European Aeronautic Defence and Space
Company – EADSIn France
37, boulevard de Montmorency
75781 Paris cedex 16 – France
In Germany
81663 Munich – Germany
In Spain
Avenida de Aragón 404
28022 Madrid – Spain

European Aeronautic Defence and Space Company EADS N.V.

This document is also available at thefollowing addresses:

European Aeronautic Defence and Space Company EADS N.V.

EADS in 2002

Annual Report 2002

Annual Report 2002

Delivering measurable results

Contents

European Aeronautic Defence
and Space Company EADS N.V.
Le Carré
Beechavenue 130 – 132
1119 PR Schiphol-Rijk
The Netherlands
www.eads.net

From top to bottom
A380
A400M
Eurofighter
NH90
MeteorAriane 5

02
08
10
14
16
18
21
22
28
30
34
38
42
46

EADS at a glance (under flap)
Delivering measurable results
Message from the Chairmen
Message from the CEOs
Executive Committee
Key measures in 2002
The world in which we operate
Our business
AirbusMilitary Transport Aircraft
Aeronautics
Defence and Civil Systems
Space
Corporate governanceCorporate social responsibility

48 Financial section
48 Financial policy
50 Mangement’s analysis of thefinancial situation
68 Consolidated financial statements
72 Notes to the consolidated
financial statements
102 Information on principal investments
105 Auditors’ report
106 Addresses
108 Owning EADS shares

EADS at a glance

Airbus p22 – 27
The Airbus family of passenger jets ranges in size from 100 to 555 seats. During 2003,
the company expects to consolidate its leadership as the world’s largest supplier of
jet airliners in terms of deliveries. In 2006, the product range will be joined in service
by the 555-seat A380, the largest civil aircraft ever designed, for which production
began in 2002.

• A380 manufacturing begins

Financial calendar 2003
2002 Annual results release:10th March 2003

2002 (€bn)• 120 A319s ordered by easyJet in 2002s largest purchase

Revenues

Global investor forum:
28th – 29th April 2003, Munich, Germany

19.5• Four major flag carrier airlines join the Airbus family
Order book

• Year-end order book represents five years’ production at current rates

5

141.0

First Quarter 2003 results release:
6th May 2003

Order book/2002 deliveries (in aircraft)
5 Years

A340-600

Annual General Meeting:
6th May 2003, Amsterdam, The Netherlands
Global Investor Forum, Marseille 2002

Military Transport Aircraft p28 – 29
The Division manufactures the highly successful C-212, CN-235 and C-295 lightand medium military transports which are in service with some 50 countries aroundthe world. It is also responsible for the A400M, a new strategic heavy-lifting military
freighter which makes use of Airbus technology. The launch of this programme
is expected in 2003.

• CN-235 chosen for the US Coast Guard’s Deepwater programme

2002 (€bn)• Brazil selects the EADS CASA medium transport aircraft to support
the Amazon Protection System

Revenues• Work sharing on the A400M programme agreed

Order book

The Division’s business activities include Eurocopter (the world market leader
in commercial helicopters), Eurofighter combat aircraft, ATR regional airliners,
light aircraft, service and maintenance, passenger-to-freighter conversions
and aerostructures.

Third Quarter 2003 results release:
6th November 2003

0.5

0.2

0.6

• Air Refuelling Boom system development started

Key information for Shareholders
EADS proactively offers a variety of information sources updating shareholders on its major
events and progress such as the quarterly newsletter called “Aeronotes” and a monthly investor
summary available on EADS website.

Order book/revenues
1.2 Years

C-295

Aeronautics p30 – 33

First Half 2003 results release:28th July 2003

• Eurocopter wins 60% of world commercial helicopter market deliveries

2002 (€bn)• Orders of Tiger in Australia and NH90 in Norway

Revenues• First production Eurofighters rolled out; export sales drive under way• EADS EFW delivers 50th passenger-to-freighter conversion to FedEx

The EADS website, www.eads.net, also provides a wide range of information including financial
topics. Shareholders can contact us everyday on our special toll-free lines. It received the Fils d’Or
award in 2002 as “best Cac 40 website” from la Vie Financière.
Investor Relations contact:
Toll Free Telephone Numbers:
France0 800 01 2001
Germany 00 800 00 02 2002
Spain
00 800 00 02 2002

5.3
Order book2

13.5

Order book/revenues
2.5 Years

EC135

Defence & Civil Systems p34 – 37
The Division includes MBDA, the world’s second-largest missile company.
It also manufactures sophisticated defence electronics and secure communications
systems for civil and military applications. The EADS Services business unit caters to
the growing demand for outsourced military functions.

• MBDA books Meteor missile contract (€0.9 billion EADS share)

2002 (€bn)• EADS LFK, the German missile subsidiary, signs €485 million Taurus missile
contract with Germany

Revenues• Preferred bidder for Herkules with German army

Order book

Shareholders from other countries can contact us at:+33 1 41 33 90 94
An e-mail box is dedicated to answering shareholders’ inquiries:
ir@eads.net

3.3

10.1

2

• EADS command and control systems selected for the German K130 corvette
Order book/revenues• Strategic restructuring, achieves return to profit

3.1 Years

TaurusSpace p38 – 41
The Space Division is active in all aspects of today’s space industry – from the
Ariane launchers to telecommunications and scientific satellites and services throughAstrium subsidiary. It is involved in many of the most advanced programmes in
the field, including the International Space Station ISS and the future European global
satellite navigation system, Galileo.

• Paradigm is the preferred bidder for the Skynet 5 defence programme

2002 (€bn)• Ariane wins 11 of the year’s 18 commercial launch contracts in the world

Revenues
2.2• Difficulties compounded by market deterioration

Order book

• Decision to acquire full control of Astrium announced

3.9

Order book/revenues
1.8 Years

Envisat

EADS 2002 EADS at a glance

2

EADS 2002 EADS at a glancewww.eads.net

Designed and produced by Addison Corporate Marketing Limited
Printed by Kriechbaumer© Copyrights: Airbus; Airbus Military; Arianespace; Astrium; EADS CASA; EADS Launch Vehicles;
EADS LFK; EADS Military Aircraft; EADS Telecom; ESA; Eurocopter; Gamma agency; MBDA;
Polizeihubschrauberstaffel Dresden; The International Herald Tribune 2002; H. Bèrenger; H. Gousse;
K. Henseler; T. Jullien; D. Modes; H. Moulonquet; E. Nojaroff; P. Penna; C. Serna.
All rights reserved

EADS at a glance

Airbus p22 – 27
The Airbus family of passenger jets ranges in size from 100 to 555 seats. During 2003,
the company expects to consolidate its leadership as the world’s largest supplier of
jet airliners in terms of deliveries. In 2006, the product range will be joined in service
by the 555-seat A380, the largest civil aircraft ever designed, for which production
began in 2002.

• A380 manufacturing begins

Financial calendar 2003
2002 Annual results release:10th March 2003

2002 (€bn)• 120 A319s ordered by easyJet in 2002s largest purchase

Revenues

Global investor forum:
28th – 29th April 2003, Munich, Germany

19.5• Four major flag carrier airlines join the Airbus family
Order book

• Year-end order book represents five years’ production at current rates

5

141.0

First Quarter 2003 results release:
6th May 2003

Order book/2002 deliveries (in aircraft)
5 Years

A340-600

Annual General Meeting:
6th May 2003, Amsterdam, The Netherlands
Global Investor Forum, Marseille 2002

Military Transport Aircraft p28 – 29
The Division manufactures the highly successful C-212, CN-235 and C-295 lightand medium military transports which are in service with some 50 countries aroundthe world. It is also responsible for the A400M, a new strategic heavy-lifting military
freighter which makes use of Airbus technology. The launch of this programme
is expected in 2003.

• CN-235 chosen for the US Coast Guard’s Deepwater programme

2002 (€bn)• Brazil selects the EADS CASA medium transport aircraft to support
the Amazon Protection System

Revenues• Work sharing on the A400M programme agreed

Order book

The Division’s business activities include Eurocopter (the world market leader
in commercial helicopters), Eurofighter combat aircraft, ATR regional airliners,
light aircraft, service and maintenance, passenger-to-freighter conversions
and aerostructures.

Third Quarter 2003 results release:
6th November 2003

0.5

0.2

0.6

• Air Refuelling Boom system development started

Key information for Shareholders
EADS proactively offers a variety of information sources updating shareholders on its major
events and progress such as the quarterly newsletter called “Aeronotes” and a monthly investor
summary available on EADS website.

Order book/revenues
1.2 Years

C-295

Aeronautics p30 – 33

First Half 2003 results release:28th July 2003

• Eurocopter wins 60% of world commercial helicopter market deliveries

2002 (€bn)• Orders of Tiger in Australia and NH90 in Norway

Revenues• First production Eurofighters rolled out; export sales drive under way• EADS EFW delivers 50th passenger-to-freighter conversion to FedEx

The EADS website, www.eads.net, also provides a wide range of information including financial
topics. Shareholders can contact us everyday on our special toll-free lines. It received the Fils d’Or
award in 2002 as “best Cac 40 website” from la Vie Financière.
Investor Relations contact:
Toll Free Telephone Numbers:
France0 800 01 2001
Germany 00 800 00 02 2002
Spain
00 800 00 02 2002

5.3
Order book2

13.5

Order book/revenues
2.5 Years

EC135

Defence & Civil Systems p34 – 37
The Division includes MBDA, the world’s second-largest missile company.
It also manufactures sophisticated defence electronics and secure communications
systems for civil and military applications. The EADS Services business unit caters to
the growing demand for outsourced military functions.

• MBDA books Meteor missile contract (€0.9 billion EADS share)

2002 (€bn)• EADS LFK, the German missile subsidiary, signs €485 million Taurus missile
contract with Germany

Revenues• Preferred bidder for Herkules with German army

Order book

Shareholders from other countries can contact us at:+33 1 41 33 90 94
An e-mail box is dedicated to answering shareholders’ inquiries:
ir@eads.net

3.3

10.1

2

• EADS command and control systems selected for the German K130 corvette
Order book/revenues• Strategic restructuring, achieves return to profit

3.1 Years

TaurusSpace p38 – 41
The Space Division is active in all aspects of today’s space industry – from the
Ariane launchers to telecommunications and scientific satellites and services throughAstrium subsidiary. It is involved in many of the most advanced programmes in
the field, including the International Space Station ISS and the future European global
satellite navigation system, Galileo.

• Paradigm is the preferred bidder for the Skynet 5 defence programme

2002 (€bn)• Ariane wins 11 of the year’s 18 commercial launch contracts in the world

Revenues
2.2• Difficulties compounded by market deterioration

Order book

• Decision to acquire full control of Astrium announced

3.9

Order book/revenues
1.8 Years

Envisat

EADS 2002 EADS at a glance

2

EADS 2002 EADS at a glancewww.eads.net

Designed and produced by Addison Corporate Marketing Limited
Printed by Kriechbaumer© Copyrights: Airbus; Airbus Military; Arianespace; Astrium; EADS CASA; EADS Launch Vehicles;
EADS LFK; EADS Military Aircraft; EADS Telecom; ESA; Eurocopter; Gamma agency; MBDA;
Polizeihubschrauberstaffel Dresden; The International Herald Tribune 2002; H. Bèrenger; H. Gousse;
K. Henseler; T. Jullien; D. Modes; H. Moulonquet; E. Nojaroff; P. Penna; C. Serna.
All rights reserved

European Aeronautic Defence and Space
Company – EADSIn France
37, boulevard de Montmorency
75781 Paris cedex 16 – France
In Germany
81663 Munich – Germany
In Spain
Avenida de Aragón 404
28022 Madrid – Spain

European Aeronautic Defence and Space Company EADS N.V.

This document is also available at thefollowing addresses:

European Aeronautic Defence and Space Company EADS N.V.

EADS in 2002

Annual Report 2002

Annual Report 2002

Delivering measurable results

Contents

European Aeronautic Defence
and Space Company EADS N.V.
Le Carré
Beechavenue 130 – 132
1119 PR Schiphol-Rijk
The Netherlands
www.eads.net

From top to bottom
A380
A400M
Eurofighter
NH90
MeteorAriane 5

02
08
10
14
16
18
21
22
28
30
34
38
42
46

EADS at a glance (under flap)
Delivering measurable results
Message from the Chairmen
Message from the CEOs
Executive Committee
Key measures in 2002
The world in which we operate
Our business
AirbusMilitary Transport Aircraft
Aeronautics
Defence and Civil Systems
Space
Corporate governanceCorporate social responsibility

48 Financial section
48 Financial policy
50 Mangement’s analysis of thefinancial situation
68 Consolidated financial statements
72 Notes to the consolidated
financial statements
102 Information on principal investments
105 Auditors’ report
106 Addresses
108 Owning EADS shares

European Aeronautic Defence and Space Company
EADS is the world’s second largest aerospace and defence
company, with revenues of €29.9 billion and a workforce ofnearly 104,000. It is a market leader in commercial aircraft,
defence technologies, helicopters, space, military transport andcombat aircraft, as well as related services. Its family of brands
includes Airbus, Eurocopter, the world’s leader in commercial
helicopters, MBDA, the world’s No 2 missile company andAstrium, the European leader in Space. EADS is also thelargest partner in the Eurofighter consortium and will head theforthcoming A400M military transport aircraft programme.
The Company has more than 70 facilities in France, Germany,
Spain and the UK, and is active in markets around the world,
including the US, Eastern Europe and Asia.
For shareholders, employees and customers around the world,
EADS is committed to delivering measurable results.

Revenues
EBIT* (Earnings before interest and taxes)
Earnings per share**Dividend per share
Net cash position
Order intake
Order book
Workforce (number of employees)

2002

2001***

2000€m

29,90130,79824,208

€m

1,426

1,694

1,399

€

0.87

1.00

–

€

0.3

0.5

0.5

€m

1,224

1,533

2,143

€m

31,00960,20849,079€m 168,339

183,256

131,874

103,967

102,967

88,879*Unless otherwise indicated, EBIT figures presented in this report are pre-goodwill and exceptionals**Pre-goodwill amortisation and exceptionals***Airbus 100% consolidation from 2001

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Measurable results in 2002

EADS 2002 Introduction

01

Delivering products that perform
With customers in five continents, EADS supplies some of
today’s most advanced technology in the fields of jet airliners,
military aircraft, helicopters, defence and civil systems andspace launchers, satellites and infrastructure.

In almost every part of the aerospace and defence market, you will find EADS products andservices performing a vital service for our customers.
They range from light civil aircraft to advanced military weapons systems, from helicopters tospace services and from jet airliners to fleet support facilities. And increasingly, they are winningstrong positions – often, outright leadership – in some of the world’s most demanding markets.
The technology may be sophisticated, but the reason is simple. Our products deliver the kindof competitive, cost-effective and innovative technology that customers require.
The “Airbus family”, for example. A line of jet airliners from corporate jets to the future555-passenger A380 – the largest airliner ever – which has been largely designed in partnershipwith airline users and airport authorities.
In response to their expectation, Airbus has been able to apply innovative technologies likefly-by-wire and composites-based construction to achieve measurable, practical improvementsin economic and environmental performance as well as operational convenience and passenger
comfort. This focus on meeting customer needs pays off: Airbus has increased its share ofdeliveries from 29% in 1998 to 44% in 2002 and is expected for the first time to overtake its
major competitor in 2003.
Eurocopter’s is a similar success story. It holds 60% of the global market for civil and parapublic
helicopters revenues, thanks largely to the quality of its products – and to the fact that the range
covers more than 80% of all possible customer requirements.
On the Defence side, governments are under ever more pressure to find ways of strengthening
their national defence cost effectively and to counter evolving threats. In this area, EADS isa world-class provider – and defence represents a growing proportion of our business.
The Eurofighter/Typhoon is Europe’s largest collaborative weapons procurement programme,
covering orders and options for over 700 aircraft and involving 400 suppliers all across Europe.
The first production unit of this outstandingly versatile combat aircraft is now used by theGerman Airforce for training purposes.
Eurocopter also produces some of today’s most potent military helicopters, including the Tiger
for combat, and the NH90 for transport, which have already been ordered by eight governments.
The future A400M heavy military transport aircraft has been chosen by seven European
nations in the face of fierce international competition – it opens the way to major pan-European
procurement opportunities.
And we also provide some of today’s most advanced missiles, systems and defence
electronics, including the new Meteor air-to-air missile, ramjet powered in order to maximise
the “non-escape-zone”, the Eagle MALE (Medium Altitude Long Endurance) unmanned
reconnaissance drone and the Tetrapol secured digital telecommunications system.
Add the increasing importance of satellites in integrated network based defence systems to ourspace and ballistic launchers expertise – unique in Europe – and you will begin to sense whata big, valuable and growing part EADS products play in the performance of our clients’ missions.

02

EADS 2002 Delivering measurable results – Delivering products that performCreation
Technical advances are at the heart of EADS products.
New helicopter rotor blade systems will deliver less noiseand smoother and more economical performance.

Build
The Eurofighter is one of today’s most sophisticated weaponssystems, and will be at the heart of European defence formany years to come.

DeliveryFreighter conversions of Airbus aircraft are ideal for today’stransport needs, as well as giving added service life –and value – to customers’ fleets.

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Designed to deliver03

Delivering a more efficient organisation
Organisational synergies and better ways of working areleveraging EADS existing technologies, skills and humanresources and creating a group that can match the bestin the world – in every field of activity.

The foundation of EADS brought together a unique team of companies – each with its own
history, skills and resources.
It built on a foundation of a strong partnership with well-proven capabilities across the whole
field of aerospace – from fundamental research and development through design, manufacture,marketing and customer support.
But it also created a unique opportunity for a step-change in efficiency and productivity throughthe sharing of knowledge, technology and commercial leverage. And we are pursuing that
opportunity for all we are worth.
We have, for example, established EADS International – a dedicated marketing team with a wealthof specialised local and international knowledge, that is tasked with driving export sales for allparts of the group – and that is already proving highly successful in a number of new markets.
Another early management decision was to explore ways of adding value to the Group by
exploiting cross-group synergies. No fewer than 672 projects have been launched to cut costs,
improve working methods and increase profitability.
One area covered is research and technology – a particularly vital focus of concern for EADS,
whose future depends absolutely on bringing innovative techniques and products to market.
Our Industrial Research and Technology group has conducted an extensive audit of all capabilities
within EADS, and has begun creating a structure – balancing central and decentralised resources –within which they can be harnessed to the full.
We have created a cross-divisional R&T network to identify areas of wide application to
our businesses, to develop ideas and ways of sharing them – and to help us concentrate ourinvestment in innovation where it can yield the best results.
At the same time, we have fundamentally re-engineered our sourcing strategy. Bought-in materials
and components represent by far the largest cost element in our products and an integrated
approach allows us to maximise the effectiveness of purchasing by leveraging our volumes.
The emphasis is on developing closer relationships with suppliers who will become morecommitted to EADS and its global business perspective. This means involving them at earlier
stages in projects, working with them on a risk and revenue sharing basis and – most importantof all – continuing evaluation of their performance.
Today, we’re implementing more than 300 projects in the area of procurement to maximise theefficiency of the Group. Already, they have created some €190 million of savings – and by 2004,
they will be making an estimated €300 million impact on our EBIT line.

04

EADS 2002 Delivering measurable results – Delivering a more efficient organisation

Creation
Sharing the Group’s rich technological resource base acrossdivisional and international boundaries gives EADS a solidcompetitive advantage.

Build
Managing effective international partnerships – as in thecase of Eurofighter – takes a special kind of skill. Few havemore of it than EADS.

Delivery
The right part to the right place at the right time – and theright price. Improved procurement systems are one of themain assets of EADS today.

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Doing what we do, better05

Delivering a stronger base for future growth
Future success depends on keeping ahead of customers’
needs, managing technological change and creating a working
environment in which the best brains can flourish, develop
and prosper. EADS is committed to all these – and more.

It takes more than a strong business today to prepare the success of tomorrow.
So one of our most important tasks is to build on the assets we have already, and to ensure thatthe company – like its products – undergoes constant improvement.
Our strategy aims to optimise our portfolio of businesses, to help us develop new business
opportunities through cross-divisional products, and to focus attention on particularly important
countries and regions – currently the US, the UK, Russia and China.
Another key factor is research and technology. The cost-effectiveness of our R&D programmes
is outstanding within our industry; and we patented more than 350 new inventions during
the year. Among the many achievements in 2002, the highlights included the testing of an
innovative helicopter rotor blade offering reduced noise, a “flying eye” micro-aerial vehicle
for reconnaissance and surveillance and an advanced, user-friendly ultrasonic test system forassembly line and maintenance operations.
But if strategic planning and technology are important, it’s the people within the company who
determine their success or failure – and the best guarantee for our future growth lies in our ability
to attract, retain and develop the best employees in our industry.
Here, too, the results are encouraging.
The 2002 Universum Graduate Survey – an independent annual study – shows that EADS hasleapt from 23rd to 9th place as one of the preferred pan-European employers for engineeringand science graduates. This confirms that we are increasingly seen as a major “employer brand”
among this critical audience – and probably explains why we were able to recruit some 2,326
of Europe’s brightest graduates in 2002.
We have radically reorganised our Human Resources function to unlock the full potential of thediversity of cultures and qualifications among the group’s employees. We have created a single“employment market”, open to all employees, who are encouraged to find the roles that best fit
their skills and ambitions, in the location of their choice – as well as participating in a wide rangeof courses designed to help them in developing their own careers.
We have led the way in pioneering flexible working arrangements which mean that even ina downturn like the current one, we are able to adapt our capacity significantly without major
lay-offs; and we have negotiated common pay structures, incentives and share option schemes
across the entire Group, to ensure that our people can share in our success.
With outstanding products, a clear strategy and an expert and motivated workforce, EADS
is in excellent shape to face the challenges – and seize the opportunities – of the future.
And to continue delivering measurable results – to customers, employees, shareholders andthe wider community – for years to come.

06

EADS 2002 Delivering measurable results – Delivering a stronger base for future growthCreation
Defence technologies can improve civil products – andvice versa. An EC135 is just one of the products that make
Eurocopter a world leader.

DeliveryStudents on a visit to Astrium. EADS is increasingly seen as
one of the best employers in Europe, offering a bright future
for the best graduates.

Build
Airbus has revolutionised large aircraft manufacturing for
efficiency and resilience in cyclical downturns. Here, wings
are unloaded from the special Beluga transport that links
our production sites.

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A clear view of our technological strengths

07

Manfred Bischoff (right)
Chairman
Jean-Luc Lagardère † (left)
Chairman08

Message from the Chairmen

2002 results
We are glad to report that EADS showed great resilience in the face of global economic weakness
and serious political and military uncertainties.
For the second year running, we exceeded our financial targets and reinforced our competitive
position, testifying not only to the Group’s ability to respond proactively to challenging market
conditions, but also to its future potential. Cost-saving programmes and new corporate structures
are producing greater efficiency, and changes at headquarters have been finalised. The integrationof three companies into one is now completed, and the benefits become increasingly apparent.
The Board of Directors has closely followed the development of the Group’s financial status, theGroup portfolio and the business development of each Division. Restructuring needs, accounting
principles, personnel, organisational and other major issues have been discussed and decided in
an atmosphere of partnership and trust.
Divisional highlights
Airbus delivered 303 aircraft, slightly ahead of forecast, and its order intake exceeded turnover.
For 2003, production should be maintained at about the same level, assuming no major change
in the industry’s environment. The Company continues to win new customers, and will be ideallyplaced to benefit when growth in air travel resumes. At that time, too, the A380 will be nearing
service entry, and will substantially enhance our competitive position.
In the defence business, there are hopeful signs of growth, with national budgets rising in the
UK and France and a number of European programmes agreed – notably the Meteor air-to-air
missile, whose development contract was signed at the end of 2002. Moreover the A400M
military transport aircraft contract, which will be vital in out-of-region conflicts, is now under final
negotiations with its customers. The Eurofighter combat aircraft, the Tiger military helicopter
and the NH90 transport helicopter are about to start serial production.
Drastic reorganisation and improvement programmes will continue in the space business, where
action is being taken to restore the Division to profitability in 2004 following the slump in launchand satellite activity of recent years.
Financial
Our strategic flexibility is underpinned by a strong cash position, and we have begun to address
the bond markets to establish EADS as a reliable capital market partner; we have continued tomake arrangements to protect the Group against volatility in USD vs EUR exchange rates in theforeseeable future.

On 14th March 2003, Jean-Luc Lagardère
died in Paris at the age of 75. As a great
industrial leader and aerospace visionary,Jean-Luc Lagardère had played a key rolein almost all major developments in theEuropean aerospace industry for the last
40 years. He paved the way for European
integration in aerospace and defence,by initiating the merger of Matra Hautes
Technologies and Aerospatiale, and wasa key promoter of the creation of EADSin the year 2000.

For the past two and a half years, we have been transforming EADS with the aim of ultimately
generating double-digit EBIT margins. We remain confident that this target can be reached,provided only that a stable economic and political environment can be re-established. The lack ofsuch an environment is a temporary setback, but it does not weaken our determination to surpass
this target soon.
Outlook
Meanwhile, the Group is in excellent shape. It has world-class products and services, leading-edge
technologies, a skilled and enthusiastic multi-national workforce, international operations and anincreasingly global and appreciative customer base. While remaining cautious about the immediate
future, we remain committed to our strategic goals of developing our broad portfolio of civil anddefence products and of consolidating our increasing stature as global players in all our various
activities. Substantial value is being built up in the business; and although this value is not yet fully
appreciated by the markets, we expect the share price to reflect it in the eventual cyclical upturn.

Manfred Bischoff
Chairman
EADS 2002 Message from the Chairmen

Jean-Luc Lagardère †Chairman09

Message from the CEOs
A tough year for the aerospace industry around the worldconfirmed the strength and potential of EADS in all its
markets. We need to remain alert and flexible in an uncertain
world, but we are taking decisive action to cut costs,
win new contracts and build shareholder value for the future.
Q:

A:

Can you give us an overview of how EADS
coped with 2002?

2002 was undoubtedly a difficult year for our industry. Global economic slowdown and geopoliticalinstability with new terrorist threats affected businesses throughout the world, and we were
no exception: our operating businesses have been specially hit since the end of 2001 by thepassenger air traffic slump and the set-back on commercial space market.
At the same time, we can point real successes during the year, and these should not be
overlooked. Despite a difficult environment, we have been able to deliver more than what
we promised. We showed our capability to react and adjust to the uncertainties and at thesame time we continued to pursue our strategy of global leadership.
First we have once again met – and in some cases exceeded – our financial targets. We maintained
a net cash position of over €1.2 billion, and we have slightly surpassed our EBIT target.
Second, we have made real progress in building EADS up as a strong, united company, witha coherent management structure and with a clear strategy fit to face future market demands
by enhancing profit growth potential. This was shown through our continued investment in
the development of the 555-seat Airbus A380 and of new products adapted to emerging threats,
like the European Unmanned Aerial Vehicle Eurohawk, the AGS (Air Ground Surveillance System)and the naval base cruise missile Scalp Naval. The integration phase is clearly over, and we cango forward as a fully integrated Group.

Q:

A:

Last year, you spoke of building up the
Defence side of the business as a strategic
priority. How is this working out?

We have to bear in mind that creating, marketing and managing defence projects take years
to mature, and are subject to all kinds of political uncertainties and changes. But yes, we’re
beginning to see rewards from our efforts to develop our Defence business.
During the year, we completed the formation of MBDA, the second-largest missile systems
company in the world, together with our partners BAE Systems and Finmeccanica. A major
milestone was achieved with the signing of the development contract for the European Meteor
programme in late December (€0.9 billion EADS share). This new generation air-to-air missile,
powered by a ramjet, will give outstanding air superiority to all European fighter aircraft. The
selection by the UK MoD of our Paradigm entity for the Skynet 5 project as the preferred bidder
is likely to have a very significant impact on our breakthrough into all the European
markets and even NATO. Despite the difficult situation in Germany, the A400M programme
seems now secured as Germany reduced its off-take but committed to go-ahead for 60 Aircraft.
This €18 billion programme will generate profit growth and will trigger synergies with Airbus
civil activities. Other major defence successes were helicopter orders: 22 Tiger in Australia,
a reference market for weapons acquisition and 14 NH90 in Norway.
Additionally we made inroads in new markets, particularly the US. The selection as a major
supplier to Lockheed Martin for the US Coast Guard Deepwater programme and also theinvitation to tender for the $20 billion air tanker programme of the US Airforce underline ourcredibility as a potential defence supplier to the US. The establishment of a North America
EADS holding company will strengthen our presence, improve our market access and is a clear
commitment to our US strategy.

10

EADS 2002 Message from the CEOs

Philippe Camus (left)
Chief Executive Officer
Rainer Hertrich (right)
Chief Executive Officer

11

Message from the CEOs

Q:

A:

How did the downturn affect your
Civil businesses?

Almost all our civil businesses had some progress to report, but also disappointments suchas the failure of the maiden flight of the new Ariane 5 ESCA. 2002 was the confirmation of Airbus
leadership and products supremacy. In a market characterised by lacklustre air traffic figures
and airlines’ financial difficulties, Airbus has quickly adapted production to market demand andpreserved high profitability and a sound balance sheet, while delivering 303 aircraft – slightly
ahead of target.
Although in terms of total gross order intake (551 aircraft) the 2002 global market was downby 22% compared to 2001, Airbus proved its enhanced competitiveness by an order intakeof 300 units (233 units net). This down-cycle is definitely harsh and unpredictable, but it iscertainly not the first one in Airbus’ 30-year history and this time, the company is in even better
shape to manage it. Progression of market share and solid order book allow management tosecure stability in a world of uncertainty and to benefit from scale, while permanent efforts toimprove productivity are successfully pursued.
While managing the consequences of the downturn, the Airbus product portfolio has been
extended by the entry into service of the A340-600 and certification of the A340-500 and A318.
Airbus has also won new clients such as Air New Zealand, South African Airways or the British
low-cost carrier easyJet and has been continuing to develop the very large future aircraft A380
on track for entry into service into 2006. Airbus is now entering the peak R&D and capital
expenditures for this programme, which it has the ability to self-finance. Eurocopter has once
again enjoyed an excellent year on the civil and parapublic markets and benefited from increased
demand from security forces, especially in the US, in the wave of the events of 11th September 2001.
Eurocopter strengthened its worldwide leadership with a worldwide civil and parapublic revenue
market share of 60%, having shown constant improvement from its 34% market share in 1995.

Q:

A:

So much for the successes. What about
the challenges?

The Space business is certainly the most challenging one. For the past two years we have been
facing industry overcapacity in a market that has simply collapsed from 20 – 25 civil satellites
ordered a year to six in 2002. We have to adapt our organisation to lower demand – as wellas continuing to lead consolidation in the industry. The launcher business is directly affectedby the difficult telecommunications satellites market. And we are working intensely on solving
the problems with our new Ariane 5 ESCA launcher.
To confront this dire situation, our Space management is implementing a further and drastic
programme to restore profitability by 2004, and our ability to restructure the business has beenstrengthened by the acquisition of the remaining 25% of Astrium from BAE Systems. Then again,
we can look forward to some healthy growth potential driven by expected programmes like
Paradigm secure communication for the UK MoD and the Galileo navigation system for Europe.
As mentioned before, with our defence products, we have the opportunity for short-term
growth, and this is already being driven by programmes like the Tiger and NH90 helicopters,
Eurofighter combat aircraft and missiles including Aster, Storm Shadow, Taurus and Meteor.
The big challenge here is to accelerate this growth by winning a share of the US market andby forming winning partnerships with other leading players in the defence sector.

12

EADS 2002 Message from the CEOs

A320 family

Galileo satellite

Eurofighter in formation

Q:

A:

Looking forward, what are the company’s
main strengths?

Apart from successful products, it is the quality of our people. We have a wealth of talented
and highly-motivated managers and qualified engineers, and we build on that wealth bypromoting them to the appropriate positions. We’ve also made two key appointments to the
Executive Committee; Ralph Crosby, an experienced US aerospace industry executive, who
is tasked with developing our US activities, and the Finnish Jussi Itävuori, who heads up our
Human Resources function.
Another strength is a very clear vision on ways in which we can grow. An example is ourestablishment of EADS International – a unit that works across divisional boundaries to support
business units by efficient marketing of their products around the world. Essentially, the unit
leverages our undoubted technological and production expertise through close, expert knowledgeof local markets and customers. For example, in 2002, it made an important contribution to export
successes in countries including Australia, Russia, Vietnam, South Africa, Norway, Greece – anda dozen others.
Yet another asset is our realistic approach to our business. We are and we will remain ambitious
to achieve and maintain global leadership across a number of markets; but we recognise thatthe world we live in is – especially at the moment – an unpredictable one. So where there exist
growth prospects, we set our managers demanding development targets. When growth issimply unavailable, we set equally demanding targets for cost savings and cash generation, thatare other ways to add value. Today, the cash position and order book are firmly in line with
our expectations and major efforts are on the way to reduce our costs still further, and control
our cash resources.

Philippe Camus
Chief Executive Officer

EADS 2002 Message from the CEOs

Rainer Hertrich
Chief Executive Officer

13

Executive Committee
Philippe Camus Chief Executive Officer
He was previously Chairman of the Management Board of Aerospatiale
Matra. In 1982, he joined the general management of the Lagardère Group
where he was Chairman of the Finance Committee of the Matra Group until
1992, appointed Chairman and Managing Director of the Finance Committeeof the Lagardère Group in 1993, and Managing Partner of Lagardère in
1998. Mr. Camus is a former student of the Ecole Normale Supérieure deParis, an agrégé in physical sciences and actuarial science and a graduateof the Institut d’Etudes Politiques de Paris.
Rainer Hertrich Chief Executive Officer
He started his career in 1977 at Messerschmitt-Bölkow-Blohm (MBB).
In 1994 he became Senior Vice President for Corporate Controlling ofDeutsche Aerospace (Dasa). In 1996, he was appointed Head of Dasa’s
Aero Engine Business Unit and at the same time President and CEO of
Dasa’s Motoren- und Turbinen-Union München (MTU). In March 2000
he became President and CEO of DaimlerChrysler Aerospace. He studied
Business Administration at the Technical University of Berlin and the
University of Nuremberg, graduating with a Bachelor of Commerce.
Hans Peter Ring Chief Financial Officer
Holding a degree in business administration, he began his career at MBB
in 1977. In 1987 he was appointed Head of Controlling of the company’s
Missiles and Defence Division. Subsequently he was named Head ofControlling of the Aviation and DefenceDivision of Dasa. From 1992–1995,
he was CFO and Member of the Board at Dornier Luftfahrt, a Dasa
subsidiary. In 1996, he was appointed Senior Vice President of Controllingof Dasa and subsequently of EADS.

