting (grant date)

26th May 2000

20th October 2000

Number of options granted

5,324,884

240,000

Number of options outstanding

1,743,489

32,000720,000

60,000th

Options granted to directors and officers
Total number of eligible employees

Exercise date

850
34
50% of options may be exercised after a period of two years and four weeks from the date of grant of the options;
50% of options may be exercised as of the third anniversary of the date of grant of the options (subject to specificprovisions contained in the Insider Trading Rules — see “Part 2/3.1.3 Governing Laws”).

Expiry date

8th July 2010

8th July 2010

One option for one share

One option for one share

100%

100%

€20.90110% of fair market value of the shares at the date of
grant€20.90110% of fair market value of the shares at the date of
grant

2,856,911

188,000

Conversion right
VestedExercise price
Exercise price conditions
Number of exercised options

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Third tranche

Fourth tranche

10 May 2001

10th May 2001

12th July 2001

9th August 2002

Number of options granted

8,524,250

7,276,700

Number of options outstanding

3,856,519

2,911,916• Mr. Philippe Camus

135,000

135,000• Mr. Rainer Hertrich• the 10 employees having being granted
the highest number of options during
the year 2001 (third tranche) and 2002
(fourth tranche)

135,000

135,000

738,000

808,000

Date of shareholders’ Meeting
Date of Board of Directors Meeting (grant
date)

th

Options granted to:

Total number of eligible employees

Exercise date
Expiry dateConversion right

1,650
1,562
50% of options may be exercised after a period of two years and four weeks from the date of grant of the options; 50% of
options may be exercised as of the third anniversary of the date of grant of the options (subject to specific provisions
contained in the Insider Trading Rules — see “Part 2/3.1.3 Governing Laws”).
12th July 2011

8th August 2012

One option for one share

Vested100%

100%

Exercise price€24.66€16.96

Exercise price conditions
Number of exercised options

10% of fair market value of the shares at the date of grant
3,490,831

4,115,534

Fifth tranche

Sixth tranche

6th May 2003

6th May 2003

10th October 2003

8th October 2004

Number of options granted

7,563,980

7,777,280

Number of options outstanding

5,229,965

7,599,700• Mr. Philippe Camus

135,000

135,000• Mr. Rainer Hertrich• the 10 employees having being granted
the highest number of options during
the year 2003 (fifth tranche) and 2004
(sixth tranche)

135,000

135,000

808,000

808,000

Date of shareholders’ Meeting
Date of Board of Directors Meeting (grantdate)

Options granted to:

Total number of eligible employees

Exercice date
Expiry dateConversion right

1,491
1,495
50% of options may be exercised after a period of two years and four weeks from the date of grant of the options; 50% of
options may be exercised as of the third anniversary of the date of grant of the options (subject to specific provisions
contained in the Insider Trading Rules — see “Part 2/3.1.3 Governing Laws”). As regards to the sixth tranche, part of theoptions granted to the top EADS Executives are performance related.
9th October 2013

7th October 2014

One option for one share

Vested100%

50%

Exercise price€15.65€24.32

Exercice price conditions
Number of exercised options

110% of fair market value of the shares at the date of grant
2,116,545

2,400

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Seventh tranche

Date of shareholders’ Meeting

11th May 2005

Date of Board of Directors Meeting

9th December 2005

Number of options granted

7,981,760

Number of options outstanding

7,907,600

Options granted to:• Mr. Thomas Enders

135,000• Mr. Noël Forgeard• the 10 employees having being
granted the highest number of options
during the year 2005 (seventh
tranche)135,000

Total number of eligible beneficiaries

Exercise date

940,000
1,608
50% of options may be exercised after a period of two years from the date of grant of the options; 50% of options may be
exercised as of the third anniversary of the date of grant of the options (subject to specific provisions contained in the
Insider Trading Rules — see “Part 2/3.1.3 Governing Law — Dutch Regulations”). As regards to the seventh tranche, partof the options franted to the top EADS Executives are performance related.

Expiry dateConversion right
VestedExercise price
Exercice price conditions
Number of exercised options

164 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

8th December 2015
One option for one share0%€33.91
110% of fair market value of the shares at the date of grant
0

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Eighth tranche

Date of shareholders’ Meeting

4th May 2006

Date of Board of Directors Meeting

18th December 2006**
Stock option plan

Number of options granted

1,747,500

Number of options outstanding

1,747,500

Options granted to:• Mr. Thomas Enders*

67,500• Mr. Louis Gallois*• the 10 employees having being
granted the highest number of options
during the year 2006 (eighth tranche)

67,500Total number of eligible beneficiaries
Date from which the options may be
exercised

425,000
221
50% of options may be exercised after a period of two years from the date of grant of the options; 50% of options may be
exercised as of the third anniversary of the date of grant of the options (subject to specific provisions contained in the
Insider Trading Rules — see “Part 2/3.1.3 Governing Laws”)

Date of expiration

16th December 2016

Conversion right

One option for one share

Vested0%

Exercice price€25.65

Exercice price conditions

110% of fair market value of the shares at the date of grant

Number of exercised options

0
Performance and restricted shares plan
Performance shares

Restricted shares

1,344,625

391,300• Mr. Thomas Enders*

16,875-• Mr. Louis Gallois*• the 10 employees having being
granted the highest number of shares
during the year 2006 (eighth tranche)

16,875-

137,500

28,200

Number of shares granted
Shares granted toTotal number of eligible beneficiaries

Vesting date

1,637
The performance and restricted shares will vest if the participant is still employed by an EADS company and, in the caseof performance shares, upon achievement of mid-term business performance. The vesting period will end at the date of
publication of the 2009 annual results, expected in March 2010.

(*) For more information in respect of options and shares granted to the Executive Directors, see “Notes to the Company Financial Statements — Note 11: Remuneration”, page 126.
(**) The eighth tranche was published to the employees up to 8 th January 2007.

The information in respect of stock options and performanceand restricted shares cancelled and exercised during the year are
set out in “Notes to the Consolidated Financial Statements(IFRS) — Note 31: Share-based Payment”, page 105.

For information on the transactions carried out by the membersof the Board of Directors and the Executive Committee see
EADS’s website and/or the relevant stock exchange authorities’
website.

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Financial Calendar

2007 Calendar of Financial Communication

168

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2007 Calendar of Financial Communication
2006 Annual Results Release: 9th March 2007
Annual General Meeting: 4th May 2007
First Quarter 2007 Results Release: 10th May 2007
First Half 2007 Results Release: 26th July 2007

168 EADS F I N A N C I AL S TAT E M E N TS A N D CO R P O R AT E G OV E R N A N C E

Designed & Produced by:Third Quarter 2007 Results Release: 8th November 2007

European Aeronautic Defence
and Space Company EADS N.V.
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The Netherlands
www.eads.com

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