2

BOOK TWO

Financial
Statements
andCorporate
Governance
2007

The complete EADS Annual Report Suite 2007 consists of: 

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BOOK 2

BOOK 3

FACING CHALLENGES
DELIVERING RESULTS
Annual Review

FINANCIAL STATEMENTS ANDCORPORATE GOVERNANCE 2007
Registration Document Part 1

BUSINESS, LEGAL AND
CORPORATE RESPONSIBILITY 2007
Registration Document Part 2

Management & Responsibility

Risk Factors

Information on EADS Activities

Together. Facing challenges.
Delivering results.

Net Assets – Financial Position – Results

Corporate Social Responsibility

Corporate Governance

General Description of theCompany and its Share Capital

The Business Year 2007
EADS Drivers
Useful Informationwww.eads.com
The online version of theAnnual Report Suite 2007 is available atwww.reports.eads.com

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Financial
Statements
andCorporate
Governance

EAD S R EG I S TR ATI ON D O CU M EN T 2 0 07 - PA RT 1

FINANCIAL POLICY

Letter from the Chief Financial Ofﬁcer
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FINANCIAL POLICY

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DEAR SHAREHOLDERS,
In 2007, EADS took important steps to overcome
challenges and risks. At the same time we demonstrated
commercial and technology excellence by converting
opportunities into sales successes. Indeed, 2007 wasa record year for sales, thanks to a favourable market andthe strength of our products. Yet we still have much work
to do to return EADS to ﬁnancial strength.
Frankly, the 2007 ﬁnancial results are unsatisfactory heavily burdened by the A380 loss due to delays, the costof the A350 XWB relaunch, the A400M provision resulting
from the development delay, and the restructuring provision
for the Power8 programme. Moreover, the weakness of
the U.S. dollar and the anticipation of a downturn inthe market weighed down EADS stock price performance.
The Management responded in multiple ways to thesechallenges:
First, by capturing a record commercial order intake,Airbus registered 1,341 net orders, and airlines recognised
the competitiveness of the A350 XWB with 290 ﬁrm
orders. Eurocopter also reached an unprecedented orderintake of 802 helicopters. Finally, Astrium for the ﬁrst
time became market leader with orders for eight telecom
satellites.
This record backlog totalling 339.5 bn€ should provide us
headroom even in a tougher market in the years to come.
Additionally, we anticipate further positive momentum
from being chosen by the U.S. Air Force — with
Northrop Grumman — to provide the KC-45 Tanker.
Second, we continued to hedge against the unprecedented
weakness of the U.S. dollar. Although the hedged portionof our exposure has decreased - mainly due to the hugeorder intake and the very long-term order book, especiallyon A350 - it gives us protection over the next years at
decreasing rates, and buys us time to react. Unfortunately,
dollar weakness constitutes a continuing threat thatcannot be fully addressed through hedging.
This environment has lead to a new phenomenon
for programmes like the A380 and A350 where early
contracts in the production plan are suffering losses,
ﬂuctuating with the quarterly development of the dollar
rates. Consequently, we are developing counter-measures,
beyond our Power8 cost savings and restructuring
programme. This will inevitably mean drastic measures,
including the need speciﬁcally to further “dollarise” ourcost base so as to be less vulnerable against currency
ﬂuctuations.

Third, management is reaping the beneﬁts of
the restructuring and cost saving programmes. Eurocopter,
Defence & Security and Astrium all made signiﬁcant
contributions to operational results. Based on the strong
order book we expect further proﬁtable growth of top andbottom line. The Airbus legacy programs continue todeliver and the Power 8 programme contribution in 2007delivered good early results. This led to a solid free cash
ﬂow performance and an unprecedented net cash positionof €7 billion: a capital increase is not anticipated.
Finally, Louis Gallois initiated the development of
Vision 2020 to have a clear ﬂight plan for the coming years.
Each Division and each Function will contribute to making
Vision 2020 a reality. And so will Corporate Finance.
The Finance Improvement Initiative, which I launchedin 2007, streamlines and integrates the Finance function
across the Divisions. Together with my Finance Leadership
Team, we are driving ﬁnance process improvements,
transparency, efﬁciency, and sharing best practices. We areparticularly looking at sharing resources. We also address
incentivisation schemes to drive ambition and value
creation, and focus more on the efﬁcient use of our assets.
We need to implement our Vision as soon as possible.
We must enhance non-Airbus revenues, increase ourservices offering and make globalisation a reality.
Proactive portfolio management through selective
acquisitions, and possible divestments of non-core or
non-strategic assets, will further support the Vision goals.
In view of the cash performance of the Group and despite
the registered net loss, the Board will propose to
the Annual General Meeting of Shareholders a dividend of
12 cents per share. While acknowledging the turbulent
macro-economic conditions and capital market environment,
the Board wishes to recognise and reward the importance ofshareholder loyalty, and the management wishes to express
conﬁdence in EADS’ short- and medium-term prospects.
We expect the conditions for a more substantial dividend
will be met for the full year 2008.
Yours truly,

Hans Peter Ring
Chief Financial Ofﬁcer

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EADS REGISTRATION DOCUMENT - PART 1

Financial Statements
and Corporate Governance (BOOK 2)

European Aeronautic Defence and Space Company EADS N.V. (the “Company” or “EADS” and together
with its subsidiaries, the “Group”) 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 to securities and market authorities, are describedin this registration document (the “Registration Document”).
This Registration Document was prepared in accordance with Annex 1 of EC Regulation
809/2004, ﬁled in English with, and approved by, the Autoriteit Financiële Markten(the “AFM”) on 24 April 2008 in its capacity as competent authority under the Wet op het
ﬁnancieel toezicht (as amended) pursuant to 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 ﬁnancial transaction 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.

E A D S F I N A N C I A L S TAT EM ENT S A ND COR POR AT E GOV ER N A NCE 2007

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Financial
Statements
andCorporate
Governance
RISK FACTORS

1NET ASSETS | FINANCIAL POSITION | RESULTS

2

CORPORATE GOVERNANCE

3

FINANCIAL CALENDAREADS FIN ANCIAL S TAT EMENTS AND CORPORATE GOVERN ANCE 2007

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REGISTRATION DOCUMENT | PART 1

Financial Statements
and Corporate Governance(BOOK 2)RISK FACTORS

7

1.

Financial Market Risks

8

2.

Business-Related Risks

10

3.

Legal Risks

15

4.

Industrial and Environmental Risks

17

1

NET ASSETS, FINANCIAL
POSITION AND RESULTS

Consolidated Research and Development Expenses
Consolidated Other Income and Other Expenses
Consolidated Share of Proﬁt from Associates
Accounted for under the Equity Method
and Other Income from Investments
Consolidated Interest Result
Consolidated Other Financial Result
Consolidated Income Taxes
Consolidated Minority Interests
Consolidated Net Income (Loss) (Proﬁt (loss) for
the Period Attributable to Equity Holders of the Parent)
Earnings per Share (EPS)
1.1.6

19
1.1.7

1.1

1.1.1

1.1.2

1.1.3

1.1.4

1.1.5

2

Management’s Discussion
and Analysis of Financial Condition
and Results of Operations

20

CERTAIN INFORMATION
Exchange Rate Information
Ratings

20
20
20

OVERVIEW
1.1.2.1 Signiﬁcant Programme and Restructuring
Developments in 2006 and 2007
1.1.2.2 Trends

21

CRITICAL ACCOUNTING CONSIDERATIONS,POLICIES AND ESTIMATES
1.1.3.1 Scope of and Changes
in Consolidation Perimeter
1.1.3.2 Employee Beneﬁts — IAS 19
1.1.3.3 U.K. Pension Commitments
1.1.3.4 Fair Value Adjustments
1.1.3.5 Impairment/Write-down of Assets
1.1.3.6 Research and Development Expenses
1.1.3.7 Accounting for Hedged Foreign Exchange
Transactions in the Financial Statements
1.1.3.8 Foreign Currency Translation
1.1.3.9 Accounting for Sales Financing Transactionsin the Financial Statements
1.1.3.10 Provisions for Loss-Making Contracts

21
22

HEDGING ACTIVITIES
1.1.8.1 Foreign Exchange Rates
1.1.8.2 Interest Rates

49
49
50

1.2

Financial Statements

51

1.2.1

EADS N.V. CONSOLIDATED FINANCIAL
STATEMENTS (IFRS)Basis of Presentation
Notes to the Consolidated Income Statements (IFRS)
Notes to the Consolidated Balance Sheets (IFRS)
Notes to the Consolidated Statementsof Cash-Flows (IFRS)Other Notes to the Consolidated Financial
Statements (IFRS)

103

Appendix “Information on Principal
Investments” – Consolidation Scope

128

AUDITOR‘S REPORT ON THE CONSOLIDATEDFINANCIAL STATEMENT (IFRS)
Report on the Consolidated Financial Statements
Report on other legal and regulatory requirements

134
134
135

1.2.2

COMPANY FINANCIAL STATEMENTS

136

1.3

Statutory Auditors’ Fees

146

1.4

Information Regarding
the Statutory Auditors

147

27
28

33
33
36
36

EADS FIN ANCIAL S TAT EMENTS AND CORPORATE GOVERN ANCE 2007

39
40
40

1.1.8

26
26

EADS RESULTS OF OPERATIONS
Consolidated Revenues
Consolidated Cost of Sales
Consolidated Selling and Administrative Expenses

38
38

41
41

23
24
24
25
25
25

28
28
30
30

37
37
37
38
38

LIQUIDITY AND CAPITAL RESOURCES
1.1.7.1 Cash Flows
1.1.7.2 Consolidated Cash and Cash Equivalents
and Securities
1.1.7.3 Consolidated Financing Liabilities
1.1.7.4 Sales Financing

23

MEASUREMENT OF MANAGEMENT’SPERFORMANCE
1.1.4.1 Order Backlog
1.1.4.2 Use of EBIT*
1.1.4.3 EBIT* Performance by Division

CHANGES IN CONSOLIDATED TOTAL EQUITY(INCLUDING MINORITY INTERESTS)
IAS 39 Related Impact on AOCI
Currency Translation Adjustment Impact on AOCI

36
37

43
44
44

52
57
70
80
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2

CORPORATE GOVERNANCE

149

3

FINANCIAL CALENDAR

185

2.1

Management and Control

153

2008 Calendar of Financial Communication

186

2.1.1

BOARD OF DIRECTORS,CHAIRMAN AND CHIEF EXECUTIVE OFFICER

153

2.1.2

AUDIT COMMITTEE

164

2.1.3

REMUNERATION AND NOMINATION COMMITTEE 164

2.1.4

STRATEGIC COMMITTEE

165

2.1.5

EXECUTIVE COMMITTEE

165

2.1.6

INTERNAL CONTROLAND RISK MANAGEMENT SYSTEMS
167
2.1.6.1 Overview
167
2.1.6.2 RM System
168
2.1.6.3 IC System
168
2.1.6.4 Business Processes Covered by the IC System 169

2.2Interests of Directors
and Principal Executive Ofﬁcers

2.2.1

172
172
173
175

2.2.2

LONG TERM INCENTIVES GRANTEDTO THE CHIEF EXECUTIVE OFFICER

176

2.2.3

RELATED PARTY TRANSACTIONS

176

2.2.4

LOANS AND GUARANTEESGRANTED TO DIRECTORS

176

Employee Proﬁt Sharing
and Incentive Plans

177

EMPLOYEE PROFIT SHARINGAND INCENTIVE AGREEMENTS

177

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

177
177
177
178
178
178
179
179

2.3.3

LONG TERM INCENTIVE PLANS

179

2.3
2.3.1

CONTENTS FOR THIS BOOKCOMPENSATION GRANTED TO DIRECTORSAND 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 Membersof the Executive Committee

172

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Business, Legaland Corporate Responsibility(BOOK 3)
NONACTIVE SUMMARY. PLEASE, GO TO BOOK 3

1

INFORMATIONON EADS‘ ACTIVITIES

1.1

Presentation of the EADS Group

8

1.1.1

OVERVIEW

81.1.2

AIRBUS

13

1.1.3

MILITARY TRANSPORT AIRCRAFT

21

1.1.4

EUROCOPTER

25

1.1.5

DEFENCE & SECURITY

29

1.1.6

ASTRIUM

35

1.1.7

OTHER BUSINESSES

40

1.1.8

INVESTMENTS

42

1.1.9

INSURANCE

43

1.1.10LEGAL AND ARBITRATION PROCEEDINGS

44

2.3.1

POLICY68

2.3.2

ORGANISATION

68

2.3.3

PERFORMANCE AND BEST PRACTICES

69

2.4

Human Resources: Employer –Employee Relationship72

WORKFORCE INFORMATIONAND ORGANISATION OF WORK

72

2.4.2

HUMAN RESOURCES ORGANISATION

73

2.4.3

HUMAN RESOURCES POLICIESAND PERFORMANCE
74
2.4.3.1 Health and Safety: Providing a Safe Workplacefor EADS Employees and Subcontractors
74
2.4.3.2 Caring for EADS Employees and EADS KnowHow
74
2.4.3.3 Diversity: Commitment to Ensure Equal
Opportunity for all EADS Employees
75
2.4.3.4 Career Development: Efﬁcient Managementof Skills and Know-How
77
2.4.3.5 Employee Relations: A Proactive Dialogue80

2.5

Corporate Citizenship

81

2.5.1

MAINTAINING AN OPEN DIALOGUEWITH EADS’ STAKEHOLDERS
2.5.1.1 Policy
2.5.1.2 Organisation
2.5.1.3 Performance and Best Practices

81
81
81
81

ENCOMPASSING COMMUNITY INTERESTSIN EADS’ GLOBAL STRATEGY
2.5.2.1 Policy
2.5.2.2 Organisation
2.5.2.3 Performance and Best Practices

82
82
82
82

1.1.11

INCORPORATION BY REFERENCE

45

1.2

Recent Developments

45

2

CORPORATE SOCIALRESPONSIBILITY

2.1

Business Ethics

52

2.1.1

PROPER BUSINESS PRACTICES
2.1.1.1 Policy
2.1.1.2 Organisation
2.1.1.3 Performance and Best Practices

52
52
52
53

2.1.2

EXPORT COMPLIANCE
2.1.2.1 Policy
2.1.2.2 Organisation
2.1.2.3 Performance and Best Practices

55
55
55
55

2.1.3

COMPLIANCE WITH LAW REGARDING
ALL EADS ACTIVITIES
2.1.3.1 Policy
2.1.3.2 Organisation
2.1.3.3 Performance and Best Practices

56
56
56
57

CORPORATE GOVERNANCE STANDARDS
2.1.4.1 Policy
2.1.4.2 Organisation

57
58
58

2.1.4

4

7

2.2

Sustainable Growth

58

2.2.1

PRODUCT QUALITYAND CUSTOMER SATISFACTION
2.2.1.1 Policy
2.2.1.2 Organisation
2.2.1.3 Performance and Best Practices

58
58
58
59

2.2.2

SUSTAINING AND PROTECTING INNOVATION
2.2.2.1 Innovation Strategy
2.2.2.2 Protecting Innovation: Intellectual Property

60
60
63

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
64
65

Environmental Care

68

2.3

2.4.1

49

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2.5.2

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NONACTIVE SUMMARY. PLEASE, GO TO BOOK 3

3

GENERAL DESCRIPTION
OF THE COMPANY
AND ITS SHARE CAPITAL

3.3.2

85

3.1

General Description of the Company

86

3.1.1

COMMERCIAL AND CORPORATE NAMES,SEAT AND REGISTERED OFFICE

86

3.1.2

LEGAL FORM

86

3.1.3

GOVERNING LAWS
3.1.3.1 Periodic Disclosure Obligations
3.1.3.2 Ongoing Disclosure Obligations

86
87
88

DATE OF INCORPORATION AND DURATION
OF THE COMPANY

89

3.1.5

OBJECTS OF THE COMPANY

89

3.1.6

COMMERCIAL AND COMPANIES REGISTRY

89

3.1.7

INSPECTION OF CORPORATE DOCUMENTS

90

3.1.8

FINANCIAL YEAR

90

3.1.9

ALLOCATION AND DISTRIBUTION OF INCOME
3.1.9.1 Dividends
3.1.9.2 Liquidation

90
90
90

3.1.4

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

90
90
91
92
92

3.1.11 DISCLOSURE OF HOLDINGS

92

3.1.12 MANDATORY TENDER OFFERS
3.1.12.1 Takeover Directive
3.1.12.2 Dutch Law
3.1.12.3 Articles of Association

93
93
94
94

RELATIONSHIPS WITH PRINCIPALSHAREHOLDERS

100

3.3.3

FORM OF SHARES

105

3.3.4

CHANGES IN THE SHAREHOLDING OF
THE COMPANY SINCE ITS INCORPORATION105PERSONS EXERCISING CONTROLOVER THE COMPANY

107

3.3.6

SIMPLIFIED GROUP STRUCTURE CHART

108

3.3.7

PURCHASE BY THE COMPANY
OF ITS OWN SHARES
3.3.7.1 Dutch Law and Information
on Share Buy-Back Programmes
3.3.7.2 French Regulations
3.3.7.3 German Regulations
3.3.7.4 Spanish Regulations
3.3.7.5 Description of the Share Buy-Back
Programme to be Authorised by
the Annual General Shareholders’ Meeting
to be held on 26th May 2008

3.3.5

110
110
110
110
111

111

3.4

Dividends

114

3.4.1

DIVIDENDS AND CASH DISTRIBUTIONS PAID
SINCE THE INCORPORATION OF THE COMPANY 114

3.4.2

DIVIDEND POLICY OF EADS

114

3.4.3

UNCLAIMED DIVIDENDS

114

3.4.4

TAXATION

114

3.5

Annual Securities Disclosure Report

116

4

ENTITY RESPONSIBLE FOR THE
REGISTRATION DOCUMENT
117

4.1

Entity Responsible
for the Registration Document

118

Statement of the Entity Responsible
for the Registration Document

118

3.2

General Description of the Share Capital 95

3.2.1

MODIFICATION OF SHARE CAPITAL OR RIGHTSATTACHED TO THE SHARES

95

3.2.2

ISSUED SHARE CAPITAL

96

3.2.3

AUTHORISED SHARE CAPITAL

96

4.3

Information Policy

118

3.2.4

SECURITIES GRANTING ACCESS TO THE
COMPANY’S CAPITAL

96

4.4

Undertakings of the Company
regarding Information

119

CHANGES IN THE ISSUED SHARE CAPITALSINCE INCORPORATION OF THE COMPANY

97

4.5

Signiﬁcant Changes

119

3.3

Shareholdings and Voting Rights

98

3.3.1

SHAREHOLDING STRUCTURE

98

3.2.5

4.2

EAD S F I N A N CI AL S TAT EM EN TS AN D CO R P OR ATE G OVER N A N C E 2 0 07

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Risk
Factors
1.

Financial Market Risks

8

2.

Business-Related Risks

10

3.

Legal Risks

15

4.

Industrial and Environmental Risks

17

EAD S F I N A N CI AL S TAT EM EN TS AN D CO R P OR ATE G OVER N A N C E 2 0 07

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RISK FACTORS
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 are not the only risks EADS faces.
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 tocover its exposure resulting from this foreign currency
mismatch, its proﬁts will be affected by market changes in theexchange rate of the U.S. dollar against these currencies. EADS
has therefore implemented an exchange rate strategy in order tomanage and minimise such exposure. In order to secure the rates
at which U.S. dollar revenues (arising primarily at Airbus and in
the commercial satellite business) are converted into euro orpounds sterling, EADS manages a long-term hedging portfolio.
There are complexities inherent in determining whether andwhen foreign exchange rate exposure of EADS will materialise,in particular given the possibility of unpredictable revenue
variations arising from order cancellations and postponements.
Furthermore, as a signiﬁcant portion of EADS’ foreign currency
exposure is hedged through contractual arrangements with third
parties, EADS is exposed to the risk of non-performance by its
hedging counterparties. No assurances may be given that EADS’
exchange rate hedging strategy will protect it fully fromsigniﬁcant changes in the exchange rate of the U.S. dollar to theeuro and the pound sterling and that such changes will notaffect its results of operation 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 tocover its cash ﬂows, and, to a large extent, earnings before
interest and taxes, pre-goodwill impairment and exceptionals(“EBIT*”). Changes in the value of these currencies relative tothe euro will 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 effectof 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 RISKIn support of sales, EADS (primarily through Airbus and ATR
with respect to commercial aircraft) may agree to participate inthe 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 under* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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E A D S F I N A N C I A L S TAT EM ENT S A ND COR POR AT E GOV ER N A NCE 2007

a 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 of
ﬁnancing counterparties, provisioning for the credit and asset
value exposure, and transfers of exposure to third parties. No

RISK FACTORS
1. | Financial Market Risks

1

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
value risk, because it retains collateral interests in aircraft
for the purpose of securing customers’ performance of theirﬁnancial obligations to EADS, and because it guarantees partof the market value of certain aircraft during limited periods
after their delivery to customers. Under adverse market
conditions, the market for used aircraft could become
illiquid and the market value of used aircraft could
signiﬁcantly decrease below projected amounts. In the eventof a ﬁnancing customer default at a time when the market
value for a used aircraft has unexpectedly decreased, EADS
would be exposed to the difference between the outstanding
loan amount and the market value of the aircraft, net ofancillary costs (such as maintenance and remarketingcosts, etc.). Similarly, if an unexpected decrease in themarket value of a given aircraft coincided with the exercise
window of an asset value guarantee (“AVG”) with respect tothat aircraft, EADS would be exposed to losing as much as
the difference between the market value of such aircraft andthe AVG amount. No assurances may be given that theprovisions taken by EADS will be sufﬁcient to cover these2

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potential shortfalls. Through the Airbus Asset Management
Department or as a result of past ﬁnancing transactions,
EADS is the owner of used aircraft, exposing it directly to
ﬂuctuations in the market value of these used aircraft.
Finally, EADS also has several outstanding backstop
commitments to provide ﬁnancing related to orders on Airbus’
and ATR’s backlog. While past experience suggests it is unlikelythat all such proposed ﬁnancing actually will be implemented, adeterioration in the credit markets may reduce the amount ofoutside ﬁnancing available to customers to fund their aircraft
purchases, causing them to seek to increase their utilisation ofbackstop commitments provided by EADS. In particular,
ongoing market disruptions triggered by the U.S. “subprime”
debt crisis may worsen, resulting in the elimination of several
potential sources of credit for aircraft ﬁnancing. To the extent
that EADS’ customers look to it to ﬁll the gap, EADS’ sales
ﬁnancing exposure could increase signiﬁcantly depending on theagreement reached with customers. Despite the measures taken
by EADS to mitigate the risks arising from sales ﬁnancing
activities described above, EADS will be further exposed to therisk of defaults by its customers or signiﬁcant decreases in thevalue of the ﬁnanced aircraft in the resale market, which may
have a negative effect on its future results of operation andﬁnancial condition.

COUNTERPARTY CREDIT RISKEADS is exposed to credit risk to the extent of nonperformance by its counterparties for ﬁnancial instruments,
such as hedging instruments and cash investments. However,the Group has policies in place to avoid concentrations of credit
risk and to ensure that credit risk is limited.
Cash transactions and derivative counterparties are contractedwith a large number of ﬁnancial institutions worldwide, but
only if they meet certain high credit quality criteria. EADS
has set up a credit limit system to actively manage and limit
its credit risk exposure. This limit system assigns maximum
exposure lines to counterparties of ﬁnancial transactions,based at a minimum on their credit ratings as published byStandard & Poor’s, Moody’s and Fitch Ratings. The respective
limits are regularly monitored and updated, but there can be noassurances that despite these limits and the diversiﬁcation ofcounterparties, EADS will not lose the beneﬁt of certain
derivatives, or cash investments, in case of a systemic extensionof market disruptions triggered by the U.S. “subprime” debt crisis.
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 PORTFOLIOEADS 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 €2.1 billion at
31st December 2007. EADS believes that its exposure to therisk of unexpected material adverse changes in the fair value of
Dassault Aviation (other than business jet market cyclicality)
and that of other associated companies is limited. For equity
investments other than associates, which make up only a
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fraction of EADS’ total assets, EADS regards the risk ofnegative changes in fair value or impairments on theseinvestments as non-signiﬁcant.
Treasury shares held by EADS are not considered to be equity
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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 primarily held
to hedge the dilution risk arising from employee stock
ownership plans and the exercise by employees of stock
options.

2. Business-Related Risks
AIRCRAFT MARKET CYCLICALITY
In 2007, the combined revenues generated from Airbus and
ATR represented approximately two-thirds of EADS’
consolidated revenues. Historically, the market for commercial
passenger aircraft has shown cyclical trends, due in part tochanges in passenger demand for air travel, which is itself
primarily driven by economic or gross domestic product(“GDP”) growth. Other factors, however, play an important rolein determining the market for commercial passenger aircraft,such as (i) the average age and technical obsolescence of the ﬂeet
relative to new aircraft, (ii) the number and characteristics ofaircraft taken out of service and parked pending potential return
into service, (iii) passenger load factors, (iv) airline pricing
policies, (v) airline ﬁnancial health, (vi) deregulation and(vii) environmental constraints imposed upon aircraft operations.

EADS expects that the market for commercial passenger aircraft
will continue to be cyclical, and that future downturns in broad
economic trends may have a negative effect on its future resultsof operation and ﬁnancial condition.
EADS currently expects that commercial aircraft deliveries willreach a cyclical peak in 2011-2012, followed by a decline in later
years. However, changes in the economic environment or the
ﬁnancial condition of the airline industry could result incustomer requests for postponement or cancellation ofotherwise binding contractual orders, to which EADS may
agree. In addition, the liquidation or bankruptcy of airline
customers could lead to the cancellation of their existing orders.
If any of these events were to occur, it could signiﬁcantly reduce
EADS’ revenues and ability to generate a proﬁt.

IMPACT OF TERRORISM, EPIDEMICS AND CATASTROPHIC EVENTS ON AIRCRAFT MARKETAs 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 a given

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class of aircraft, form of design, or airline. As a consequence ofterrorism, epidemics and other catastrophic events, an airline
may be confronted with sudden reduced demand for air traveland be compelled to take costly security and safety measures.
In response to such events, and the resulting negative impact on
the airline industry or particular airlines, EADS may sufferfrom a decline in demand for all or certain types of its aircraft,and EADS’ customers may postpone delivery of new aircraft orcancel orders.

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DEPENDENCE ON PUBLIC SPENDING AND ON CERTAIN MARKETSIn any single market, public spending (including defence
spending) depends on a complex mix of geopoliticalconsiderations and budgetary constraints. Public spending may
be subject to signiﬁcant ﬂuctuations from year to year andcountry to country. Adverse economic and political conditions
as well as downturns in broad economic trends in EADS’
markets may reduce the amount of public spending and have anegative effect on EADS’ future results of operations andﬁnancial condition.
In the case where several countries undertake to enter together
into defence or other procurement contracts, economic, politicalor budgetary constraints in any one of these countries may havea negative effect on the ability of EADS to enter into or
perform such contracts. In 2008, for example, the European
Space Agency is expected to set a budget and funding priorities
for 2010 and beyond, which could have a signiﬁcant effect on
Astrium’s activities.
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 the United ArabEmirates. Adverse economic and political conditions as well as
downturns in broad economic trends in these countries orregions may have a negative effect on EADS’ and Airbus 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 ﬁnance initiatives(“PFIs”). PPPs and PFIs differ substantially from 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 a party
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 thecontracts, (iii) ﬁnance the acquisition of the equipment and theongoing provision of services related thereto, or (iv) access themarkets for the commercialisation of excess capacity. EADS may
also encounter unexpected political, budgetary, regulatory orcompetitive risks over the long duration of PPP and PFI
programmes.

COMPETITION AND MARKET ACCESS
Most of EADS’ businesses are subject to signiﬁcantcompetition, and Airbus in particular has been affected by
downward price pressure resulting from such competition.
EADS believes that some of the underlying causes of suchprice competition have been mitigated by restructuring in theaerospace and defence industry. Nevertheless, certain customers
have had greater leverage to encourage competition with respect
to a variety of issues, including price and payment terms.
No assurance can be given that competition may not intensify,
particularly in the context of a prolonged economic downturnin 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.

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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 A350 XWB commercial aircraft
programme. However, no assurances can be given thatgovernment ﬁnancing will continue to be made available in the
future for these and other projects, in part as a result of theproceedings mentioned above.

TECHNOLOGICALLY ADVANCED PRODUCTS AND SERVICESEADS 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 EADS contracts require it to forfeit part of its expected
proﬁt, to receive reduced payments, to provide a replacement
launch or other products or services, or to reduce the price ofsubsequent sales to the same customer if its products fail to bedelivered on time or to perform adequately. No assurances canbe given that performance penalties or contract cancellations
will not be imposed should EADS fail to meet delivery
schedules or other measures of contract performance.
For example, following the production difﬁculties that EADS
encountered in 2006 in connection with its A380 programme,* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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certain customers decided to cancel their A380 freighter orders.
In 2007, EADS announced delivery delays on its A400M
programme. In both years, EBIT* at EADS was negatively
affected as a result, in part due to the contractual penalties tobe paid to certain customers as a result of the delivery delays.
See “1.1 Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Overview —Signiﬁcant Programme and Restructuring Developments in2006 and 2007” for further detail.
There can be no assurances that problems similar to the ones
encountered in connection with development of the A380 and
the A400M will not occur in the future. In addition to any
costs resulting from product warranties, contract performanceor required remedial action, such problems may result inincreased costs or loss of revenues — in particular as a result ofcontract cancellations — which could have a negative effect on
EADS’ future results of operation and ﬁnancial condition. Any
future problems may also have a signiﬁcant adverse effect on
the competitive reputation of EADS’ products.

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MAJOR RESEARCH AND DEVELOPMENT PROGRAMMESThe 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 increasesigniﬁcantly in future years in connection with the ramp-up of

new programmes across all divisions, in particular developmenton the A350 XWB.
Successful development of new programmes also depends on
EADS’ ability to attract and retain aerospace engineers andother professionals with the technical skills and experience
required to meet its speciﬁc needs. Demand for such engineers
may often exceed supply depending on the market, resulting in
intense competition for qualiﬁed professionals. There can be noassurances that EADS will attract and retain the personnel it
requires to conduct its operations successfully. Failure to attract
and retain such personnel or an increase in EADS’ employee
turnover rate could negatively affect EADS’ future results ofoperation and ﬁnancial condition.

“POWER8” RESTRUCTURING PROGRAMMEEADS has announced the implementation of a signiﬁcant cost
reduction and restructuring programme at Airbus, referred toas “Power8”. This programme looks at all aspects of theCompany to make it leaner, more integrated, more efﬁcient andmore productive. As part of Power8, Airbus management isseeking to implement strong 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 large part of thecost savings is expected to be realised through the reduction of
Airbus’ headcount by 10,000 employees (with temporary andon-site subcontractors accounting for approximately 50% ofsuch 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 Power8, EADS may also incur higher than
expected implementation costs, depending on the outcome ofits current negotiations with labour and other representatives.
In many instances, there may be internal resistance to thevarious organisational restructuring and cost reduction
measures contemplated by Power8, including site divestitures
by Airbus and the subcontracting of additional work to risksharing partners. Restructuring, closures, site divestitures andjob reductions may also harm EADS’ labour relations andpublic relations, and have led and could lead to work stoppages
and/or demonstrations. In the event that these work stoppages
and/or demonstrations become prolonged, or the costs ofimplementing Power8 are otherwise higher than anticipatedfollowing such negotiations, EADS’ future results of operationand ﬁnancial condition may be negatively affected.
Finally, EADS may fail to fully realise the anticipated beneﬁts
of site divestitures by Airbus. Divestitures may result incontinued ﬁnancial involvement in the divested businesses,
such as through guarantees or other ﬁnancial arrangements,
following the transaction. They may also trigger the recordingof an impairment charge at or prior to closing, which would
have a negative impact on EADS’ future results of operation.
Risk-sharing partners at divested businesses may also fail toperform as expected.

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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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) and skilled employees, conversion of raw materials
into parts and assemblies, and performance by suppliers andsubcontractors, particularly suppliers of buyer-furnishedequipment. The failure of any or all of these factors could leadto missed delivery commitments, and depending on the lengthof delay in meeting delivery commitments, could lead to
additional costs and customers’ rescheduling or terminating
their orders.

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):●

A380 programme. In connection with the A380 programme
and following the delivery delays announced in 2006,
EADS faces the following main challenges: (i) managementof stress in 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 and successful implementation of a new
digital mock-up for future A380 production. EADS’ ability
to successfully meet these challenges will be critical inensuring the smooth production of “wave 2” aircraft, i.e.,
those beyond the initial 25 aircraft produced;●

A350 XWB programme. In connection with the A350 XWB
programme, EADS faces the following main challenges:(i) meeting the technical performance targets at the
beginning of the detailed deﬁnition phase, (ii) ensuring theramp-up of key skilled personnel, e.g. for composite stressand design, (iii) securing the achievement of recurring cost

targets, (iv) ensuring that the new industrial organisation
resulting from Power8 supports effective development,(v) ensuring the performance of the risk sharing partners,
including those selected for sites to be divested by Airbus,and (vi) achieving a second engine choice;●

A400M programme. In connection with the A400M
programme, EADS faces the following main challenges:(i) meeting the revised development and delivery schedule as
the engine, certain systems and elements of the airframe
continue to undergo development and testing, which leavesa very challenging programme until ﬁrst ﬂight andsubsequent aircraft delivery, (ii) managing a ﬂight test
programme that differs signiﬁcantly from that of commercial
Airbus aircraft, and (iii) ensuring that the aircraft is bothcommercially certiﬁed and meets the range of military
qualiﬁcations required by programme customers in eachjurisdiction; and●NH90 programme. In connection with the NH90
programme, EADS faces the following main challenges:(i) meeting the development schedule and cost objectives ofongoing development programmes on the various versions,and (ii) managing the steep industrial ramp-up on the
programme and the associated strain on the supply chain.

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 to Consolidated
Financial Statements (IFRS) — Note 22b: Provisions for retirement
plans”. Although EADS has recorded a provision in its balance

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sheet for its share of the underfunding based on current estimates,
there can be no assurance that these estimates will not be revised
upward in the future, leading EADS to record additional
provisions in respect of such plans. These additional provisions
would in turn have a negative effect on EADS’ total equity (net ofdeferred taxes), which could have a negative effect on its futureﬁnancial condition.

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3. Legal Risks
DEPENDENCE ON JOINT VENTURES AND MINORITY HOLDINGSEADS generates a substantial proportion of its revenues
through various consortia, joint ventures and equity holdings.
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 that 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 theentity’s operations and results, is generally limited as compared
to entities in which EADS is a majority holder or is involved in
the day-to-day management.

PRODUCT LIABILITY AND WARRANTY CLAIMSEADS designs, develops and produces a number of high proﬁleproducts 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 fails to perform as designed. While EADS

believes that its insurance programmes are adequate to protect
it from such liabilities, no assurances can be given that claims
will not arise in the future or that such insurance cover will beadequate.

INTELLECTUAL PROPERTYEADS 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 unauthorised third-party copying
or use, which could adversely affect its competitive position.

In addition, although EADS believes that it lawfully complies
with the intellectual property rights granted to others, it could
have claims asserted against it for infringement of theintellectual property rights of third parties. These claims could
harm its reputation, cost it money and prevent it from offeringcertain products or services. Any claims or litigation in thisarea, whether EADS ultimately wins or loses, could be timeconsuming and costly, injure EADS’ reputation or require it toenter into licensing arrangements. EADS might not be able toenter into these licensing arrangements on acceptable terms. If
a claim of infringement were successful against it, an
injunction might be ordered against EADS, causing further
damages.

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EXPORT CONTROLS AND OTHER REGULATIONSThe export market is a signiﬁcant market for EADS. In
addition, many of the products EADS designs andmanufactures for military 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 and export controls, notably by the U.K.,
France, Germany and Spain, 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 noassurance (i) that the export controls to which EADS is subject
will not become more restrictive, (ii) that new generations of
EADS products will not also be subject to similar or more
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or constrain EADS’ ability to perform under previously signed
contracts. Reduced access to military export markets may have amaterial 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
Given the scope of its activities and the industries in which it
operates, EADS is subject to stringent environmental, healthand safety laws and regulations in numerous jurisdictions
around the world. EADS therefore incurs, and expects tocontinue to incur, signiﬁcant capital expenditure and otheroperating costs to comply with increasingly complex laws andregulations covering the protection of the natural environment
and the promotion of worker health and safety, including costs
to prevent, control, eliminate or reduce emissions into theenvironment, releases of air pollutants into the atmosphere,
discharges to surface and subsurface water and soil, and thedisposal and treatment of waste materials. Moreover, new laws
and regulations, the imposition of tougher licencerequirements, increasingly strict enforcement or new
interpretations of existing laws and regulations may cause
EADS to incur increased capital expenditure and operating
costs in the future, which could have a negative effect on its
results of operation and ﬁnancial condition.
If EADS fails to comply with these environmental, health andsafety laws and regulations, even if caused by factors beyond its
control, that failure may result in the assessment of civil or
criminal penalties and ﬁnes against it. Regulatory authorities
may require EADS to conduct investigations and undertake
remedial activities, curtail operations or close installations or
facilities temporarily, including to prevent imminent risks. In
the event of an industrial accident or other serious incident,

employees, customers and other third parties may ﬁle claims for
personal injury, property damage or damage to the environment(including natural resources). These potential liabilities may notalways be covered by insurance, or may be only partiallycovered. The obligation to compensate for such damages could
have a negative effect on EADS’ results of operation andﬁnancial condition.
In addition, the various products manufactured and sold by
EADS must comply with relevant environmental, health andsafety laws and regulations in the jurisdictions in which they
operate. Although EADS seeks to ensure that its products meetthe highest quality standards, increasingly stringent andcomplex laws and regulations, new scientiﬁc discoveries,
delivery of defective products or the failure to notify orprovide regulatory authorities or others with required
information may force EADS to adapt, redesign, redevelop,
recertify and/or eliminate its products from the market.
Seizures of defective products may be pronounced, and EADS
may incur administrative, civil or criminal liability. In the eventof an accident or other serious incident involving a product,
EADS may be required to conduct investigations and undertake
remedial activities. Employees, customers and other third
parties may also ﬁle claims for personal injury, property damage
or damage to the environment (including natural resources).
For more information, please see “Part 2/2.3 Environmental Care”.

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Net Assets,
Financial Position
and Results
1.1

1Management’s Discussion
and Analysis of Financial Condition
and Results of Operations

20

1.1.1

CERTAIN INFORMATION

20

1.1.2

OVERVIEW

21

1.1.3

CRITICAL ACCOUNTING CONSIDERATIONS,POLICIES AND ESTIMATES

23

MEASUREMENT OF MANAGEMENT’SPERFORMANCE

28

1.1.5

EADS RESULTS OF OPERATIONS

33

1.1.6

CHANGES IN CONSOLIDATED TOTAL EQUITY(INCLUDING MINORITY INTERESTS)

39

1.1.4

1.1.7

LIQUIDITY AND CAPITAL RESOURCES

41

1.1.8

HEDGING ACTIVITIES

49

1.2

Financial Statements

51

1.2.1

EADS N.V. CONSOLIDATED FINANCIAL
STATEMENTS (IFRS)52

AUDITOR‘S REPORT ON THE CONSOLIDATEDFINANCIAL STATEMENT (IFRS)

134

1.2.2

COMPANY FINANCIAL STATEMENTS

136

1.3

Statutory Auditors’ Fees

146

1.4

Information Regarding
the Statutory Auditors

147

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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 forwardlooking statements, except as may be otherwise required by law.
The forward-looking statements in this document involve known
and unknown risks, uncertainties and other factors that could
cause EADS’ actual future results, performance and achievements

to differ materially from those forecasted or suggested herein.
These include changes in general economic and businessconditions, as well as the factors described in “Risk Factors”
above.
The following discussion and analysis is derived from andshould be read together with the audited Consolidated
Financial Statements of EADS as of and for the years ended
31st December 2007, 2006 and 2005 included herein. Theseﬁnancial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) adopted
by the International Accounting Standards Board as endorsedby the European Union, and with Part 9 of Book 2 of theNetherlands Civil Code.

Exchange Rate Information
The ﬁnancial information presented in this document is expressed in Euro, U.S. dollars or Pounds Sterling. The following table setsout, for the periods indicated, certain information concerning the exchange rate between the Euro and the U.S. dollar and Pound
Sterling, calculated using the ofﬁcial European Central Bank ﬁxing rate:
AverageYear ended

Period End€-U.S.$€-£

31 December 2005

1.2441

31st December 2006

1.25561.3702st

st

31 December 2007€-U.S.$€-£

0.68381.17970.68530.68171.31700.67150.6842

1.47210.7334

Ratings
EADS is currently rated A1 with a stable outlook by Moody’s Investors Service, BBB+ with a stable outlook by Standard and Poor’s
and BBB+ with a stable outlook by Fitch Ratings.

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1.1.2 OVERVIEW
With consolidated revenues of €39.1 billion in 2007, 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 2007, it generated approximately 77% of its total revenues in
the civil sector (compared to 75% in 2006) and 23% in the
defence sector (compared to 25% in 2006). As of 31st December
2007, EADS’ active headcount was 116,493.

particular in the area of electrical engineering. As a result,earnings before interest and taxes, pre-goodwill impairment andexceptionals (“EBIT*”) at Airbus were negatively affected by a
net charge of €(2.5) billion in 2006 compared to 2005. This net
charge related to the following items:●

Excess costs above the initially expected learning curve, as
difﬁculties in the production process caused Airbus to fallshort of the expected improvements in production efﬁciency
over time;●

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

Write-down 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 accounted for approximately€(2.0) billion of the €(2.5) billion decrease in EBIT* in 2006;●

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 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
and maintenance services.

1.1.2.1 Significant Programme and Restructuring
Developments in 2006 and 2007
A380 programme. During 2006, Airbus twice revised its
delivery schedule for the A380 after having encountereddifﬁculties in the industrialisation of the programme, in

Following a difﬁcult year in 2006, the year 2007 marked the
beginning of Airbus’ industrial recovery, although theindustrial ramp-up remains challenging. The highlight was theﬁrst delivery of the A380 to Singapore Airlines in
October 2007, followed by a smooth entry into commercial
service between Singapore and Sydney. At the same time,
Airbus continued to incur signiﬁcant costs in respect of the
A380 programme in 2007, due primarily to excess costs above
the initially expected learning curve and ongoing ﬂeet support.
Nevertheless, the impact on EBIT* represented a €1.5 billion
improvement over 2006.
A400M programme. At the end of 2006, Airbus performed
a ﬁnancial review of the A400M programme. Based on the
programme’s risks and complexities, Airbus recorded a loss-making
contract 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
foresaw a positive contribution from the A400M programme at
the time, the provision at Airbus was reversed at the EADS
group level in 2006. In addition, due to the overall cost
increase for the programme, a negative catch-up of€(66) million was recorded at the EADS group level in 2006

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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in order to adjust EBIT* recognised on the programme for theyears 2003 to 2006.
Just before the end of 2007, EADS announced that the ﬁrst
deliveries of the A400M would be delayed by six to twelve
months. In terms of ﬁnancial impact, Airbus recorded an

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3additional loss-making contract provision and charges totalling€(1.2) billion in 2007, in addition to provisions and charges of€(0.2) billion recorded at EADS group level and €(0.1) billion
recorded at other divisions. The provisions are intended tocover, among other things, cost overruns on the programme
and the risk of penalty payments to customers.

The following table sets forth the income statement impact in 2006 and 2007 of the items described above:(in €m)

2007

2006

Airbus(1,174)(352)

Other divisions

(102)

-

Group adjustment(1)

(169)

286

(1,445)

(66)

Total

(1) Includes the reversal of Airbus loss-making contract provision of €352 million and negative catch-up of €(66) million in 2006; includes consolidation adjustment of €(169) million at group level in 2007.

Although mitigation measures such as a change in A400M
programme management, reorganisation of responsibilities andshortening of the chain of command have been implemented,
EADS continues to face signiﬁcant challenges in achieving ﬁrst
ﬂight in summer 2008 and meeting the revised delivery
schedule.
A350 XWB programme. In December 2006, Airbus formallylaunched its new A350 XWB programme and at the same time
discontinued the original A350 programme. The launch of theA350 XWB triggered the accrual of a €505 million provisionin 2006, related to the anticipated buy-out of delivery
commitments under ﬁrm orders for the original A350 aircraftthat could no longer be fulﬁlled.
In 2007, EBIT* at Airbus continued to be burdened by charges
with respect to the A350 XWB programme, which amounted
to approximately €(1.0) billion. These charges related inparticular to the recording of loss-making contract provisions
on the ﬁrst orders for the A350 XWB, the margins of which
are weighed down by launch-order pricing and initial learning
curve costs.
Power8 programme. At the beginning of 2007, Airbus
launched a four-year restructuring programme referred to as“Power8”, 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 large part of thecost savings is expected to be realised through the reduction of
Airbus’ headcount by 10,000 employees (including temporary
and on-site supplier employees). As part of the planned
measures under Power8 to reduce overhead costs, andspeciﬁcally headcount, EADS recorded a restructuring expenseof €(624) million in EBIT* in 2007. At the same time, EADS
began to register initial cost savings under the programme in* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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E A D S F I N A N C I A L S TAT EM ENT S A ND COR POR AT E GOV ER N A NCE 20072007. The Power8 programme supersedes the former “Route06” cost savings programme, including any unrealised costsavings thereunder.
For further information related to the Power8 programme andits ongoing implementation, see “1.1.2 Airbus—Strategy—
Building a leaner, more fully integrated company” and “Recent
Developments”.
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
America Barﬁeld B.C. and EADS Sogerma Tunisie — to the
TAT Group. Prior to their sale, EADS recorded an asset
impairment totalling €(117) million in 2006 — including€(33) million relating to its retained subsidiaries, Seca andRevima — 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. Following
the sale of these subsidiaries, EADS Sogerma’s EBIT* waspositive in 2007.

1.1.2.2 Trends
EADS expects that new aircraft orders at Airbus will decline in2008 to approximately 700 gross orders, following the record
1,458 gross orders recorded in 2007. It also expects that its
consolidated research and development expenses will increasein 2008 in connection with the ramp-up of new programmes,
in particular development on the A350 XWB, and that somedeterioration in the price of delivered aircraft will occur as aresult of strong past competition, particularly on long-range
aircraft.

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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 theConsolidated 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 fairvalue 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%. In
2005 and 2006, EADS proportionally consolidated 50% of
MBDA within the DS Division, with Finmeccanica’s holding

reﬂected as a 12.5% minority interest. As of 1 January 2007, thepercentage of the proportional consolidation of MBDA changed
from 50% to 37.5%. In 2007, therefore, Finmeccanica’s holding
is no longer reﬂected as a minority interest in EADS’ accounts.
2005 and 2006 consolidated ﬁgures have not been restated.
Acquisitions and Disposals
In January 2007, EADS increased its share in the Atlas
Elektronik group from 40% to 49% in connection with thecontribution in kind of EADS’ naval business to Atlas
Elektronik. Atlas Elektronik is proportionately consolidated andthe ﬁnal determination of the difference between the purchaseprice and the acquired net assets then led to the recording of€42 million of goodwill.
On 10th January 2007, EADS sold its remaining 60% stake inSogerma Services, as well as its remaining stakes in Sogerma
America Barﬁeld B.C. (100%) and EADS Sogerma Tunisie(50.1%), as described above.
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. An initial estimate of the difference between
the purchase price and the acquired net assets (not ﬁnallydetermined in 2006) led to the preliminary 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 proportionallyconsolidates.
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.
See “Notes to Consolidated Financial Statements (IFRS) —Note 4: Acquisitions and disposals”.
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1.1.3.2 Employee Benefits — IAS 19
Prior to 2006, EADS recognised in its Consolidated Financial
Statements actuarial gains and losses on its retirement 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

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lives of the employees participating in the respective plan, i.e.
15 years for EADS, thereby affecting EBIT*. In 2006, EADS
opted to apply the “equity approach” under revised IAS 19,
pursuant to which actuarial gains and losses are recognised infull within equity (net of deferred taxes) during the period inwhich they occur, without affecting the consolidated income
statement. The provision for retirement plans recorded on thebalance sheet in turn covers the full amount of the deﬁned
beneﬁt obligation net of plan assets, including accumulated
actuarial net gains and losses.

As a result of the retrospective application of revised IAS 19, the provision for retirement plans in 2005 has been restated by€1,118 million, implying a restatement of €(695) million in total equity (net of deferred taxes), as set forth in the following table:(in €m)Provision for retirement plans and similar obligations (old IAS 19)
Unrecognised actuarial losses (old IAS 19)

31st December
2007

31st December
2006

31st December
2005

-

-

4,120

-

-

1,118

Provision for retirement plans and similar obligations (revised IAS 19)

4,668

5,883

5,238

Actuarial losses recognised directly in equity (net of deferred taxes)(974)(1,409)(695)

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 provisions for retirement
plans, see “Notes to Consolidated Financial Statements(IFRS) — Note 22b: 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 and nonexecutive employees, with BAE Systems being the principal
employer. These plans qualify as multi-employer deﬁned beneﬁtplans under IAS 19 “Employee Beneﬁts”. EADS’ mostsigniﬁcant investments in terms of employees participating inthese BAE Systems U.K. pension plans are Airbus U.K. andMBDA U.K. For Airbus, this remains the case even subsequent
to the acquisition of BAE Systems’ 20% minority interest in
Airbus on 13th October 2006. Participating Airbus U.K.
employees have continued to remain members in the BAE
Systems U.K. pension plans due to the U.K. pension agreement
between EADS and BAE Systems dated 11th July 2001, as well
as a change in U.K. pension legislation enacted in April 2006
that removes previous restrictions on unassociated employers
participating in a single pension plan.