Rainer Hertrich, Philippe Camus, Hans Peter RingNoël Forgeard Head of Airbus Division and President and CEO of Airbus
Mr. Forgeard joined Matra in 1987 as Senior Vice-President of the
Defence and Space activities. In 1992, he was appointed Managing
Director of Lagardère Group and Chief Executive Officer of Matra Hautes
Technologies. He joined Airbus Industrie as Managing Director in 1998
and became the first President and Chief Executive Officer of the Airbus
integrated company in 2001. He graduated from the Ecole Polytechniqueand the Ecole des Mines de Paris.
Gustav Humbert Airbus Chief Operating Officer
Previously a member of the Dasa Management Board responsible for
the Commercial Aircraft Division, he joined MBB in 1980, and became
President and CEO of Daimler-Benz Aerospace Airbus in 1994. He holds
a degree in mechanical engineering and production technology from
Hanover Technical University as well as a PhD in engineering from the
University of Hanover, School of Machinery.
Noël Forgeard, Gustav Humbert

Jean-Louis Gergorin Head of Strategic Coordination
Previously Managing Director (Strategic Coordination) of Aerospatiale
Matra, he started his career with the French Government, becoming
Head of Policy Planning of the French Foreign Ministry and member of
the French German Committee on Security and Defence. As of 1984 heheld senior strategic positions at Matra and Lagardère. He graduatedfrom Ecole Polytechnique and Ecole Nationale d’Administration (ENA)in Paris and is an alumnus of the Stanford Executive Programme.
Jussi Itävuori Head of Human Resources
Mr. Itävuori joined EADS in September 2001. Previously, he worked forKone Corporation since 1982 and was appointed in 1989 as head of
Human Resources and member of Executive Committee of Kone Elevators.
In 1995 he was appointed member of the Executive Committee and headof Human Resources of Kone Corporation. He served Finnish Air Forceas a pilot and officer. He earned his Master’s degree from the Vaasa Schoolof Economics.
Jean-Louis Gergorin, Jussi Itävuori

14

EADS 2002 Executive Committee

The CEOs are supported in their operational tasks by an
Executive Committee made up of the Heads of each operational
Division, the Head of EADS North America and of the Headsof the four major functions of the Company. Such Executive
Committee chaired by the CEOs is made up of 13 members.
Ralph D. Crosby Jr. Chairman and CEO of EADS North America
Previously, Mr. Crosby was President of the Integrated Systems Sector
at Northrop Grumman Corporation, Corporate Vice President andGeneral Manager of the company’s Commercial Aircraft Division of theB-2 Division. He has a Bachelor of Science degree from US Military
Academy, a master’s degree both in international relations from the Graduate
Institute of International Studies in Geneva and in public administrationfrom Harvard University.
Jean-Paul Gut Head of EADS International
Prior to the formation of EADS, Mr. Gut was Executive Chairman of
Aerospatiale Matra Lagardère International and Group Managing Directorof Defence and Space Transport at Aerospatiale Matra. He was previously
Managing Director of the Lagardère Group Board of Management,
responsible for International Operations and the High Technology sector.
Mr. Gut graduated from the Institut d’Etudes Politiques de Paris (IEP),
with a master’s degree in Economics.
Jean-Paul Gut, Ralph D. Crosby

Francisco Fernández Sainz Head of Military Transport Aircraft Division
Previously General Manager of Airbus España. He joined CASA in 1971
as a design engineer, occupied various positions of Product Engineering
Manager (1975), Project Manager (1979), Engineering Development
Director of the Technical Directorate (1982), Vice President of Engineering(1984) and Executive Vice President Programs (1997). Mr. Fernández Sainz
is a graduate of Icade (Master in Business Administration) and is a senior
Aeronautical Engineer.
Dietrich Russell Head of Aeronautics Division
Former Chief Operating Officer of Airbus Industrie. Mr. Russell joined
Dasa in 1995 where he was appointed Member of the Board responsible
for the Aeronautics division. Mr. Russell graduated from the Departmentsof Economics and Metallurgical Engineering and holds a Doctorate inEngineering from the Technical University RWTH of Aachen. He worked
24 years for Mannesmann before joining Dasa.
Dietrich Russell, Francisco Fernández Sainz

François Auque Head of Space Division
He was appointed Chief Financial Officer of Aerospatiale in 1991 andGroup Managing Director for Satellites at Aerospatiale Matra and a memberof the Aerospatiale Matra Management Board in 1999. Mr. Auque joined
Aerospatiale in 1991 as Chief Financial Officer. Graduated from Ecole desHautes Etudes Commerciales (HEC), from Ecole Nationale d’Administration(ENA), and from Institut d’Etudes Politiques de Paris (IEP).
Thomas Enders Head of Defence and Civil Systems Division
He joined MBB/Dasa in 1991, after various posts in international research
institutes, the German Parliament and the Planning Staff of the German
Minister of Defence. After several years in the company’s marketing sector,
he became Corporate Secretary of Dasa in 1995. From 1996 – 2000 he
was in charge of Corporate Strategy and Technology. Mr. Enders holds
degrees from the University of Bonn and UCLA, California.

Thomas Enders, François Auque

EADS 2002 Executive Committee

15

Key measures in 2002
Revenues (€m)
2002

29,901

2001

30,798

2000

Revenues in defence activities (%)

5 4
7

22

8

16

21
17

■ Missiles■ Military Aircraft■ Eurocopter■ Systems & DefenceElectronics, Services■ Secure Telecom■ Space■ Military Transport
Aircraft■ Airbus

EADS realised in 2002 about €6 billion revenues
in defence businesses, including militarytransport aircraft, combat aircraft, militaryhelicopters, missiles, defence electronics,
secured communication and military space.

24,208

EADS achieved its revenues target for 2002
thanks to successful management of challenging
market conditions. The revenues of €29.9 billion(– 3% from 2001) reflect, as anticipated, lower
Airbus deliveries and the exchange rate effect ofa weaker US Dollar. At a constant Dollar/Euro
exchange rate, revenues would have remained
close to the 2001 level.

Revenue breakdown by markets (%)

20

80

EBIT * (€m)
2002

1,426

2001
2000

1,694

Revenue breakdown by geography (%)

8
948

Thanks to pragmatic access built on cooperationagreements, acquisitions of companies leaderson their markets – such as Cogent, the UK
secure communication leader, or Patria, theFinland aerospace leader for example –EADS has well-balanced revenues. Moreover,competitiveness of products underlines global
reach with over half outside Europe.

■ Civil■ Defence

EADS realises today 20% of revenues in defence,
representing €6 billion and ranking EADS No 2
in Europe. EADS’ strategy is to increase defence
revenues to about 30% in the long-term. A morebalanced portfolio will allow to smooth theeffects of civil cycles.

Net income (€m)
2002
2001
2000

1,399

-909

EADS achieved its 2002 target with an EBIT
(Earnings before interest and taxes, pre-goodwill
amortisation and exceptionals) of €1,426 million(2001: €1,694 million), reflecting higher
R&D expense, namely for the Airbus A380
programme. The main contributions camefrom Airbus and the Aeronautics Division. The
Defence and Civil Systems Division achieved
its turnaround and exceeded its break-eventarget. The Space Division recorded a substantial
loss, as previously announced due to risk anddepreciation provisions. The Military Transport
Aircraft Division was impacted by an alreadyreported one time charge, following FairchildDornier’s insolvency.

EBIT * margin pre-R&D (%)
2002

11.8

2001

11.5

2000

11.3

Before Research and Development (R&D)
cost, EADS slightly improved its EBIT* margin,
proving the success of cost savings actions.

All 2000 figures: Airbus 80% consolidation. All 2001 and 2002 figures: Airbus 100% consolidation.
*Pre-goodwill amortisation and exceptionals

16■ Europe■ North America■ Rest of the world■ Asia35

EADS 2002 Key measures in 2002

-299
0

1,372

0
0

Net income after goodwill and exceptionals
was a loss amounting to €–299 million. It was
negatively affected by goodwill amortisation of€936 million, including a €350 million impairment
charge, reflecting the further deterioration in
the space markets. 2001 had been impacted
by positive exceptionals of about €0.6 billion,
mostly related to Airbus SAS creation.

Free cash flow (€m)
Before customer financing
2002

578

2001

867

2000

Free Cash Flow pre-customer financing
remained positive, after high capital expenditure
particularly for the A380 programme,
which demonstrates the company’s ability
to self-finance this programme.

Net cash position (€m)
2002
2001

1,224
1,533

2000

Internally financed R&D (€m)
2002

2,096

2001

1,841
1,339

R&D cost increased, as anticipated,to €2.1 billion (2001: €1.8 billion), particularly
due to the A380 programme.

Order book (€m)
2002

168,339

2001

183,256

2000

2,143

With €1.2 billion, Net cash at the end of 2002
is better than originally anticipated, thanks to thedisciplined containment of customer financing
exposure and to active cash management, as
well as to positive foreign exchange rate effects.

2000

1,856

131,874

The EADS order book remained strong at nearly€170 billion. Its decrease, from 2001, is mainly
2002
31,009attributable to the revaluation of the order book
based on a weaker US-Dollar/Euro exchange
2001
60,208rate of 1.05 at year-end, amounting to an
2000
49,079adjustment of about €14 billion. It includes over
1,500 Airbus aircraft, 723 helicopters andrepresents more than five years’ of revenues
at the current level; it remains unparalleledAt €31billion,order intake remained above revenues, in the global aerospace and defence industry.
despite a soft market for commercial aircraft andthe delay in the final order for the A400M militarytransport aircraft, now expected in 2003. Airbus
recorded net orders for 233 aircraft, compared to
274 net orders in 2001. The 2002 figure reflects
order cancellations and includes the win of theeasyJet deal for 120 firm aircraft orders. The Airbus
order intake amounted to €19.7 billion, compared
Employees by business sector
to €50.3 billion in 2001, when contracts over 85‘high-value’ A380 aircraft were signed. The SpaceEADS Group
103,967
Division strongly increased its order intake through46,409Airbusthe military launcher business and the Amazonas
telecom satellite contract with Spain. Orders at
3,593
Military Transport Aircraftthe Defence and Civil Systems Division grew
Aeronautics
25,547strongly thanks to the orders in missiles (Meteor
and Taurus programmes) and defence electronics.
Defence & Civil Systems
16,782
Order intake (€m)

Space*

10,366

Employees by country (%)
1,270

Headquarters and Research Centre

40.2 France
37.3
7.5
11.4
0.7
2.5
0.4

Germany
Spain

United Kingdom
Italy
USA
Rest of world* Astrium 75% consolidation

Headcount, at year-end, was at 103,967(2001: 102,967). The increase in 2002 isdue to ramp-ups in new programmes, with
about 3,000 new jobs for the A380 as wellas headcount growth for the NH90, Tiger andEurofighter ramp-ups. These effects werepartly compensated by adjustments to lower
production rates at Airbus and reductionsat other EADS Divisions and at Headquarters.

EADS provides work for local employees allover the world. With 11% of the total workforce
employed at British sites, the UK is of growing
importance for the Group. Airbus and Space each
employ 17% of their workforces at UK sites, DCS
12%. With 1,525 (6%) of Aeronautics’ workforce
located on the American continent, this
Division is EADS’ largest employer in that region.
EADS 2002 Key measures in 2002

17

The world in which we operate
EADS sells its products and services in an unusually wide rangeof markets. Our customers range from governments and public
services such as police forces to airlines and other commercial
clients. Responding effectively to change in demand and market
conditions is essential; as is investing in those areas offering thehighest potential. The following is a brief overview of conditions
in four key markets at the beginning of 2003.
No1 global order bookNo1 helicopters
No1 commercial launcher
No1 light/medium military transport aircraft
No2 commercial aircraft
No2 missiles systems
No3 satellites
No4 combat aircraft
Except order book, all rankings in revenues

Commercial aviation
The market downturn, which started in 2001, driven by weakening world economies andexacerbated by the terrorist attacks on 11th September 2001, continues to be the focus of theindustry. Passenger demand in 2002 remained slack as compared to pre-downturn traffic,
with US domestic, trans-Atlantic and trans-Pacific traffic flows particularly negatively affected.
As well as overall demand decreasing as a result of the factors mentioned above, the volume ofhigher yield business passengers decreased just as such passengers became more price sensitive.
By contrast, no-frills/low-cost carriers have emerged as a significant segment within the total
market. They have developed in the US and Europe by following a business model that leverages
the benefits of minimising costs while stimulating demand by offering low fares to and fromshort- and medium-range, often under-served, destinations.
The market for passenger jetliners depends primarily on the demand for air travel, which is itself
mainly driven by economic or GDP growth, fare levels and demographic growth. Measured
in revenue passenger kilometres, air travel increased every year from 1967 to 2000, except
for 1991 due to the Gulf War, resulting in an average annual growth rate of 7.9% for the period.
In 2002, Airbus projected that air travel would grow on average at 4.7% per annum during theperiod 2000 – 2020. However, although those in the industry feel that long-term growth in air
travel is secure, the market for aircraft has proven to be cyclical, due to the volatility of airline
profitability and cycles in the world economy.
As a consequence of deregulation policies, major airlines are constantly adapting their fleet,
network and commercial strategies. This adaptation is possible because of the availability of new
aircraft capable of meeting customer requirements in terms of cost and performance. In responseto the price demands of passengers and competition of new low cost carriers, major airlines
have organised their operations around strategically located “hub” airports enabling them to link
more cities at lower fares. This affects demand as hubs permit fleet standardisation around both
smaller aircraft types, such as the A320, for the short, thin and high frequency routes feeding
the hubs and larger aircraft, such as the A380, for longer and higher density routes between hubs.

Top: Low-cost carriers emerging as a significant segment
within the total market
Bottom: Border control initiatives by the US Coastguard

The trend towards fragmentation on long and very long haul routes, driven by the developmentof new routes between secondary cities, will be facilitated by the availability of more modern,efficient aircraft. As an example, in the Atlantic market, the development of new non-stop
services between secondary cities is expected to drive demand for intermediate wide bodyaircraft such as the A330.

Air traffic and aircraft deliveries historic evolution (%)
Air traffic annual growth*

Total industry deliveries/fleet
%
9

%
25

20

6

15

10

5

3

0

–5

0
1971

1976

1981

1986

*Source: ICAO (International Civil Aviation Organisation)

18

EADS 2002 The world in which we operate

1991

1996

2001

8
7
6
5
4
3
2
1
0

Helicopters
On present estimates, the global market – civil and military combined – will more than double in thenext ten years to more than €10 billion.
The military helicopter market in Europe is growing at an average 10% per annum, thanks tosignificant new programmes like the NH90 and Tiger, which also have high export potential.
Additional growth is coming from new areas including Search and Rescue and the Rapid
Reaction Force. The US is the largest military helicopter market, but is hardly accessible to any
European manufacturer.
In the civil and parapublic markets total sales by all manufacturers have declined by 20% over the
past two years and global orders now lie somewhere in the range of 400 to 450 aircraft per year.
A return to growth after the events of 11th September 2001 has been delayed, but is expected
to become gradually visible through 2003. Estimates are for average growth of 4% per annum inthe period up to 2012, with new opportunities being created by homeland security and bordercontrol initiatives by the US in the Gulf of Mexico and by Europe in the North Sea.
Defence
The global security environment is nowadays mainly characterised by global “asymmetrical threats”
from terrorism and the proliferation of mass destruction weapons causing an increasing needfor out-of-area law enforcement and military operations not only for “fight-and-win” but also for
deterrence, conflict prevention and peacetime engagement. This will require joint mission
capabilities, multi-national collaborations, interagency cooperation and especially shortened,
reaction times. Time, speed and precision have become decisive. This will impact the definitionof future military system capabilities as well as the modernisation of existing legacy systems,in order to provide appropriate and interoperable battle management, command, control andcommunication structures all focused on information superiority as the most important
prerequisite to success.

UZBEKISTANAt the moment, an important share of both US and European defence budgets is allocated toair combat and missile systems as well as to air mobility systems. In consequence of the changing
threat environment, however, growing resources will be devoted to air and missile defence,
intelligence and surveillance systems and support services including communications, refuelling
and transportation. Higher efficiency will be achieved by an increasing degree of networked
resources, which in addition will lead to new and more effective network-enabled capabilities.

TA J I K I S TA N
Dushanbe

T U R K M E N I S TA N

President Bush’s proposed defence budget for 2004 is US$379.9 billion – a rise of 4.2% over that for2003 – and this figure is expected to rise by 4.9% per annum compound to a peak of US$483.6 billion
in 2009. Research and Development expenditures will peak in 2005, with procurement growing
strongly in 2006 and beyond. The separate US Homeland Security budget is US$38 billion.

Hindu Kush

I R A N

Kabul

Kabul

HarirudFarah

A F G H A N I S TA N
Daryachehye Sistan Khash

Indus

Helmand

PA K I S TA N

Top: NATO expansion in 2002
Middle: World stock market
Bottom: Afghanistan was a focal point of politics in 2002

I N D I A

In Europe, the total defence budget is estimated at €150 billion, growing at 1 – 2% per annum.
The UK remains the motor for growth, but France has launched a multi-year defence programmewith some increase in funding. The German defence budget is under strain; nevertheless,programmes like Eurofighter, Tiger and NH90 have been confirmed, the Meteor programme
started in December and the launch of the A400M is imminent. European Union enlargement
might leave smaller resources for defence spending, and the Maastricht criteria on public spending –capping public sector deficits at 3% of GDP – might also prove limiting. On the other hand, there
is increased awareness that Continental Europe should match or at least reduce the gap between
EADS 2002 The world in which we operate

19

The world in which we operate
USA and European Union, procurement and R&DTE* defence budgets (€m)
140,000

120,000

100,000

80,00060,00040,00020,000

0
1995
USA

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

EU

Source: NATO standards, MoDs, EuroDefence*Research and Development Technology Equipment

the US and UK equipment per soldier ratio (i.e., fewer men, better equipped). There is alsoa trend to outsourcing non-front line services, which should free up resources for systems andequipment. The first steps are being taken towards a unified European approach on defence,and joint maintenance and procurement arrangements are becoming more common.
Space
Commercial telecommunications satellite markets remain challenging as the industry is
consolidating, in the phase of overcapacity and more intense competition between satellite
suppliers. In 2002, many suppliers suffered order cancellations, and the launcher businesssuffered accordingly.
Over the next five years, however, the existing fleet of ageing satellites will need to be replaced,
and this alone should account for over €8 billion of orders, with corresponding benefits tolaunch activities. In the medium to long term, we expect the re-emergence of the information
technology market to increase demand for satellite bandwidth. Drivers for this demand will
include broadband internet access, direct-to-home television and video-on-demand.
In the institutional sector, budgets from the European Space Agency and national agencies are
fairly stable, declining slightly after adjustment for inflation. This situation is likely to persist.

Top: Skynet 5
Bottom: Satellite control centre

The military space sector, on the other hand, is a growing market in global terms. The US
is leading the way towards network-enabled capabilities providing for the instantaneouscollection and dissemination of high volumes of information on a global basis. This requires large
bandwidths that can be deployed rapidly, flexibly and securely, together with reconnaissanceand telecommunications satellites. The Ballistic Missile Defence programme is another major
growth area, accessible to suppliers via cooperation agreements.
The European military space market remains small compared with the US, but is also growing.
The expected harmonisation of EU defence R&D and procurement should pave the way towards
more Ballistic Missile Defence demonstrator programmes and, eventually, to operational assets
in the form of satellites and launch vehicles. A number of governments have confirmed the needfor an independent European access to space and this should eventually favour European
manufacturers of launcher systems and telecommunications and observation satellites.
There is also increased demand for Public Private Partnerships and Private Finance Initiatives
telecommunications solutions in both institutional and military sectors. Forthcoming examples
in the military domain include Skynet 5 for the UK MoD and the expected DmilSatcom andNATO 2000 programmes. In the civil domain, the EU, together with ESA, after having secured
funds for its development, is now preparing the deployment phase of the €3 billion Galileo
navigation satellite venture.

20

EADS 2002 The world in which we operateOur business
EADS is organised in five major Divisions. Each is closely aligned
to the specific needs of customers in its sector; at the same time,the integration of the Group allows for the maximum exchange
of information, technologies and working practices to enhancethe value of each Division’s product and service offering.

AirbusNoël Forgeard

Military Transport
AircraftFrancisco Fernández Sainz

Aeronautics

Defence & Civil
Systems
Thomas Enders

Space

EADS Military Aircraft
Aloysius Rauen

Systems and DefenceElectronics
Stefan Zoller

Astrium
Antoine Bouvier

Eurocopter
Fabrice Brégier ***EADS Services
Jacques Vannier

EADS Launch Vehicles
Hervé Guillou **EADS ATR
Jean-Michel Léonard

MBDA
Marwan Lahoud *EADS CASA Espacio
Pedro Mendez

EADS EFW
Horst Emker ***EADS LFK
Werner Kaltenegger

EADS Space Services
Ulrich Aderhold

EADS Sogerma
Services
Yves Richard

EADS Telecom
Patrick Jourdan

Dietrich Russell

François Auque

EADS Socata
Philippe Debrun* as of 1st January 2003** as of 15th March 2003***as of 1st April 2003
EADS 2002 Our business21

AirbusIn the face of a difficult year for its customers, Airbus
maintained healthy financial results, delivered 303 aircraft –marginally ahead of forecast – and won 300 new orders
from 29 customers, equivalent to 54% of all orders
for commercial aircraft during 2002.
millions of euros

2002

2001

variation

Revenues
EBIT
Order intake
Order book

19,512
1,361
19,712140,996

20,5491,655
50,279156,075

– 5%
– 18%
– 61%
– 10%

2002

2001

variation

303
1,505

325
1,575

in number of aircraft

Deliveries
Order book

Revenue breakdown by market in 2002

1

99

■ Civil 99%■ Defence 1%

2002 results
In an encouragingly robust performance for 2002, Airbus recorded revenues of €19.5 billion.
Indeed revenues decreased only slightly, by 5% from 2001, despite a 7% decrease in deliveries
and a weaker dollar. EBIT of €1,361 million was achieved after self-financed R&D expenses of€1.7 billion. EBIT margin pre-R&D was thus maintained above 15% and even improved from 2001,
despite the market downturn, demonstrating the success of its cost saving plans.

– 7% 2002 deliveries– 4% In January 2002, Airbus estimated that it would be delivering about 300 aircraft during
the course of the year. This was backed by its order-book audit and reflected the most recent
customer feedback. It was however seen by many as an optimistic forecast. In fact, the Company
delivered 303 aircraft during the year, representing 44% of all large commercial airliners in
the year. These 2002 deliveries to more than 60 operators, comprised 236 single-aisles, nine
A300-600s and 58 A330/A340 family airliners. This brings to 3,127 the total number of Airbus
aircraft delivered to customers around the world.
New orders
The Company signed contracts for 300 new aircraft with a total value of some €26 billion(based on list prices), representing 54% of the market in terms of value. After cancellations,which were fewer than in 2001, net order intake amounted to 233. At the end of 2002, the orderbook showed a healthy backlog of more than 1,500 aircraft, representing five years’ of production
at current rates and exceeding the competition by over 300 aircraft.
Airbus won its largest single contract of 2002 from low-cost carrier easyJet for 120 A319s.
The Company’s product offering, with its emphasis on cost-efficiency, has a particular appeal
to low-cost carriers. Airbus also continued to gain new customers including some of the
major flag carriers such as KLM for six A330s with options for a further 18 aircraft and Swiss
International for 13 A340s. Air New Zealand also joined the “Airbus club” and, in the largest airliner
deal in the history of the Southern Hemisphere, South African Airways formalised its decision
to re-equip its entire fleet with 41 new Airbus aircraft over the next ten years.
Important repeat business from existing customers included China Eastern which purchased
20 more A320s. ILFC – Airbus’ largest customer worldwide – purchased 13 more aircraft,and Lufthansa ordered its first ten A330s and is now set to operate every available Airbus type.
Finally, Airbus met its goal of signing an incremental A380 order in each of the years following
launch, with Federal Express placing firm orders for ten A380-400F freighters. By year end,
firm orders for the A380 stood at 95.
This sales record is testimony to the widely appreciated advantages offered by Airbus
products: passenger comfort, reliability, environmental friendliness and low operating cost.
In addition, an Airbus fleet presents the unique advantage of true operational commonality,
leading to considerable savings for operators in terms of crew training as well as improved
efficiency and flexibility.
FinanceIn spite of a difficult environment, Airbus managed to limit the growth of its customer financing
exposure. The net increase of customer finance exposure is below 3% of annual revenues,
that is, below $600 million. This was achieved by the control of net additions and the active
sell-down of exposure so that, while 90 aircraft were delivered to North American carriers in
2002, only five of them were still being financed by Airbus at the end of the year.
The Company also made considerable progress with its drive to achieve annual productivity
gains of 5% before inflation, with 1.5% coming from special value creation projects following
Airbus integration. A 2002 cost savings target of €130 million was overachieved.
This tight financial management made it possible – despite market uncertainties and theA380 capital expenditure and R&D ramp up – to generate a positive free cash flow before
customer financing and shareholder dividends.

22

EADS 2002 Airbus

“Prudence and reactivity willcontinue to be key in 2003.
On the one hand, Airbus
will no doubt face many
challenges, but on the other
hand, we look to the futurewith confidence gained
from the proven value ofour products, the winningspirit of our people and ourability to overcome hurdles.”Noël Forgeard
Airbus President and Chief Executive Officer
EADS Executive Committee Member
EADS Board Member

Maintenance personnel in front of A340-600

23AirbusOperations and staffing
These rapid and substantial cost savings were achieved thanks to the ability of the Airbus
community to cope with a number of major challenges – business problems and organisationalchanges – with determination and professionalism.
Overall, the Company’s headcount has remained stable, slightly below 46,000 in full-time
equivalents. Some measures of flexibility have been used to reduce social costs without lay-offs,
despite the production rate decrease from 325 deliveries in 2001 to 303 deliveries in 2002.
At the same time, close to 1,000 engineers have been hired for the A380 and A400M programmes.
Airbus has developed its capacity abroad, opening a design centre in Wichita, Kansas
and signing an agreement with the Kaskol Group to open a joint engineering centre in Moscow,
Russia. The office of Airbus North America Engineering, Inc., in Wichita, currently hosts some
100 engineers working on wing design for the A380, and is linked in real time to the main
A380 wing design office in the UK. The Kaskol venture will coordinate and enlarge the activities
that will be developed with Russian aerospace companies – including the sourcing andproduction of components.
A380
The future A380 “very large aircraft” represents a number of major advances in aircraft technology.
An estimated 40% of the aircraft’s structure and components will be manufactured from the latest
generation of composites and advanced metallic materials, which, besides being lighter than
traditional materials, offer significant advantages in terms of operational reliability, maintainability
and ease of repair. Several innovative manufacturing techniques have been developed for the
programme and the aircraft will set new standards of environmental friendliness – for example,
by using around 13% less fuel and making less noise than its nearest competitor, while carrying
30 – 50% more passengers.
The development of the A380 continues on schedule and manufacturing has begun atall European Airbus sites. Some 6,500 staff are working on the programme and by the endof the year, over 95% of suppliers had been selected, including significant ones fromJapan – for example, Mitsubishi Heavy Industries, Fuji Heavy Industries, Shinmaya Industries
and Yokohama Rubber. Development costs have remained on budget and financing fromrisk-sharing partners, refundable government loans and Airbus internal cash were in place by
the end of the year. Plants are under construction in Toulouse and Hamburg. At the end of
March 2003, Airbus had received 103 firm orders and commitments for the A380.
A340-500/-600
After completing its test programme successfully, the four-engine A340-600 entered service
with Virgin Atlantic in August. By the end of 2002, the airline had taken delivery of four aircraft
while Cathay Pacific and South African Airways had received two aircraft each.
Following its maiden flight in February, the ultra long-range A340-500 completed its flighttest campaign and obtained certification in December. The first aircraft is scheduled for delivery
to Air Canada in the second quarter of 2003.
In the first certification process conducted jointly by the US, Canadian and European
Authorities, both the -600 and -500 types were granted the same pilot type rating as theA340-300, adding greatly to customers’ ability to operate fleets flexibly and cost-effectively.

24

EADS 2002 Airbus

A340s on the production line at Toulouse.
These four-engined aircraft are the largest of
the Airbus family.

The production facility in Hamburg. Airbus
has shown that genuinely international ventures
can succeed in world markets.

The new long-range A340-600 takes
off from La Paz in the course of its final
certification programme, which was
successfully completed in 2002.
25

Airbus

A318
The A318, the smallest member of the A320 Family, flew for the first time in January 2002.
By August, it had passed the half-way point in its certification campaign, accumulating over
500 flight hours by the end of the year. Certification is expected in the first half of 2003,
and the A318 will enter service with Frontier Airlines soon afterwards.
Outlook
Current political and economic uncertainties are bearing particularly heavily on the civil aviationindustry and there is no doubt that 2003 will be another difficult year, with many airlines facing
low or negative air traffic growth, expensive oil and financial difficulties. Airbus’ target for 2003
is to deliver 300 aircraft if the global situation remains stable. These planned deliveries are fully
backed by higher firm orders and significant customer advance payments. The Company’s leancost structure, combined with the value of its products, allows Airbus to generate significantly
better industrial margins than its major competitor and the flexibility of its industrial tool remains
a key asset in adapting production capacity to market demand.
Airbus profitability will continue to be impacted by the R&D increase for the Airbus
A380 programme.

26

EADS 2002 Airbus

The new production facility for the A380 takes
shape at Toulouse. Components, systems
and subsystems will be produced at morethan 20 sites around the world by a totalof more than 70 suppliers as far apart as the
US and Japan.

Part of the interior design for the A380, which
will bring new standards of comfort and space
to long-range air travel from 2006 onwards.
95 firm orders have been placed by leading
airlines, as of the end of 2002.

easyJet is one of the world’s fastest-growing
players in the low-cost sector – itself taking
an increasing share of the world market.
The airline’s order for 120 A319s emphasises
the competitiveness and operational flexibilityof the Airbus family.
27

Military Transport Aircraft
In difficult conditions, revenues were maintained at nearly thesame level as 2001s. We once again confirmed our leadershipin the field of medium military transport aircraft, while militaryderivatives and mission aircraft continued to grow and ouraerostructures business won a number of substantial orders
from important manufacturers.
millions of euros

2002

2001

variation

Revenues
EBIT
Order intake
Order book

524
– 80
403
633

547
1
993
1,320

– 4%
–
– 59%
– 52%

Revenue breakdown by market in 2002

6

94

■ Defence 94%■ Civil 6%

The Division recorded revenues of €524 million, fractionally lower than in 2001. The shortfall ofdeliveries to the insolvent Fairchild Dornier and to Airbus were offset by an increase in deliveriesof CN-235 aircraft and the C-295 contract with Poland. EBIT was impacted by a €54 million
charge to depreciate our assets relating to the 728 programme of the insolvent Fairchild Dornierand by the delay in the A400M signature.
Order intake decreased from €993 million to €403 million and the total order book fell
from €1,320 million to €633 million – including an adjustment of €479 million relating toFairchild Dornier. The current order book represents about one year’s production, but is expected
to grow substantially in 2003 as the €18 billion A400M programme should gather pace.
A400M
On this important programme, responsibility for Development Management was assigned
to Airbus; worksharing arrangements were agreed; and engine supply tendering has
been reopened. Agreements were signed between EADS-CASA and the other EADS units
participating in the programme as associates. The German Government has now confirmed
its intention to order 60 aircraft. EADS management is confident of receiving the official orderfor this programme in 2003.
Light and Medium Military Transport Aircraft
The CN-235 was chosen as the fixed wing platform for the US Coast Guard’s Deepwater
programme – with FITS (the EADS-CASA Fully Integrated Tactical Mission System). The French
Air Force exercised its option for three additional CN-235 and the Colombian Navy ordered
two Maritime Patrol versions.
Brazil selected the C-295 for its CL-X medium transport aircraft equipment programme.
We won a contract for two C-295 for Jordan, and delivered four to the Spanish Air Force.
We also signed a contract with the Mexican Navy for the modernisation of eight C-212 with
the installation of the FITS mission system.
Derivatives
Brazil selected EADS-CASA to modernise nine P3 Orion aircraft, and Canada signed a contract
with BWB (the German procurement agency) for two A310 tanker conversions.
NATO is in the process of commissioning an Air-to-Air refuelling panel, and in September 2002,
the Air Refuelling Boom System Development Programme was launched.
The FSTA (Future Strategic Tanker Aircraft) programme for the UK, is due to enter into service
in January 2008. To address this major project, the Airtanker organisation and shareholding
structure has been improved for a better allocation of responsibility, and EADS has taken a leadingrole within the consortium.
December saw the first flight test of the prototype A310 VIP A310 for Spanish Air Force.
Aerostructures
Fairchild Dornier’s insolvency inevitably affected this unit, since we were subcontractors for the
Dornier 728. In 2002, we have fully written down all our assets to Fairchild Dornier for a total
charge of €54 million. The first A340-600 (for which we produce fan cowls) was delivered,and we won several important contracts with Airbus, as well as the order for the A380 belly
fairing metallic structure. These, with existing contracts, provide a sound basis for the future.
Outlook2003 is expected to see the coming into force of the A400M contract, the start of the US Coast
Guards Deepwater programme, and – we anticipate – the launch of the Abu Dhabi Shaheen
Programme for C-295 platforms with the MTAD Mission System. We continue to evaluate thebest approach to participating in the US Multi Mission Aircraft programme. Overall, we expect
a substantial upturn in the coming year, with EBIT becoming positive, and, with the A400M
contract, multiplying the order book.

28

EADS 2002 Military Transport Aircraft

“It was a challenging year forsome of our major customers.
However, the continued
success of our CN-235 andC-295 transports and the
key forthcoming A400M
programme should leadto substantial improvementsin performance over the
next few years.”