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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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 previously agreed with the trustees to undertake
various measures in order to remedy such underfunding. These
include: (i) making regular contribution payments for active
employees at levels well above those that would prevail in the caseof adequately funded plans and (ii) making extra contributions.
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
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 uniquefunding arrangements between BAE Systems and EADS createa situation for EADS different from common U.K. multiemployer plans, with special regulations limiting the regularcontributions that must be paid by Airbus U.K. andMBDA U.K. to rates applicable to all participating employers.
Based on the information that BAE Systems has provided
regarding the various pension plans, EADS has prepared an
estimate of its share of the pension plans’ assets, deﬁned beneﬁt
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the impacts of the contribution caps’ mechanism describedabove as well as those of future extra contributions agreed by
BAE Systems with plan trustees. Accordingly, EADS has
recorded a provision of €(494) million as of 31st December 2007
(compared to €(897) million as of 31st December 2006) for its
current share of the net pension underfunding in the U.K. A
related amount of €(554) million has been recorded in total
equity (net of deferred taxes) as of 31st December 2007
(compared to €(853) million as of 31st December 2006),
consistent with the application of 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 22b:
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
and inventories 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 was reimbursed by Daimler AG. As a resultof this audit, goodwill and deferred tax assets were adjusted asof 31st December 2006 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 beneﬁt of €64 million in the consolidated income
statement for 2006. EADS has treated the charge as a nonrecurring item in EBIT*. See “1.1.4 Measurement ofManagement’s Performance — Use of EBIT*”.

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1.1.3.5 Impairment/Write-down 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 isrecognised in the amount by which the asset’s carrying amountexceeds 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”).
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 income statement. No goodwill was impaired in
2005, 2006 or 2007. 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 write-down of
inventory and impairment of ﬁxed assets on the A380
programme. These charges 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 and equipment”. For a discussion of goodwill
impairment testing methodology, in particular at Airbus, see“Notes to Consolidated Financial Statements (IFRS) — Note 12:
Intangible assets”.

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 are strictly applied. All
research and development costs not meeting the IAS 38 criteria
are expensed as incurred in the consolidated income statement.

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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In 2005, €293 million of product-related development costs
were capitalised in accordance with IAS 38 (including€259 million relating to the Airbus A380 programme).
€411 million was capitalised in 2006 (including €335 million
relating to the Airbus A380 programme), and €93 million wascapitalised in 2007 (with no capitalisation relating to the
Airbus A380 programme following its entry into the
production phase at the end of 2006).
Capitalised development costs are generally amortised over theestimated number of units produced. If the number of units
produced cannot be estimated reliably, capitalised development
costs are amortised over the estimated useful life of theinternally generated intangible asset. Amortisation ofcapitalised development costs is recognised in cost of sales. In
2007, amortisation of capitalised development costs amounted
to €(46) million, most of which related to the Airbus A380
programme. Amortisation in respect of the Airbus A380
programme began in 2007 following its entry into the
production phase at the end of 2006.
Internally generated intangible assets are reviewed for
impairment annually when the asset is not yet in use andsubsequently whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable.

1.1.3.7 Accounting for Hedged Foreign Exchange
Transactions in the Financial Statements
More than 60% of EADS’ revenues are denominated in
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 generally applies cash ﬂow
hedge accounting to foreign currency derivative contracts that
hedge the foreign currency risk on future sales as well as tocertain interest rate swaps that hedge 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 are reported in accumulated othercomprehensive income (“AOCI”), a separate component of total
equity, net of applicable income taxes and recognised in the
consolidated income statement in conjunction with the resultof the underlying hedged transaction, when realised. See“1.1.6 Changes in Consolidated Total Equity (including
Minority Interests)”. The ineffective portion is immediately
recorded in “Proﬁt (loss) for the period”. Amounts accumulated
in equity are recognised in proﬁt or loss in the periods when
the hedged transaction affects the income statement, such as
when the forecast sale occurs or when the ﬁnance income or
ﬁnance expense is recognised in the income statement.

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If hedged transactions are cancelled, gains and losses on thehedging instrument that were previously recorded in equity are
generally recognised in “Proﬁt (loss) 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 beneﬁts(expenses) in the consolidated income statement.
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 inEuro. 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 are translated 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
the exchange rate prevailing on transaction date. Monetary
assets and liabilities denominated in foreign currencies atperiod-end are translated into Euro using the period-end
exchange rate. Foreign exchange gains and losses arising fromtranslation of monetary assets are recorded in the consolidated
income statement, except when deferred in equity as qualifying
hedging instruments in cash ﬂow hedges.
Non-monetary assets and liabilities denominated in foreign
currencies, which are stated at historical cost, are translated into
Euro at the exchange rate in effect on the date of thetransaction. Translation differences on non-monetary ﬁnancial
assets and liabilities are reported as part of the fair value gainor loss. Translation differences of non-monetary ﬁnancial assets
such as equity securities classiﬁed as available for sale areincluded in AOCI.
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 exchange rate.
Regarding transactions prior to that date, goodwill, assets andliabilities acquired are treated as those of the acquirer.

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The accumulated amount of translation differences recorded in
AOCI is released to proﬁt or loss when the associated foreign
entity is disposed of or liquidated or the associated asset or
liability is disposed of, respectively.
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 U.S. 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 is a foreign currency
exchange impact on EBIT*. Additionally, the magnitude of any
such difference, and the corresponding impact on EBIT*, issensitive 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 ofcustomers, on a case-by-case basis, directly or throughguarantees provided to third parties. Certain sales contracts
may include the provision of an asset value guarantee(“AVGs”), whereby EADS guarantees a portion of the market
value of an aircraft during a limited period, starting at a speciﬁcdate after its delivery (in most cases, 10 years post-delivery).
See “1.1.7 Liquidity and Capital Resources — Sales Financing”
and “Notes to Consolidated Financial Statements (IFRS) —Note 29: Commitments and contingencies”. The accounting
treatment of sales ﬁnancing transactions varies based on thenature of the ﬁnancing transaction and the resulting exposure.

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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 other longterm 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 future re-marketing of aircraft. Rather
than recording 100% of the revenues from the “sale” of theaircraft at the time of delivery, rental income from suchoperating leases is recorded in revenues over the term of therespective leases. The leased aircraft are recorded at production
cost on the balance sheet as property, plant and equipment, andthe corresponding depreciation and potential impairment
charges are recorded in cost of sales. See “Notes to Consolidated
Financial Statements (IFRS) — Note 13: Property, plant andequipment”.
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 theConsolidated 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 income statement. 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.

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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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 therelated assets or in provisions. Provisions recorded as liabilities
relate primarily to off-balance sheet commitments. See “Notes
to Consolidated Financial Statements (IFRS) — Note 22(c):Other provisions”. Provisions are recorded as impairments of
the related 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 underthe equity method, other investments and other long-term

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ﬁnancial assets”. While Management views its estimates ofvaluations of collateral as conservative, changes in provisions
reﬂecting revised estimates may have a material impact on net
income in future periods.

1.1.3.10 Provisions for Loss-Making Contracts
EADS records provisions for loss-making contracts when it
becomes probable that total contract costs will exceed total
contract revenues. Due to the size, length of time and nature ofmany of EADS’ contracts, the estimation of total revenues andcosts at completion is complicated and subject to many variables
and estimates, including penalties to be paid to customers
related to contract performance. Loss-making contract
provisions are therefore reviewed and reassessed regularly.
However, future changes in the assumptions used by EADS ora change in the underlying circumstances—including theimpact of foreign currency exchange rate ﬂuctuations, as
described above under “— Foreign Currency Translation”—mayadversely or positively affect the amount of EADS’ loss-making
contract provisions and its future ﬁnancial performance. In
particular, its provisions for loss-making contracts do not take
into account assumptions on the hedge rates that may apply
under such contracts. Therefore, such provisions will varydepending on the evolution of currency exchange rates (inparticular the U.S. dollar versus the euro) and otherassumptions resulting from regular contract review, including
cost reviews.

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. 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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governmental 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 programmes.

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CONSOLIDATED BACKLOG (1) FOR THE YEARS ENDED 31 ST DECEMBER 2007, 2006 AND 2005
Year ended
31st December 2007

(2)

Year ended
31st December 2006

Year ended
31st December 2005

Amount in € bn

In percentage(3)Amount in € bn

In percentage(3)Amount in € bn

In percentage(3)Airbus

283.8

81%

210.1

77%

202.0

77%

Military Transport Aircraft

19.9

6%

20.3

8%

21.0

8%

Eurocopter

13.5

4%

11.0

4%

10.0

4%

Defence & Security(4)

17.9

5%

17.6

6%

18.5

7%

Astrium

12.9

4%

12.3

5%

10.9

4%

348.0

100%

271.3

100%

262.4

100%

Total divisional backlog
Other Businesses

2.4

2.3

2.1

Headquarters/Consolidation(10.9)(10.8)(11.3)

Total

339.5

262.8

253.2

(1)
(2)
(3)
(4)

Without options.
Based on catalogue prices for commercial aircraft activities.
Before “Other Businesses” and “Headquarters/Consolidation”.
MBDA proportionally consolidated at 37.5% in 2007, 50% in 2005 and 2006. 2005 and 2006 ﬁgures have not been restated. Change of consolidation effect on 2006 ﬁgures: €(1.7) billion.

The €76.7 billion increase in the 31st December 2007 orderbacklog, to €339.5 billion, reﬂects an order intake at EADS in2007 (€136.8 billion) that was more than triple the revenues
accounted for in the same year (€39.1 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 nonhedged portion of the backlog into Euro, which had a negative
impact of €19.9 billion at year end.
Airbus’ backlog increased by €73.7 billion from 2006, to€283.8 billion, reﬂecting a book-to-bill ratio of more than fourwith net order intake of 1,341 aircraft in 2007 (€117.3 billion).
Total order backlog amounted to 3,421 aircraft at the end of2007 (as compared to 2,533 aircraft at the end of 2006).
However, the positive book-to-bill ratio was partially offset by
negative net foreign currency adjustments to the backlog,
reﬂecting the year-end valuation of the non-hedged portion of
Airbus’ order backlog.
The MTA Division’s backlog decreased by €0.4 billion from2006, to €19.9 billion, reﬂecting a book-to-bill ratio of less thanone. Revenues recognised in the MTA Division (€1.1 billion)
were partially offset by an order intake of €0.8 billion in 2007,
driven by orders for eleven C-295 aircraft and seven
CN-235 aircraft.
The Eurocopter Division’s backlog posted a solid €2.5 billion
increase from 2006, to €13.5 billion, reﬂecting a book-to-billratio of more than one with new orders of €6.6 billion. Thisstrong order intake consisted of 802 total new orders in 2007(as compared to 615 in 2006), bringing its order backlog to
1,388 helicopters at the end of 2007 (as compared to
1,074 helicopters at the end of 2006).
Despite the change of consolidation effect (€(1.7) billion)
relating to MBDA, the DS Division’s backlog increased by€0.3 billion from 2006, to €17.9 billion, reﬂecting a book-to-billratio of more than one with new orders of €7.5 billion. Orderintake was driven by orders for military air systems and secured
communication networks, in particular an order for 72
Euroﬁghter aircraft from Saudi Arabia.
Astrium’s backlog increased by €0.6 billion from 2006, to€12.9 billion, reﬂecting a book-to-bill ratio of more than one
with new orders of €4.5 billion, especially intelecommunication satellites (including 2 satellites for the
Yahsat secure satellite communications system in the U.A.E.)
and M51 missile systems.
The amounts recorded under “Headquarters/Consolidation”
primarily reﬂect the elimination of Airbus’ work share in the
A400M programme. The MTA Division’s order backlog
includes 100% of the value of the A400M order to reﬂect theDivision’s prime-contractor responsibility over the programme.
The effect of internal subcontracting (corresponding to thework share of other EADS divisions on the A400M
programme) 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 2007

Year ended
31st December 2006

Amount in € bn(1)In percentage

Amount in € bn(1)Commercial Sector

285

84%

Defence Sector(2)

55

16%

Total

340

100%

Year ended
31st December 2005

In percentage

Amount in € bn(1)In percentage

210

80%

201

79%

53

20%

52

21%

263

100%

253

100%

Backlog:(1) Including “Other Businesses” and “Headquarters/Consolidation”.
(2) MBDA proportionally consolidated at 37.5% in 2007, 50% in 2005 and 2006. 2005 and 2006 ﬁgures have not been restated.

1.1.4.2 Use of EBIT*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 and theformation of MBDA, as well as impairment charges thereon. It also comprises disposal impacts related to goodwill and fair value
adjustments resulting from these transactions.
Set forth below is a table reconciling EADS’ proﬁt (loss) before ﬁnance costs and income taxes (as reﬂected in EADS’ IFRS
consolidated income statement) with EADS’ EBIT*.
(in €m)Profit (loss) before finance costs and income taxes

Year ended
31st December 2007

Year ended
31st December 2006

(33)

278

Year ended
31st December 2005

2,712
(1)

Disposal of goodwill/Subsequent adjustments to goodwill

12

64

-

Exceptional depreciation (fixed assets)

49

57

136

Exceptional disposal (fixed assets)

24

-

-

Exceptional depreciation (others)

-

-

4

EBIT*

52

399

2,852

(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 2007

Year ended
31st December 2006

Year ended
31st December 2005

Airbus

(881)

(572)

2,307

Military Transport Aircraft

(155)

75

48

Eurocopter

211

257

212

Defence & Security(1)

340

348

201

Astrium

174

130

58

(311)

238

2,826

Other Businesses

94

(288)

(171)

HQ/Consolidation(2)

269

449

197

Total

52

399

2,852

Total Divisional EBIT*(1) MBDA proportionally consolidated at 37.5% in 2007, 50% in 2006 and 2005. 2005 and 2006 ﬁgures have not been restated. Change of consolidation effect on 2006 ﬁgures: €(30) million.
(2) HQ/Consolidation includes results from headquarters, which mainly consist of the “share of proﬁt from associates accounted for under the equity method” from EADS’ investment in Dassault Aviation. In 2006 and2007, it also reﬂected the consolidation adjustments at group level in respect of the A400M programme (€286 million in 2006; €(169) million in 2007).

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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2007 compared to 2006. EADS’ consolidated EBIT* decreased
by 87.0%, from €0.4 billion for 2006 to €0.1 billion for 2007,
primarily reﬂecting the increased loss at Airbus as well as theloss at the MTA Division. This decrease was partially offset by
an increase in EBIT* at Other Businesses and at Astrium.
Airbus’ EBIT* decreased by 54.0%, from €(0.6) billion for 2006 to€(0.9) billion for 2007, primarily reﬂecting (i) a larger loss-making
contract provision recorded in respect of the A400M programme,(ii) a restructuring expense recorded in respect of Power8
implementation, (iii) charges recorded in respect of theA350 XWB programme, and (iv) an approximate €(0.2) billion
deterioration in the price of delivered aircraft. See“1.1.2 Overview — Signiﬁcant Programme and Restructuring
Developments in 2006 and 2007”. Also contributing to thedecrease was an approximate €(0.2) billion negative impact of
exchange rate effects relating to (x) generally less favourable ratesof hedges that matured in 2007 as compared to 2006 (based on
Airbus’ 2007 compounded conversion rate of €-U.S.$1.14, ascompared to €-U.S.$1.10 in 2006) which had a negative effect of€(0.4) billion and (y) revaluation of loss-making contract provisions
which had a negative effect of €(0.4) billion, partially offset by (z)gains on maturing A380 hedges and some positive impact of therevaluation of certain assets and liabilities and other currencytranslation adjustments. See “1.1.3 Critical Accounting
Considerations, Policies and Estimates — Foreign Currency
Translation”. The decrease in EBIT* was partially offset by (i) an
increase in the number of aircraft delivered (453 in 2007, ascompared to 434 in 2006), (ii) lower charges recorded in respect of
the A380 programme, and (iii) initial savings from Power8.
The MTA Division’s EBIT* decreased from €75 million for 2006
to €(155) million for 2007, primarily reﬂecting (i) a margin
reduction of €(92) million recorded in respect of the A400M
programme as a result of the announced delay, combined withrevenue recognition of only two milestones in 2007 as compared to
ﬁve in 2006, and (ii) €(62) million of inventory write-down related
to medium and light aircraft. See “1.1.2 Overview — SigniﬁcantProgramme and Restructuring Developments in 2006 and 2007”.
The Eurocopter Division’s EBIT* decreased by 17.9%, from€257 million for 2006 to €211 million for 2007, primarily
reﬂecting a margin correction and provision in the NH90
programme for €(125) million. The decrease in EBIT* waspartially offset by a record level of deliveries (488 in 2007, ascompared to 381 in 2006) with a favourable mix effect.
The DS Division’s EBIT* decreased by 2.3%, from €348 million
for 2006 to €340 million for 2007, due primarily to (i) the changeof consolidation effect relating to MBDA in 2007, and (ii) higher
one-time effects in 2006 (mainly €121 million higher capitalgains). The decrease in EBIT* was partially offset by (i) improved
operating performance at Defence & Communication Systems,
Defence Electronics and Military Air Systems, and2

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comparable perimeter, the DS Division’s EBIT* increased by 6.9%
in 2007 compared to 2006.
Astrium’s EBIT* increased by 33.8%, from €130 million for 2006
to €174 million for 2007, primarily reﬂecting an increased
contribution from services, in particular from Paradigm Secure
Communications Ltd., as well as a volume increase and better
process efﬁciency in space transportation. The increase in EBIT*
was partially offset by a decline in the satellites business.
The EBIT* of Other Businesses increased from €(288) million for2006 to €94 million for 2007. EBIT* in 2006 primarily reﬂected
the burden of non-recurring asset impairment charges andrestructuring provisions recorded at EADS Sogerma. In contrast,
EBIT* was positive at EADS Sogerma in 2007, while also
increasing at ATR, EFW and Socata.
Headquarters/Consolidation EBIT* decreased by 40.1%, from€449 million for 2006 to €269 million for 2007, primarily
reﬂecting the €(169) million consolidation adjustment at grouplevel in respect of the A400M programme in 2007, in contrast to
the positive €286 million adjustment in 2006. See“1.1.2 Overview — Signiﬁcant Programme and Restructuring
Developments in 2006 and 2007”. Partially offsetting thedecrease in EBIT* was an increase in “share of proﬁt fromassociates accounted for under the equity method” from EADS’
investment in Dassault Aviation, including a positive €17 million
IFRS catch-up in 2007 (as compared to the absence of an IFRS
catch-up in 2006), as well as a higher €69 million in gains fromreal estate disposals and the sale of Embraer shares totalling€46 million.
2006 compared to 2005. EADS’ consolidated EBIT* decreased
to €0.4 billion in 2006 from €2.9 billion in 2005, primarily
reﬂecting 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.
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 ﬁrmorders for the former A350 aircraft. See “1.1.2 Overview —Signiﬁcant Programme and Restructuring Developments in 2006
and 2007”. Also contributing to the decrease was (i) an
approximate €(720) million negative impact of exchange rate
effects relating to (x) generally less favourable rates of hedges
that matured in 2006 as compared to 2005 (based on Airbus’
2006 compounded conversion rate of €-U.S.$1.10, as compared to€-U.S.$1.04 in 2005) which had a negative effect of* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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1€(820) million, partially offset by (y) a €100 million positive
impact of the revaluation of certain assets and liabilities andother currency translation adjustments, as well as (ii) a€376 million increase in research and development expenses in2006. The decrease in EBIT* was partially offset by an increase in
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.
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 thepositive €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) a record
level of deliveries (381 in 2006, as compared to 334 in 2005)
with a favourable mix effect, (ii) progress made on military
programmes and (iii) increased customer support activities. This
volume impact was partially offset by (i) a negative effect fromthe U.S. dollar, (ii) higher selling and administrative expenses
following activity ramp-up and (iii) increased production contract
costs related to the NH90.
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€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.
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 EBIT* of Other Businesses decreased by €117 million
compared to 2005, to €(288) million. The decrease was primarily
due to asset impairment charges and restructuring provisions
recorded at EADS Sogerma prior to the sale of its remaining 60%
share in Sogerma Services as well as the shares of the subsidiaries
Barﬁeld and Sogerma Tunisia to the TAT Group 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* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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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 for2006 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 — SigniﬁcantProgramme and Restructuring Developments in 2006 and 2007”.
Partially offsetting this increase was a decrease in “share of proﬁt
from associates accounted for under the equity method” from
EADS’ investment in Dassault Aviation, reﬂecting the absence ofa catch-up in 2006 of Dassault Aviation’s 2005 income (ascompared to a €64 million catch-up in 2005 for 2004 results).
Foreign Currency Impact on EBIT*. More than 60% of EADS’
consolidated revenues in 2007 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 by the impact of revaluation ofcertain assets and liabilities at the closing rate, such as loss-making
contract provisions, and currency translation adjustments related
to former Airbus GIE, as described above.
During 2007, cash ﬂow hedges covering approximately
U.S.$16.3 billion of EADS’ U.S. dollar-denominated revenues
matured. In 2007, the compounded exchange rate at which
hedged U.S. dollar-denominated revenues were accounted for was€-U.S.$1.16, as compared to €-U.S.$1.12 in 2006. This difference
resulted in an approximate €(450) million decrease in EBIT* from2006 to 2007, of which approximately €(400) million was at
Airbus. This decrease, together with the revaluation of loss-making
contract provisions which had a negative effect of €(400) million,
was partially offset by the €667 million positive impact of gains
on matured A380 hedges and some higher positive impact of
the revaluation of certain assets and liabilities and currencytranslation adjustments related to former Airbus GIE.
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 for was€-U.S.$1.12, as compared to €-U.S.$1.06 in 2005. This difference
resulted in an approximate €(900) million decrease in EBIT* from2005 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 andliabilities and currency translation adjustments related toformer Airbus GIE.

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The tables below set forth the notional amount of foreign exchange hedges in place as of 31st December 2007, and the average
U.S. dollar rates applicable to corresponding EBIT*.
2008

2009

2010

2011

2012

2013

Total

Total Hedges (in U.S.$ bn)

15.6

15.2

11.9

5.8

2.1

0.7

51.3

Of which €-U.S.$

14.0

13.5

10.6

4.8

1.7

0.7

45.3

Of which £-U.S.$

1.6

1.7

1.3

1.0

0.4

-

6.0

Forward Rates (in U.S.$)€-U.S.$

1.16

1.25

1.33

1.38

1.44

1.46

£-U.S.$

1.57

1.66

1.77

1.87

1.94

-

Restructuring. Total restructuring expenses of €(677) million
were recorded in 2007, compared to €(168) million in 2006. For
2007, this included expenses primarily related to (i) Airbus(€(624) million), relating to Power8 implementation, and(ii) the DS Division (€(53) million). The related, yet to be
implemented, restructuring burden is 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 income statements of EADS for the past three years.
IFRS CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 ST DECEMBER 2007, 2006 AND 2005
Year ended
31st December 2007

Year ended
31st December 2006

Year ended
31st December 2005

Revenues

39,12339,43434,206

Cost of sales(34,802)(34,722)(27,530)

Gross margin

4,321

4,712

6,676

(in €m, except for earnings (losses) per share)

Selling and administrative expenses(2,178)(2,274)(2,183)

Research and development expenses(2,608)(2,458)(2,075)

Other income

233

297

222

Other expenses

(97)

(188)

(153)

Share of profit from associates accounted for under the equity method and other income
from investments

296

189

225

Profit (loss) before finance costs and income taxes

(33)

278

2,712
(155)

Interest result

(199)

(121)

Other financial result

(538)

(123)

(22)

Income taxes

333

81

(825)

(437)

115

1,710

(446)

99

1,676

Profit (loss) for the period
Attributable to:Equity holders of the parent (Net Income (loss))

9

16

34

Earnings (losses) per share (basic) (in €)Minority interests(0.56)

0.12

2.11

Earnings (losses) per share (diluted) (in €)(0.55)

0.12

2.09

Set forth below are year-to-year comparisons of results ofoperations, based upon EADS’ Consolidated Statements ofIncome.

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

Consolidated Revenues
Consolidated revenues decreased slightly by 0.8% in 2007 to€39.1 billion, as compared to €39.4 billion for 2006. A decrease inrevenues at the MTA Division and DS Division (primarily reﬂecting
the change of proportionate consolidation effect relating to MBDA)
was nearly offset by an increase at other divisions in 2007.
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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 2007

Year ended
31st December 2006

Year ended
31st December 2005

Airbus

25,21625,19022,179Military Transport Aircraft

1,140

2,200

763

Eurocopter

4,172

3,803

3,211

Defence & Security(1)

5,465

5,864

5,636

Astrium

3,550

3,212

2,698
34,487

Total Divisional Revenues

39,54340,269Other Businesses

1,269

1,257

1,155

HQ/Consolidation(2)(1,689)(2,092)(1,436)

Total

39,12339,43434,206(1) MBDA proportionally consolidated at 37.5% in 2007, 50% in 2005 and 2006. 2005 and 2006 ﬁgures have not been restated. On a comparable basis, revenues in 2006 would have been €(418) million lower.
(2) 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.
Year ended
31st December 2007

Year ended
31st December 2006

Year ended
31st December 2005

Single Aisle

367

339

289

Widebody

69Number of aircraft

9
(1)

80

Long-Range

79

86

Large Aircraft

1

-

-

453

434

378

Total
(1) Includes internal delivery of green a/c (MRTT for Australia) from Airbus to MTA Division.

2007 compared to 2006. Airbus’ consolidated revenues
remained stable, amounting to €25.2 billion for 2006 and 2007.
Aircraft deliveries recognised in revenues increased (453 in2007 as compared to 434 in 2006), driven by deliveries ofsingle-aisle A318/A319/A320/A321 aircraft. Airbus delivered
28 more aircraft of this type in 2007 (367 aircraft) than in theprevious year. Deliveries of long-range aircraft decreasedslightly from 86 in 2006 to 79 in 2007.
Offsetting this positive volume increase was a decrease inrevenue recognition on the A400M programme, as well as an
approximate €(1.1) billion negative impact resulting primarily
from the continued decline of the hedge rates used to convert
payments upon deliveries for the portion of such payments
which was hedged. 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
Transactions in the Financial Statements”, “1.1.3 Critical
Accounting Considerations, Policies and Estimates — Foreign
Currency Translation”, “1.1.8 Hedging Activities — Foreign

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Exchange Rates” and “1. Financial Market Risks — Exposure to
Foreign Currencies”.
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 inaircraft deliveries recognized in revenues (434 in 2006 ascompared to 378 in 2005). As in 2005, most of the deliveries in2006 were for single-aisle A319/A320/A321 aircraft. Airbus
delivered 50 more aircraft of this type in 2006 (339 aircraft)
than in the previous year. Deliveries of long-range aircraft
increased from 80 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.

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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.
Number of aircraft

CN-235

Year ended
31st December 2007

Year ended
31st December 2006

Year ended
31st December 2005

7

1

1

C-212

-

-

2

C-295

7

7

10

P-3

1

-

-

Total

15

8

13

For 2007, consolidated revenues of the MTA Division
decreased by 48.2%, from €2.2 billion for 2006 to €1.1 billion
for 2007. The large decrease is primarily due to the completionof fewer milestones on the A400M programme (two in 2007 ascompared to ﬁve in 2006 (including the shift of revenue
recognition for one milestone to the ﬁrst quarter of 2006)).

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 impactof the shift of revenue recognition for one milestone to the ﬁrst
quarter 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 2006, consolidated revenues of the MTA Division
increased by 188%, from €0.8 billion for 2005 to €2.2 billion
Eurocopter
Set forth below is a breakdown of the Eurocopter Division’s deliveries by product type for the past three years.
Number of aircraftYear ended
31st December 2007

Year ended
31st December 2006

Year ended
31st December 2005

Tiger

10

9

12

Light

275

217

183

Medium

172

134

121

Heavy

31

21

18

8

3

0

488

381

334

of which NH90
Total

For 2007, consolidated revenues of the Eurocopter Division
increased by 9.7%, from €3.8 billion for 2006 to €4.2 billion for
2007, primarily reﬂecting an overall increase in helicopter
deliveries from 381 in 2006 to 488 in 2007, in particular in thecivil segment, as well as growth in customer services.
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 programmes,
growth in customer services and an overall increase inhelicopter deliveries from 334 in 2005 to 381 in 2006.
Defence & Security
For 2007, consolidated revenues of the DS Division decreased
by 6.8%, from €5.9 billion for 2006 to €5.5 billion for 2007,

primarily reﬂecting the change of proportionate consolidation
effect (€(0.4) million) relating to MBDA and a decrease instand-off missile activity. Partially offsetting this decrease was
the ramp-up in Euroﬁghter production and growth in security
revenues. At comparable perimeter, the DS Division’s revenues
increased slightly by 0.3% in 2007 compared to 2006.
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.

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

Commercial Telecommunications Satellites

For 2007, consolidated revenues of Astrium increased by 10.5%,
from €3.2 billion for 2006 to €3.6 billion for 2007. The
increase was primarily due to an increase in revenues from
Paradigm services, Ariane 5 production and ballistic missile
deliveries.
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 inconnection with the Satcom BW military communication
system.

Consolidated Cost of Sales
For 2007, consolidated cost of sales was roughly stable,
increasing from €34.7 billion for 2006 to €34.8 billion for2007. The slight increase was primarily due to the higher
number of aircraft deliveries and to charges relating to the
A400M programme, A350 XWB programme and Power8
implementation (as described above), which were partially
offset by decreased charges in respect of the A380
programme in 2007. Consolidated cost of sales also includes
the amortisation of capitalised development costs pursuant to
IAS 38, which amounted to €(46) million in 2007. Mainly asa result of the above stated items and a negative dollar effectat Airbus in respect of revenues, the gross margin decreased
from 11.9% in 2006 to 11.0% in 2007.
For 2006, consolidated cost of sales increased by 26.1%, from€27.5 billion for 2005 to €34.7 billion for 2006. In addition
to the higher sales activity that occurred in 2006, theincrease was primarily due to cost overruns relating to theA380 programme and transition costs related to theA350 programme, as described above. Asset impairment
charges and restructuring provisions recorded at EADS
Sogerma also had a negative effect. Mainly as a result of theabove stated items and negative dollar effect at Airbus inrespect of revenues, the gross margin decreased from 19.5%
in 2005 to 11.9% in 2006.

Consolidated Selling and Administrative Expenses
For 2007, consolidated selling and administrative expenses
decreased by 4.2%, from €2.3 billion for 2006 to36

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Year ended
31st December 2007

Year ended
31st December 2006

Year ended
31st December 2005

2

4

4

€2.2 billion for 2007, primarily reﬂecting lower expenses atthe DS Division (perimeter effect relating to MBDA,
business unit savings, etc.) and at EADS Sogerma(following the sale of its support and maintenance activities
at the beginning of 2007). This decrease was partially offset
by higher expenses at the Eurocopter Division andAstrium, primarily reﬂecting an overall increase in selling
activities, and by restructuring expenses relating to Power8
implementation at Airbus.
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
and Euroﬁghter 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).

Consolidated Research and Development Expenses
For 2007, consolidated research and development (“R&D”)
expenses increased by 6.1%, from €2.5 billion for 2006 to€2.6 billion for 2007. Most of the increase was attributable
to higher expenses at Airbus, due to development on theA350 XWB and A330-200F. The DS Division recordedslightly lower R&D expenses in 2007, whereas the MTA
Division, Eurocopter and Astrium recorded slightly higher
expenses than in 2006. These changes also reﬂect the factthat in 2007 only €93 million of R&D qualiﬁed forcapitalisation as an intangible asset under IAS 38, which wasconsiderably less than the €411 million of R&D capitalisedin 2006. See “1.1.3 Critical Accounting Considerations,
Policies and Estimates — Research and Development
Expenses”.
For 2006, consolidated 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 the former A350, and later inthe year on the new A350 XWB. A380-related R&D
expenses continued to decrease from their peak 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 Eurocopterand Astrium recorded slightly higher expenses than inNET ASSETS | FINANCIAL POSITIONS | RESULTS

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2005. These changes also reﬂect the capitalisation of€411 million of R&D in 2006 as an intangible asset under
IAS 38, of which €335 million related to Airbus for
the A380.

Consolidated Other Income and Other Expenses
Consolidated other income and other expenses represent
gains and losses on disposals of investments in ﬁxed assets,
income from rental properties and certain provisions.
For 2007, the net of other income and other expenses was
positive €136 million as compared to positive €109 million
for 2006. The increase was mainly attributable to therecording of lower overall expenses in 2007, as well as togains on the sale of land and buildings in France andGermany.
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.

Consolidated Share of Profit from Associates
Accounted for under the Equity Method andOther Income from Investments
Consolidated share of proﬁt from associates accounted forunder the equity method and other income from investments
principally includes results from companies accounted forunder the equity method and the results attributable to nonconsolidated investments.
For 2007, EADS recorded €296 million in consolidated shareof proﬁt from associates accounted for under the equity
method and other income from investments as comparedto €189 million for 2006. The €107 million increaseprimarily reﬂects the results of EADS’ equity investment in
Dassault Aviation, including a €17 million positive IFRS
catch-up in 2007 (as compared to the absence of an IFRS
catch-up in 2006), as well as a capital gain of €46 million
from EADS’ sale of its 2.13% interest in Embraer. See “Notes
to Consolidated Financial Statements (IFRS) — Note 9: Shareof proﬁt from associates accounted for under the equity
method and other income from investments”.
For 2006, EADS recorded €189 million in consolidated shareof proﬁt from associates accounted for under the equity
method and other income 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

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in income of €64 million recorded in 2005 relating to
Dassault Aviation’s income of 2004.

Consolidated Interest Result
Consolidated interest result reﬂects the net of interest
income and expenses arising from ﬁnancial assets andliabilities, including interest expense on refundable advances
provided by European governments to ﬁnance research anddevelopment activities.
For 2007, EADS reported a consolidated net interest expenseof €(199) million, as compared to €(121) million of
consolidated net interest expense for 2006. The deteriorationis due primarily to a lower average net cash balance held
during 2007 following the acquisition of BAE Systems’ 20%
share in Airbus in October 2006, as well as the incurrence of
higher interest expenses on European government refundable
advances.
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.

Consolidated Other Financial Result
For 2007, consolidated other ﬁnancial result deteriorated to€(538) million from €(123) million for 2006. This negative€(415) million change primarily results from (i) the€(202) million negative effect in 2007 from the unwinding of
discounts on provisions recorded at Airbus, compared to a€(22) million negative effect in 2006, and (ii) a €(274) million
negative effect in 2007 from valuation changes of U.S. dollardenominated cash balances on the Euro-denominated balance
sheets of Group companies, compared to a €(136) million
negative effect in 2006, and (iii) a negative €(5) million effectfrom the mark-to-market valuation of “embedded
derivatives”, compared to a positive €46 million effect in2006. Such “embedded derivatives” are ﬁnancial instruments
that, for accounting purposes, are deemed to be embedded in
U.S. dollar-denominated purchase orders of equipment, where
the U.S. dollar is not conclusively the currency in which theprice of the related equipment is routinely denominated ininternational commerce and is not the functional currency of
any of the parties to the transaction. See “Notes to theConsolidated Financial Statements (IFRS) — Note 10: Total
ﬁnance costs”.
For 2006, consolidated other ﬁnancial result deteriorated to€(123) million from €(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. dollardenominated cash balances on the Euro-denominated balance

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sheets of Group companies, which had generated a positive€147 million in other ﬁnancial result in 2005. This negative
factor was partially offset by a positive €46 million effectfrom the mark-to-market valuation of embedded derivatives.

Consolidated Income Taxes
For 2007, income taxes yielded a positive €333 million,
compared to a positive €81 million in 2006. The increase wasdue to a taxable loss of €(770) million recorded in 2007,
compared to taxable income of €34 million recorded in theprevious year. See “Notes to the Consolidated Financial
Statements (IFRS) — Note 11: Income taxes”.
For 2006, income taxes yielded a positive €81 million,
compared to an expense of €(825) million in 2005. Thechange 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 GmbH to MBDA in 2006. Thisdecrease was partially offset by higher valuation allowanceson deferred tax assets at Airbus.

Consolidated Minority Interests
For 2007, consolidated minority interests were €9 million, as
compared to €16 million for 2006, reﬂecting primarily theinterest of Daimler Luft — und Raumfahrt Holding AG(“DLRH”) in the results of Dornier GmbH. The decrease inminority interests for 2007 primarily relates to the change inthe proportional consolidation of MBDA from 50% to 37.5%
as of 1st January 2007, as a result of which Finmeccanica’s
12.5% stake in MBDA is no longer reﬂected as a minority
interest in EADS’ accounts. See “1.1.3.1 Scope of andChanges in Consolidation Perimeter”.
For 2006, consolidated minority interests were €16 million,
as compared to €34 million for 2005, reﬂecting primarily the38

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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.

Consolidated Net Income (Loss) (Profit (loss) for
the Period Attributable to Equity Holders of the
Parent)As a result of the factors discussed above, EADS recorded aconsolidated net loss of €(446) million for 2007 as compared
to consolidated net income of €99 million for 2006 and€1,676 million for 2005.

Earnings per Share (EPS)
Basic earnings per share decreased by €(0.68) per share, from
€0.12 per share in 2006 to a loss of €(0.56) per share in 2007.
The number of outstanding shares at 31st December 2007
was 804,209,475. The denominator used to calculate EPS was
803,128,221 shares, reﬂecting the weighted average numberof shares outstanding during the year. In 2005, EADS
reported basic earnings per share of €2.11.
Diluted earnings per share decreased by €(0.67) per share,from €0.12 per share in 2006 to a loss of €(0.55) per share in2007. The denominator used to calculate diluted EPS
was 805,548,401, reﬂecting the weighted average number ofshares outstanding during the year, adjusted to assume theconversion of all potential ordinary shares. In 2005, EADS
reported diluted earnings per share of €2.09.
See “Notes to Consolidated Financial Statements (IFRS) —Note 20: Total equity” and “Note 35: Earnings per share”.

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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 2007 through31st December 2007.
(in €m)Balance at 31st December 2006

13,152

Change in actuarial gains and losses

435

Accumulated other comprehensive income

121

Thereof currency translation adjustments(196)

Profit (loss) for the period(437)

Cash distribution to EADS N.V. shareholders/dividends paid to minorities(98)

Capital increase

48

Purchase of treasury shares-

Share-based payments (IFRS 2)

48

Change in minority interests(1)

(94)

st

Balance at 31 December 2007

13,175(1) Related to the change in the proportion of consolidation of MBDA.

The increase in consolidated total equity in 2007 primarily
reﬂects the effects of (i) changes in actuarial gains and losses,
which in turn primarily reﬂect actuarial gains with respect tothe participation in BAE Systems pension plans in the U.K.,
and (ii) changes in accumulated other comprehensive income(“AOCI”). These were partially offset by net loss for the period
and the cash distribution to shareholders and dividends paid tominorities during 2007, as well as the change in minority
interests. Set forth below is a discussion of AOCI and its
impact on consolidated total equity. For a discussion of theother line items affecting consolidated total equity, see “Notes
to Consolidated Financial Statement (IFRS) — Note 20: Total
equity”.
In 2007, AOCI increased by €121 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 cash ﬂow hedge
accounting under IAS 39.

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IAS 39 Related Impact on AOCIst

At 31 December 2007, the notional amount of the outstanding
portfolio of hedges qualifying for IAS 39 hedge accounting
treatment (“cash ﬂow hedges”) amounted to approximately
U.S.$51.3 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 €0.4 billion from 31st December 2006,
based on a closing rate of €-U.S.$1.47, as compared to a positive
AOCI valuation change of €1.2 billion at 31st December 2006
from 31st December 2005, based on a closing rateof €-U.S.$1.32.

As a result of the positive change in the fair market valuationof the cash ﬂow hedge portfolio in 2007, AOCI-related net
assets increased to €5.1 billion for 2007 from €5.0 billion for2006. The corresponding €0.1 billion tax effect increased the
AOCI-related deferred tax liability to €1.6 billion at
31st December 2007.

Currency Translation Adjustment Impact on AOCI
The negative €(196) million currency translation adjustment(CTA) related impact on AOCI in 2007 reﬂects theconsequences (negative €(168) million) of the merger of Airbus
Groupement d’intérêt économique (“Airbus GIE”) (a U.S. dollardenominated entity) into Airbus SAS (a Euro-denominated40

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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 liabilities 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).

entity) 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 income
statement, in line with such deliveries. See “1.1.3 Critical
Accounting Considerations, Policies and Estimates — Foreign
Currency Translation”.

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1.1.7 LIQUIDITY AND CAPITAL RESOURCESThe 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;

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 2007 was€7.0 billion. The factors affecting EADS’ cash position, andconsequently its liquidity risk, are discussed below.

●

Developing and maintaining access to the capital markets;
and1.1.7.1 Cash Flows●

Containing its exposure to customer ﬁnancing.

EADS beneﬁts from a strong positive cash position, with
€11.8 billion of consolidated gross cash (including securities of€4.3 billion) at 31st December 2007. This cash position isfurther supported by a €3.0 billion syndicated back-up facility.
Overall, ﬁnancial liabilities (short and long-term) amounted to€4.8 billion at 31st December 2007.

EADS generally ﬁnances its manufacturing activities andproduct development programmes, and in particular thedevelopment of new commercial aircraft, through a
combination of ﬂows generated by operating activities,
customers’ advance payments, risk-sharing partnerships with
sub-contractors and European government refundable advances.
In addition, EADS’ military activities beneﬁt fromgovernment-ﬁnanced research and development contracts. If
necessary, EADS may raise funds in the capital markets.

The following table sets forth the variation of EADS’ consolidated net cash position over the periods indicated.
Year ended
31st December 2007

Year ended
31st December 2006

Year ended
31st December 2005

4,229

5,489

3,961

Gross cash flows from operations

3,862

3,541

3,868

Changes in other operating assets and liabilities (working capital)

1,175

(143)

1,239

(in €m)Consolidated net cash position at 1st January(1)

Thereof Paradigm refinancing

1,158

98

-

Cash used for investing activities(2)(1,550)(1,369)(2,694)(2,028)(2,708)(2,818)Thereof industrial capital expenditures
Thereof customer financing

61

1,160

174

Thereof others

417

179

(50)

Capital increase

46

94

187

Contribution to plan assets of pension schemes
Treasury share buy-backCash distribution to shareholders/dividends paid to minorities

(303)

-

-

-

(35)

(288)

(98)

(536)

(396)
(3)

-

(2,879)(93)

Other changes in financial position

(337)

67

(295)

Consolidated net cash position at 31st December

7,024

4,229

5,489

Free Cash Flows

3,487

2,029

2,413

3,426

869

2,239

Payments related to liability for puttable instruments

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 (disposal of €1,008 million for 2005; disposal of €3,357 million for 2006; addition of €(2,641) million for 2007), which are classiﬁed as
cash and not as investments solely for the purposes of this net cash presentation; (ii) changes in cash from changes in consolidation (€12 million for 2005; €0 million for 2006; €(249) million for 2007); (iii) contribution
to plan assets of pension schemes (€(303) million for 2007); or (iv) increase in customer ﬁnancing when it is non-recourse to EADS (€(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.

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The consolidated net cash position at 31st December 2007 was€7.0 billion, a 66.1% increase from 31st December 2006. The
increase primarily reﬂects a solid €3.9 billion gross cash ﬂow fromoperations, as well as changes in working capital resulting in apositive impact of €1.2 billion. This increase was partially offset
by investing activities that consumed €(1.6) billion, as well as a(€(303) million contribution to plan assets of pension schemes inGermany.

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future receivables (guaranteed customer payments) following
achievement of an important milestone on the Paradigm
programme in 2007. Approximately half of the remaining€3.6 billion in pre-delivery payments resulted from customer
payments at Airbus. The positive variation of advancepayments received was partially offset by the change in grossinventory in 2007 (€(3.0) billion), reﬂecting inventory growthacross all divisions, in particular at Airbus which accounted
for approximately half of the total.

Gross Cash Flows from Operations
Gross cash ﬂow from operations was less impacted than EBIT* in2007 by one time effects, and amounted to €3,862 million in
2007, compared to €3,541 million in 2006 and €3,868 million in2005.

In 2006, the main net contributor to the negative working capitalvariation was the change in gross inventory (€(1.9) billion),primarily reﬂecting the ramp-up of Airbus production of theA380, partially offset by the inﬂow of overall pre-delivery
payments from customers (€1.6 billion).

Changes in Other Operating Assets and Liabilities (Working
Capital)Working capital is comprised of inventory, trade receivables, otherassets and prepaid expenses netted against trade liabilities, otherliabilities (including customer advances) and deferred income.

European Government Refundable Advances. As of
31st December 2007, total European government refundable
advances received, recorded on the balance sheet in the line
items “non-current other liabilities” and “current otherliabilities”, amounted to €5.3 billion, including accrued
interest.

Changes in working capital resulted in a positive impact on the
net cash position for 2007 (€1.2 billion) and a negative impact
on the net cash position for 2006 (€(0.1) billion). In 2007, themain net contributor to the positive working capital variation
was pre-delivery payments from customers (€4.8 billion),€1.2 billion of which resulted from the securitisation of

For 2007, new receipts of European government refundable
advances totalled €0.2 billion and reimbursements totalled€0.4 billion. Related accrued interest for 2007 of €0.3 billion wasrecorded on the balance sheet in the line items “non-current otherliabilities” and “current other liabilities”.

Set out below is a breakdown of total amounts of European government refundable advances outstanding, by product/project.
(in €bn)

2007

2006

2005

Long Range & Wide Body

1.3

1.5

1.8

A380

3.5

3.3

2.8

Eurocopter

0.2

0.2

0.2

Others

0.3

0.4

0.5

Total

5.3

5.4

5.3

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
and intangible assets) amounted to €2.0 billion for 2007, ascompared to €2.7 billion for 2006 and €2.8 billion for 2005.
A380-related capital expenditure totalled €0.2 billion for 2007,
as compared to €0.7 billion for 2006 and €0.8 billion for 2005
(including capitalised research and development costs).

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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The remaining portion of capital expenditures in 2007 related
to other programmes at Airbus of €0.7 billion (relating
primarily to the A400M programme) and additional
programmes in the other divisions of €1.1 billion, including
the build-up of Skynet 5 satellites at Paradigm and ongoing
businesses. Excluding Airbus and Paradigm-related
expenditures, EADS’ other divisions incur approximately€0.7 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.

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For the period 2008 to 2009, it is expected that the majority of
EADS’ capital expenditures will occur in connection with
Airbus activities — in particular, for the A350 XWB
programme in respect of which ﬁrm commitments are currently
being negotiated with risk sharing partners within the context
of planned Airbus site divestments.
Customer Financing. EADS aims to structure ﬁnancing so as
to facilitate the future sell-down or reduction of its exposure.
With gross exposure at its lowest level in two decades,
consolidated cash ﬂows generated by customer ﬁnancing
amounted to €61 million for 2007, as compared to an
exceptionally high level of €1,160 million for 2006. The cash
inﬂows in 2006 and 2007 primarily result from the payments
received on sell-downs and repayments of outstanding ﬁnanceleases and loans over the course of the year more thanoffsetting additions to customer sales ﬁnancing. See “— Sales
Financing”.
Others. For 2007, the positive €417 million ﬁgure primarily
reﬂects the sale of buildings and participations in small entities
as well as the sale of Embraer shares. For 2006, the positive€179 million ﬁgure primarily reﬂects 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 €3.5 billion for 2007, as compared to€2.0 billion for 2006 and €2.4 billion for 2005. Positive free
cash ﬂow before customer ﬁnancing was €3.4 billion for
2007, as compared to €0.9 billion for 2006 and €2.2 billion
for 2005.
Contribution to Plan Assets of Pension Schemes
In 2007, the cash outﬂow of €(0.3) billion relates to theimplementation of a Contractual Trust Arrangement (CTA)
for allocating and generating pension plan assets inaccordance with IAS 19. The CTA was initially funded by a€0.5 billion contribution in cash and securities (thereof

2

3Back to Contents€0.3 billion in cash, €0.2 billion in securities not classiﬁed
as cash-equivalent) by certain EADS companies in Germany.
See “Notes to Consolidated Financial Statements (IFRS) —Note 22b: Provisions for retirement plans”. EADS may makeadditional contributions to plan assets over time in order toreduce the provision for retirement plans on its balance
sheet.
Other Changes in Financial Position
In 2007, the cash outﬂow of €(337) million primarily reﬂects
the change in the proportional consolidation of MBDA from
50% in 2006 to 37.5% in 2007. The cash inﬂow of €67 million
in 2006 generally mirrors the currency effects on ﬁnancial
liabilities.

1.1.7.2 Consolidated Cash and Cash Equivalents
and Securities
The cash and cash equivalents and securities portfolio of
the Group is invested mainly in non-speculative ﬁnancial
instruments, mostly highly liquid, such as certiﬁcates ofdeposit, overnight deposits, commercial paper, other money
market instruments and bonds. See “1.1.8 Hedging
Activities — Interest Rates” and “Notes to Consolidated
Financial Statements (IFRS) — Note 30a: Information about
Financial Instruments — Financial risk management”.
EADS has a fully automated cross-border cash pooling system(covering France, Germany, Spain, the Netherlands, the U.K.
and the U.S.). The cash pooling system enhances Management’s
ability to assess reliably and instantaneously the cash positionof each subsidiary within the Group and enables Management
to allocate cash optimally within the Group depending upon
shifting short-term needs.
Total cash and cash equivalents (including available-for-salesecurities) in 2007 includes €0.6 billion from the 37.5%
consolidation of MBDA, compared to €0.6 billion in 2006 fromthe 50% consolidation of MBDA.

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1.1.7.3 Consolidated Financing Liabilities
The following table sets forth the composition of EADS’ consolidated ﬁnancing liabilities, including both short-and long-term debt,
as of 31st December 2007:
31st December 2007
Not Exceeding 1 year

Over 1 year up to 5 years

More Than 5 years

Total

Bonds/Commercial paper(in €m)

579

1,039

430

2,048

Liabilities to financial institutions

108

301

651

1,060

Loans

183

166

382

731

Liabilities to affiliated companies

163

-

-

163

Finance Leases

69

52

69

190(1)

Others

622

-

-

622

Total

1,724

1,558

1,532

4,814(2)(1) This ﬁgure reﬂects the €677 million effect of the netting of defeased bank deposits against sales ﬁnancing liabilities.
(2) Financing liabilities include non-recourse Airbus debt for €859 million.

The outstanding balance of ﬁnancing liabilities decreased from
€5.8 billion at 31st December 2006 to €4.8 billion at
31st December 2007. Financing liabilities include liabilities
connected with sales ﬁnancing transactions, which totalled€1,356 million at 31st December 2007. See “— Sales Financing”.
Of this total, €396 million bore interest at a ﬁxed rate of 9.88%
while the remainder bore interest primarily at variable rates.
EMTN Programme. EADS currently has a €3 billion Euro
Medium Term Note (“EMTN”) Programme in place. In 2003,
it conducted an initial €1.0 billion issue of notes maturing in2010 and bearing interest at 4.625% (effective interest rate:
4.686%), which was later swapped into a variable rate of 3month EURIBOR plus 1.02%. Later in 2003, it issued an
additional €0.5 billion of notes maturing in 2018 and bearing
interest at 5.5% (effective interest rate: 5.6%), which was
swapped during 2005 into a variable rate of 3-month
EURIBOR plus 1.81%.
European Investment Bank Loan. In 2004, the European
Investment Bank granted a long-term loan to EADS in theamount 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 at
ﬁxed or ﬂoating rates with individual maturities ranging from 1
day to 12 months. As of 31st December 2007, the averageinterest rate on these borrowings was 4.54%. The issued
volume at 31st December 2007 amounted to €501 million. The
programme has been in place since 2003 and has a maximum
authorised volume limit of €2 billion.

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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.
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
in line 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 as well 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 28% of the €4.8 billion of total consolidated
ﬁnancing liabilities as at 31st December 2007 are derived fromthe funding of EADS’ sales ﬁnancing assets, which are of along-term nature and have predictable payment schedules.
The decrease from 30% of total ﬁnancial liabilities in 2006
primarily reﬂects the effects of the weakening U.S. dollar onthese U.S. dollar-denominated liabilities.

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The following table presents a breakdown of consolidated ﬁnancing liabilities related to sales ﬁnancing:(in €m)Principal Amount
Outstanding 2007

Principal Amount
Outstanding 2006

Principal Amount
Outstanding 2005

Finance Leases(1)

35

72

118

Liabilities to financial institutions

742

905

1,074

Loans

579

725

882

1,356

1,702

2,074

Total sales financing liabilities(1) These ﬁgures reﬂect the effect of the netting of defeased bank deposits against sales ﬁnancing liabilities (€677 million in 2007; €927 million in 2006; €1,102 million in 2005).

The amounts of total sales ﬁnancing liabilities at 31st December
2007, 2006 and 2005 reﬂect the offsetting of sales ﬁnancing
liabilities by €0.7 billion (for 2007), €0.9 billion (for 2006) and€1.1 billion (for 2005) of defeased bank deposits securing suchliabilities. Of the remaining €1.4 billion total sales ﬁnancing
liabilities at 31st December 2007, €0.9 billion is in the form of
non-recourse debt, where EADS’ repayment obligations arelimited 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 23: Financing
liabilities”. See also “— 1.1.3 Critical Accounting
Considerations, Policies and Estimates — Accounting for Sales
Financing Transactions in the Financial Statements”.
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.
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
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 2007 is spread over 74 aircraft,
operated at any time by approximately 21 airlines. In addition,other aircraft related assets, such as spare parts, may also serveas collateral security. 77% of Airbus Financing Gross Exposure
is distributed over 4 airlines in 4 countries, not taking backstop
commitments into account.

ATR Customer Financing Gross Exposure as of 31st December
2007 is distributed over 188 aircraft. EADS proportionallyconsolidates only 50% of ATR and shares the risk with its
partner, Alenia.
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.
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 recordedin 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.$1.5 billion (€1.0 billion)
as of 31st December 2007, while the Airbus ﬂeet in operation
has increased from 1,838 aircraft to 4,794 aircraft over roughly
the same period. Management believes that the current level ofGross Financing Exposure enhances Airbus’ ability to assist its
customers in the context of a tight aircraft ﬁnancing market.
The chart below illustrates the evolution of Airbus’ Gross
Financing Exposure during 2007 (in U.S.$ millions).

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ATR as a whole has reduced gross exposure by approximately 60%
from a peak of U.S.$1.8 billion in 1997 to U.S.$0.7 billion(€0.5 billion) as of 31st December 2007.
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 relatively
low in 2008.

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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 theaircraft 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 inorder to allow for what Management believes is its
conservative assessment of market conditions, as well as forrepossession and transformation costs. See “1.1.3 Critical
Accounting Considerations, Policies and Estimates —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 2007, 2006 and 2005. It includes 100% of Airbus’ customer ﬁnancing exposure and 50% of ATR’s exposure,reﬂecting EADS’ stake in ATR.
Airbus100%(in €m)Airbus100%

Airbus100%

ATR 50%12/31/2006 12/31/2005

12/31/2007

ATR 50%

ATR 50%Total EADS

Total EADS

Total EADS

12/31/2006 12/31/2005

12/31/2007

12/31/2006 12/31/2005

Note*

12/31/2007

Operating Lease

13

506

1,080

1,308

94

136

185

600

1,216

1,493

Finance leases
and loans

14

1,017

957

1,616

19

29

25

1,036

986

1,641

0

0

1,019

81

87

96

81

87

1,115

1,523

2,037

3,943

194

252

306

1,717

2,289

4,249

526

834

846

42

43

42

568

877

888

(931)

(1,121)(1,327)

0

0

0

(931)

(1,121)(1,327)

(128)

(351)

(244)

0

0

0

(128)

(351)

(244)

29

990

1,399

3,218

236

295

348

1,226

1,694

3,566

29

(411)

(521)

(1,819)

(211)

(270)

(314)

(622)

(791)

(2,133)

579

878

1,399

25

25

34

604

903

1,433

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

29

Net exposure
Asset impairments
and provisions on:
Operating Lease

29

(102)

(272)

(319)

0

0

0

(102)

(272)

(319)

Finance Lease & loans

29

(191)

(199)

(396)

0

0

0

(191)

(199)

(396)

Assets held for sale

29

0

0

(196)

0

0

0

0

0

(196)

29

(286)

(407)

(488)

0

0

0

(286)

(407)

(488)

29

0

0

0

(25)

(25)

(34)

(25)

(25)

(34)

(579)

(878)

(1,399)

(25)

(25)

(34)

(604)

(903)

(1,433)

-

-

-

-

-

-

-

-

-

Off balance sheet
commitments
On balance sheet
commitments
Asset impairments
and provisions
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 (€600 million in 2007, €1,216 million in 2006 and€1,493 million in 2005) is accounted for in “Property, Plant
and Equipment” at net book value of operating leases before
impairment. Corresponding accumulated asset impairments(€102 million in 2007, €272 million in 2006 and €319 million
in 2005) 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 (€1,036 million in 2007,€986 million in 2006 and €1,641 million in 2005).
Consolidated ﬁnance leases (€690 million in 2007,€739 million in 2006 and €924 million in 2005) areaccounted for as long-term ﬁnancial assets, recorded at theirbook value before impairment. Loans (€346 million in 2007,€247 million in 2006 and €717 million in 2005) are also
accounted for as long-term ﬁnancial assets, recorded at theiroutstanding gross amount. Corresponding overall
accumulated impairments (€191 million in 2007,€199 million in 2006 and €396 million in 2005) are charged
against the book values. See “Notes to Consolidated Financial
Statements (IFRS) — Note 14: Investments in associates
accounted for under the equity method, other investments
and long-term ﬁnancial assets”.
Off-balance sheet customer ﬁnancing exposure at Airbus andATR (accounted for at 50% by EADS) was €568 million in
2007, €877 million in 2006 and €888 million in 2005. Theseamounts reﬂect the total nominal value of future payments

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1

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 €440 million in 2007,€526 million in 2006 and €644 million in 2005. A provisionof €286 million has been accrued for in EADS’ balance
sheet as of 31st December 2007 to cover the full amount of
the corresponding net exposure. See “Notes to Consolidated
Financial Statements (IFRS) — Note 29: Commitments andcontingencies”.
Asset Value Exposure. A signiﬁcant portion of EADS’
asset value exposure arises from outstanding AVGs,
primarily at Airbus. 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 theaircraft, and its level is considered prudent in comparison to
the estimated future value of each aircraft; (ii) the AVGrelated exposure is diversiﬁed over a large number of aircraft
and customers; and (iii) the exercise periods of outstanding
AVGs are distributed through 2019, resulting in low levelsof exposure maturing in any year. Because exercise dates for
AVGs are on average in the 10th year following aircraft
delivery, AVGs issued in 2007 will generally not be
exercisable prior to 2017, and, therefore, an increase in nearterm exposure is not expected.
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 2007, Airbus
Gross Asset Value Exposure (discounted present value of
future guaranteed tranches) was U.S.$2.9 billion(€2.0 billion). The off-balance sheet portion of Airbus Gross
Asset Value, representing AVGs with net present values ofless than 10% of the sales price of the corresponding aircraft,was €880 million, excluding €513 million where the risk is
considered to be remote. In many cases, the risk is limited toa speciﬁc portion of the residual value of the aircraft. The
remaining Airbus Gross Asset Value Exposure is recorded onbalance sheet.
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 €501 million.
This provision covers a potential expected shortfall between
the estimated value of the aircraft of the date upon which the48

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guarantee can be exercised and the value guaranteed on atransaction basis taking counter guarantees into account. See“Notes to Consolidated Financial Statements (IFRS) —Note 22(c): Other provisions”.
Backstop Commitments. While backstop commitments toprovide ﬁnancing related to orders on Airbus’ and ATR’s
backlog are also given, such commitments are not considered
to be part of gross exposure until the ﬁnancing is in place,which occurs when the aircraft is delivered. This is due to thefact that (i) past experience suggests it is unlikely that all suchproposed ﬁnancings actually will be implemented (although it
is possible that customers not beneﬁting from suchcommitments may nevertheless request ﬁnancing assistanceahead 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-inprogress), and (iii) third parties may participate in theﬁnancing.
Orders and Backstop Commitments. Over the last three years(2005, 2006 and 2007), the average number of newly orderedaircraft in respect of which a backstop commitment has been
provided amounted to 6% of the average orders recorded overthe same period, i.e. 70 supported aircraft per year out of
1,131 orders per year on average. These ﬁnancing
commitments may or may not materialise at the contractual
delivery date of the aircraft. In addition, the level of ﬁnancing
support together with the terms and conditions offered tocustomers will vary.
Deliveries and Financing Support Implemented at Delivery.
Over the last three years (2005, 2006 and 2007), the average
number of aircraft delivered in respect of which ﬁnancing
support has been provided by Airbus amounted to 2% of theaverage number of deliveries over the same period, i.e.
9 aircraft ﬁnanced per year out of 422 deliveries per year on
average. This ﬁnancing support may take the form of senior or
junior loans or guarantees. Such support may have originatedfrom EADS’ contractual backstop commitments provided atsigning of the purchase agreement (see above) or may be theresult of a request for ﬁnancing assistance made by thecustomer ahead of aircraft delivery.
See “Notes to Consolidated Financial Statements (IFRS) —Note 29: Commitments and contingencies” for further
discussion of EADS’ sales ﬁnancing policies and accounting
procedures.

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1.1.8 HEDGING ACTIVITIES
1.1.8.1 Foreign Exchange Rates
More than half of EADS’ revenues are denominatedin U.S. dollars (approximately U.S.$29 billion at Airbus in2007), with approximately half of such currency exposure“naturally hedged” by U.S. dollar-denominated costs. The
remainder of costs is incurred primarily in Euro, and to a lesser
extent, in Pounds Sterling. Consequently, to the extent that
EADS does not use ﬁnancial instruments to hedge its net
current and future exchange rate exposure from the time of acustomer order to the time of delivery, its proﬁts will beaffected by market changes in the exchange rate of the
U.S. dollar against these currencies. As EADS intends togenerate proﬁts only from its operations and not throughspeculation on foreign currency exchange rate movements,
EADS uses hedging strategies solely to manage and minimise
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”.
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)
is converted into Euro at the spot rate effective at the time thepayment 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. The
hedged items are deﬁned as the ﬁrst forecasted highly probablefuture cash inﬂows for a given month based upon ﬁnal
payments at delivery. The amount of the expected ﬂows to behedged can cover up to 100% of the equivalent of the net
U.S. dollar exposure at inception. For EADS, a forecasted
transaction is regarded as highly probable if the future delivery
is included in the ﬁrm order book or is very likely tomaterialise in view of contractual evidence (e.g., a letter ofintent). The coverage ratio is adjusted to take into accountmacroeconomic movements affecting the spot and interest rates
as well as the robustness of the commercial cycle.
Exposure on non-aircraft business. For the non-aircraftbusiness, EADS typically hedges inﬂows and outﬂows offoreign currencies from sales and purchase contracts following
the same logic, typically in lower volumes.
Exposure on treasury operations. In connection with its
treasury operations, EADS enters into foreign exchange swaps(notional amount of €2.1 billion at year-end 2007) 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 in the consolidated income statement in theline 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 U.S. dollar and Pounds Sterling. Gains or losses
relating to such embedded foreign currency derivatives arereported 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 transactionsin other currencies than Euro, 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 deﬁned
as 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
the vast 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 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 as well as synthetic forwards.
The contract or notional amounts of EADS’ foreign exchange
derivative ﬁnancial instruments shown below do notnecessarily represent amounts exchanged by the parties and,thus, are not necessarily a measure for the exposure of theGroup through its use of derivatives.

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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The notional amounts of such foreign exchange derivative ﬁnancial instruments are as follows, speciﬁed by year of expected maturity:
Year ended 31st December 2007(in €m)Remaining period
Not exceeding 1 year

1 year up to 5 years

More than 5 years

Total

10,20920,931447

31,587Purchased USD call options

162

2,686

-

2,848

Purchased USD put options

162

2,686

-

2,848

Written USD call options

162

2,686

-

2,848

1,838

48

189

2,075

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

FX swap contracts

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) have at most the same nominal amounts, aswell as the same maturity dates, as the corresponding hedged item.

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.
The contract or notional amounts of EADS’ interest rate
derivative ﬁnancial instruments shown below do notnecessarily represent amounts exchanged by the parties and,thus, are not necessarily a measure for the exposure of theGroup 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 2007(in €m)Remaining period
Not exceeding 1 year

1 year up to 5 years

More than 5 years

Total

225

2,403

3,044

5,672

Interest rate contracts

For further information relating to market risk and the ways in which EADS attempts to manage this risk, see “Notes toConsolidated Financial Statements (IFRS) — Note 30a: Information about Financial Instruments — Financial risk management”.

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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 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; and●The Consolidated Financial Statements (IFRS) and theCompany ﬁnancial statements of EADS for the year ended
31st December 2006 as included in “Part 1/1.2 Financial
Statements” of the Registration Document ﬁled in English
with, and approved by, the AFM on 25th April 2007 andﬁled in English with the Chamber of Commerce ofAmsterdam.
Copies of the above-mentioned Registration Documents areavailable free of charge upon request in English, French,
Spanish and German at the registered ofﬁce of the Company
and on www.eads.com. Copies of the ﬁnancial statements
referred to above are also available in English on www.eads.com
and for inspection at the Chamber of Commerce ofAmsterdam.
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 31st December 2007, 2006 and 2005(in €m)

Note

2007

2006

2005

Revenues

5,6

39,12339,43434,206

Cost of sales

7(34,802)(34,722)(27,530)

Gross margin

4,321

4,712

6,676

Selling expenses

(864)

(914)

(832)

Administrative expenses(1,314)(1,360)(1,351)

Research and development expenses(2,608)(2,458)(2,075)

233

297

222

Other income

8

(97)

(188)

(153)

Share of profit from associates accounted for under the equity method

Other expenses
9

210

152

210

Other income from investments

9

86

37

15

Profit (loss) before finance costs and income taxes

5

2,712

(33)

278

Interest income

502

454

423

Interest expenses

(701)

(575)

(578)

(538)

(123)

(22)

Total finance costs

Other financial result
10

(737)

(244)

(177)

Income taxes

11

333

81

(825)

(437)

115

1,710

(446)

99

1,676

Minority interests

9

16

34

Earnings per share

€

€

€

Profit (loss) for the period
Attributable to:Equity holders of the parent (Net income (loss))

Basic

35

(0.56)

0.12

2.11

Diluted35(0.55)

0.12

2.09

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 31st December 2007 and 2006
(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 other long-term financial assets
Non-current other assets
Deferred tax assets
Non-current securities
Current assets
Inventories
Trade receivables
Current portion of other long-term financial assets
Current other assets
Current tax assets
Current securities
Cash and cash equivalents

Note

2007

2006

12
13
33
14
14
17
11
18

10,832
13,393
96
2,238
1,553
3,543
2,705
2,691
37,051

10,855
14,178
137
2,095
1,666
4,231
2,624
1,294
37,080

15
16
14
17

18,906
4,639
166
5,172
375
1,598
7,549
38,405075,456

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

814
7,406
5,076
(206)
13,09085
13,175

816
7,593
4,955
(349)
13,015
137
13,152

22
23
24
11
26

8,055
3,090
14,1272,188
753
28,213

8,911(1)3,561
11,722(1)
2,465
1,110
27,769

22
23
25
24

4,378
1,724
7,398
19,683179
706
34,068062,28175,4563,552(2)
2,196
7,461
17,239(2)218
486
31,15264
58,985
72,13718
27
19

Non-current assets/disposal groups classified as held for sale
Total assets
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 financing liabilities
Non-current other liabilities
Deferred tax liabilities
Non-current deferred income

20

Current liabilities
Current provisions
Short-term financing liabilities
Trade liabilities
Current other liabilities
Current tax liabilities
Current deferred income

26

Liabilities directly associated with non-current assets classified as held for sale
Total liabilities
Total equity and liabilities

19(1) Regarding the retrospective change in presentation of “Non-current provisions” (€(152) million) and “Non-current other liabilities” (+€152 million) for ﬁnancial instruments please refer to “Changes in Accounting
Policies” in Note 2 “Summary of signiﬁcant accounting policies”.
(2) Regarding the retrospective change in presentation of “Current provisions” (€(79) million) and “Current other liabilities” (+€79 million) for ﬁnancial instruments please refer to “Changes in Accounting Policies” inNote 2 “Summary of signiﬁcant accounting policies”.

The accompanying notes are an integral part of these Consolidated Financial Statements (IFRS).
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3

EADS N.V. Consolidated Statements of Cash Flows (IFRS) for the years ended 31st December 2007, 2006 and 2005(in €m)Note

Profit (loss) for the period attributable to equity holders of the parent (Net income (loss))
Profit for the period attributable to minority interests
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Interest income
Interest expense
Interest received
Interest paid
Income taxes
Income taxes received (paid)
Depreciation and amortisation
Valuation adjustments
Results on disposal of non-current assets
Results of companies accounted for by the equity method
Change in current and non-current provisions
Change in other operating assets and liabilities:– Inventories– Trade receivables– Trade liabilities– Advance payments received– Other assets and liabilities
Cash provided by operating activities

2007

2006

2005

(446)
9

99
16

1,676
34

(502)
701
480
(370)
(333)
36
1,772
582
(125)
(210)
2,268
1,175
(2,998)
(148)
44
4,817
(540)
5,037

(454)
575
380
(271)
(81)
(239)
1,691
163
(336)
(152)
2,150
(143)
(1,942)
(7)
686
1,564
(444)
3,398

(423)
578
313
(242)
825
(265)
1,653
(76)
(170)
(210)
175
1,239
(3,264)
(388)
666
4,237
(12)
5,107

(2,028)
162
0
29
(568)
481
39
(30)
371
(150)
118

(2,708)
76
(82)
86
(421)
813
46
(147)
215
(16)
79

(2,818)
101
(131)
89
(659)
485
36
(40)
256
(219)
85

26
(2,641)(303)(249)(1)(4,743)
236
(955)
(97)
(1)
0
46
0
(771)
(117)
(594)
8,143
7,549

690
3,357
0
0
1,988
1,252
(468)
(520)
(16)
(2,879)(2)94(35)(2,572)
(57)
2,757
5,386
8,143

0
1,008
0
12
(1,795)
456
(800)
(396)
0
(93)
187
(288)
(934)
17
2,395
2,991
5,386

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)– Proceeds from disposals of subsidiaries (net of cash)– Payments for investments in associates, other investments and other long-term financial assets– Proceeds from disposals of associates, other investments and other long-term financial assets– Dividends paid by companies valued at equity– Increase in equipment of leased assets– Proceeds from disposals of leased assets– Increase in finance lease receivables– Decrease in finance lease receivables
Disposals of non-current assets / disposal groups classified as held for sale and liabilities directly associatedwith non-current assets classified as held for sale
Change of securities
Reimbursement from / contribution to plan assets
Change in cash from changes in consolidation
Cash (used for) provided by investing activities
Increase in financing liabilities
Repayment of financing liabilities
Cash distribution to EADS N.V. shareholders
Dividends paid to minorities
Payments related to liability for puttable instruments
Capital increase
Purchase of treasury shares
Cash used for financing activities
Effect of foreign exchange rate changes and other valuation adjustments on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

27
27

27

(1) The total amount is related to the change in the percentage of the proportional consolidation of MBDA from 50% in 2006/2005 to 37.5%; please refer to Note 3 “Scope of Consolidation”.
(2) Payments include the acquisition price of €2,750 million for the 20% stake in Airbus and in addition a dividend payment from Airbus to BAE Systems amounting to €129 million.

The accompanying notes are an integral part of these Consolidated Financial Statements (IFRS).
For details, see Note 27, “Consolidated Statement of Cash Flows (IFRS)”.
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EADS N.V. Consolidated Statements of Recognised Income and Expense (IFRS)
for the years ended 31st December 2007, 2006 and 2005(1)(in €m)

2007

2006

Currency translation adjustments for foreign operations

(196)

(324)

(58)

Effective portion of changes in fair value of cash flow hedges

2,124

3,326

(3,849)(1,884)(1,463)(1,875)

4

76

52

(54)

0

0

Actuarial gains (losses) on defined benefit plans

608

(690)

(459)

Tax on income and expense recognised directly in equity

(46)

(662)

2,203

Income and expense recognised directly in equity

556

263

(3,986)

Profit (loss) for the period

(437)

115

1,710

119

378

(2,276)Equity holders of the parent

78

382

(2,295)

Minority interests

41

(4)

19

119

378

(2,276)

Net change in fair value of cash flow hedges transferred to profit or loss
Effective portion of changes in fair value of available-for-sale financial assets
Net change in fair value of available-for-sale financial assets transferred to profit or loss

Total recognised income and expense of the period

2005

Attributable to:Total recognised income and expense of the period(1) For other information regarding changes in Equity, please refer to Note 20 “Total Equity”.

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.

The Company
Summary of Signiﬁcant Accounting Policies
Scope of Consolidation
Acquisitions and Disposals

Notes to the Consolidated Income Statements (IFRS)
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 from Investments
10. Total Finance Costs
11. Income Taxes

Notes to the Consolidated Balance Sheets (IFRS)
12. Intangible Assets
13. Property, Plant and Equipment
14. Investments in Associates Accounted for under the Equity Method, Other Investments and Other 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. Capital Management
22. Provisions
23. Financing Liabilities
24. Other Liabilities
25. Trade Liabilities
26. Deferred Income

Notes to the Consolidated Statements of Cash-Flows (IFRS)
27. Consolidated Statement of Cash Flows

Other Notes to the Consolidated Financial Statements (IFRS)
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

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57
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69

70
70
74
75
75
75
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76

80
80
84
87
88
89
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90
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92
94
94
98
100
100
101

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101

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103
104
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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 isthe 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
and Madrid. The Consolidated Financial Statements wereauthorised for issue by EADS’ Board of Directors on
10th March 2008, are prepared and reported in Euro (“€”), andall 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
the International Accounting Standards Board (“IASB”),
as endorsed by the European Union (“EU”) and with Part 9of Book 2 of the Netherlands Civil Code. 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 ona historical 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, uncapped Structured Notes and foreign currency
Funds of Hedge Funds that have been designated as ﬁnancial
assets at fair value through proﬁt or loss (“Fair Value Option”,
see below) and (iv) assets and liabilities being hedged items infair value 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.
In accordance with Article 402 book 2 of the Netherlands Civil
Code the Statement of Income of the EADS N.V. Company
Financial Statements is presented in abbreviated form.

New Standards, Amendments to existing Standards
and new Interpretations
The IFRS rules applied by EADS for preparing 2007 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 7 Financial Instruments: Disclosures (issued 2005)
IFRS 7 and the complementary amendment to IAS 1 (see below
under paragraph b) became effective 1st January 2007. Both
Standards introduce additional qualitative as well as
quantitative disclosure requirements regarding the nature andextent of risk arising from ﬁnancial instruments. However,they do not have any impact on the classiﬁcation or valuationof EADS’ ﬁnancial instruments.
b) Amended Standards
The application of the following amended Standard
is mandatory for EADS as of 1st January 2007.
IAS 1 Presentation of Financial Statements: Capital Disclosure(issued 2005)
This amendment led to additional disclosures which shallenable users of EADS Group Financial Statements to evaluate
the Group’s objectives, policies and processes for managing
capital.
c) New Interpretations
The following four Interpretations have become effective asof 1st January 2007:
IFRIC 7 Applying the Restatement Approach under IAS 29(issued 2005)
IFRIC 8 Scope of IFRS 2 (issued 2006)

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IFRIC 9 Reassessment of Embedded Derivatives (issued 2006)
IFRIC 10 Interim Financial Reporting and Impairment (issued
2006)
IFRIC 7 addresses the application of IAS 29 when an economy
ﬁrst becomes hyperinﬂationary and in particular the accounting
for deferred taxes.
IFRIC 8 requires consideration of transactions involving
the issuance of equity instruments, where the identiﬁable
consideration received is less than the fair value of the equity
instruments issued in order to establish whether or not theyfall within the scope of IFRS 2.
IFRIC 9 states that the date to assess the existence ofan embedded derivative is the date that an entity ﬁrst becomesa party to the contract, with reassessment only if there isa change to the contract that signiﬁcantly modiﬁes the cash
ﬂows.
IFRIC 10 requires that an entity must not reverse an
impairment loss recognised in a previous interim period
in respect of goodwill or an investment in either an equity
instrument or a ﬁnancial asset carried at cost.
The application of the four Interpretations did not have an
impact on EADS Group Financial Statements.

New or amended IFRS Standards and Interpretations
issued but not yet applied
IFRS 2 “Share-based Payments – Vesting Conditions andCancellations” was amended in January 2008 and will become
effective for EADS on 1st January 2009. The Standard restricts
the deﬁnition of “vesting condition” to a condition that
includes an explicit or implicit requirement to provide services.
Any other conditions are non-vesting conditions, which have tobe taken into account to determine the fair value of the equity
instruments granted. In the case that the award does not vest as
the result of a failure to meet a non-vesting condition thatis within the control of either the entity or the counterparty,
this must be accounted for as a cancellation. The adoption ofrevised IFRS 2 will not have a material impact on EADS’
Financial Statements.
IFRS 3R “Business Combinations” and IAS 27R“Consolidated and Separate Financial Statements” (not yet
endorsed) were revised and issued in January 2008 and will
become effective beginning on or after 1st July 2009. IFRS 3R
introduces a number of changes in the accounting for businesscombinations that will impact the amount of goodwill
recognised, the reported results in the period thatan acquisition occurs, and future reported results. IAS 27R
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is accounted for as an equity transaction. Therefore, sucha change will have no impact on goodwill, nor will it give raise
to a gain or loss. Furthermore, the amended standard changes
the accounting for losses incurred by the subsidiary as well as
the loss of control of a subsidiary. The changes introduced by
IFRS 3R and IAS 27R must be applied prospectively and willaffect future acquisitions and transactions with minority
interests.
IFRS 8 “Operating Segments” (issued 2006) will replace
IAS 14 “Segment Reporting” for accounting periods beginningon or after 1st January 2009.
IFRS 8 requires the presentation of information regarding
operating segments and follows a pure management approach.
The application of IFRS 8 is not expected to have an impact on
the presentation or the deﬁnition of EADS segments as they
have been determined based on a management approach.
However, additional disclosure requirements might haveto be included in EADS Consolidated Financial Statements.
EADS has decided not to opt for early adoption of thisStandard.
Amendment to IAS 23 “Borrowing Costs” removes theoption of recognising borrowing costs that are directly
attributable to the acquisition, construction or production ofa qualifying asset as an expense and therefore requires
capitalising such borrowing costs as part of the cost of theasset. A qualifying asset is an asset that necessarily takes
a substantial period of time to get ready for its intended use or
sale. The not yet endorsed amendment has been released in
March 2007 and becomes mandatory to EADS as of
1st January 2009. The application of amended IAS 23 will
result in the mandatory capitalisation of borrowing cost related
to qualifying assets and will thus increase the amount of total
cost capitalised for qualifying assets.
Amendment to IAS 1 “Presentation of Financial Statements:
A revised presentation” has been issued in September 2007
and becomes mandatory to EADS as of 1st January 2009.
The revised Standard aims to improve user’s ability to analyseand compare the information given in ﬁnancial statements
and therefore requires information in ﬁnancial statements to beaggregated on the basis of shared characteristics and to
introduce a statement of comprehensive income. It has not yet
been endorsed by the EU. The adoption of revised IAS 1 will
have an impact on the presentation of EADS’ Financial
Statements.
Amendment to IAS 32 and IAS 1 “Puttable Financial
Instruments” were issued in February 2008 and will become
effective for EADS as of 1st January 2009. The amendment to
IAS 32 requires certain puttable ﬁnancial instruments andobligations arising on liquidation to be classiﬁed as equity

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if certain criteria are met. The amendment to IAS 1 requires
disclosure of certain information relating to puttable
instruments classiﬁed as equity. The adoption of revised IAS 32
and IAS 1 will not have a material impact on EADS’ Financial
Statements.
IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions”(issued 2006), IFRIC 12 “Service Concession Arrangements”(issued 2006, not yet endorsed) and IFRIC 14 “IAS 19 –The Limit of a Deﬁned Beneﬁt Asset Minimum Funding
Requirements and their Interaction” (issued 2007, not yet
endorsed) will become mandatory for EADS for annual periods
beginning on 1st January 2008. New IFRIC 11 and IFRIC 14
are not expected to have an impact on EADS’ Financial
Statements. The application of IFRIC 12 is expected to haveno material impact on EADS’ Consolidated Financial
Statements.
IFRIC 13 “Customer Loyalty Programmes” (issued 2007, notyet endorsed) will become mandatory for EADS as at
1st January 2009. As EADS does not grant any customer loyalty
award credits the application of the Interpretation will not havean impact on EADS Group Financial Statements.

Significant accounting policies
The principal accounting policies applied in the preparationof these Consolidated Financial Statements are set out below.
These policies have been consistently applied to all years
presented, unless otherwise stated.

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 andthe SPE indicates that the SPE is in substance controlled by
the Group. SPEs are entities which are created to accomplish
a narrow 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.
Business combinations are accounted for under the purchasemethod of accounting; all identiﬁable assets acquired, liabilities
and contingent liabilities incurred or assumed are recorded atfair value at the date control is transferred to EADS (acquisitiondate), irrespective of the existence of any minority interest.
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value of assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. Any excess of the cost of thebusiness combination over the Group’s interest in the net fairvalue of the identiﬁable assets, liabilities and contingent
liabilities recognised is capitalised as goodwill and tested for
impairment in the fourth quarter of each ﬁnancial year andwhenever there is an indication for impairment. After initialrecognition goodwill is measured at cost less accumulated
impairment losses. For impairment testing purpose, goodwill isallocated to 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 thebusiness combination. If the cost of an acquisition is less than
the fair value of the net assets of the subsidiary acquired,
the identiﬁcation and measurement of the identiﬁable assets,
liabilities and contingent liabilities is reassessed as well as
the measurement of the cost of the combination.
Any remaining difference is immediately recognised in
the Consolidated Income Statement.
EADS subsidiaries prepare their ﬁnancial statements at thesame reporting date as EADS Group Financial Statements andapply the same accounting policies for similar transactions.
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.
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. The investments in associates
include goodwill as recognised at the acquisition date netof any accumulated impairment loss. EADS’ share of therecognised income and expenses of investments in associates
is included in the Consolidated Financial Statements fromthe date signiﬁcant inﬂuence has been achieved until the date itceases to exist. The investments’ carrying amount is adjusted
by the cumulative movements in recognised income andexpense. When EADS’ share in losses equals or exceeds its
interest in an associate, including any other unsecured
receivables, no further losses are recognised, unless the Grouphas incurred obligations or made payments on behalf of
the associate.
The effects of intercompany transactions are eliminated.
Acquisitions (disposals) of interest in entities that arecontrolled by EADS without gaining (ceasing) control,
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as transactions with parties external to the Group in accordancewith the Parent Company Approach. Consequently, gains orlosses on purchases from minority shareholders or otherventurers respectively are recorded in goodwill, whereas
disposals to minority shareholders or other venturers arerecorded within the income statement.
The ﬁnancial statements of EADS’ investments in associates
and joint ventures are prepared for the same reporting date as
for the parent company. Adjustments are made where necessary
to bring the accounting policies into line with those of theGroup.

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,are translated using period-end exchange rates, whilst
the statements 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 Euroat the foreign exchange rate prevailing at transaction date.
Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into Euro at
the exchange rate in effect at that date. These foreign exchange
gains and losses arising from translation are recognised in theConsolidated Income Statement except when deferred in equity
as qualifying cash ﬂow hedges. Changes in the fair value of
securities denominated in a foreign currency that are classiﬁed
as available-for-sale ﬁnancial assets are to be analysed whether
they are due to i) changes in the amortised cost of the security
or due to ii) other changes in the security. Translationdifferences related to changes in i) amortised cost are recognisedin the Consolidated Income Statement whilst ii) other changes
are recognised in AOCI.
Non-monetary assets and liabilities denominated in foreign
currencies, which are stated at historical cost, are translated into
Euro at the foreign exchange rate in effect at the date of thetransaction. Translation differences on non-monetary ﬁnancial
assets and liabilities are reported as part of the fair value gainor loss. Translation differences of non-monetary ﬁnancial assets
such as equity securities classiﬁed as available for sale areincluded in AOCI.
Goodwill and fair value adjustments arising on the acquisitionof a foreign entity occurring after 31st December 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.

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The accumulated amount of translation differences recognised
in AOCI is released to proﬁt or loss when the associated foreign
currency entity is disposed of or liquidated or the associatedasset or liability is disposed of respectively.

Current and non-current assets and liabilities — The
classiﬁcation of an asset or liability as a current or non-current
asset or liability in general depends on whether the item isrelated to serial production or subject to long term production.
In case of serial production, an asset or liability is classiﬁed as a
non-current asset or liability when the item is realised or
settled respectively after twelve months after the balance sheet
date, and as current asset or liability when the item is realised
or settled respectively within twelve months after the balance
sheet date. In case of construction contracts, an asset or liability
is classiﬁed as non-current when the item is realised or settled
respectively beyond EADS’ normal operating cycle; and as acurrent asset or liability when the item is realised or settled in
EADS’ normal operating cycle. However, current assets include
assets - such as inventories, trade receivables and receivablesfrom POC - that are sold, consumed and realised as part of thenormal operating cycle even when they are not expected to berealised within 12 months after the balance sheet. Trade
payables are equally part of the normal operating cycle and are
therefore classiﬁed as current liabilities.
Revenue Recognition — Revenue is recognised to the extent
that it is probable that the economic beneﬁt arising fromthe ordinary activities of the Group will ﬂow to EADS,
revenue can be measured reliably and recognition criteria as
stated below have been met. Revenue is measured at the fairvalue of the consideration received or receivable after deducting
any discounts, rebates and value added tax. For the preparationof the Consolidated Income Statement intragroup sales are
eliminated.
Revenues from the sale of goods are recognised upon
the transfer of risks and rewards of ownership to the buyer
which is 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 can be estimatedreliably, revenues are recognised by reference to the stage(percentage) of completion (“PoC”) of the contract activity.
The stage of completion of a contract may be determined bya variety of ways. Depending on the nature of the contract,
revenue is recognised as contractually agreed technicalmilestones 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

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identiﬁed. Contracts are reviewed regularly and in case ofprobable losses, provisions are recorded.
Sales of aircraft that include asset value guarantee
commitments are accounted for as operating leases when thesecommitments are considered substantial compared to the fairvalue of the related aircraft. Revenues then comprise lease
income from such operating leases.
Interest income is recognised as interest accrues, using
the effective 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 (i) whether the fulﬁlment of
the arrangement 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.
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 otherlong-term ﬁnancial assets (see Note 14 “Investments inassociates accounted for under the equity method, otherinvestments and other long-term ﬁnancial assets”). Unearned
ﬁnance income is recorded over time in “Interest result”.
Revenues and the related cost of sales are recognised at
the inception of the ﬁnance 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 ﬁnance lease with EADS being
the lessor (headlease-sublease-transactions) and is recorded
accordingly. For the relating liability from ﬁnance leases see
Note 23 “Financing liabilities”. When EADS is the lessee
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recognised on a straight line basis over the leased term(see Note 29 “Commitments and contingencies” for future
operating lease commitments). Such leases often form part ofcommercial aircraft customer ﬁnancing transactions withthe 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.
i)

Costs for contracted research and development activities,
carried out in the scope of externally ﬁnanced research anddevelopment 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 fromcomplying with the general requirements for and initial
measurement of an intangible asset, qualiﬁcation criteria
are met only when technical as well as commercial
feasibility can be demonstrated 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 and allocable 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
the research 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 overthe estimated number of units produced. In case the number ofunits produced cannot be estimated reliably capitalised
development cost are amortised over the estimated useful lifeof the internally generated intangible asset. Amortisation ofcapitalised development costs is recognised in cost of sales.

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Internally generated intangible assets are reviewed for
impairment annually when the asset is not yet in use andfurther on whenever events or changes in circumstancesindicate 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,less accumulated impairment if necessary. The amortisation
method and the estimate of the useful lives of the separately
acquired intangible asset is reviewed at least annually andchanged if appropriate.
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(see below “Impairment of non-ﬁnancial assets”). For suchintangible assets the assessment for the indeﬁnite useful life
is reviewed annually on whether it remains supportable.
A change from indeﬁnite to ﬁnite life assessment is accounted
for as change 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 10 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, depreciation methods and residual values
applying to property, plant and equipment are reviewed at least
annually and in case they change signiﬁcantly, depreciation
charges for current and future periods are adjusted accordingly.
If the carrying amount of an asset exceeds its recoverable
amount an impairment loss is recognised immediately in proﬁt
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any indication that an item of property, plant and equipment
may be impaired (see also below “Impairment of non-ﬁnancial
assets”).
When a major inspection is performed, its cost is recognisedin the carrying amount of the plant and/or equipment as
a replacement if the recognition criteria are satisﬁed.
The carrying amount of the replaced part is derecognised.
All other repairs and maintenance are recognised as an expensein the income statement of the period in which they are
incurred. Cost of an item of property, plant and equipment
initially recognised comprise the initial estimate of costs of
dismantling and removing the item and restoring the site on
which it is located at the end of the useful life of the item ona present value basis. A provision presenting the asset
retirement obligation is recognised in the same amount at
the same date in accordance with IAS 37 “Provisions,Contingent Liabilities and Contingent 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
programmes such as the Airbus A380 with an estimatednumber of aircraft to be produced using such tools,
the sum- of-the-units method effectively allocates thediminution 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
the cost model. Investment property is initially recognised atcost and 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 orby determinations of 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 andnormal 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.

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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 inﬂows
that 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, ﬁrst the related
goodwill is impaired. Any exceeding amount of impairment isrecognised on a pro rata basis of the carrying amount of each
asset in the respective CGU.
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 ofthe speciﬁc business. The discount rate used for determining
an asset’s value in use is the pre-tax rate reﬂecting current
market assessment of (i) the time value of money and (ii) therisk speciﬁc to the asset for which the future cash ﬂow
estimates have not been adjusted.
An asset’s fair value less costs to sell reﬂects the amountan entity 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 beena change 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
depreciation that would have been chargeable on the asset’s
carrying amount since the last impairment loss.

Financial Instruments — A ﬁnancial instrument is any
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a ﬁnancial liability or equity instrument of another entity.
EADS’ ﬁnancial assets comprise cash and cash equivalents,
trade and loan receivables, ﬁnance lease receivables, availablefor-sale ﬁnancial assets and derivatives with a positive fairvalue. The Group’s ﬁnancial liabilities mainly include
obligations towards ﬁnancial institutions, bonds, loans,refundable advances, trade liabilities, ﬁnance lease liabilities aswell as derivatives with a negative fair value. EADS recognises
a ﬁnancial instrument on its balance sheet when it becomesparty to the contractual provision of the instrument. All
purchases and sales of ﬁnancial assets are recognised on
settlement date according to market conventions.
The settlement date is the date an asset is delivered to or by anentity. Financial instruments are initially recognised at fairvalue plus, in the case the ﬁnancial instruments are notmeasured at fair value through proﬁt or loss, directly
attributable transaction costs. Financial instruments at fairvalue through proﬁt or loss are initially recognised at fair value,transaction costs are recognised in the Consolidated Income
Statement. Finance lease receivables are recognised at an
amount equal to the net investment in the lease. Subsequent
measurement of ﬁnancial instruments depends on theirclassiﬁcation into the relevant category. The Group assesses at
each balance sheet date whether there is any objective evidence
that a ﬁnancial asset or a group of ﬁnancial assets may be
impaired. EADS derecognises a ﬁnancial asset only when thecontractual rights to the asset’s cash ﬂows expire or the ﬁnancial
asset has been transferred and the transfer qualiﬁes forderecognition under IAS 39. EADS derecognises a ﬁnancial
liability only when the obligation speciﬁed in the contract isdischarged, cancelled or expired.

Investments and other ﬁnancial assets — EADS’
investments comprise investments in associates accounted forunder the equity method, other investments and other longterm ﬁnancial assets as well as current and non current
securities and cash equivalents. The Group classiﬁes its ﬁnancial
assets in the following three categories: i) at fair value throughproﬁt or loss, ii) loans and receivables and iii) available-for-saleﬁnancial assets. Their classiﬁcation is determined bymanagement when ﬁrst recognised and depends on the purpose
for their acquisition.
Within EADS, all investments in entities for which
consolidation criteria are not fulﬁlled are classiﬁed as noncurrent available-for-sale ﬁnancial assets. They are included in
the line other investments and other long-term ﬁnancial
assets in the Consolidated Balance Sheet.
The majority of the Group’s securities are debt securities andclassiﬁed as available-for-sale ﬁnancial assets.

Available for sale ﬁnancial assets — Financial assets
classiﬁed as available-for-sale are accounted for at fair value.
Changes in the fair value subsequent to the recognition of

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available-for-sale ﬁnancial assets - other than impairment losses
and foreign exchange gains and losses on monetary items
classiﬁed as available-for-sale - are recognised directly within
AOCI, a separate component of total equity, net of applicabledeferred income taxes. As soon as such ﬁnancial assets are soldor otherwise disposed of, or are determined to be impaired,the cumulative gain or loss previously recognised in equity isrecorded as part of “other income (expense) from investments”
in the Consolidated Income Statement for the period. Interest
earned on the investment is presented as interest income in
the Consolidated Income Statement using the effective interest
method. Dividends earned on investment are recognised as“Other income (expense) from investments” in
the Consolidated Income Statement when the right tothe payment has been established.
The fair value of quoted investments is based on current
market prices. If the market for a ﬁnancial asset is not active(and for unlisted securities), the Group establishes fair value by
using generally accepted valuation techniques on the basis ofmarket information available at the reporting date. Availablefor-sale equity investments that do not have a quoted market
price in an active market and whose fair value cannot be
reliably estimated by alternative valuation methods, such as
discounted cash ﬂow model, are measured at cost, less any
accumulated impairment losses.
Equity investments classiﬁed as available-for-sale are considered
for impairment in case of a signiﬁcant or prolonged decline of
their fair value below their cost. Any impairment loss
recognised in the Consolidated Income Statement on equity
instruments is not reversed through the Consolidated Income
Statement.

Financial assets designated at fair value through proﬁt orloss — Financial assets may be designated at initial recognition
at fair value through proﬁt or loss if any of the following
criteria is met: (i) the ﬁnancial asset contains one or more
embedded derivatives that otherwise had to be accounted forseparately; or (ii) the designation eliminated or signiﬁcantly
reduces a measurement or recognition inconsistency that would
otherwise arise from measuring the assets or recognising
the gains and losses on them on a different basis (sometimes
referred to as “natural hedge”); or (iii) the ﬁnancial assets arepart of a group of ﬁnancial assets that is managed and its
performance is evaluated on a fair value basis, in accordancewith a documented risk management or investment strategy.
Within EADS, uncapped Structured Notes are designated “atfair value through proﬁt or loss” in accordance with criterion(i), foreign currency funds of hedge funds structure also
comprising foreign currency derivatives are designated “at fairvalue through proﬁt or loss” in accordance with criterion (ii)and investments in accumulating Money Market Funds aredesignated at “fair value through proﬁt or loss” in accordancewith above criterion (iii).

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Loans and receivables — Loans and receivables are nonderivative ﬁnancial assets with ﬁxed or determinable paymentsthat are not quoted in an active market. They arise when
the Group provides money, goods or services directly toa debtor with no intention of trading the receivable. Loans andreceivables are classiﬁed as trade receivables and otherinvestments and other long-term ﬁnancial assets. Afterinitial recognition loans and receivables are measured atamortised cost using the effective interest rate method less any
allowance for impairment. Gains and losses are recognised in
the income statement at disposal of the loans and receivables,
through the amortisation process as well as in case of any
impairment.
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 tothe original terms of receivables, an impairment charge has tobe recognised. The amount of the impairment loss is equal tothe difference between the asset’s carrying amount and thepresent value of estimated future cash ﬂows, discounted at theoriginal effective interest rate, i.e. the rate that exactly
discounts the expected stream of future cash payments throughmaturity or the next market-based repricing date to the current
net carrying amount of the ﬁnancial asset. The carrying amountof the trade receivable is reduced through use of an allowanceaccount. The loss is recognised in the Consolidated Income
Statement. If in a subsequent period, the amount of
impairment decreases and the decrease is objectively related toan event occurring after the impairment was recognised, therecognised 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
and securities having maturities of three months or less fromthe date 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 and disposal groups —Non-current assets (or disposal groups) are classiﬁed as assets
held for sale and stated at the lower of carrying amount andfair value less costs to sell if their carrying amount is recovered
principally through a sale transaction rather than througha continuing use. Whilst classiﬁed as held for sale or part ofa disposal group, EADS does not depreciate or amortise a noncurrent asset. Liabilities directly associated with non-current

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assets held for sale in a disposal group are presented separately
on the face of the Consolidated Balance Sheet. Interest andother expenses attributable to the liabilities of a disposal groupclassiﬁed as held for sale is continued to be recognised.
To be classiﬁed as held for sale the non-current assets(or disposal group) must be available for immediate sale in its
present condition subject only to terms that are usual andcustomary for sales of such assets (or disposal group) and its
sale must be highly probable. For a sale to be highly probable –among other criteria that have to be fulﬁlled – the appropriate
level of EADS management must be committed to the plan tosell, an active programme to complete the plan must have been
initiated and actions required to complete the plan to sell
the assets (or disposal group) should indicate that it is unlikelythat signiﬁcant changes to the plan will be made or that theplan will be withdrawn.
If a component of EADS has either been disposed of or isclassiﬁed as held for sale and i) represents a separate major lineof business or geographical area of operations, ii) is part ofa single co-ordinated plan to dispose of a separate major line ofbusiness or geographical area of operations or iii) is a subsidiaryacquired exclusively with a view to resale the component is
a discontinued operation.

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
designated as hedging instrument, and if so, on the nature of
the item being hedged. While derivative ﬁnancial instrumentswith positive fair values are recorded in current and noncurrent “other assets”, such derivative ﬁnancial instrumentswith negative fair values are recorded as current and noncurrent “Other liabilities”. Trading derivatives are classiﬁed asa current asset or liability.
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 andthe related 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
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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 ofthe variability 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 designatedas fair value hedges, changes in fair value of boththe hedging instrument and the hedged asset or liability
attributable to the hedged risk are simultaneously
recognised in the Consolidated 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 ofthe hedging instruments related to the effective part of
the hedge are reported in AOCI, a separate component of
total equity, net of applicable income taxes and recognisedin the Consolidated Income Statement in conjunction
with the result of the underlying hedged transaction,
when realised. The ineffective portion is immediately
recorded in “Proﬁt for the period”. Amounts accumulated
in equity are recognised in proﬁt or loss in the periods
when the hedged transaction affects the Consolidated
Income Statement, such as when the forecast sale occurs
or when the ﬁnance income or ﬁnance expense isrecognised in the income statement. If hedged transactions
are cancelled, gains and losses on the hedging instrumentthat were previously recorded in equity are generally
recognised in “Proﬁt for the period”. Apart fromderivative ﬁnancial instruments, the Group also uses
ﬁnancial liabilities denominated in a foreign currency tohedge foreign currency risk inherent in forecast
transactions.

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

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relating to the effective portion of the hedge is recognised
in AOCI; the gain or loss relating to the ineffective
portion is recognised immediately in the Consolidated
Income Statement. Gains and losses accumulated in AOCI
are included in the Consolidated Income Statement when
the foreign 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 andMeasurement”, changes in fair value of such derivative ﬁnancial
instruments are recognised immediately in “Proﬁt for theperiod”.
The fair values of various derivative ﬁnancial instruments usedas hedging instruments are disclosed in Note 30 “Information
about ﬁnancial instruments”. Periodical movements in
the AOCI, the separate component of total equity in which
the effective portion of cash ﬂow hedges are recognised, aredisclosed in Note 30.
b) Embedded derivatives: Derivative components embedded
in a non-derivative-host contract are separately recognised andmeasured at fair value if they meet the deﬁnition ofa 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” fora 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 suchfair 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 arecalculated applying respective tax rates on the periodic
taxable proﬁt or tax loss that is determined in accordancewith rules established by the competent taxation
authorities. Current tax liabilities are recognised for
current tax to the extent unpaid for current and priorperiods. A current tax asset is recognised in case the tax
amount paid exceeds the amount due to current and priorperiods. The beneﬁt of a tax loss that can be carried backto recover current tax of a previous period is recognised as
an asset provided that the related beneﬁt is probable andcan be measured reliably.

ii)

Deferred tax assets and liabilities reﬂect lower or higher
future tax consequences that result from temporary

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valuation differences on certain assets and liabilities
between their ﬁnancial statements’ carrying amounts andtheir respective tax bases, as well as from net operating
losses and tax 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 ofa change in tax rates is recognised in the period the newrates are enacted or substantially enacted. As deferred tax
assets anticipate potential future tax beneﬁts, they arerecorded in the Consolidated Financial Statements of
EADS only to the extent that it is probable that futuretaxable proﬁts will be available against which deferred tax
assets will be utilised. The carrying amount of deferred
tax assets is reviewed at each ﬁnancial year end.
Deferred income tax assets and deferred income tax
liabilities are offset, if a legally enforceable right exists to
set off current tax assets against current income tax
liabilities and the deferred income taxes relate to the same
taxable entity and the same taxation authority.