Francisco Fernández Sainz
EADS CASA Chief Executive Officer
Head of Military Transport Aircraft Division
EADS Executive Committee Member

Test pilots in front of C-295

29

Aeronautics
The Division continued its path of profitable growth. A numberof major programmes including Tiger and the NH90 are
entering series production and Eurofighter starts delivery.
In addition, all our maintenance and services businesses
are playing increasingly important roles.
millions of euros

2002

2001

Revenues
EBIT
Order intake
Order book

5,304
261
5,099
13,458

5,065
308
5,315
13,722

Revenue breakdown by market in 2002

49

51

■ Civil 51%■ Defence 49%

Revenues rose from €5.1 billion in 2001 to €5.3 billion, thanks largely to the ramp up of Eurofighter
5% combat aircraft production together with strong growth by Eurocopter.
2002 EBIT was €261 million, compared to €308 million in 2001, including the negative impact– 15%– 4% of the civil aviation downturn on the maintenance and aerostructure businesses of the Division– 2% and the increase in its R&D expense.
Order intake was €5.1 billion and the order book stands at €13.5 billion at year-end 2002,
equivalent to over two years’ production.

variation

Eurocopter
The civilian and parapublic helicopter markets remained flat, but Eurocopter’s delivery sharein this market increased from 45% in 1999 to 60% in 2002. We continued to enhance ourcomprehensive range of products and delivered the first EC145 to France’s Sécurité Civile
and Gendarmerie.
In the military sector, we achieved major export successes with contracts for the NH90
military transport helicopter with Norway – as well as winning an order for 10 EC725 from France.
We are now entering the strong ramp up in production preceding the delivery of the French,
German and export Tigers and of the NH90s for France, Germany, Italy, the Netherlands andthe Nordic countries.
The Helisim helicopter training simulator centre was opened, and won its first large training
contract with the Royal Netherlands Air Force.
We also reinforced our international network, with subsidiaries in Romania and Malaysia, witha joint venture in China, and we decided to open a new facility in Mississippi to improve ouraccess to the US parapublic market.
EADS Military Aircraft
For Eurofighter, the year saw the maiden flight of the first Instrumented Production Aircraft (IPA),
taxi trials of the first series production aircraft and the rollout of the first series production
twin-seat GT001. By the end of the year, prototypes and instrumented production aircraft hadcompleted nearly 2,500 flights, in preparation for deliveries to begin in 2003. We opened theManching System Support Centre in Germany and delivered the first Interim Training Device(ITD) to the German Air Force. On the export side, exclusive negotiations are ongoing with theAustrian Government. Sales campaigns continue in Greece, Singapore, Norway and elsewhere.
Germany, the UK and Italy all approved new development and retrofit programmes for their
Tornados, and the first Italian upgrade/retrofit contract was signed during the year. Clearance
was obtained for Greece’s F4-F Phantom Avionic Upgrade Programme, and we delivered thefirst two prototypes of the F-5 avionic upgrade to the Spanish Air Force.
The advanced definition phase of the Mako – the high-performance light combat andtraining aircraft – began. We won a contract to perform a feasibility study on advanced pilot
training for the 12 European nations, in which the Mako is a candidate.
In the mission and transport aircraft sector, we negotiated a contract for the installationof an extended electronic warfare system in the C-160 Transall, and submitted proposals
for replacement of Maritime Patrol Aircraft (based on the Airbus A320 platform) for Germany
and Italy.
Future projects and technology activities include our participation in the European Technology
Acquisition Programme (ETAP) to develop a European 5th generation combat air system
and in the US Vector/X-31 Research Aircraft. The Military Aircraft plant at Augsburg also won
subcontracts for work on the A380.

30

EADS 2002 Aeronautics

“These are exciting times
for the Aeronautics Division,
with a number of major
programmes gathering pace.
Our job is to ensure they
add further value for theconsistent performance of
our highly diverse business.”

Dietrich Russell
Executive Vice President
Head of Aeronautics Division
EADS Executive Committee Member

Test pilots in front of Tiger

31

Aeronautics

ATR: Regional Aircraft
All 19 new ATR aircraft delivered in 2002 were to existing users, underlining our strong customer
relationships. One of our important contributions is the re-marketing of used aircraft, to protect
the value of the customer’s fleet. In 2002, we achieved 35 re-deliveries.
Two highly significant steps were achieved in the cargo conversion programme: we handed
over the first fully-converted ATR 72-200 to the Swiss operator Farnair, and FedEx selected
ATR aircraft as their standard platform for four to nine tons of payload. Eventual orders could
amount to 200 aircraft.
EADS Sogerma Services: Maintenance
Sogerma’s business achieved stable revenue, despite the continued effects of 2001s economic
downturn and increased competition. Globally, 2002 has seen the confirmation of Sogerma
as a Total Care provider with a “totally supported” fleet enlarged to more than 100 aircraft.
Our European maintenance, repair and overhaul business achieved its targets notwithstanding
lower demand from customers; in the US, the Lake Charles facility made its forecast breakthrough,winning contracts worth $120 million from major players such as FedEx, DHL and Jet Blue.
In component support, Sogerma was selected to support the Taca Airline A320 fleet inSouth America. The unit also doubled its market share for cabin interiors and outfitting – mainly
for the corporate jet A319-CJ, of which two were delivered. An A330 VIP project was started,
as well as work on first class cabins for China Eastern Airlines (CEA) and Air India.
In Aerostructures, it was a year of rationalisation, as we established specialised centres for
Composite and Metallic fabrications.
In Military Fleet Support, the new sourcing policy of the French procurement agency
DGA (Délégation Générale pour l’Armement) favours active competition and has on the one
hand led to the loss of the French Air Force C-130 support contract, but is also opening up newopportunities, as does a more dynamic export market for heavy maintenance and modernisationon the C-130, leveraging on Sogerma’s expertise.
EADS Socata: Light Aircraft and Aerostructure
The business met its forecasts, despite a 16% downturn in the light aviation market since
11th September 2001. The new TBM 700 C2 has been well received. The development andproduction of aerostructures for the A380 and the Falcon 7X has begun and will provide
a robust base for future years.
EADS EFW: Aircraft Conversion
Five A300-600 and one A310 passenger-to-freight conversions were delivered by our German
subsidiary EFW, including the 50th conversion for FedEx. EFW’s technical leadership was
confirmed with the award of Design Organisation Approval by the German federal office of
civil aeronautics (Luftfahrt-Bundesamt).
More than 300 shipsets were delivered to Airbus, and we won the contract for shot-resistantAirbus cockpit safety doors. By the year end, more than 1,500 door retrofits had been delivered.
OutlookOverall, the Division is confident of meeting its challenging targets for 2003, supported bycontributions to the A380 and A400M programmes. Commercial activities should remain stable,
and military activities will ramp up further. EBIT is expected to grow substantially over the
coming years, backed by growing future deliveries to major programmes such as the Eurofighter
combat aircraft and the Tiger and NH90 helicopters.

32

EADS 2002 Aeronautics

TBM 700s on the Socata production line
at Tarbes, near Toulouse. Socata is winning
an increasing share of the private civil aviation
market, and some 5,800 of the company’s
aircraft are in service around the world.

The Eurofighter will play an essential front-linerole in Europe’s defence over the next decades.
Deliveries to the four partner nations Germany,
Italy, Spain and UK begin in 2003, and a numberof other countries have expressed interest,
giving this highly advanced combat aircraftpromising export potential.

An EC135 involved in Mountain Rescue
missions – just one of the vital tasks performedby Eurocopter all over the world. Eurocopter
currently holds some 60% of the civil andparapublic helicopter market – and the Tiger
and NH90 are giving the company a growing
defence role as well.
33

Defence and Civil Systems
The restructuring efforts of the past two years are paying off.
The Division recorded a positive, better-than-planned EBIT,
and increased orders to the equivalent of more than three
years’ revenues. Profitability is expected to grow strongly overthe coming years.
millions of euros

2002

2001

variation

Revenues
EBIT
Order intake
Order book

3,306
40
4,410
10,110

3,345
–79
3,081
9,094

– 1%
–
43%
11%

Revenue breakdown by market in 2002

15

85

■ Defence 85%■ Civil 15%

The year saw mixed signals from major European customers. While the British defence market
is still the primary growth engine in Europe and while the French Government launched a
new multi-year defence funding plan which will provide opportunities for new and upgradedmissile systems as well as for unmanned aerial vehicles (UAVs), the German defence budget
is under considerable strain. Nevertheless, Germany approved two major missile contracts
in 2002, enabling EADS to secure orders for Taurus (€0.5 billion) and Meteor (EADS stake
50% = €0.9 billion).
Due primarily to revenue losses in the secured telecoms business, DCS revenues stagnatedat €3.3 billion. New orders signed in the course of the year amounted to €4.4 billion, bringing
the total forward order book to €10.1 billion.
Internally, the year was one of further integration, restructuring and strategic adaptation
within the Division’s four main business areas: missile systems, defence electronics, services
and telecommunications. This restructuring has already produced positive results in the shapeof trans-national and cross-business unit synergies, e.g. in the fields of C3I (command, control,
communications and information) and ISR (intelligence, surveillance and reconnaissance),
air and ballistic missiles defence and homeland security.
Missile Systems
The international integration of MBDA is progressing well, with a focus on synergies throughrationalisation of processes and structures and the cross-border coordination of the company’s
technical and commercial capabilities. With 2002 revenues of €1.8 billion (at 100%) and an orderbook of over €13 billion, MBDA is the clear market leader in Europe, as well as being the secondlargest missile company in the world. Major programmes include the Meteor air-to-air missile,
the Aster surface-to-air missile family and the Storm Shadow/Scalp EG stand-off weapon.
During 2002 we agreed the creation of the Roxel company (rocket motors), a joint venturewith SNPE of France, and signed an agreement with Thales, under which the two partners
will produce seekers for more than 6,000 missiles. We also received a contract for €1.8 billion(at 100%) from six European nations to develop and produce the Meteor beyond visual range
next generation air-to-air missile.
EADS/LFK, the German arm of the missile business, implemented a successful turnaroundprogramme designed to secure profitability ahead of its planned integration into MBDA.
Major successes included the award of the €0.5 billion contract for series production of the
Taurus missile, the biggest German missile contract in more than ten years, and the roll-out ofthe prototype of the Roland midlife improvement programme.
Systems and Defence Electronics
With a 16% increase in order intake for the year, S&DE has achieved a strong position in theEuropean market. It is now a key European player in UAVs (Unmanned Aerial Vehicles), covering all
types from light tactical to strategic long range – in which we are working with Northrop
Grumman on the EuroHawk. We have also established a joint company with Thales Netherlands
to manage combat systems for naval projects including the F124/LCF frigate programme.
Other contracts also demonstrate our prime-contractor capabilities for full systems or
subsystems. They include the K130 corvette’s command and weapons control system andthe Eurofighter Defensive Aids Subsystem, and more recently with Thales, the Moss Sccoa3(a “system of systems” for air operations command and control for the French Air Force, including
the integration of existing and next-generation subsystems).

34

EADS 2002 Defence and Civil Systems

“In 2002 we not only achieved
our planned turn around,
we also made significant
progress in positioning thedivision for further growthand new customer/market
requirements. Our portfolio
and our systems competence
enable us to play a key rolein networking defence andsecurity solutions for ourcustomer.”

Thomas Enders
Executive Vice President
Head of Defence and Civil Systems Division
EADS Executive Committee Member

Tornado flight data evaluation

35

Defence and Civil Systems

EADS Services
The Services business unit serves the growing market in outsourced military functions suchas infrastructure support and operations, equipment support, training and communications.
We also provide automatic testing, systems engineering and engineering solutions.
Acting in a consortium with CSC Ploenzke and Mobilcom, we are the preferred bidder onthe €6.5 billion Herkules project for the outsourcing of the Bundeswehr’s communications and IT.
The project should be awarded in 2003 and our share of the project would amount to €1.5 billion
over the next ten years. With Aviation Defence Service Avdef (an armed forces training company
in which we purchased a majority holding in 2001), and the newly-acquired GFD, we are a strong
contender for the CATS (Combined Aerial Target Services) contract for the UK. GFD has also
been assigned a flight operations contract – including target towing and electronic warfare (Eloka)
training – by the German BWB. An additional contract will be booked in 2003 and will run from2004 to 2008. We play a lead role for the operations part of the Airtanker consortium bidding
for the 27-years FSTA (Future Strategic Tanker Aircraft) contract in the UK to provide air refuelling
services to the RAF.
We won important automatic testing orders from Dassault Aviation and from the French
procurement agency DGA (Délégation Générale pour l’Armement). With Honeywell and despite
decreasing airlines business in US, our Test & Services activity confirmed its leading position
with an important contract with Delta Airlines for a new generation of test benches.
EADS Telecom
The Telecommunications business unit completed its process of integration in a difficult market
for secure communication systems, which saw many major prospective government contracts
postponed until 2003.
In the field of Public Safety, important export markets like Mexico experienced slowdowns;
however, programmes including the police networks Acropol in France and Sirdee in Spain madegood progress. We entered in the final phase in providing improved service for the entire Acropol
network in Paris, which will be extended throughout France in a programme extending to 2006.
We have made an offer for our digitalised speech and data transmission system Tetrapol,
a network for public authorities and security organisations in Germany. In the US, we areleading the P25 Phase II standard definition of wireless communications for safety and security
and are working towards a commercial outcome through the recognition of Tetrapol 3G as a
US Apco Standard.
In recent defence successes, EADS Telecom has been contracted to supply over€200 million of communication equipment to the UK MoD. It is the prime contractor for the
British theatre network called Twacn/Cormorant and a major subcontractor for the Bowman
Communication System. In the tactical field, it has also delivered communication networks for
Autoko 90, the semi-mobile tactical network of the German army. In the infrastructure field, it isdeploying the French Defence Systems for garnisons, or for deployable forces. Other successes
include a Stimms (Surface Towed Influence Magnetic Sweep) programme with the US, in thenaval field. Despite orders delayed, the company has favourable prospects as preferred bidder invery large programmes (Herkules for the German Bundeswehr, Skynet 5 in the UK). EADS
Telecom will also provide the Rapid Reaction Forces of the German army to be deployed in
Afghanistan with four Tetrapol communication shelters and 1200 terminals and mobiles.
Outlook
We continue to develop our position in networking defence and security systems, investing in thetechnologies and skills that enable us to provide customers with complete solutions – leveraging
our broad product portfolio and synergies between our business units and other EADS Divisions.
After successful turnaround in 2002, the Division expects to increase EBIT in 2003. Our uniquecompetences, together with intelligent restructuring for greater efficiency and the ramp up of
our missile programmes should produce fast growing results over the next few years.

36

EADS 2002 Defence and Civil Systems

Meteor is a next-generation air-to-air missileordered for development by six European nations,and produced by MBDA, now the world’s
second-largest missile company. MBDA missiles
are available for virtually every mission in the
defence catalogue.

Active phased array radar. EADS offers
a comprehensive range of fixed and mobile
air defence, radar, electronic warfare,identification, coastal surveillance and coastal
protection systems.

IRIS network – a secure telecomunications
network for the Mexican police force.
37

SpaceThe Division is acting to return to profitability in 2004.
Integrating Astrium will improve operational flexibility, andpreferred-bidder status for Skynet 5 is a key step forward.
European approval for the development of Galileo puts
Astrium closer to playing a fundamental role in the project.
millions of euros

2002

2001

variation

Revenues
EBIT
Order intake
Order book

2,216
– 268
2,145
3,895

2,439
–222
1,333
3,796

– 9%
– 21%
61%
3%

Revenue breakdown by market in 2002

19

81

■ Civil 81%■ Defence 19%

The Division’s revenues decreased from €2,439 million to €2,216 million, reflecting a tougher
commercial telecommunications market, increased competition among launch operators andgenerally reduced budgets for scientific and observation satellites. The Division posted significant
EBIT losses of €268 million in 2002 (after an EBIT loss of €222 million in 2001), mainly driven
by provisions due to the cancellation of one telecom satellite contract, restructuring costs andprovision for depreciation of participations (in particular Arianespace). More encouragingly forthe future, the value of new orders has increased, from €1,333 million to €2,145 million, including,
namely, a civil telecom satellite contract with Spain and a contract with the French MoD.
The Skynet 5 contract with UK MoD, expected for 2003, will further boost this figure.
Key developments during the year included a full reorganisation of Astrium satellites into
four business Divisions (Military Communications Systems; Telecom Satellites; Earth Observation,
Navigation and Science; Equipment and Subsystems). Moreover, EADS full ownership of Astrium
since January 2003 (subject to European Union approval) is clearing the path for management
which is preparing a new legal structure for the Space division comprising two subsidiaries, one
focused on Satellite Systems, the other on Launcher and Space Infrastructure activities. This
new structure will allow better programme management and increased industrial efficiency byconcentrating the respective industrial responsibilities accordingly. It is expected to contributeto the return to profitability targeted for 2004.
ArianeEADS is the prime industrial contractor for the Ariane launcher. Twelve Ariane launches took
place in 2002 (eight Ariane 4, and four Ariane 5), and Arianespace won 11 of the 15 new launchorders placed during the year.
The December launch of a new version of Ariane 5 designed to launch more than 10 tons
resulted in a mission failure. Together with European Space Agency, national agencies, andour other industrial partners we are working intensively to return Ariane 5 to flight status,
so that the impact on 2003 launch planning is minimised.
In parallel, Industry and Agencies in a joint effort are moving toward a significantly reduced
cost base for the immediate future, in order to match the international competition.
International Space Station
EADS is playing a key role in the development and utilisation of the International Space Station.
It is the prime contractor for the development and construction of the Automated Transfer Vehicle(ATV), an unmanned transport system for the regular delivery of fuel and other supplies tothe ISS. The ATV also provides a reboost capability and a waste disposal function. Its first flightis planned for 2004. EADS is also the prime industrial contractor for the main European
contribution, Columbus, a manned ISS module for zero-gravity research to be launched in 2004.
Other launcher activities
Eurockot Launch Services, our 51%-owned joint venture with the Krunichev space technologies
company of Russia, carried out two successful launches (Grace and Iridium) in 2002, and won
four launch contracts.
Starsem, a joint venture owned by EADS (35%), Arianespace (15%) and the Russian Space
Agency (25%) and Samara Space Center (25%) has, together with ESA and Arianespace,defined the conditions for offering Soyuz launches from Kourou. A final decision is expectedduring the next ministerial conference during the first months of 2003.
Defence
A key element in EADS’ strategy is growing participation and leadership in European military
space programmes. We made a major advance in February 2002 when Paradigm (fully owned
by EADS from early 2003) was pre-selected by the UK MoD to deliver new-generation
space-based defence communications using the Astrium Skynet 5 satellites. Total potential
revenues for Paradigm are expected to be over £2 billion. In this programme, expected to bebooked in 2003, Astrium should provide most of the telecommunication infrastructure,including satellites, ground system and terminals.
The new generation submarine-based M51 ballistic missile programme achieved a major
milestone, with hardware tests successfully validating the system concept during the year.
In July, EADS announced a Memorandum of Understanding with Boeing on the Missile
Defence System project.

38

EADS 2002 Space“Our primary focus today ison restructuring the space
activities to weather thecurrent harsh environmentof the space industry. With
our simplified shareholder
structure we can now
accelerate this move andtarget return to profitability
in 2004.”

François Auque
Executive Vice President
Head of Space Division
EADS Executive Committee Member

Committed to expanding humanity’s horizons, the Space
Division acts as main actor in space infrastructure activities
for international and European major programmes.

39

SpaceTelecommunications Satellites
Astrium has won the contract to build Hispasat’s most powerful satellite, Amazonas.
With 51 transponders, it will provide a full range of telecommunication services to Brazil
and to North and South America, as well as a transatlantic link to Europe.
The Hellas-Sat Consortium has chosen Astrium to deliver its first satellite. Hellas-Sat plans
to offer digital broadcasting and TV services and will provide a key telecom infrastructure forthe 2004 Olympic Games in Athens.
Finally, Astrium started the year 2003 successfully in this business activity by booking theAnik F1-R contract with the Canadian Telesat company.
Navigation
In March, Governments of the European Union approved the Galileo programme. This isEurope’s global satellite navigation system proposed jointly by the European Commission
and ESA (European Space Agency). The Galileo project represents a total potential contract
value of more than €3 billion and, as the majority shareholder in Galileo Industries, Astrium
is playing a crucial role in the design and development of the system, which is scheduled to bebooked in 2003 and operational in 2008.
Earth Observation and Science Satellites
In January, Astrium signed the contract to build the Cryosat satellite for the ESA. This satellite will
carry radar altimetry, with a mission to provide more precise surface data (in 3D, for the first time)
to climatological researchers. In April, Astrium signed another contract with DLR, the German
space agency, to build TerraSar – an X Radar earth observation satellite.
The Astrium-built Envisat satellite was successfully launched in March and has sincefunctioned perfectly. The biggest earth observation satellite ever built by Astrium boosts
Europe’s capability to study climate changes.
SPOT 5 was successfully launched with Ariane 4 in May. The Astrium–built satellite
is providing unique capabilities to the world’s leading earth observation company Spot Image.
EADS is the major industrial shareholder of Spot Image.
In August, an Ariane 5 placed MSG-1 into orbit. Meteosat Second Generation is the first of
an entire system of meteorological satellites provided by Astrium and will allow for an improved
weather forecast accuracy.
Astrium received the contract for Venus Express, ESA’s first mission to Earth’s nearest
planetary neighbour. This scientific mission is based on the Mars Express platform, which will
be launched in 2003 from Baikonour by Starsem. Venus Express will also be launched by Starsem
in 2005.
Outlook
The key priority for 2003 is to implement a fundamental restructuring of EADS Space, with theaim of reducing the cost base and of focusing even more on customer needs. In this context,
the Division announced a jobs cuts up to 3,300 people. This includes the reduction of 1,600 jobs
already announced in 2002 and an additional restructuring of 1,700 job positions that consists of:• Establishment of centres of competence (taking “make-or buy” decisions and, when “make”
is decided, concentrating the activity on one or two sites),• Further reduction in functional staff,• Reorganising of sourcing and implementation of ambitious sourcing savings targets,• Optimisation of engineering, system design, integration and test.
This plan is designed to allow the Division to be profitable in 2004 and to lead further European
sector consolidation.

40

EADS 2002 SpaceCryogenic motor for the upper stage of Ariane 5.
As industrial architect for the Ariane family oflaunchers, the Space Division manages the entire
launcher programme and is prime contractor
for all the Ariane 5 stages. It produces the
Vehicle Equipment Bay and several sub-systems.

Ariane 5 launched from the Guiana Space
Centre in Kourou. The new generation
Ariane 5 launcher was developed to keep
pace with trends in the commercial launchmarket, especially larger and heavier satellites.

Helios optical military observation satellite, which
offers images at very high resolution. EADS is
the prime contractor for this Europe’s only militaryreconnaissance satellite in service to date.
41

Corporate governanceMembers of the Board of Directors
Manfred Bischoff
Member of the Management Board ofDaimlerChrysler
Chairman of EADS
Jean-Luc Lagardère †General and Managing Partner of Lagardère
Chairman of EADS
Philippe Camus
EADS Chief Executive Officer
Rainer Hertrich
EADS Chief Executive Officer
Eckhard Cordes
Member of the Management Board ofDaimlerChrysler
Pedro Ferreras
Chairman of the Board of Directors of
Aluminio CatalánNoël Forgeard
Airbus President and Chief Executive Officer
Jean-René Fourtou
Chairman and Chief Executive Officer ofVivendi Universal
Louis Gallois
President of SNCF
Michael Rogowski
Chairman of the Supervisory Board of
J.M. Voith
President of the Federation of German Industry

Code of conduct
EADS, as a Dutch company is governed by the laws of The Netherlands, in particular by Book 2of the Dutch Civil Code and by its articles of association.
EADS shares are listed in France, Germany and Spain. EADS is accordingly subject to various
regulations1 that are described in detail in the Reference Document (see section 3). It must
be noted that specific company law regulations enforced in these countries such as the French“loi NRE” on Corporate Governance are not applicable to EADS.
Nevertheless EADS has adopted since its creation a high standard of internal rules relating
to Corporate Governance such as: the Internal Rules of the Board of Directors, the Insiders
Trading Rules and the Code of Ethics. For a complete overview on these rules please refer tothe Reference Document section 6.
The Board of Directors
The Board of Directors is responsible for the affairs of the Company. Its role is to ensure that
the Company is operated to maximise shareholder value in accordance with the law andthe established rules of Corporate Governance, whilst maintaining good relationships with theCompany’s employees and customers.
The Board consists of eleven members; four nominated by DaimlerChrysler, four by SOGEADE,
one by SEPI and two independent Directors, one nominated by DaimlerChrysler andone by SOGEADE.
The independent directors (Jean-René Fourtou and Michael Rogowski) have no connection with
the DaimlerChrysler, SOGEPA or Lagardère groups or French State.
Each member has been appointed for a term expiring at the Annual General Meeting of
the Company to be held in 2005. Members of the Board will be elected at such meeting andat each fifth Annual General Meeting. The General Meeting of shareholders may suspend or
dismiss any member of the Board.

Arnaud Lagardère has been appointed as
one of the Chairmen of the Board of Directors
and as a member of the Audit and Personnel
committees, with effect from his appointment
as an EADS Board member by the Annual
General Meeting on 6th May 2003.
It is expected that Hans Peter Ring, Chief Financial
Officer, will be replacing Axel Arendt, who
has left the Company. This will be submitted to
the Annual General Meeting on 6th May 2003.

142

for example: For The Netherlands: section 5 of the Netherlands Market Supervision Act 1995
For France: Règlement COB 98-01 et 98-07
For Spain: the Ministerial order of 18th January 1991
For Germany: § 15 and 65 of the German Stock Exchange Admission Regulation

EADS 2002 Corporate governance

The Chairmen
The initial Board of Directors appointed two Chairmen, one chosen from the DaimlerChryslernominated Directors and one chosen from the SOGEADE-nominated Directors.

Shareholder structure
as of 31st December 2002 (as %)

30.1

30.1

5.5
34.3

The Chairmen ensure the smooth functioning of the Board of Directors in particular with respect
to its relations with the Chief Executive Officers.
■ DaimlerChrysler■ SOGEADE1■ SEPI2■ Free Float3

The Chief Executive Officers
The Board appoints two Chief Executive Officers to be responsible for the day-to-day managementof the Company. One is chosen from the DaimlerChrysler-nominated Directors and one from the
SOGEADE-nominated Directors.

1 Lagardère together with French financial institutions and SOGEPA(French state holding company)
2 Spanish state holding company
3 Including EADS employees, own share buy back and,

about 3% held directly by DaimlerChrysler
and the French State.

Board meetings
The Board of Directors met seven times during 2002. The average attendance rate at suchmeetings was 77%. Topics discussed and operations authorised at these meetings included EADS
strategy, reorganisation, processes (such as the Space Division restructuring and the creationof EADS North America), major business issues (such as the Airbus Production Plan 2002/2003;
the Skynet 5/Paradigm contract and the US Coast Guard Deepwater Programme), major
investment projects (such as the A400M Programme), the approval of operation plans, budget,
hedging policy, key merger and acquisition transactions, remuneration (including stock options
plans and employee share ownership plans) and the group’s financial results and forecasts. During
this period, the Board of Directors was regularly informed of developments through business
reports from the Chief Executive Officers, rolling forecasts and strategic and operational plans.
During 2002, the Board of Directors also accepted the resignations of Axel Arendt as memberof the Board of Directors, member of the Executive Committee and Chief Financial Officer andAlberto Fernández as member of the Executive Committee, approved the appointments ofRalph Crosby, Francisco Fernández-Sainz, Jussi Itävuori and Hans Peter Ring (as Chief Financial
Officer) as members of the Executive Committee and approved notably the appointments of
Antoine Bouvier, Fabrice Brégier, Patrick Jourdan and Marwan Lahoud as Chief Executive Officers
of, respectively, Astrium, Eurocopter, EADS Telecom and MBDA.
Each director has one vote, and the quorum for the transaction of business at meetings of theBoard requires the presence of at least one of the SOGEADE-nominated Directors and oneof the DaimlerChrysler-nominated Directors. If any major change to the CASA Industrial Plan
and/or its implementation is to be decided, the SEPI-nominated Director must also be present
or represented.
Under the rules, the Board of Directors is empowered to form committees from its members.

EADS 2002 Corporate governance43

Corporate governanceThe key responsibilities of the Board of
Directors include:• approving any change in the nature and scopeof the activities of the Group;• approving the overall strategy and the strategicplan of the Group;• approving the business plan and the yearlybudget of the Group;• setting the major performance targets of
the Group;• appointing the members of the Executive
Committee (see below);• approving proposals for appointments ofthe chairmen of the supervisory board(or similar bodies) and the chief executive
officer (or equivalent position) of other important
EADS Group companies and Business Units;• approving material changes to theorganisational structure of EADS;• approving major investments, projects or
product decisions or divestments of EADS
contemplated in the business plan witha value exceeding €200,000,000;• approving major strategic alliances andcooperations of EADS;• approving any material decision affecting theballistic missiles activity of the Group;• approving matters of shareholder policy, major
actions or major announcements to thecapital markets;• approving other measures and business offundamental significance for the Groupor which involve an abnormal level of risk.

The Audit Committee
The Audit Committee makes recommendations to the Board of Directors on the appointmentof auditors and the approval of the annual financial statements and interim accounts, and monitors
the adequacy of the EADS group’s internal controls, accounting policies and financial reporting.
The Audit Committee was chaired by Manfred Bischoff and Jean-Luc Lagardère* and also included
Eckhard Cordes and Louis Gallois. It met twice during 2002 with a 100% attendance rate
to review the 2001 results as well as the half-year results for 2002 of the Company.
The Personnel Committee
The Personnel Committee makes recommendations to the Board of Directors on appointments
to the Executive Committee, remuneration strategies and long-term remuneration plans anddecides the service contracts and other contractual matters in relation to the Board andExecutive Committee members. The Personnel Committee was chaired by Manfred Bischoffand Jean-Luc Lagardère* and also included Philippe Camus, Rainer Hertrich, Eckhard Cordes andLouis Gallois. It met five times during 2002 with a 90% average attendance rate to review thebonus payments for 2001, as well as the remuneration policy and the stock option plan for 2002.

* deceased during his term in office

44

EADS 2002 Corporate governance

The Executive Committee
The Chief Executive Officers, supported by an Executive Committee, are responsible formanaging the day-to-day operations of the Company. The Executive Committee, chaired by
the Chief Executive Officers, also comprises the heads of the major operational and functional
Divisions of the EADS group. The Executive Committee met 12 times during 2002.
The following matters are discussed, among others, at the Executive Committee meetings:• setting up and control of the implementation of the strategy for EADS businesses;• management, organisational and legal structure of the EADS Group;• performance level of the EADS Group’s businesses and support functions; and• all business issues.
The internal organisation of the Executive Committee is defined by the business allocation
among the members under the supervision of the Chief Executive Officers. Notwithstanding thejoint 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 Officers and/or the Executive Committee, as the case may be.
The Chief Executive Officers endeavour to reach consensus among the members of the
Executive Committee on the matters discussed at the Executive Committee meetings. In theevent of consensus not being reached, the Chief Executive Officers are entitled to decide thematter. If there is a fundamental or significant disagreement with respect to any undecided matter,the dissenting Executive Committee member may request that the Chief Executive Officers
submit such matter to the Chairmen for their opinion.
The term of office for the Executive Committee members is five years.

Composition of the Executive Committee
Philippe Camus Chief Executive Officer
Rainer Hertrich Chief Executive Officer
François Auque Head of Space Division
Ralph D. Crosby Jr. Chairman and CEO of
EADS North America
Thomas Enders Head of Defence andCivil Systems Division
Francisco Fernández Sainz Head of MilitaryTransport Aircraft DivisionNoël Forgeard Head of Airbus Division andPresident and CEO of Airbus
Jean-Louis Gergorin Head of
Strategic Coordination
Jean-Paul Gut Head of EADS International
Gustav Humbert Airbus Chief Operating Officer
Jussi Itävuori Head of Human Resources
Hans Peter Ring Chief Financial Officer
Dietrich Russell Head of Aeronautics Division
For details of the Executive Committee’s
members, see p 14.

EADS 2002 Corporate governance45

Corporate social responsibility
EADS policy is to implement and maintain the highest
standards of ethical and social responsibility both in the runningof its various businesses and as its activities relate to the wider
communities in which it works. Standards are laid down in
a formal Ethics Code and in rules on insider trading.
Defining corporate social responsibility
Corporate social responsibility (CSR) requires companies such as ours to manage their impacts
on society and the environment as a core part of their business practice.
EADS strives to be a good citizen and to manage its impacts in as responsible fashion as
possible. We have reported on our activities in this area in previous Annual Reports.
However, as in every other aspect of our business, we are always seeking to improve. The
increasing profile of CSR as a topic provides us with the opportunity to explore ways in which we
can take a more systematic approach to the subject. We have begun this process by defining themost significant impacts that our business has on the societies and environments where we work.
The issues for EADSCSR and the defence sector
EADS is committed to respecting international and national regulations governing sales andmarketing of sensitive products and technologies, especially in the case of those products andservices (representing approximately 20% of our revenues) which relate to legitimate national
defence and sovereignty. We abide by all national and international export and customs
procedures which regulate where, when and how EADS can sell goods, products and technology
or exchange information.
Occupational health and safety
We have a duty to ensure that the working conditions for our staff and contractors are as safeand risk-free as possible.
To ensure this, all work places are carefully evaluated to identify any potential risks for
employees, operators or contractors. Necessary prevention and protection measures are definedand implemented in accordance with this risk analysis.
In addition, safety and ergonomics are integrated in the design of all work places and in
the construction of facilities to ensure the best working conditions for employees. Employees
undergo regular and thorough medical examinations to detect any health problems and topromote healthier lifestyles.
Transparency in business practices
It is essential that we are able to demonstrate that all our business transactions are conductedin accordance with national and international laws.
EADS has a code of ethics which states clearly what behaviour is expected from our staff,
what behaviour will be rewarded, what are the rights and duties of all participants involved in
the Group activities. EADS has repeatedly stated its commitment to respecting acquisition rules
and procedures applicable in every country where we operate.
We have no “privileged or special” relationships with business partners or suppliers, which
would not be justified on objective economic or technical grounds. The acceptance or grantingof gifts or other advantages is only authorised under strict conditions of mandatory disclosureand the approval of management.

THE AIRBUS

way

Manufacturing sites performance

Environment
We accept that our business has significant impacts on the environment. To respond to this
responsibility, we have implemented a corporate environmental policy to ensure that we comply
with the laws and regulations of each country in which we operate, as well as investing in researchand development designed to improve our ability to meet or exceed such regulatory standards.
We actively support the participation of employees in pursuing new products and technologies
that promote resource conservation, facilitate recycling and preserve the natural environment
as much as possible.
Our business units are now working towards the implementation of Environmental
Management Systems based on ISO 14001 standard or EMAS. This will ensure that consistentmeasures for the improvement of EADS environmental performance are systematically adopted
in all sectors of activity.