Share Capital — Ordinary shares are classiﬁed as equity.
Incremental costs directly attributable to the issue of newshares or options are shown directly in equity - as a deduction net of any tax effects. Own equity instruments which arereacquired are deducted from total equity and remain
recognised as treasury shares until they are either cancelled orreissued. Any gains or losses net of taxes which are associatedwith the purchase, sale, issue or cancellation of EADS own
shares are recognised within equity.
Provisions — Provisions are recognised when the Group has
a present 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 anda 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 eachperiod reﬂecting the passage of time is recognised as ﬁnancecost.
Provisions are reviewed at each closing and adjusted as
appropriate to reﬂect the respective current best estimate.
The change in the measurement of a provision for an asset
retirement obligation (see above “Property, plant andequipment”) is added or deducted from the cost of
the respective asset that has to be dismantled and removed at
the end of its useful life and the site on which it is locatedrestored.

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Provisions for guarantees corresponding to aircraft sales arerecorded to reﬂect the underlying risk to the Group in respectof guarantees given when it is probable that an outﬂow ofresources embodying economic beneﬁts will be required tosettle the obligation and reliable estimates can be made of
the amount of the obligation. The amount of these provisions
is calculated to cover the difference between the Group’s
exposure and the estimated value of the collateral.
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 only recognised when a detailed
formal plan for the restructuring - including the concernedbusiness or part of the business, the principal locations
affected, details regarding the employees affected,
the restructuring’s timing and expenditures that will have to beundertaken - has been developed and the restructuring haseither commenced or the plan’s main features have already been
publicly announced to those affected 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 recognises periodical actuarial gains and losses in full for
all its deﬁned beneﬁt plans immediately in retained earnings
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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 timeworking accounts leads to according personnel expense in that
period in the income statement but to no recognition of plan
assets or provision 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
share-based payments. In 2007, EADS also introduced
a performance and restricted unit plan which qualiﬁes as cash
settled share-based payment plan under IFRS 2. For bothtypes, associated services received are measured at fair value
and are calculated by multiplying the number of options (orunits) expected to vest with the fair value of one option (orunit) as of grant date (balance sheet date). The fair value ofthe option (or unit) is determined by applying the Black
Scholes Option Pricing Model.
The fair value of the services is recognised as personnel
expense. In case of equity settled share based payment plans
the personnel expense results in a corresponding increase inconsolidated retained earnings over the vesting period of
the respective plan. For cash settled share based payment plansa corresponding liability is recognised. Until the liability issettled its fair value is remeasured at each balance sheet datethrough the income statement.

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1Part of the grant of both types of share-based payment plans isconditional upon the achievement of non-market performance
objectives and will only vest provided that the performance
conditions are met. If it becomes obvious during the vesting
period of an equity settled share-based payment plan that someof the performance objectives will not be met and, hence,
the number of equity instruments expected to vest differs fromthat 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 andthe 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 1st January 2005 permits(emission rights), free of charge, that entitle participatingcompanies to emit a certain amount of greenhouse gas overthe compliance period.
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.
Emission rights held by EADS are generally accounted for as
intangible assets, wherebyi)Emission rights allocated for free by national authorities
are accounted 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 rightand are 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.
Financing liabilities — Financing liabilities comprise
obligations towards ﬁnancial institutions, issued corporate
bonds, loans, loans to afﬁliated non-consolidated companies aswell as ﬁnance lease liabilities. Financing liabilities qualify as
ﬁnancial liabilities and are recorded initially at the fair value of68

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the proceeds received, net of transaction costs incurred.
Subsequently, ﬁnancing liabilities other than ﬁnance leaseliabilities are measured at amortised cost using the effective
interest method with any difference between proceeds (net oftransaction costs) and redemption amount being recognised in“Total ﬁnance income (costs)” over the period of the ﬁnancing
liability.

Other liabilities — Other liabilities comprise other ﬁnancial
liabilities such as refundable advances and derivatives having
a negative market value and other non-ﬁnancial liabilities suchas advance payments received from customers. Refundable
advances from European Governments are provided to theGroup to ﬁnance research and development activities for certain
projects on a risk-sharing basis, i.e. they have to be repaid to
the European Governments subject to the success ofthe project. Because of their risk-sharing basis, such refundable
advances are recorded as “Other Liabilities”.
In the course of the implementation of IFRS 7, EADS changed
its balance sheet presentation in 2007 retrospectively for
31st December 2006 regarding derivatives having a negative
market value formerly presented in “Provisions for negative fairvalues of derivative ﬁnancial instruments” (IAS 39 Hedging
contracts) to “Other liabilities” in order to present them as
ﬁnancial liability. Further, EADS uses ﬁnancial liabilities
representing payment obligations towards airlines denominatedin USD as hedging instruments to hedge the foreign currency
risk inherent in future aircraft sales under a cash ﬂow hedge.

Liability for puttable instruments — Under certain
circumstances, EADS records a ﬁnancial liability rather than anequity instrument for the exercise price of a written put option
on the entity’s equity.
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
or contemplated litigation risks. It is reasonably possible thatthe ﬁnal resolution of some of these matters may require
the Group to make expenditures, in excess of establishedreserves, over an extended period of time and in a range ofamounts that cannot be reasonably estimated. The term“reasonably possible” is used herein to mean that the chance ofa future transaction or event occurring is more than remote but
less than likely. Although the ﬁnal resolution of any suchmatters could have an effect on the Group’s proﬁt for theperiod 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”.

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Use of Accounting Estimates
The preparation of the Group Financial Statements inaccordance with IFRS requires management to use certain
critical accounting estimates about the future as well as to makeassumptions and perform judgements in the process of applying
accounting policies. These consequently affect the amounts ofassets, liabilities, income and expenses reported by EADS.
Actual results in subsequent periods could differ from thoseaccounting estimates.

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EADS Consolidated Financial Statements are further describedand disclosed in the respective Notes (see in particular“signiﬁcant accounting policies” as well as, regarding deferred
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 see
Note 22 “Provisions”; Note 29 “Commitments andContingencies” and Note 30 “Information about ﬁnancial
instruments”).

Subjects that involve critical assumptions and estimates andthat have a signiﬁcant inﬂuence on the amounts recognised in

3. Scope of Consolidation
Perimeter of consolidation (31st December 2007) – The
Consolidated Financial Statements include, in addition to
EADS N.V.:●

2007: 193 (2006: 212) companies which are fully
consolidated,●

2007: 34 (2006: 31) companies which are proportionately
consolidated,●

2007: 24 (2006: 26) companies which are investments inassociates and are accounted for using the equity method.

Signiﬁcant subsidiaries, associates, and joint ventures are listed
in the appendix entitled “Information on principal
investments”.
The percentage of the proportional consolidation of MBDA haschanged from 50% to 37.5% as of 1st January 2007.

4. Acquisitions and Disposalsa) Acquisitionsb) Disposals

In January 2007, EADS increased its share in the Atlas
Elektronik group from 40% to 49% in connection withthe contribution in kind of the EADS naval business into Atlas
Elektronik. Atlas Elektronik is proportionately consolidated andthe ﬁnal allocation of the purchase price to the acquired assets
and liabilities led to a goodwill of €42 million.

Following an agreement dated 10th January 2007, EADS soldthe remaining 60% shares of Sogerma Services as well as all
shares of its subsidiaries Sogerma America Barﬁeld B.C. (100%)and EADS Sogerma Tunisie (50.1%).

EADS acquired on 3rd August 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 in 2006) led to the recognition ofa goodwill of €41 million.
On 13rd October 2006, EADS acquired BAE Systems’ 20%
minority share in Airbus after BAE Systems had exercised
the put option it held on its Airbus stake in June 2006. Before
the transaction, EADS was already controlling Airbus andconsequently fully consolidated this subsidiary.
Apart from those mentioned, other acquisitions by the Group
were not signiﬁcant.

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. 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.
Apart from those mentioned, other disposals by the Group
were not signiﬁcant.

c) Subsequent Changes in Value of Assets andLiabilities Acquired and Cost of Acquisition
In 2006, 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 by Daimler AG. Thus
deferred tax assets and goodwill have been adjusted as of

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31st December 2006 in Defence & Security by €52 million
and in Headquarters by €12 million.

d) Non-Current Assets held for Saleand Discontinued Operations
With regard to the plan to sell the sites in Méaulte, St. Nazaire
Ville, Nordenham, Varel, Augsburg, Laupheim and Filton, an

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in-depth analysis has been performed to assess whether therequirements of IFRS 5 for the classiﬁcation as disposal group(s)held for sale were met as at 31st December 2007. Considering
the status of the project as of 31st December 2007, the actions
still necessary to complete the plan to sell all of the sites wereconsidered of such a magnitude that it was not unlikely thatsigniﬁcant changes to the plan to sell could be made.

Notes to the Consolidated Income Statements (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.

training aircraft; provision of defence electronics, defencerelated telecommunications solutions; and logistics, training,
testing, engineering and other related services.

●

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 and

The following tables present information with respect to
the Group’s business segments. Consolidation effects,
the holding function of EADS Headquarters and otheractivities not allocable to the divisions are disclosed in
the column “HQ/Conso.”. “Other Businesses” comprises thedevelopment, manufacturing, marketing and sale of regional
turboprop aircraft and light commercial aircraft, aircraftcomponents as well as civil and military aircraft conversion andmaintenance services.

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

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3a) Business Segment Information for the year ended 31st December 2007
Military
Transport
AircraftEurocopter

Defence &Security

Astrium

Other
Businesses

HQ/Conso.

(in €m)AirbusTotal revenues

25,216

1,140

4,172

5,465

3,550

1,269

18

40,830Internal revenues

(526)

(193)

(146)

(522)

(12)

(308)

0

(1,707)

24,690

947

4,026

4,943

3,538

961

18

39,123

(904)

(156)

210

307

165

94

41

(243)

0

0

0

0

0

0

0

0

(3,084)

(27)

(325)

(622)

(103)

(56)

(226)

(4,443)

0

0

0

11

5

0

194

210

(904)

(156)

210

318

170

94

235

(33)

Revenues
Segment result
thereof impairment charge for intangible
assets and property, plant and equipment
thereof additions to other provisions(see Note 22c)
Share of profit from associates accounted forunder the equity method
Profit (loss) before finance costs andincome taxes

Consolidated

Disposal of goodwill

0

0

0

12

0

0

0

12

Exceptional depreciation/disposal

23

1

1

10

4

0

34

73

(881)

(155)

211

340

174

94

269

52

EBIT* pre-goodwill impairment andexceptionals (see definition in Note 5c)
Total finance costs(737)

Income tax benefit

333

Loss for the period(437)

Attributable to:Equity holders of the parent (Net loss)(446)

Minority interests

9

OTHER INFORMATION
Identifiable segment assets (incl. goodwill)(1)thereof goodwill
Investments in associates

34,162

2,523

5,281

9,463

6,059

1,055

(243)

58,300

6,374

12

111

2,431

574

0

17

9,519

0

0

3

89

15

9

2,122

2,238

27,189

2,213

4,383

10,015

6,037

946

(584)

50,199

6,642

40

1,079

2,919

688

233

832

12,433

Capital expenditures (incl. leased assets)

946

102

206

233

446

57

68

2,058

Depreciation, amortisation

1,238

28

76

140

166

42

82

1,772

Research and development expenses

2,175

16

93

169

78

8

69

2,608

Segment liabilities(2)thereof provisions (see Note 22)(1) Segment assets exclude investments in associates, current and deferred tax assets as well as cash and cash equivalents and securities as segment result does not include income from associates, total ﬁnance costs
and income taxes.
(2) Segment liabilities exclude current and deferred tax liabilities and interest bearing liabilities.

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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3b) Business Segment Information for the year ended 31st December 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)

Revenues

24,370

1,974

3,648

5,307

3,202

921

12

39,434

Segment result

(602)

71

257

270

122

(288)

296

126

(148)(4)

0

0

0

0

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

(2)

(267)

(549)

(83)

(178)

227

(3,331)

0

0

0

17

5

0

130

152

(602)

71

257

287

127

(288)

426

278

Subsequent adjustment to goodwill

0

0

0

52

0

0

12

64

Exceptional depreciation

30

4

0

9

3

0

11

57

(572)

75

257

348

130

(288)

449

399

thereof impairment charge for intangible
assets and property, plant and equipment
thereof additions to other provisions(see Note 22c)
Share of profit from associates accounted forunder the equity method
Profit (loss) before finance costs andincome taxes

EBIT* pre-goodwill impairment andexceptionals (see definition in Note 5c)

Eurocopter

Defence &Security

Astrium

Other
Businesses

HQ/Conso.

Consolidated

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

33,958

1,716

4,593

9,591

5,488

1,168

490

57,004

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 22)

6,124

13

1,069

3,223

899

300

835

12,463

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

Segment liabilities(3)(1) Segment assets exclude investments in associates, current and deferred tax assets as well as cash and cash equivalents and securities as segment result does not include income from associates, total ﬁnance costs
and income taxes.
(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 programme.

The “EBIT* pre-goodwill impairment and exceptionals” in 2006
includes on HQ/Conso. level the elimination of an addition to
the provision for loss making contracts (€352 million) recognisedin the Airbus division in order to account for the positive marginof the A400M contract on EADS group level. Due to the cost
increase of the contract, a negative catch-up in the amount of€(66) million had to be recognised on group level to adjust
previously accounted for EBIT* for the years 2003 to 2006.
As a rule, inter-segment transfers are carried out on an arm´slength basis. Inter-segment sales predominantly take place* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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between Eurocopter, Defence & Security and Airbus as theEurocopter and Defence & Security divisions act as suppliersfor Airbus aircraft. Moreover, Airbus acts as a main supplier for
the A400M programme 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 €9 million in 2007 and €64 million in 2006; forfurther details see Note 5e) “Capital expenditures”).

NET ASSETS | FINANCIAL POSITIONS | RESULTS

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1.2 | Financial Statements

1c) 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

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expenses of fair value adjustments relating to the EADS
merger, the Airbus Combination and the formation of MBDA,
as well as impairment charges thereon. EBIT* pre-goodwill
impairment and exceptionals is treated by management as a key
indicator to measure the segments’ economic performances.

(in €m)

2007

2006

2005

Profit (loss) before finance costs and income taxes

(33)

278

2,712

Disposal of goodwill/subsequent adjustment to goodwill (see Note 4 c.)

12

64

0

Exceptional depreciation/disposal (fixed assets)

73

57

136

Exceptional depreciation (others)

0

0

4

52

399

2,852

(in €m)

2007

2006

2005

Germany

4,332

4,126

3,235

France

3,450

4,271

3,511

United Kingdom

1,991

2,953

2,682

EBIT* pre-goodwill impairment and exceptionalsd) Revenues by Destination

Spain

1,173

1,361

1,017

Other European Countries

6,436

4,465

3,126
9,026

North America

7,923

9,425

Asia/Pacific

8,826

7,857

7,734

Middle East

2,507

3,334

1,860

Latin America

2,054

1,213

645

Other Countries

431

429

1,370

Consolidated

39,12339,43434,206(in €m)

2007

2006

2005

France

819

968

946

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

e) Capital Expenditures

Germany

477

789

962

United Kingdom

512

715

707

Spain

161

187

150

Other Countries

59

49

53

2,028

2,708

2,818

Capital expenditures excluding leased assets
Leased assets
Capital expenditures

30

147

40

2,058

2,855

2,858

* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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Back to Contentsf) Property, Plant and Equipment by Geographical Area(in €m)

2007

2006

2005

Germany

3,715

3,909

3,852

France

3,908

3,548

3,140

United Kingdom

2,682

3,028

3,177

Spain

976

937

901

Other Countries

447

615

857

12,074

12,186

11,432

Property, plant and equipment by geographical area

Property, plant and equipment split by geographical area excludes leased assets (2007: €1,319 million, 2006: €1,992 million and 2005:€2,385 million).

6. Revenues
Revenues in 2007 reached €39,123 million compared to€39,434 million in 2006 and €34,206 million in 2005.
Revenues in 2007 decreased in comparison to 2006 mainly in
Military Transport Aircraft and Defence divisions. The decline
at Defence was caused by the change in the percentage of the
proportional consolidation from 50% to 37.5% of MBDA. On a
comparable basis, revenues of 2006 would have been lower by€418 million. Revenues increased mainly at Eurocopter andAstrium.

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. In 2007, the revenues from the delivery of goods &services comprise revenues from services including the sale ofspare parts of €4,554 million.
For a breakdown of revenues by business segment andgeographical region, refer to Note 5 “Segment Reporting”.

Detail of Revenues:(in €m)Total revenues

2007

2006

2005

39,12339,43434,206

Thereof revenues from the delivery of goods & services

31,81331,48728,649Thereof revenues from construction contracts

6,241

7,001

4,706

The revenues from construction contracts decrease in 2007 in the Military Transport Aircraft division resulting from A400M partly
offset in the Defence & Security and Astrium divisions.

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7. Functional Costs
Inventories recognised as an expense during the periodamount to €25,259 million (2006: €26,267 million;
2005: €20,800 million).

€49 million (2006: €57 million; 2005: €136 million);these are related to the EADS merger, the Airbus Combinationand the formation of MBDA.

Cost of sales include the amortisation expenses of fair value
adjustments of ﬁxed assets and inventories in the amount of
Personnel expenses are:(in €m)

2007

2006

2005

Wages, salaries and social contributions

8,696

8,397

8,108

Net periodic pension cost (see Note 22 b)
Total

385

334

377

9,081

8,731

8,485

The decrease in the EADS gross margin from €4,712 million to €4,321 million reﬂects among others charges for A350 and A400M
programmes and for Power8 restructuring.

8. Other Income(in €m)

2007

2006

2005

Other income

222

233

297

Thereof rental income

37

47

48

Thereof income from sale of fixed assets

92

23

39

Thereof release of allowances

11

3

9

Other income in 2007 includes among others the gain fromthe sale of property in Vélizy, Villepreux and Montigny leBretonneux in the amount of €50 million as well as the gainfrom the disposal of investment properties in Neuaubing andNabern amounting to €20 million, whereas in 2006 the gainfrom the sale of LFK GmbH and TDW GmbH in the amountof €111 million was included.

9. Share of Profit from Associates Accounted for under the Equity Method and Other Income from
Investments(in €m)

2007

2006

2005

Share of profit from associates

210

152

210

Other income from investments

86

37

15

296

189

225

Total

The share of proﬁt from associates accounted for underthe equity method in 2007 is mainly derived from the resultof the equity investment in Dassault-Aviation of €194 million(2006: €130 million; 2005: €205 million).

The Dassault- Aviation Group reported in 2007 a net income of€382 million (2006: €281 million) of which EADS recognised
an amount of €177 million (2006: €130 million) according to its
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Dassault- Aviation includes positive IFRS catch-up adjustments
amounting to €17 million (2006: €0 million; 2005:€64 million).

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Embraer and the dividend payment from the Euroﬁghter
Jagdﬂugzeug GmbH of €13 million. In 2006, other income frominvestments includes the capital gain of €17 million from thesale of the 13% stake in Diehl BGT Defence GmbH & Co. KG.

Other income from investments comprises in 2007 the capitalgain of €46 million from the disposal of the 2.13% interest in

10. Total Finance Costs
Interest result in 2007 comprises interest income of€502 million (2006: €454 million; 2005: €423 million) andinterest expense of €(701) million (2006: €(575) million;
2005: €(578) million). Included in interest income is the returnon cash and cash equivalents, securities and ﬁnancial assets
such as loans and ﬁnance leases. Interest expense includes
interest on European Government refundable advances of€289 million (2006: €266 million; 2005: €236 million) and on
ﬁnancing liabilities.

Other ﬁnancial result in 2007 includes among others
negative foreign exchange rate effects of Airbus €(274) million(negative impact in 2006: €(136) million; positive impact in2005: €147 million), charges from the unwinding of discounted
provisions at Airbus amounting to €(202) million(2006: €(22) million) and a burden from the fair value
measurement of embedded derivatives not used in hedging
relationships in the amount of €(5) million (positive impact in2006: €46 million; negative impact in 2005: €(108) million).

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

2007

2006

2005

Current tax expense

(64)

(112)

(439)

Deferred tax benefit/(expense)

397

193

(386)

Total

333

81

(825)

The Group’s parent company, EADS N.V., legally seated in
Amsterdam, the Netherlands, applies Dutch tax law using an
income tax rate of 25.5% for 31st December 2007 (for 2006:
29.6% and for 2005: 31.5%). In 2006, a new tax law was enacted
reducing the income tax rates from 2007 onwards to 25.5%.
Deferred tax assets and liabilities for the Group’s French
subsidiaries were calculated at 31st December 2007 and 2006
using the enacted tax rate of 34.43% for temporary differences.
In 2004, the French corporate tax rate in effect 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 from 2006
onwards. Accordingly, the applied tax rate for 2007 and 2006
in France is 34.43% (2005: 34.93%).
In 2007, the German government enacted new tax legislation(“Unternehmensteuerreformgesetz 2008”) which decreased thefederal corporate tax rate from 25% to 15%, being effective as of76

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1st January 2008. In addition there is a surcharge(“Solidaritätszuschlag”) of 5.5% on the amount of federal
corporate taxes. For trade taxes, the basic measurement rate has
been reduced from 5% to 3.5%, but the tax deductibility oftrade tax has been abolished. In aggregate, the enacted tax rate
which has been applied to German deferred taxes as of
1st January 2007 amounts to 30% (2006 and 2005: 38.5%).
With respect to the Spanish subsidiaries, the Spanish
government enacted on 28th November 2006 a change in thecorporate income tax rate for the years 2007 and 2008. As of
1st January 2007 the corporate income tax rate in Spaindecreased from 35% to 32.5% and from 2008 onwards will
decrease to 30%. Accordingly, deferred tax assets and liabilitiesof the Group’s Spanish entities were calculated using theenacted tax rate of 30%.
All other foreign subsidiaries apply their national tax rates,
among others United Kingdom 28% (in 2006: 30%).

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The following table shows a reconciliation from the theoreticalincome tax beneﬁt (expense) – using the Dutch corporate tax
rate of 25.5% as at 31st December 2007, 29.6% as at
31st December 2006 and 31.5% at 31st December 2005 – to thereported tax expense. The reconciling items represent, besides(in €m)2

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the impact of tax rate differentials and changes, non-taxable
beneﬁts or non-deductible expenses arising from permanentdifferences between the local tax base and the reported ﬁnancial
statements according to IFRS rules.

2007

2006

2005

Profit (loss) before income taxes

(770)

34

2,535

* Corporate income tax rate

25.5%

29.6%

31.5%

196

(10)

(799)

Expected benefit (expense) for income taxes
Effects from tax rate differentials

133

65

(54)

Income from investments/associates

109

103

62

Tax credit for R&D expenses

20

34

35

(106)

85

(1)

Change in valuation allowances

Change of tax rate

(3)

(198)

(14)

Tax-free income and non-deductible expenses

(19)

(30)

(28)

Other
Reported tax benefit (expense)

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 somewere partly released in Astrium. Furthermore in 2006, 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 by Daimler AG. Thus deferred tax

3

32

(26)

333

81

(825)

assets have been adjusted resulting in a reconciling item of€39 million and included in “other”.
Deferred income taxes are the result of temporary differences
between the carrying amounts of certain assets and liabilities inthe 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:
Movement
through equity

31st December 2006

31st December 2007

Others(1)R&D tax
credits

Deferredtax benefit(expense)

Tax assets

Taxliabilities

0

(24)

0

48

22

(193)

0

20

0

103

152

(1,147)

Tax assets

Taxliabilities

OCI/
IAS 19Intangible assets

14

(209)

Property, plant and equipment

106(1,224)(in €m)Movement throughincome statement

Investments and other long-term financial
assets

51

(97)

4

0

0

137

131

(36)

Inventories

669

(227)

0

(10)

0

33

895

(430)

Receivables and other assets

87(2,445)

(6)

0

0

218

84

(2,230)Prepaid expenses

1

(23)

0

15

0

(8)

1

(16)

Provision for retirement plans

1,043

0

(173)

(3)

0

(225)

642

0

Other provisions

944

(71)

0

(3)

0

722

1,752

(160)

Liabilities

782

(508)

129

(8)

0

(359)

690

(654)

Deferred income

529

(24)

0

(7)

0

(36)

486

(24)

Net operating loss and tax credit carry forwards

1,425

0

0

(26)

45

(296)

1,148

0

Deferred tax assets/(liabilities) before
offsetting

5,651(4,828)

(46)

(46)

45

337

6,003

(4,890)

Valuation allowances on deferred tax assets

(664)

0

0

8

0

60

(596)

0

Set-off(2,363)

2,363

0

0

0

0

(2,702)

2,702

Net Deferred tax assets/(liabilities)

2,624(2,465)

(46)

(38)

45

397

2,705

(2,188)(1) “Others” mainly comprises foreign exchange rate effect and changes in consolidation.

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. The Group hasvarious unresolved issues concerning open income tax years
with the tax authorities in a number of jurisdictions. EADS
believes that it has recorded adequate provisions for future

income taxes that may be owed for all open tax years.
Companies in deﬁcit situations in two or more subsequent years
recorded a total deferred tax asset balance of €35 million (in2006: €102 million). Assessments show that these deferred tax
assets will be recovered 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 “losssurrender-agreement” in Great Britain.

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

Spain

U.K.

Netherlands

Othercountries

31st December
2007

31st December
2006

Net Operating Losses (NOL)

507

630

58

1,610

17

43

2,865

3,514

Trade tax loss carry forwards

-

586

-

-

-

-

586

880

Tax credit carry forwards

-

-

300

-

5

-

305

249

Tax effect

174

183

318

451

10

12

1,148

1,425

Valuation allowances

(28)

(77)

-

(399)

-

(4)

(508)

(513)

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

146

106

318

52

10

8

640

912

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NOLs, capital losses and trade tax loss carry forwards areindeﬁnitely usable in France, Germany and in Great Britain. In
Spain, NOLs and tax credit carry forwards expire after 15 years.

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The ﬁrst tranche of tax credit carry forwards (€2 million) will
expire in 2014. In the Netherlands NOLs and tax credit carryforwards expire after 9 years.

Roll forward of deferred taxes:(in €m)

2007

2006

Net deferred tax asset beginning of the year

159

604

Deferred tax benefit in income statement

397

193

Deferred tax recognised directly in AOCI (IAS 39)

127

(638)

Variation of Defined benefit plan actuarial gains

(173)

(24)

OthersNet deferred tax asset at year end

7

24

517

159

2007

2006

Details of deferred taxes recognised in equity are as follows:(in €m)Available-for-sale investments
Cash flow hedges
Defined benefit plan actuarial losses
Total

(2)

(6)

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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 31st December 2007 is asfollows:
Cost(in €m)Goodwill
Capitalised development costs
Other intangible assets
Total

Additions

Changes in
consolidation
scope

(29)

9

(18)

93

Balance at
1st January
2007

Exchangedifferences

10,710885

Reclassification

Disposals

Balance at
31st December
2007

(29)

0

(12)

10,649

(2)

2

(2)

958

1,140

(7)

163

7

0

0

1,303

12,735

(54)

265

(24)

2

(14)

12,910

Balance at
1st January
2007

Exchangedifferences

Amortisation
chargeChanges in
consolidation
scope

Disposals

Balance at
31st December
2007(1,130)

Amortisation(in €m)Goodwill

Reclassification(1,145)

9

0

6

0

0

Capitalised development costs

(12)

0

(46)

0

(2)

2

(58)

Other intangible assets

(723)

7

(181)

7

0

0

(890)

(1,880)

16

(227)

13

(2)

2

(2,078)

Balance at
1st January
2007

Exchangedifferences

Additions

Changes in
consolidation
scope

Reclassification

Disposals

Balance at
31st December
2007

9,565

(20)

9

(23)

0

(12)

9,519

Capitalised development costs

873

(18)

47

(2)

0

0

900

Other intangible assets

417

0

(18)

14

0

0

413

10,855

(38)

38

(11)

0

(12)

10,832Total

Net book value(in €m)Goodwill

Total

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A schedule detailing gross values, accumulated depreciation and net values of intangible assets as of 31st December 2006 is as follows:Cost(in €m)Goodwill
Capitalised development costs
Other intangible assets
Total

Balance at
1st January
2006

Exchangedifferences

11,3062

Additions

Changes in
consolidation
scope

Reclassification

64

15

0

Disposals(677)(1)Balance at
31st December
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

Balance at
1st January
2006

Exchangedifferences

Amortisation
chargeChanges in
consolidation
scope

Reclassification

Disposals

Balance at
31st December
2006(1,139)

0

0

(6)

0

0

(1,145)

(4)

0

(7)

0

(1)

0

(12)

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

(600)

0

(196)

10

8

55

(723)

(1,743)

0

(203)

4

7

55

(1,880)

Balance at
1st January
2006

Exchangedifferences

Additions

Changes in
consolidation
scope

Reclassification

Disposals

Balance at
31st December
2006

10,167

2

64

9

0

(677)(1)

9,565

462

3

404

0

4

0

873

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

423

0

(35)

33

0

(4)

417

11,052

5

433

42

4

(681)

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

On 7th June 2006 BAE Systems exercised a put option to sell
its 20% stake in Airbus at a fair value of €2,750 million to
EADS (accounted at 31st December 2005 with €3,500 million).
The transaction became effective as of 13rd October 2006.
In accordance with the Airbus shareholders’ agreement,
an 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 goodwillby €613 million after taking into consideration a dividend
payment to BAE Systems of €129 million in 2006 andtransaction costs.
In 2006, 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 by Daimler AG. Thus

deferred tax assets and goodwill have been adjusted as of
31st December 2006 in Defence & Security by €52 million and
Headquarters by €12 million.
EADS acquired on 3rd August 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 led to the recognition of a goodwill of €41 million.

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.

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As of 31st December 2007 and 2006, goodwill was allocated to Cash Generating Units, which is summarised in the following
schedule on segment level:(in €m)AirbusMilitary
Transport
AircraftEurocopter

Defence &Security

Astrium

Other
Businesses

HQ/Conso.

Consolidatedst

Goodwill as of 31 December 2007

6,374

12

111

2,431

574

0

17

9,519

Goodwill as of 31st December 2006

6,374

12

111

2,476

575

0

17

9,565

The 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 impairment test for Airbus has been conducted based on afair value less cost to sell methodology. The main assumptions
and the recoverable amount obtained have been compared forreasonableness to market data.

The current operative planning takes into account general
economic data derived from external macroeconomic andﬁnancial studies. The operative planning assumptions reﬂect forthe periods under review speciﬁc inﬂation rates and future
labour expenses in the European Countries where the major
production facilities are located. Regarding the expected future
labour expenses, an increase of 3 to 4% was implied. In
addition, future interest rates are also projected per geographicalmarket, for the European Monetary Union, Great Britain andthe USA.

The assessment was based on the following key speciﬁc
assumptions, which represent management current best
assessment as of the date of these Consolidated Financial
Statements:

EADS follows an active policy of foreign exchange risk
hedging. As of 31st December 2007 the total hedge portfoliowith maturities up to 2013 amounts to USD 51 billion(of which USD 6 billion relate to USD/GBP hedges) and covers
a major portion of the foreign exchange exposure expected overthe period of the operative planning (2008 to 2012).
The average USD/€ hedge rate of the USD/€ hedge portfolio
until 2013 amounts to USD/€ 1.26 and for the USD/GBP
hedge portfolio until 2012 amounts to USD/GBP 1.71. For thedetermination of the operative planning in the Cash Generating
Units management assumed future exchange rates of
USD/ € 1.45 for 2008 onwards and GBP/€ 0.70 from 2008
onwards to convert in € the portion of future USD and GBP
denominated revenues which are not hedged. Foreign exchange
exposure arises mostly from Airbus and to a lesser extent fromthe other EADS divisions.
The assumption for the perpetuity growth rate used to calculate
the terminal values in general amounts to 2% and has remained
unchanged from prior years. These current forecasts are basedon 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
relates to the contribution of Airbus U.K., Airbus Germany
and Airbus Spain.

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Projected cash ﬂows for the next ﬁve years are based on
Airbus operative plan. In the absence of long-term ﬁnancialreference, expected cash ﬂows generated beyond theplanning horizon are considered through a Terminal Value.
The terminal value has been based on a normative view
covering a full aeronautic cycle. The Long Range segment is
reﬂected separately through the Business Case of
A350 XWB programme.

●

Airbus general market forecast was used as a long-termbusiness assumption with sustaining of current market shareper segment. No severe market downturn is forecasted. Cashﬂow projections include all of the estimated cost savings of
the Power8 programme.

●

Cash ﬂows have been determined per currency (U.S. dollar
and Euro). Accordingly applied discount rates reﬂect interest
rate differential between dollar and euro zones. The USD
denominated cash ﬂows were discounted using a weighted
average cost of capital after-tax (WACC) of 9.3%, while theEuro denominated cash ﬂows’ WACC was 9.5%. The USD
discounted ﬂows were then converted into € using
U.S. dollar/Euro market spot rate (for the terminal value,
the forward rate applied is USD/€ 1.50).

●

Carrying value as well as planned cash ﬂow include beneﬁts
from the existing hedge portfolio as per end December 2007.

With regard to the assessment of the fair value less cost to sell
for the CGU Airbus, EADS management believes that thelikelihood of a change in the above key assumptions to an
extent that would cause the recoverable amount to fall below
the carrying value is remote.

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The recoverable amount is particularly sensitive inthe following areas:●

A change of the Euro against the U.S. dollar by 5 cents would
lead to a change of the recoverable amount by +3.4 bn €(if 5 cents in decrease), -3.1 bn € (if 5 cents in addition).

●

A reduction in the perpetuity growth rate by 0.5% would
lead to a reduction of the recoverable amount by - 0.9 bn €.

●An increase of 50 basis points in the WACC would change
the recoverable amount by -1.8 bn €, a decrease by +2 bn €.

●50% achievement of the planned cash savings of Power8 plan
would change the recoverable amount by -11.3 bn €. Sucha shortfall would trigger additional structural measures thatcannot be sized at this stage.

The current positive difference between the recoverable value
and the book value of Airbus’ net assets indicates, that
individually each of the assessed (negative) impacts ofsensitivities would not imply an impairment charge in the
EADS accounts.

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by a strong order intake in 2007 and further key orders
expected in the next three years, as for example Euroﬁghter 3rd
tranche and export contracts - Unmanned Aerial Vehicles(“UAV”) and Missile export orders. The operating margin of
the division is expected to increase over the operative planning
period thanks to the constantly volume growth and beneﬁting
from initiated cost saving programmes.
The order book of the Astrium division as of 31st December
2007 (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 successful launch of Skynet 5A and 5B in 2007,
despite further development and production of the Skynet V
satellites and ground infrastructure had a positive impact on
Astrium Division’s 2007 cash ﬂow and will positively
contribute in the future, thanks to the ramped-up level ofrevenues from the U.K. Ministry of Defence (MoD).
The recoverable amounts of all Cash Generating Units haveexceeded their carrying amounts, indicating no goodwill
impairment for 2007 and 2006.

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 12.1%. Cash ﬂow projections are basedon current operative planning covering a ﬁve-year planning
period.
For the Defence & Security division, a sustainable growth inrevenues is assumed in the operative planning. This is driven

Development Costs
EADS has capitalised development costs in the amount of€900 million as of 31st December 2007 (€873 million as of
31st December 2006) as internally generated intangible assets
mainly for the Airbus A380 programme. The amortisation for
the A380 programme has started when entering into ﬁnal
assembly line, on a unit of production basis.

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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 as of
31st December 2007:
Cost

Additions

Change inconsolidation
scope(1)

Reclassification

Disposals

Balance at
31st December
2007

(49)

135

(49)

419

(126)

6,472

10,063

(314)

402

(59)

1,355

(313)

11,134

5,067

(170)

203

(37)

(12)

(1,195)

3,856

3,618

(137)

1,066

(1)

(2,059)

(13)

2,474

24,890

(670)

1,806

(146)

(297)

(1,647)23,936

Balance at
1st January
2007

Exchangedifferences

Additions

Change inconsolidation
scope(1)

Reclassification

Disposals

Balance at
31st December
2007

Land, leasehold improvements andbuildings including buildings on land
owned by others(2,319)

10

(259)

22

34

88

(2,424)

Technical equipment and machinery(5,886)

191

(967)

44

122

304

(6,192)(2,462)

77

(263)

33

68

665

(1,882)

(45)

1

(2)

0

0

1

(45)

(10,712)279(1,491)

99

224

1,058

(10,543)

Balance at
1st January
2007

Exchangedifferences

Additions

Change inconsolidation
scope(1)

Reclassification

Disposals

Balance at
31st December
2007

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

3,823

(39)

(124)

(27)

453

(38)

4,048

Technical equipment and machinery

4,177

(123)

(565)

(15)

1,477

(9)

4,942

2,605

(93)

(60)

(4)

56

(530)

1,974

3,573

(136)

1,064

(1)

(2,059)

(12)

2,429

14,178

(391)

315

(47)

(73)

(589)

13,393

Balance at
1st January
2007

Exchangedifferences

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

6,142

Technical equipment and machinery(in €m)Other equipment, factory and officeequipment
Advance payments relating to plant andequipment as well as construction inprogress
Total

Depreciation(in €m)Other equipment, factory and officeequipment
Advance payments relating to plant andequipment as well as construction inprogress
Total

Net book value(in €m)Other equipment, factory and officeequipment
Advance payments relating to plant andequipment as well as construction inprogress
Total(1) The percentage of the proportional consolidation of MBDA has been changed from 50% to 37.5% as of 1st January 2007 leading to an impact of €(64) million in 2007.

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Schedules detailing gross values, accumulated depreciation and net values of property, plant and equipment show the following as of
31st December 2006:
Cost(in €m)Land, leasehold improvements
and buildings including buildings
on land owned by others
Technical equipment andmachinery
Other equipment, factory andoffice equipment
Advance payments relating toplant and equipment as well as
construction in progress
Total

Additions

Change inconsolidation
scope

Reclassification

Disposals

Balance at
31st December
2006

(2)

175

1

314

(85)

6,142

8,178

(28)

385

17

1,653(1)(142)

10,063

6,238

(233)

315

(30)

(767)(1)

(456)

5,067

3,474

27

1,404

(8)

(1,259)

(20)

3,618

23,629

(236)

2,279

(20)

(59)

(703)

24,890

Balance at
1st January
2006

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassification

Disposals

Balance at
31st December
2006(2,096)

2

(285)

0

(8)

68

(2,319)(4,568)

3

(869)

(11)

(576)(2)135(5,886)(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 at
1st January
2006

Exchangedifferences

Additions

Change inconsolidation
scope

Reclassification

Disposals

Balance at
31st December
2006

3,643

0

(110)

1

306

(17)

3,823

3,610

(25)

(484)

6

1,077(3)

(7)

4,177

3,134

(130)

26

0

(148)(3)

(277)

2,605

3,430

27

1,404

(8)

(1,260)

(20)

3,573

13,817

(128)

836

(1)

(25)

(321)

14,178

Balance at
1st January
2006

Exchangedifferences

5,739

Depreciation(in €m)Land, leasehold improvements
and buildings including buildings
on land owned by others
Technical equipment andmachinery
Other equipment, factory andoffice equipment
Advance payments relating toplant and equipment as well as
construction in progress
Total

Net book value(in €m)Land, leasehold improvements
and buildings including buildings
on land owned by others
Technical equipment andmachinery
Other equipment, factory andoffice equipment
Advance payments relating toplant and equipment as well as
construction in progress
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 million.
(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 million.
(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 million.

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The 2006 depreciation of Property, plant and equipment
includes impairment charges of €189 million mainly related to
Airbus (A380) and Sogerma.
Property, plant and equipment include at 31st December 2007
and 2006, buildings, technical equipment and other equipment
accounted for in ﬁxed assets under ﬁnance lease agreements for
net amounts of €121 million and €140 million, net ofaccumulated depreciation of €128 million and €399 million.
The related depreciation expense for 2007 was €12 million(2006: €35 million; 2005: €31 million). For investment
property please refer to Note 33 “Investment property”.

2

3

Back to Contents€1,319 million and €1,992 million as of 31st December 2007
and 2006, respectively; related accumulated depreciation is€891 million and €1,509 million. Depreciation expense for2007 amounts to €105 million (2006: €137 million; 2005:€231 million).
The “aircraft under operating lease” include:i)

Other equipment, factory and office equipment include
the net book value of “aircraft under operating lease” forGroup’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 ascollateral (see Note 29 “Commitments and contingencies”
for details on sales ﬁnancing transactions).

The corresponding non-cancellable future operating lease payments (not discounted) due from customers to be included in revenues,
at 31st December 2007 are as follows:(in €m)Not later than 200884

Later than 2008 and not later than 2012

219

Later than 2012

151

Total

454

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 ofthe guarantee being more than 10% of the aircraft’s sales
price (assumed to be the fair value). Upon the initial saleof these aircraft to the customer, their total costpreviously recognised in inventory is transferred to “Other
equipment, factory and ofﬁce equipment” and depreciatedover its estimated useful economic life, with the proceeds
received from the customer being recorded as deferredincome (see Note 26 “Deferred income”).

The total net book values of aircraft under operating lease are as follows:(in €m)31st December
2007

31st December
2006(i) Net book value of aircraft under operating lease before impairment charge

600

1,216

Accumulated impairment

(102)

(272)

Net book value of aircraft under operating lease

498

944

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

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

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821

1,048

1,319

1,992

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14. Investments in Associates Accounted for under the Equity Method, Other Investments andOther Long-Term Financial Assets
The following table sets forth the composition of investments in associates accounted for under the equity method, otherinvestments and other long-term ﬁnancial assets:(in €m)Investments in associates accounted for under the equity method

31st December
2007

31st December
2006

2,238

2,095

404

545

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

1,149

1,121

Total

1,553

1,666

166

103

Current portion of other long-term financial assets

Investments in associates accounted for under the equity
method as of 31st December 2007 and 2006, mainly contain
EADS’ interest in Dassault-Aviation Group (46.30% at
31st December 2007 and at 31st December 2006) of€2,121 million and €1,985 million. The Dassault-Aviation
Group reported in 2007 a net income of €382 million (2006:€281 million) of which EADS recognised an amount of€177 million (2006: €130 million) according to its share ofinterest. In 2007, the equity investment income from DassaultAviation includes positive IFRS catch-up adjustments
amounting to €17 million (2006: €0 million). In addition, as at
31st December 2007, €(6) million (in 2006: €34 million) wererecognised 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 of
31st December 2007 and 2006:
31st December
2007

31st December
2006

Non-current assets

1,949

1,549

Current assets

2,487

2,353

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

Non-current liabilities

145

175

Current liabilities

2,554

2,126

Total equity

1,737

1,601

1,891

1,529

Share of the associate’s revenues and profit:
Revenues
Net Income
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
non-consolidated entities, the most signiﬁcant being at
31st December 2007, the participation of 10% in Irkut
amounting to €62 million (2006: €77 million). The investment
in Embraer was sold in February 2007 (2006: €123 million).

177

130

2,121

1,985

Other long-term ﬁnancial assets of €1,149 million(2006: €1,121 million) and the current portion of otherlong-term ﬁnancial assets of €166 million(in 2006: €103 million) encompass mainly the Group’s sales
ﬁnance activities in the form of ﬁnance lease receivables andloans 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 have amaturity which is linked to the use of the aircraft by the customer. The calculation of the net book value is:(in €m)31st December
2007

31st December
2006

Outstanding gross amount of loans to customers

346

247

Accumulated impairment

(79)

(90)

Total net book value of loans

267

157

31st December
2007

31st December
2006

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

795

901

Unearned finance income

(105)

(162)

Accumulated impairment

(112)

(109)

Total net book value of finance lease receivables

578

630

Future minimum lease payments from investments in ﬁnance leases to be received are as follows (not discounted):(in €m)Not later than 2008

128

Later than 2008 and not later than 2012

269

Later than 2012

398

Total

795

Additionally included are €470 million and €437 million of other loans as of 31st December 2007 and 2006, e.g. loans to employees.
Defeased bank deposits of €677 million and €927 million as of 31st December 2007 and 2006, respectively have been offset against
ﬁnancing liabilities.

15. Inventories
Inventories at 31st December 2007 and 2006 consist of the following:(in €m)31st December
2007

31st December
2006

Raw materials and manufacturing supplies

1,596

1,283

Work in progress

12,253

11,260Finished goods and parts accounted for at lower of cost and net realisable value

1,217

1,224

Advance payments to suppliers

3,840

3,125

18,906

16,892Total

The increase in work in progress of €993 million was mainly
driven by Airbus’ A380 programme, the A400M programme
and the ramp-up at Eurocopter partly compensated by
the MBDA quotation change from 50% to 37.5% in the amount88

E A D S F I N A N C I A L S TAT EM ENT S A ND COR POR AT E GOV ER N A NCE 2007of €(318) million. The increase of advance payments provided
to suppliers mainly reﬂects activities in Airbus for supplierfunding and in Defence for Euroﬁghter Series Production
Equipment.

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1

The ﬁnished goods and parts for resale before write-down to
net realisable value amount to €1,565 million in 2007 (2006:€1,559 million) and work in progress before write-down to net
realisable value amounts to €13,632 million (2006:€12,186 million). Write downs for ﬁnished goods and services

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are recorded when it becomes probable that total estimatedcontract costs will exceed total contract revenues. The
impairment charges in 2007 and 2006 for work in progress
mainly relate to the A380 programme.

16. Trade Receivables
Trade receivables at 31st December 2007 and 2006 consist of the following:(in €m)31st December
2007

31st December
2006

Receivables from sales of goods and services

5,026

5,227

Allowance for doubtful accounts

(387)

(375)

Total

4,639

4,852

Trade receivables are classiﬁed as current assets. As of
31st December 2007 and 2006, respectively, €175 million and€132 million of trade receivables are not expected to becollected within one year.

In application of the percentage of completion (POC)
method, as of 31st December 2007 an amount of €1,488 million(in 2006: €1,477 million) for construction contracts is includedin the trade receivables net of related advance payments
received.

(in €m)2007

Construction contracts: assets

5,134

Construction contracts: liabilities(5,409)Construction contracts, net liabilities(275)

This amount corresponds to:Aggregated amount of costs incurred and recognised profits (less recognised losses) to date;

21,128Less, progress billings(21,403)

The respective movement in the allowance for doubtful accounts in respect of trade receivables during the year was as follows:(in €m)st

Allowance balance at 1 January

2007

2006

(375)

(407)

Utilisations/Disposals

18

53

Write-downs/reversal of write downs

(33)

(18)

Foreign exchange rate differences

3

(3)

(387)

(375)

31st December

Based on historic default rates, the Group believes that no allowance for doubtful accounts is necessary in respect of trade receivables
not past due in the amount of €3,403 million.

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17. Other Assets
Other assets at 31st December 2007 and 2006 consist of the following:(in €m)31st December
2007

31st December
2006

2,440

3,235

Non current other assets
Positive fair values of derivative financial instruments
Prepaid expenses

808

683

Capitalised settlement payments to German Government

166

198

Others

129

115

Total

3,543

4,231

2,955

2,032

Current other assets
Positive fair values of derivative financial instruments
Value Added Tax claims

627

595

Prepaid expenses

401

384

Receivables from related companies

363

289
125

Receivables from affiliated companies

81

Loans

101

37

Others

644

552

Total

5,172

4,014

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.

18. Securities
The Group’s security portfolio amounts to €4,289 million and€1,843 million as of 31st December 2007 and 2006,
respectively. The security portfolio contains a non-current
portion of available-for-sale-securities of €2,406 million (in2006: €1,294 million) and securities designated at fair value
through proﬁt and loss of €285 million (in 2006: €0 million) as
well as a current portion of available-for-sale-securities of€1,598 million (in 2006: €549 million).
Included in the securities portfolio as of 31st December 2007
and 2006, respectively are corporate bonds bearing either ﬁxed

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rate coupons (€827 million nominal value; 2006: €489 million)
or ﬂoating rate coupons (€3,219 million nominal value; 2006:€993 million) as well as capital protected Notes of Hedgefunds(€275 million nominal value; 2006: €0 million) and other funds(€4 million nominal value). In 2006, there were additionallyalso credit instruments bearing ﬂoating rate coupons(€294 million nominal value) and equity instruments(€51 million nominal value).

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19. Non-Current Assets/Disposal Groups Classified as Held for Sale
At 31st December 2007 EADS Group does not account for
non-current assets/disposal groups classiﬁed as held forsale (in 2006: €76 million). The previous year’s ﬁgure concerns
assets and disposal groups mainly related to Sogerma.
The disposal group in 2006 includes liabilities directly
associated with non-current assets classiﬁed as held forsale amounting to €64 million.
At 31st December 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 fairvalue less costs to sell resulting in an impairment loss of€(84) million.
As of 1st December 2006, EADS carried out a spin-off ofthe 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
as well 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 asheld for sale as of 31st December 2006.
The non-current assets and disposal groups classiﬁed as held forsale comprise as of 31st December 2006 trade receivables of€34 million, inventories of €15 million and other assets in theamount of €10 million for the Sogerma business. Included arealso Airbus assets of €17 million concerning mainly sales
ﬁnancing activities.
As of 31st December 2006, the corresponding liabilities for
the Sogerma business, accounted for as Liabilities directly
associated with non-current assets classiﬁed as held forsale amount to €64 million and comprise current otherliabilities (€27 million), provisions (€14 million), short term
ﬁnancing liabilities (€12 million) and other liabilities(€11 million).