Airbus environmental report

46

EADS 2002 Corporate social responsibility

Supply chain
EADS’s Code of Ethics makes clear the behaviour that we expect not just from our staff, butfrom all those with whom we deal, including our suppliers. For example, since the incorporationof Airbus as a single company, a global procurement policy has been implemented. Suppliers
are required to comply with this policy as a condition of doing business with Airbus.
Promoting learning
The future of the economies in which we work depends in part on the development of a highlyskilled workforce. To this end, EADS supports training initiatives both for its own workforce and inwider society. For example, EADS is a founder member of the European School of Management
and Technology (ESMT) in Berlin.
EADS is also a partner in TIME, one of the major European networks, and plays an active role
within the Club Time Plus of the Ecole Centrale, Paris. Run in partnership with major international
companies, TIME (Top Industrial Managers for Europe) is a European double degree programme
which enables French and foreign students to obtain two engineering degrees.
In addition, EADS financially supports and participates in a wide range of teaching activities atthirty of the main universities and schools (Polytechnique, Ensae, Dauphine and others) in France.
Donations
As part of our commitment to the promotion of learning, EADS also makes donations to
educational and charitable institutions in our home countries of France, Germany and Spain.
During 2002, around €6 million were donated to a number of high schools, universities
as well as charitable organisations in these countries.
Top: EADS supported victims of the German flood
Bottom: EADS has been a patron of l’Envol centres since 1998

Community engagement
Like any large company, we believe that we have a responsibility to the communities near
our plants and offices. We also respond to other community concerns where it is appropriate.
For example, EADS provided €1 million to help the victims of the floods in 2002 in Germany.
Donation campaigns were organised at several company locations. All Divisions provided help
to affected suppliers and EADS staff.
EADS has also been a patron of “l’Envol” centres since 1998. These centres offer recreation
under medical supervision to children with serious illnesses. The aim of these centres is to help
children aged between 7 and 17 to enjoy life in spite of their symptoms.

EADS 2002 Corporate social responsibility

47

Financial policy“Financial flexibility is key to our business”

Q:

A:

What are the main financial challenges
EADS faces and how do you manage them?

The biggest challenge is clearly the volatility of today’s political and economical environment.
In order to act and react quickly, EADS has to be financially flexible. Active cash management
is therefore one of my top priorities. Preserving cash on the one hand and at the same time
investing into future programmes – like the very large Airbus A380 – as well as supporting
customers’ financing for our products in a prudent way is a tightrope walk. Our continuously
strong balance sheet and cash generation shows that we are successfully managing this challenge[Graph 1]. This is also reflected in the confirmation of our long-term ratings beginning of 2003
(A from Standard & Poor’s and A3 from Moody’s). In addition, we have made sure that we havethe financial flexibility we need for our business in a downturn phase through implementation of
credit lines and the successful placement of our first EURO bond [Graph 2].
Another financial challenge derives from the fact that EADS is selling products, mostly aircraft,in US dollars, generating around US$ 20 billion of annual revenues. We automatically hedge
about half of this amount through dollar denominated purchases. It is the task of the financefunction to hedge the remaining exposure based on our conservative hedging policy which
permits us to hedge our firm orders. During the last 24 months EADS was able to benefit froma strong dollar – ‘locking in’ attractive rates for the mid-term [Graph 3]. However, in the longrun we cannot rely on a ‘strong’ dollar. We therefore have constantly to improve our productivity
and cost structure to ensure long-term competitiveness.

Graph 1:Graph 2:

Cash provided by operating activities
2001 and 2002
2.656

8.6%

2.666

EADS funding arrangements contracted
between 07/2002 and 04/2003 (€m)
700

EIB* Credit Line

8.9%
Syndicated Credit LineEMTN** 3,000

1,000
2001

2,850

2002

Cash provided by operating activities (€m)
Cash provided by operating activities as a percentageof revenues (%)

Undrawn

Drawn* EIB: European Investment Bank** EMTN: European Medium Term Note Programme

Q:

A:

What is the potential for profit and cash
growth at EADS?

Today EADS is going through a down-cycle in commercial aviation and is facing extraordinarily
severe market difficulties in the space business. On the other hand there are opportunities in our
Defence business due to stabilising or even increasing governmental defence budgets. Looking
into the future, the mid-term potential for higher profits and cash generation is significant.
In 2002 Airbus generated an operating margin of 7% of revenues. This sound result was achieved
with a delivery rate of 303 aircraft, while in a stabilised market, assuming a 50% market share,around 400 aircraft per year would be a normal level of activity. In addition, today’s Airbus
profitability is being affected by high investments for the future. Today Airbus invests 4 to 5%of its annual revenues in the development of the A380 programme. With the ramp up of
A380 deliveries from 2006 onwards, Airbus will see decreasing development costs and at thesame time increasing revenues, profits and cash flows.

48

EADS 2002 Financial policy■Graph 3:
Hedging portfolio of EADS as of December 2002

10.9

8.3

6.3
5.7
0.98
4.6
0.96
0.95
0.94

0.95

4.2
0.95

0.95

0.94
1.7
0.6

0
2003
2004
2005
2006
2007
2008
Volume already hedged in bn US$
Average hedge rate for EADS profit in € versus US$

2009

2010

Thanks to our integration and restructuring efforts and a stabilising business, the Defence andCivil Systems division – for the first time since the creation of EADS – posted a profit in 2002.
More generally for all our defence businesses, we benefit from the ramp up of large defence
programmes (e.g. Eurofighter combat aircraft, Tiger and NH90 helicopters, Aster and Storm
Shadow missiles), which will improve EADS results. As strategically planned, we are on track
towards a more balanced portfolio between commercial and governmental business – in termsof revenues as well as in terms of profit and cash flow.

Q:

A:

What is your mission?

I am committed to generating value for our shareholders. By providing the right methodologies,
tools and procedures, the finance function enables the allocation of our financial resources to theprogrammes that can create additional value and provide an optimum balance between risk andreward. In addition we will continue to improve the transparency of our communication towards
shareholders and the financial community.

Hans Peter Ring
Chief Financial Officer
EADS Executive Committee Member

EADS 2002 Financial policy

49

Management’s analysis of the financial situation
2002 and 2001 audited consolidated financial statements

1

Introduction and overview

The following discussion is based upon the audited consolidated financial statements of EADS for2002 and 2001 (together, the “Financial Statements”). The Financial Statements were preparedin accordance with International Financial Reporting Standards (“IFRS”) issued by the International
Accounting Standards Board (“IASB”). Contrary to International Accounting Standard (“IAS”) 38,
Intangible Assets, which requires development costs to be capitalised if certain conditions aremet, the Group expenses all internally funded development activities as incurred.
With consolidated revenues of €29.9 billion in 2002, EADS is Europe’s premier aerospace anddefence company and the second largest aerospace and defence company in the world. In termsof 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 anddefence electronics. In 2002, it generated approximately 80% of its total revenues in the civil sector
and 20% in the military sector. As of 31st December 2002, EADS’ active headcount was 103,967.
EADS organises its businesses into the following five operating Divisions:• Airbus: commercial jet aircraft of more than 100 seats;• Military Transport Aircraft: military transport and mission aircraft;• Aeronautics: civil and military helicopters, military combat and trainer aircraft, regional
turboprop aircraft and light commercial aircraft; and civil and military aircraft conversion andmaintenance services;• Defence and Civil Systems: missile systems, systems and defence electronics, logistics,
training, testing, engineering and other related services, and military and commercial
telecommunications solutions; and• Space: satellites, orbital infrastructure, launch vehicles and launch services.
In general, these manufacturing businesses are characterised by long-term production cycles
and are subject to medium-term and long-term trends in the civil aviation, aerospace, defence
and telecommunications industries. Another significant characteristic of many of these businesses
is the extent of their dependence on governmental budgets.
EADS currently is rated A3 with a stable outlook by Moody’s, and A/negative outlook/A-1
by Standard and Poor’s.
2

Accounting considerations

2.1 Changes in consolidation perimeter
Formation of MBDA: On 18th December 2001, EADS, BAE Systems and Finmeccanica formed
MBDA, which combines the businesses of MBD and of Aerospatiale Matra Missiles (“AMM”),
and the missile systems activities of Alenia Marconi Systems (“AMS”). EADS and BAE Systems
each hold a 37.5% stake in MBDA, with Finmeccanica holding the remaining 25%. Pursuant
to the shareholder agreements relating to the MBDA group, EADS and BAE Systems together
exercise certain controlling rights over MBDA through MBDA Holdings, including the rightof MBDA Holdings to appoint MBDA’s CEO, COO-Operations and CFO.
In 2001, the consolidated statement of income reflected a 50% consolidation of MBD
and a full consolidation of AMM through to the formation of MBDA on 18th December.
From 18th December, and as reflected in the 31st December 2001 consolidated balance sheet,
EADS has been proportionally consolidating 50% of MBDA within the Defence and Civil Systems
Division, in line with its ability to influence operations, with Finmeccanica’s holding reflected
as a 12.5% minority interest. In 2002, EADS recognised a full year of MBDA’s profit and loss
account in its consolidated income statement.
Acquisition of Tesat Spacecom and Cogent: Following the acquisitions of Tesat Spacecom
on 30th November 2001 and Cogent Defence Systems on 1st December 2001, the 2002
operations of these companies were included fully for the first time in the EADS 2002
consolidated income statement.

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EADS 2002 Management’s analysis of the financial situation

Disposal of Aircelle and EADS Matradatavision (“MDTV”): On 6th March 2002, EADS soldits interest in the Aircelle joint venture to Snecma for a disposal gain of €63 million. On
20th November 2002, IBM purchased MDTV (except for two remaining subsidiaries of MDTV tobe dealt with separately) from EADS for €12 million. From the dates of disposal, these businesses
are no longer included in the Financial Statements.

2.2 Dilution gains
The 2001 transactions leading to the formation of Airbus S.A.S. and MBDA resulted in adilution of EADS’ economic ownership in Airbus, MBD and AMM. These transactions
required an assessment of the contributed businesses, whose market value, estimated in thecourse of negotiations, exceeded the carrying value of their consolidated net assets for EADS.
Consequently, EADS recognised dilution gains of €2,537 million for a 20% dilution stake in
Airbus, and of €257 million for 12.5% of MBD and 62.5% of AMM, all net of transaction-related
charges. These dilution gains have been reported in other income and were deemed items ofa non-recurring nature by EADS. See “Operating Results – Consolidated Income Statements –Use of EBIT Pre-Goodwill Amortisation and Exceptionals”.

2.3 Fair value adjustments
The merger of the operations of Aerospatiale Matra (“ASM”), Dasa and CASA leading to thecreation of EADS in 2000 was recorded using the purchase method of accounting with ASM
as the acquirer. Accordingly, the book value of certain assets and liabilities, mainly property,
plant and equipment and inventories, was adjusted by an aggregate amount of €1,755 million,
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 4 to 15 years for fixed assets and were depreciated over lessthan 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 €319 million, net of income taxes, to reflect their fair market values. The fair value
adjustments are recorded as depreciation in the consolidated income statements classified withincost of sales. For management reporting purposes, EADS treats these depreciation charges as
non-recurring items. See “Operating Results – Consolidated Income Statements – Use of EBIT
Pre-Goodwill Amortisation and Exceptionals”.

2.4 Impairment of assets
When, in the view of Management, a triggering event such as an adverse material market eventor a significant change in forecasts or assumptions occurs, EADS performs an impairment teston the net assets of the business or businesses likely to be affected. Impairment tests are typically
performed using the discounted cash flow method.
As was the case in 2001, EADS conducted further impairment tests in 2002 on the net assetsof businesses in the Space Division resulting in a goodwill impairment charge of €350 million
relating to the commercial space business. See “Operating Results – EADS Results of Operations –2002 to 2001 Comparison – Consolidated Amortisation of Goodwill and Impairment Tests”
and “Notes to the Consolidated Financial Statements – Note 10: Intangible assets”.

2.5 Research and development expenses
EADS recognises internally financed research and development costs as an expense in theyear incurred. When research and development expenses are contractually financed in whole
or in part by a customer, the externally financed portion is recognised as revenues. While EADS’internally financed research and development costs are reflected in the consolidated income
statement under research and development, the costs of externally-financed research anddevelopment are reflected under cost of sales.
The accounting treatment for research and development costs adopted by EADS does notconform to IFRS, which the Company otherwise follows in the preparation of its consolidated
financial statements. IFRS requires that development costs be capitalised as an intangible asset in
the period in which incurred if certain criteria for asset recognition are met. This departure fromIFRS makes EADS more directly comparable with US companies in the same sector, and reflects
Management’s preference for a conservative treatment of R&D expenses.
In 2002, the depreciation of jigs and tools was recorded in cost of sales in accordancewith IFRS. In prior years, it had been recorded in research and development. For reasons ofcomparability, the 2001 consolidated income statement has been restated to reflect jigs and tools
depreciation (€205 million) in cost of sales. See “Notes to the Consolidated Financial Statements –Note 6: Functional costs and other expenses”.

EADS 2002 Management’s analysis of the financial situation

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Management’s analysis of the financial situation

2.6 IAS 39 – Currency hedge accounting
Historically, EADS’ currency hedge portfolio consisted of both micro and macro hedges. As a resultof the strict implementation of IAS 39, EADS assures that the significant variations in financial
income that were experienced in 2000 are significantly reduced and that changes in net income
are more in line with variations in operating income than they have been. In compliance with IAS 39,
from 1st January 2001, all derivatives are now recognised on the balance sheet at fair market value.
Micro hedges. When hedges form a hedging relationship with customer orders to which theyspecifically relate, they qualify for IAS 39 hedge accounting and are referred to as “micro” hedges.
Revenues from such customer orders are recorded in Euro at the hedged rate and the impact of
the hedges is recognised in gross margin and operating income at the time of revenue recognition.
At the end of each accounting period, the value of each outstanding micro hedge contract ismarked-to-market in the balance sheet on the basis of the then prevailing forward exchange rate.
Micro hedges with positive pre-tax mark-to-market values are included in other assets while
micro hedges with negative pre-tax mark-to-market values are included in provisions for financial
instruments. Year-to-year changes in the pre-tax mark-to-market value of micro hedges arerecognised as adjustments to accumulated other comprehensive income (“AOCI”), a componentof consolidated shareholders’ equity. These recordings are net of corresponding changes to(i) deferred tax assets (for micro hedges with negative mark-to-market valuations) and deferred tax
liabilities (for micro hedges with positive mark-to-market valuations) and (ii) minority interests(where the hedge contract is held by an entity that is not wholly owned by EADS, e.g. Airbus).
See “Statement of Changes in Consolidated Shareholders’ Equity – Accumulated Other
Comprehensive Income”.
Micro hedges associated with cancelled customer orders, to the extent such cancellations
result in overhedging, are deemed terminated for accounting purposes. The sum of (i) changes
in the fair value of these hedges since 1st January 2002 and (ii) a reversal of AOCI corresponding
to these hedges prior to 1st January 2002, would be recorded in financial income and deferred
tax income in the statement of income. In 2002, no such accounting entries were recorded.
While such accounting treatment is in strict compliance with IAS 39, it does not reflect
the actual treasury operations with respect to such hedges, which are rolled over. Hedges thatare rolled over are then tied to cash inflows from customer orders scheduled at a later date,
and are recorded as new micro hedges with a hedged rate consistent with the relevant forward
rate at such time. See “Exchange Rate Management Policy – Roll-Overs”.
Macro hedges. Hedges that do not relate to a specified customer order, referred to as “macro”
hedges, do not qualify for IAS 39 hedge accounting treatment. Upon maturing, they areaccounted for in financial result and their impact is not recognised in gross margin or operating
income, even though they initially were intended to hedge cash flows from deliveries. At the endof each accounting period, each outstanding macro hedge contract is marked-to-market on thebasis of the then prevailing forward exchange rate. Changes in pre-tax mark-to-market values
from the previous accounting period are recorded in other financial result. See “Notes to theConsolidated Financial Statements – Note 8: Financial result”.
On 1st January 2001, most macro hedges then outstanding were tied to specified customer
orders and thereby qualified for IAS 39 hedge accounting treatment. These hedges carry an
implicit conversion rate corresponding to the forward Euro/US Dollar exchange rate frozen at
31st December 2000.
As of 31st December 2002, there are no longer any outstanding macro hedges that are nottied to specified customer orders.
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.

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EADS 2002 Management’s analysis of the financial situation

3

Policies

3.1 Exchange rate management policy
Most of EADS’ revenues are denominated in US Dollars (approximately $20 billion in 2002),
with approximately half of such currency exposure “naturally hedged” by US Dollar-denominatedcosts. 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 exchange rate exposure from the time of a customer order to the time of delivery, its profits
will be affected by market changes in the exchange rate of the Dollar against these currencies.
Consistent with EADS’ policy of generating profits principally from its operations, EADS uses
hedging strategies to manage the impact on its profits from the volatility of the US Dollar.
The net exposure is defined as the total currency exposure (US Dollar-denominated revenues),
net of the part which is “naturally hedged” by US Dollar-denominated costs.
EADS endeavours to hedge the majority of its net exposure based on firm orders andforecasted transactions. For products such as aircraft, EADS typically hedges forecasted net flows
in US Dollars related to firm contracts for the following year up to 2010. The hedged items aredefined as the first forecasted highly probable future cash inflows for a given month based upon
final payments at delivery. The amount of the first flows is decided by a treasury committee andtypically covers up to 100% of the equivalent of the net US Dollar exposure. With respect
to the A380, EADS’ policy is to hedge 100% of cash inflows from firm orders.
During 2002, hedges covering approximately US$9 billion of EADS’ dollar-denominatedrevenues matured. In 2002, the conversion rate at which Dollar-denominated revenues were
accounted for was Euro/US Dollar 0.98. The tables below set forth the notional amount of foreignexchange hedges in place as of 31st December 2002, and the US Dollar rates applicable tocorresponding revenues.
in US$bn

2003

2004

2005

2006

2007

2008

2009

2010

Total

Total Hedges

10.9

8.3

6.3

5.7

4.6

4.2

1.7

0.6

42.2

Euro/US Dollar

9.1

6.8

5.2

4.8

3.8

3.5

1.4

0.5

35.1

Sterling/US Dollar

1.8

1.4

1.0

1.0

0.9

0.7

0.3

0.1

7.1

Euro/US Dollar

0.981

0.94

0.94

0.95

0.95

0.95

0.95

0.98

Sterling/US Dollar

1.53

1.53

1.47

1.46

1.46

1.46

1.46

1.49

Forward Rates

1

Taking into account the release of the mark-to-market provision from previous macro hedges, the rate applicable for EBIT is Euro/US Dollar 0.96.

Roll-overs after 11th September 2001. Downward revisions for deliveries of commercial aircraft,
related to the events of 11th September 2001 have resulted in a mismatch between hedged positions
and expected cash flows. This mismatched hedge position is being rolled over to subsequent years.
Roll-overs are not effected immediately upon the emergence of an overhedge situation, but rather
upon maturity of the mismatched hedges. The ensuing hedges have maturities in line with the
new expected cash inflows from the customer orders with which they form hedging relationships.

3.2 Interest rate management policy
EADS uses an asset and liability management approach with the objective of limiting its interest
rate risk. The Company undertakes to match the risk profile of its assets with a corresponding
liability structure. The 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 designated to debt instruments have at a maximum
the same nominal amounts as well as the same maturity dates as the corresponding hedged item,with the exception of a few residual positions with non-material positive mark-to-market effects.
Regarding cash, EADS only invests in short-term instruments and/or instruments tied to a floatinginterest index in order to further minimise any interest risk in its cash and securities portfolio.

3.3 Sales financing policy
EADS favours cash sales, and encourages independent financing by customers, in order to avoid
retaining credit or asset risk in relation to delivered products.
However, in order to support product sales, primarily at Airbus and ATR, EADS may agree toparticipate in the financing of customers, on a case-by-case basis, directly or through guarantees
provided to third parties. A dedicated team closely monitors total EADS finance and asset value
exposure and its evolution in terms of quality, volume and cash requirements intensity. EADSEADS 2002 Management’s analysis of the financial situation

53

Management’s analysis of the financial situation

aims to structure all financing it provides to customers in line with market terms for similarly rated
debt so as to facilitate any subsequent sale or reduction of such exposure.
In determining the amount 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 the aircraft and its expected future value. Market yields and current banking
practices also serve to benchmark the financing terms offered to customers, including price.
Sales financing transactions are generally collateralised by the underlying aircraft. Additionally,
Airbus and ATR benefit from protective covenants and from security packages tailored according
to the perceived risk and the legal environment. See “Notes to the Consolidated Financial
Statements – Note 24: Commitments and contingencies” for further discussion of EADS’ sales
financing policies and accounting procedures.
Accounting of sales financing transactions in the financial statements
On balance sheet. When, pursuant to a financing transaction, the risks and rewards of ownershipof the financed aircraft reside with the customer, the transaction is characterised as either a loan
or a financial lease. In such instances, revenues from the sale of the aircraft are recorded upondelivery, while financial interest is recorded over time as financial result. The outstanding balanceof principal is recorded on the balance sheet in other long-term financial assets, net of accumulative
write-down. See “Notes to the Consolidated Financial Statements – Note 12: Investments andlong-term financial assets”.
By contrast, when the risks and rewards of ownership remain with Airbus or ATR, thetransaction is characterised as an operating lease. EADS’ policy is to not enter into operatingleases for new aircraft to be delivered to customers. However, new operating leases may arise
in connection with the re-marketing of repurchased or repossessed aircraft. Rental income
from such operating leases is recorded in revenues over the term of the lease. The leased aircraftis recorded at cost on the balance sheet as tangible assets, and the corresponding depreciation
charge is recorded in cost of sales. See “Notes to the Consolidated Financial Statements – Note 11:
Property, plant and equipment”.
Certain sales contracts may include the provision of an asset value guarantee (“AVG”), whereby
Airbus or ATR guarantee a portion of the value of an aircraft at a specific date after its delivery.
If the present value of the AVG exceeds 10% of the sales price of the aircraft, the sale of theunderlying aircraft is accounted for as an operating lease in the Financial Statements. Upon aircraft
delivery, the cash payment received from the customer is recognised on the consolidated balance
sheet as deferred income and amortised straight-line up to the last exercise date of the AVG.
The production cost of the aircraft is recorded in tangible assets, and the difference between
production cost and the AVG amount is depreciated up to the exercise date of the AVG.
See “Notes to the Consolidated Financial Statements – Note 11: Property, plant and equipment;
and Note 21: Deferred income”.
Off balance sheet – contingent commitments. Certain sales financing commitments, suchas lease in/lease out structures and certain AVGs, are not recorded on the balance sheet.
See “Notes to the Consolidated Financial Statements – Note 24: Commitments and contingencies”.
Under lease in/lease out structures, which Airbus and ATR applied in the past to takeadvantage of certain jurisdictions’ leasing-related tax benefits, the risks and rewards of ownershipof the aircraft are typically borne by a third party, usually referred to as the head lessor. 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 andother financial conditions. Effectively, Airbus or ATR act as credit enhancers for the transaction,
as if they were providing a rental guarantee to the head lessor on behalf of the sub-lessee.
Such commitments by Airbus or ATR are reported as off-balance sheet contingent liabilities.
If the present value of an AVG is below the 10% threshold, the transaction concerned by the
AVG is not recorded on the consolidated balance sheet, but accounted for as a sale. AVGs are
generally not expected to be exercised at an additional cost to Airbus or ATR. Furthermore, toreduce exposure under AVGs and to minimise the likelihood of their occurrence, Airbus and ATR
extend them with prudent guaranteed asset values and restrictive exercise conditions, including
limited exercise window periods.

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EADS 2002 Management’s analysis of the financial situation

Exposure arising from sales financing activities
EADS classifies the risks arising from its sales financing activities into two categories:(i) Financing Exposure, where the customer’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.
Gross exposure. Gross Financing 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;(iii) the maximum commitment amounts under financial guarantees; and (iv) until 31st December
2002, stipulated loss values associated with lease in/lease out structures (agreed amounts to be
paid in the case of early termination of tax enhanced leases).
Gross Financing Exposure from operating leases, financial leases and loans differs fromthe value of related assets on EADS’ balance sheet and related off-balance sheet contingent
commitments for the following reasons: (i) assets are recorded in compliance with IFRS, but may
relate to transactions where there is limited recourse to Airbus or ATR; (ii) the value of the assets
is written down or depreciated on the consolidated balance sheet; (iii) the off-balance sheet
gross exposure is calculated as the net 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.
Gross Asset Value Exposure is computed as the sum of the maximum committed amounts
under AVGs and buy-back commitments.
Net exposure. Net exposure is the difference between gross exposure and the estimated valueof the collateral security.
Collateral value is assessed using a dynamic model based on the net present value of expected
future rentals from the aircraft in the leasing market and potential cost of default. This valuation
model yields results that are typically lower than residual value estimates by independent sourcesin order to allow for what Management believes is its conservative assessment of market conditions.
Under its provisioning policy for sales financing risk, EADS records provisions to fully coverits financing and asset value net exposure. Provisions pertaining to sales financing exposure,whether on-balance sheet or off-balance sheet, are recorded in provisions, or as write down of
the related assets. Provisions recorded as liabilities within provisions relate primarily to off-balance
sheet commitments and to AVG exposure. See “Notes to the Consolidated Financial Statements –Note 18c: Other provisions”. Provisions are recorded as write downs of the related assets when
they can be directly related to the corresponding asset. See “Notes to the Consolidated Financial
Statements – Note 11: Property, plant and equipment; and Note 12: Investments and long-term
financial assets”.
Airbus sales financing exposure
Airbus financing exposure. Certain EADS and BAE Systems group companies retain joint andseveral liability for sales financing exposure incurred by Airbus prior to the formation of Airbus
S.A.S. EADS’ exposure to liabilities incurred by Airbus following 1st January 2001, is limited byits status as a shareholder in Airbus S.A.S., of which it owns 80% of the shares.
Airbus Financing Exposure as of 31st December 2002 is spread over approximately 150 aircraft,
operated at any time by approximately 40 airlines; the breakdown by aircraft type is balanced
between A300/310, A320 family and A330/340. In addition, other aircraft related assets, such as
spare parts, may also serve as collateral security. 75% of Airbus Financing Exposure is distributed
over 8 airlines in 7 countries.
Airbus has reduced gross Financing Exposure by 32% from its 1998 peak of US$6 billion,
to US$4.1 billion (€3.9 billion) as of 31st December 2002, while the Airbus fleet in operation
has increased 64% from 1,838 aircraft to 3,010 over the same period. Management believes
the current level of gross Financing Exposure enhances Airbus’ ability to assist its customers in
the context of a tight aircraft financing market.

EADS 2002 Management’s analysis of the financial situation

55

Management’s analysis of the financial situation

As of 31st December 2002 and 2001, net Airbus Financing Exposure, which does not include
AVGs, was computed as follows:in €mGross financing exposure – unadjusted
Adjustments
Financing exposure – adjusted
On-balance sheet

2002

2001

3,904

4,020

(323)

(515)

3,581

3,505

2,690

2,269

Off-balance sheet

891

1,236

Estimated collateral value(2,061)(1,988)Net exposure before provision

1,520

1,517

Provision/write-Down for customer financing(1,520)(1,517)0.0

0.0

Residual net exposure

On a constant US Dollar basis, the currency in which Airbus records its customer financing
exposure, Airbus Gross Financing Exposure increased by approximately €600 million.
Prior to 1st January 2003, gross financing exposure with respect to lease in/lease out structures
was measured by reference to the related stipulated loss value. Eliminations primarily included
a correction of gross financing exposure to reflect the continuation of lease in/lease out structures
through maturity (i.e. the difference between the stipulated loss value and the net present valueof the future payments owed to the head lessor). From 1st January 2003, this correction will nolonger be made, as the gross financing exposure from such structures will be measured as thenet present value of the future payments owed to the head lessor.
The €2.7 billion of on-balance sheet customer financing exposure shown in the table above
differs from the €2.4 billion book value of corresponding assets on EADS’ balance sheet. Thisdifference is the result of (i) the consolidation of assets in compliance with IFRS where there is
no recourse to Airbus (€0.6 billion) and (ii) the depreciation and write down of the related assets(€0.9 billion). See “Notes to the Audited Consolidated Financial Statements – Note 11: Property,
plant and equipment; and Note 12: Investments and long-term financial assets” for a descriptionof customer financing assets book value, including Airbus (€2.4 billion) and 50% ATR (€0.4 billion).
The amount of off-balance sheet customer financing exposure shown above primarilyreflects the net present value of lease in/lease out structures, net of defeased bank deposits. The
corresponding cumulative nominal value of future payments corresponding to off-balance sheet
exposure is €1,452 million; a corresponding provision of €617 million exists in EADS’ balance
sheet. See “Notes to the Consolidated Financial Statements – Note 24: Commitments andContingencies”. The year-to-year decrease in off-balance sheet exposure is primarily due
to the impact of the weakening US Dollar on the Euro amount of such exposure.
Airbus asset value exposure. A significant portion of Airbus’ asset value exposure arises
from outstanding AVGs. Airbus’ management considers the financial risks associated with suchguarantees 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 estimated future value of each aircraft; (ii) the AVG-related exposure isdiversified over a large number of aircraft and customers; and (iii) the exercise dates of outstanding
AVGs are distributed through 2017, resulting in low levels of exposure maturing in any year.
For instance, for each of the years 2003 to 2007, the average annual gross Asset Value Exposure
from AVGs is approximately €280 million reflecting the peak of AVG exercise date in 2007. On a
year-to-year basis, gross Asset Value Exposure, denominated in US Dollars, was nearly unchanged
in 2002 from 2001. The outstanding net exposure from AVGs at year-end 2002 of €526 million
is fully provided for through provisions on the balance sheet, resulting in a residual net exposureof zero. See “Notes to the Consolidated Financial Statements – Note 18c: Other provisions”.
Because exercise dates for AVGs are on average in the 10th year following aircraft delivery,
AVGs issued in 2003 will generally not be exercisable prior to 2013, and, therefore, an increase innear-term exposure is not expected.

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EADS 2002 Management’s analysis of the financial situation

ATR sales financing exposure
EADS proportionally consolidates only 50% of ATR and shares the risk with its partner, Alenia.
ATR customer exposure as of 31st December 2002 is distributed over 257 aircraft, 60 airlines
and 35 countries.
ATR 100% has reduced gross exposure by approximately 28% from a peak of US$1.8 billion
in 1997 to under US$1.3 billion as of 31st December 2002, despite a challenging market for
turboprop aircraft.
As of 31st December 2002 and 2001, ATR net customer financing exposure is computed
as follows:
ATR 50%
in €m

2002

2001

Financing gross exposure

610

828

On-balance sheet

454

654

Off-balance sheet

156

174

Estimated collateral value

(538)

(710)

Net exposure before provision

72

118

Provision

(72)

(118)

Residual net exposure

0.0

0.0

Backstop commitments. While commitments to provide 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 dueto the fact that (i) past experience suggests it is unlikely that all such proposed financings actually
will be implemented, (ii) until the aircraft 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 exposure to unacceptable credits, such commitments typicallycontain financial conditions that guaranteed parties must satisfy in order to benefit therefrom.
See “Notes to the Consolidated Financial Statements – Note 24: Commitments and contingencies”.

3.4 Cash management policy
Cash pooling and cash management
In 2002, the technical and legal framework of a fully automated cross-border cash pooling system(covering France, Germany, Spain and the UK) was finalised. A Group-wide implementation ofthis system is expected by the end of 2003. The cash pooling system enhances Management’s
ability to assess reliably and instantaneously the cash position of each subsidiary within the Groupand enables Management to allocate cash optimally within the Group depending upon shifting
short-term needs.
A cash management procedure designed to provide Management with a monthly updated
perspective on cash generation and cash consumption for each subsidiary over the following
twelve-month period, which was implemented on a trial basis in 2001, is now fully operational.
Funding
EADS continues to benefit from a strong cash position. In 2002, a syndicated back-up facilityof €2.85 billion was put into place and a €700 million credit line with the European Investment
Bank was established. These facilities remain undrawn as of 31st March 2003. In February 2003,
EADS launched a €3 billion Euro Medium Term Note Programme, with a subsequent initial€1 billion issue of a seven year 4.625% Eurobond. The objectives of this initial issue are to refinanceexisting debt and to lengthen the maturity profile of the Company’s debt. Management believes
that the establishment of such financing schemes will enhance its overall presence and standing
in the capital markets and increase its flexibility in responding to fluctuating funding requirements.

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Management’s analysis of the financial situation

4

Operating results

4.1 Consolidated income statements
The following table sets forth a summary of the consolidated income statements of EADS for thetwelve-month periods indicated.
Year ended
31st Decemberin €m (except for EPS)

2002

2001

Revenues

29,90130,798

Cost of sales(24,465)(25,440)

Gross margin

5,436

5,358

Selling and administrative expenses(2,251)(2,186)

Research and development expenses(2,096)(1,841)Other income

248

3,024

Other expense

(241)

(375)

Amortisation of goodwill and related impairment losses(936)(1,466)

Income before financial income and income taxes

160

2,514

Income (loss) from investments

87

(342)

Interest income (expense)

(81)

63

Other financial result

21

(234)

Income (loss) before income taxes

187

2,001

Income taxes

(453)

(646)

Minority interests

(33)

17

Net income (loss)

(299)

1,372

Earnings per share (in €)(0.37)

1.70

Use of EBIT pre-goodwill amortisation and exceptionals
EADS uses EBIT pre-goodwill amortisation and exceptionals as a key indicator of its economic
performance. The term “exceptionals” refers to income or expenses of a non-recurring nature,such as amortisation expenses of fair value adjustments relating to the EADS Merger, theformation of Airbus S.A.S. and the formation of MBDA, and impairment losses. It does notcorrespond to the definition of extraordinary items under IFRS.
Set forth below is a table reconciling EADS’ income before financial income and income taxes
with EADS’ EBIT pre-goodwill amortisation and exceptionals.
Year ended
31st December
in €m

2002

2001

Income before financial income and income taxes

160

2,514

Income from investments

87

(342)

Dilution gain Airbus, MBDA

0(2,794)

Goodwill amortisation and impairment losses

936

1,466

Exceptional depreciation (fixed assets)

227

260

Exceptional depreciation (financial assets)

0315

Exceptional depreciation (inventories)

16

275

1,426

1,694

EBIT pre-goodwill amortisation and exceptionals

58

EADS 2002 Management’s analysis of the financial situation

4.2 Segment information
Set forth below is a breakdown of EADS’ consolidated revenues and consolidated EBIT pre-goodwill
amortisation and exceptionals by Division for the past two years.
Year ended 31st December 2002

Year ended 31st December 2001

in €m

Revenues

EBIT PGE1

Revenues

EBIT PGE1

Airbus

19,512

1,361

20,5491,655

Military Transport Aircraft

524

(80)

547

1

Aeronautics

5,304

261

5,065

308

Defence and Civil Systems

3,306

40

3,345

(79)

Space

2,216

(268)

2,439

(222)

Subtotal

30,862

1,314

31,945

1,663

(961)

112

(1,147)31

29,901

1,426

30,798

1,694

HQ/consolidation2
EADS
1
2

“EBIT PGE” refers to EBIT pre-goodwill amortisation and exceptionals.
With respect to revenues, HQ/consolidation includes, in particular, adjustments and eliminations for intercompany transactions and revenues from leases of office space. With respect to EBIT PGE,
HQ/consolidation primarily includes results from headquarters, which mainly includes income from the investment in Dassault Aviation.