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20. Total Equity
The reconciliation of movement in capital and reserves for the years ended 31st December 2007, 2006 and 2005 is presented in thefollowing table:
Equity attributable to equity holders of the parent(in €m)Note
stBalance at 31 December 2004

Capital
stock

Share
premium

Other
reserves

Accumulated
othercomprehensive
income810

8,952(1,450)

7,678

1,401

(3,696)

Total recognised income andexpensesCapital increase
Share-based Payment (IFRS 2)

9

(177)

15,813

134

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

187

187

33

33

(396)

(396)

(288)

(288)

(288)

20

0

(445)

13,054153

13,207

382

(4)

378

(396)

Purchase of treasury shares
Cancellation of treasury shares

(1)

(19)

Balance at 31st December 2005

818

8,715

Total recognised income andexpensesCapital increase
Share-based Payment (IFRS 2)

Total

33

Cash distribution to EADS N.V.
shareholders

5

(16)

3,982

(591)

973

89

31

40

Cash distribution to EADS N.V.
shareholders/dividends paid tominority interests(520)

Change in minority interests
Purchase of treasury shares
Cancellation of treasury shares

(7)

(124)

st

816

8,160

Balance at 31 December 2006
Total recognised income andexpensesCapital increase
Share-based Payment (IFRS 2)

3

(567)

4,955

(43)

121

st

814

7,968

Balance at 31 December 2007

(562)

40

(520)

(16)

0

4

0

(349)

13,015

137

13,152

78

41

119

46

2

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48

(97)

(1)

(98)

0

(94)

(94)

143

0

(206)

13,090(1) The total amount is related to the change in the percentage of the proportional consolidation of MBDA from 50% in 2006/2005 to 37.5%; please refer to Note 3 “Scope of Consolidation”.

92

4

0

48

5,076

(536)

131

Change in minority interests(1)
(138)

94

40

(35)

(97)

(5)

94

(35)

48

Cancellation of treasury shares

0

(35)

43

31

Cash distribution to EADS N.V.
shareholders/dividends paid tominority interests

Total equity

Treasuryshares178

31

Minority
interests

0
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The following table shows the development of the number of shares outstanding:Number of shares

Issued as at 1st January
Issued for ESOP
Issued for exercised options
Cancelled
Issued as at 31st December

2007

2006

815,931,524

817,743,130

2,037,835

0

613,519

4,845,364(4,568,405)(6,656,970)

814,014,473

815,931,524

Treasury shares as at 31st December(9,804,998)(13,800,531)

Outstanding as at 31st December

804,209,475

802,130,993

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

in a gross amount of €0.12 per share, which was paid on
16th May 2007. Relating to the ﬁscal year 2007 a cash
distribution of €0.12 per share is proposed.

On 4th May 2007, the Shareholders’ General Meeting of EADS
renewed the authorisation given to the Board of Directors to
issue shares and to grant rights to subscribe for shares which
are part of the Company’s authorised share capital, provided
that such powers will be limited to 1% of the Company’s
authorised capital from time to time and to have powers tolimit and to exclude preferential subscription rights, in bothcases for a period expiring at the Shareholders’ General
Meeting to be held in 2009.

In total EADS purchased in 2007 572,872 treasury shares(in 2006: sale of 145,203 treasury shares) and cancelled
4,568,405 shares (in 2006: 6,656,970 shares), resulting in an
amount of 9,804,998 treasury shares at 31st December 2007
(in 2006: 13,800,531 treasury shares).

The Shareholders’ General Meeting on 4th May 2007 also
renewed the authorisation given to the Board of Directors fora new period of 18 months from the date of the Annual
General Meeting, to repurchase shares of the Company, by anymeans, 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
4th May 2006.
Furthermore, the Shareholders’ General Meeting authorised
both the Board of Directors and the Chief Executive Ofﬁcers,
with power of substitution, to cancel up to a maximum of
4,568,405 shares. On 12th July 2007, the Chief Executive
Ofﬁcers decided to cancel 4,568,405 treasury shares.

Capital stock comprises the nominal amount of shares
outstanding. The addition to capital stock represents
the contribution for exercised options of €613,519(in 2006: €4,845,364) in compliance with the implemented
stock option plans and €2,037,835 by employees under the2007 Employee Stock Ownership Plan. In 2006, the Employee
Stock Ownership Plan was cancelled and consequently, EADS
did not issue any new shares.
Share premium mainly results from contributions in kind in
the course of the creation of EADS, cash contributions fromthe Initial Public Offering, capital increases and reductions dueto the issuance and cancellation of shares as well as cash
distributions to EADS N.V. shareholders. Other reserves
include among others retained earnings, reduced by
the recognition of actuarial gains and losses of pension
obligations, net of deferred taxes. Accumulated othercomprehensive income consists of all amounts recognised
directly in equity resulting from changes in fair value ofﬁnancial instruments that are classiﬁed as available-for-sale orthat form part of hedging relationships in effective cash-ﬂow
hedges as well as from currency translation adjustments offoreign entities. Treasury shares represent the amount paid forown shares held in treasury.

On 4th May 2007, the Shareholders’ General Meeting alsodecided to distribute the result of the ﬁscal year 2006 resulting

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21. Capital Management
EADS seeks to maintain a strong ﬁnancial proﬁle to safeguard
its going concern, ﬁnancial ﬂexibility as well as shareholders’and other stakeholders’ conﬁdence in the Group.
As part of its capital management, it is one of EADS’ objectives
to maintain a strong credit rating by institutional rating
agencies. This enables EADS to contain the Group’s cost ofcapital which positively impacts its stakeholder value(entity value). Next to other also non-ﬁnancial parameters,
the credit rating is based on factors such as capital ratios,
proﬁtability and liquidity ratios. EADS focuses on keeping
them in a preferable range.
Currently, EADS’ long-term rating from Standard & Poor’s is
BBB+ (Outlook: stable) and A1 (Outlook: stable) from
Moody’s Investors Service respectively. In accordance with
its conservative ﬁnancial policy it is essential for EADS to
maintain an investment grade rating.
EADS’ management currently implements a monitoring system
which allows benchmarking the return on capital by comparing
it with the cost of capital. EADS basically deﬁnes return on
capital as operating income before interest expense after tax(NOPAT) divided by the sum of total shareholders’ equity andinterest bearing liabilities, excluding components arising fromcash ﬂow hedges.
The Group also monitors the level of dividends paid to its
shareholders.
As mentioned above, the Group reassessed its approach tocapital management in 2007. The focus is now on total interest
bearing liabilities as one of the capital components rather thanon “net liabilities” (interest bearing liabilities net of cash andcash equivalents) as in previous years. Capital management ispart of EADS’ management by objectives which is planned tobe re-aligned with EADS’ change in capital deﬁnition.
EADS satisﬁes its obligations arising from share-based payment
plans by issuing new shares. In order to avoid any dilution of
its current shareholders out of these share-based payment
plans, EADS has accordingly decided to buy back and cancel its
own shares following the decisions of the Board of Directors
and approval of the Annual General Meeting (AGM). Apartfrom this purpose, EADS generally does not trade withtreasury shares.
EADS complies with the capital requirements under applicablelaw and its articles of association.

22. Provisions
Provisions are comprised of the following:(in €m)Provision for retirement plans (see Note 22 b)
Provision for deferred compensation (see Note 22 a)

31st December
2007

31st December
2006

4,517

5,747

151

136

Retirement plans and similar obligations

4,668

5,883

Other provisions (see Note 22 c)

7,765

6,580

12,433

12,463

Total
Thereof non-current portion

8,055

8,911

Thereof current portion

4,378

3,552

similar obligations and €3,673 million and €3,309 million ofother provisions mature after more than one year.

Regarding the retrospective change in presentation of “Other
provisions” (€(152) million in non-current portion and€(79) million in current portion) with the related reclassiﬁcationof “Financial Instruments” to “Other liabilities” please refer toNote 2 “Summary of signiﬁcant accounting policies”.

a) Provisions for deferred compensation

As of 31st December 2007 and 2006, respectively,€4,382 million and €5,602 million of retirement plans andThis amount represents obligations that arise if employees electto convert part of their remuneration or bonus into an
equivalent commitment for deferred compensation.

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1b) 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 has a pension plan (P3) for executive andnon-executive employees in place. Under this 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. Total beneﬁts are calculated as a career average overthe 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
some executive employees, beneﬁts are depending on ﬁnal
salary at the date of retirement and the time period as
executive. In Q4 2007, EADS implemented a Contractual Trust
Arrangement (CTA) for EADS’ pension obligation. The CTA
structure is that of a bilateral trust arrangement. Assets that aretransferred to the CTA qualify as plan assets under IAS 19.
In the U.K., 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 beneﬁtplans under IAS 19 “Employee Beneﬁts”. EADS’ mostsigniﬁcant investments in terms of employees participating inthese BAE Systems U.K. pension plans are Airbus U.K. andMBDA U.K.. For Airbus, this remains the case evensubsequent to the acquisition of BAE Systems’ 20% minority
interests on 13rd October 2006. Participating Airbus U.K.
employees have continued to remain members in the BAE
Systems U.K. pension plans due to the U.K. pension agreement
between EADS and BAE Systems and a change in U.K.
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 U.K. pension plansin which EADS investments participate are currently
underfunded. BAE Systems has agreed with the trustees

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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.
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 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
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 regularcontributions that have to be paid by Airbus U.K. and MBDA
U.K. to rates applicable to all participating employers.
Based on detailed information about the different multiemployer pension schemes which BAE Systems has started toshare since 31st December 2006, EADS is able to appropriately
and reliably estimate the share of its participation in theschemes, i.e. its share in plan assets, deﬁned beneﬁt obligations(DBO) and pension costs. The information enables EADS toderive keys per plan to allocate for accounting purposes anappropriate proportion in plan assets, deﬁned beneﬁt obligations
and pension costs to its U.K. investments as of 31st December
2007 and 2006, taking into account the impact of the capped
contributions as well as future extra contributions agreed by
BAE Systems with the Trustees. Therefore, EADS accounts for
its participation in BAE Systems’ U.K. deﬁned beneﬁt schemes
under the deﬁned beneﬁt accounting approach in accordancewith IAS 19.
Compared to 2006, the share of Airbus in BAE Systems’ main
schemes has decreased in 2007 due to a relative decrease in
the number of active members. The impact of this change is
reﬂected in actuarial gains and losses of the period.
Actuarial assessments are regularly made to determine
the amount of the Group’s commitments with regard to
retirement indemnities. These assessments include anassumption concerning changes in salaries, retirement ages andlong-term interest rates. It comprises all the expenses theGroup will be required to pay to meet these commitments.

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3

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

Assumptions in %Discount rate

2007

Euro-countries

EADS U.K.

31st December

31st December

2006

2005

2007

2006

BAE Systems U.K.
31st December
2005

2007

2006

5.25 - 5.35

4.5

4.0

5.8

5.1

4.7

5.8

5.2

3.0

3.0

3.0

4.2

3.8

3.7

4.3

4.0

1.9 - 2.0

1.9 - 2.0

1.75 - 2.0

3.1

2.8

2.7

3.3

3.0

7.0

6.5

6.5

5.8

5.8

5.8

7.0

7.0

Rate of compensation increase
Inflation rate
Expected return on plan assets

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

2007

2006

2005

Defined benefit obligations at beginning of year

5,198

9,584

5,927

Service cost

213

162

153

Interest cost

429

230

252

Plan amendments

22

2

8

Actuarial (gains) and losses

(729)

(185)

517

Acquisitions, curtailments and other

(42)

(15)

2

Benefits paid

(383)

(228)

(208)

Foreign currency translation adjustment

(298)

(5)

5

Change in consolidation(1)

(223)

3,696

0

8,573

9,584

5,927

Defined benefit obligations at end of year

(1) Reﬂects the change in the percentage of the proportional consolidation of MBDA from 50% in 2006/2005 to 37.5% in 2007 and EADS’ share in BAE Systems’ pension schemes in 2006.

Due to the BAE Systems U.K. pension plans, service cost
increased by €61 million and interest cost by €168 million.
Actuarial gains which are related to the BAE Systems U.K.

pension plans amount to €(426) million and foreign currencytranslation adjustment amounts to €(274) million.

Change in plan assets(in €m)

2007

2006

2005

Fair value of plan assets at beginning of year

3,833

799

658

Actual return on plan assets

119

84

82

Contributions

683

212

111

Acquisitions and other

18

6

5

Benefits paid

(223)

(72)

(60)

Foreign currency translation adjustments

(242)

5

3

Change in consolidation(1)

(157)

2,799

0

4,031

3,833

799

Fair value of plan assets at end of year

(1) Reﬂects the change in the percentage of the proportional consolidation of MBDA from 50% in 2006/2005 to 37.5% in 2007 and EADS’ share in BAE Systems’ pension schemes in 2006.

In 2007, the actual return on plan assets of €119 million
includes among others, also €42 million relating to the BAE
Systems’ U.K. pension plans. This actual return also includes
actuarial losses on plan assets due to the decrease of EADS’share in BAE Systems’ U.K. pension plans. Furthermore,€(223) million of foreign currency translation adjustments and€(122) million of beneﬁts paid result from BAE Systems’ U.K.
pension plans.
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In 2007, EADS implemented a Contractual Trust Arrangement(CTA) for allocating and generating plan assets in accordancewith IAS 19. On 28th October 2007, some EADS companies
contributed in total €500 million in cash and securities as an
initial funding of the CTA.
Based on past experience, EADS expects a rate of return forplan assets of 7.0%.

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3

In 2007, about 51% of plan assets are invested in equity securities. The remaining plan assets are invested mainly in debt instruments.
Recognised Provision(in €m)

2007

2006

2005

2004

2003

(1)

4,542

5,751

5,128

4,540

4,116

Unrecognised past service cost

(25)

(4)

(4)

(5)

(14)

4,517

5,747

5,124

4,535

4,102

Funded status

Provision recognised in Balance Sheet(1) Difference between the deﬁned beneﬁt obligations and the fair value of plan assets at the end of the year.

The deﬁned beneﬁt obligation at the end of the year is thepresent 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.

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

2007

2006

Service cost

213

162

153

Interest cost

429

230

252

Expected return on plan assets

(260)

(58)

(42)

0

0

14

Net actuarial loss
Prior service cost
Net periodic pension cost

2005

3

0

0

385

334

377

Due to BAE Systems’ U.K. pension plans service cost increases by €61 million and interest cost rise by €168 million. The expected
return on plan assets for BAE Systems’ U.K. pension plans amounts to €(189) million.
Actuarial gains and losses, net of deferred taxes recognised in total equity amount to €(974) million and are developed as follows:
Actuarial gains and losses recognised directly in total equity(in €m)

2007

2006

2005

Cumulative amount at 1st January(1,808)(1,118)(659)

Recognised during the period(1)

608

(690)

(459)

(1,200)(1,808)(1,118)

226

399

423

(974)

(1,409)(695)

stCumulative value at 31 December
Deferred Tax Asset at 31st December
Actuarial gains and losses recognised directly in equity, net(1) Included in 2007 is the change in the percentage of the proportional consolidation of MBDA from 50% in 2006/2005 to 37.5% (€37 million) and in 2006 the allocated pension deﬁcit from U.K. pension schemes withBAE Systems as of 31st December 2006 amounting to €897 million.

The contribution to be paid in 2008 as funding for the CTA is
expected to be about €155 million. The contribution expected
to be paid in 2008 for the BAE Systems U.K. pension plans are
expected to be in the same range as in 2007 (€74 million). For
the remaining pension plans no estimate is reasonably possible.

Contribution to state pension plans mainly in Germany andFrance are to be considered as deﬁned contribution plans.
Contributions in 2007 amount to €518 million.

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3c) Other Provisions
Movements in provisions during the year were as follows:

Additions

Reclassification/
Change inconsolidated
group

499

89

Balance at
1st January
2007

Exchangedifferences

Increasefrompassageof timeOutstanding costs

1,104

(1)

5

Aircraft financing risks

1,064

(94)

0

55

421

(2)

65

2,608

Personnel charges

410

(2)

3

153

Restructuring measures/pre-retirement part-time work

326

(5)

44

679

Litigations and claims

238

(18)

0

12

Obligation from services and maintenance agreements

211

(1)

8

Warranties

187

0

0

Asset retirement

80

0

0

(in €m)Contract losses

Used Released

Balance at
31st December
2007

(292)

(59)

1,345

0

(49)

(164)

812

(16)

(467)

(63)

2,546

1

(129)

(26)

410

(19)

(96)

(26)

903

(33)

(18)

(4)

177

116

0

(72)

0

262

80

(7)

(46)

(21)

193

8

0

0

0

88

Other risks and charges

2,539

(60)

87

233

(990)

(661)

(119)

1,029

Total

6,580

(183)

212

4,443

(975)

(1,830)

(482)

7,765

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 €311 million (€432 million at
31st December 2006) and asset value risks of €501 million(€633 million at 31st December 2006) related to Airbus andATR (see Note 29 “Commitments and contingencies”).
The provision for contract losses mainly relates to the division
Airbus in conjunction with the A400M and A350 programmes.
The measurement of the onerous contract provision for theA350 reﬂects the programme’s expected cost in accordance withthe latest business case revision as well as the impact of
the USD exchange rate development. The A400M loss making
contract provision is based upon the reassessed cost atcompletion taking into account ﬁnancial impacts of the delayeddelivery schedule as revised in Q3 2007.
The provisions for restructuring measures mainly relate to
Airbus’ Power8 programme for the reduction of overhead costs.
The plan was announced to the employees in 2007.
The restructuring is expected to be completed in 2010.
From the provisions for other risks and charges, parts of theprovisions for settlement charges in conjunction with the A380
and A350 programmes were reclassiﬁed to liabilities.

23. Financing Liabilities
In 2004, the EIB (European Investment Bank) granted a longterm loan to EADS in the amount of USD 421 million, bearing
a ﬁxed 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
ﬁrst issue of €1 billion with expected ﬁnal maturity in 2010carries a 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%.
On a rolling basis EADS issues regularly commercial paper
under the so called “billet de trésorerie” programme at ﬂoating
or ﬁxed interest rates corresponding to the individual maturities
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ranging from 1 day to 12 months bearing as of 31st December
2007 an average interest rate of 4.54% (2006: 3.3%). The issued
volume at 31st December 2007 amounted to €501 million(2006: €1,137 million). The programme has been set up in 2003
with a maximum volume of €2 billion. EADS has decided to
manage more pro-actively its money market investor base.
EADS has therefore decided to have an outstanding debt inline with this objective and to issue these commercial papers ona regular basis.
Financing liabilities include liabilities connected with sales
ﬁnancing transactions amounting to €1,356 million (2006:€1,702 million), thereof €396 million (2006: €480 million) at
a ﬁxed interest rate of 9.88% (2006: 9.88%) and the remaining
amount mainly at variable interest rates.

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1

Non recourse Airbus ﬁnancing liabilities (risk is supported byexternal parties) amount to €859 million (2006: €1,058 million).

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Defeased bank deposits for aircraft ﬁnancing of €677 millionand €927 million as of 31st December 2007 and 2006
respectively have been offset against ﬁnancing liabilities.

(in €m)31st December
2007

31st December
2006

Bonds

1,469

1,569

952

1,141

548

673

121

178

3,090

3,561

Commercial Papers/Bonds

579

1,157

Liabilities to financial institutions

108

140

Liabilities to affiliated companies

163

118

Loans

183

172

Liabilities from finance leases

69

97

Others622

512

thereof due in more than five years: 430 (31st December 2006: 453)
Liabilities to financial institutions
stthereof due in more than five years: 651 (31 December 2006: 817)
Loans
thereof due in more than five years: 382 (31st December 2006: 347)
Liabilities from finance leases
thereof due in more than five years: 69 (31st December 2006: 74)
Long-term financing liabilities

Short-term financing liabilities (due within one year)

1,724

2,196

Total

4,814

5,757

Included in “Others” are ﬁnancing liabilities to joint ventures.
The aggregate amounts of ﬁnancing liabilities maturing during the next ﬁve years and thereafter are as follows:(in €m)2008

Financing liabilities

1,724

2009

146

2010

1,160

2011

149

2012

103

Thereafter

1,532

Total

4,814

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24. Other Liabilities
31st December
2007

31st December
2006

Thereof customer advance payments

8,420

6,308

Thereof European Governments refundable advances

4,854

5,029

Thereof liabilities for derivative financial instruments

258

152

(in €m)Non-current other liabilities

Others
Total

595

233

14,127

11,722Current other liabilities
Thereof customer advance payments

16,214

14,172

Thereof European Governments refundable advances

461

389

Thereof tax liabilities (excluding income tax)

557

600

Thereof liabilities to affiliated companies

46

44

Thereof liabilities to related companies

23

14

Thereof liabilities for derivative financial instruments

36

79

OthersTotal

The decrease of European Governments refundable advances
relates mostly to reimbursements paid. This was partly
compensated by expenses for accrued interest. Regarding theinterest expense on European Governments refundable
advances see Note 10 “Total ﬁnance costs”. Due to their speciﬁcnature, 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.

2,346

1,941

19,683

17,239one year and €6,660 million (€6,419 million as of
31st December 2006) maturing after more than ﬁve years.
Advance payments received relating to construction contracts
amount to €3,646 million (€2,198 million as of 31st December2006).
“Provisions for ﬁnancial instruments” were retrospectively
reclassiﬁed in the amount of €231 million to “Liabilities forderivative ﬁnancial instruments”.

Included in “Other liabilities” are €16,763 million(€15,652 million as of 31st December 2006) due within

25. Trade Liabilities
As of 31st December 2007, trade liabilities amounting to €294 million (€184 million as of 31st December 2006) mature after morethan one year.

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26. Deferred Income(in €m)Non-current deferred income
Current deferred income
Total

31st December
2007

31st December
2006

753

1,110

706

486

1,459

1,596

The main part of deferred income is related to sales of Airbus and ATR aircraft that include asset value guarantee commitments andthat are accounted for as operating leases (€955 million and €1,248 million as of 31st December 2007 and 2006, respectively).

Notes to the Consolidated Statements of Cash-Flows (IFRS)
27. Consolidated Statement of Cash Flows
As of 31st December 2007, EADS’ cash position (stated as cash
and cash equivalents in the Consolidated Statement of CashFlows) includes €602 million (€597 million and €579 million asof 31st December 2006 and 2005, respectively) which represent
EADS’ share in MBDA’s cash and cash equivalents, depositedat BAE Systems and Finmeccanica and which are available upon

demand. The percentage of the proportional consolidation of
MBDA has changed from 50% to 37.5% as of 1st January 2007.
Additionally included were €1,202 million as of 31st December
2005 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:(in €m)Total purchase pricethereof paid in cash and cash equivalents

31st December
2007

31st December
2006

31st December
2005

(12)

(108)

(131)

(12)

(108)

(131)

Cash and cash equivalents included in the acquired subsidiaries and joint ventures

12

26

0

Cash Flow for acquisitions, net of cash

0

(82)

(131)

In 2007 the aggregate cash ﬂow for acquisitions, net of cash of€0 million includes the acquisition of GPT Special ProjectManagement Ltd. (GPT).
In 2006 the aggregate cash ﬂow for acquisitions, net of cash of€(82) million includes mainly the acquisition of Atlas
Elektronik Group €(43) million, Sofrelog €(12) million, IFR
France €(8) million and Dynamic Process Solutions Inc.
€(8) million.

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

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31st December
2007

31st December
2006

31st December
2005

Intangible assets; property, plant and equipment

0

59

21

Financial assets

0

4

0

Inventories

0

44

4

Trade receivables

3

60

11
27

(in €m)Other assets

1

4Cash and cash equivalents

12

26

0

Assets

16

197

63

Provisions

(8)

(91)

(4)

Trade liabilities

(1)

(46)

0

Financing liabilities

0

(3)

0

Other liabilities

(4)

(13)

(1)

Liabilities

(13)

(153)

(5)

3

44

58

Fair value of net assets
Goodwill arising on acquisitions
Less own cash and cash equivalents of acquired subsidiaries and joint ventures
Cash Flow for acquisitions, net of cash

9

64

73

(12)

(26)

0

0

82

131

31st December
2007

31st December
2006

31st December
2005

28

87

110

28

87

110

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
Cash and cash equivalents included in the (disposed) subsidiaries

1

(1)

(21)

Cash Flow from disposals, net of cash

29

86

89

The aggregate cash ﬂow from disposals, net of cash, in 2007 of€29 million mainly includes the contribution in kind of NavalBusiness (HagenU.K., businesses in Germany and in U.K.) to
Atlas for a cash consideration of €28 million, whereas EADS
increased its share in Atlas Elektronik from 40% to 49% in
return. Additions and disposals of assets and liabilities relating
to that transaction are included net in the following table.
Further included in the cash ﬂow from disposals, net of cash,
are the sale of Alkan amounting to €10 million and Barﬁeld for€(9) million.

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The aggregate cash ﬂow from disposals, net of cash, in 2006 of€86 million includes the sale of LFK GmbH and TDW GmbHamounting to €81 million and Seawolf of €2 million. After the
disposal of LFK the cash of LFK was reallocated to theshareholders of MBDA in proportion to their interest.
Included in the aggregate net selling price in 2005 of€89 million are the sale of the 50% participation in
TDA – Armements S.A.S. to Thales and the sale of
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1(in €m)Intangible assets; property, plant and equipment

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3

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31st December
2007

31st December
2006

31st December
2005

17

(18)

(12)

Financial assets

(3)

(4)

0

Inventories

(5)

(89)

(34)

Trade receivables

(19)

(17)

(64)

Other assets

(2)

(22)

(34)

Cash and cash equivalents

1

(1)

(21)

(11)

(151)

(165)

AssetsProvisions

(7)

132

16

Trade liabilities

(5)

18

18

Financing liabilities

8

1

13

Other liabilities

9

52

45

Liabilities

5

203

92

(6)

52

(73)

Book value of net assets
Goodwill arising from disposals

(12)

0

(6)

Result from disposal of subsidiaries

(10)

(139)

(31)

Less own cash and cash equivalents of disposed subsidiaries

(1)

1

21

(29)

(86)

(89)

Cash Flow from disposals, net of cash

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.
Although EADS is not a party, EADS is supporting theEuropean Commission in litigation before the WTO. Following
its unilateral withdrawal from the 1992 EU-U.S. Agreement on
Trade in Large Civil Aircraft, the U.S. lodged a request on
6th October 2004 to initiate proceedings before the World
Trade Organisation (“WTO”). On the same day, the EUlaunched a parallel WTO case against the U.S. in relation to its
subsidisation of Boeing. On 31st May 2005, the U.S. andthe EU each requested the establishment of a panel. At its
meeting on 20th July 2005, the Dispute Settlement Body
established the panels. Between November 2005 and thepresent, the parties ﬁled numerous written submissions andattended several oral hearings in both cases. The parties
continue to provide input in response to the WTO’s written
questions in advance of issuance of the WTO panels’ reports.
Exact timing 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 under discussion, is reached between the parties, the WTO
panels will render their reports probably sometime in 2008.
The French Autorité des Marchés Financiers (the “AMF”) and
the German Federal Financial Supervisory Authority (the“BaFin”) started in 2006 investigations for alleged breaches ofmarket regulations and insider trading rules with respect to, in
particular, the A380 delays in 2005 and 2006. However, theBaFin formally notiﬁed EADS on 3rd March 2007 that it had
discontinued its investigations for suspected breaches of market
regulations. Upon referral by the BaFin, German publicprosecutors are currently conducting investigations regarding
suspected insider offences against a few individuals.
Furthermore, in Germany, several individual shareholders haveﬁled civil actions against EADS to recover their alleged losses
in connection with the disclosure of A380 programme delays.
Following criminal complaints ﬁled by a shareholders’association and by an individual shareholder (including a civil
claim for damages), French investigating judges are carrying out
investigations on the same facts. On 3rd October 2006, the
EADS Board of Directors decided to conduct an independent

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1

assessment of individual discharge of duties in the situationthat led to the A380 delays. This investigation extended to
scrutinising potential responsibilities at the management level.
It concluded that no individual failed to discharge his duties
under appropriate legal standards and no personal liability ofmembers of the top management of EADS and Airbus was
identiﬁed.
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.

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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 22 c.) “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
collateralized 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 ofthe aircraft securing such commitments will substantially
offset any potential losses from the commitments. Anyremaining 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 risk-pricing-model, which isapplied at every closing to closely monitor the remaining valueof 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 ﬁnance lease receivable (see Note 14 “Investments inassociates accounted for under the equity method, otherinvestments and other long-term ﬁnancial assets”) or(iv) non- current assets classiﬁed as held for sale. As of
31st December 2007, related accumulated impairment amounts
to €102 million (2006: €272 million) for operating lease andto €191 million (2006: €199 million) for loans and ﬁnancelease receivables. As part of provisions for aircraft ﬁnancing
risks €25 million (2006: €25 million) are recorded (seeNote 22 c.) “Other provisions”).

Certain sales ﬁnancing transactions include the sale and lease back of the aircraft with a third party lessor under operating lease.
Unless the Group has sold down the relating operating lease commitments to third parties, which assume liability for the 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 and are scheduled to be paid as follows:(in €m)Not later than 2008

179

Later than 2008 and not later than 2012

554

Later than 2012

472

Total

1,205

Of which commitments where the transaction has been sold to third parties(699)

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

506

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Total aircraft lease commitments of €1,205 million as of
31st December 2007, arise from aircraft head-leases and are
typically backed by corresponding sublease income from
customers with an amount of €851 million. A large part ofthese lease commitments (€699 million as of 31st December2007) arises from transactions that were sold down to third
parties, which assume liability for the payments. EADS

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determines its gross exposure to such operating leases as
the present value of the related payment streams. The
difference between gross exposure and the estimated value of
underlying aircraft used as collateral, the net exposure,is provided for in full with an amount of €286 million as of
31st December 2007, as part of the provision for aircraft
ﬁnancing risk (see Note 22 c.) “Other provisions”).

As of 31st December 2007 and 2006, the total consolidated – on and off balance sheet – Commercial Aviation Sales Financing
Exposure is as follows (Airbus 100% and ATR 50%):(in €m)31st December
2007

31st December
2006

Total gross exposure

1,226

1,694

Estimated fair value of collateral (aircraft)

(622)

(791)

Net exposure (fully provided for)

604

903

31st December
2007

31st December
2006

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

102

272

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

191

199

Details of provisions / accumulated impairments are as follows:(in €m)Provisions for aircraft financing risk (on balance sheet) (see Note 22 c.) “Other provisions”)

25

25

Provisions for aircraft financing risk (commitment off balance sheet) (see Note 22 c.) “Other provisions”)

286

407

Total provisions / accumulated impairments for sales financing exposure

604

903

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 31st December
2007, the nominal value of asset value guarantees provided toairlines, that do not exceed the 10% criteria, amounts to€880 million, excluding €513 million where the risk is
considered to be remote. In many cases the risk is limited to a
speciﬁc portion of the residual 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 and included in the total amount of provisions for
asset value risks of €501 million (see Note 22 c.) “Other
provisions”). This provision covers a potential expected shortfall
between the estimated value of the aircraft of the date uponwhich the guarantee can be 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 2007 will generally not be exercisable
prior to 2017, and, therefore, an increase in near-term exposure
is not expected.
With respect to ATR, EADS and Finmeccanica are jointly andseverally liable to third parties without limitation. Amongst
the shareholders, 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

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1will be implemented (although it is possible that customers not
beneﬁting 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 contain2

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ﬁnancial conditions which guaranteed parties must satisfy inorder to beneﬁt therefrom.

Other commitments — Other commitments comprisecontractual guarantees and performance bonds to certain
customers as well as 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 €979 million as of 31st December 2007, and relate mainly to procurement operations (e.g., facility leases,
car rentals). Maturities are as follows:(in €m)Not later than 2008132

Later than 2008 and not later than 2012

325

Later than 2012

522

Total

979

30. Information about Financial Instrumentsa) Financial Risk Management
By the nature of the activities carried out, EADS is exposed toa variety of ﬁnancial risks, as explained below: i) market risks,
especially foreign currency exchange rate risks and interest raterisks, ii) credit risk and iii) liquidity risk. EADS’ overallﬁnancial risk management programme focuses on mitigating
unpredictable ﬁnancial market risks and their potential adverse
effects on the Group’s operational and ﬁnancial performance.
The Group uses derivative ﬁnancial instruments and to a minor
extent non-derivative ﬁnancial liabilities to hedge certain risk
exposures.
The ﬁnancial risk management of EADS is generally carried out
by the central treasury department at EADS Headquarters
under policies approved by the Board of Directors. The
identiﬁcation, evaluation and hedging of the ﬁnancial risks is in
the responsibility of established treasury committees with theGroup’s Divisions and Business Units.
Market Risk
Currency risk — Foreign exchange risk arises when futurecommercial transactions or ﬁrm commitments, recognised assets
and liabilities and net investments in foreign operations aredenominated in a currency that is not the entity’s functional
currency.
EADS manages a long-term hedge portfolio with a maturity ofseveral years covering its net exposure to U.S. dollar sales,
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covers to a large extent the Group’s highly probabletransactions.
Signiﬁcant parts of EADS’ revenues are denominated in
U.S. dollar, whereas a major portion of its costs is incurredin Euros 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-U.S. 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.
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, some synthetic forwards and at
Airbus to a minor extent non-derivative ﬁnancial liabilities.
EADS endeavours to hedge the majority of its exposure based
on ﬁrm commitments and forecasted transactions. For products
such as aircraft, EADS typically hedges forecasted sales in
U.S. dollar. The hedged items are deﬁned as ﬁrst forecasted

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1.2 | Financial Statements

1highly probable future cash inﬂows for a given month based
upon ﬁnal payments at delivery. The amount of the expected
ﬂows to be hedged can cover up to 100% of the equivalent of
the net U.S. dollar exposure at inception. For EADS, aforecasted transaction is regarded as highly probable if the
future delivery is included in the internally audited order bookor is very likely to materialise in view of contractual evidence.
The coverage ratio is adjusted to take into accountmacroeconomic movements affecting the spot rates and interest
rates as well as the robustness of the commercial cycle. For the
non-aircraft business EADS hedges in- and outﬂows in foreign
currencies from sales and purchase contracts following the same
logic which are typically contracted in lower 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
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 thehedged item.
The cash and cash equivalents and securities portfolio of theGroup is invested mainly in non-speculative ﬁnancial
instruments, mostly highly liquid, such as certiﬁcates ofdeposits, overnight deposits, commercial papers, other money
market instruments and bonds. For this portfolio, EADS holds
on a regular basis an asset management committee which aims
at limiting the interest rate risk on a fair value basis through avalue-at-risk approach. EADS is mainly investing in short-term
instruments in order to further minimise any interest risk inthis portfolio. The remaining portion of securities is invested in
short to mid term bonds. Any related interest rate hedges
qualify for hedge accounting as either fair value hedges or
cashﬂow hedges.

Price risk — EADS is to a small extent invested in equity
securities mainly for operational reasons. Therefore, the Groupassesses its exposure towards equity price risk as limited.

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Sensitivities of Market Risks — The approach used tomeasure and control market risk exposure within EADS’
ﬁnancial instrument portfolio is amongst other key indicators
the value-at-risk (“VaR”). The VaR of a portfolio is theestimated potential loss that will not be exceeded on theportfolio over a speciﬁed period of time (holding period) froman adverse market movement with a speciﬁed conﬁdence level.
The VaR used by EADS is based upon a 95% conﬁdence level
and assumes a 5-day holding period. The VaR model used ismainly based on the so called “Monte-Carlo-Simulation”
method. Deriving the statistical behaviour of the markets
relevant for the portfolio out of market data from the previous
two years and observed interdependencies between different
markets and prices, the model generates a wide range ofpotential future scenarios for market price movements.
EADS VaR computation includes the Group’s ﬁnancial debt,
short-term and long-term investments, foreign currency
forwards, swaps and options, ﬁnance lease receivables andliabilities, foreign currency trade payables and receivables,
including intra-group payables and receivables affecting Group
proﬁt and loss.
Although VaR is an important tool for measuring market risk,
the assumptions on which the model is based give rise to some
limitations, including the following:●

A 5-day holding period assumes that it is possible to hedge
or dispose of positions within that period. This is considered
to be a realistic assumption in almost all cases but may not
be the case in situations in which there is severe market
illiquidity for a prolonged period.

●

A 95% conﬁdence level does not reﬂect losses that may
occur beyond this level. Even within the model used there
is a 5% statistical probability that losses could exceed
the calculated VaR.

●

The use of historical data as a basis for estimating thestatistical behaviour of the relevant markets and ﬁnallydetermining the possible range of future outcomes out of
this statistical behaviour may not always cover all possible
scenarios, especially those of an exceptional nature.

The Group uses VaR amongst other key ﬁgures in order todetermine the riskiness of its ﬁnancial instrument portfolio andin order to optimise the risk-return ratio of its ﬁnancial asset
portfolio. Further, the Group’s investment policy deﬁnes for
P&L and OCI certain limits on total risk for the portfolio of
cash, cash equivalents and securities. The total VaR as well as
the different risk-factor speciﬁc VaR ﬁgures of this portfolio aremeasured and serve amongst other measures as a basis for thedecisions of the asset management committee.

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A summary of the VaR position of EADS’ ﬁnancial instruments portfolio at 31st December 2007 and 31st December 2006 is asfollows:
31st December 2007(in €m)FX hedges for forecast transactions or firm commitments

Total VaR

Equity price VaR

Currency VaRInterest rate VaR

360

-

367

104

50

27

Financing liabilities, cash, cash equivalents, securities and related
hedgesFinance lease receivables and liabilities, foreign currency trade
payables and receivables

41

8

38

-

11

35

Correlation effect

(48)

-

(16)

(30)

All financial instruments

391

8

412

136

412

-

429

54

20

6

29

12

31st December 2006
(in €m)FX hedges for forecast transactions or firm commitments
Financing liabilities, cash, cash equivalents, securities and related
hedgesFinance lease receivables and liabilities, foreign currency trade
payables and receivables

32

-

9

29

Correlation effect

(98)

-

(46)

(30)

All financial instruments

366

6

421

65

EADS uses its derivative instruments almost entirely as well assome of its non-derivative ﬁnancial liabilities for hedging
purposes. As such, the respective market risks of these hedging
instruments are – depending on the hedges actual effectiveness –offset by corresponding opposite market risks of the underlying
forecast transactions, assets or liabilities. Under IFRS 7 theunderlying forecast transactions do not qualify as ﬁnancial
instruments and are therefore not included in the tables shown
above. The VaR of the FX hedging portfolio in the amount of€360 million (2006: €412 million) cannot be considered as arisk indicator for the Group in the economic sense.

Liquidity Risk
The Group’s policy is to maintain sufﬁcient cash and cash
equivalents at any time to meet its present and futurecommitments as they fall due. EADS manages its liquidity byholding adequate volumes of liquid assets and maintains acommitted credit facility (€3.0 billion as of 31st December2007) in addition to the cash inﬂow generated by its operating
business. The liquid assets typically consist of cash and cash
equivalents. In addition, the Group maintains a set of otherfunding sources. Depending on its cash needs and market
conditions, EADS may issue bonds, notes and commercial
papers. Adverse changes in the capital markets – for example
caused by the current uncertain situation in the U.S. mortgage
market – could increase the Group’s funding costs and limit its
ﬁnancial ﬂexibility.

Further, EADS also measures VaR of the Group-internaltransaction risk arising on Group entities contracting in acurrency different from its functional currency affecting Group
proﬁt and loss. However, these currency risks arise purely
EADS internally and are in economic terms 100% compensatedby the corresponding currency ﬂuctuations recognised in a
separate component of equity when translating the foreign
entity into EADS functional currency. At 31st December 2007
the related total VaR amounted to €12 million.

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Further, the management of the vast majority of the Group’s
liquidity exposure is centralised by a daily cash concentration
process. This process enables EADS to manage its liquidity
surplus as well as its liquidity requirements according to theactual needs of its subsidiaries. In addition, Managementmonitors the Group’s liquidity reserve as well as the expectedcash ﬂows from its operations based on a quarterly rolling cash
forecast.

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1(in €m)2

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3

Carrying
amountContractual
cash flows< 1 year

1 year –2 years

2 years –3 years

3 years –4 years

4 years –5 years

More than
5 years(14,524)(15,620)(10,591)(831)(1,347)

(288)

(202)

(2,361)

(294)

(384)

(135)

(131)

30

0

0

(148)

(14,818)(16,004)(10,726)(962)(1,317)

(288)

(202)

(2,509)(14,194)(15,248)(10,438)

(659)

(527)

(1,318)(272)(2,034)

(231)

(290)

(166)

(48)

(5)

31

(2)

(100)

(14,425)(15,538)(10,604)

(707)

(532)

(1,287)(274)(2,134)31st December 2007
Non derivative financial liabilities
Derivative financial liabilities
Total
31st December 2006
Non derivative financial liabilities
Derivative financial liabilities
Total

The above table analyses EADS ﬁnancial liabilities by relevant
maturity groups based on the period they are remaining on
EADS balance sheet to the contractual maturity date.
The amounts disclosed are the contractual undiscounted cash
ﬂows, comprising all outﬂows of a liability such as repayments
and eventual interest payments.
Non-derivative ﬁnancial liabilities comprise ﬁnancing liabilities
at amortised cost and ﬁnance lease liabilities as presented in thetables of Note 30b). Due to their speciﬁc nature, namely theirrisk-sharing features and uncertainty about the repayment
dates, the European Governments refundable advances are notincluded in the above mentioned table with an amount of€5,315 million (2006: €5,418 million).
Derivative ﬁnancial liabilities are presented with their market
value.
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,the Group has policies in place to avoid concentrations of credit
risk and to ensure that credit risk is limited.
As far as central treasury activities are concerned, credit risk
resulting from ﬁnancial instruments is managed on Grouplevel. Counterparts for transactions on cash, cash equivalents
and securities as well as for derivative transactions are limited
to high credit quality ﬁnancial institutions, corporates orsovereigns. For such ﬁnancial transactions EADS has set up
a credit limit system to actively manage and limit its credit risk
exposure. This limit system assigns maximum exposure lines tocounterparts of ﬁnancial transactions, 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. Further, EADS constantly aims for maintaininga certain level of diversiﬁcation in its portfolio between
individual counterparts as well as between ﬁnancial
institutions, corporates and sovereigns in order to avoid anincreased concentration of credit risk on only a few
counterparts. The Group is monitoring the performance of theindividual ﬁnancial instruments and the impact of the credit
markets on their performance. EADS has procedures in placethat allow to hedge, to divest from or to restructure ﬁnancial
instruments having undergone a downgrade of thecounterparts’ credit rating or showing an unsatisfactory
performance. These measures aim to protect EADS to a certain
extent against credit risks from individual counterparts.
Nevertheless, a potential negative impact resulting from amarket-driven increase of systematic credit risks cannot be
excluded.
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 ofcustomers, on a case-by-case basis, directly or throughguarantees provided to third parties. In determining theamount and terms of the ﬁnancing transaction, Airbus and
ATR take into account the airline’s credit rating as well as risk
factors speciﬁc to the intended operating environment of theaircraft and its expected future value. Market yields and current
banking practices also serve to benchmark the ﬁnancing terms
offered to customers, including price.
The carrying amount of ﬁnancial assets represents the
maximum credit exposure. The credit quality of ﬁnancial assetsthat are neither past due nor impaired can be assessed byreference to external credit rating (if available) or internal
assessment of customers’ (e.g. airlines’) creditworthiness.

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The maximum exposure of the current portion of other long-term ﬁnancial assets, trade receivables, receivables from relatedcompanies and ﬁnancial assets included in current other assets to credit risk at balance sheet date is the following:(in €m)

2007

2006

Receivables, neither past due nor impaired

4,353

4,176

43

4

Not past due due to negotiations and not impaired
Receivables impaired individually

16

11

Receivables not impaired and past due ≤ 3 months

728

623
114

Receivables not impaired and past due > 3 and ≤ 6 months

95

Receivables not impaired and past due > 6 and ≤ 9 months

55

90

Receivables not impaired and past due > 9 and ≤ 12 months

108

125

Receivables not impaired and past due > 12 months
Totalb) Carrying Amounts and Fair Values 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 anotherindependent party. Fair values of ﬁnancial instruments havebeen determined with reference to available market information

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347

493

5,745

5,636

at the balance sheet date and the valuation methodologies
discussed below. Considering the variability of their valuedetermining factors and the volume of ﬁnancial instruments,
the fair values presented herein may not be indicative of theamounts that the Group could realise in a current market
environment.

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3

The following tables present the carrying amounts and fair values of ﬁnancial instruments according to IAS 39 measurement
categories as of 31st December 2007 and 2006 respectively:
Fair Valuefor hedge
relations

31st December 2007(in €m)Fair Value throughprofit or loss

AssetsHeld fortrading Designated

Loans and Receivables
and Financial liabilities
at amortised cost

Available for Sale

Fair
value

Book
value

Fair
Value

-

-

-

Amortised
Cost

Fair
Value

582

582

Other(4)Financial
Instruments
Total

Book
Value

Fair
Value

472

1,054

1,054

Other investments and otherlong-term financial assets– thereof at amortised cost

-

-

(1)

-(1)

– thereof at cost

-

-

-

293

-

-

-

-

293

– thereof Fair value via OCI

-

-

-

206

206

-

-

-

206

206

-

-

-

-

-

60

60

106

166

166

Current portion of otherlong-term financial assets
Non-current and current
other assets(2)

201

-

5,194

-

-

976

976

-

6,371

6,371

Trade receivables

-

-

-

-

-

4,639

4,639

-

4,639

4,639

Non-current and current
securities

-

285

-

4,004

4,004

-

-

-

4,289

4,289

Cash and Cash Equivalents

-

503

-

5,507

5,507

1,539

1,539

-

7,549

7,549

201

788

5,194

10,010

9,717

7,796

7,796

578

24,567

24,274

Held fortrading Designated

Fair
value

Amortised
Cost

Fair
Value

Book
Value

Fair
Value

(4,814)(4,888)

Total

Liabilities
Long-term and short-term
financing liabilities
Non-current other andcurrent other liabilities(3)Trade liabilities
Total

-

-

-

-

-

(4,624)(4,698)

(190)

(91)

-

(1,211)--(6,619)(6,619)(5)-(7,921)(7,921)

-

-

-

-

-

(7,398)(7,398)-(7,398)(7,398)(91)-(1,211)--(18,641)(18,715)(190)(20,133) (20,207)(1) Fair value is not reliably measurable.
(2) This does not include non-current prepaid expenses (€808 million), current prepaid expenses (€401 million), non-current capitalised settlement payments to German government (€166 million) and its current
portion (€33 million, included in current other assets), value added tax claims (€627 million) as well as others (€342 million, thereof €59 million included in non-current other assets and €283 million in current otherassets), which do not qualify for ﬁnancial instruments.
(3) This does not include non-current customer advance payments (€8,420 million) and current customer advance payments (€16,214 million), tax liabilities (€557 million) as well as others (€698 million, thereof€34 million included in non-current other liabilities and €664 million in current other liabilities), which do not qualify for ﬁnancial instruments.
(4) This includes ﬁnance lease receivables and ﬁnance lease liabilities, which are not assigned to a measurement category according to IAS 39. The carrying amounts of these receivables/payables approximate their fairvalues.
(5) The European Governments refundable advances of €5,315 million are measured at amortised cost; a fair value can not be measured reliably due to their risk sharing nature and uncertainty about the repayment
dates.

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1

Fair Valuefor hedge
relations

31st December 2006
(in €m)Fair Value throughprofit or loss

AssetsHeld fortrading Designated2

Back to Contents

3

Loans and Receivables
and Financial liabilities
at amortised cost

Available for Sale

Fair value Book value Fair Value

Amortised
Cost

Fair Value

(4)

Other

Financial
Instrument
Total

Book Value Fair Value

Other investments and otherlong-term financial assets– thereof at amortised cost

-

-

-

-

-

460

460

578

1,038

– thereof at cost

-

-

-

345

-(1)

-

-

-

345

-

-

283

283

51

52

103

103

– thereof Fair value via OCI
Current portion of otherlong-term financial assets
Non-current and current
other assets(2)

-

-

-

283

283

-

-

51

1,038
-(1)

185

-

5,082

-

-

686

686

-

5,953

5,953

Trade receivables

-

-

-

-

-

4,852

4,852

-

4,852

4,852

Non-current and current
securities

-

-

-

1,843

1,843

-

-

-

1,843

1,843

Cash and Cash Equivalents
Total

Liabilities
Long-term and short-term
financing liabilities
Non-current other andcurrent other liabilities(3)Trade liabilities
Total

-

3,476

-

2,810

2,810

1,857

1,857

-

8,143

8,143

185

3,476

5,082

5,281

4,936

7,906

7,906

630

22,56022,215

Held fortrading DesignatedFair value

Amortised
Cost

Fair Value

-

-

-

-

-

(5,482)(5,634)

(35)

-

(196)

-

-

(6,350)

-

-

-

-

-

(35)

-

(196)

-

-

Book Value Fair Value(275)(5,757)(5,909)(6,350)(5)-(6,581)(6,581)(7,461)(7,461)-(7,461)(7,461)(19,293)(19,445)(275)(19,799) (19,951)(1) Fair value is not reliably measurable.
(2) This does not include non-current prepaid expenses (€683 million), current prepaid expenses (€384 million), non-current capitalised settlement payments to German Government (€198 million) and its current
portion (€29 million, included in current other assets), value added tax claims (€595 million) as well as others (€432 million, thereof €80 million included in non-current other assets and €352 million in current
other assets) which do not qualify for ﬁnancial instruments.
(3) This does not include non-current customer advance payments (€6,308 million) and current customer advance payments (€14,172 million), tax liabilities (€600 million) as well as others (€1,300 million, thereof€222 million included in non-current other liabilities and €1,078 million in current other liabilities) which do not qualify for ﬁnancial instruments.
(4) This includes ﬁnance lease receivables and ﬁnance lease liabilities, which are not assigned to a measurement category according to IAS 39. The carrying amounts of these receivables/payables approximate theirfair values.
(5) The European Governments refundable advances of €5,418 million are measured at amortised cost; a fair value can not be measured reliably due to their risk sharing nature and uncertainty about the repayment
dates.