Consolidated EBIT PGE for EADS reached €1,426 million in 2002, a decrease of €268 million from2001. The restructuring efforts in the defence business contributed to positive results of €40 million
at the DCS Division, as compared to losses of €79 million in 2001. In addition to the turnaroundat the DCS Division, EADS headquarters, after downsizing the workforce by approximately 50%,
achieved substantial cost savings in 2002, thus boosting its 2002 EBIT PGE.
Offsetting these positive items were effects stemming from the difficulties facing EADS’commercial markets. Following the insolvency of Fairchild Dornier in 2002, the MTA Division
wrote off €54 million of assets relating to the Fairchild Dornier 728 programme of which it wasa risk sharing partner.
The Space Division reported steeper losses than in 2001, amounting to €268 million in 2002.
These losses related primarily to further restructuring at Astrium, the continued impact of amarket downturn in commercial telecommunications (including the cancellation of one satellite),
programme cost overruns and further investment depreciations.
Airbus and the Aeronautics Division suffered from the weakening passenger traffic and its
resulting downturn in world commercial aircraft deliveries; higher research and development costs
for the A380 and reduced deliveries of aircraft have limited the profitability of Airbus in 2002.
However, further cost reductions and built in production rate flexibility partially offset these factors
and have allowed Airbus to achieve EBIT PGE in 2002 of €1,361 million, a decrease of €294 million
from 2001. Before taking into account R&D expenses of Airbus, the pre-R&D margin rate for EBITPGE increased from 15% in 2001 to 15.6% in 2002. EBIT PGE at the Aeronautics Division decreasedslightly from €308 million in 2001 to €261 million in 2002. This decrease was mostly attributable
to higher R&D, selling, marketing and functional costs in the military aircraft business, andreduced aerostructure/maintenance activity as a result of the downturn in the commercial industry.
Restructuring. Since its formation in 2000, EADS has implemented, and continues to implement,a number of restructuring plans to further enhance its competitive position in the challenging
markets in which it operates. Total restructuring charges of €161 million were recorded in the 2002
consolidated income statement. This included new provisions and current year charges primarily
related to (i) headcount reductions, budgetary constraints and Ariane V issues at the Space Division(€105 million); (ii) headcount reductions and early retirements at the DCS Division (€31 million);and (iii) other restructuring provisions relating to headquarters and the Aeronautics Division.
The related restructuring burden is shown both as a provision and as other liabilities.
Cost savings derived from synergies. By the end of 2002, Management estimates that it hadrealised more than €400 million of its targeted recurring cost savings derived from synergies related
to business activities such as procurement, aerostructure and headquarters. EADS is currently
implementing measures to generate a further €200 million in targeted recurring cost savings from2004 onwards. The merger integration team, set up at the time of the creation of EADS to deriveand monitor such cost savings, was dismantled in 2002 as its responsibilities were transferred directly
to the respective business units, with a centralised reporting function retained at headquarters.

EADS 2002 Management’s analysis of the financial situation

59

Management’s analysis of the financial situation

4.3 EADS results of operations – 2002 to 2001 comparison
Year-to-year comparisons of results of operations are based upon the Financial Statements.
Consolidated revenues
Consolidated revenues for EADS in 2002 reached €29,901 million, a slight decrease of 3% from€30,798 million in 2001.
• Airbus. Airbus consolidated revenues reached €19.5 billion in 2002, a decrease of €1,037 million
from 2001. This decrease was attributed mostly to the reduction in aircraft deliveries from 325 in2001 to 303 in 2002, as well as to the weaker US Dollar. As in 2001, most of the deliveries were
for single-aisle A319/A320/A321 aircraft. Airbus delivered 236 units of this type of aircraft in 2002,
compared with 257 in 2001. The changing Euro/US Dollar exchange rate also impacted Airbus
consolidated revenues over the periods compared (average spot rate of Euro/US Dollar 0.95 in 2002
compared to Euro/Dollar 0.90 in 2001). At a constant exchange rate from 2001, Airbus revenues
would have decreased by only 2.5%. For a discussion of the impact of exchange rate variations on
EADS’ results of operations and EADS’ hedging policy, see “Accounting Considerations – IAS 39 –Currency Hedge Accounting” and “Policies – Exchange Rate Management Policy”.
• Military Transport Aircraft. Consolidated revenues of the Military Transport Aircraft Division were€524 million in 2002, a €23 million decrease from 2001 consolidated revenues of €547 million. Whiledeliveries of the CN-235 in 2002 increased to 8 units from 4 in 2001 (plus 2 C-212 aircraft), delays
on the A310 VIP programme and lower sales of its C-295 SAF aircraft in 2002 offset these gains.
• Aeronautics. Consolidated revenues of the Aeronautics Division increased 5% to €5.3 billion
in 2002 from €5.1 billion in 2001. The increase primarily reflects Eurocopter’s increased levelof helicopter deliveries in 2002 (397 compared to 335 in 2001) and customer support services.
This increase was partially offset by the impact of commercial airline industry difficulties on the
Division’s aerostructure businesses.
• Defence and Civil Systems. The Defence and Civil Systems Division generated consolidated
revenues of €3.3 billion in 2002, relatively unchanged from 2001. The slight decrease primarilyreflects the decrease in the participation in AMM following the MBDA transaction at the endof 2001 offset by (i) the full-year consolidation of Cogent in 2002 and (ii) an approximate
10% revenue growth across all business units except MBDA. See “Accounting Considerations –Changes in Consolidation Perimeter”.
• Space. Space Division consolidated revenues decreased 9% to €2.2 billion in 2002 from
€2.4 billion in 2001. The decrease is principally related to (i) difficulties with Astrium’s civil
telecommunications programmes and (ii) slower than anticipated ramp-up of the Ariane V
programme at EADS Launch Vehicles.
Consolidated cost of sales
Consolidated cost of sales decreased 4% from €25,440 million in 2001 to €24,465 million in 2002.
This change mainly reflects the reduction of deliveries at Airbus as well as the significant decreasein depreciation of the fair value adjustments to inventories stemming from the formation of EADS(€275 million in 2001 compared to €16 million in 2002). See “Accounting Considerations –Fair Value Adjustments”.

60

EADS 2002 Management’s analysis of the financial situation

Consolidated gross margin
In 2002, consolidated gross margin increased by €78 million to €5,436 million from €5,358 million
in 2001. Without the effects of the exceptional fair value depreciation of inventories and fixed
assets in 2001, consolidated gross margin would have decreased by €214 million from 2001,
in line with the 2002 revenues decrease. On a percentage basis, before fair value depreciation,
the consolidated gross margin percentage remained unchanged from 2001 at 19%. This is inline with the ongoing efforts to reduce costs and to counteract the impact of demand changes
with implemented flexibility in manufacturing.
Consolidated selling and administrative expenses
Consolidated selling and administrative expenses increased slightly from €2,186 million in 2001
to €2,251 million in 2002. This increase was principally due to increases in staffing and higher
insurance premiums at Airbus and the Aeronautics Division. However, ongoing effects fromrestructuring of general and administrative activities, such as the realised cost reductions at
headquarters offset these increases.
Consolidated research and development expenses
EADS’ consolidated research and development expenses increased 14% from €1,841 million in2001 to €2,096 million in 2002, primarily relating to ongoing programmes at Airbus (€1.7 billion in2002). Expenses at Airbus relating to the A380 programme reached €819 million in 2002, anincrease of €435 million from 2001 levels. From 2001, total R&D expenses on the A380 programmeamount to €1.3 billion. Further R&D expenses totalling €3 billion are forecasted to be incurredfrom 2003 through 2005. Although reduced by €130 million from 2001 levels, R&D expenses
related to flight certification of the A340 500/600 programme obtained in December 2002(€248 million in 2002), as well as further enhancements on existing programmes, also contributed
to the overall R&D expenses for the year. Other than increased R&D expenses at the Aeronautics
Division primarily related to the A380 programme, non-Airbus related consolidated R&D expenses
remained relatively unchanged from 2001. Excluding Airbus, EADS’ other Divisions incur
approximately €400 million annually in consolidated R&D expenses related to ongoing businesses.
Consolidated other income and other expense
Consolidated other income and other expense principally represent gains and losses on disposals
of investments and income from rental properties. In 2002, the net of other income and otherexpense decreased to €7 million from €2,649 million in 2001. Non-recurring dilution gains arisingfrom the creation of Airbus S.A.S (€2,537 million) and MBDA (€257 million) were included inconsolidated other income in 2001. See “Accounting Considerations – Dilution Gains”. Excluding
the effect of 2001 dilution gains, net other income increased by €152 million, reflecting thedisposal of EADS’ 50% share in Aircelle to Snecma (€63 million), the sale of MDTV to IBM, andlower expenses at headquarters in 2002.
Consolidated amortisation of goodwill and impairment tests
Consolidated amortisation of goodwill and impairment charges decreased 36% to €936 million in2002 from €1,466 million in 2001. Excluding impairment charges, consolidated amortisation of
goodwill decreased by €90 million from €676 million in 2001 to €586 million in 2002. This change
is the result of the decrease in the net book value of goodwill resulting from the 2001 impairment
charges. See “Accounting Considerations – Impairment of Assets”. Goodwill at the Space Division
was subject to a further impairment test, leading to a charge of €350 million in 2002.
2002

2001

Goodwill amortisation

Thereof impairment

Goodwill amortisation

Thereof impairment

and impairment lossesof goodwill

and impairment lossesof goodwill

373

–

372

–

MTA

–

–

–

–

Aeronautics

54

–

51

–

in €m

Airbus

DCS

107

–

739

580

Space

397

350

255

210

HQ

5

–

49

–

EADS

936

350

1,466

790

EADS 2002 Management’s analysis of the financial situation

61

Management’s analysis of the financial situation

Consolidated income (loss) from investments
Consolidated income (loss) from investments principally includes results from companies
accounted for under the equity method and the results linked to non-consolidated investments(i.e., write-downs, dividends received). In 2002, EADS recorded €87 million in consolidated
investment income as compared to a €342 million consolidated loss in 2001. This change primarilyreflects the €315 million impairment charge taken on civil telecommunications investments (Nortel
joint ventures, carried at cost since 1st October 2001), and a €63 million write-off of commercial
space investments (Nahuelsat) in 2001. As in 2001, EADS accounted for a further €29 million
write-down of its investment in Arianespace in 2002. This participation now has a book value of zero.
EADS’ 46% stake in Dassault Aviation, which is consolidated using the equity method,
contributed €111 million of investment income in 2002 (after deduction of a related €25.6 million
goodwill amortisation). Since for 2002 no financial figures are available yet from Dassault Aviation,
the prior year’s net income was used as a basis to report the current year’s net income from thisequity investment.
Consolidated interest income (expense)
Consolidated interest income (expense) reflects the net of interest income and expenses arisingfrom financial assets or liabilities. In 2002, EADS reported a consolidated net interest expense of€81 million, as compared to €63 million of consolidated net interest income in 2001. This change
is principally due to (i) higher interest charges in 2002 on European government refundable
advances received (€45 million expense increase primarily related to the A380); (ii) an increasing
interest rate difference between the remuneration of cash deposits and the cost of debt; and(iii) reduced average net cash position in 2002 as compared to 2001.
Consolidated other financial result
Consolidated other financial result increased to €21 million in 2002 from €(234) million in 2001.
This change primarily results from a €117 million income from the mark-to-market revaluation andmaturing of remaining macro hedges in 2002, as compared to a €153 million loss with respect
to such macro hedges in 2001. As there are no remaining macro hedges at 1st January 2003,
the mark-to-market revaluation and maturing of such hedges should no longer have an impact
on consolidated other financial results.
Consolidated income taxes
See “Notes to the Consolidated Financial Statements – Note 9: Income taxes”.
Consolidated net income
As a result of the factors discussed above, EADS recorded a consolidated net loss of €299 million
in 2002 as compared to consolidated net income of €1,372 million in 2001.
Earnings per share (EPS)
Earnings per share decreased by €2.07 per share from €1.70 per share in 2001 to €(0.37)
per share in 2002. The number of outstanding shares at the end of 31st December 2002 was
800,957,248. The denominator used in EPS was the average number of outstanding sharesof 804,116,877 shares. The reduction from 2001 results from the repurchase of 10,241,252 shares
offset by the issuance of 2,022,939 shares through the October 2002 employee share offering plan.

62

EADS 2002 Management’s analysis of the financial situation

5

Statement of changes in consolidated shareholders’ equity

The following table sets forth a summary of the consolidated statement of changes inshareholders’ equity for the period 1st January 2002 through 31st December 2002.
in €mBalance at 1st January 2002

9,877

Capital increase

16

Net loss(299)

Dividends paid

(403)

Purchase of treasury shares(156)

Accumulated other comprehensive income

3,730

Balance at 31st December 2002

12,765
Consolidated shareholders’ equity increased by €2,888 million from €9,877 million as at
31st December 2001 to €12,765 million as at 31st December 2002. This increase mainly
resulted from the stronger Euro/US Dollar spot exchange rates in 2002 (Euro/US Dollar 1.05)
as compared with 2001 (Euro/US Dollar 0.88), which had a significant impact in accumulated
other comprehensive income. This positive effect was partially offset by the consolidated net loss,
the payment of dividends and the repurchase by EADS of its own shares.
Capital increase
In connection with the 2002 employee stock ownership plan, EADS issued 2,022,939 shares,
raising approximately €16 million.
Dividends paid
On 17th May 2002, the general meeting of shareholders decided to pay a cash dividend related
to the 2001 financial year of €0.50 per share. The dividend, totalling €403 million, was paid on
28th June 2002.
Purchase of treasury shares
In 2002, EADS purchased 10,241,252 of its own shares for a total amount of €156 million.
At 31st December 2002, the number of shares outstanding was 800,957,248.
Accumulated other comprehensive income
In 2002, accumulated other comprehensive income (“AOCI”) increased by €3,730 million.
Changes in AOCI were due to (i) the year-end mark-to-market valuation of that portion of EADS’
hedge portfolio qualifying for hedge accounting under IAS 39 (€2.7 billion) and (ii) currencytranslation adjustments generated by the consolidation of subsidiaries not reporting their financial
statements in Euro (€1 billion).
At 31st December 2002, the notional amount of the outstanding portfolio of hedges qualifying
for IAS 39 hedge accounting treatment amounted to approximately US$42 billion hedged against
the Euro and the Pound Sterling. The increase in the notional amount of the hedge portfolio from
US$35.3 billion at 31st December 2001, is a reflection of the approval by the EADS Board of
Directors to extend the hedge portfolio to 2010 to account for changes to the firm backlog in 2002,
including firm orders for the A380. The year-end mark-to-market valuation of EADS’ portfolio ofhedges qualifying for IAS 39 hedge accounting treatment resulted in a positive valuation changeof €5,224 million from 31st December 2001 based on a closing rate of Euro/US Dollar 1.05.
As a result of this positive change in the fair market valuation of the micro hedge portfolio,
2001 AOCI-related provisions of €2,405 million were reduced and AOCI-related other assets
increased to €2,819 million. The corresponding €1,879 million tax effect reduced the €828 million
AOCI-related deferred tax asset recorded in 2001, and increased the AOCI-related deferred tax
liability to €1,051 million at 31st December 2002.
A €632 million adjustment to minority interest was recorded to reflect mainly BAE Systems’
20% share of the positive after-tax mark-to-market valuation change in hedge portfolio. As a resultof this adjustment, AOCI-related minority interest was €416 million at 31st December 2002 ascompared to €(216) million at 31st December 2001.

EADS 2002 Management’s analysis of the financial situation

63

Management’s analysis of the financial situation

The increase to AOCI of €2,713 million at 31st December 2002 attributable to changes in the fairvalue of hedging instruments, represents the net mark-to-market valuation change of the EADS
hedge portfolio, after accounting for deferred taxes and minority interest. See “Accounting
Considerations – IAS 39 – Currency Hedge Accounting” and “Policies – Exchange Rate
Management Policy”.
The impact of currency translation adjustments on AOCI in 2002 amounted to positive€1,027 million, reflecting a stronger Euro spot rate versus other currencies at 31st December 2002.
6

Movement of net cash position

EADS generally finances its manufacturing activities and product development programmes, andin particular the development 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’ militaryactivities benefit from government-financed research and development contracts.
The following table sets forth the variation of EADS’ consolidated net cash position over theperiods indicated. See also “Financial Statements – Consolidated Statements of Cash Flow”.
Year ended
31st December
in €m

2002

2001

1,533

2,143

–

(838)

Net cash at beginning of period

1,533

1,305

Gross cash flows from operations

1,862

2,654

Consolidated net cash position at 1st JanuaryFirst consolidation Airbus UK/GIE 20%

Changes in working capital804

2(2,953)(1,882)(2,093)(1,311)

(865)

(93)

Thereof others

5

(478)

Free cash flows1

(287)

774

Cash used for investing activities
Thereof industrial capital expenditures
Thereof customer financing

578

867

Treasury share buy-backThereof free Cash Flows before customer financing

(156)

0

Dividends paid to shareholders

(403)

(404)

16

21

Capital increase
Other changes in financial position
Consolidated net cash position at 31st December
1

521

(163)

1,224

1,533

Does not reflect investments in available-for-sale securities (€264 million in 2002; €390 million in 2001), which are classified as cash and not as investments.

In 2002, the consolidated net cash position decreased by 20% to €1,224 million at 31st
December. EADS calculates its consolidated net cash position as the difference between (i) cash,
cash equivalents and securities and (ii) financial liabilities (as recorded in the consolidated balance
sheet). Efforts at Airbus to limit the growth of customer financing exposure and a Company-wide
focus on cash management, combined with new European government refundable advances
received (primarily related to the A380 programme), sustained levels of pre-delivery paymentsfrom customers at Airbus and the positive effects of the weakening US Dollar on EADS’
dollar-denominated debt portfolio were offset by substantial investments in fixed assets, theconsumption of provisions for previous macro hedges reclassified as micro hedges, as well as
dividend payments in 2002.

64

EADS 2002 Management’s analysis of the financial situation

Gross cash flows from operations
In 2002, the main factor contributing to the €1.9 billion gross cash flow from operations was the
expiration of some hedges bearing unfavourable US Dollar rates. This negative cash effect wasoffset in operating result by the consumption of provisions made on 31st December 2000, withrespect to mark-to-market macro hedges which were reclassified as micro hedges using thenprevailing forward rates. See “Accounting Considerations – IAS 39 – Currency Hedge Accounting”.
The consumption of such provisions amounted to approximately €1 billion in 2002. The remaining
provision for such hedges, expected to be fully consumed over the next 2 years, is approximately€300 million. Once consumed, no further impact from such provisions on gross cash flowfrom operations is expected. Depreciation on fixed assets not including fair value adjustments
amounted to €1.6 billion in 2002, slightly above the 2001 level of €1.5 billion.
Changes in working capital
Working capital is comprised of the sum of trade receivables, net inventory, other assets andprepaid expenses against the sum of trade liabilities, other liabilities and deferred income. Changes
in working capital resulted in a €804 million positive impact on the net cash position in 2002.
The main net contributors to the positive working capital were an increase in A380-related
European government refundable advances, recorded in other liabilities, and a reduction of tradereceivables as a result of EADS’ focus on cash management. This was partly offset by higher
inventory build-up of approximately €500 million in all Divisions except Airbus. As of 31st December
2002, total European government refundable advances received, recorded on the balance sheet
in other liabilities, were €4.3 billion. Of this amount, €2.6 billion relate to long-range Airbus aircraft,€1.1 billion relate to the A380, and the remainder relates to other programmes. In 2002, European
government refundable advances receipts totalled €980 million and European government
refundable advances reimbursements totalled €250 million. Related accrued interest for 2002 of€170 million was recorded on the balance sheet in other liabilities.
In 2002, total advance payments received from customers stood at €13.7 billion, as comparedto €14.7 billion at 31st December 2001. The year-to-year change primarily reflects foreign currency
effects from the weakening US Dollar. At a constant US Dollar exchange rate, the level of advancepayments received at year-end 2002 remained relatively unchanged from 2001. €9.5 billion ofadvance payments received were netted against inventories at 31st December 2002, resulting ina balance of €3.6 billion of advance payments received recorded on the balance sheet in otherliabilities and €600 million in trade receivables.
Cash used for investing activities
Management categorises cash used for investing activities into three components: (i) industrial
capital expenditures, (ii) customer financing and (iii) net investments in subsidiaries.
Industrial capital expenditures. Industrial capital expenditures (investments in plant, property
and equipment) amounted to €2.1 billion in 2002 as compared to €1.3 billion in 2001. A380related capital expenditure totalled €910 million in 2002, as compared to €300 million in 2001.
EADS estimates a total capital expenditure for the A380 programme from 2003 onwards to beapproximately €2.5 billion.The remaining portion of expenditures related to further integration
measures at Airbus of €650 million (manufacturing facilities and common information
technologies systems) and additional programmes in the other Divisions of €530 million.
Excluding Airbus, EADS’ other Divisions incur approximately €500 million 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 recorded in property, plant and equipment.
For the period 2003 to 2005, it is estimated that most of EADS’ capital expenditure will occur
in connection with Airbus activities, such as the ongoing establishment and expansion of production
facilities for Airbus aircraft. In particular, the development programme for the A380 very large
aircraft will require substantial capital expenditures.
Customer financing. Net consolidated cash flows corresponding to additions in customer
financing amounted to €865 million in 2002 including a net positive impact of €29 million from
ATR. The Airbus gross addition to customer financing in 2002 amounted to €1.8 billion. This
increase mainly relates to new finance leases and loans. EADS sold down approximately€900 million of customer financing exposure in 2002, including €400 million of new exposure
generated in 2002 primarily by loans granted to UAL. As of 31st December 2002 there are no
remaining exposures relating to UAL. EADS aims to structure all financing so as to facilitate thefuture sell-down or reduction of its exposure.
Not included in the net additions in ATR and Airbus customer financing in 2002 areapproximately €200 million of amortisation of existing exposure (primarily amortisation ofoperating lease aircraft). This amortisation is recorded in the line item cash flow from operations.
EADS 2002 Management’s analysis of the financial situation

65

Management’s analysis of the financial situation

Net of the amount of such amortisation, the increase in customer financing is in line with thecorresponding increase in gross exposure at constant US Dollar exchange rate.
See “Policies – Sales Financing Policy” and “Notes to the Consolidated Financial Statements –Note 24: Commitments and Contingencies”.
In response to increased demand for financing from its customers, EADS expects to makeadditional capital expenditures in connection with customer financing of commercial aircraft
through finance leases and loans. EADS’ target for additional customer financing is lower in 2003
than in 2002, and EADS intends to continue with its restrictive practice of keeping net additions
at the lowest possible level. See “Policies – Sales Financing Policy”.
Others. In 2001, net investments in subsidiaries were mainly influenced by the acquisitions of
Tesat Spacecom, Cogent, and additional shares in Dornier of approximately €400 million. In 2002,
proceeds related to the disposals of Aircelle and MDTV contributed to the positive balance of net
investments in subsidiaries. See “Accounting Considerations – Changes in Consolidation Perimeter”.
Free cash flows
As a result of the factors discussed above, negative free cash flows amounted to €287 million in
2002, as compared to positive €774 million in 2001. Positive free cash flows before customer
financing were €578 million in 2002 as compared to €867 million in 2001.
Other changes in financial position
Other changes in financial position represent mainly foreign exchange rate valuation changes
on cash and debt instruments and the movements of cash and/or financial liabilities as the resultof changes in EADS’ consolidation perimeter. Included in 2001 was, mainly, a negative valuation
change of EADS’ US Dollar-denominated debt instruments (€335 million). For 2002, themain factors affecting other changes in financial position were the positive valuation change of
US Dollar-denominated debt of approximately €782 million, offset by dividends paid to minority
shareholders (principally €125 million to BAE Systems in respect of Airbus) and by foreignexchange effects on cash of approximately €80 million.
7

Consolidated financial liabilities

The outstanding balance of financial liabilities was €4,976 million in 2002, compared to €6,500 million
in 2001. The net decrease of consolidated financial liabilities of €742 million from 2001 (at a constant
US Dollar exchange rate) resulted primarily from the settlement of bond obligations and therepayment of debt owed to financial institutions. An adjustment of €782 million reflected thecurrency translation impact of the weakening dollar on dollar denominated Financial Liabilities.
The following table sets forth the composition of EADS’ consolidated financial liabilities,
including both short- and long-term debt, as of 31st December 2002 and 2001:
Principal amountoutstanding
in €m

2002

2001

Finance lease

1,566

1,746

Bonds

253

621

Liabilities to financial institutions

1,569

1,827

Loans

1,048

1,754

OthersTotal financial liabilities

66

EADS 2002 Management’s analysis of the financial situation

540

552

4,976

6,500

Total financial liabilities include the full consolidation of Airbus financial debt for an amountof €4,162 million. However, EADS is liable for only 80% of such financial debt incurred after
1st January 2001, in line with its stake in Airbus. See “Policies – Sales Financing Policy –Airbus Sales Financing Exposure”.
EADS’ €4,976 million of total consolidated financial liabilities mature according to thefollowing schedule:
in €m

2003

2004

2005

2006

2007

Thereafter

1,185

193

325

393

715

2,165

EADS records cash pooled with itself which belongs to joint venture partners and nonconsolidated entities as a short-term liability. As long as cash pooling agreements are in place,such cash is intended to remain in EADS custody and does not fall due for immediate
reimbursement. In 2003, the maturity profile includes €540 million of such recurring short-term
liabilities, primarily related to MBDA and Astrium.
More than 75% of the €4,976 million of total financial liabilities as at 31st December 2002, arederived from the funding of EADS’ sales financing assets, which are of a long-term nature andhave predictable payment schedules. The following table presents a breakdown of consolidated
financial liabilities related to sales financing:
Principal amountin €moutstanding
2002
2001

Finance lease

1,566

1,746

Liabilities to financial institutions

1,266

1,425

Loans
Total sales financing liabilities

958

1,526

3,790

4,697

Of the €3,790 million total sales financing liabilities, €747 million is in the form of limited
recourse debt, where EADS’ repayment obligations are limited to its receipts from transaction
counterparties and €1,146 million are secured through defeased bank deposits which are included
on the balance sheet as financial assets. Additionally, a significant portion of financial assets
representing non-cancellable customer commitments have terms closely matching those of
the related financial liabilities. Lease and sales financing commitments are typically supported
by underlying aircraft used as collateral. See “Notes to the Consolidated Financial Statements –Note 24: Commitments and contingencies”.
Management believes that the maturity profile of the consolidated financial liabilities isprudent and consistent with the structure of EADS’ consolidated assets and cash flows.
8

Cash and cash equivalents

At 31st December 2002, the outstanding balance of cash and cash equivalents was €6,200 million(including €4,497 million in securities), as compared to €8,033 million (including €5,341 million insecurities) at 31st December 2001.
Total cash and cash equivalents includes the full consolidation of cash at Airbus in an amountof €1,612 million. However, EADS’ stake therein is only 80%. Similarly, EADS has only a 37.5%
stake in the €1,332 million of MBDA cash included from the 50% consolidation.

EADS 2002 Management’s analysis of the financial situation

67

Consolidated financial statements
Consolidated income statements for the years 2002 and 2001

in €m

Note

2002

2001

Revenues

5, 26

29,90130,798

6(24,465)(25,440)

5,436

5,358

(2,492)(2,561)

Cost of sales
Gross margin
Selling, administrative and other expenses

6

Research and development expenses(2,096)(1,841)Other income

7

248

3,024

Amortisation of goodwill and related impairment losses

10

(936)

(1,466)

Income before financial result,income taxes and minority interests

160

2,514

Income (loss) from investments

87

(342)

108

22

(81)

63

thereof income from associates
Interest income (expense), net
Other financial result
Financial result

8

Profit (loss) before income taxes and minority interests
Income taxes

9

21

(234)

27

(513)

187

2,001

(453)

(646)

Minority interests

(33)

17

Net income (loss)

(299)

1,372

31

€(0.37)€1.70

17€ 0.30€ 0.50Earnings per share
Basic and diluted
Dividends per share (2002: proposal)

The accompanying notes are an integral part of these consolidated financial statements.

68

EADS 2002 Consolidated financial statements

Consolidated balance sheets as at 31st December 2002 and 2001

in €m

Note

2002

2001

10

9,789

10,588Property, plant and equipment

11

10,50910,050Investments in associates

12

1,333

1,252

Other investments and long-term financial assets

12

AssetsIntangible assets

Fixed assets

3,542

3,474

25,17325,364

2,700

2,469

Inventories

13

Trade receivables

14

4,114

5,183

Other receivables and other assets

15

5,256

2,633

Securities

16

4,497

5,341

1,703

2,692

18,27018,318

2,992

4,288

965

745

47,40048,715

Cash and cash equivalents
Non-fixed assets
Deferred taxes

9Prepaid expenses
Total assets
Liabilities and shareholders’ equity
Capital stock

811

809

Reserves

9,658

10,346

Accumulated other comprehensive income

2,452(1,278)Purchase of treasury shares

(156)

0

17

12,765

9,877

1,361

559

Provisions

18

8,248

11,918Financial liabilities

19

4,976

6,500

Trade liabilities

20

5,070

5,466

Other liabilities

20

10,246

10,631

20,292

22,597

Shareholders’ equity
Minority interests

Liabilities
Deferred taxes

9

2,014

806

Deferred income

21

2,720

2,958

47,40048,715

Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.

EADS 2002 Consolidated financial statements

69

Consolidated financial statements
Consolidated statements of cash flows for the years 2002 and 2001

in €m

2002

2001

Net income (loss)

(299)

1,372

33

(17)

2,768

3,560

177

493

Dilution gain Airbus/MBDA

0(2,817)

Change in deferred taxes

255

109

Results on disposal of fixed assets/businesses and result of associates (equity method)

(227)

(93)

Change in provisions

(845)

47

Change in other operating assets and liabilities:

804

2– Inventories, net

274

(655)

– Trade receivables

895

(894)

– Trade liabilities

(139)

766

Income applicable to minority interests
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and Amortisation of fixed assets
Valuation adjustments– Other assets and liabilities

(226)

785

2,666

2,656

– Purchases of fixed assets and increase in equipment of leased assets(2,314)(2,196)– Payments for investments in financial assets and acquisitions of subsidiaries(1,134)(1,096)240

402– Proceeds from disposal of financial assets and subsidiaries

849

850

– Change in finance lease receivables

(599)

138

Change in securities

Cash provided by operating activities
Investments:– Proceeds from disposal of fixed assets and decrease in equipment of leased assets

(264)

(390)

Cash from changes in consolidation

5

20

Cash used for investing activities(3,217)(2,272)

(774)

(465)

Change in financial liabilities
Cash contribution by minority interests

0253

Dividends paid

(403)

(404)

Repayments/dividends to minorities

(127)

(52)

16

21

Capital increase
Purchase of treasury shares

(156)

0

(3)

(30)

(1,447)

(677)

(82)

14

(2,080)(279)

Cash at beginning of period

7,481

7,760

Cash at end of period

5,401

7,481

799

552

6,200

8,033

OthersCash used for (provided by) financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents

Additional securities medium-term
Cash and securities as stated in Balance Sheet
The following represents supplemental information with respect to cash flows from operating activities:
Interest paid

(407)

(335)

Income taxes paid

(318)

(520)

Interest received for 2002 amounts to €403 million (2001: €506 million), dividends received amount to €19 million (2001: €36 million).
The accompanying notes are an integral part of these consolidated financial statements.
For details, see Note 22, “Consolidated cash-flow statement”

70

EADS 2002 Consolidated financial statements

Consolidated statements of changes in shareholders’ equity
for the years 2002 and 2001

Accumulated
other
Capital
in €m

Note

Balance at 31st December 2000

stock

Reserves

807

9,359

comprehensive

Treasury

incomesharesFirst application of IAS 39
Balance at 1st January 2001, adjusted

807

Capital increase ESOP

2

9,359

Total

84

10,250

(337)

(337)

(253)

9,913

19

21

Net profit

1,372

1,372

Dividend(404)

Other comprehensive income(404)(1,025)

thereof changes in fair values of securities(10)

thereof changes in fair values of hedging instruments(878)

thereof currency translation adjustment(137)

Balance at 31st December 2001/1st January 2002
Capital increase ESOP

809
17, 272

10,346(1,025)(1,278)

9,877

14

16

Net loss

26

(299)

(299)

Dividend

17

(403)

Purchase of treasury shares

17

(403)
(156)

Other comprehensive income

3,730

thereof changes in fair values of securities

(156)
3,730

(10)

thereof changes in fair values of hedging instruments

2,713

thereof currency translation adjustment

1,027

Balance at 31st December 2002

811

9,658

2,452

(156)

12,765The accompanying notes are an integral part of these consolidated financial statements.