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 31st December 2007 and 2006,
which are not necessarily indicative of the amounts that theCompany would record upon further disposal / termination of
the ﬁnancial instruments. Unquoted other investments aremeasured at cost as their fair value is not reliably determinable.

relatively short period of time between the origination of
the instruments and its expected realisation.

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 of
31st December 2007 and 2006.

The methodologies used are as follows:

Short-term investments, cash, short-term loans,
suppliers — The carrying amounts reﬂected in the annual
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The fair value of ﬁnancing liabilities as of 31st December
2007 has been estimated including all future interest payments.
It also reﬂects the interest rate as stated in the tables above. The
fair value of the EMTN bonds has been assessed using public
price quotations.

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The following types of ﬁnancial assets held at 31st December 2007 and 2006 respectively are recognised at fair value through proﬁt
or loss:(in €m)Nominal amount at
initial recognition as of
31st December 2007

Fair value as of
31st December 2007

Nominal amount at
initial recognition as of
31st December 2006

Fair value as of
31st December 2006

504

503

3,418

3,459

Designated at fair value through profit or loss at recognition:– Money Market Funds (accumulating)

-

-

18

17

– Foreign currency Funds of Hedge Funds– Bond Funds

234

234

-

-

– Uncapped Structured Interest Rate Notes

50

51

-

-

Total

788

788

3,436

3,476

The unrealised gain recognised in ﬁnance income amounts to€0 million (in 2006: €37 million). The accumulating Money
Market Funds have been designated at fair value through proﬁt
or loss as their portfolio is managed and their performance ismeasured on a fair value basis.

of foreign exchange gains and losses. The funds represent
equity investments and would otherwise be accounted as“available for sale” ﬁnancial assets with unrealised gains andlosses to be recognised in AOCI. As these equity funds qualify
as non monetary items under IAS 21, the unrecognised foreignexchange gains and losses would also be recognised within
AOCI. This would cause a mismatch with the recognition of
unrealised gains and losses of associated foreign currency
derivatives in proﬁt or loss. These foreign currency derivatives
have been purchased together with the equity investments andhave a similar notional amount.

In addition EADS invests in Money Market Funds paying
interest on a monthly basis. The fair value of those funds
corresponds to their nominal amount at initial recognition dateamounting to €2,941 million (in 2006: €1,598 million).
All types of Money Market Funds are presented in Cash andcash equivalents.
Investments in foreign currency Funds of Hedge Funds havebeen designated at fair value through proﬁt and loss tosigniﬁcantly reduce the inconsistency regarding the recognition

EADS also invests in uncapped Structured Interest Rate Notes– hybrid instruments combining a zero coupon bond and anembedded interest derivative. As the latter had to be separated
from the host contract EADS opted to designate the entire
hybrid instrument at fair value through proﬁt or loss.

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3c) Notional Amounts of Derivative Financial Instruments
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 31st December 2007(in €m)Remaining period
2008

2009

2010

2011

2012

2013

2014

2015

Total

10,209

8,712

7,479

3,468

1,272

450

(3)

0

31,587

162

1,422

537

513

214

0

0

0

2,848

Foreign Exchange Contracts:
Net forward sales (purchase)contracts
Structured USD forward:
Purchased USD call options
Purchased USD put options

162

1,422

537

513

214

0

0

0

2,848

Written USD call options

162

1,422

537

513

214

0

0

0

2,848

FX swap contracts

1,838

14

0

0

34

0

189

0

2,075

Year ended 31st December 2006
(in €m)

2007

2008

2009

2010

2011

2012

2013

2014

Total

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

Remaining period

Foreign Exchange Contracts:
Net forward sales (purchase)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 31st December 2007(in €m)

2008

2009

2010

2011

2012

2013-17

2018

2019

Total

Interest Rate Contracts

225

536

1,655

122

90

0

1,455

1,589

5,672

Year ended 31st December 2006
(in €m)

2007

2008

2009

2010

2011

2012 -17

2018

2019

Total

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

114

Remaining period

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Back to Contentsd) Derivative Financial Instruments and Hedge Accounting Disclosure
The following interest rate curves are used in the determination of the fair value in respect of the derivative ﬁnancial instruments asof 31st December 2007 and 2006:
31st December 2007
Interest rate in %

EUR

USD

GBP

6 months

4.58

4.61

5.91

1 year

4.67

4.25

5.76

5 years

4.56

4.16

5.16

10 years

4.72

4.65

5.08

31st December 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

The development of the foreign exchange rate hedging instruments recognised in AOCI is as of 31st December 2007 and 2006 as
follows:(in €m)st

1 January 2006
Unrealised gains and losses from valuations, net of tax
Transferred to profit or loss for the period, net of tax

Equity attributable
to equity holdersof the parent

Minority interests

Total

1,962

0

1,962

2,170

1

2,171

(943)

0

(943)

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

1,227

1

1,228

31st December 2006/1st January 2007

3,189

1

3,190

Unrealised gains and losses from valuations, net of tax

1,364

1

1,365

Transferred to profit or loss for the period, net of tax(1,002)0(1,002)

362

1

363

3,551

2

3,553

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

31 December 2007

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Corresponding with its carrying amounts, the fair values of each type of derivative ﬁnancial instruments is as follows:
31st December
2007

31st December
2006(in €m)AssetsLiabilities

AssetsLiabilities

Foreign currency contracts – Cash Flow Hedges

5,192

(124)

5,067

(66)

Foreign currency contracts – not designated in a hedge
relationship

154

(48)

123

(1)

2

(12)

0

(86)

Interest rate contracts – Fair Value Hedges

0

(67)

15

(44)

Interest rate contracts – not designated in a hedging relationship

27

(43)

37

(34)

Interest rate contracts – Cash Flow Hedges

Embedded foreign currency derivatives
Total

20

0

25

0

5,395

(294)

5,267

(231)

At 31st December 2007, the Group has interest swap
agreements in place with notional amounts totalling€1,500 million (as at 31st December 2006: €1,500 million). The
swaps are used to hedge the exposure to changes in the fairvalue of its EMTN bonds (see Note 23 “Financing liabilities”).
The fair value loss on the interest rate swaps of €23 million(2006: €43 million) has been recognised in ﬁnancial result andoffset against an equal gain on its EMTN bonds.

if the remaining maturity of the hedged item is more than
12 months and, as a current asset or liability, if the maturityof the hedged item is less than 12 months in case of serial
production. In case of long term production, a hedging
derivative is classiﬁed as non-current when the hedged items’remaining maturity is beyond EADS’ normal operating cycle;
and as a current asset or liability when the remaining maturityof the hedged item is in EADS’ normal operating cycle.

Derivatives which are not designated for hedge accounting areclassiﬁed as a current asset or liability. The full fair value of ahedging derivative is classiﬁed as a non-current asset or liability

No ineffective gain or loss arising from hedging relationships
has been recorded in proﬁt and loss.

e) Net Gains or Losses
EADS net gains or losses recognised in proﬁt or loss in 2007 and 2006 respectively were as follows:(in €m)

2007

2006

– Held for trading

(307)

(77)

– Designated on initial recognition

154

114

Financial assets or financial liabilities at fair value through profit and loss:

Available-for-sale-financial assets:– Result before taxes removed from OCI and recognised in profit and loss
Loans and receivables
Financial liabilities measured at amortised cost

Interest income from ﬁnancial assets or ﬁnancial liabilities
through proﬁt and loss is included in net gains and losses.
Net gains and losses of available-for-sale ﬁnancial assets mainlycomprise gains on derecognition.

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48

0

(127)

(49)

77

123

Net gains and losses of loans and receivables contain among
others results from currency adjustments from foreign
operations and impairment losses.

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The following net gains and losses have been recognised directly in equity in 2007 and 2006:(in €m)

2007

2006

(4)

20

Available-for-sale-financial assets:– Unrealised gains or losses recognised directly in OCIf) Total interest income and total interest expenses
Total interest income for ﬁnancial assets and total interest expense for ﬁnancial liabilities which are not measured at fair value
through proﬁt or loss are calculated by using the effective interest rate method:
2007

2006

Total interest income on financial asset

347

378

Total interest expense on financing liabilities

(701)

(575)

(in €m)g) Impairment losses
The following impairment losses on ﬁnancial assets are recognised in proﬁt and loss in 2007 and 2006 respectively:(in €m)

2007
(1)

2006

Available-for-sale financial assets

(13)

(4)

Loans and receivables

(120)

(94)

Other(2)

(24)

(11)

Total

(157)

(109)

(1) Concerns ﬁnancial assets valued at cost.
(2) Others include ﬁnance lease receivables.

31. Share-Based Paymenta) Long Term Incentive Plans (LTIP)
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 2007, compensation expense for Stock Option Plans wasrecognised for an amount of €39 million (in 2006: €40 million).
For the 613,519 options execised during the year 2007, theaverage share price at the date of exercise has been €23.88.
At its 7th December 2007 meeting, the Board of Directors of
the Company approved the granting of performance units andrestricted units in the Company. The grant of so called “units”
will not physically be settled in shares but represents a cash
settled plan in accordance with IFRS 2.

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The fair value of units granted per vesting date is as follows:
FV of restricted units
to be settled in cashIn € (per unit granted)

FV of performance
units to be settled
in cashMay 2011

21.03

21.03

November 2011

20.93

20.93

May 2012

20.84

20.84

November 2012

20.74

20.74

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
LTIP 2006

Share price (€)

LTIP 2005

25.34

32.79
(1)

33.91

Exercise price (€)

25.65

Risk-free interest rate (%)(2)

4.13

3.24

Expected volatility (%)

30.7

24.8

Estimated Life (years)

5.5

5.5

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

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 the Black Scholes Option Pricing Model (pleaserefer to Note 2 “Summary of signiﬁcant accounting policies”).
For measurement purposes performance criteria are considered
to be met.

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The estimated option life of 5.5 years (in 2006 and 2005) was
based on historical experience and incorporated the effect of
expected early exercises.
The lifetime of the performance and restricted units (2007) iscontractually ﬁxed (see table below). The measurement is basedon the share price as of the balance sheet date (€21.83 as of
31st December 2007) from which the present value of the
expected dividend payments is deducted.

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The principal characteristics of the options, performance and restricted shares as well as performance and restricted units as at
31st December 2007 are summarised in the various tables below:
First tranche

Second tranche

Date of shareholders’ meeting

24th 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

1,671,380

32,000850

34Total number of eligible employees

Exercise date

Expiry dateConversion right

50% of options may be exercised after a period of two years and four weeks from the dateof grant of the options; 50% of options may be exercised as of the third anniversary of thedate 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”).
8th July 2010

8th July 2010

One option for one share

One option for one share

Vested100%

100%

Exercise price€20.90€20.90Exercise price conditions

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

Number of exercised options

Date of shareholders’ meeting

2,892,020

188,000

Third tranche

Fourth trancheth

10th May 2001thth

10 May 2001
12 July 2001

9 August 2002

Number of options granted

8,524,250

7,276,700

Number of options outstanding

3,773,169

2,706,434

1,650

1,562

Date of Board of Directors meeting (grant date)

Total number of eligible employees

Exercise date

Expiry date

50% of options may be exercised after a period of two years and four weeks from the dateof grant of the options; 50% of options may be exercised as of the third anniversary of thedate 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”).
12th July 2011

Conversion right

8th August 2012
One option for one share

Vested100%

100%

Exercise price€24.66€16.96

Exercise price conditions
Number of exercised options

110% of fair market value of the shares at the date of grant
3,492,831

4,305,066

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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

4,818,873

6,240,986(1)Date of shareholders’ meeting
Date of Board of Directors meeting (grant date)

Total number of eligible employees

Exercice date

1,491

1,495

50% of options may be exercised after a period of two years and four weeks from thedate of grant of the options; 50% of options may be exercised as of the third anniversaryof 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”).
9th October 2013

Expiry dateConversion right

7th October 2014
One option for one share

VestedExercise price
Exercice price conditions

100%

100%(1)€15.65€24.32

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

Number of exercised options

2,503,423

2,400(1) As regards to the sixth tranche, vesting of part of the options granted to EADS top Executives was subject to performance conditions. As a result, part of these conditional options have not vested and were therefore
forfeited during the year 2007.

Seventh tranche

11th May 2005

Date of shareholders’ meetingth

9 December 2005

Date of Board of Directors meeting (grant date)
Number of options granted

7,981,760

Number of options outstanding

7,764,940

Total number of eligible beneficiaries

Exercise date

1,608
50% of options may be exercised after a period of two years from the date of grant of theoptions; 50% of options may be exercised as of the third anniversary of the date of grantof 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 dateConversion right
VestedOne option for one share
50%

Exercise price
Exercice price conditions
Number of exercised options120

8th December 2015

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3

Eighth tranche

4th May 2006

Date of shareholders’ meetingth

18 December 2006

Date of Board of Directors meeting (grant date)

Stock option plan
Number of options granted

1,747,500

Number of options outstanding

1,742,000

Total number of eligible beneficiaries

Date from which the options may be exercised

221
50% of options may be exercised after a period of two years from the date of grant of theoptions; 50% of options may be exercised as of the third anniversary of the date of grantof the options (subject to specific provisions contained in the Insider Trading Rules – see“Part 2/3.1.3 Governing Law – Dutch Regulations”)

Date of expiration

16th December 2016

Conversion right

One option for one share

Vested0%

Exercice price
Exercice price conditions€25.65110% 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

Number of shares granted

1,344,625

391,300

Number of shares outstanding

1,328,375

386,750

Total number of eligible beneficiaries

Vesting date

Number of vested shares

1,637
The performance and restricted shares will vest if the participant is still employed by an
EADS company and, in the case of performance shares, upon achievement of mid-termbusiness performance. The vesting period will end at the date of publication of the 2009
annual results, expected in March 2010.
875

0Ninth tranchethDate of Board of Directors meeting (grant date)

7 December 2007
Performance and restricted unit plan
Performance units

Number of units granted
Total number of eligible beneficiaries

Vesting dates

Restricted units

1,693,940

506,060
1,617

The performance and restricted units will vest if the participant is still employed by an
EADS company at the respective vesting dates and, in the case of performance units,
upon achievement of mid-term business performance.
Vesting schedule is made up of 4 payments over 2 years:• 25% expected in May 2011;• 25% expected in November 2011;• 25% expected in May 2012;• 25% expected in November 2012.

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

Balance at
1st January

Exercised

Forfeited

Balance at
31st December

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

2006-

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

1,775,489

2007-

1,775,489(35,109)(37,000)

1,703,380

Exercised

Forfeited

Balance at
31st December

Number of Options
Third Tranche
Options granted

Balance at
1st January

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

2006-

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

3,856,519

2007-

3,856,519(2,000)(81,350)

3,773,169

Options granted

Balance at
1st January

Forfeited

Balance at
31st December

Number of Options
Fourth Tranche

Exercised

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

2006-

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

2007-

2,911,916(189,532)(15,950)

2,706,434

Forfeited

Balance at
31st December

Number of Options
Fifth Tranche
Options granted

Balance at
1st January

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

2006-

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

5,229,965

2007-

5,229,965(386,878)(24,214)

4,818,873

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Number of Options
Sixth Tranche
Options granted

Balance at
1st January

Exercised

Forfeited

Balance at
31st December

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-

7,599,700-(1,358,714)

6,240,986

Options granted

Balance at
1st January

Exercised

Forfeited

Balance at
31st December

2006
2007

Number of Options
Seventh Tranche

2005

7,981,760---

7,981,760

2006-

7,981,760-(74,160)

7,907,600

2007-

7,907,600-(142,660)

7,764,940

Options granted

Balance at
1st January

Exercised

Forfeited

Balance at
31st December

2006

1,747,500---

1,747,500

2007-

1,747,500-(5,500)1,742,000

46,436,354-(13,383,740)(4,302,832)

28,749,782

Forfeited

Balance at
31st December

Number of Options
Eighth Tranche

Total options for all Tranches

Number of Shares
Performance/restricted shares plan 2006
Shares granted

Balance at
1st January

VestedPerformance shares in 2006

1,344,625---

1,344,625

Performance shares in 2007-

1,344,625(875)(15,375)

1,328,375

Restricted shares in 2006

391,300---

391,300

Restricted shares in 2007-

391,300-(4,550)386,750

1,735,925

1,735,925(875)(19,925)

1,715,125Units granted

Balance at
1st January

Forfeited

Balance at
31st December

Total shares

Number of Units
Ninth Tranche

VestedPerformance units in 2007

1,693,940---

1,693,940

Restricted units in 2007

506,060---

506,060

2,200,000---

2,200,000

Total units

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During a lockup period of at least one year under tranche A or
ﬁve years under tranche B, employees are restricted from sellingthe shares, but have the right to receive all dividends paid.
Employees who subscribed to tranche A have in addition theability to vote at the annual shareholder meetings. EADS
issued and sold 2,037,835 ordinary shares with a nominal valueof €1.00 under both tranches. Compensation expense of€9 million was recognised in connection with the ESOP 2007.
In 2006, no ESOP was issued by the Company. Consequently,
no compensation expense was recognised in 2006 in connection
with the ESOP programme.

b) Employee Stock Ownership Plan (ESOP)In 2007, the Board of Directors approved an additional ESOP
following six ESOPs established in 2005, 2004, 2003, 2002,
2001 and in 2000. For the 2007 ESOP, eligible employees wereable to purchase a maximum of 500 shares per employee ofpreviously unissued shares. The offer was broken down into
two tranches which were available for all employees to choose.
The subscription price for tranche A was €17.16. The
subscription price for tranche B was the highest of thesubscription price for tranche A or 80% of the average opening
market prices for EADS shares on the Paris stock exchange over
the twenty trading days preceding 14th May 2007, resulting in a
subscription price of €19.62.

32. Related Party Transactions
Related parties — The Group has entered into varioustransactions with related companies in 2007 and 2006 that haveall been carried out in the normal course of business. As is theGroup’s policy, related party transactions have to be carried out
at arm’s length. Transactions with related parties include theFrench State, Daimler AG, Lagardère and SEPI (Spanish State).
Except for the transactions with the French State and SEPI,
the transactions are not considered material to the Group either
individually or in the aggregate. The transactions with

the French State include mainly sales from the Eurocopter,
Astrium and Defence & Security divisions for programmes
like Tiger, M51 / M45 ballistic missiles and SCALP naval
cruise missiles. The transactions with the Spanish State include
mainly sales from the MTAD and Defence & Security
divisions for programmes like the A400M and Euroﬁghter.
The transactions with the joint ventures mainly concern
the Euroﬁghter and A400M programmes.

The following table discloses the related party transactions on a full EADS’ share as of 31st December 2007:
Payablesdue as of
31st December
2007

Other
liabilities/Loans
received as of
31st December
2007

882

0

2,087

122

0

352

Sales of goods
and services andother income in
2007

Purchasesof goods andservices andother expense in
2007

Receivables
due as of
31st December
2007

1,587

17

316

0

Daimler AG

4

12

2

4

0

Lagardère group

2

0

0

2

14

Total transactions with shareholder

1,909

29

1,006

6

2,453

Total transactions with joint ventures

1,638

28

371

42

616

687

20

317

3

0

(in €m)French State
Spanish State (SEPI)

Total transactions with associates

In 2007, Lagardère and the French State repaid to EADS the dividends they received related to 2006 for an amount of €29 million as
an interest free loan.

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The following table discloses the related party transactions on a full EADS’ share as of 31st December 2006:(in €m)Sales of goods
and services andother income in
2006

Purchasesof goods andservices andother expense in2006

Receivables
due as of
31st December
2006

Payablesdue as of
31st December
2006

Other
liabilities/Loans
received as of
31st December
2006

2,292

28

857

19

1,968

394

0

120

0

408

5

5

5

3

0

French State
Spanish State (SEPI)
Daimler AG
Lagardère group

0

0

0

0

0

Total transactions with shareholder

2,691

33

982

22

2,376

Total transactions with joint ventures

1,088

30

194

19

359

639

9

247

4

0

Total transactions with associates

Remuneration — The annual remuneration and related compensation costs of all of key management personnel, i.e. Non Executive
Board Members, Executive Board Members and Members of the Executive Committee, can be summarised as follows:
2007

Compensation expense

Non Executive Board Members

PensionDefined benefit obligation(1)(in €m)(3)

Pension expense(2)

0.8

-

-

Executive Board Member(4)

2.1

0.8

0.6

Other Executive Committee Members(5)

11.7

15.5

1.7

(1)
(2)
(3)
(4)
(5)

Amount of the net pension deﬁned beneﬁt obligation.
Aggregated amount of current service and interest costs related to the deﬁned beneﬁt obligation accounted for during ﬁscal year 2007.
Non Executive Board Members in ofﬁce as at 31st December 2007.
The Chief Executive Ofﬁcer was the sole Executive Board Member in ofﬁce as at 31st December 2007.
Including former Executive Board Members who ceased their membership with the Board in 2007 but who were still Executive Committee Members as at 31st December 2007; excluding former Executive
Committee Members who were no longer in ofﬁce as at 31st December 2007.

2006

Compensation expense(in €m)Non Executive Board Members

Pension(1)

Defined benefit obligation(3)

Pension expense(2)

0.8

-

-

Executive Board Members(4)

5.3

11.5

1.2

Other Executive Committee Members(5)

5.8

6.4

0.7

(1)
(2)
(3)
(4)
(5)

Amount of the net pension deﬁned beneﬁt obligation.
Aggregated amount of current service and interest costs related to the deﬁned beneﬁt obligation accounted for during ﬁscal year 2006.
Non Executive Board Members in ofﬁce as at 31st December 2006.
Executive Board Members in ofﬁce as at 31st December 2006.
Excluding former Executive Committee Members who were no longer in ofﬁce as at 31st December 2006.

Additionally, performance units granted in 2007 to the Chief
Executive Ofﬁcer and to the other Executive Committee
Members represented 259,900 units.

EADS has not provided any loans to/advances to/guarantees onbehalf of Directors, former Directors or Executive Committee
Members.

The amounts detailed above do neither comprise thetermination package nor the estimated cost of Long Term
Incentives granted to Executive Committee Members.

The Executive Committee members are furthermore entitled toa termination package when the parting results from a decisionby the Company. The employment contracts for the Executive
Committee members are concluded for an indeﬁnite term withan indemnity of up to a maximum of 24 months of their target
income.

For more information in respect of remuneration of Directors,
see “Notes to the Company Financial Statements – Note 11:
Remuneration”.

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The Board has decided to reduce the maximum terminationindemnity from 24 months to 18 months of annual total target
salary.

2

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3

The indemnity could be reduced pro rata or would even not beapplicable depending on age and date of retirement.
Executive Committee members are also entitled to a Company
car.

This new rule is applicable to the Executive Committee
members from the renewal of their employment contracts.

33. Investment Property
The Group owns investment property, that is leased to third
parties. For the purposes of IAS 40 “Investment property”
the fair 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:(in €m)Book value of Investment
Property

Historicalcost

Accumulated
depreciation
31st December
2006Book value
31st December
2006

Disposals
Historical cost

271

(134)

137

(58)

As of 31st December 2007, the fair value of the Group’s
investment property amounts to €100 million (in 2006:€154 million). Related rental income in 2007 is €13 million

Depreciation
Amortisation

Disposals
Accumulated
depreciation

Accumulated
depreciation
31st December
2007

Net at31st December
2007

(10)

27

(117)

96

(in 2006: €15 million) with direct operating expenses
amounting to €5 million (in 2006: €7 million).

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 areconsolidated using the proportionate method.

The following amounts represent the Group’s proportional
share of the assets, liabilities, income and expenses of thesigniﬁcant joint ventures (MBDA, Atlas and ATR) in aggregate:(in €m)Non current assets
Current assets
Non current liabilities

2007(1)

2006(1)

693

830

3,004

3,503

466

612

Current liabilities

2,670

3,245

Revenues

1,729

2,006

121

170

Profit for the period(1) The percentage of the proportional consolidation of MBDA has changed from 50% to 37.5% as of 1st January 2007.

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35. Earnings per Share
Basic earnings per share — Basic earnings per share arecalculated by dividing proﬁt (loss) for the period attributable toequity holders of the parent (Net income (loss)) by theweighted average number of issued ordinary shares during
the year, excluding ordinary shares purchased by the Groupand held as treasury shares.
2007

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

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
ordinary shares. The Group’s only category of dilutive potential
ordinary shares is stock options. In 2007, the average shareprice of EADS exceeded the exercise price of the stock options

2006€(446) M€99 M€1,676 M

803,128,221

800,185,164

794,734,220€(0.56)

€0.12

€2.11

under the 1st, 2nd, 4th and 5th stock option plan (in 2006 and2005: 1st, 2nd, 3rd, 4th, 5th, and 6th stock option plans). Hence,
2,420,180 shares (2006: 4,130,499 shares; 2005:
5,482,133 shares) were considered in the calculation of diluted
earnings per share.

2007

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

2005

2006

2005

€(446) M€99 M€1,676 M

805,548,401

804,315,663

800,216,353€(0.55)

€0.12

€2.09

36. Number of Employees
The number of employees at 31st December 2007 is 116,493 as compared to 116,805 at 31st December 2006.

37. Events after the Balance Sheet Date
On 29th February 2008, the U.S. Air Force awarded Northrop
Grumman Corp., U.S.A. a contract for the development andprocurement of up to 179 tanker aircraft for approximately$40 billion. This dollar amount includes both priced optionsfor 80 aircraft and unpriced options for another 99 as well as
estimated support costs (currently unpriced). The initial
contract for the newly named KC-45A, is for the system designand development of four test aircraft for $1.5 billion. The Air
Force will be funding this initial tranche over the next three
years. EADS North America Inc., U.S.A. is the partner to
Northrop Grumman Corp., U.S.A. on the new tanker contract,with responsibility for assembling airframes and providing
completed ﬂight-qualiﬁed aircraft and refueling sub-systems.
The Military Transport Aircraft Division (MTAD) is
responsible within the EADS Group for all military derivative
programmes based on Airbus platforms, including tankers.
Starting in 2011, production of KC-45A airframes will be
performed at Airbus’ new Mobile, Alabama aerospace centre
which will house the Airbus KC-45A ﬁnal assembly facility.

In addition, EADS Group and Airbus intend to transfer
the ﬁnal assembly of Airbus A330 civilian freighters there.
Unsuccessful competitor Boeing announced its imminent
intention to ﬁle a protest with the General Accounting Ofﬁce,
whose decision would have to be issued within 100 days of
the ﬁling as required by law.
With regard to the plan to sell the Airbus sites in Méaulte,
St. Nazaire Ville, Nordenham, Varel, Laupheim and Filton andthe EADS site in Augsburg negotiations with selected
preferred bidders (Latécoère in France, GKN in the U.K. and
MT Aerospace in Germany) are ongoing. So far, binding
agreements have not been reached. Furthermore, the potential
divestment of the sites is still subject to EADS’ Board of
Directors decision.
These Consolidated Financial Statements have been authorisedfor issuance by the Board of Directors on 10th March 2008.

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Appendix “Information on Principal Investments” – Consolidation Scope
2007

%

2006

%

Company

Head officeF

100.00F

100.00AD Grundstückgesellschaft GmbH

Pöcking (Germany)F

100.00F

100.00AFS Cayman 11 Limited

Cayman Isle

F

100.00AFS Cayman Aerospace Limited

IrelandF

100.00

AI Leasing Inc.

USA

AirbusF

100.00AI Participations S.A.R.L.

Blagnac (France)F

100.00F

100.00

AIFS (Cayman) Ltd.

Cayman Isle

F

100.00F

100.00

AIFS Cayman Liquidity Ltd.

Cayman Isle

F

100.00F

100.00

AIFS Leasing Company Limited

IrelandF

100.00F

100.00Airbus A320 Financing Limited

IrelandF

100.00F

100.00Airbus China Limited

Hong KongF

100.00F

100.00Airbus Deutschland GmbH

Hamburg (Germany)F

100.00F

100.00Airbus España SL

Madrid (Spain)F

100.00F

100.00Airbus Finance Company Ltd

Dublin (Ireland)

F

100.00Airbus Financial Service Holdings B.V.

Netherlands

F

100.00F

100.00Airbus Financial Service Unlimited

IrelandF

100.00F

100.00Airbus France S.A.S.

Toulouse (France)F

100.00F

100.00Airbus Holding S.A.

FranceF100.00F

100.00Airbus Invest

Toulouse (France)F

100.00F

100.00Airbus North America Customer Servics, Inc. (ASCO)

USA

F

100.00F

100.00Airbus North America EngineeringUSAF

100.00F

100.00Airbus North America Sales Inc.

USA

F

100.00F

100.00Airbus Americas Inc.
(In 2006: Airbus North American Holdings Inc. (AINA))

USA

F

100.00F

100.00Airbus S.A.S.

Toulouse (France)F

100.00F

100.00Airbus Transport International S.N.C. (ATI)

Blagnac (France)F

100.00F

100.00Airbus U.K. Limited

U.K.

F

100.00F

100.00Avaio Limited

Isle Of Man

F

100.00F

100.00Aviateur Aerospace Limited

Ireland

E

20.00

E

26.40

Aviateur Capital Limited (In 2006: Avion Capital Limited)

IrelandF

100.00F

100.00Aviateur Eastern Limited

IrelandF

100.00F

100.00Aviateur Finance Limited

IrelandF

100.00F

100.00Aviateur International Limited

IrelandF

100.00F

100.00Aviateur Leasing Limited

IrelandF

100.00AVSA Canada Inc.

CanadaNorbusUSA

F

100.00F

100.00F

100.00F

100.00Star Real Estate S.A.S.

Boulogne (France)F

100.00F

100.00Total Airline Service Company

United Arab Emirates

Additionally consolidated are 36 SPEs.

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

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%

2

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3

%

2006

Company

Head office

F

90.00

F

90.00

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

77.21

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

100.00F

100.00Eurocopter Training Services S.A.S.

Marignane (France)

Military Transport

Eurocopter

F

76.52

F

76.52

Helibras – Helicopteros do Brasil S.A.

Itajuba (Brazil)

E

25.00

E

25.00

HFTS Helicopter Flight Training Services GmbH

Hallbergmoos (Germany)

Defence & Security
F

100.00F

100.00Aircraft Services Lemwerder GmbH

Lemwerder (Germany)

P

37.50

ALKAN

Valenton (France)F

100.00F

100.00

Apsys

Suresnes (France)

E

16.20

E

13.20

Arbeitsgemeinschaft Marinelogistik

Bremen (Germany)

E

14.70

E

12.00

Atlas Defence Technology SDN.BHD

Kuala Lumpur (Malaysia)

P

49.00

P

40.00

Atlas Elektronik PTY Limited

St. Leonards (Australia)

P

49.00

Atlas Elektronik U.K. (Holdings) Limited

Newport, Wales (U.K.)

P

49.00

Atlas Elektronik U.K. Limited

Newport, Wales (U.K.)

P

49.00

P

40.00

Atlas Elektronik GmbH

Bremen (Germany)

P

49.00

P

40.00

Atlas Hydrographic Holdings PTY Limited

St. Leonards (Australia)

P

49.00

P

40.00

Atlas Hydrographics GmbH

Bremen (Germany)

P

49.00

P

40.00

Atlas Maridan ApS

Horsholm (Denmark)

P

49.00

P

40.00

Atlas Naval Systems Malaysia SDN.BHD.

Kuala Lumpur (Malaysia)

F

55.00

F

55.00

Aviation Defense Service S.A.

Saint-Gilles (France)

P

18.75

P

50.00

Bayern-Chemie Gesellschaft für flugchemische Antriebe mbH

Aschau/Inn (Germany)

E

19.60

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 Air Services (in 2006: EADS Services)

Boulogne (France)F

100.00F

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

Madrid (Spain)F

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

Madrid (Spain)

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

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3

2007

%

2006

%

Company

Head officeF

100.00F

100.00EADS Cognac Aviation Training Services (In 2006: ECATS)

Paris (France)F

100.00F

100.00EADS Defence & Security Solutions España S.A.U.
(In 2006: EADS Telecom España)

Madrid (Spain)F

100.00F

100.00EADS Defence & Security Systems Limited

Newport, Wales (U.K.)

F

100.00F

100.00EADS Defence & Security Systems Limited – Holding

Newport, Wales (U.K.)

F

100.00F

100.00EADS Defence & Security Systems S.A.

Elancourt (France)F

100.00F

100.00EADS Deutschland GmbH – Defence Headquarter

Unterschleißheim (Germany)F

100.00EADS Deutschland GmbH – Dornier Verteidigung
und Zivile Systeme

Friedrichshafen (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

100.00EADS Deutschland GmbH (Unit: Operations Services)

Unterschleißheim (Germany)F

100.00F

100.00EADS North America Defense Company

Arlington, Delaware (USA)F

100.00F

100.00EADS Operations & Services U.K.

Newport, Wales (U.K.)

F

100.00F

100.00EADS Secure Networks Deutschland GmbH(In 2006: EADS Telecom Deutschland GmbH)Ulm (Germany)F

100.00F

100.00EADS Secure Networks Oy

Helsinki (Finland)

F

100.00F

100.00EADS Secure Networks S.A.S.

Elancourt (France)F

100.00F

100.00EADS System & Defence Electronics Belgium

Oostkamp (Belgium)

F

100.00F

100.00EADS Telecom Deutschland GmbH

Untershleissheim (Germany)
Mexico DF (Mexico)F

100.00F

100.00EADS Telecom Mexico SA de CV

E

30.00

E

30.00

ESG Elektroniksystem- und Logistikgesellschaft mbH

Munich (Germany)F

100.00F

100.00Fairchild Controls Corporation

Frederick, Maryland (USA)F

100.00F

100.00FmElo Elektronik- und Luftfahrtgeräte GmbHUlm (Germany)F

100.00Germantown Holding Company

Frederick, Maryland (USA)F

100.00F

100.00Gesellschaft für Flugzieldarstellung mbH

Hohn, Germany

F

100.00F

100.00Get Electronique S.A.

Castres (France)

P

49.00

F

100.00Hagenuk Marinekommunikation GmbH

Flintbek (Germany)F

100.00F

100.00IFR France S.A.

Blagnac (France)F

100.00Integrated Defense Systems NA

Wilmington, Delaware (USA)

P

37.50

P

37.50

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

100.00Manhattan Beach Holdings Co.

Frederick, Maryland (USA)

P

37.50

Marconi Overside Ldt.

Chelmsford (U.K.)

F

100.00

Matra Aerospace Inc.

Frederick, Maryland (USA)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
F

37.50

F: Fully consolidated.
P: Proportionate.
E: Equity method.
The stated percentage of ownership is related to the respective parent company.
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3

2007

%

2006

%

Company

Head office

P

37.50

P

37.50

MBDA S.A.S.

Velizy (France)

P

37.50

P

37.50

MBDA Services

Velizy (France)

P

37.50

P

37.50

MBDA Treasury

Jersey (U.K.)

P

37.50

P

37.50

MBDA U.K. Ltd.

Stevenage, Herts (U.K.)

E

26.80

E

26.80

Patria Oyj (In 2006: Patria Industries Oyj)

Helsinki (Finland)

F

80.00

F

80.00

Pentastar Holding

Paris (France)F

100.00F

100.00

Proj2

Paris (France)

P

18.75

P

50.00

Propulsion Tactique S.A.

La Ferte Saint Aubin (France)F

100.00F

100.00

Racal Instruments U.S.

San Antonio, Texas (USA)F

100.00F

100.00

Racal Instruments Group Ltd. U.K.
(In 2006: Racal Instruments U.K.)

Wimborne, Dorset (U.K.)

E

18.75

E

33.00

Reutech Radar Systems (Pty) Ltd.

Stellenbosch (South Africa)

E

18.75

Roxel

Saint-Médard-en-Jalles (France)F

100.00F

100.00

Sofrelog S.A.

Bozons (France)

P

49.00

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

P

25.13

TAURUS Systems GmbH

Schrobenhausen (Germany)

P

37.50

P

37.50

TDW- Ges. für verteidigungstechnische Wirksysteme GmbH

Schrobenhausen (Germany)F

100.00F

100.00

Test & Services France

Velizy (France)F

100.00F

99.99

Test & Services North America

Irvine, California (USA)F

100.00F

100.00TYX Corp.

Reston, VA (USA)

E

50.00

E

50.00

United Monolithic Semiconductors France S.A.S.

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

Munich (Germany)F

100.00F

100.00Astrium GmbH – Space Transportation

Munich (Germany)F

100.00F

100.00Astrium Holding S.A.S.

Paris (France)F

100.00F

100.00Astrium Ltd. – Satellites

Stevenage (U.K.)

F

100.00F

100.00Astrium S.A.S. – Satellites

Toulouse (France)F

100.00F

100.00Astrium S.A.S. – Space Transportation

Les Mureaux (France)F

100.00F

100.00Astrium S.A.S. Toulouse

Paris (France)F

100.00F

100.00Astrium Services GmbH

Ottobrunn (Germany)F

100.00Astrium Services S.A.S.

Paris (France)F

100.00F

100.00Computadoras, Redes e Ingenieria SA (CRISA)

Madrid (Spain)F

100.00F

100.00Dutch Space B.V.

Leiden (Netherlands)

F

100.00F

100.00Astrium Jersey Ltd.

Jersey (U.K.)

F

100.00F

100.00Astrium N.V.

The Hague (Netherlands)

F

100.00F

100.00Astrium 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

100.00GPT Special Project Management Limited

Riyadh (Saudi Arabia)

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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2007

%

2006

%

Company

Head officeF

100.00F

100.00

Infoterra GmbHFriedrichshafen (Germany)F

100.00F

100.00

Infoterra Ltd

Southwood (U.K.)

F

100.00F

100.00

Infoterra S.A.S.

Toulouse (France)F

100.00F

100.00

Matra Marconi Space U.K. Ltd.

Stevenage (U.K.)

F

75.00

F

75.00

MilSat Services GmbH

Bremen (Germany)F

100.00F

100.00MMS Systems Ltd

Stevenage (U.K.)

E

47.40

E

47.40

Nahuelsat S.A.

Buenos Aires (Argentina)

F

100.00F

100.00

Paradigm Secure Communications (Holding) Ltd.

Stevenage (U.K.)

F

100.00F

100.00

Paradigm Secure Communications Ltd

Stevenage (U.K.)

F

100.00F

100.00

Paradigm Services Ltd

Stevenage (U.K.)

F

89.98

F

89.98

Sodern S.A.

Limeil Brevannes (France)F

100.00Space Management & Servcies S.A.S.

Paris (France)

E

40.03

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)

F

80.00

Aerobail GIE

Paris (France)

Other Businesses

P

50.00

P

50.00

ATR Eastern Support

Singapour (Singapour)

P

50.00

P

50.00

ATR GIE

Toulouse (France)

P

50.00

P

50.00

P

50.00

P

50.00

P

P

50.00

P

P

50.00

P

F

50.10

F

50.00

ATR India Customer Support

Bangalore (India)

ATR International SARL

Toulouse (France)

50.00

ATR North America Inc.

Washington D.C. (USA)50.00

ATR Training Center SARL

Toulouse (France)

50.00

ATRiam Capital Ltd.

Dublin (Ireland)

F

50.10

Composites Aquitaine S.A.

Salaunes (France)

F

50.00

Composites Atlantic Ltd.

Halifax (Canada)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.

Louey (France)F

100.00F

100.00EADS Sogerma S.A.

Mérignac (France)

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

100.00

Sogerma America Barfield B.C.

Miami, Florida (USA)

F

60.00

Sogerma Services S.A.

Mérignac (France)

Additionally consolidated are 21 SPEs

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

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%

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3

%

2006

Company

Head office

E

23.15

E

F

75.00

F

23.15

Aero Precision

Deerfield Beach (USA)75.00

DADC Luft- und Raumfahrt Beteiligungs AG

Munich (Germany)

E

46.30

E

46.30

Dassault Aircraft Services

(USA)

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

Dassault International (USA) Inc.

Paramus N.J. (USA)

E

46.30

E

46.30

Dassault Procurement Services lnc.

Paramus N.J. (USA)

F

97.16

F

97.11

Dornier GmbH – Zentrale

Friedrichshafen (Germany)

F

88.00

EADS Aeroframe Services LLC

Lake Charles, Louisiana (USA)Headquarters

F

100.00F

100.00EADS Airbus Holding S.A.S.

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

100.00EADS Dornier Raumfahrt Holding GmbH

Ottobrunn (Germany)
Amsterdam (Netherlands)

F

100.00F

100.00EADS Finance B.V.

F

100.00F

100.00EADS France S.A.S. – Headquarters (In 2006: EADS France)

Paris (France)F

100.00EADS France S.A.S. – Innovation Work

Suresnes (France)F

100.00F

100.00EADS North America Inc.

Arlington (USA)

F

97.16

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)

E

23.15

E

23.15

Falcon Training CenterFranceF100.00Manhattan Beach Holding Company

Frederick, Maryland (USA)F

100.00F

100.00

Matra Aerospace Inc. (In 2006: EADS Sogerma Participant)

Arlington (USA)

E

46.30

E

46.30

Midway

USA

E

46.30

E

46.30

Sogitec Industries

Suresnes (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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Auditor’s Report on the Consolidated Financial Statement (IFRS)
To: The EADS N.V. shareholders.

REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
We have audited the accompanying 2007 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 10th March 2008, which comprise theconsolidated balance sheets as at 31st December 2007, the consolidated income statements, the consolidated statements of recognised
income and expenses and the consolidated statements 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.

Auditors’ 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, the auditors
consider internal control relevant to the entity’s preparation and fair presentation of the consolidated 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 consolidated
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 31st December 2007, 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 consolidated ﬁnancial statements as required by 2:391
sub 4 of the Netherlands Civil Code.

Rotterdam, 10th March 2008

Amsterdam, 10th March 2008

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)AssetsNote

At 31st December
2007

At 31st December
2006

Fixed assets
Goodwill

2

4,354

4,354

Financial fixed assets

2

11,303

12,29815,657

16,652

4,387

Non-fixed assets
Receivables and other assets

3

5,526

Securities

4

4,280

1,660

Cash and cash equivalents

4

6,444

6,862

Total assets

16,25012,90931,90729,561

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

814

816

Share premium

7,968

8,160

Revaluation reserves

3,973

3,657

Other legal reserves

1,884

1,472

Treasury shares

(206)

(349)

Retained earnings(1,343)(741)

13,09013,015

Non current liabilities
Financing liabilities

6

316

320

Non current other liabilities

6

1,532

1,518

1,848

1,838

Current liabilities
Current other liabilities

7

16,96914,708

16,96914,70831,90729,561(in €m)

2007

2006

Income from investments

(380)

95

Other results

(66)

4

(446)

99

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

Income Statement of the Company Financial Statements

Net result

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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 2007 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 Codethe income statement 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 theEuropean Union (hereinafter referred to as EU-IFRS). Please see
Note 2 of the consolidated ﬁnancial statements for a descriptionof these principles.
Participating interests including subsidiaries, 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 to the extend the company cannot enforce
dividend distribution.

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2. Fixed Assets
The goodwill acquisition costs end of 2007 amount to €5,676 million (2006: €5,676 million) and the cumulative amortisation andimpairments to €1,322 million (2006: €1,322 million).
The movements in ﬁnancial ﬁxed assets are detailed as follows:(in €m)Subsidiaries

Participations

Loans

Total

10,05776

2,165

12,298255

255(1,244)(1,327)stBalance at 31 December 2006
Acquisitions/additions
Reductions/redemptions(83)

SOP/ESOP

47

Net income from investments

(387)

47
7

(380)

Actuarial gains/losses IAS 19

403

Dividends received

(129)

(4)

(133)

Translation differences/other changes

125

15

140

10,03394

stBalance at 31 December 2007

The investments in subsidiaries are included in the balance
sheet based on their net asset value in accordance with theaforementioned accounting principles of the consolidated
ﬁnancial statements. The participations include available-forsale securities and investments accounted for using the equity
method.
The translation differences/other changes reﬂect mainly the
impact in the other comprehensive income related to theapplication of IAS 39.

403

1,176

11,303Signiﬁcant subsidiaries, associates and joint ventures are listed
in the appendix “Information on principal investments” to theconsolidated ﬁnancial statements.
Loans provided to afﬁliated companies amount to€1,167 million (2006: €2,165 million). In average, the interest
rate of the loans is 5,3%. An amount of €505 million has amaturity between ﬁve and ten years and an amount of€325 million matures after ten years. The item redemptions
mainly reﬂects the redemption of a loan provided to Paradigm
Secure Communications.

3. Receivables and Other Assets(in €m)

2007

2006

Receivables from affiliated companies

5,317

4,253

Receivables from related companies
Other assets
Total receivables and other assets

-

22

209

112

5,526

4,387

The receivables from afﬁliated companies include mainly receivables in connection with the cash pooling in EADS N.V.
An amount of €47 million (2006: €18 million) is due after one year.

4. Securities, Cash and Cash Equivalents
The securities comprise mainly available-for-sale Securities.
The available-for-sale security portfolio contains a non-current
portion of €2,685 million. For further information please see
Note 18 of the Consolidated Financial Statements.
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EADS limits its cash equivalents to such investments having
a maturity of three months or less from acquisition date.

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5. Stockholders’ Equity(in €m)Balance at 31st December 2005

Capital
stock

Share
premiums

Revaluation
reserves

Other legal
reserves

TreasurysharesRetainedearnings

Total
equity

818

8,715

2,359

1,993

(445)

(386)

13,054

5

89

Capital increase94

Net income

99

99

ESOP/SOP IFRS 2

40

40

Cash distribution

(520)

(520)

Transfer to other legal reserves

494

Purchase of treasury shares(35)

Cancellation of shares

(7)

(124)

OthersBalance at 31st December 2006

(494)

816

8,160

3

43

Capital increase

131
1,298

(1,015)

3,657

1,472

283
(349)

ESOP/SOP IFRS 2

13,015

(446)

(446)

48

48

(97)

(97)

Transfer to other legal reserves

204

Cancellation of shares

(5)

(138)

814

7,968

OthersBalance at 31st December 2007

(741)

46

Net income
Cash distribution(35)

For further information to the Stockholders’ equity, please see
Note 20 of the Consolidated Financial Statements.
As of 31st December 2007, the item “Revaluation reserves”
relates to €3,550 million (2006: €3,188 million) resulting fromchanges in the fair values of cash ﬂow hedges, recognised
directly in equity and €423 million (2006: €469 million)
resulting from the fair value of Securities classiﬁed as available
for sale.
The other legal reserves are related to EADS’ share in theundistributed results from investments for €841 million

(204)
143

316

208

3,973

1,884

524
(206)

(1,343)13,090(2006: €664 million) internally generated capitalised
development costs of €900 million (2006: €873 million),€1,103 million (2006: €1,298 million) resulting from currencytranslation effects of afﬁliated companies, compensated by therecognition of actuarial losses arising from deﬁned beneﬁt plansin equity of €960 million (2006: €1,363 million).
The internally generated development costs reﬂect capitalised
development costs in the consolidated subsidiaries andallocated to other legal reserves in accordance with
Article 2:389 paragraph 6 of the Dutch Civil Code.

6. Non Current Liabilities
The ﬁnancing liabilities include a long term loan, granted by
the European Investment Bank to EADS in the amount of
U.S.$421 million and a shareholder loan granted by Sogeade in
the amount of €29 million. For further details, please see
Note 23 of the consolidated ﬁnancial statements.

The non current other liabilities include mainly liabilities tosubsidiaries in connection with the cash pooling in EADS N.V.

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7. Current Other Liabilities(in €m)

2007

2006

13,726

Liabilities to affiliated companies

15,881

Liabilities to related companies

986

874

Other liabilities

102

108

16,96914,708Total

The liabilities to afﬁliated companies include with an amount of €15,871 million (2006: €13,725 million) liabilities to subsidiaries
and comprise mainly liabilities in connection with the cash pooling in EADS N.V.

8. Net Result
The net result in 2007 amounts to a loss of €446 million (2006: proﬁt of €99 million).

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

and conditions of the ﬁnancial instruments and the respective
fair values 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 with an amount of €88 million. The commitmentsof these companies to third parties mainly relate to theiroperating 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. and therefore thecompany is several and jointly liable for the ﬁscal unity as awhole.

11. Remuneration
The total cash gross remuneration and related compensation costs of the members of the Board of Directors and former directors
in 2007 and 2006 can be speciﬁed as follows:
2007

2006

(in €)(in €)

Fixum

4,194,733

4,564,086

Bonus (related to reporting period)

3,294,312

2,361,451

Fees

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390,000

395,000

7,879,045

7,320,537

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The cash remuneration of the members of the Board of Directors was as follows:
2007

Fixum

Bonus related to 2007

Fees

Total

Directors(in €)(in €)(in €)(in €)

Rüdiger Grube

30,000109,81385,000224,813Louis Gallois

1,147,701

957,885-

2,105,586

Rolf Bartke-

11,76615,00026,766

Dominique D’Hinnin-

11,76615,00026,766

Juan Manuel Eguiagaray Ucelay

30,00062,75050,000142,750

Arnaud Lagardère

60,000113,734

60,000233,734

Hermann-Josef Lamberti-

11,766

10,00021,766Lakshmi N. Mittal*

-

-

-

-

Sir John Parker-

11,76620,00031,766

Michel Pébereau-

41,83325,00066,833

Bodo Uebber-

41,833

10,00051,833

Manfred Bischoff

60,00031,37550,000141,375

Thomas Enders**

1,218,157

800,275-

2,018,432

Jean-Paul Gut

818,937

388,500-

1,207,437

Hans-Peter Ring**

769,938

597,282-

1,367,220

François David

30,00050,98430,000110,984

Michael Rogowski

30,00050,98420,000100,984

4,194,733

3,294,312

390,000

7,879,045

Fixum

Bonus related to 2006

Former directors

Total
(*)
(**)

Remuneration waived at the Director’s request.
Prorata in accordance with their periods of membership with the Board of Directors.

2006

Directors
Manfred Bischoff

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

-

-

-

-

Louis Gallois (until end of June)*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

François 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

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

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The table below gives an overview of the interests of the current Executive Board Directors under the various long term incentive
plans of EADS:STOCK OPTION PLANS
Number of options
Year of plan

Initially
granted

As at
1st Jan. 2007

Granted in2007

Exercisedduring 2007

As at
31st Dec. 2007

Exercise
price (in €)Expirydate

67,50067,500--67,50025.65

16th Dec. 2016

Initially
granted

As at
1st Jan. 2007

Granted in
2007

Louis Gallois
2006

PERFORMANCE SHARES PLAN
Number of performance shares*
Year of plan

Vestedduring 2007

As at
31st Dec. 2007

Vesting date

Louis Gallois

2006

(*)

16,875

16,875--

16,875

Publication of
the 2009
annual results,
expected in
March 2010

Vesting of all performance shares granted to the Chief Executive Ofﬁcer is subject to performance conditions.

PERFORMANCE UNITS PLAN
Number of performance units**:

Granted in 2007

Vesting date

33,700

Vesting schedule is made up of 4 payments over 2 years:• 25% expected in May 2011;• 25% expected in November 2011;• 25% expected in May 2012;• 25% expected in November 2012.

Louis Gallois(**)

Vesting of all performance units granted to the Chief Executive Ofﬁcer is subject to performance conditions.

Stock option plans

Performance and Restricted shares plan

To the former Executive Board Directors who ceased theirmembership with the Board of Directors in 2007, the numberof outstanding stock options amounted to 865,000 as at
31st December 2007.

To the former Executive Board Directors who ceased theirmembership with the Board of Directors in 2007, the number ofthe outstanding performance shares, subject to achievement of
performance results, amounted to 41,875 as at 31st December 2007.

To the other current members of the Executive Committee andto the Group’s senior management, the number of outstanding
stock options amounted to 27,817,282 at the same date.

To the other current members of the Executive Committee andto the Group’s senior management, the number of outstanding
performance and restricted shares amounted to 1,656,375 at thesame date.

During the year 2007, none of the Executive Committee
Members, including former Executive Board Directors (whoceased their membership with the Board of Directors in 2007),
have exercised options granted under the various EADS stock
option plans. Exercises of EADS Executive Committee
Members are disclosed on the EADS internet website inaccordance with the applicable regulations.

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Performance and Restricted units plan
To the former Executive Board Directors who ceased
their membership with the Board of Directors in 2007,
the number of the outstanding performance units, subject toachievement of performance results, amounted to 58,700
as at 31st December 2007.

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To the other current members of the Executive Committee andto the Group’s senior management, the number of outstanding
performance and restricted units amounted to 2,107,600 at thesame date.
The expense in 2007 for stock options, performance shares andperformance units granted to the Chief Executive Ofﬁcer was€0.4 million.
For further information, please see Note 31 of theConsolidated IFRS Financial Statements.
Former Director and Executive Committee member :Under the terms of his employment contract, Jean-Paul Gut
was entitled to:2

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policy is to give them annual pensions of 50% of their annual
base salary upon reaching 5 years of service in the Executive
Committee of EADS at the age of 60 or 65.
These rights can gradually increase to 60% after a second term,
usually after ten years of service in the EADS Executive
Committee.
These pension schemes have been implemented throughcollective executive pension plans in France and Germany.
These pension promises have also separate rules e.g. forminimum length of service and other conditions to comply
with national regulations.

●six-month notice period, reduced to four-month notice
period at Jean-Paul Gut’s request, which represented apayment of €466,667 gross (ﬁxum and bonus) (included in
the cash remuneration ﬁgures disclosed above);

For the Chief Executive Ofﬁcer, the amount of the pension
deﬁned beneﬁt obligation amounted to €0.8 million as of
31st December 2007, while the amount of current service andinterest cost related to his pension promise accounted for
during ﬁscal year 2007 represented an expense of €0.6 million.
This obligation has been accrued for in the Financial
Statements.

●

a termination package of €2,800,000 (two years of total
target income);

Other benefits●

an indemnity aiming at compensating his accumulated
additional pension rights at the date of his departure.

In addition, EADS has concluded with Mr Jean-Paul Gut along-term Service Provider’s Agreement, in order to retain
Mr Gut’s speciﬁc expertise in the ﬁeld of marketing and M&A
activities.

All amounts reported above for the Executive Board Directors(current and former) are free of beneﬁts in kind they areentitled to, as well as all national social and income tax impacts.
The Chief Executive Ofﬁcer is entitled to a company car. The
value of his company car is €23,977.

The pension beneﬁt obligation for the Executive Committee
Members is as follows:

EADS has not provided any loans to/advances to/guarantees onbehalf of Directors.

The Members of the Executive Committee have pension
promises as part of their employment agreements. The general

For further information on the remuneration, please see
Note 32 of the Consolidated Financial Statements.

12. Employees
The number of persons employed by the company at year-end 2007 was 3 (2006: 3).

13. Related Party Transactions
In 2007, Lagardère and the French State granted through the holding company Sogeade to EADS their received dividend forthe year 2006 in the amount of €29 million as an interest free loan.

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Supplementary Information
AUDITORS’ REPORT

To: The EADS N.V. shareholders.

REPORT ON THE COMPANY FINANCIAL STATEMENTS
We have audited the accompanying 2007 company ﬁnancial statements which are part of the ﬁnancial statements of European
Aeronautic Defence and Space Company EADS N.V., Amsterdam, as authorised for issue on 10th March 2008, which comprise thebalance sheet as at 31st December 2007, 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 the company
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 31st December 2007, 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 4of the Netherlands Civil Code.

Rotterdam, 10th March 2008

Amsterdam, 10th March 2008

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 thatthe board of directors shall determine which part of the result
shall be attributed to the reserves. The general meeting ofshareholders 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 the annual accounts from which it appears
that the shareholders’ equity of the company is more than

the amount of the issued and paid-in part of the capitalincreased by the reserves that must be maintained by law.
It will be proposed at the Annual General Meeting of
Shareholders that the net loss of €446 million as shown in theincome statements for the ﬁnancial year 2007 is to be deductedfrom retained earnings and that a payment of a gross amount of€0.12 per share shall be made to the shareholders from
distributable reserves.

SUBSEQUENT EVENTSFor further information please see Note 37 of the Consolidated Financial Statements.

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1.3 Statutory Auditors’ Fees
Services provided to the Group by statutory auditors and members of their network for the ﬁnancial years 2007, 2006 and 2005:
KPMG Accountants N.V.
2007
Amount
in €K

5,291

Ernst & Young Accountants

2006%

Amount
in €K

73.2

6,181

2005
%

Amount
in €K

75.2

5,533

2007
%

Amount
in €K

68.3

4,571

2006
%

Amount
in €K

86.7

4,843

2005

%

Amount
in €K

%

82.5

4,923

77.3

Audit
Audit process,certification,
examinationof individual andconsolidated accounts
Additional tasks
Sub-total
Other services
as relevant
Legal, tax,
employment
Information
Technology
Other (to be specified
if >10% of the fees
for the audit)

491

6.8

630

7.7

1,416

17.5

284

5.4

646

11.0

1,163

18.3

5,782

80.0

6,811

82.9

6,949

85.8

4,855

92.1

5,489

93.5

6,086

95.6

897

12.4

1,051

12.8

958

11.8

333

6.3

271

4.6

281

4.4

117

1.6

50

0.6

-

-

-

-

30

0.5

-

-

428

6.0

301

3.7

194

2.4

82

1.6

83

1.4

-

-

Sub-total

1,442

20.0

1,402

17.1

1,152

14.2

415

7.9

384

6.5

281

4.4

Total

7,224

100.0

8,213

100.0

8,101

100.0

5,270

100.0

5,873

100.0

6,367

100.0

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1.4 Information Regarding the Statutory Auditors
Date of First Appointment Expiration of Current Term of Office*

KPMG Accountants N.V.
Fascinatio Boulevard 200, 3065 WB Rotterdam — The Netherlands
Represented by L.A. Blok
Ernst & Young Accountants
Antonio Vivaldistraat 150, 1083 HP Amsterdam — The Netherlands
Represented by F.A.L. van der Bruggen(*)

10th May 2000

26th May 2008

24th July 2002

26th May 2008

A resolution will be submitted to the General Meeting of Shareholders called for 26th May 2008, in order to appoint Ernst &Young Accountants and KPMG Accountants N.V. as the Company’s auditors for the 2008
ﬁnancial year.

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

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Corporate
Governance2

2.1

Management and Control

2.1.1

BOARD OF DIRECTORS,CHAIRMAN AND CHIEF EXECUTIVE OFFICER

153

2.1.2

AUDIT COMMITTEE

164

2.1.3

REMUNERATION
AND NOMINATION COMMITTEE

164

2.1.4

STRATEGIC COMMITTEE

165

2.1.5

EXECUTIVE COMMITTEE

165

2.1.6

INTERNAL CONTROLAND RISK MANAGEMENT SYSTEMS

167

Interests of Directors
and Principal Executive Ofﬁcers

172

2.2.1

COMPENSATION GRANTED TO DIRECTORSAND PRINCIPAL EXECUTIVE OFFICERS

172

2.2.2

LONG TERM INCENTIVES GRANTEDTO THE CHIEF EXECUTIVE OFFICER

176

2.2.3

RELATED PARTY TRANSACTIONS

176

2.2.4

LOANS AND GUARANTEESGRANTED TO DIRECTORS

176

Employee Proﬁt Sharing
and Incentive Plans

177

EMPLOYEE PROFIT SHARINGAND INCENTIVE AGREEMENTS

177

2.3.2

EMPLOYEE SHARE OWNERSHIP PLANS

177

2.3.3

LONG TERM INCENTIVE PLANS

179

2.2

2.3
2.3.1

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CORPORATE GOVERNANCE

1

EADS is a company registered in the Netherlands and listed in
France, Germany and Spain. Given the numerous Corporate
Governance regimes applicable to it, EADS applies a set of common
Corporate Governance principles and recommendations in order tobe in line with the Corporate Governance best practices applicablein these jurisdictions.
In accordance with Dutch law and with the provisions of the
Dutch Corporate Governance Code (the “Dutch Code”), which
includes a number of non-mandatory recommendations, theCompany applies the provisions of the Dutch Code or, if
applicable, explains in its annual Board of Directors Report thereasons for non-application of such provisions.
While EADS, in its continuous efforts to adhere to the highest
standards, applies most of the recommendations, it must, in
accordance with the Dutch Code’s “apply or explain” principle,
provide the following explanations:

1. EADS is a controlled company and, therefore,
a number of the Members of the Board,
Audit Committee, Remuneration and
Nomination Committee and Strategic Committee
are designated and can be removed by its
controlling shareholders
Nevertheless, it should be noted that a self-assessment of the Board
conﬁrmed that the Members of the Board designated by thecontrolling shareholders hold opinions and defend positions thatare in all relevant aspects aligned with the economic interests ofindividual shareholders. Given the absence of material conﬂicting
business interests between EADS and its controlling shareholders,
and the independence of the controlling shareholders from one
another, the Members of the Board designated by the controllingshareholders are deemed to fairly represent the interest of allshareholders in acting critically and independently of one anotherand of any particular interests. Furthermore, the Board’s
composition, as reshaped in October 2007 to increase in particular
the number of independent Board Members, with a wide range ofdifferent experiences represented in the Board and the running of
meetings is conducive to the expression of autonomous andcomplementary views.
This explains why:(a) Four Members of the Board out of eleven are independent(whereas provision III.2.1 of the Dutch Code recommends
that there be no more than one non-independent Board
member);(b) Members of the Board retire simultaneously on a ﬁve-yearlybasis (whereas provision III.3.6 of the Dutch Code150

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recommends that there be a retirement schedule to avoid, as
far as possible, a situation in which many Non-Executive
Members of the Board retire at the same time);(c)the Board is headed by the Chairman of the Board. In case of
dismissal or resignation of the Chairman, the Board shallimmediately designate a new Chairman. There is therefore noneed for a vice-Chairman to deal with the situation whenvacancies occur (whereas provision III.4.1(f) of the Dutch
Code recommends that there be a vice-Chairman);(d) EADS’ Audit Committee includes two Members of the Board
designated by the controlling shareholders (whereas provision
III.5.1 of the Dutch code recommends that there be no morethan one non-independent Audit Committee member);(e) EADS’ Remuneration and Nomination Committee includes
two Members of the Board designated by the controllingshareholders (whereas provision III.5.1 of the Dutch code
recommends that there be no more than one non-independent
Committee Member);(f) EADS’ Remuneration and Nomination Committee is not therelevant body responsible for the selection procedure andnomination proposals for Members of the Board (whereas
provision III.5.13 (a) of the Dutch Code recommends thatsuch Committee focus on drawing up selection criteria andthe appointment procedures for Members of the Board; andprovision III.5.13 (d) recommends that such Committee focus
on making proposals for appointments and reappointments).

2. As for remuneration of Members of the Boardof Directors
EADS applies different rules for the remuneration of Executive(the Chief Executive Ofﬁcer) and Non-Executive Members of theBoard, as explained in “2.2.1.2 Compensation of the members of
the Board of Directors”.
In case of dismissal from the Company of the Chief Executive
Ofﬁcer, a termination package equal to one and a half time theannual total target salary would be paid. However this termination
package would be reduced pro rata or would even not be applicabledepending on the age and date of retirement. EADS’ Board has
decided to change the former policy for termination package andtherefore to reduce the maximum termination indemnity from twotimes to one and a half time of annual total target salary (whereas
provision II.2.7 of the Dutch Corporate Governance Coderecommends 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 term of ofﬁce, such board member be eligible forseverance pay not exceeding twice the annual salary).

CORPORATE GOVERNANCE

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3. EADS is listed on the Frankfurt, Paris andSpanish stock exchanges and endeavours
to strictly comply with the relevant regulations
and follow the general practices on thesemarkets protecting all its stakeholders(a) Moreover EADS has adopted Insider Trading Rules providing
for speciﬁc internal rules, inter alia, governing Members’ of
the Board holding and trading of shares in EADS and othercompanies. Therefore, in line with these rules and theseregulations and common practices in the jurisdictions inwhich the Company is listed:(b) EADS does not require Members of the Board to give periodic
notice of any changes in their holding of securities in Dutch
listed companies to the EADS Compliance ofﬁcer (whereas
provisions II.2.6 and III.7.3 of the Dutch Code recommend
such a notice unless a Board Member only invests in listed
investments funds);(c)

EADS does not require Members of the Board to treat theirsecurities in the Company as a long-term investment (whereas
provision III.7.2 of the Dutch Code recommends such atreatment);(d) The term of the ofﬁce of members of the Board is ﬁve years
without limitation on renewal (whereas provisions II.1.1 and
III.3.5 of the Dutch Code recommend that there be no morethan three four-year-terms for Non-Executive Members of theBoard and that there be four-year-terms (without limitation on
renewal) for Executive Members of the Board);(e) EADS does not follow various recommendations for dealings
with analysts, including allowing shareholders to follow
meetings with analysts in real time and publishingpresentations to analysts on the website as set out in provision
IV.3.1 of the Dutch Code;(f) In accordance with EADS’ Articles of Association, if theBoard does not set a “registration date”, the shareholders
must be shareholders at the date of the meeting to exercise
their voting rights and other rights at the meeting (whereas
provision IV.1.7 of the Dutch Code recommends that theCompany set a “registration date” prior to the shareholder’smeeting and that the shareholders must be shareholders on
the date of such “registration date” to exercise their voting
rights at the shareholders’ meetings even if those persons are
not any longer shareholders on the date of such meeting).

4. EADS maintains an integrated Group-wide
Internal Control and Risk Management Systemwith the purpose of providing reasonableassurance that risks are effectively managed
One of management’s fundamental missions is to ensure aneffective Internal Control (“IC”) and Risk Management (“RM”)
environment at EADS, in accordance with corporate governancerequirements and best practices in the Netherlands, France,

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Germany and Spain. Faced with continuing changes in the multijurisdictional legal and regulatory provisions applicable to it, EADS
began to implement a coherent group-wide IC and RM system in
2004. This system is based on the Internal Control and Enterprise
Risk Management Frameworks of the Committee of Sponsoring
Organisations of the Treadway Commission (“COSO”).
Developments in 2007 and Outlook
During 2007, EADS sought primarily 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 2007 in order to enhance crossdepartmental and cross-organisational knowledge exchange.
During the second half of 2007, 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 being analysed. Moreover,independent reviews of the IC & RM systems were performed to
substantiate the self-assessment during 2007.
EADS is in the process of reviewing the IC and RM system inplace at Airbus in order to further align it with that of the Group
as a whole. Pending the completion of this review, Airbus has
continued to operate the IC and RM system that was in place priorto BAE Systems’ divestment of its stake in 2006.
Building on the comprehensive IC and RM review and evaluation
procedures carried out in 2007, EADS will assess the results overthe course of 2008. As a result of the ongoing monitoring activitiesof the IC and RM systems’ effectiveness, further modiﬁcations to
the IC and RM systems and integration efforts are expected
throughout 2008.
Responsibility for the IC and RM System — Interaction
with EADS Management
Overall responsibility for the IC and RM system and the related
reporting to stakeholders lies with the EADS Board of Directors(“BoD”). EADS’ CEO 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 and RM 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 allocation of
responsibilities between EADS Headquarters and the Divisions or
BUs. EADS Corporate sets the overall strategic and operationaltargets for EADS and assumes the ultimate responsibility for theprocess. The Divisions and BUs retain responsibility for all
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operational matters and activities within their scope, subject toaudit. Consequently, the responsibility for operating andmonitoring the IC and RM system and for risk and IC reporting
lies with the 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 exposures and for thecommunication of risks that 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 to integrate risk and IC
management into all activities when conducting business
transactions.
Monitoring of Internal Controls — Management
Discussions
In addition to regular monitoring activities at the Divisional, BU
and HQ levels, assessments about the adequacy and effectiveness of
the IC and RM systems are discussed between the EADS CEO and
CFO and the respective Division/BU CEOs and CFOs or the HQdepartment heads. These discussions serve to prioritise potential
issues at the EADS level, deﬁne and implement appropriate actions,
if needed, and derive conclusions for the overall 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. Since the2007 reporting cycle, an enhanced sign-off process requires EADS’CEO and CFO conﬁrm to the BoD, to the best of their knowledge,
whether:●the IC system is adequate to provide reasonable assurance
regarding the reliability of ﬁnancial reporting as well ascompliance with applicable laws and regulations;●the control objectives are being achieved by controls that are
documented, adequately designed for their business and areoperating effectively, in all material respects;●

the owner of each control activity is clearly identiﬁed; and●the RM system is designed and operated to identify, assess,
respond to, design controls and monitor/report on risks on atimely basis.

The EADS CEO and CFO’s IC and RM statement is mainly basedon the self-assessments, audit reviews and management discussions
described above, and is substantiated by sub-representation lettersprovided to the EADS CEO and CFO by all Divisional and BU
management.

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The IC and RM system provides the management with aframework for attempting to manage the uncertainty and associatedrisks inherent in EADS’ business. It serves as the basis for all subIC and sub-RM procedures present throughout EADS at thedivisional 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.

The implementation and other aspects of the IC and RM Systemhave been discussed with the Audit Committee on a regular basis,
as part of the Audit Committee’s general task to oversee the Groupwide functioning of the IC and RM System.
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.
As this framework (and relevant aspects referred to in the Dutch
Code) is still being implemented throughout the Group, the Board
will make a declaration on the adequacy and effectiveness of theGroups’ internal control and risk management systems as soon as
the implementation is complete (whereas provision II.1.4 of the
Dutch Code recommends that such a declaration be included in the
Board Report).

5. Ethics Alert System
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 new EADS complianceorganisational structure that is currently being formalised.
Some consultations with the works councils have started regarding
the implementation of such procedure. After decision of the Boardand the Audit Committee on the organisational structure forcompliance and the completion of the various proceedings withrespective works councils 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 have thepossibility of reporting alleged irregularities of a general,
operational and ﬁnancial nature in the Company or concerning thefunctioning of the Executive Member of the Board to the
Chairman of the Board or to an ofﬁcial designated by them and thatsuch arrangements for whistleblowers be posted on the Company’s
website.

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2.1 Management and Control
Since its creation in 2000 and until 22nd October 2007, EADS
was led by a dual-headed management structure, with two
Chairmen and two co-Chief Executive Ofﬁcers, which hasprovided the necessary balance and stability required for acompany with such a unique industrial and multi-national
heritage.
On 16th July 2007, Daimler(1), the French Government andLagardère decided, together with the EADS management team,to implement a new management and leadership structure. The
German Government was also consulted. Guiding principles ofthis modiﬁcation were efﬁciency, cohesiveness andsimpliﬁcation of EADS’ management and leadership structure,
towards corporate governance best practices while maintaining
a balance between the French and the German coreshareholders. Under the simpliﬁed management structure,
EADS is now led by a single Chairman and a single Chief
Executive Ofﬁcer.
The core shareholders also concluded that it was in the bestinterest of the Group to recommend an increase in the number

2.1.1

of independent members on the Board of Directors toappropriately reﬂect the global proﬁle of EADS by conforming
to international corporate governance best practices.
In this respect, both Daimler and Sogeade relinquished twoseats on the Board of Directors and four independent directors
were elected during the Extraordinary General Meeting of
Shareholders held on 22nd October 2007. Apart from the Chief
Executive Ofﬁcer, the Board no longer comprises executive
directors.
The core shareholders have also decided to amend the
responsibilities assumed by the Board of Directors, theChairman, the Chief Executive Ofﬁcer and the Executive
Committee, as described below.
These modiﬁcations were fully implemented and became
effective from the Extraordinary General Meeting of
Shareholders and Board of Directors’ meeting both held on
22nd October 2007.

BOARD OF DIRECTORS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Pursuant to the Articles of Association of the Company asamended by the Extraordinary General Meeting of
Shareholders held on 22nd October 2007, the Board of Directors
is responsible for the management of the Company.
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. These
rules were further amended at a Board of Directors’ meeting
held on 22nd October 2007, to take into account the corporate
governance modiﬁcations approved during the Extraordinary
General Meeting of Shareholders held the same day.
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
Chairman and the Chief Executive Ofﬁcer. The Rules also
specify the creation of three committees (the Audit Committee,
the Remuneration and Nomination Committee and theStrategic Committee) and specify their composition, role andoperating rules.
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 amended on 22nd
October 2007 and 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 EADSParticipations B.V. to ensure that the Board of Directors of
EADS comprises the Directors of EADS Participations B.V. andfour additional independent Directors.
According to the Rules, an independent Director is deﬁned as“a Director who is not an officer, director, employee, agent orotherwise has any significant commercial or professional
connection with either the Dasa Group, the Lagardère Group, theSogepa (Note: Société de Gestion de Participations
Aéronautiques) Group, the Sepi Group, the French State, theGerman State, the Spanish State or the EADS Group”.

(1) Formerly “DaimlerChrysler”.

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Pursuant to the Participation Agreement, the Board of
Directors comprises eleven members as follows (the “Board of
Directors”, the members of the Board of Directors beingreferred to as the “Directors”):●

One non-executive Chairman, appointed on joint proposalby the Daimler-Directors and the Société de Gestion del’Aéronautique, de la Défense et de l’Espace (“Sogeade”)– Directors;●

The Chief Executive Ofﬁcer of EADS, appointed on joint
proposal by the Daimler-Directors and the Sogeade-Directors;●

Two nominated by Daimler;●

Two nominated by Sogeade;●One nominated by the Sociedad Estatal de Participaciones
Industriales (“SEPI”), so long as the Indirect EADS Shares(2)held by SEPI represent 5% or more of the total number of
EADS Shares but in any case until the general meeting ofshareholders to be held in 2012; and●Four independent Directors, jointly proposed by the
Chairman and the Chief Executive Ofﬁcer of EADS andindividually approved by the Board.

Pursuant to the Articles of Association, each member of theBoard of Directors holds ofﬁce for a term expiring at theAnnual General Meeting of EADS to be held in 2012.
Members of 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 appoints a Chairman, upon the joint
proposal of the Daimler-Directors and the Sogeade-Directors.
The Chairman ensures the smooth functioning of the Board of
Directors in particular with respect to its relations with theChief Executive Ofﬁcer with whom he teams up for top levelstrategic discussions with outside partners, which areconducted under his supervision.
The Chairman shall have either French or German nationality,
provided that the Chief Executive Ofﬁcer is of the othernationality.
The Chairman can submit his resignation as Chairman to theBoard of Directors or can be dismissed as Chairman by the
Board of Directors, upon the joint proposal of the DaimlerDirectors and the Sogeade-Directors. The appointment further
terminates if the Chairman is dismissed or resigns as Director.
Immediately following the dismissal or resignation of the(2) See 3.3.1 “Shareholding Structure” of Registration Document Part 2 for a deﬁnition of Indirect EADS Shares.

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Chairman, and if the Daimler-Directors and the SogeadeDirectors do not immediately jointly designate a new
Chairman, the Board of Directors appoints by simple majority a
Director (with the same citizenship as the former Chairman) as
interim Chairman for a period which expires at the earlier of
either (i) twenty clear days after the Daimler-Directors and the
Sogeade-Directors jointly designate a new Chairman (during
which period, a Board of Directors meeting is called in order toappoint the new Chairman, upon the joint proposal of theDaimler-Directors and the Sogeade-Directors), or (ii) two
months from that interim Chairman’s appointment.
Upon request by any member of the Board of Directors madethree years after the beginning of the Chairman’s term andalleging that signiﬁcant adverse deviation(s) from objectives
and/or failure(s) to implement the strategy deﬁned by the Boardof Directors occurred, the Board of Directors shall meet, todecide whether deviations and/or failures actually occurred
during this period and if so, to decide whether to renew its
conﬁdence to the Chairman (the “Vote of Conﬁdence”). The
Board of Directors resolves upon such Vote of Conﬁdence bysimple majority. The Chairman is removed if he does not
obtain such Vote of Conﬁdence, a new Chairman being thenappointed in accordance with the above.
The Board of Directors also appointed a Chief Executive
Ofﬁcer to be responsible for the day-to-day management of theCompany, upon the joint proposal by the Daimler-Directors
and the Sogeade-Directors.
The way the Chief Executive Ofﬁcer can resign or be dismissed
and the way the Chief Executive Ofﬁcer would, if any, bereplaced are identical to those applying to the Chairman. The
Vote of Conﬁdence procedure stated above is also applicable to
the Chief Executive Ofﬁcer under the same conditions as for
the Chairman.
The Company is represented by the Board of Directors or by
the Chief Executive Ofﬁcer. The Chief Executive Ofﬁcer shallnot enter into transactions that form part of the key
responsibilities of the Board of Directors unless thesetransactions 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 thebusiness of the Group;●

Approving any proposal to be submitted to the General
Meeting of shareholders in order to amend the articles ofassociation of EADS (Qualiﬁed Majority);

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Approving the overall strategy and the strategic plan of theGroup;●

Approving substantial to the business plan and the yearlybudget of the Group;●

Setting the major performance targets of the Group;●

Designating or removing the Chairman and the Chief
Executive Ofﬁcer and deciding upon the designation or
removal of the Chief Executive Ofﬁcer of Airbus (Qualiﬁed
Majority);●

Appointing the members of the Executive Committee (seebelow), as a whole team, not on an individual basis;●

Establishing and approving amendments to the Rules and to
the rules for the Executive Committee (Qualiﬁed Majority);●

Deciding upon the appointments of the Airbus
Shareholders’ Committee, the EADS Corporate Secretary
and the chairmen of the Supervisory Board (or similar organ)of other important Group companies and business units;●

Approving material changes to the organisational structureof the Group;●

Approving investments, projects or product decisions ordivestments of the Group with a value exceeding€350,000,000 (it being understood that this item shallrequire the Qualiﬁed Majority only for investments, projects
or product decisions or divestments of the EADS Group
with a value exceeding €500,000,000);●

Approving strategic alliances and co-operation agreements of
the Group (Qualiﬁed Majority);●

Approving matters of shareholder policy, major actions or
major announcements to the capital markets;●

Approving any material decision regarding the ballistic
missiles business of the Group (Qualiﬁed Majority);●

Approving other measures and business of fundamental
signiﬁcance for the Group or which involve an abnormal
level of risk;●

Approving any proposal by the Chairman and the Chief
Executive Ofﬁcer as to the appointment of the independent
Directors, for submission to the General Meeting ofshareholders.

The Board of Directors met twelve times during 2007 and wasregularly informed of developments through business reports
from the Chief Executive Ofﬁcer(s), including rolling forecasts
as well as strategic and operational plans. The averageattendance rate at such meetings was 80%.
On 5th April 2007, Manfred Bischoff presented his resignation
as Chairman and member of the Board of Directors and theBoard of Directors decided to designate Rüdiger Grube as his
successor in the position of Chairman of the Board. On 9th May
2007, the Board of Directors nominated Marwan Lahoud as

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Chief Strategy and Marketing Ofﬁcer (from 11th June 2007 on),and Carlos Suárez as Head of the Military Transport Aircraft(from 1st July 2007 on) and as members of the Executive
Committee. On 16th July 2007, the EADS core shareholders
have decided, together with the EADS management team, toimplement a new management and leadership structure. In
consequence, a simpliﬁcation of the dual-headed management
structure has been proposed to an Extraordinary General
Meeting of Shareholders held on the 22nd October 2007, whichapproved the changes and newly constituted the Board of
Directors. Henceforth, EADS is led by a single Chairman(Rüdiger Grube) and a single Chief Executive Ofﬁcer (Louis
Gallois). The number of independent members on the Board of
Directors has been increased to four and the Chief Executive
Ofﬁcer remains the only executive director. Furthermore, theBoard’s voting rules have been amended. In the context of thisgovernance change, former co-Chief Executive Ofﬁcer ThomasEnders is now assuming the position of Head of Airbus since
27th August 2007.
Other topics intensively discussed, and operations authorised at
the Board of Directors meetings included: EADS’ strategy(including M&A matters and the competitive environment),
major business issues such as the A380 recovery efforts andthe implementation of the Power8 programme, the A350
programme progresses and Airbus future product strategy, theregular updates on the A400M and the NH90 programmes, theapproval of operational plans, reorganisation topics, budgets,
the Group’s ﬁnancial results and forecasts, as well as thediscussions regarding the implementation of a complianceorganization. The Board of Directors also dealt with topics
regarding personnel and human resources, such as management
qualiﬁcation, remuneration (including a long-term incentive
plan and an employee share ownership plan) as well as
attracting, retaining and developing individuals with highpotential 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 are
more Sogeade-nominated Directors than Daimler-nominatedDirectors present or represented at the meeting, the Daimlernominated Director who is present at the meeting can exercise
the same number of votes as the Sogeade-nominated Directors
who are present or represented at the meeting, and vice versa.
All decisions of the Board of Directors shall be taken by asimple majority of votes (six Directors, present or represented,
voting in favour of the decision), except for the votes relating
to certain matters which can only be validly resolved upon amajority of votes including the unanimous vote of the two
Sogeade nominated Directors and the two Daimler nominatedDirectors (the Qualiﬁed Majority). The quorum for thetransaction of business at meetings of the Board of Directors
requires the presence of at least one of the Sogeade-nominatedDirectors and one of the Daimler-nominated Directors. A
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a committee shall be at least one Director appointed by Sogeade
and at least one Director appointed by Daimler. All decisionsof a committee require the simple majority of the members.

at a Board meeting and to vote on his or her behalf. Suchauthorisation shall be in writing.
In the event of a deadlock in the Board of Directors, other thana deadlock giving Daimler the right to exercise the put option
granted to it by Sogeade (see “Part 2/3.3.2 Relationships with
Principal Shareholders — Put Option”), the matter shall bereferred to Arnaud Lagardère (or such person as shall be
nominated by Lagardère) as representative of Sogeade and to thechief executive ofﬁcer of Daimler. In the event that the matterin question, including a deadlock giving Daimler the right toexercise the put option (but in this case with the agreement ofSogepa and Daimler) is a matter within the competence of theGeneral Meeting of EADS, a resolution on the issue shall be
put to the General Meeting, with the voting rights of Sogeade,
Daimler 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, the Remuneration and Nomination Committee andthe Strategic 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 transaction of business at any meeting ofIn addition to the Rules, the work of the Board of Directors isgoverned by internal directors’ guidelines (the “Directors’
Guidelines”) adopted, in a meeting of 10th December 2004, inlight 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 the respective committees’ enhanced roles.
The above-mentioned Charters were amended to take into
account the changes made to the Corporate Governance of
EADS in 2007. A charter was also established for the Strategic
Committee created in 2007.
The Directors’ Charter sets out core principles that bind eachand every Director, such as acting in the best interest of theCompany and its stakeholders, devoting necessary time andattention to the carrying out of their duties and avoiding any
and all conﬂicts of interest.

COMPOSITION OF THE BOARD OF DIRECTORS
Name

Age

Rüdiger Grube

56

Louis Gallois

64

Rolf Bartke

61

Term started(as member of theBoard of Directors)

Term expires

Principal function

Status2012

Chairman of EADS

Non-Executive

2012

Chief Executive Officer of EADS

Executive

Chairman of Kuka AG

Nominated by Daimler

2004, re-elected
in 2005 and 2007
2000, re-elected
in 2005 and 2007
2007

2012

Chief Financial Officer
of Lagardère
Director of Studies
at Fundación Alternativas
General Partner and CEO
of Lagardère
Member of the Management Boardof Deutsche Bank AG
President and Chief Executive Officer
of ArcelorMittal

Dominique D’Hinnin

48

2007

2012

Juan Manuel Eguiagaray Ucelay

62

2005, re-elected in 20072012

Arnaud Lagardère

47

2003, re-elected
in 2005 and 2007

2012

Hermann-Josef Lamberti

52

2007

2012

Lakshmi N. Mittal

57

2007

2012

Sir John Parker

65

2007

2012

Chairman of National Grid

Independent

Michel Pébereau

66

2007

2012

Chairman of BNP Paribas

Independent

Bodo Uebber

48

2007

2012

Member of the Board of Managementof Daimler AG

Nominated by Daimler

Nota: The professional address of all members of the Board of Directors for any matter relating to EADS is Le Carré, Beechavenue 130-132, 1119 PR, Schiphol-Rijk, The Netherlands.

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Nominated by Sogeade
Nominated by SEPI
Nominated by Sogeade
Independent
Independent

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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.

Curriculum Vitae and other Mandates and Duties
Performed in any Company by the Members of theBoard of Directors
Rüdiger Grube
Dr. Rüdiger Grube is Chairman of EADS and has been amember of the Board of Management of Daimler since 2001,
where he is responsible for corporate development, which
includes corporate strategy, mergers & acquisitions, industrial
participations and IT. Since 2004, he has also been responsible
for all North East Asian activities, including those in China.
Dr. Grube joined Messerschmitt-Bölkow-Blohm GmbH, later
renamed Daimler-Benz Aerospace (DASA), in 1989. He holds a
degree in aircraft construction and engineering from the
University of Hamburg and a doctorate in industrial science.
Current mandates in addition to the one listed in the chart above
are set forth below:●

Member of the Board of Management of Daimler;●

Chairman of the Board of Directors of EADS Participations
B.V.;

●

Member of the Board of Directors of Chrysler Holding
LLC;●

Chairman of the Supervisory Board of Daimler Luft-und
Raumfahrt Holding AG;●

Vice Chairman of the Board of Directors of Beijing Benz
Daimler Automotive (BBDC-A);●

Member of the Supervisory Board of Daimler Financial
Services AG; and●Member of the Supervisory Board of “Hamburg Port
Authority” (“HPA GmbH”).

Former mandates for the last five years:●

Member of the Advisory Board of Daimler Fleetboard(resigned 31st December 2003);●

Member of the Board of Directors of the Hyundai Motor
Company (resigned 13th May 2004);●

Member of the Board of Directors of the Mitsubishi Motors
Company (resigned 24th November 2005);●

Member of the Supervisory Board of MTU
Friedrichshafen GmbH and DaimlerChrysler Offhighway GmbH (resigned 14th March 2006);

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Member of the Board of Directors of McLaren Group Ltd(resigned February 2007);●

Member of the Advisory Board of Daimler Aviation(resigned 28th March 2007); and●Chairman of the Board of Directors of Daimler China
Limited, Beijing (resigned 1st July 2007).

Louis Gallois
Mr. Louis Gallois has been Chief Executive Ofﬁcer (CEO) of
EADS since August 2007, after having been Co-CEO of
EADS, and President and CEO of Airbus since 2006.
Previously, he served successively as Chairman and CEO of
SNECMA, Chairman and CEO of Aerospatiale and Chairmanof SNCF. Earlier in his career, he held positions in the French
Ministry of Economy and Finance, the Ministry of Researchand Industry, and the Ministry of Defence. Mr. Gallois
graduated from the Ecole des Hautes Etudes Commerciales in
economic sciences and is an alumnus of the Ecole Nationaled’Administration.
Current mandates in addition to the one listed in the chart above
are set forth below:●

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.

Former mandates for the last five years:●

Member of the Board of Directors of Thales (resigned
30th June 2005); and●President of SNCF (resigned 2nd July 2006).

Rolf Bartke
Mr. Rolf Bartke is Chairman of Kuka AG. He was Head of thevans business unit at DaimlerChrysler AG from 1995 to 2006.
Previously, he was Mercedes Benz’s Managing Director in theﬁelds of commercial vehicle planning and projects, commercial
vehicle development, marketing and sales planning for Unimog
and MB-trac. He started his career in 1976 as Managing
Director of commercial agents of Unimat GmbH in Düsseldorf.
Mr. Bartke holds a PhD in economics from the University ofKarlsruhe.
Current mandates in addition to the one listed in the chart above
are set forth below:●

Chairman of the Board of Directors of SAF-Holland SA;

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Deputy Chairman of the Supervisory Board of SFC Smart
Fuel Cell AG;●

Member of the Supervisory Board of Matra Manufacturing& Services SAS;●

Chairman of the Advisory Board of Keiper-Recaro-Group(Putsch GmbH & Co. KG);●

Chairman of the Supervisory Board of Newsweb SA;●●

Member of the Board of Directors of J&R Carter
Partnership Foundation; andChairman of the Supervisory Board of the “Club desNormaliens dans l’Entreprise”;●●

Member of the Board of Directors of SORTIMO North
America Inc.

Member of the Supervisory Board and Treasurer of theFoundation “Ecole Normale Supérieure”;●

Chairman of the “Institut d’expertise et de prospective del’Ecole Nationale Supérieure”;●

Vice-Chairman of Infogrames Entertainment SA andChairman of the Audit Committee of Infogrames
Entertainment SA;●

Member of the Supervisory Board and Chairman of the
Audit Committee of Le Monde SA;●

Administrator of Le Monde Interactif SA;●

Member of the Supervisory Board and of the Audit
Committee of CANAL + France SA;●

Director of Lagardère North America, Inc; and●Member of the Board of Directors of EADS Participations B.V.

Former mandates for the last five years:●

Chairman of the Supervisory Board of Daimler
Ludwigsfelde GmbH (resigned 31st March 2006);●

Member of the Supervisory Board of Daimler
Manufacturing International LLC (resigned 31st March
2006);●

Member of the Supervisory Board of Daimler España S.A.
(resigned 31st March 2006); and●Member of the Board of Directors of EADS Participations B.V.

Dominique D’Hinnin
Mr. Dominique D’Hinnin has been Chief Financial Ofﬁcer(CFO) of Lagardère SCA since 1998. He joined Lagardère in1990 as advisor to the Chairman of the Finance Committee of
the Group. After that, he held different positions within theGroup, ﬁrst being appointed as Internal Audit Manager, andthen CFO Hachette Livre in 1993, before being appointed
Executive Vice President of Grolier Inc in the United States.
Mr. D’Hinnin is an alumnus of the Ecole Normale Supérieureand is an Inspecteur des Finances.
Current mandates in addition to the one listed in the chart above
are set forth below:

Former mandates for the last five years:●

Permanent representative of Lagardère Active Broadcast in
the Supervisory Board of Multithématiques (resigned
February 2005);●

Permanent representative of Lagardère SCA in the
Supervisory Board of Hachette Filipacchi Medias(transformed in SAS on 25th October 2006);●

Chairman and Managing Director of Lagardère Télévision
Holdings SA (resigned January 2007);●

Chairman and Managing Director of Ecrinvest 4 SA;●

Administrator of Legion Group SA (resigned May 2007);●

Administrator of Hachette SA;●●

Member of the Supervisory Board of Lagardère Active SAS

Director of Lagardère Management, Inc (resigned
October 2007); and●●Permanent representative of Hachette SA at the Supervisory
Board of Lagardère Active Broadcast;

Member of the Supervisory Board of Hachette Holdings
SAS (resigned December 2007).

●

Administrator of Lagardère Services SA;●

Administrator of Hachette Livre SA;●

Administrator of Lagardère Ressources SAS;●

Administrator of Sogeade Gérance SAS;●

Chairman of Eole SAS;●

Member of the Supervisory Board of Financière de Pichat
SAS;●

Member of the Supervisory Board of Financière de Pichat &CIE SCA;158

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Juan Manuel Eguiagaray Ucelay
Mr. Juan Manuel Eguiagaray Ucelay is Director of Studies at
the Madrid-based think tank Fundación Alternativas. Formerly
Spain’s Minister for Public Administration (1991-1993) and
Minister for Industry and Energy (1993-1996), he resigned
from Parliament in 2001. Between 1970 and 1982 he taught
economics at Deusto University in Bilbao. Mr. Eguiagaray
Ucelay holds degrees in economics and law, as well as a Ph.D,
from Deusto University.

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Current mandates in addition to the one listed in the chart above
are set forth below:

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Director of Lagardère Services (SA) (ex Hachette
Distribution Services);●

President of Solidaridad Internacional (NGO);●●

Member of the Council Adviser of the FoundationGroupEP;

Chairman of the Supervisory Board of Lagardère Sports(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.);●

Chairman and Chief Executive Ofﬁcer of Sogeade Gérance
(SAS)

●

Member of the Board of Directors of EADS Participations B.V.;●

Member of the Supervisory Board of Daimler (AG);●Member of the Council Adviser of Cap Gemini Spain; and●Member of the Board of Directors of EADS Participations B.V.

Former mandates for the last five years:●

Member of the Advisory Board of Futurspace S.A. (resigned
5th July 2004);●

Associate Professor of Macroeconomics at the University ofCarlos III in Madrid (resigned 30th September 2006).

●

Director of LVHM Moet Hennessy Louis Vuitton (S.A.); and●Member of the Council Adviser of Creation, Advising andDevelopment (Creade), S.L. (resigned 1st July 2007); and●President of the “Association des Amis de Paris Jean-Bouin
C.A.S.G.”.

●

Economic Adviser of Arco Valoraciones S.A. (resigned
1st November 2007).

Former mandates for the last five years:●

Co-Manager of I.S.-9 (resigned May 2003);●

Manager of Lagardère Active Publicité (SNC) (resigned May
2003);●

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);●

Current mandates in addition to the one listed in the chart above
are set forth below:

Member of the Board of Directors of Lagardère-Sociétés S.A.S(resigned December 2003);●

Chairman and Chief Executive Ofﬁcer of Lagardère Media(corporate name: Hachette S.A.);

Member of the Board of Directors of the Editions
P. Amaury S.A. (resigned December 2003);●

Chairman of the Supervisory Board of Lagardère Active(S.A.S.);

Chairman and Chief Executive Ofﬁcer of Lagardère Images S.A.S(resigned October 2004);●

President (Chief Executive Ofﬁcer) of Lagardère Active
Broadband (S.A.S.);

Chairman and Chief Executive Ofﬁcer of Lagardère
Thematiques S.A. (resigned November 2004);●

Manager of Lagardère Elevage (resigned March 2005);●

Chairman and Chief Executive Ofﬁcer of Lagardère (S.A.S.);●●

Chairman and Chief Executive Ofﬁcer of Lagardère Capital& Management (S.A.S.);

Deputy-Chairman of the Supervisory Board
of Banque Arjil & Cie (resigned April 2005);●

Chairman and Chief Executive Ofﬁcer of Arjil
Commanditée — ARCO (S.A.);

President of the “Club des entreprises 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);

Arnaud Lagardère
Mr. Arnaud Lagardère has been General Partner and Chief
Executive Ofﬁcer (CEO) of Lagardère since 2003. He has been
Managing Partner of Lagardère since 1998, being appointed
CEO of both Lagardère Media and Lagardère Active in 1999.
Previously he was CEO of Grolier Inc. in the United States,
Head of emerging activities and electronic media for Matra andVice President of the Supervisory Board of Arjil bank. He
began his career in 1986 as General Manager of MMB, theholding company of Hachette and Europe 1. Mr Lagardère
graduated in economics from the University of Paris Dauphine.

●

●

●

●

●

Chairman of Fondation Jean-Luc Lagardère;●

President of the sports association Lagardère Paris Racing
Ressources;●

President of the sports association Lagardère Paris Racing.

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Permanent Representative of Hachette S.A. to theManagement Committee of SEDI TV-TEVA (S.N.C.)(resigned December 2006);●

Chairman and Chief Executive Ofﬁcer of Lagardère Active
Broadcast (S.A.) (resigned March 2007).

●

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Member of the Board of Management ofArbeitgeberverband des privaten Bankgewerbes e:V.;●

Member of the Board of Trustees of Baden-Badener
Unternehmergespräche – Gesellschaft zur Förderung desUnternehmensnachwuchses e.V.;

Member of the Supervisory Board of Lagardère Sports (SAS)(resigned April 2007);●

Member of the Advisory Board of VersicherungenWuppertal;●

Director of Lagardère Management, Inc (resigned
October 2007);●

Deputy member of the Deposit Insurance Committee of
Bundesverband deutscher Banken e:V.;●

Chairman of the Board of Directors of Lagardère Active
North America, Inc. (resigned October 2007);●

Delegate of the Delegatesassembly of Bundesverband
deutscher Banken e.V.;●

Chairman of the Supervisory Board of Hachette Holding(SAS) (ex Hachette Filipacchi Medias) (resigned
December 2007);●

Member of the Financial Community Germany Committeeof Bundesverband deutscher Banken e.V.;●●

Director of France Télécom (S.A.) (resigned January 2007);

Member of the Board of Management of Deutsches
Aktieninstitut e.V.;●

Chairman of the Board of Directors of EADS (resigned
22nd October 2007);●

Member of the Board of Trustees of e-Finance Lab Frankfurt
am Main;●

Chairman of the Board of Directors of EADS Participations
B.V. (resigned 22nd October 2007);●

Chairman of the Stock Exchange Council of Eurex
Deutschland;●Member of the Supervisory Board of Virgin Stores (S.A.)(resigned February 2008); and●Deputy Chairman of the Stock Exchange Council ofFrankfurter Wertpapierbörse AG;●

Member of the Supervisory Board of Le Monde (S.A.)(resigned February 2008).

●

Member of the Advisory Board of Freunde der Bachwoche
Ansbach e.V.;●

Member of the Board of Trustees of Institute for Law and
Finance Frankfurt;●

Member of the Advisory Board of Institut fürUnternehmensplanung – IUP;●

Member of the Board of Trustees of Junge Deutsche
Philharmonie;●

Deputy Chairman of the Board of Trustees of the Society ofPromotion of Kölner Kammerorchester e.V.;●

Member of the Programme Advisory Board of LOEWE
Landes-Offensive zur Entwicklung Wissenschaftlichökonomischer Exzellenz des Hessischen Ministeriums fürWissenschaft und Kunst;●

Member of the Advisory Circle of Münchner Kreis;●Member of the Foundation Board of Otto A. WipprechtStiftung;●

Deputy Member of the Advisory Board and the
Examination Board of Prüfungsverband deutscher Banken
e.V.;

●

Executive Customer of the Advisory Council of Symantec
Corporation;●

Member of the Board of Trustees of The Frankfurt
International School e.V.;

Hermann-Josef Lamberti
Mr. Hermann-Josef Lamberti is a Member of the Management
Board of Deutsche Bank AG since 1999 and is the bank’s Chief
Operating Ofﬁcer. From 1985, he held various management
positions within IBM, working in Europe and the UnitedStates, in the ﬁelds of controlling, internal application
development, sales, personal software, marketing and brandmanagement. In 1997, he was appointed Chairman of theManagement of IBM Germany. He started his career in 1982
with Touche Ross in Toronto, before joining the Chemical
Bank in Frankfurt. Mr. Lamberti studied businessadministration at the Universities of Cologne and Dublin, andgraduated with a Master’s degree.
Current mandates in addition to the one listed in the chart above
are set forth below:●

Member of the Supervisory Board of BBV
Versicherungsverein des Bankgewerbes A.G. und BVV
Versorgungskasse des Bankgewerbes e.V.;●

Member of the Supervisory Board of Carl Zeiss AG;●

Member of the Supervisory Board of Deutsche Börse AG;●

Chairman of the Supervisory Board of Deutsche Bank
Privat-und Geschäftskunden AG;

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Member of the Advisory Board of Universität Augsburg;●

Member of the managing Committee of the Institut fürWirtschaftsinformatik der HSG of the Universität St.
Gallen;●Member of the Administrative Council of
Universitätsgesellschaft Bonn-Freunde, Förderer, Alumni;●

Member of the Founder Council of Wallraf-RichartzMuseum;●Member of the Board of Trustees of Wallraf-RichartzMuseum und Museum Ludwig e.V.;●

Member of the Advisory Board in the centre for marketorientated corporate management of WHU; andLakshmi N. Mittal
Lakshmi N. Mittal is President and Chief Executive Ofﬁcer(CEO) of ArcelorMittal. He founded Mittal Steel Company in1976 and guided its strategic development culminating in themerger with Arcelor, agreed in 2006, to found the world’s
largest steel maker. He is widely recognized for the leading rolehe has played in restructuring the steel industry towards amore consolidated and globalised model. Mr. Mittal has over
30 years’ experience working in steel and related industries.
Mr. Mittal was awarded Fortune magazine’s “European
Businessman of the Year 2004” and the Financial Time’s“Person of the Year 2006”, and received the 2007
Dwight D. Eisenhower Global Leadership Award and the
Padma Vibhushan by the President of India.

●

Member of the Steering Committee and of the Federal
Committee of Wirtschaftsrat der CDU e.V.