EADS 2002 Consolidated financial statements

71

Notes to consolidated financial statements
Basis of presentation

Contents for the Notes to theconsolidated financial statements
72 Basis of presentation
72 1. The company
72 2. Summary of significant
accounting policies
77 3. Scope of consolidation
77 4. Acquisitions and disposals
78 Notes to the consolidated
statements of income
78 5. Revenues
78 6. Functional costs and other expenses
78 7. Other income
78 8. Financial result
79 9. Income taxes
81 Notes to the consolidatedbalance sheets
81 10. Intangible assets
82 11. Property, plant and equipment
83 12. Investments and long-term
financial assets
84 13. Inventories
84 14. Trade receivables
85 15. Other receivables and other assets
85 16. Securities
85 17. Shareholders’ equity
85 18. Provisions
88 19. Financial liabilities
89 20. Trade and other liabilities
89 21. Deferred income
90 Notes to the consolidated
statements of cash-flow
90 22. Consolidated cash-flow statement
91
91
91
93
96
98
99
100
100
101
101
101

72

Other notes
23. Litigation and claims
24. Commitments and contingencies
25. Information about
financial instruments
26. Segment reporting
27. Stock-based compensation
28. Related party transactions
29. Investment property
30. Interest in joint ventures
31. Earnings per share
32. Number of employees
33. Events after the balance sheet date1

The company

The accompanying consolidated financial statements present the operations of European
Aeronautic Defence and Space Company EADS N.V. and its subsidiaries (“EADS” or the“Group”), a Dutch public limited liability company (naamloze vennootschap) legally seated in
Amsterdam (Le Carré, Beechavenue 130 – 132, 1119 PR, Schiphol-Rijk, The Netherlands). EADS’core business is the manufacturing of commercial aircraft, civil helicopters, commercial spacelaunch vehicles, missiles, military aircraft, satellites and defence electronics and rendering ofservices related to these activities. The consolidated financial statements were authorised for issue
by EADS’ Board of Directors on 7th March 2003 and are prepared and reported in euros (“€”).
2

Summary of significant accounting policies

Basis of preparation – The consolidated financial statements are prepared in accordance with
International Financial Reporting Standards (“IFRS”), the accounting standards and interpretations
approved by the International Accounting Standards Board (“IASB”), except that the Group expenses all
development costs as incurred. The consolidated financial statements are prepared under the historicalcost convention as modified by the revaluation of available-for-sale financial instruments, financial
assets and financial liabilities classified as held-for-trading, and hedged items in fair value hedges.
Consolidation – The consolidated financial statements include the subsidiaries under the control
of EADS. Investments in which EADS has significant influence (“associated companies“) areaccounted for using the equity method. For investments in material joint ventures, EADS uses the
proportionate method of consolidation. The effects of intercompany transactions are eliminated.
Business combinations are accounted for under the purchase accounting method; all assets
acquired and liabilities assumed are recorded at fair value. An excess of the purchase price overthe fair value of net assets acquired is capitalised as goodwill and amortised over the estimatedperiod of benefit on a straight-line basis.
Foreign currency translation – The assets and liabilities of foreign entities, where the local
currency is other than Euro, are translated using period-end exchange rates, while the statements
of income are translated using average exchange rates during the period. All resulting translationdifferences are included as a separate component of shareholders’ equity (“Accumulated othercomprehensive income” or “AOCI”).
Transactions in foreign currencies are translated into Euro at the foreign exchange rate in effectat the date of the transaction. 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.
Foreign exchange gains and losses arising from translation are recognised in the income statement.
Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historicalcost, are translated into Euro at the foreign exchange rate in effect at the date of the transaction.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treatedas assets and liabilities of the acquiring company and are recorded at the exchange rate at thedate of the transaction.
Revenue recognition – Revenue from the sale of goods is recognised upon the transfer ofrisks and rewards of ownership to the buyer and when the amount of revenue can be measured
reliably. Revenue from services rendered is recognised in proportion to the stage of completionof the transaction at the balance sheet date. For construction contracts, when the outcome
can be estimated reliably, revenue is recognised by reference to the stage of completion of thecontract activity. The stage of completion of a contract may be determined by a variety of ways.
Depending on the nature of the contract, revenue is recognised as contractually agreed-uponmilestones are reached, the work progresses or units are delivered. Changes in profit rates arereflected in current earnings as identified. Contracts are reviewed for possible losses at eachreporting period and provisions for estimated losses on contracts are recorded when identified.

EADS 2002 Notes to consolidated financial statements

Incentives applicable to performance on contracts are considered in estimated profit rates and arerecorded when anticipated contract performance is probable and can be reliably measured.
Sales of aircraft that include asset value guarantee commitments are accounted for as
operating leases when these commitments are considered substantial compared to the fair valueof the related aircraft. Revenues then comprise lease income from such operating leases.
Product-related expenses – Expenses for advertising and sales 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. Penalties are charged to expense in the period
it becomes probable that the Group will be subject to the penalties.
Research and Development expenses – Contrary to International Accounting Standard (IAS)
38, Intangible Assets, which requires development costs to be capitalised if certain conditions
are met, the Group expenses all internally funded development activities as incurred. While theeffects of such departure are not reasonably determinable, EADS believes that it better reflects
the true and fair view of the Group’s global operations. Research and development activities
carried out in the scope of externally financed research and development contracts are expensed
when the related revenues are recorded.
Income taxes – Deferred tax assets and liabilities reflect lower or higher future tax consequencesthat result for certain assets and liabilities from temporary valuation differences between thefinancial statement carrying amounts and their respective tax bases as well as from net operating
losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognised in income in the period the new rates are enacted. As deferred
tax assets anticipate potential future tax benefits, they are recorded in the consolidated financial
statements of EADS only when the likelihood that the tax benefits will be realised is probable.
Intangible assets – Purchased intangible assets, other than goodwill, are valued at acquisition
cost and are generally amortised over their respective useful lives (3 to 10 years) on a straightline basis. Goodwill arising from purchase accounting is amortised over 5 to 20 years.
Property, plant and equipment – Property, plant and equipment is valued at acquisitionor manufacturing costs less accumulated depreciation. Depreciation expense is recognised
principally using the straight-line method. The costs of internally produced equipment
and facilities include direct material and labour costs and applicable manufacturing overheads,
including depreciation charges. Borrowing costs are not capitalised. The following useful lives
are assumed: buildings 6 to 50 years; site improvements 6 to 20 years; technical equipment andmachinery 3 to 20 years; and other equipment, factory and office equipment 2 to 10 years.
The cost of specialised tooling for commercial production is capitalised and generally depreciatedusing 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-of-the-units method).
Especially for aircraft production programmes such as the Airbus A380 with an estimated numberof 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 – The group accounts for investment property using the cost model.
Investment property is recorded on balance sheet at book value, that is, at cost less any accumulated
depreciation and any accumulated impairment losses. The fair value of investment property isreviewed annually by using cash-flow models or by determinations of open market prices.
Non-current available-for-sale financial assets – Non-current available-for-sale financial assets
are included in the line investments and long-term financial assets in the consolidated balance
sheet and are accounted for at fair value. Unrealised gains and losses on available-for-saleinvestments are recognised directly as part of a separate component of shareholders’ equity (“AOCI”),
net of applicable deferred income taxes. As soon as such investments are sold or otherwise
disposed of, or are determined to be impaired, the cumulative gain or loss previously recognisedin equity is included in “Financial result” in the consolidated income statement for the period.
Available-for-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 are measured
at cost, less any accumulated impairment losses. The fair values of investments are based onquoted market or bid prices or amounts derived from cash-flow models.

EADS 2002 Notes to consolidated financial statements

73

Notes to consolidated financial statements

Impairment of assets – The Group reviews property, plant and equipment and other non-current
assets, including goodwill and intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. If any such indication
exists and where the carrying amount exceeds the recoverable amount, the respective asset or
cash-generating unit is written down to its recoverable amount.
Leasing – The Group is a lessor and a lessee of assets, primarily in connection with commercial
aircraft sales financing. Lease transactions where substantially all risks and rewards incident
to ownership are transferred from the lessor to the lessee are accounted 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 andequipment at cost less depreciation (see Note 11, “Property, plant and equipment”). Rental
income from aircraft operating leases is recorded as revenue over the term of the lease. Assets
leased out under finance leases cease to be recognised in the balance sheet after the inceptionof the lease. Instead, a finance lease payments receivable representing the discounted futurelease payments to be received from the lessee plus any discounted unguaranteed residual value isrecorded as long-term financial assets (see Note 12, “Investments and long-term financial assets”).
Unearned finance income is recorded over time in “Financial 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 costless depreciation (see Note 11, “Property, plant and equipment”), unless such assets have beenfurther leased out to customers. In such a case, the respective asset is either qualified as an
operating lease or as a finance lease with EADS being the lessor (headlease-sublease-transaction)and is recorded accordingly. For the relating liability from finance leases see Note 19, “Financial
liabilities”. When EADS is the lessee under an operating lease contract, rental payments arerecorded when they fall due (see Note 24, “Commitments and contingencies” for future operatinglease commitments). Such leases often form part of commercial aircraft customer financing
transactions with the related sublease being an operating lease (headlease-sublease-transaction).
Non-fixed assets – Non-fixed assets represent the Group’s inventories, receivables, securities
and cash, including amounts to be realised in excess of one year. In the accompanying notes, theportion of assets and liabilities to be realised and settled in excess of one year has been disclosed.
Inventories – Inventories are measured at the lower of acquisition or manufacturing costor net realisable value. Manufacturing costs comprise direct material and labour andapplicable manufacturing overheads, including depreciation charges. Borrowing costs are notcapitalised. Inventory is presented in the consolidated balance sheet net of allocable advancepayments received.
Securities – The Group’s securities are accounted for at fair value. All of the Group’s securities
are classified as available-for-sale securities. Management determines the appropriate classification
at the time of purchase and revaluates such determination at each balance sheet date. Unrealised
gains and losses on available-for-sale securities are recognised directly within a separate
component of stockholders’ equity (“AOCI”), net of applicable deferred income taxes. As soon
as such securities are sold or otherwise disposed of, or are determined to be impaired, thecumulative gain or loss previously recognised in equity is recorded as part of “Financial result” inthe consolidated income statement for the period. Short-term securities which are subject to an
insignificant risk of changes in value are treated as cash equivalents in the consolidated cash flow
statement. The fair value of available-for-sale securities is determined using quoted market prices.
If a quoted market price is not available, fair value is determined on the basis of generally acceptedvaluation methods on the basis of market information available at the reporting date. All purchases
and sales of securities are recognised on settlement date according to market conventions.
Cash and cash equivalents – Cash and cash equivalents consist of cash on hand, cash in bank,checks, and fixed deposits having a short-term maturity.

74

EADS 2002 Notes to consolidated financial statements

Derivative financial instruments – Effective 1st January 2001, EADS adopted International
Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, which
requires all derivative financial instruments be recognised in the financial statements. Derivative
financial instruments are initially recognised in the consolidated balance sheet at cost and aresubsequently measured at fair value. Changes in the fair value of derivative financial instruments
are recognised periodically either in income or, in the case of a cash flow hedge, within a separate
component of stockholders’ equity (“AOCI”), net of applicable income taxes, and subsequently
recognised in the consolidated income statement as a component of the related transactions,when realised. For derivative financial instruments designated as fair value hedges, changes in
the fair value of the hedged item and the derivative are recognised in the consolidated income
statement. Gains and losses on derivative financial instruments, both realised and unrealised,that do not qualify for hedge accounting are included in “Net income (loss)”.
EADS uses derivative financial instruments for hedging purposes. Derivative financial instruments
used in micro-hedging strategies to offset the Group’s exposure to identifiable transactions areaccounted for together with the underlying business transactions (“hedge accounting“). The
Group’s criteria for classifying a derivative financial instrument as a hedge include: (1) the hedgetransaction is expected to be highly effective in achieving offsetting changes in cash flows
attributable to the hedged risk, (2) for cash flow hedges, a forecasted transaction that is subject of
the hedge must be highly probable, (3) the effectiveness of the hedge can be reliably measured,(4) there is adequate documentation of the hedging relationships at the inception of the hedge.
With the adoption of IAS 39, all derivative financial instruments have been recognised asassets or liabilities. The opening balance of equity as at 1st January 2001 has been adjusted.
Under the new standard, the Group applies hedge accounting for certain foreign currency
derivative contracts on qualifying cash flow hedges of future sales as well as for certain interest
rate swaps used as cash flow and fair value hedges of future interest payments. 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 in IAS 39,changes in fair value of such derivative financial instruments are recognised immediately in“Net income (loss)”. Derivative financial instruments with a negative fair value are recorded as“Provisions for financial instruments”. Such derivative financial instruments with positive fairvalues are recorded in “Other receivables and other assets”.
See Note 25, “Information about financial instruments” for a description of the Group’s
financial risk management strategies, the fair values of the Group’s derivative financial instruments
as well as the methods used to determine such fair values.
Provisions – Provisions for losses on completion of contracts are recorded when it becomesprobable that total estimated contract costs will exceed total contract revenues. Such provisions
are recorded as write-downs of work-in-process for that portion of the work which has alreadybeen completed, and as provisions for risks for the remainder. Losses are determined on thebasis of estimated results on completion of contracts and are updated regularly.
Provisions for financial guarantees corresponding to aircraft sales are recorded to reflect theunderlying risk to the Group in respect of guarantees given when it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and reliable
estimates can be made of the amount of the obligation. Sales contracts for aircraft may stipulate
financial guarantees for lease payments, for the residual values of aircraft, for the repayment of
the balance of outstanding borrowings and for the financing of the sales of certain aircraft onbehalf of the Group. Guarantees may be sole, joint (e.g., with engine manufacturers) or restricted
to a ceiling defined in the contract.
The valuation of pension and post-retirement benefits classified as defined benefit plans isbased upon the projected unit credit method in accordance with IAS 19, “Employee Benefits”.
According to the corridor approach of IAS 19.92, EADS does not recognise actuarial gains andlosses as income and expense unless, for each individual plan, they exceed 10% of the higher ofthe present value of the defined benefit obligation and the fair value of plan assets.
Termination benefits are payable whenever an employee’s employment is terminated before
the normal retirement date or whenever an employee accepts voluntary redundancy in exchange
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 madeto encourage voluntary redundancy.

EADS 2002 Notes to consolidated financial statements

75Notes to consolidated financial statements

Financial liabilities – Financial liabilities are recorded initially at the proceeds received, net oftransaction costs incurred. Subsequently, financial liabilities are measured at amortised cost using
the effective interest rate method with any difference between proceeds (net of transaction costs)
and redemption amount being recognised in “Financial result” over the period of the financial liability.
Refundable advances – 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 according to the success of the project.
Because of their risk-sharing basis, such refundable advances are recorded as “Other Liabilities”.
Equity compensation plans – Currently, there is no IFRS covering recognition and measurement
requirements for equity compensation plans (that is, stock, stock options, or other awards).
EADS classifies equity compensation plans as either compensatory plans or non-compensatory
plans. If a plan qualifies as a non-compensatory plan, no compensation expense is recorded.
On the other hand, a compensatory plan may result in recognition of compensation expense.
Upon adoption of a new plan, the Group determines whether the plan is compensatory or
non-compensatory. EADS recognises all employee stock ownership plans to be non-compensatory
if, at grant date, the granted discount does not exceed 15% of the market share price, and theplan covers virtually all of the Group’s employees.
Compensation cost for compensatory equity compensation plans is measured on themeasurement date, which is the date on which both the number of shares and the exercise priceare first known, using the intrinsic-value-based method of accounting. If the terms of the plan oraward are such that the number of shares and exercise price are set on the grant date, fixed-planaccounting applies. If, on the other hand, the number of shares, the exercise price, or both are
not “fixed” on the grant date, variable-plan accounting applies.
Fixed-plan accounting prescribes calculating compensation cost on the grant date. Whenthe share price at grant date is exceeding the granted exercise price, compensation has to berecognised as compensation expense over the vesting period. The compensation cost that is
calculated cannot be adjusted (assuming that future events do not trigger the need to subsequently
apply variable-plan accounting or to re-measure compensation cost) for future changes in thestock-based compensation award’s intrinsic value. On the other hand, variable-plan accounting
requires a continual recalculation of compensation cost until both the number of shares and theexercise price are known (i.e., until there has been a measurement date).
Use of estimates – The preparation of financial statements requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosureof contingent amounts at the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Reclassification – The presentation of certain prior year information has been reclassified toconform to the current year presentation.

76

EADS 2002 Notes to consolidated financial statements

3

Scope of consolidation

Perimeter of consolidation (31st December 2002) – The consolidated financial statements
include, in addition to EADS N.V.:• 216 companies which are fully consolidated (2001: 206),• 34 companies which are proportionately consolidated (2001: 33),
• 16 companies, which are investments in associates and are accounted for using the equity
method (2001: 17).
Significant subsidiaries, associates, and joint ventures are listed in the appendix entitled“Information on principal investments”.
4

Acquisitions and disposalsa) Acquisitions
In 2002, no material acquisitions occurred.
Following the creation of MBDA on 18th December 2001, and the acquisitions of
Tesat-Spacecom on 30th November 2001, and Cogent on 1st December 2001, the financial
statements 2002 include for the first time one year of income statements for these entities.
b) Disposals
On 6th March 2002, Airbus sold its share in Aircelle, a joint venture with Snecma, to Snecma.
The selling price amounted to €63 million.
On 20th November 2002, EADS sold EADS Matradatavision (“MDTV”) to IBM. The sales
agreement includes all except two subsidiaries of MDTV, which will be sold separately. The selling
price amounted to €12 million.
Apart from those mentioned, other dispositions by the Group were not significant.
c) Subsequent changes in value of assets and liabilities acquired and cost of acquisition
Subsequent to the creation of MBDA and the acquisitions of Tesat and Cogent, all in 2001,
it became evident in 2002 that previous estimates of assets and liabilities regarding thesethree transactions had to be adjusted. Further to this, subsequent to the acquisition of Tesat
and Cogent, the amounts of the final purchase prices were resolved in 2002. Accordingly,
goodwill was increased by €73 million in 2002. The consolidated financial statements of
31st December 2001, as presented, do not reflect these adjustments.

EADS 2002 Notes to consolidated financial statements

77

Notes to consolidated financial statements
Notes to the consolidated statements of income

5

Revenues

Revenues in 2002 reach €29,901 million compared with €30,798 million in 2001. Revenues in2002 slightly decreased in comparison with 2001, mainly due to a lower US Dollar exchange
rate compared to Euro and fewer deliveries of Airbus aircraft, partly offset by a more favourable
aircraft mix and price effects.
Revenues are comprised of sales of goods and services, as well as of revenues associatedwith construction contracts accounted for under the percentage-of-completion-method, financed
research and development, customer financing revenues and others. For a breakdown ofrevenues by business segment and geographical region, refer to Note 26, “Segment reporting”.
6

Functional costs and other expenses

Included in cost of sales and other functional costs are Cost of materials of €19,216 million(2001: €20,036 million).
Cost of sales comprise the amortisation charge of the remaining capitalised settlement
payment to the German Government with respect to refundable advances of €99 million. Included
in cost of sales of 2001 are reclassifications of €205 million of depreciation on jigs and tools
which had previously been recorded as development expenses, as it results in a more appropriate
presentation. The comparable figure for depreciation of jigs and tools for 2002 is €245 million.
Selling, administrative and other expenses are comprised of selling expenses (€829 millionand €800 million in 2002 and 2001, respectively), administrative expenses (€1,422 million and€1,386 million in 2002 and 2001, respectively) and other expenses (€241 million and €375 million in2002 and 2001, respectively). Other expenses include losses from sales of fixed assets (€5 millionand €20 million in 2002 and 2001, respectively) and additions to other provisions (€58 million and€34 million in 2002 and 2001, respectively).
Personnel expenses are comprised of:
in €m

2002

2001

Wages, salaries and social contributions

7,147

6,606

Net periodic pension cost (see Note 18 a)

319

257

7,466

6,863

Total
7

Other income

Other income of €248 million (2001: €3,024 million) is mainly driven by the gain on the disposal of
EADS’ 50% share in Aircelle (€63 million) and rental income (€45 million and €33 million in 2002
and 2001, respectively). In 2001 it mainly comprised the dilution gain as a result of the Airbus UKtransaction as well as a dilution gain as a result of the MBDA transaction, totalling €2,817 million.
8

Financial result

in €m

2002

2001

Income (loss) from investments

87

(342)

Interest income/(expense), net

(81)

63

Other financial result

21

(234)

Total

27

(513)

The income from investments in 2002 is mainly derived from the result of the equity investments in
Dassault Aviation of €111 million (2001: €111 million) and the depreciation of Arianespace Participation
S.A. (€(29)million). Since for 2002 no financial figures are available yet from Dassault Aviation, theprior year’s net income was used as a basis to report the current year’s net income from this equity
investment. In 2001, the loss from investments is mainly caused by a depreciation, following an
impairment test, of Nortel Networks France and Nortel Networks Germany totalling €(315)million.

78

EADS 2002 Notes to consolidated financial statements

Interest income/(expense), net, in 2002 comprises interest income of €526 million and interest
expense of €(607)million. Included in interest income is the return on cash and cash equivalents,
securities and financial assets such as loans and finance leases. Interest expense includes interest
on financial liabilities and European Government refundable advances.
Other financial result in 2002 comprises fair value gains on financial instruments of €117 million.
Fair value gains and losses on financial instruments result from mark-to-market revaluation offinancial instruments that do not qualify for “hedge accounting” (see Note 25, “Information about
financial instruments”).
9

Income taxes

Income (loss) before income taxes and minority interests amounts to €187 million for the year
ended 31st December 2002 (2001: €2,001 million).
The (expense) benefit for income taxes consists of the following:
in €m

2002

2001

Current tax expense

(198)

(549)

Deferred tax (expense)/benefit

(255)

(97)

Total

(453)

(646)

For the Group’s German subsidiaries, deferred taxes are calculated using a federal corporate
tax rate of 25% for 31st December 2002 and 2001, plus (i) an annual solidarity surcharge of 5.5%on the amount of federal corporate taxes payable and (ii) the after federal tax benefit rate fortrade tax of 12.125% for 2002 and 2001. In aggregate, the tax rate applied to German deferredtaxes amounts to 38.5% in 2002 and 2001. In September 2002, the “Flutopfersolidaritätsgesetz(flood victim solidarity act)“ was enacted, leading to a 1.5% increase of federal corporate tax inGermany in 2003. Deferred tax assets which will reverse in 2003 are calculated accordingly.
In France, the corporate tax rate in effect for 2001 was 331/3 % plus a surcharge of 6%.
For the year 2002, the French government established a reduced surcharge of 3% in 2002.
Accordingly, deferred tax assets and liabilities for the Group’s French subsidiaries were calculatedusing the enacted tax rate of 35.43% at 31st December 2002 for temporary differences(35.43% at 31st December 2001). The effects of the tax rate reduction on deferred tax assets andliabilities at 31st December 2002 and 2001, are reflected in the reconciliation presented below.
The following table shows a reconciliation from an expected income tax expense – using theDutch corporate tax rate of 34.5% at 31st December 2002 (35% at 31st December 2001) – to thereported tax expense. The reconciling items represent non-taxable benefits or non-deductible
expenses arising from permanent differences between the local tax base and the reported
financial statements according to IFRS rules.
in €mProfit (loss) before income taxes and minority interests(Corporate income tax rate)
Expected benefit (expense) for income taxes

2002

2001

187

2,001

34.5%

35%

(65)

(700)

Effect of changes in tax laws0(1)

Foreign tax rate differential

(35)

(4)

–

936

Dilution gains
Goodwill amortisation and impairments

(321)

(588)

Write down/ release of write down of deferred tax assets, net

(11)

(264)

Tax credit for R&D expenses

53

48

Results on associates (at equity)28

15

Tax effect on depreciations on investments

(39)

(73)

Other

(63)

(15)

(453)

(646)

Reported tax benefit (expense)

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

EADS 2002 Notes to consolidated financial statements

79Notes to consolidated financial statements

Deferred income taxes are recorded on the following assets and liabilities:in €m

31st December 2002

31st December 2001

Intangible assets

15

12

Inventories

341

379

–

174

Prepaid expenses
Net operating loss and tax credit carry forwards

654

613

Retirement plans

585

498

Other provisions

482

2,239

Liabilities

711

585

Deferred income
Write down of deferred tax assets

725

870

3,513

5,370

(564)

(625)

2,949

4,745

Property, plant and equipment

932

1,046

Investments and long-term financial assets

107

81

Receivables and other current assets

900

107

Prepaid expenses

32–

Deferred tax assets (before netting)

Other
Deferred tax liabilities (before netting)Deferred tax assets, net

–

29

1,971

1,263

978

3,482

The decrease of deferred tax assets on other provisions is related to the valuation of thefinancial instruments according to IAS 39. In 2002 the mark-to-market of the financial instruments
are mainly shown under other current assets. Accordingly, the deferred tax liabilities onreceivables and other current assets increased.
At 31st December 2002, the Group records €23 million of domestic corporate tax net operating
losses (“NOL”), €1,723 million foreign NOL and credit carry forwards (of which Germany: €602 million;
UK: €520 million; France: €347 million; Spain: €159 million), and €524 million of German trade tax
NOL. The total NOL and tax credit carry forwards represent an amount of deferred tax assets of€654 million, of which €282 million are written down as at 31st December 2002. The amount of
the Group’s deferred tax valuation allowances is based upon management’s estimate of the levelof deferred tax assets that will be realised. 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 of deferred tax assets may increase or decrease.
After netting of deferred income tax assets and liabilities within the same taxable entity andmaturity, the deferred income tax assets and liabilities in the consolidated balance sheets are as follows:
31st December 2002
in €m

Total

31st December 2001

thereof non-current

Total

thereof non-current

Deferred tax assets

2,992

1,877

4,288

2,924

Deferred tax liabilities(2,014)(1,350)

(806)

(689)

978

527

3,482

2,235

Deferred tax assets, net

The deferred tax recognised directly in equity is as follows:in €mEffect of adopting IAS 39

2002

2001

–

222

Fair value reserves in equity:
Available-for-sale investments
Cash flow hedges
Total
80

EADS 2002 Notes to consolidated financial statements

8

1(1,051)606(1,043)829

Notes to the consolidated balance sheets

10

Intangible assets

Intangible assets principally represent goodwill. Schedules detailing gross values, accumulated
depreciation and net values of intangible assets are as follows:
Cost
in €m

Other intangible assets

Balance at

Changes in

1st January

Exchange

2002

differences

Balance atconsolidation

Reclassifi-

31st December

Additionsscope

cation

Disposals

2002

378

(10)

132

(5)

–

(25)

470

Goodwill

12,263

(9)

79

9

–

(3)

12,339Total

12,641

(19)

211

4

–

(28)

12,809Amortisationin €mBalance at

Changes in

1st January

Exchange Amortisation consolidation2002

differenceschargescope

Balance at
Reclassifi-

31st December

cation

Disposals

2002

Other intangible assets

(232)

6

(68)

4

–

23

(267)

Goodwill(1,821)

1

(936)

3

–

0

(2,753)

Total(2,053)7(1,004)7–

23(3,020)Carrying amountin €mOther intangible assets

Balance atBalance at

1st January

31st December

2002

2002

146

203

Goodwill

10,442

9,586

Total

10,588

9,789

Goodwill mainly increased in 2002 due to subsequent purchase price and fair value
adjustments for MBDA (€+39 million), Cogent (€+29 million) and Tesat Spacecom (€+5 million).
Impairment tests
Mostly because of the continuing market downturn in the space industry, in particular the satellite
industry, there was an indication for impairments of goodwill recognised for the Space division.
The impairment tests for goodwill were performed on the level of the Cash Generating Units
Satellite and Communication, Launchers and Infrastructure as well as Casa Space Business.
To identify the recoverable amounts which are the values in use, the impairment tests have been
conducted using the discounted cash-flow method. Based on current forecasts and projectionsof pre-tax cash-flows the value in use of these Cash Generating Units was determined applying
a pre-tax discount rate of 12.5%. Since the recoverable amounts have fallen below the carrying
amounts of the Cash Generating Units Satellite and Communication and Casa Space Business,
an impairment charge of €350 million is recognised in the consolidated income statement 2002
and is included within the amortisation charge of €936 million.
In 2001, following the events caused by the terrorist attacks on 11th September 2001,
the Group performed an impairment test on goodwill for the Airbus division, which is to be seen
as a Cash Generating Unit by itself. As the recoverable amount exceeded the carrying amount,no impairment had to be recognised. Further impairment tests were performed for goodwill
for the Space and Defence divisions, which resulted in impairments charges in 2001 for
Astrium of €210 million, for Systems and Defence Electronics (S&DE) of €240 million, for LFKof €170 million and for Matra Datavision of €170 million.

EADS 2002 Notes to consolidated financial statements

81Notes to consolidated financial statements

11

Property, plant and equipment

Schedules detailing gross values, accumulated depreciation and net values of property, plant andequipment show the following:
Cost

Balance at

Changes in

Balance at

1st January

Exchange

in €m

2002

differences

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

3,876

(39)

303

3

Technical equipment and machinery

4,512

(258)

466

(12)

Other equipment, factory and office equipment

7,219

(308)

340

31

(990)

Advance payments relating to plant and equipment
as well as construction in progress
Total
Depreciationin €mconsolidation

Reclassifi-

scope

cation31st December
Disposals

2002

123

(44)

4,222

1,202

(119)

5,791

(428)

5,864

812

(31)

1,074

2

(108)

(62)

1,687

16,419

(636)

2,183

24

227

(653)

17,564

Balance at

Changes in

1st January

Exchange Depreciation consolidation

Balance at
Reclassifi-

31st December

2002

differenceschargescope

cation

Disposals

2002

Land, leasehold improvements and buildings including
buildings on land owned by others(1,267)

16

(200)

–

(53)

32

(1,472)

Technical equipment and machinery(2,259)

170

(636)

7

(735)

101

(3,352)Other equipment, factory and office equipment(2,833)

164

(543)

(19)

760

292

(2,179)Advance payments relating to plant and equipment
as well as construction in progress

(10)

–

(46)

–

4

–

(52)

(6,369)350(1,425)

(12)

(24)

425

(7,055)

Total
Carrying amountin €mBalance atBalance at

1st January

31st December

2002

2002

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

2,609

2,750

Technical equipment and machinery

2,253

2,439

Other equipment, factory and office equipment

4,386

3,685

Advance payments relating to plant and equipment
as well as construction in progress
Total

802

1,635

10,05010,509The item “Other equipment, factory and office equipment” includes aircraft which(i) have been leased out to customers and are classified as operating lease with a cost value of€1,336 million and €1,294 million at 31st December 2002 and 2001, and (ii) have been soldunder terms that include asset value guarantee commitments with the present value of theguarantee being more than 10% of the aircraft’s sales price (assumed to be the fair value) andthus accounted for as operating lease with a cost value of €1,709 million and €1,912 million
at 31st December 2002 and 2001. Upon the initial sale of the aircraft, its total cost previously
recognised in inventory is transferred to “Other equipment, factory and office equipment”
and depreciated over its estimated useful economic life, with the proceeds received from thecustomer being recorded as deferred income (see Note 21, “Deferred income”).

82

EADS 2002 Notes to consolidated financial statements

The total cost value of aircraft under operating lease amounts to €3,045 million and €3,206 million
as of 31st December 2002 and 2001, respectively (related accumulated depreciation is€1,445 million and €1,384 million, respectively). Depreciation expense for 2002 amounts to€263 million (2001: €419 million). See Note 24, “Commitments and contingencies”
for details on sales financing transactions.
Non-cancellable future operating lease payments (not discounted) due from customers to be
included in revenues, at 31st December 2002 are as follows:in €m

not later than 2003

179

later than 2003 and not later than 2007

653

later than 2007

352
In 2002, the Group reclassified five Beluga aircraft from “Other equipment, factory andoffice equipment” to “Technical equipment and machinery”. These Beluga aircraft are used for
production purposes. This was partly offset by a reclassification of certain leased Airbus aircraftfrom finance lease to operating lease, following a re-negotiation of terms, which are now partof “Other equipment, factory and office equipment”.
At 31st December 2002 and 2001, Property, plant and equipment include buildings, technicalequipment and other equipment accounted for in fixed assets under finance lease agreements
for net amounts of €146 million and €169 million, net of accumulated depreciation of €296 millionand €273 million. The related depreciation expense for 2002 was €23 million.
12

Investments and long-term financial assets

The following table sets forth the composition of investments and long-term financial assets:in €mInvestments in associates
Other investments

31st December 2002

31st December 2001

1,333

1,252

810

766

Other financial assets

2,732

2,708

Total

4,875

4,726

Investments in associates are accounted for using the equity method. As of 31st December
2002 and 2001, investments in associates contain EADS’ interest in Dassault Aviation (45.96%
at 31st December 2002 and 2001, respectively) of €1,333 million and €1,252 million. Since for2002 no financial figures are available yet from Dassault Aviation, the prior year’s net income
was used as a basis to report the current year’s income from this equity investment, adjusted
by dividends received (see Note 8, “Financial result”). A list of major investments in associates
and the proportion of ownership is included in Appendix “Information on principal investments”.
Other investments comprise EADS’ investment in various non-consolidated entities, the mostsignificant being at 31st December 2002, a 42% interest in Nortel Networks Germany of €156 million,
a 45% interest in Nortel Networks France of €119 million and a participation in Embraer of €75 million.
The investments in the two Nortel subsidiaries are considered as non-consolidated entities becauseof the changes initiated by Nortel in 2001 in the management structures of these companies.
Other financial assets encompass mainly the Group’s sales finance activities. This includes
as of 31st December 2002 and 2001: (i) loans to customers of €656 million and €949 million;(ii) finance lease receivables from aircraft financing operations of €749 million and €514 million;(iii) defeased bank deposits of €1,146 million and €1,044 million. Loans are provided to customers
to finance the sale of aircraft. These loans are long-term and normally have a maturity which is
linked to the use of the aircraft by the customer. Both finance lease receivables and loans are partof the aircraft finance risk exposure, net of accumulated write down of €444 million and €477 million
at 31st December 2002 and 2001, respectively. These sales financing transactions are generally
secured by the underlying aircraft used as collateral. (See Note 24, “Commitments and contingencies”
for details on sales financing transactions).

EADS 2002 Notes to consolidated financial statements

83

Notes to consolidated financial statements

The components of investment in finance leases are as follows:in €mMinimum lease payment receivables

31st December 2002

31st December 2001

1,114

1,022

Unearned finance income

(217)

(222)

Allowance

(148)

(286)

Total

749

514

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

Not later than 2003

76

Later than 2003 and not later than 2007

340

Later than 2007

698
Defeased bank deposits are recognised when, as part of a sales financing transaction,
Airbus reserves a certain amount to offset its exposure towards a finance lessor. Other financial
assets also include €181 million and €201 million of other loans as of 31st December 2002 and2001, e.g. loans to employees.
13

Inventories

in €m

31st December 2002

31st December 2001

Raw materials and manufacturing supplies

853

929

Work in progress

8,478

8,108

Finished goods, parts and products held for resale

1,525

1,796

Advance payments to suppliers

1,342

1,230

12,19812,063

Less: Advance payments received(9,498)(9,594)

Total

2,700

2,469

All inventories are classified as current assets. Incipient with 31st December 2002, the Grouphas changed the allocation from work in progress to finished goods, representing Airbus aircraft.
EADS believes that it is a more appropriate presentation to include in finished goods only thoseaircraft which are ready for final delivery, including aircraft in flight tests. Previous to this, aircraft had
been included in finished goods from the date of Theoretical First Flight. For comparative reasons,
EADS has reclassified €1,518 million from finished goods to work in progress at 31st December 2001.
14

Trade receivablesin €mReceivables from sales of goods and services

31st December 2002

31st December 2001

4,472

5,572

Allowance for doubtful accounts

(358)

(389)

Total

4,114

5,183

Trade receivables are classified as current assets. As of 31st December 2002, €275 million(€155 million as of 31st December 2001) of trade receivables are not expected to be collected
within one year.