Current mandates in addition to the one listed in the chart above
are set forth below:

Former mandates for the last five years:●

Member of the Board of Directors of ArcelorMittal SA;●

Member of the Board of Directors of ICICI Bank Limited;●

Member of the Supervisory Board of SupplyOn AG(resigned 1st January 2003) ;●Member of the Foreign Investment Council in Kazakhstan;●

Chairman of the Board of Directors of Deutsche Bank S.A./
N.V. (resigned 21st April 2004);●

Member of the International Investment Council in South
Africa;●Chairman of the Supervisory Board of European transaction
bank AG (resigned 9th June 2004);●

Member of the Presidential International Advisory Board ofMozambique;●

Chairman of the Board of DirectorsDeutsche Bank S.A.E.
(resigned 16th June 2004);●

Member of the World Economic Forum’s International
Business Council;●

Chairman of the Supervisory Board of Deutsche Bank
Payments Projektgesellschaft AG (resigned 1st July 2004);●

Member of the International Iron and Steel Institute’s
Executive Committee;●

Chairman of the Advisory Council of Deutsche
Clubholding GmbH (resigned 1st May 2005);●

Member of the Advisory Board of the Kellogg School ofManagement;●

Chairman of the Supervisory Board of E-Millennium 1
GmbH & Co. KG (resigned 1st May 2005);●

Member of the International Advisory Board of Citigroup;and●Member of the Privat and Business Clients Committee of
Bundesverband Deutscher Banken e.V. (resigned 1st July2005);●

Member of the Investors’ Council at Cabinet of Ministers of
Ukraine.

●Non-Executive Director of the Board of Directors ofEuroclear S.A./N.V. (resigned 19th September 2005);●

Non-Executive Director of the Board of Directors ofEuroclear plc (resigned 19th September 2005);●

Member of the Supervisory Board of Schering AG (resigned
20th March 2006);●

Member of the Board of Directors of Fiat S.p.A. (resigned
24th July 2007); and●Member of the Verband der Sparda-Banken e.V. (resigned
30th September 2007).

Former mandates for the last five years:
None.
Sir John Parker
Sir John Parker is Chairman of National Grid and the NonExecutive Directors Committee of the Bank of England. He is
joint Chairman of Mondi, Deputy Chairman of DP World(Dubai), Non-Executive Director of the Carnival Cruise Line
Group, a Member of the International Advisory Board of
Citigroup and Chancellor of the University of Southampton.
His career has spanned the engineering, shipbuilding anddefence industries, including some 25 years’ experience as a
Chief Executive Ofﬁcer with Harland & Wolff and theBabcock International Group. He studied Naval Architecture

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and Mechanical Engineering at the College of Technology,
Queens University, Belfast.
Current mandates in addition to the one listed in the chart above
are set forth below:

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Chairman of the Investment Banking and Financial Markets
Committee of Fédération Bancaire Française;●

Chairman of the Management Board of Institut d’Etudes
Politiques de Paris;●

Chairman of the Supervisory Board of Institut Aspen
France;●Chairman of the Institut de l’Entreprise;●

Member of the Executive Committee of Mouvement desEntreprises en France;●

Senior non-executive director of Bank of England;●

Director of Carnival plc;●

Director of Carnival Corporation;●

Member of the International Advisory Board of Citigroup;●

Deputy Chairman of Port and Free World Zone (Dubai);●

Member of the Haut Conseil de l’Education;●

Governor of Royal National Lifeboat Institution;●

Member of the Institut International d’Etudes Bancaires;●

Chancellor of the University of Southampton;●●

Director of White Ensign Association Limited;

Member of the International Advisory Panel of Monetary
Authority of Singapore;●

Non-Executive Co-Chairman of Mondi Group; and●Member of the International Capital Markets Advisory
Committee of Federal Bank of New York; and●Member of the Business Council for Britain.

●

Member of the International Business Leaders’ Advisory
Council for the Mayor of Shanghai (IBLAC).

Former mandates for the last five years:
None.
Michel Pébereau
Mr. Michel Pébereau has been BNP Paribas’ Chairman of theBoard since 2003. He presided over the merger that created
BNP Paribas in 2000, becoming Chairman and Chief Executive
Ofﬁcer (CEO). In 1993 he was appointed Chairman and CEOof the Banque Nationale de Paris. Previously, he was Chairman
and CEO of the Crédit Commercial de France. He started his
career in 1967 at the Inspection Générale des Finances. In 1970
he joined the French Treasury where he held various highranking posts. Mr. Pébereau is an alumnus of the Ecole
Nationale d’Administration and of the Ecole Polytechnique.

Former mandates for the last five years:●

Member of the Supervisory Board of Dresdner Bank AG(resigned 2002); and●Member of the Board of Directors of EADS Participations B.V.
(resigned 22nd october 2007).

●

Member of the Board of Directors of Lafarge;●

Member of the Board of Directors of Saint-Gobain;●

Member of the Board of Directors of Total;

Bodo Uebber
Mr. Bodo Uebber has been a Member of Daimler AG’s Boardof Management since 2004. He is currently responsible forﬁnance, controlling, corporate procurement and Daimler
Financial Services. In 2001, he was appointed Member of theBoard of Management and Chief Financial Ofﬁcer of Daimler
Financial Services AG and subsequently in 2003 Chairman of
the Board of Management of Daimler Financial Services AG, aswell as Deputy Member of the Board of Management ofDaimler AG. He previously held various ﬁnancial positions
within DASA AG, Dornier Luftfahrt and MTU Aero Engines
GmbH. Mr. Uebber graduated in engineering and economics at
the Technical University of Karlsruhe.

●

Member of the Board of Directors of Pargesa Holding SA,
Switzerland;

Current mandates in addition to the one listed in the chart above
are set forth below:●

Member of the Board of Directors of BNP Paribas (Suisse)
SA;

●
●

Current mandates in addition to the one listed in the chart above
are set forth below:●●

Member of the Supervisory Board of Mercedes-Benz Bank
AG;

Member of the Supervisory Board of Axa;●

Member of the Supervisory Board of Banque Marocaine
pour le Commerce et l’Industrie, Morocco;

Member of the Supervisory Board of Daimler España
Holding S.A.;●

Chairman of the Supervisory Board of Daimler Financial
Services AG;

Chairman of the European Banking Federation;

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Chairman of the Supervisory Board of Daimler France
Holding SAS;●

Member of the Board of Directors of Freightliner LLC;●

Member of the Advisory Board of Daimler
Unterstützungskasse GmbH;●

Member of the Supervisory Board of McLaren;●

Member of the Supervisory Board of Talanx; and●Member of the Board of Directors of EADS Participations B.V.

Former mandates for the last five years:●

Chairman of the Board of Directors of debis Air Finance
B.V. (resigned April 2005);●

Chairman of the Board of Directors of DaimlerChrysler
Japan Holding, Ltd. (resigned 1st December 2005);●

Member of the Supervisory Board of Hannover
Rückversicherungs AG (12th May 2006);●

Member of the Board of Directors of DaimlerChrysler
México Holding S.A. de C.V. (resigned 31st July 2007);●

Chairman of the Board of Directors of DaimlerChrysler
North America Holding Corporation (DCNAH) (resigned
3rd August 2007);●

Chairman of the Board of Directors of DaimlerChrysler
Corporation (DCC) (resigned 3rd August 2007); and●Chairman of the Board of Directors of DC U.K. Holding plc(resigned 1st November 2007).

Independent Directors

The four independent directors appointed pursuant to thecriteria of independence set out above are Hermann-Josef
Lamberti, Lakshmi N. Mittal, Sir John Parker and Michel
Pébereau.

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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
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 have beenreported in the Registration Document 2006.
Due to the corporate governance modiﬁcations having takenplace in 2007 and the reconstitution of the Board of Directors
during the last quarter of the year 2007 (October), an end-year
self-assessment of the Board’s performance has not taken place,as its ﬁndings would not have been very relevant due to theshort period of operation of the newly constituted Board of
Directors. The next self-assessment will be carried out for theyear 2008.

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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 programme
and the 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 are correctly directed and that the audit matters are
given due importance at meetings of the Board of Directors.
The rules and responsibilities of the Audit Committee havebeen set out in more 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 Financial Ofﬁcer are invited to meetings of the Audit
Committee to answer any question.

In 2007, the Audit Committee was:●

Chaired by Manfred Bischoff and Arnaud Lagardère and also
included Rüdiger Grube until 4th May 2007;●

Chaired by Rüdiger Grube and Arnaud Lagardère and also
included Bodo Uebber until 22nd October 2007; and●Chaired by Hermann-Josef Lamberti and also includes
Dominique D’Hinnin, Sir John Parker and Bodo Uebbersince 22nd October 2007.

The Audit Committee meets four times a year, or more
frequently according to requirements. It met ﬁve times during
2007, with a 62% attendance rate, to review the 2006 results aswell as the ﬁrst half-year results for 2007 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 EADS Corporate Secretary, themembers of the Airbus Shareholder Committee, and thechairmen of the Supervisory Board (or similar organ), of otherimportant Group member companies and business units,
remuneration strategies and long-term remuneration plans anddecides the service contracts and other contractual matters in
relation to the Board of Directors and Executive Committee
members. Once approved by the Chairman, it also reviews the
proposals by the Chief Executive Ofﬁcer for the appointmentof members of the Executive Committee and of the Airbus
Chief Executive Ofﬁcer. The rules and responsibilities of theRemuneration and Nomination Committee have been set out inmore detail in the Remuneration and Nomination Charter.
The guiding principles governing management appointments in
the Group should be that the best candidate is appointed to theposition (“best man for the job”), while maintaining at thesame time a broad balance in terms of nationalities whichshould not be detrimental to the quality and cohesiveness ofthe management team. The implementation of these principles
should not create restrictions on the diversity of nationalities
within the EADS executive management team.

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In 2007, the Remuneration and Nomination Committee was:●

Chaired by Manfred Bischoff and Arnaud Lagardère and also
included Thomas Enders, Louis Gallois and Rüdiger Grube
until 4th May 2007;●

Chaired by Rüdiger Grube and Arnaud Lagardère and also
included Thomas Enders, Louis Gallois and Bodo Uebber
until 22nd October 2007; and●Chaired by Sir John Parker and also includes Rolf Bartke,
Dominique D’Hinnin and Hermann-Josef Lamberti since
22nd October 2007.

The Remuneration and Nomination Committee meets twice ayear, or more frequently according to requirements. It met
seven times during 2007, with a 81% 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 salaries, the bonus payments for 2006, the long-term
incentive plan and the employee share ownership plan for
2007/2008, as well as the salary review of the Executive
Committee members for 2007.

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2.1.4 STRATEGIC COMMITTEEThe Strategic Committee was created in October 2007. It is nota decision making body but a resource available to the EADS
Board of Directors with regards to the preparation of decisions
on strategic matters. Pursuant to the Rules, the Strategic
Committee makes recommendations to the Board of Directors
regarding strategic developments, corporate strategies, major
merger and acquisition projects, major investments, projects or
product decisions or divestments, as well as major research anddevelopment projects.

The Strategic Committee is chaired by Rüdiger Grube and also
includes Louis Gallois, Arnaud Lagardère, Michel Pébereau andBodo Uebber.
The Strategic Committee meets twice a year, or more
frequently, according to need. It met for the ﬁrst time in
February 2008 to review amongst other matters the EADS
Vision 2020.

2.1.5 EXECUTIVE COMMITTEE
Within the framework of the amendments to EADS Corporate
Governance approved by the Extraordinary General Meeting of
Shareholders and the Board of Directors both held on 22nd
October 2007, the method of appointment of the members of
the Executive Committee was changed.
The Chief Executive Ofﬁcer, supported by an Executive
Committee (the “Executive Committee”), is responsible formanaging the day-to-day operations of the Company. The
Executive Committee, chaired by the Chief Executive Ofﬁcer,
also comprises the Heads of the major Functions and Divisionsof the Group. The Executive Committee met eleven times
during 2007.
The following matters are discussed, amongst others, at the
Executive Committee meetings:●

Appointment approvals of their management teams by theheads of the Group divisions (with the exception of the
Airbus Chief Operating Ofﬁcer);●

Investment approvals up to €350,000,000;●

Setting up and control of the implementation of the strategy
for EADS businesses;●

Management, organisational and legal structure of theGroup;●

Performance level of the Group’s businesses and support
functions; and●All business issues, including the operational plan of theGroup and its Divisions and Business Units.

The internal organisation of the Executive Committee isdeﬁned by the business allocation among the members under
the supervision of the Chief Executive Ofﬁcer.
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 taken by the Chief Executive Ofﬁcer and the
Executive Committee, as the case may be.
The Chief Executive Ofﬁcer endeavours to reach consensus
among the members of the Executive Committee on thematters discussed at the Executive Committee meetings. In theevent of consensus not being reached, the Chief Executive
Ofﬁcer is entitled to decide the matter. If there is afundamental or signiﬁcant disagreement with respect to any
undecided matter, the dissenting Executive Committee member
may request that the Chief Executive Ofﬁcer submit suchmatter to the Chairman for his opinion.
The term of ofﬁce for the Executive Committee members is
ﬁve years.
The Executive Committee members are appointed by the Boardof Directors on the proposal of the Chief Executive Ofﬁcer ﬁrst
approved by the Chairman after review by the Remuneration
and Nomination Committee. The appointment of the Executive
Committee should be approved as a whole team, not on an
individual basis, with the exception of the Chief Executive
Ofﬁcer of Airbus, who shall be appointed by the Board of
Directors individually.

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COMPOSITION OF THE EXECUTIVE COMMITTEE
Name

Age

Term started

Term expires

Principal Occupation

Louis Gallois

64

2007

2012

Chief Executive Officer EADS

François Auque

51

2005

2010

Head of Astrium

Lutz Bertling

45

2006

2011

Head of Eurocopter

Jean J. Botti

51

2006

2011

Chief Technical Officer

Fabrice Brégier

46

2005

2010

EADS Operational Performance

Ralph D Crosby Jr.

60

2007

2012

Head of EADS North America

Thomas Enders

49

2007

2012

Head of Airbus

Jussi Itävuori

52

2008

2013

Head of Human Resources

Marwan Lahoud

42

2007

2012

Chief Marketing and Strategy Officer

Hans Peter Ring

57

2007

2012

Chief Financial Officer EADSCarlos Suárez

44

2007

2012

Head of Military Transport Aircraft

Stefan Zoller

50

2005

2010

Head of Defence & Security

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.

Louis Gallois, Chief Executive Officer EADS
See “2.1.1 Board of Directors, Chairman and Chief Executive
Ofﬁcer — 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 was appointed in 2000. He was previously Chief
Financial Ofﬁcer (CFO) of Aerospatiale and Managing Director
for satellites. He spent his earlier career with the Suez Groupand the French Cour des Comptes. Mr Auque graduated from
École des Hautes Études Commerciales, Institute d’Études
Politiques and is an alumnus of École Nationaled’Administration.
Lutz Bertling, Head of Eurocopter
Mr. Bertling was appointed in 2006, following a year as CEO
of Eurocopter Deutschland. He joined Eurocopter in 2003 as
Head of Governmental Programmes, coming from the Defence& Security Division. Previously, he held various positions at
DaimlerChrysler Rail Systems and Braunschweig University.
He earned a PhD in Engineering at the Braunschweig
University.
Jean J. Botti, Chief Technical Officer
Mr. Botti was appointed in 2006. He joined from General
Motors, where he was Chief Technologist and then BusinessLine Executive of the Delphi Powertrain business. He started
his career in 1978 as product engineer for Renault. Mr. Botti
holds a degree from INSA Toulouse, an MBA from Central
Michigan University and a PhD from the Conservatoire desArts et Métiers and is an SAE fellow.

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Fabrice Brégier, EADS Operational Performance
Mr. Brégier was appointed Airbus COO in 2006, withadditional responsibility for EADS operational performance.
He became President and Chief Executive Ofﬁcer (CEO) of
Eurocopter in 2003. Previously, he was CEO of MBDA.
He joined Matra Défense in 1993 as Chairman of the
Apache MAW and Eurodrone GIEs. He is alumnus of École
Polytechnique and École des Mines.
Ralph D. Crosby Jr., Head of EADS North America
Mr. Crosby has been Chairman and Head of EADS North
America since 2002. Previously, he was President of theIntegrated Systems Sector at Northrop Grumman Corporation.
Mr. Crosby holds degrees from the U.S. Military Academy,
the Graduate Institute of International Studies in Geneva andHarvard University.
Thomas Enders, Head of Airbus
Mr. Enders was appointed in August 2007. Previously, since2005, he was CEO of EADS. He began his career with EADSin 2000 as CEO of the Defence & Security Systems Division.
Prior he had been Director Corporate Development andTechnology at Dasa. Mr Enders holds a Doctorate degree fromthe University of Bonn.
Jussi Itävuori, Head of Human Resources
Mr. Itävuori was appointed in 2001 and member of the
Executive Committee in 2003. Previously, he had worked for
KONE Corporation from 1982, being appointed Head of
Human Resources and member of the Executive Committee for
KONE Corporation from 1995. Mr. Itävuori graduated fromthe Vaasa School of Economics, Finland, and served as an air
force pilot.

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Marwan Lahoud, Chief Marketing and Strategy Officer
Mr. Lahoud was appointed in June 2007. Previously, he was
CEO of MBDA. He worked for Aerospatiale on its merger with
Matra and on the foundation of EADS. Within EADS, he
served as Senior Vice President Mergers & Acquisitions. Mr
Lahoud is an alumnus of École Polytechnique and graduatedfrom the École Nationale Supérieure de l’Aéronautique et del’Espace.
Hans Peter Ring, Chief Operating Officer Finance EADS
Mr. Ring was appointed EADS CFO in 2002, Chief Operating
Ofﬁcer in 2005 and Airbus CFO in dual role in 2007. In 1996,
he was made Senior Vice President of Controlling at Dasa and,
subsequently, EADS. From 1992, he was CFO and Board
member of Dornier Luftfahrt. He holds a degree in Business
Administration from the University of Erlangen-Nuremberg.

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Carlos Suárez, Head of Military Transport Aircraft
Mr. Suárez was appointed in July 2007. Formerly, he was Headof Military Derivatives Programmes of Airbus platforms. He
has also worked for Accenture and Aernnova. Mr Suárez holds
a degree in Aeronautical Engineering from the Universidad
Politécnica de Madrid and an MBA from the IESE businessschool.
Stefan Zoller, Head of Defence & Security
Mr. Zoller was appointed in 2005, having held top management
positions within the Division since 2000. Previously, he held
various management positions within Dasa, DaimlerChrysler,
Dornier and Senstar/Canada. Mr. Zoller graduated from the
University Tübingen and holds a PhD.

2.1.6 INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS
2.1.6.1 Overview

Developments in 2007 and Outlook

One of Management’s fundamental goals is to ensure aneffective Internal Control (“IC”) and Risk Management (“RM”)
environment at EADS, in accordance with corporate governancerequirements and best practices in the Netherlands, France,
Germany and Spain. Faced with continuing changes in themulti-jurisdictional legal and regulatory provisions applicable
to it, EADS began to implement a coherent, group-wide IC andRM system in 2004. This system is based on the Internal
Control and Enterprise Risk Management Frameworks of theCommittee of Sponsoring Organisations of the Treadway
Commission (“COSO”).

During 2007, EADS sought primarily 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 of standardised IC and RM training covering basic andrefresher concepts. In addition, process coordinators beneﬁted
from individual coaching sessions and workshops relating to
the performance of yearly IC procedures. Working groups werealso established throughout 2007 in order to enhance crossdepartmental and cross-organisational knowledge exchange.

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.

During the second half of 2007, 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 being analysed. Moreover,independent reviews of the IC & RM systems were performed
to substantiate the self-assessment during 2007.
EADS is in the process of reviewing the IC and RM system inplace at Airbus in order to further align it with that of theGroup as a whole. Pending the completion of this review,
Airbus has continued to operate the IC and RM system thatwas in place prior to BAE Systems’ divestment of its stake in
2006.
Building on the comprehensive IC and RM review andevaluation procedures carried out in 2007, EADS will assess
the results over the course of 2008. As a result of the ongoing
monitoring activities of the IC and RM systems’ effectiveness,further modiﬁcations to the IC and RM systems andintegration efforts are expected throughout 2008.

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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 Board of
Directors. EADS’ Chief Executive Ofﬁcer and Chief Financial
Ofﬁcer 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 and RM 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 Corporate sets the overall strategic andoperational targets for EADS and assumes the ultimate
responsibility for the process. 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 forrisk and IC reporting lies with the respective management of
the Divisions, BUs and HQ departments. They must seek toensure transparency and effectiveness of their local sub-IC andRM systems and the adherence to the objectives deﬁned by the
Board of Directors. The management of Divisions, BUs and
HQ departments is responsible for the implementation of
appropriate mitigation activities to reduce the probability andimpact of risk exposures and for the communication of risks
that 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”));●

Handbooks (e.g., “EADS Corporate Management Principles
and Responsibilities”, the “Financial Control Handbook”);●

Manuals (e.g., Treasury Procedures, “Accounting Manual”,“Reporting Manual”); and●Guidelines (e.g., Enterprise Risk Management Guidelines,“Funding Policy”).

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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).

2.1.6.2 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 thepossible extent of damage be assessed, usually in terms of theireffect 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
the Group 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 Chief Executive Ofﬁcer and Chief Financial
Ofﬁcer. Each year, corporate audit provides an independent
review of the status of the RM systems in selected Divisions,
BUs and HQ departments.
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.

2.1.6.3 IC System
The IC system is based on a variety of IC policies andprocedures within EADS. It is designed to provide reasonableassurance to the Board of Directors, the Chief Executive
Ofﬁcer and the Chief Financial Ofﬁcer regarding theachievement of the following objectives:●

The quality of ﬁnancial reporting, including design andimplementation of processes to generate a ﬂow of timely,
relevant and reliable ﬁnancial information;

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●

●

Compliance with laws and regulations applicable to theGroup, as well as with internal Group policies; andIdentiﬁcation and response to signiﬁcant operational,ﬁnancial and compliance risks throughout EADS.

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 formal internal control self-assessment
mechanisms, to be applied by each identiﬁed process/control
owner on a regular basis, who must assess the operating anddesign effectiveness of the internal controls in place for his
process. Identiﬁed control deﬁciencies are evaluated andprioritised 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
implementation of 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
and the performance of self-assessments in selected Divisions,
BUs and HQ departments. 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 and activities
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 theirscope of responsibility. Joint ventures, such as MBDA, operate
separate IC systems. Alignment with the EADS IC system isfacilitated, inter alia, through EADS’ presence on suchafﬁliates’ supervisory and management bodies (e.g., MBDA
Board of Directors, audit committees).
Monitoring of Internal Controls — Management
Discussions

In addition to regular monitoring activities at the Divisional,
BU and HQ levels, assessments about the adequacy andeffectiveness of the IC and RM systems are discussed between
the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer and therespective Division/BU Chief Executive Ofﬁcers and Chief
Financial Ofﬁcers or the HQ-department heads. These
discussions serve to prioritise potential issues at the EADS
level, deﬁne and implement appropriate actions, if needed, andderive conclusions for the overall EADS IC and RM report.

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Management Sign-Off Process — Sub-Representation

Once every year, identiﬁed signiﬁcant deﬁciencies and material
weaknesses are reported in sub-representation letters. Since the2007 reporting cycle, an enhanced sign-off process requires
Chief Executive Ofﬁcer and Chief Financial Ofﬁcer conﬁrm to
the Board of Directors, to the best of their knowledge,
whether:●

The IC system is adequate to provide reasonable assurance
regarding the reliability of ﬁnancial reporting as well ascompliance with applicable laws and regulations;●

The control objectives are being achieved by controls that are
documented, adequately designed for their business and areoperating effectively, in all material respects;●

The owner of each control activity is clearly identiﬁed; and●The RM system is designed and operated to identify, assess,
respond to, design controls and monitor/report on risks on atimely basis.

The Chief Executive Ofﬁcer and Chief Financial Ofﬁcer’s IC
and RM statement is mainly based on the self-assessments,
reviews and management discussions described above, and issubstantiated by sub-representation letters provided to theChief Executive Ofﬁcer and Chief Financial Ofﬁcer by all
Divisional and BU management.

2.1.6.4 Business Processes Covered by the IC
SystemBased 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 programme 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 2007, and the correlating IC procedures, coveringrisks that have a signiﬁcant potential of affecting the Group’s
ﬁnancial condition and results of operations.
Accounting/Planning
At the core of EADS’ IC system are accounting processes andcontrols designed to provide reasonable assurance regarding thereliability of ﬁnancial reporting and the preparation of 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 and

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1transparency across departments and organisational units
within EADS, which are essential to the preparation of accurate
and reliable 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 Chief Financial
Ofﬁcer, who is charged with developing, implementing andmonitoring these procedures. Among the Chief Financial
Ofﬁcer’s primary tasks is oversight of the preparation ofConsolidated Financial Statements for EADS, which areprepared under the direct supervision of the Chief Accounting
Ofﬁcer (“CAO”). The CAO is responsible for the operation of
the Group’s consolidation systems and rules and for thedeﬁnition of Group-wide accounting policies, reporting rules
and ﬁnancial guidelines that ensure the consistency and qualityof ﬁnancial information reported by the BUs and Divisions.
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, theChief Financial Ofﬁcer or the Board of Directors (based upon
the advice of the Audit Committee).
Control of the ﬁnancial reporting process is achieved 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 Group-wide applied accounting principle. Accountants at
EADS headquarters, who are responsible for each Division,monitor and verify the work of the relevant BU accounting
departments and perform the respective consolidation steps.
The HQ Division accountants also provide direct support to
the BUs to ensure the correct application of the EADS
accounting policies.
The consolidation of Group planning and forecast ﬁgures
follows the same procedure as described for the actuals
reporting above.
Supported by the CFOs from Divisions, the consolidated plan
and actuals report provides management with a global overview
of the Group.
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
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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.
During the course of each reporting cycle, the BU Chief
Financial Ofﬁcers are in regular contact with the Division
Chief Financial Ofﬁcers and the BU and Division Chief
Financial Ofﬁcers frequently meet with the EADS CAO andhis responsible staff to discuss the ﬁnancial information
generated by the BUs/Divisions. Prior to being disclosed to the
public and subsequently submitted for approval to theshareholders, the consolidated year-end ﬁnancial statements areaudited by the Company’s external auditors, reviewed by the
Audit Committee and submitted for approval by the Board of
Directors. A similar procedure is used for the quarterly closing.
Group auditors are involved before EADS ﬁnancial statements
are submitted to the Board of Directors.
Controlling
The controlling function has further developed a value-driven
economic and ﬁnancial corporate measurement system andmethodology. The overall goal is to ensure an efﬁcientcollaboration and alignment between Group and Divisions
ﬁnance teams towards improvements in value creation. While
EADS Headquarters deﬁnes the global performance
management framework, the Division Chief Financial Ofﬁcers
are fully responsible for operational performance management.
Since 2007 they report to both the Division Chief Executive
Ofﬁcer and the EADS CFO in these matters.
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,
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. To maintain targetedliquidity levels, and to safeguard cash, EADS has implemented
a cash pooling system with daily cash sweeps from thecontrolled subsidiaries to centrally managed accounts. Payment
fraud prevention procedures have been standardized
throughout the Group.

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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 andinterest rate risk. Subsidiaries are required to calculate, update
and monitor their foreign exchange and interest rate exposure
with the EADS central treasury department on a monthly
basis, in accordance 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
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 Chief
Executive Ofﬁcer, the Chief Financial Ofﬁcer 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 information on guarantee-related off-balance
sheet exposure is captured by EADS headquarters based on
regular reports of this exposure and discussed in the MBDA
treasury committee.
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 of2

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proposed contracts and (ii) a mandated pre-approval process forcontracts deﬁned as “high-risk”. Contracts falling within thedeﬁned threshold categories require approval by the Chief
Financial Ofﬁcer. Contracts that are deemed “high-risk” mustbe submitted to a standing Commercial Committee (with the
EADS Chief Financial Ofﬁcer and the EADS CSMO serving as
Chairmen and a possible escalation to EADS CEO whenneeded). This committee is responsible for reviewing the
proposal and allowing the concerned BU to remit its offer. Its
speciﬁc role and responsibilities are deﬁned in a set of internal
rules adopted by the EADS Executive Committee in 2002.
Some modiﬁcations of these rules are presently under study(for further submission to the Executive Committee) in orderto adapt them to the new conﬁguration of the Company. In thecase 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 developing 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 Chief
Financial Ofﬁcer and the directors of Group headquarters level
M&A and controlling departments. Legal Affairs ispermanently represented on the M&A Committee, andrepresentatives of other departments are also invited to attend
meetings. Projects that are considered non-strategic and fallunder a deﬁned value threshold are reviewed and approved by
the M&A Committee. Strategic and high-value projects require
additional approval by the Chief Executive Ofﬁcer or the Boardof Directors. This review and approval procedure is carried out
at four critical stages of the M&A process, beginning with ananalysis of the strategic ﬁt and deﬁnition of the legal
framework and concluding with a ﬁnal review of the overall
transaction.
Legal
EADS is subject to myriad legal requirements in eachjurisdiction in which it conducts business. The EADS
Corporate Legal Department, 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.

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The Corporate Legal Department, together with the Corporate
Secretary, also plays an essential role in the design andadministration of (i) the EADS Corporate Governanceprocedures and (ii) the legal documentation underlying thedelegation of powers and responsibilities 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 andRM procedures. Based upon an approved annual audit plan anda 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.

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Procurement
The performance of EADS is to a large extent determinedthrough its supply chain. Therefore, sourcing is a key lever for
EADS in its marketplace.
EADS’ size and complexity requires a common approach tomaximize market levers and to avoid inefﬁciencies in the
procurement process. To help ensure that sourcing is carriedout in the most effective, efﬁcient and ethical manner, a set ofcommon procurement processes, which support a common
sourcing strategy and ultimately the Group strategy and vision,is deﬁned by the head of Corporate Sourcing and the Chief
Procurement Ofﬁcers Council.
The common approach and processes are then implemented
across all Divisions through the sourcing networks. Thesesourcing networks comprise representatives from all EADS
divisions. They are tasked by the EADS Chief Procurement
Ofﬁcers Council to deﬁne and roll out across EADS strategic
sourcing topics such as Supplier Relationship Management,
Common Processes and Tools, Global Sourcing, Joint
Procurement, Corporate Social Responsibility, and Procurement
Performance Management. The procurement processes are
regularly reviewed by means of audits and self-assessments andthus consistently challenged and optimised.

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
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
and reward. To meet these objectives, a signiﬁcant portion of
the compensation is variable and linked to key performancemeasures and individual objectives. The remuneration isbenchmarked regularly against the practice of other global

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companies based in Europe and the U.S.A. to ensure fairness
and competitiveness.
Following the Governance changes decided at the Extraordinary
General Meeting of Shareholders held on 22nd October 2007,
the Board is now made up of ten Non-Executive Members of
the Board and one Executive Member of the Board: the Chief
Executive Ofﬁcer (who is also member of the Executive
Committee).

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The compensation of the Executive Member of the Board (the Chief Executive Ofﬁcer) and of the members of the Executive
Committee combines short-term and long-term reward and is summarized as follows:
Main drivers

Performance measures

Base salary

Position/job value

Individual performance/
Market practice-

Variable pay

Achievement of Group businessand financial yearly objectives
and reward of individual
performance

Collective part (50% of Target
variable pay): EBIT* (75%) andcash (25%) achievement

EADS Chief Executive Officer andAirbus CEO: 55% of Total target
income (range from 0% to 175%)

Individual bonus (50% of Target
variable pay): achievement ofannual individual objectives

Other members of the Executive
Committee: 50% of Total target
income (range from 0% to 175%)

Performance unit plan

Achievement of long-term
operational profit, measured
through cumulative EBIT*
achievement

The number of Performance
units which will vest is based
on 2nd and 3rd year cumulative
EBIT* achievement

Vested Performance units
will range from 0% to 100%of initial grant

Short-termMid- and Long-term

Variation of payment as% of Total
target income/% of vesting

Compensation element

2.2.1.2 Compensation of the Membersof the Board of Directors
The Board has decided to review the compensation structureof the Non-Executive Members of the Board in order toreﬂect European best practice and compensate for timecommitment and responsibilities in the new governancestructure. Therefore, the Board has resolved to remove thevariable pay element and to provide separate fees forchairmanship and membership of Board Committees.

−

Effective 1st January 2008, each Non-Executive Member of theBoard will receive an annual ﬁxed fee of €80,000 and a fee forparticipation in Board meetings of €5,000 per meeting
attended.
The Chairman of the Board will receive an annual ﬁxed fee of€180,000 for carrying out this role and a fee for participation in
Board meetings of €10,000 per meeting attended.
The Chairmen of each of the Board Committees will receive anadditional annual ﬁxed fee of €30,000. The Members of each of
the Board Committees will receive an additional annual ﬁxed feeof €20,000 for each Committee membership.

Committee Chairmanship and Committee Membership annual
fees are cumulative if the concerned Non-Executive Members of
the Board belong to two different Committees.
The Chief Executive Ofﬁcer receives neither fees forparticipation in Board of Directors’ meetings nor any dedicatedcompensation as member of the Board of Directors in addition tohis compensation as member of the Executive Committee (seebelow “2.2.1.3 Compensation of the Members of the Executive
Committee”). The Chief Executive Ofﬁcer is eligible for beneﬁts
under Long Term Incentive Plans including performance unit
plan (see “2.3.3 Long Term Incentives Plans”) and under employee
share ownership plans in his capacity as qualifying employees (seealso “2.3.2 Employee Share Ownership Plans”). Additionally, theChief Executive Ofﬁcer is entitled to pension beneﬁts.
−

The amounts of the various components constituting thecompensation granted to the Chief Executive Ofﬁcer and to
Non-Executive Directors during 2007, together with additional
information such as the number of performance units (see“2.3.3 Long Term Incentives Plans”) and details of the pension
beneﬁts entitlements of the Chief Executive Ofﬁcer are set out
in “Notes to the Company Financial Statements — Note 11:
Remuneration”.

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 2007 can be
speciﬁed as follows:
2007

2006

in €

in €

Fixum

4,194,733

4,564,086
2,361,451

Bonus (related to reporting period)

3,294,312

Fees

390,000

395,000

Total

7,879,045

7,320,537* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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The cash remuneration of the members of the Board of Directors was as follows:
2007

Fixum
in €

Bonus
in €
related to 2007

Fees
in €

Total
in €

Rüdiger Grube

30,000109,81385,000224,813Louis Gallois

1,147,701

957,885-

2,105,586

Rolf Bartke-

11,76615,00026,766

Dominique D’Hinnin-

11,76615,00026,766

Directors

Juan Manuel Eguiagaray Ucelay

30,00062,75050,000142,750

Arnaud Lagardère

60,000113,734

60,000233,734-

11,766

10,00021,766

Hermann-Josef Lamberti*

Lakshmi N. Mittal

-

-

-

-

Sir John Parker-

11,76620,00031,766

Michel Pébereau-

41,83325,00066,833

Bodo Uebber-

41,833

10,00051,833

Manfred Bischoff

60,00031,37550,000141,375**

2,018,432

Former directors
Thomas Enders

1,218,157

800,275-

Jean-Paul Gut

818,937

388,500-

1,207,437

Hans-Peter Ring**

769,938

597,282-

1,367,220

Francois David

30,00050,98430,000110,984

Michael Rogowski

30,00050,98420,000100,984

4,194,733

3,294,312

390,000

7,879,045

Total
(*)
(**)

●

Remuneration waived at the Director’s request.
Pro rata in accordance with their periods of membership with the Board of Directors.

Long term incentives

The table below gives an overview of the Long term Incentive Plans (performance units) granted by EADS in 2007 to
the Chief Executive Ofﬁcer:
Unit plan: number of performance units*
granted in 2007

vesting dates

33,700

Vesting schedule is made up of 4 payments over 2 years:(a) 25% expected in May 2011;(b) 25% expected in November 2011;(c) 25% expected in May 2012;(d) 25% expected in November 2012.

Louis Gallois(*)●

Vesting of all Performance units granted to the Chief Executive Ofﬁcer is subject to performance conditions.

Pension beneﬁts

The Members of the Executive Committee have pension
promises as part of their employment agreements. The generalpolicy is to give them annual pensions of 50% of their annual
base salary upon reaching 5 years of service in the Executive
Committee of EADS at the age of 60 or 65.
These rights can gradually increase to 60% after a second term,
usually after ten years of service in the EADS Executive
Committee.

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These pension schemes have been implemented throughcollective executive pension plans in France and Germany.
These pension promises have also separate rules e.g. forminimum length of service and other conditions to comply
with national regulations.
For the Chief Executive Ofﬁcer, the amount of the pension
deﬁned beneﬁt obligation amounted to €0.8 million as of
31st December 2007, while the amount of current service andinterest cost related to his pension promise accounted for
during ﬁscal year 2007 represented an expense of €0.6 million.

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2.2 | Interests of Directors and Principal Executive Officers

1This obligation has been accrued for in the Consolidated
Financial Statements.
●

Termination package

Under the terms of his employment contract, the Chief
Executive Ofﬁcer has an indeﬁnite term contract (whereas, inaccordance with the Articles of Association of the Company,
the length of the mandate is limited). The employment contract
can be terminated at any time with six months notice.
As part of his employment contract, the Chief Executive
Ofﬁcer is entitled to a termination package when the parting
results from a decision by the Company. The Board has decided
to reduce the maximum termination indemnity from
24 months (cf. report of the Board of Directors 2006) to
18 months of annual total target salary.
This new rule is applicable to the Chief Executive Ofﬁcer fromthe renewal of his employment contract in October 2007. The
indemnity could be reduced pro rata or would even not beapplicable depending on age and date of retirement.
Apart from the Chief Executive Ofﬁcer, no other Director who
is in ofﬁce is entitled to a termination package.
●Non-competition clause

A non competition clause is included in the contract of the
Chief Executive Ofﬁcer. This clause is applicable for a one-year
period, starting at the end of the employment contract, and isrenewable for one year at the Company’s initiative.
The Chief Executive Ofﬁcer will receive a compensation basedon his monthly salary (including variable pay) in return of theapplication of the non competition clause.
●

Other beneﬁts

The Chief Executive Ofﬁcer is entitled to a company car. The
value of his company car as at 31st December 2007 is €23,977.

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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 the collective
part and cash represents 25% of the collective part in 2008);●

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 as
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 and makes
recommendations to the Board of Directors on bonus payments to
the Chief Executive Ofﬁcer and to the members 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. Louis Gallois, Chief Executive Ofﬁcer,
during the year 2007, was €1,405,313 (this sum includes thepayments of his January to December 2007 ﬁxum and the pro
rata 2006 variable pay for the period from July 2006 until
December 2006, paid in May 2007).
Former Executive Directors:●

The total compensation paid by EADS and all its Group
companies to Mr. Thomas Enders in 2007, for the period in
accordance with his membership with the Board of
Directors, was €1,760,625 (this sum includes the paymentsof his ﬁxum from 1st January 2007 until end of
October 2007 and the 2006 variable pay paid in May 2007).

●

The total compensation paid by EADS and all its Group
companies to Mr. Hans Peter Ring, in 2007, for the period in
accordance with his membership with the Board of
Directors, was €1,226,465 (this sum includes the paymentsof his ﬁxum from 1st January 2007 until end of
October 2007 and the 2006 variable pay paid in May 2007).

●

The total compensation paid by EADS and all its Group
companies to Mr. Jean-Paul Gut, in 2007, for the period in
accordance with his membership with the Board of
Directors, was €1,663,964 (this sum includes the payments

2.2.1.3 Compensation of the Members of the
Executive Committee
The members of the Executive Committee, including the Chief
Executive Ofﬁcer, are entitled to receive for the year 2007 an
accumulated total target compensation on a full year basis of€12,379,099. This target compensation is calculated pro rata forthe members of the Executive Committee present in the
Company on 31 December 2007. This compensation is divided
for the EADS Chief Executive Ofﬁcer and Airbus Chief
Executive Ofﬁcer into a 45% ﬁxed part and a 55% variable part on
target and for the other members of the Executive Committee
into a 50% ﬁxed part and a 50% variable part on target.

2* Earnings before interest and taxes, pre-goodwill impairment and exceptionals.

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1of his ﬁxum from 1st January 2007 until
16th September 2007, the 2006 variable pay paid in
May 2007 and the 2007 variable pay paid in 2007, which is
calculated pro rata for the period as Director of EADS).
Under the terms of his employment contract, Jean-Paul Gut
was entitled to:−Six-month notice period, reduced to four-month notice
period at Jean-Paul Gut’s request, which represents apayment of €466,667 gross (salary and bonus);

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A termination package of €2,800,000 (two years of total
target income);−

An indemnity aiming at compensating his accumulated
pension rights at the date of his departure.

In addition, EADS has concluded with Jean-Paul Gut a longterm Service Provider’s Agreement, in order to retain Mr. Gut’s
speciﬁc expertise in the ﬁeld of marketing and M&A activities.

2.2.2 LONG TERM INCENTIVES GRANTED TO THE CHIEF EXECUTIVE OFFICER
See “2.3.3 Long Term Incentive Plans”.

2.2.3 RELATED PARTY TRANSACTIONSArticle 2:146 of the Dutch Civil Code provides as follows:“Unless the articles of association provide otherwise, acompany (naamloze vennootschap) shall be represented by its
board of supervisory directors in all matters in which it has a
conﬂict of interest with one or more of the members of its
Board of Directors. The shareholders’ meeting shall at all times
have powers to designate one or more persons for thispurpose”. In the case of EADS, the Articles of Association doprovide otherwise since they enable the Board of Directors tohave power to represent the Company in matters where theCompany has a conﬂict of interest with one or more membersof the Board of Directors.
During the year 2007, 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. See Note 32 to
the Consolidated Financial Statements for the years ended
31st December 2007 and 31st December 2006 in “1.2.1
EADS N.V. Consolidated Financial Statements” and Note 32 to
the Consolidated Financial Statements for the year ended
31st December 2005 as incorporated in this Registration
Document (see 1.2 Financial Statements).
For a description of the relationships between the Company
and its principal shareholders, see “Part 2/3.3.2 Relationships
with Principal Shareholders”. Other than the relationships
between the Company and its principal shareholders describedin Part 2/3.3.2, there are no potential conﬂicts of interest
between the duties to the Company of the Directors and theirrespective private interests or other duties.

2.2.4 LOANS AND GUARANTEES GRANTED TO DIRECTORSEADS 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. In 2007, aperformance and restricted unit plan has been established forthe senior management of the Group (see “2.3.3 Long Term
Incentives Plans”) and employees were offered shares atfavourable conditions at the time of the public offering andlisting of EADS (see “2.3.2 Employee Share Ownership Plans”).
Since 2005, the success sharing schemes which are
implemented in EADS in France, Germany, Spain, andthe U.K. follow one set of common rules of the Group,
ensuring a consistent application in these four countries.

2.3.2 EMPLOYEE SHARE OWNERSHIP PLANS
2.3.2.1 ESOP 2000

2.3.2.2 ESOP 2001

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%.

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 and note d’opération définitive approved by the COB
on 13th October 2001 under number 01-1209) was open only
to employees who:

The employee offering 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 share capital and over whose management it has
a determining inﬂuence and whose registered ofﬁce
is located in South Africa, Germany, Brazil, Canada, Spain,
the United States, the United Kingdom, France, Italy,
Morocco, Mexico and Singapore.

●

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 designatedas 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.

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.

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A total number of 2,017,894 shares were subscribed for in theemployee offering. Shares were delivered on 5th December 2001.

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.

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 the178

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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;●

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.

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

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share 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.

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.

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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 €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.

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A total number of 2,017,822 shares were subscribed for in theemployee offering. Shares were delivered on 3rd December 2004.

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2.3.2.7 ESOP 2007

2.3.2.6 ESOP 2005

In 2006 no employee offering took place. The employee
offering originally scheduled for June 2006 was postponed toMarch 2007.

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.

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 (note d’opération approved by the AMF
on 4th May 2005 under number 05-353) was given only toemployees who:

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 €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.

●

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 were delivered on 9th May 2007.

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 grantingof performance shares and restricted shares in the Company.
At its 7th December 2007 meeting, the Board of Directors of
the Company approved the granting of performance units andrestricted units in the Company.

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The principal characteristics of these options, performance and restricted shares and performance and restricted units as at
31st December 2007 are set out in the “Notes to the Consolidated Financial Statements (IFRS) — Note 31: Share-based Payment”.
They are also set out in the table below:
First tranche

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

Second tranche

24th May 2000th

24th May 2000th

26 May 2000

20 October 2000

Number of options granted

5,324,884

240,000

Number of options outstanding

1,671,380

32,000

Options granted to directors and officers

720,000

60,000Total number of eligible employees
Exercise date

Expiry dateConversion right

850
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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 containedin the Insider Trading Rules - see “Part 2/3.1.3 Governing Laws”).
8th July 2010

8th July 2010

One option for one share

One option for one share

Vested100%

100%

Exercise price€20.90€20.90Exercise price conditions

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

Number of exercised options

2,892,020

188,000

Third tranche

Fourth tranche

Date of shareholders’ Meeting

10th May 2001

Date of Board of Directors Meeting (grant date)th

12 July 2001

10th May 2001th

9 August 2002

Number of options granted

8,524,250

7,276,700

Number of options outstanding

3,773,169

2,706,434• 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

Options granted to:

Total number of eligible employees
Exercise date

Expiry date

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 containedin the Insider Trading Rules - see “Part 2/3.1.3 Governing Laws”).
12th July 2011

Conversion right

8th August 2012
One option for one share

Vested100%

100%

Exercise price€24.66€16.96

Exercise price conditions
Number of exercised options

180

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110% of fair market value of the shares at the date of grant
3,492,831

4,305,066

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Fifth tranche

Sixth trancheth

6 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

4,818,873

6,240,986(1)• 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 (grant date)

Options granted to:

Total number of eligible employees
Exercise date

Expiry date

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 containedin the Insider Trading Rules - see “Part 2/3.1.3 Governing Laws”).
9th October 2013

Conversion right

7th October 2014
One option for one share

Vested100%

100%(1)

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
2,503,423

2,400(1) As regards to the sixth tranche, vesting of part of the options granted to EADS top Executives was subject to performance conditions. As a result, part of these conditional options have not vested and were therefore
forfeited during the year 2007.

Seventh tranche

Date of shareholders’ Meeting
Date of Board of Directors Meeting

11th May 2005
9th December 2005

Number of options granted

7,981,760

Number of options outstanding

7,764,940

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

Expiry dateConversion right

940,000
1,608
50% of options may be exercised after a period of two years from the date of grantof the options; 50% of options may be exercised as of the third anniversaryof the date of grant of the options (subject to specific provisions containedin 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.
8th December 2015
One option for one share

VestedExercise price
Exercice price conditions

50%€33.91
110% of fair market value of the shares at the date of grant

Number of exercised options

0

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Eighth tranche

4th May 2006

Date of shareholders’ Meeting

18th December 2006

Date of Board of Directors Meeting

Stock option plan
Number of options granted

1,747,500

Number of options outstanding

1,742,000

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)

67,500425,000

Total number of eligible beneficiaries

221
50% of options may be exercised after a period of two years from the dateof grant of the options; 50% of options may be exercised as of the third anniversaryof the date of grant of the options (subject to specific provisions containedin the Insider Trading Rules - see “Part 2/3.1.3 Governing Laws”)

Date from which the options may be exercised
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

Number of shares granted

1,344,625

391,300

Number of shares outstanding

1,328,375

386,750• Mr. Thomas Enders

16,875-• Mr. Louis Gallois• the 10 employees having being granted the highest number ofshares during the year 2006 (eighth tranche)

16,875-

137,500

28,200Shares granted to:

Total number of eligible beneficiaries
Vesting date

1,637
The performance and restricted shares will vest if the participant is still employedby an EADS company and, in the case of performance shares, upon achievementof mid-term business performance. The vesting period will end at the date of publicationof the 2009 annual results, expected in March 2010.

Number of vested shares

182

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Ninth tranchethDate of Board of Directors Meeting

7 December 2007
Performance and restricted unit plan

Number of units granted

Performance units

Restricted units

1,693,940

506,060

33,700-239,900

43,500

Units granted to:• Mr. Louis Gallois*• the 10 employees having being granted the highest numberof units during the year 2007 (ninth tranche)
Total number of eligible beneficiaries

Vesting dates

(*)

1,617
The performance and restricted units will vest if the participant is still employed by an EADS
company at the respective vesting dates and, in the case of performance units,
upon achievement of mid-term business performance.
Vesting schedule is made up of 4 payments over 2 years:- 25% expected in May 2011;- 25% expected in November 2011;- 25% expected in May 2012;- 25% expected in November 2012.

For more information in respect of units granted to the Chief Executive Ofﬁcer, see “Notes to the Company Financial Statements — Note 11: Remuneration”.

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”.

For information on the transactions carried out by the membersof the Board of Directors and the Executive Committee see
EADS’ website and/or the relevant stock exchange authorities’
website.

Shareholding in the Company of the members of the Board of Directors
Member of the Board of Directors

Shareholding- 5 ordinary shares- 67,500 stock options*- 16,875 performance shares*• Mr. Louis Gallois• Mr. Dominique d’Hinnin- 61 ordinary shares• Mr. Arnaud Lagardère- 2 ordinary shares(*)

See eighth tranche as set forth in the above table.

The other members of the Board of Directors do not hold shares or other securities in the Company.

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Financial
Calendar3

2008 Calendar of Financial Communication

186

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FINANCIAL CALENDAR

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2008 Calendar of Financial Communication2007 Annual Results Release: 11th March 2008
Annual General Meeting: 26th May 2008
First Quarter 2008 Results Release: 14th May 2008
First Half 2008 Results Release: 30th July 2008
Third Quarter 2008 Results Release: 14th November 2008

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Designed & Produced by:

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Back to Contentswww.eads.com
European Aeronautic Defence
and Space Company EADS N.V.
Le Carré, Beechavenue 130 -1321119 PR Schiphol-Rijk
The Netherlands

This document is also available
at the following addresses:
European Aeronautic
Defence and Space Company
EADS N.V.
In France
37, boulevard de Montmorency
75781 Paris cedex 16 – France
In Germany
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In Spain
Avenida de Aragón 404
28022 Madrid – Spain