84

EADS 2002 Notes to consolidated financial statements

15

Other receivables and other assets

Other receivables and other assets as of 31st December 2002 and 2001 (€5,256 million and€2,633 million, respectively) include positive fair values of derivative financial instruments of€2,819 million and €92 million, respectively, and the remaining capitalised settlement payments to
the German Government (€355 million and €454 million, respectively) attributable to refundable
advances which are amortised through the income statement at the delivery pace of thecorresponding planes.
As of 31st December 2002, other receivables and other assets further comprise receivablesfrom affiliated companies of €247 million (€189 million as of 31st December 2001), receivablesfrom related companies of €357 million (€352 million as of 31st December 2001), net of allowanceof €(132) million (€(112) million as of 31st December 2001) and income taxes of €389 million.
Other receivables and other assets, which are expected to be collected within one year
are €2,243 million as of 31st December 2002 (€1,610 million as of 31st December 2001), areclassified as current assets.
16

Securities

The Group’s security portfolio amounts to €4,497 million and €5,341 million as of 31st December
2002 and 2001, respectively, and is entirely classified as “Available-for-Sale”. Securities expected
to be realised within twelve months of the balance sheet date are classified as current assets
and amount to €4,043 million and €4,954 million as of 31st December 2002 and 2001, respectively.
17

Shareholders’ equity

The change of shareholders’ equity is provided in the Consolidated Statements of Changes inShareholders’ Equity.
The issued share capital of the Group consists of 811,198,500 and 809,175,561 shares as of
31st December 2002 and 2001, respectively. EADS’ shares are exclusively ordinary shares witha par value of €1.00. The authorised share capital consists of 3,000,000,000 shares. In connection
with the 2002 Employee Stock Ownership Plan (see Note 27, “Stock-based compensation“),
EADS issued 2,022,939 shares, representing a nominal value of €2,022,939.00.
Authorised by the Shareholders’ General Meeting of EADS held on 17th May 2002, theBoard of Directors resolved on 9th August and 11th October 2002 to direct the Chief Executive
Officers to implement a plan for the Company to repurchase up to a maximum of 10,100,000
of its own shares, representing 1.25% of the issued share capital of the Company. On 12th Julyand 18th September 2001, the Group’s Board of Directors decided to launch a share buyback plan as authorised by the general meeting of shareholders on 10th May 2001. As a result,the Board of Directors directed the Chief Executive Officers to set up a buy back plan for
10,500,000 shares. In aggregate, the Company is entitled to repurchase up to 20.6 million of
EADS shares, representing 2.54% of the Company’s share capital.
In 2002, EADS purchased 10,241,252 of its own shares, resulting in an amount of
800,957,248 shares outstanding at 31st December 2002. Prior to 2002, the Group had not
repurchased any shares.
On 17th May 2002, the Shareholders’ General Meeting also decided to pay a cash dividendfor 2001 for a gross amount of €0.50 per share, which was paid on 28th June 2002.
Capital stock comprises the nominal amount of shares outstanding. The addition to capitalstock represents the contribution of €2,022,939 by employees under the 2002 Employee Stock
Ownership Plan. Reserves contain capital reserves, retained earnings as well as the net result
for the period. Accumulated other comprehensive income consists of all amounts recognised
directly in equity resulting from changes in fair value of financial instruments that are classified asavailable-for-sale or that form part of hedging relationships in effective cash-flow hedges as well
as from currency translation adjustments of foreign entities. Treasury shares represent the amount
paid for own shares held in treasury.
18

Provisions

Provisions are comprised of the following:in €mRetirement plans (see Note 18 a) and similar obligations
Financial instruments (see Note 18 b)

31st December 2002

31st December 2001

3,392

3,176

161

3,673

Other provisions (see Note 18 c)

4,695

5,069

Total

8,248

11,918

EADS 2002 Notes to consolidated financial statements

85

Notes to consolidated financial statements

As of 31st December 2002 and 2001, respectively, €3,209 million and €3,019 million of retirement
plans and similar obligations, €11 million and €1,627 million of financial instruments as well as€3,194 million and €2,833 million of other provisions mature after more than one year.
a) Retirement plans
When Group employees retire, they receive indemnities as stipulated in retirement agreements,
in accordance with regulations and practices of the countries (principally France and Germany) in
which the Group operates. French law stipulates that employees are paid retirement indemnities
on the basis of the length of service. In Germany, retirement indemnities are principally paidon the basis of salaries and seniority. Certain pension plans are based on salary earned in the lastyear or on an average of the last three years of employment while others are fixed plans dependingon ranking (both salary level and position).
Actuarial assessments are regularly made to determine the amount of the Group’s commitmentswith regard to retirement indemnities. This assessment includes an assumption concerningchanges in salaries, retirement ages and long-term interest rates. It comprises all the expenses theGroup will be required to pay to meet these commitments. The resulting obligation is recordedin the balance sheet as a provision. Actuarial gains and losses are deferred and recorded over the
expected average remaining working lives of the employees participating in each plan when theyexceed the greater of 10% of the present value of the defined benefit obligation and 10% of thefair value of plan assets.
The following provides information with respect to the Group’s pension liabilities.
Change in provision for pension obligations in 2002in €mProvision for pension obligations at beginning of year

3,151

Net periodic pension cost

319

Contributions(16)

Consumption (benefits paid)(109)

Acquisitions and other12

Provision for pension obligations at end of year

3,357
The difference between the total amount of retirement plans and similar obligations of€3,392 million and €3,176 million as of 31st December 2002 and 2001, respectively, and the net
amount recognised as provision for pension obligations (€3,357 million and €3,151 million at
31st December 2002 and 2001) is caused by additional commitments for deferred compensation(€35 million and €25 million at 31st December 2002 and 2001), which in the year of its origin do
not form part of the net amount recognised as pension liability.

Change in defined benefit obligationsin €mDefined benefit obligations at beginning of year

2001

3,512

Service cost

124

84

Interest cost

229

220

Plan amendments

0(8)Actuarial losses

201

191

Acquisitions and otherBenefits paid
Defined benefit obligations at end of year

86

2002

3,880

EADS 2002 Notes to consolidated financial statements

8

12

(155)

(131)

4,287

3,880

The defined benefit obligation at end of the year is the present value, without deducting any plan
assets, of expected future payments required to settle the obligation resulting from employee service
in the current and prior periods. Actuarial losses of €201 million at 31st December 2002, result
mainly from the decrease of the discount rate for pension obligations in Germany from 6.0% to 5.75%.
Change in plan assets
in €m

2002

2001

Fair value of plan assets at beginning of year

571

682

Actual return on plan assets

(35)

(70)

Contributions/ other42

1

Benefits paid
Fair value of plan assets at end of year

(46)

(42)

532

571

The fair value of plan assets at end of the year comprises assets held by long-term employee
benefit funds that exist solely to pay or fund employee benefits. Plan assets are not entirely
exposed to fluctuations of stock markets, as only the smaller portion of plan assets is invested
in such instruments.
A reconciliation of the funded status to the amounts recognised in the consolidated balance
sheets is as follows:in €mFunded status1
Unrecognised actuarial net gains (losses)
Net amount recognised
1

31st December 2002

31st December 2001

3,755

3,309

(398)

(158)

3,357

3,151

Difference between the defined benefit obligations and the fair value of plan assets.

The net amount recognised represents the amount recognised as a defined benefit pension
liability and is part of the caption “Retirement plans and similar obligations”. It includes the funded
status, adjusted by actuarial net gains/losses, which do not have to be recognised because they
do not meet the recognition criteria.
The weighted-average assumptions used in calculating the actuarial values of the retirement
plans are as follows:
Assumptions
in %Discount rate

31st December 2002

31st December 2001

5.0 – 5.75

5.0 – 6.0

Rate of compensation increase

3.0

3.0 – 3.5

Inflation rate

1.75

2.0

The components of the net periodic pension cost, included in “Income before financial result,income taxes and minority interests”, are as follows:
in €m

2002

2001

Service cost

124

84

Interest cost

229

220

Expected return on plan assets

(42)

(47)

Net actuarial loss (gain)
Net periodic pension cost

8

0

319

257

b) Financial instruments
The provision for financial instruments (€161 million and €3,673 million as of 31st December 2002
and 2001) depicts the negative fair market value of foreign currency derivative financial instruments.
The decrease is due to the strengthening of Euro against US Dollar (2002: 1 Euro = 1.0487 US Dollar;
2001: 1 Euro = 0.8813 US Dollar).

EADS 2002 Notes to consolidated financial statements

87

Notes to consolidated financial statementsc) Other provisions
Other provisions consist of the following:in €m

31st December 2002

31st December 2001

Aircraft financial risks

1,215

1,498

Outstanding invoices

802

820

Contract losses

433

450

Tax provisions

255

213

Warranties

180

198

Other risks and charges

1,810

1,890

Total

4,695

5,069

The provision for aircraft financial risks covers, in line with the Group’s policy for sales financing
risk, the net exposure to aircraft financing (€689 million at 31st December 2002) and asset value
risks (€526 million at 31st December 2002) related to Airbus and ATR of Aeronautic division.
Movements in provisions during the year were as follows:
Balance atBalance at

1st January

Exchange

Reclassifi-

Used/ 31st December

in €m

2002

differences

Additions

cationReleased2002

Aircraft financial risks

1,498

(236)

227

(126)

(148)

1,215

Outstanding invoices

820

0

380

(54)

(344)

802

Contract losses

450

(5)

145

(28)

(129)

433

Tax provisions

213

0

90

(7)

(41)

255

Warranties

198

(10)

64

7

(79)

180

Other risks and charges

1,890

(107)

636

98

(707)

1,810

Total

5,069

(358)

1,542

(110)

(1,448)4,695

19

Financial liabilitiesin €m

31st December 2002

31st December 2001

Bonds

209

426

Liabilities to financial institutions

256

286

Liabilities to affiliated companies

166

90

Loans

80

106

Liabilities from finance leases

100

110

OthersShort-term financial liabilities (due within one year)
Bonds

374

444

1,185

1,462

44

195

1,313

1,541

0

18

Loans
thereof due in more than five years: 667 (31st December 2001: 1,217)

968

1,648

Liabilities from finance leases
thereof due in more than five years: 688 (31st December 2001: 1,094)

1,466

1,636

Long-term financial liabilities

3,791

5,038

Total

4,976

6,500

Liabilities to financial institutions
thereof due in more than five years: 810 (31st December 2001: 1,162)
Liabilities to affiliated companies
thereof due in more than five years: 0 (31st December 2001: 9)

88

EADS 2002 Notes to consolidated financial statements

The decrease in financial liabilities from €6,500 million at 31st December 2001 to €4,976 million
at 31st December 2002 is caused by positive foreign exchange rate effects of €782 million,
repayments of bond obligations of €368 million and settlement of bank liabilities. Included
in “Others” are financial liabilities against joint venture partners. Liabilities from finance leaseto certain lessors are backed by defeased bank deposits of €1,146 million and €1,044 million
as of 31st December 2002 and 2001, respectively.
The aggregate amounts of financial liabilities maturing during the next five years andthereafter are as follows:in €mFinancial liabilities

2003

1,185

2004

193

2005

325

2006

393

2007

715

thereafter

2,165

20 Trade and other liabilitiesin €m

31st December 2002

31st December 2001

Trade liabilities

5,070

5,466

Other liabilities

10,246

10,631

Total

15,316

16,097

At 31st December 2002, Other liabilities mainly comprise customer advance payments of€3,578 million (€4,509 million as of 31st December 2001), as well as European Governments
refundable advances of €4,265 million (€3,469 million as of 31st December 2001). They also
include further liabilities to related companies of €85 million (€68 million as of 31st December 2001)
and to affiliated companies amounting to €80 million (€85 million as of 31st December 2001).
Because of the US Dollar weakening in 2002, customer advance payments decreased by€449 million. The increase in European Governments refundable advances relates mostly to
the A380-programme.
Maturities – Out of trade liabilities as of 31st December 2002, €33 million (€173 million as of
31st December 2001) mature after more than one year. Included in “Other liabilities” are€3,982 million due within one year and €3,715 million maturing after more than five years.
21

Deferred income

The main part of deferred income is related to sales of Airbus aircraft that include asset value
guarantee commitments and that are accounted for as operating leases (€2,031 million and€2,309 million as of 31st December 2002 and 2001, respectively).

EADS 2002 Notes to consolidated financial statements

89

Notes to consolidated financial statements
Notes to the consolidated statements of cash-flow

22 Consolidated cash-flow statement

As of 31st December 2002, EADS’ cash position (stated as Cash and Cash Equivalents in theConsolidated Statement of Cash Flows) includes €227 million (€386 million as of 31st December2001) representing the amount Airbus has deposited at BAES. Additionally included are€596 million and €414 million as of 31st December 2002 and 2001, respectively, which represent
EADS’ share in MBDA’s cash and cash equivalents, deposited at BAES and Finmeccanica.
These funds are immediately available for EADS upon demand.
For the 31st December 2002 Consolidated Balance Sheet’s and the 2002 Consolidated
Statement of Cash-Flow’s presentation, EADS has considered as part of the cash position(being cash and cash equivalents and certain qualifying securities, see Note 2, “Summary ofsignificant accounting policies”), inter alia, an amount of €160 million related to Astrium. Due tothe proportionate consolidation method for Astrium, this amount corresponds to cash advances
made to Astrium for which EADS could claim the reimbursement from BAES, in accordancewith the Astrium shareholders’ agreement.
The following chart provides details on acquisitions and disposals of subsidiaries andbusiness units:in €mTotal purchase (disposal) price, aggregate
thereof discharged by cash and cash equivalents
Aggregate cash and cash equivalents from acquisitions and disposals

31st December 2002

31st December 2001

(71)

415

(71)

415

(9)

13

Included in the aggregate disposal price received in 2002 of €71 million is the cash amountreceived for the sale of Aircelle (€63 million). In 2001, the aggregate purchase price paid of€415 million mainly included the purchase of Cogent, Tesat and Dornier. The line ”Results on
disposal of fixed assets/businesses and result of associates (equity method)” in the consolidated
cash flow statement includes in 2002 the gross result of associated companies (€134 million).
The effect of foreign exchange rate changes on cash and cash equivalents amounts to €82 million,
mainly caused by the weakening of the US Dollar in 2002.

90

EADS 2002 Notes to consolidated financial statements

Other notes

23 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 of individual 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 that the final resolution of some of these matters may require the Groupto make expenditures, in excess of established reserves, over an extended period of time andin a range of amounts that cannot be reasonably estimated. The term “reasonably possible”
is used herein to mean that the chance of a future transaction or event occurring is more thanremote but less than likely. Although the final resolution of any such matters could have aneffect on the Group’s consolidated operating results for the particular reporting period in which
an adjustment of the estimated reserve would be recorded, the Group believes that any suchpotential adjustment should not materially affect its consolidated financial position.
EADS is not aware of any other 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 its
financial position, its activities, its results or its group, except as stated below.
EADS (more specifically, DADC and Dornier GmbH) is and was a party to several disputes andarbitration proceeding with the Dornier family shareholders, minority shareholders of Dornier GmbH.
These disputes were about the validity of various resolutions of shareholders’ meetings of DornierGmbH primarily concerning contributions of Dornier activities and assets. These contributions were
the subjects of two arbitration proceedings, which were successfully completed recently with thedecisions being made in favour of EADS/Dornier GmbH. Also, the validity of some of thesecontributions was confirmed by the regional court of appeals in Stuttgart. However, other proceedings,
in particular regarding the contribution of shares in Dornier Luftfahrt GmbH by Dornier to FairchildDornier Luftfahrt Beteiligungs GmbH, are still pending. EADS and Dornier GmbH expect that theremaining proceedings will be decided in their favour, as was the case with the recent decisions.
At the end of 2002 a request for arbitration was filed against a subsidiary of EADS involvedin the supply of equipments under a commercial contract that was completed several years ago.
EADS considers to have strong defences, both procedural and of substance, to oppose the claim.
At this early stage of the procedure the financial risk cannot be assessed.
24 Commitments and contingencies

Contingent assets
EADS (more specifically Euromissile GIE) has recently been successful in an arbitration proceeding
initiated by Thales and has been awarded on the basis of its counterclaim damages for which theprincipal amounts to €107.6 million, which were neither collected nor accounted for at 31st December
2002. The decision is immediately enforceable and the sums were paid to Euromissile GIE on
17th February 2003. However, Thales has filed a request for annulment of the arbitration decision.
Commitments and contingent liabilities
Sales financing – In relation to its Airbus and ATR activities, EADS is committing itself in sales
financing transactions with selected customers.Sales financing transactions are generally
collateralised by the underlying aircraft. Additionally, Airbus and ATR benefit from protective
covenants and from security packages tailored according to the perceived risk and thelegal environment. EADS believes that the estimated fair value of the aircraft securing suchcommitments will substantially offset any potential losses from the commitments. Any remaining
difference between the amount of financing commitments given and the collateral value ofthe aircraft financed is provided for as a write-down to the relating asset, if assignable, or as aprovision for aircraft financial risk. The basis for this write-down is a risk-pricing-model, which
is applied at every closing to closely monitor the remaining value of the aircraft.
Depending on which party assumes the risks and rewards of ownership 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 11, “Property, plant and equipment”) or (ii) a loan to customersor (iii) a finance lease receivable (see Note 12, “Investments and long-term financial assets”).

EADS 2002 Notes to consolidated financial statements

91

Notes to consolidated financial statements

As of 31st December 2002, related accumulated write-down amounts to €459 million for
operating lease and €444 million for loans and finance lease. €72 million are recorded as part ofprovisions for aircraft financial risk (see Note 18c, “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 leasecommitments to third parties, which assume liability for the payments, it is exposed to futurelease 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 2003

244

Later than 2003 and not later than 2007

1,022

Later than 2007

1,738
Total aircraft lease commitments of €3,004 million as of 31st December 2002, arise fromaircraft head-leases and are typically backed by corresponding sublease income from customers.
A large part of these lease commitments (€1,552 million as of 31st December 2002) arises
from transactions that were sold down to third parties, which assume liability for the payments.
The nominal value of future Airbus aircraft lease commitments where EADS bears the riskhas decreased from €1,853 million at 31st December 2001 to €1,452 million, mainly due to theweakening of the US Dollar as compared to Euro of €296 million. EADS 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 €617 million as of 31st December 2002,
as part of the provision for aircraft financial risk (see Note 18c, “Other provisions”).
In addition, EADS is contingently liable in case asset value guarantees are provided tocustomers as part of aircraft sales. 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 the aircraft, and its levelis considered prudent in comparison to the estimated future 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 2017,
resulting in low levels of exposure maturing over the years. For instance, for each of the years
2003 to 2006, the average annual gross asset value exposure from asset value guarantees isapproximately €280 million. The change in average exposure reflects the peak of asset value
guarantee exercise dates in 2007. On a year-to-year basis, gross asset value guarantee exposure
was unchanged in 2002 from 2001. The €526 million net exposure is fully provided for on thebalance sheet, resulting in a residual net exposure of zero.
Because exercise dates for asset value guarantees are on average in the 10th year following
aircraft delivery, asset value guarantees issued in 2003 will generally not be exercisable prior to2013, and, therefore, an increase in near-term exposure is not expected.
While backstop commitments to provide 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 the factthat (i) past experience suggests it is unlikely that all such proposed financings actually will be
implemented, (ii) until the aircraft is delivered, Airbus or ATR retain the asset and do not incur
an unusual risk in relation thereto, and (iii) third parties may participate in the financing. In orderto mitigate Airbus and ATR exposure to unacceptable credits, such commitments typicallycontain financial conditions which guaranteed parties must satisfy in order to benefit therefrom.
Despite the underlying collateral, if Airbus should be unable to honour its obligations
under sales financing transactions and asset value guarantees, certain EADS and BAES groupcompanies retain joint and several liability for sales financing exposure incurred by Airbus prior
to 1st January 2001. EADS’ exposure to liabilities incurred by Airbus following 1st January 2001
is limited by its status as a shareholder in Airbus S.A.S. With respect to ATR, each shareholder
is jointly and severally liable to third parties without limitation. Amongst the shareholders, theliability is limited to each partner’s proportionate share.

92

EADS 2002 Notes to consolidated financial statements

Pension commitments – EADS has several joint ventures with BAES, of which the mostsignificant in terms of employees are Airbus and MBDA. In respect of each joint venture, forso long as BAES remains a shareholder, UK employees may stay in the BAES pensions schemes,
which currently qualify as defined benefit plans. BAES has recently announced a shortfall in post
retirement pension assets when compared with the respective liabilities amounting to £2,164 million(after assumed deferred tax) which would have been recognised in BAES’ books had the new
UK accounting standard FRS 17 already been implemented. As participants in the BAES schemes,
EADS joint ventures are potentially affected by this shortfall. However, the joint ventureagreements between EADS and BAES have the effect of capping the contributions that thejoint venture has to make to the pension scheme for a certain period of time (e.g. until 2011
for Airbus). Any additional contribution would be paid by BAES. EADS is therefore not exposed
to increased contribution payments resulting from the pension underfunding during the periodof the contribution caps. At present, EADS has only limited information about how theunderfunding could impact the joint ventures after the period of contribution caps has expired.
In the case of Astrium, following the agreement signed on 30th January 2003, it will nolonger be a joint venture with BAES. EADS will establish a pension scheme for UK employeeson the basis of a transfer payment from the existing scheme. Depending on the type of pension
scheme that EADS sets up for UK employees, the estimate of the maximum exposure as at
31st December 2002 would be in the range of 30 M GBP and would be treated as acquisition
costs, thereby not affecting net income.
Other commitments – Other commitments comprise contractual guarantees and performancebonds to certain customers.
Future nominal operating lease payments (for EADS as a lessee) for rental and lease agreements(not relating to aircraft sales financing) amount to €740 million as of 31st December 2002, andrelate mainly to procurement operations (e.g., facility leases, car rentals). Maturities are as follows:in €m

Not later than 2003

71

Later than 2003 and not later than 2007

229

Later than 2007

440
25 Information about financial instrumentsa) Financial risk management
By the nature of the activities carried out, EADS is exposed to a variety of financial risks, especiallyforeign currency exchange rate risks and interest rate risks, as explained below. The management
and limitation of such financial risks at EADS is carried out by a central treasury department at
EADS Headquarters under policies approved by the Board of Directors. The identification, evaluationand hedging of the financial risks is in the responsibility of established treasury committees andthe Group’s Divisions and Business Units.
Market risk
Currency risk – EADS manages a long-term hedge portfolio with a maturity of several years
covering its net exposure to US Dollar sales, mainly from the activities of Airbus. This hedge
portfolio covers the vast majority of the Group’s hedging transactions.
EADS’ revenues are mainly denominated in US Dollars, whereas a major portion of its costs
is incurred in Euros and to a smaller extent in GBP. Consequently, to the extent that EADS
does not use financial instruments to cover its net current and future foreign currency exchange
rate exposure, its profits would be affected by changes in the Euro/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 andminimise the impact of exchange rate fluctuations on these profits.
For financial reporting purposes, EADS designates a portion of the underlying items as thehedged position to cover its net US Dollar exposure, as appropriate. As hedging instruments,
EADS primarily uses foreign currency forwards and option contracts.
EADS endeavours to hedge the majority of its exposure based on firm commitments andforecasted transactions. For products such as aircraft, EADS typically hedges forecasted sales in
US Dollar for the following year up to 2010. The hedged items are defined as the first forecasted
highly probable future cash inflows for a given month based upon final payments at delivery. The
amount of the first flows is decided by a treasury committee and typically covers up to 100% of theequivalent of the net US Dollar exposure. For EADS, a forecasted transaction is regarded as highly
probable if the future delivery is included in the audited order book or is very likely to materialisein view of contractual evidence (e.g., Letter of Intent). The coverage ratio may be adjusted totake into account macroeconomic movements affecting the spot and interest rates, as applicable.

EADS 2002 Notes to consolidated financial statements

93

Notes to consolidated financial statements

For project related business EADS generally hedges 100% based on specific flows arisingout of firm and individual contracts. Hedging is implemented on a individual project basis,
i.e. a new contract.
Interest rate risk – The Group uses an asset and liability management approach with the objective
to limit its interest rate risk. The Group undertakes to match the risk profile of its assets with acorresponding liability structure. The net interest rate exposure is managed through several typesof instruments in order to minimise risks and financial impacts. Therefore, the Group may useinterest rates derivatives for hedging purposes.
Hedging instruments that are specifically designated to debt instruments have at the maximum
the same nominal amounts as well as the same maturity dates compared to the hedged item,with the exception of a few residual positions with non-material positive mark-to-market effects.
Regarding cash, EADS is only investing in short-term instruments and/or instruments thatare related to a floating interest index in order to further minimise any interest risk in its cash andsecurities portfolio.
Price risk – The cash and cash equivalents and securities portfolio of the Group is invested
in non-speculative financial instruments, mostly highly liquid, such as certificates of deposits,
overnight deposits, commercial papers and other money market instruments which generally
have a maturity of less than three months, as well as in some listed fixed income securities witha maturity of generally less than one year. Therefore, the Group assesses its exposure towards
price risk as minimal.
Liquidity risk
The Group’s policy is to maintain sufficient cash and cash equivalents at any time to meet its
present and future commitments. This is safeguarded by the reported total amount of theGroup’s cash and cash equivalents, which is further supported by a substantial amount of unused
committed credit facilities (€2.85 billion as 31st December 2002) . On a daily basis, EADS invests
any surplus cash in non-speculative highly liquid financial instruments, such as certificates ofdeposits, overnight deposits, commercial papers and other money market instruments which
generally have a maturity of less than three months.
Credit risk
EADS is exposed to credit risk to the extent of non-performance by its counterparts (e.g., airlines)
with regards to e.g. financial instruments. However, the Group has policies in place to avoid
concentrations of credit risk and to ensure that credit risk is limited. Sales of products and services
are made to customers with an appropriate credit history. Cash transactions and derivative
counterparts are limited to high credit quality financial institutions. 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 counterparts 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.
In order to support product sales, primarily at Airbus and ATR, EADS may agree to participate
in the financing of customers, on a case-by-case basis, directly or through guarantees provided tothird parties. In determining the amount 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 the aircraft and its expected future value. Market yields and current banking
practices also serve to benchmark the financing terms offered to customers, including price.

94

EADS 2002 Notes to consolidated financial statementsb) Notional amounts
The contract or notional amounts of derivative financial instruments shown below do notnecessarily represent amounts exchanged by the parties and, thus, are not necessarily a measurefor 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 2002
in €mRemaining period
Not exceeding 1 year

1 year up to 5 years

More than 5 years

Total

Net forward sales contracts

10,852

23,4086,122

40,382

Purchased put options, net

1,094

343

0

1,437

Written call options, net

1,094

343

0

1,437

Not exceeding 1 year

1 year up to 5 years

More than 5 years

Total

Net forward sales contracts

6,160

19,0944,800

30,054Purchased put options, net

3,290

1,507

0

4,797

Written call options, net

4,184

1,507

0

5,691

Foreign exchange contracts:

Year ended 31st December 2001
in €mRemaining period

Foreign exchange contracts:c) Fair value of financial instruments
The fair value of a financial instrument is the price at which one party would assume therights and/or duties of another party. Fair values of financial instruments have been determinedwith reference to available market information at the balance sheet date and the valuation
methodologies discussed below. Considering the variability of their value-determining factors
and the volume of financial instruments, the fair values presented herein may not be indicativeof the amounts that the Group could realise in a current market exchange.
The carrying amounts and fair values of the Group’s financial instruments are as follows:
31st December 2002in €m

31st December 2001

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets

4,875

4,875

4,726

4,726

Securities

4,497

4,497

5,341

5,341

Cash and cash equivalents

1,703

1,703

2,692

2,692

4,976

4,976

6,500

6,500

Currency contracts with positive fair values

2,804

2,804

54

54

Currency contracts with negative fair values

(161)

(161)

(3,673)(3,673)

Interest rate contracts with positive fair values

15

15

38

38

Interest rate contracts with negative fair values

0

0

(29)

(29)

Balance sheet treasury instruments
Assets:Liabilities:
Financial liabilities
Derivative financial instruments

The fair value gains and losses at 31st December 2002 on open currency contracts which hedge
future foreign currency sales will be transferred from the accumulated other comprehensive income
to the income statement when the related transactions occur, at various dates between the balance
sheet date and 7 years from the balance sheet date. As at 31st December 2002, a net unrealised
gain, net of deferred tax of €1,498 million, was recognised in equity in respect of these contracts.
Financial assets and liabilities – Fair values are based on estimates using various valuations
techniques, such as present value of future cash flows. However, methods and assumptions
followed to disclose data presented herein are inherently judgmental and involve various
limitations like estimates as of 31st December 2002 and 2001, which are not necessarily indicativeof the amounts that the Company would record upon further disposal/ termination of thefinancial instruments.

EADS 2002 Notes to consolidated financial statements

95

Notes to consolidated financial statements

The methodologies used are as follows:
Short-term investments, cash, short-term loans, suppliers – The carrying amounts reflectedin the annual accounts are reasonable estimates of fair value because of the relatively short periodof time between the origination of the instruments and its expected realisation.
Long-term debt; short-term debt – Neither long term nor short term debt is classified asliabilities held for trading. Therefore, no fair value computation is exercised.
Securities – The fair value of securities included in available-for-sale investments is estimated byreference to their quoted market price at the balance sheet date. If a quoted market price is
not available, fair value is determined on the basis of generally accepted valuation methods on
the basis of market information available at the reporting date.
Currency and interest rate contracts – The fair value of these instruments is the estimatedamount that the Company would receive or pay to settle the related agreements as of
31st December 2002 and 2001.
26 Segment reporting

The Group operates in 5 divisions (segments) which reflect the internal organisational andmanagement structure according to the nature of the products and services provided:• Airbus – Development, manufacturing, marketing and sale of commercial jet aircraft of morethan 100 seats.
• Military Transport – Development, manufacturing, marketing and sale of light and medium
military transport aircraft and special mission aircraft.
• Aeronautics – Development, manufacturing, marketing and sale of civil and militaryhelicopters, military combat and trainer aircraft, regional turboprop aircraft and light commercial
aircraft; and civil and military aircraft conversion and maintenance services.
• Defence and Civil systems – Development, manufacturing, marketing and sale of missiles
systems; and provision of defence electronics, military and commercial telecommunications
solutions; and logistics, training, testing, engineering and other related services• Space – Development, manufacturing, marketing and sale of satellites, orbital infrastructuresand launchers; and provision of launch services.

96

EADS 2002 Notes to consolidated financial statements

The following tables present information with respect to the Group’s business segments.
Consolidation effects, the holding function of EADS headquarters and other activities notallocable to the divisions are disclosed in the column “HQ/Conso.”.
Business segment information
Year ended 31st December 2002
in €mAirbusMilitary
Transport

External revenues

19,512

524

Aeronautics

Defenceand Civil
SystemsSpace

HQ/
Conso.

Consolidated

5,304

3,306

2,216

(961)

29,901

Internal revenues

177

184

599

91

7

43

1,101

Total revenues

19,689

708

5,903

3,397

2,223

(918)

31,002

Result before financial income and income tax

818

(87)

182

(107)

(626)

(20)

160

EBIT pre goodwill amortisation and exceptionals(see definition below)

1,361

(80)

261

40

(268)

112

1,426

0

0

0

0

(3)

111

108

Share of net profit of associates
Income/loss from other investments,
interest and other financial result(81)

Income taxes(453)

Minority interest(33)

Net income (loss)(299)

Other information
Identifiable segment assets (incl. goodwill)

26,776

696

6,969

6,440

3,068

Goodwill

6,715

0

948

1,455

0

0

0

0

Segment liabilities

20,797521

5,394

Capital expenditures

1,674

68

198

Depreciation, amortisation

1,614

64

225

0

0

0

1,682

40

Investments in equity method associates

Impairment losses recognised in income
Research and development expenses

3,451

47,400

436

32

9,586

0

1,333

1,333

4,290

2,698

(426)

33,274

128

89

157

2,314

214

141

160

2,418

0

350

0

350

150

167

59

(2)

2,096

AirbusMilitary
Transport

Aeronautics

Defenceand Civil
SystemsSpace

HQ/
Conso.

Consolidated

20,549

547

5,065

3,345

2,439

(1,147)30,798Business segment information
Year ended 31st December 2001in €mExternal revenues
Internal revenues

179

185

721

131

15

57

1,288

Total revenues

20,728

732

5,786

3,476

2,454

(1,090)32,086

Result before financial income and income tax

905

(53)

286

132

(131)

1,375

2,514

EBIT pre goodwill amortisation and exceptionals(see definition below)

1,655

1

308

(79)

(222)

31

1,694

(12)

0

0

(14)

(63)

111

22

Share of net profit of associates
Income/loss from other investments,
interest and other financial result(535)

Income taxes(646)

Minority interest

17

Net income (loss)

1,372

Other information
Identifiable segment assets (incl. goodwill)

27,264

568

7,187

5,583

3,462

Goodwill

7,089

0

1,005

1,464

0

0

0

0

Segment liabilities

25,532365

5,869

Capital expenditures

1,433

63

281

Depreciation, amortisation

1,625

21

278

0

0

0

1,425

53

132

173

Investments in equity method associates

Impairment losses recognised in income
Research and development expenses

4,651

48,715736

148

10,442

0

1,252

1,252

3,545

2,601

367

38,279

159

99

161

2,196

567

121

158

2,770

580

210

0

790

60

(2)

1,841

EADS 2002 Notes to consolidated financial statements

97

Notes to consolidated financial statements

As a rule, inter-segment transfers are carried out on an arm’s length basis. Inter-segment
sales predominantly take place between Aeronautics and Airbus, as the Aeronautics division acts
as a main supplier for Airbus aircraft. Capital expenditures represent the additions to property,
plant and equipment and to intangible assets (excluding goodwill).
EADS uses EBIT pre goodwill amortisation and exceptionals as a key indicator of its economic
performance. The term “exceptionals” refers to income or expenses of a non-recurring nature,such as amortisation expenses of fair value adjustments relating to the EADS merger, the Airbus
Combination and the formation of MBDA, as well as impairment charges. EBIT pre goodwill
amortisation and exceptionals is treated by management as a key indicator to measure thesegments’ economic performances.
in €m

2002

Income before financial result, income taxes and minority interests

160

2,514

0

(2,794)

Goodwill amortisation and related impairment charges

936

1,466

Exceptional depreciation (fixed assets)

227

260

Dilution gain Airbus UK, MBDA

2001

Exceptional depreciation (financial assets)

0315

Exceptional depreciation (inventories)

16

275

Income from investments
EBIT pre goodwill amortisation and exceptionals

87

(342)

1,426

1,694

Revenues by destination:
in €m

2002

2001

France

3,872

3,521

Germany

2,476

3,588

Other European Countries

8,009

6,946

North America

10,562

10,394Latin America

1,259

1,749

Asia

2,767

2,920

Other Countries

956

1,680

Consolidated

29,90130,798

Revenues are allocated to geographical areas based on the location of the customer.
Included in “Other European Countries” in 2001 is the reclassification of revenues to externalcustomers in Turkey (€218 million), which have previously been classified to Asia. In 2002,
external revenues in Turkey amounted to €201 million.
Most of the Group’s assets are located in the European Union.
27

Stock-based compensationa) Stock Option Plans
The Board of Directors of EADS approved the establishment of a stock option plan for 2002
for the members of the Executive Committee and senior managers of the Group. Stock options
for the purchase of 7,276,700 EADS shares were granted on 9th August 2002, of which 864,000
were granted to the members of the Executive Committee. 1,562 employees of the Group were
granted options, which are only exercisable after a vesting period. The vesting period amounts
to two years and four weeks from the date of granting with respect to 50% of the options andthree years for the remaining options. The options expire ten years after their grant.
The exercise price is equal to €16.96 representing 110% of fair market value of the shares at thedate of grant. The options may not be exercised during the period of three weeks before either
the Annual General Meeting or the announcement of annual or semi-annual or quarterly results.

98

EADS 2002 Notes to consolidated financial statements

Previous to 2002, EADS established the stock option plans of 2001 and 2000. These plansprovide, similar to the 2002 stock option plan, for the granting of options for the purchase of
EADS shares to the members of the Executive Committee as well as to senior managers of theGroup. The following table summarises the development of stock options:
Number of options
Balance atBalance at

Originally

1st January

31st December

issued2002

Exercised

Forfeited

2002

2000

5,564,884

5,375,400––

5,375,400

2001

8,524,250

7,926,425––

7,926,425

7,276,700

–

–

(600)

7,276,100

21,365,834 13,301,825–(600) 20,577,925

2002
Total

For the 2002 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. Therefore, nocompensation expense has been recognised.
b) Employee stock ownership plan (ESOP)In 2002, the Board of Directors approved an additional ESOP following two ESOPs establishedin 2001 and in 2000. For the 2002 ESOP, eligible employees were able to purchase a maximumof 500 shares per employee of previously 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 €7.93, calculated as a discount of 14.5% from the lowest market price on the Paris stock
exchange on 11th October 2002 (fixed at €9.28), the day the Board of Directors granted the rightto purchase shares within the ESOP 2002. The subscription price for tranche B was the higher ofthe subscription price for tranche A or 80% of the average opening market price for EADS shareson the Paris stock exchange during the twenty stock market days preceding 12th October 2001,
resulting in a subscription price of €8.86.
During a vesting period of at least one year under tranche A or five years under tranche B,
employees are restricted from selling the shares, but have the right to receive all dividends paid aswell as have the ability to vote at the annual shareholder meetings. EADS sold 2,022,939 ordinary
shares with a nominal value of €1.00 under both tranches. No compensation expense wasrecognised in connection with the ESOP 2002.
28 Related party transactions

Related parties – The Group has entered into various transactions with related companies in2002 and 2001 that have all been carried out in the normal course of business. As is the Group’s
policy, all related party transactions have to be carried out at arm’s length. Transactions withrelated parties include the French State, DaimlerChrysler, Lagardère, and SEPI (Spanish State).
Except for the transactions with the French State 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 Aeronautics, Defence, and Space divisions.
Remuneration – Remuneration and related costs of the members of the Board of Directors
and former Directors amount to €7.29 million as of 31st December 2002 (2001: €5.60 million).
Since the exercise price for stock options granted to Directors exceeded the share price at
grant date, this amount does not comprise compensation cost for stock-based compensation.
EADS has not provided any loans to/advances to/guarantees on behalf of (retired) Directors.
Reference is made to Note 27, “Stock-based compensation”, in this document and to Note 9,“Remuneration”, of the Notes to EADS N.V. Financial Statements.

EADS 2002 Notes to consolidated financial statements

99

Notes to consolidated financial statements

29 Investment property

The Group owns investment property, mainly contributed by Dasa to EADS, that is leased tothird parties. The investment property contributed by Dasa was recorded at fair value as of
1st July 2000. For the purposes of IAS 40 disclosure requirements, EADS developed the fairvalues of investment property based on the values on the opening balance sheet of EADS.
The fair values have been determined using official guideline numbers for land and insured
values as well as values reconciled from rental income for buildings. The determination offair values is mainly supported by market evidence and was performed with regard to the fairvalues as of 1st July 2000 by a registered independent valuer having an appropriate recognised
professional qualification and recent experience in the location and category of the property
being valued. As there have only been very minor changes since that date, the Group has not
used an independent certifier since then.
Buildings held as investment property are depreciated on a linear basis over their useful life
which is mainly around 40 to 50 years. The values assigned to investment property are as follows:
Net atin €mBook value of Investment Property

Changes in

31st December

Exchange

2001

differences

Additions

97

0

0

Net atDepreciation/ consolidation 31st December
Disposals amortisation

0

(1)

scope

2002

0

96

As of 31st December 2002 and 2001, the fair value of the Group’s investment property
amounts to €98 million. Related rental income in 2002 is €13 million (2001: €12 million) withdirect operating expenses arising from investment property that generated rental income amountof €10 million (2001: €7 million).
30 Interest in joint ventures
The Group’s principal investments in joint ventures and the proportion of ownership are includedin Appendix “Information on principal investments”. Joint ventures are consolidated for using the
proportionate method. The following amounts represent the Group’s aggregate share of theassets and liabilities and income and expenses of the joint ventures:
in €m

2002

2001

Fixed assets

1,073

1,302

Non-fixed assets

2,909

2,342

661

774

Liabilities

2,937

2,256

Revenues

2,556

1,811

Result before income taxes

(205)

(91)

(6)

(7)

(212)

(95)

Provisions

Income taxes
Net income (loss)

100

EADS 2002 Notes to consolidated financial statements

31

Earnings per share

Basic earnings per share – Basic earnings per share is calculated by dividing net income
attributable to shareholders by the weighted average number of issued ordinary shares during
the year, excluding ordinary shares purchased by the Group and held as treasury shares.
2002

2001

Net income/(loss) attributable to shareholders (in €m)

(299)

1,372

Weighted average number of ordinary shares in issue804,116,877

807,295,879(0.37)

1.70

Basic earnings per share (in €)Diluted earnings per share – For the calculation of the diluted earnings per share, the weighted
average number of ordinary shares is adjusted to assume conversion of all potential ordinary
shares. The Group’s only category of dilutive potential ordinary shares is stock options. Since
the exercise price of the stock options under all existing stock option plans initiated by the Groupis exceeding the share price of EADS shares, to include these potential ordinary shares would
be anti-dilutive. As a consequence, net income as well as the weighted number of ordinary sharesin issue is the same for both basic and diluted earnings per share.
2002

2001

Net income/(loss) attributable to shareholders (in €m)

(299)

1,372

Weighted average number of ordinary shares in issue804,116,877

807,295,879(0.37)

1.70

Diluted earnings per share (in €)32

Number of employees

The number of employees at 31st December 2002 is 103,967 as compared to 102,967 at
31st December 2001.
33

Events after the balance sheet date

Astrium
EADS acquired BAES’ 25 percent interest (27.5% economic share) in Astrium N.V. The transaction
was signed on 30th January 2003 and will be accounted for under the purchase method assoon as all regulatory clearances have been obtained. Full control of Astrium N.V. as well as of
Paradigm Secure Communications Ltd., formerly held jointly by BAES and EADS, will then betransferred to EADS at this date.
At completion of the transaction, EADS acquired BAES’ share in Astrium N.V. for €84 million.
Prior to completion, EADS and BAES each made a capital contribution into Astrium N.V. of€84 million (total €168 million). Taking into account the cash contribution, BAES’ interest has beeneffectively transferred to EADS for no net cash consideration.
In July 2002, EADS and BAES had announced their intention for EADS to acquire the interestof BAES in Astrium N.V. and formed Paradigm Secure Communications Ltd. to address service
provision for the proposed Skynet 5 military communications satellite programme for the UK
Ministry of Defence. Under the original terms, completion of the sale of the Astrium interest
was conditional on completion of contracts with the UK Ministry of Defence for the Skynet 5
programme. In the event of EADS not achieving financial close of the Skynet 5 contract, BAES
will pay €55 million to EADS.
Euro Medium Term Note (“EMTN”) programme
On 6th February 2003, EADS launched a €3.0 billion EMTN programme, a contractual frameworkthat allows EADS to raise debt from capital markets through dealers in successive issues of notes
governed by the same terms. Each issue, however, may bear a different maturity (in this casebetween one month and 30 years) and interest rate.
On 27th February 2003, EADS has issued an inaugural Eurobond benchmark transaction
under the EMTN programme of €1 billion. The objectives of this initial issue are to refinanceexisting debt and lengthen the maturity profile of the Group’s debt. This bond has a maturity ofseven years and carries a yearly coupon of 4.625%.

EADS 2002 Notes to consolidated financial statements

101

Information on principal investments

Airbus

2002

%

2001

%

F
F
F
F

80.00
80.00
80.00
80.00

F
F
F
F
F
F
F
F
F
F
F

80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
79.99
80.00

F
F
F
P
F
E
F

80.00
80.00
40.00
16.00
80.00
16.00
80.00

F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
E
F
F
F
F
F
F
F
F
F
F
F
F
F

80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
72.00
80.00
80.00
80.00
80.00
24.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00

F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
P
F
E
F
F
F
F
F
F
F
F
F
F

80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
79.99
80.00
79.90
80.00
80.00
40.00
16.00
80.00
16.00
80.00
40.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00

F
F
F
F
F
F
F
F
F
F
F
E
F
F
F
F
F
F
F
F
F
F
F
F
F

80.00
80.00
80.00
80.00
80.00
80.00
72.00
80.00
80.00
80.00
80.00
24.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00

F
F
F
F

100.00100.00100.00100.00F
F
F
F

100.00100.00100.00100.00

F
F
F
F
F

75.89
100.00100.00100.00100.00

F
F
F
F
F

F
F
F

100.00100.00
50.97

F
F
F

F
F
F
F

100.0080.00
55.00
100.00

F
F
F

57.55
100.00100.00100.00100.00100.00100.00100.0050.97
100.00100.0080.00
55.00

Liquidated

Merged into Airbus Deutschland GmbH (1. 1. 2002)
Merged into Airbus Deutschland GmbH (1. 1. 2002)
Merged into Airbus Deutschland GmbH (1. 1. 2002)

Liquidated

Disposal

Addition

Company

Head office

Airbus S.A.S
Toulouse (France)
Airbus France S.A.S
Toulouse (France)
Airbus Holding SA
FranceEADS CASA S.A. (Unit: EADS CASA AIRBUS)
Madrid (Spain)
SATIC G.I.E.
Colomiers (France)
Airbus Finance Company Holdings BV
Amsterdam (Netherlands)
Airbus Finance Company Ltd
Dublin (Ireland)
Airbus Deutschland GmbH
Hamburg (Germany)
KID-Systeme GmbH
Buxtehude (Germany)
Aircabin GmbH
Laupheim (Germany)
DEX Beteiligungs- und Verwaltungs GmbH
Ottobrunn (Germany)ZDW Beteiligungs- und Verwaltungs GmbH
Munich (Germany)
Airbus Beteiligungs GmbH
Ottobrunn (Germany)
Airbus Industrie G.I.E.
Blagnac (France)
AVSA SARL
Blagnac (France)
AI Participations S.A.R.L.
Blagnac (France)
Société Commerciale A-300 S.A.SOCA
Blagnac (France)
Airbus Simulators Services S.N.C. (ASS)
Blagnac (France)
Airbus Transport International S.N.C. (ATI)
Blagnac (France)
Airbus Military Company S.A.S.
Toulouse (France)
Groupemente Immobilier Aéronautique S.A. (GIA) France
Airbus Mauritius limited
Mauritius
Alexandra Bail G.I.E
FranceAirbus China limited
Hong-Kong
Aircelle S.A.S
FranceAirbus Ré S.A.
Luxemburg
AVSA Canada Inc
CanadaAirbus North American Holdings Inc. (ANA)USA
Airbus Service Company Inc. (ASCO)USA
AI leasing Inc.
USA
NorbusUSA
AINA Inc.
USA
128829 Canada Inc.
CanadaWichitaUSA
Airbus Industrie Financial Service Holdings B.V. (AIFS) Netherlands
Airbus Industrie Financial Service Holdings ltd.( AIFS) Ireland
Airbus Industrie Financial Service ltd. (AIFS)
Ireland
AIFS (Cayman) ltd.
Cayman IsleAIFS Cayman Liquidity ltd.
Cayman Isle
A320 Financing limited
Ireland
AIFI LLC
Isle Of Man
Airbus UK Limited
UK
Airbus Invest
Toulouse (France)
EADS Aéro
Toulouse (France)
EADS Star Real Estate SAS
Boulogne (France)
Tenzing communication inc
USA
AFS (Cayman) Ltd
Cayman Isle
Aviateur Limited
Ireland
Aviateur International Limited
Ireland
Aviateur Finance Limited
Ireland
Aviateur Leasing Limited
Ireland
Avalo LLC
Isle of Man
Avalo Leasing Limited
Ireland
Avalo Aerospace limited
Ireland
Avalo International limited
Ireland
Total Airline Service Company
Ireland
AIFS Leasing Company Limited
Ireland
AA Credit Aviation LLC
Ireland
AFC (USA) 1 inc
USA

Additionally consolidated are 34 SPCs

Defence and Civil Systems

Disposal

Disposal

Addition

102

FmElo Elektronik- und Luftfahrtgeräte GmbHHagenuk Marinekommunikation GmbHEUROBRIDGE Mobile Brücken GmbHEADS Deutschland GmbH –Verteidigung und Zivile Systeme
Dornier Verteidigung und Zivile Systeme
EADS Funkkommunikation GmbHEwation GmbH
Matra Aerospace Inc. (M.A.I.)
Fairchild Controls Corporation
Germantown Holding Company
Manhattan Beach Holdings Co.
EADS Systems & Defence Electronics
APIC
G2I
EADS Services
Pentastar Holding
Aviation Defense Service S.A.
Operations Services Germany

EADS 2002 Information on principal investments

Ulm (Germany)
Flintbek (Germany)
Friedrichshafen (Germany)
Ulm (Germany)
Friedrichshafen (Germany)
Ulm (Germany)
Ulm (Germany)
Frederick Maryland (USA)Frederick Maryland (USA)Frederick Maryland (USA)Frederick Maryland (USA)
Velizy (France)
Arcueil (France)
Velizy (France)
Boulogne (France)
Paris (France)
Saint-Gilles (France)
Unterschleißheim (Germany)

Defence and Civil Systems

Addition

Addition

2002

%

F
F
F
F
F
F
F
F
F

100.00100.00100.00100.00100.0099.99
100.00100.00100.00

F
F
F
F
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
F
F

%

F
F
F
F
F
F

100.00100.00100.00100.0099.99
100.00100.00100.00100.00100.00
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
50.00
50.00
50.00
81.25
98.00

F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
P
P
P
P
P
P
P
P
P
P
P
P
P
P
P
F
F

100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00100.00
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
37.50
50.00
50.00
50.00
76.95
98.00

F
F
P

100.00
67.00
50.00

F
F
P

100.00
67.00
50.00

F
P
P
F
F
F
F
F
F
F
F
F
F

100.00
50.00
50.00
59.00
59.00
59.00
59.00
59.00
59.00
59.00
59.00
100.00100.00

F
P
P
F
F
F
F
F
F
F
F
F

F
F
F
F
F
F
F

100.0098.95
98.95
100.0098.95
100.00100.00100.00
50.00
50.00
59.00
59.00
59.00
59.00
59.00
59.00
59.00
59.00
100.00100.00100.00100.0093.00
100.00100.00100.00100.00

Disposal
Disposal
Disposal
Disposal
Disposal
Disposal
Disposal
Disposal
Disposal
Disposal
Disposal

Disposal

Addition

2001

F
F
F
F
F
F
F

Company

Head officeGesellschaft für Flugzieldarstellung mbH
M.C.N. SAT HOLDING
MULTICOMS (MNC Sat Services)
International Test & Services
TYX Corp.
ARC
EADS Telecom Federal Systems Division
Proj2
M.P. 13
EADS Matra Datavision S.A.
EADS Matra Datavision International
EADS Matra Datavision Ltd
EADS Matra Datavision AG
EADS Matra Datavision Benelux
EADS Matra Datavision Asia Pacific
EADS Matra Datavision B.V.
EADS Matra Datavision GmbHEADS Matra Datavision Iberia
EADS Matra Datavision Inc.
EADS Matra Datavision Kk
EADS Matra Datavision SpAOpen CasCade
Matra Defense
Matra Holding GmbH
MBDA SAS
MBD Management S.A
ALKAN
MBDA France
MBDA UK Ltd.
Matra Electronique
MBDA M S.A.
MBDA Inc
MBDA Italy SpA
MBDA Treasury
Marconi Overside Ldt.
AMS Dynamics Ldt.
CelergCelerg international
International de systemes propulsifs
LFK – Lenkflugkörpersysteme GmbH
TDW – Ges. für verteidigungstechnische
Wirksysteme GmbHEADS Deutschland GmbH – VA (Restaktivitäten)TAURUS Systems GmbH
Bayern-Chemie Gesellschaft für
flugchemische Antriebe mbH
Propulsion Tactique S.A.
TDA – Armements S.A.S.
Forges de Zeebrugge S.A.
EADS Telecom SAS
EADS Telecom Espana
EADS Telecom Deutschland GmbHEADS Telecom Deutschland GmbHEADS Telecom Mexico SA de CV
EADS Telecom Benelux
EADS Telecom Danmark
EADS Telecom SpAEADS Telecom ( ex-MNH)
MATRAnet
MATRAnet Inc.
Matra Communication USA Inc
EADS Telecom North America
Intecom Holding ULCEADS Telecom Canada Ltd
Pyderion Contact Technologies Inc.
Cogent DSN
Sycomore S.A.

Germany
Velizy (France)
Sèvres (France)
Velizy (France)
Reston, VA, USA
CA, USASan Antonio, TX, USA
Paris (France)
Paris (France)
Paris (France)
Les Ulis (France)
Coventry (UK)Regensdorf (Switzerland)
Brussels (Belgium)
Wanchai (Hong Kong)
Leiden (Netherlands)
Munich (Germany)
Madrid (Spain)
Andover (USA)Tokyo (Japan)
Turin (Italy)
Paris (France)
Velizy (France)Frankfurt (Germany)
Velizy (France)
Velizy (France)
Valenton (France)
Velizy (France)
Stevenage, Herts (UK)
La Croix Saint-Ouen (France)
Chatillon sur Bagneux (France)
Westlack, CA (USA)Roma (Italy)
Jersey (UK)
Chelmsford (UK)
Guernsey (UK)Saint-Médard (France)
Saint-Médard (France)
Paris (France)
Unterschleißheim (Germany)

EADS 2002 Information on principal investments

Schrobenhausen (Germany)
Unterschleißheim (Germany)
Schrobenhausen (Germany)
Aschau/Inn (Germany)
La Ferte Saint Aubin (France)
La Ferte Saint Aubin (France)
Herstal-Liege (Belgium)
Bois d’Arcy (France)
Madrid (Spain)
Unterschleißheim (Germany)
Ulm (Germany)
Mexico DF (Mexico)
Bruxelles (Belgium)
Copenhague (Denmark)
Milan (Italy)
Paris (France)
Velizy (France)
Redwood shores, CA (USA)
Dallas, Texas (USA)
Dallas, Texas (USA)
Dallas, Texas (USA)
Dallas, Texas (USA)
Dallas, Texas (USA)
Newport (UK)
Boulogne (France)

103

Information on principal investments

2002

%

2001

%

Company

Head office

Space

F
P
P
P
P
P
F
F
F
F
F
E
P
P
P
E
P
P
P

100.00
75.00
75.00
75.00
75.00
75.00
100.00100.0068.40
100.00100.00
33.30
75.00
50.00
75.00
48.00
75.00
75.00
75.00

F
P
P
P
P
P
F
F
F
F
F
E
P
P
P
E
P
P
P

100.00
75.00
75.00
75.00
75.00
75.00
100.00100.0068.40
100.00100.00
33.30
75.00
50.00
75.00
43.00
75.00
75.00
75.00

Amanthea Holding B.V.
ASTRIUM GmbHASTRIUM Ltd.
ASTRIUM N.V.
ASTRIUM SAS
Computadoras, Redes e Ingenieria SA (CRISA)EADS CASA S.A. (Unit: EADS CASA Space)
EADS Deutschland GmbH – Space Services
EADS Dornier Raumfahrt Holding GmbHEADS Launch Vehicles
Global DASA LLC
Loral Dasa Globalstar L.P.
Matra Marconi Space UK Ltd.
MMS Space Holdings N.V.
MMS Systems Ltd
Nahuelsat S.A.
NRSCL Infoterra Ltd
TESAT-Spacecom Geschäftsführung GmbHTESAT-Spacecom GmbH & Co. KG

Amsterdam (Netherlands)
Munich (Germany)
Stevenage (Great Britain)
The Hague (Netherlands)
Toulouse (France)
Madrid (Spain)
Madrid (Spain)
Munich (Germany)
Munich (Germany)
Velizy (France)
New York (USA)New York (USA)Stevenage (Great Britain)
Amsterdam (Netherlands)
Stevenage (Great Britain)
Buenos Aires (Argentina)
Southwood (Great Britain)
Backnang (Germany)
Backnang (Germany)

Military Transport AircraftF

100.00F

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

Madrid (Spain)

Aeronautics

FF

100.00100.00FF

100.00100.00

F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
F
P

100.00100.00100.00100.0050.10
100.00100.00
80.00
88.00
50.10
100.0050.00
100.00100.00100.00100.00100.0075.00
76.52
100.00100.00100.00100.00100.00
50.00

F
F
F
F
F
F
F
F
F
F

100.00100.00100.00100.0050.10
100.00100.00
80.00
81.00
50.10

F
F
F
F
F
F
F
F
F
F
F
F
P

100.00100.00100.00100.00100.0075.00
76.52
100.00100.00100.00100.00100.0050.00

Elbe Flugzeugwerke GmbH
Dresden (Germany)
EADS EFW Beteiligungs- und
Verwaltungsgesellschaft GmbH
Munich (Germany)
EADS Sogerma S.A.
Mérignac (France)
EADS Seca S.A.
Le Bourget (France)
Sogerma America Barfield B.C.
Miami, Florida (USA)EADS Revima S.A.
Tremblay en France (France)
Composites Aquitaine S.A.
Salaunes (France)
Maroc Aviation S.A.
Casablanca (Morocco)
Noise Reduction Engineering B.C.
Washington D.C. (USA)Aerobail GIE
Paris (France)
EADS Aeroframe services LLC
Lake Charles, Louisiana (USA)EADS Sogerma Tunisie
Monastir (Tunisia)
EADS Revima APU S.A.
Caudebec en Caux (France)
Composites Atlantic Ltd.
Halifax (Canada)
Eurocopter Holding S.A.
Paris (France)
Eurocopter S.A.
Marignane (France)
Eurocopter Deutschland GmbH
Munich (Germany)
American Eurocopter Corp.
Dallas, Texas (USA)Eurocopter Canada Ltd.
Ontario (Canada)
Eurocopter South East Asia
Singapore
Helibras – Helicopteros do Brasil S.A.
Itajuba (Brazil)
EADS Socata S.A.
Le Bourget (France)
EADS Deutschland GmbH – Military Aircraft
Munich (Germany)
Dornier Flugzeugwerft GmbH
Manching (Germany)
EADS CASA S.A. (Unit: EADS CASA Military Aircraft) Madrid (Spain)
EADS ATR S.A.
Toulouse (France)
ATR GIE
Toulouse (France)

F
F
F
F
F
F
F
F
E
E
E
E
E
E
E
E
E
E
F
F

100.00100.00100.00100.00100.0075.00
75.88
100.00
45.96
45.96
45.96
45.96
45.96
45.96
45.96
45.96
45.96
45.96
100.00100.00

F
F
F
F
F
F
F
F
E
E
E
E
E
E
E
E
E
E
F

100.00100.00100.00100.00100.0075.00
58.42
100.00
45.96
45.96
45.96
45.96
45.96
45.96
45.96
45.96
45.96
45.96
100.00100.00EADS France
Paris (France)
EADS Deutschland GmbH – Zentrale
Munich (Germany)
EADS Deutschland GmbH, LO– Liegenschaften OTN Munich (Germany)
EADS Deutschland GmbH, FO – Forschung
Munich (Germany)
EADS Raumfahrt Beteiligungs GmbH
Ottobrunn (Germany)
DADC Luft- und Raumfahrt Beteiligungs AG
Munich (Germany)
Dornier Zentrale
Friedrichshafen (Germany)
EADS CASA S.A. (Headquarters)
Madrid (Spain)
Dassault Aviation
Paris (France)
Dassault International France
Vaucresson (France)
Dassault Falcon Jet and subsidiaries
Teterboro NJ (USA)
Sogitec Industries
Suresnes (France)
Dassault Falcon Service
IPS
Dassault Aero Service
Dassault Assurances Courtage
Dassault lnternational lnc
Paramus NJ (USA)Société Toulouse Colomiers
Airbus Financial Company Holding B.V.
Dublin (Ireland)
EADS CASA France
Paris (France)

Addition
Addition

Additionally consolidated are 45 SPCs.

Headquarters

F: Fully consolidated P: Proportionate E: Equity method

104

EADS 2002 Information on principal investments

Auditors’ report

Introduction
We have audited the accompanying financial statements of EADS N.V., Amsterdam (“EADS”
or “the Company”) for the year 2002. These financial statements are the responsibility of thecompany’s management. Our responsibility is to express an opinion on these financial statements
based on our audit.
Scope
We conducted our audit in accordance with International Standards on Auditing. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion.
Matters affecting opinion
For business reasons pertaining to Dassault Aviation’s management, EADS did not obtain 2002
current figures of Dassault Aviation’s financial performance. As a consequence, we have not
performed the audit procedures we normally would have performed in relation with the Dassault
Aviation investment, which is accounted for under the equity method. The estimated level of net
income from this equity investment accounted for by EADS for the period ended 31st December
2002 represented €111 million and the estimated equity investment of EADS in Dassault Aviation
as of 31st December 2002 amounted to €1,333 million.
As mentioned in Note 2 (“Summary of significant accounting policies”) of the consolidated
financial statements, EADS has prepared its financial statements in accordance with International
Financial Reporting Standards (“IFRS”) as published by the International Accounting Standard
Board, except that all development costs have been expensed as incurred. When certain criteria
for asset recognition are met, IFRS require that development costs be capitalized as an intangible
asset in the period in which they are incurred.
Furthermore, it is KPMG Accountants N.V.’s understanding that the following also constitutes
a departure from IFRS : EADS accounts for its 37.5% interest in the MBDA joint venture using
a proportionate consolidation of 50% of MBDA and accounts for a minority interest of 12.5%.
IFRS require a venturer to report its effective net proportionate interest in a jointly controlled
entity. The principal effects of consolidating amounts in excess of its proportionate ownershipinterest in MBDA are to overstate cash and cash equivalents by 10% in the 31st December 2002
consolidated balance sheet, to overstate the company’s cash position (including short term
securities) in 2002 cash flow statement by 3% and to overstate revenues for the Segment Defence
and Civil Systems by 7%.
OpinionIn the opinion of the two auditors, except for the effects of such adjustments, if any, as might havebeen determined to be necessary had EADS been able to obtain current year figures and had
we been able to perform the audit procedures we normally would have performed in relation to
the Dassault Aviation investment and, except for the effect of the departure from IFRS with regards
to development costs, and, in the opinion of KPMG Accountants N.V., except for the effectof the departure from IFRS with regard to the MBDA proportionate consolidation, the financial
statements give a true and fair view of the company’s financial position as of 31st December 2002
and of the result for the year then ended in accordance with IFRS and in accordance with thefinancial accounting principles generally accepted in the Netherlands and comply with thefinancial reporting requirements included in Part 9 of Book 2 of the Netherlands Civil Code.

The Hague, 7th March 2003
KPMG Accountants N.V.

EADS 2002 Auditors’ report

Amsterdam, 7th March 2003
Ernst & Young Accountants

105

Addresses

Headquarters• Aeronautics

European Aeronautic
Defence and Space
Company EADS N.V.
Le Carré
Beechavenue 130 – 132
1119 PR Schiphol-Rijk
The Netherlands
Tel +31 20 655 4800

EADS Military Aircraft
81663 Munich
GermanyTel +49 89 607 0

Head Offices
In France
37, boulevard de Montmorency
75781 Paris cedex 16
FranceTel +33 1 42 24 24 24
In Germany
81663 Munich
GermanyTel +49 89 607 0
In Spain
Avenida de Aragón 404
28022 Madrid
Spain
Tel +34 915 85 7000
EADS North America
EADS of North America, Inc.
Suite 700
815 Connecticut Avenue, N.W.
Washington, D.C. 20006
USA
Tel +1 202 776 09 88

Business Units• Airbus
Airbus1, rond-point Maurice Bellonte
31707 Blagnac
FranceTel +33 5 61 93 33 33•Military Transport Aircraft
EADS Military Transport
AircraftAvenida de Aragon 404
28022 Madrid
Spain
Tel +34 91 585 70 00
106

EADS 2002 Addresses

Eurocopter
Aéroport International deMarseille
Provence
13725 Marignane cedex
FranceTel +33 4 42 85 85 85
ATR Avions de Transport
Régional
1, allée Pierre Nadot
31712 Blagnac cedex
FranceTel +33 5 62 21 62 21
EADS EFW
Grenzstrasse 101109 Dresden
GermanyTel +49 351 8839 0
EADS Sogerma Services
Aéroport International
Bordeaux-Merignac
Rue Marcel Issartier
33701 Merignac
FranceTel +33 5 56 55 40 00
EADS Socata
Zone d’Aviation et d’Affaires
Le Terminal,
Bât 41393350 Le Bourget
FranceTel +33 1 49 34 69 69

MBDA (Headquarters)
11 Strand
WC2 5HR LondonUK
Tel +44 207 451 6000
EADS LFK –Lenkflugkörpersysteme
Landshuter Strasse 26
über Hauptwache, Tor 1
85716 Unterschleissheim
GermanyTel +49 89 3179 0
EADS Telecom
Rue Jean-Pierre Timbaud
Montigny le Bretonneux
78063 Saint Quentin Yvelines
cedex
FranceTel +33 1 34 60 80 20• Space
Astrium
37, avenue Louis Breguet
78146 Velizy-Villacoublay
FranceTel +33 1 34 88 30 00
EADS Launch Vehicles
66, Route de Verneuil, BP 3002
78133 Les Mureaux
FranceTel +33 1 39 06 12 34
EADS CASA Espacio
Avenida de Aragon 404
28022 Madrid
Spain
Tel +34 91 586 37 00

EADS Space Services
81663 Munich•Defence and Civil Systems Germany
Tel +49 89 607 0
EADS Systems and
SODERN
Defence Electronics
20, avenue Descartes, BP 23
81663 Munich
94451 Limeil Brevannes cedex
Germany
FranceTel +49 89 607 0
Tel +33 1 45 95 70 00
EADS Services
CILAS
63, ter. Avenue Edouard
Route de Nozay, BP 27
Vaillant
91460 Marcoussis
92517 Boulogne Billancourt
FranceFranceTel +33 2 38 64 15 55
Tel +33 1 58 17 77 77

EADS International
Tel +33 1 40 69 20 14
Tel +33 1 40 69 18 37
Fax +33 1 40 69 21 31

United Kingdom
Tel +44 207 766 32 05
Fax +44 207 839 92 79
Tel +44 207 499 50 94
Fax +44 207 495 00 64

External Offices

Indonesia
Tel +62 21 573 57 33
Fax +62 21 573 59 23
Malaysia
Tel +60 3 21 63 02 33
Fax +60 3 21 63 02 11• Middle East/Maghreb• North America
CanadaTel +1 613 230 39 02
Fax +1 613 230 14 42

Abu Dhabi
Tel +97 12 681 28 78
Fax +97 12 681 10 27• Central & Eastern Europe

Egypt
Tel +20 2 794 86 71
Fax +20 2 795 73 17

Czech Republic
Tel +420 22 445 42 20
Fax +420 22 445 42 22

Oman
Tel +97 12 681 28 78
Fax +97 12 681 10 27

PolandTel +48 22 697 73 21
Fax +48 22 697 73 19

Saudi Arabia
Tel +96 61 46 53 456
Fax +96 61 46 30 844

RussiaTel +7 095 797 53 67
Fax +7 095 797 53 66• Africa• Western Europe
Belgium
Tel +32 2 502 60 05
Fax +32 2 502 30 81
FinlandTel +35 8 968 723 690
Fax +35 8 968 723 691
GermanyTel +49 30 259 26 911
Fax +49 30 259 26 919
GreeceTel +302 10 69 83 871
Fax +302 10 69 83 870
Italy
Tel +39 06 853 53 51 5
Fax +39 06 841 62 26
Spain
Tel +34 915 857 00
Fax +34 915 470 019
TurkeyTel +90 312 448 09 40
Fax +90 312 448 09 46
EADS 2002 Addresses

South Africa
Tel +27 12 677 15 23
Fax +27 12 677 17 44

SingaporeTel +656 737 50 77
Fax +656 733 58 15
ThailandTel +66 2 67 01 734
Fax +66 2 67 01 738• Latin America
BrazilTel +55 61 321 42 51
Fax +55 61 321 47 04
Tel +55 9 11 55 04 15 00
Fax +55 9 11 55 04 15 01
Chile
Tel +56 2 244 41 00
Fax +56 2 244 33 34
MexicoTel +52 55 54 88 20 41
Fax +52 55 54 88 20 45• North Asia
China
Tel +86 10 64 10 68 80
Fax +86 10 64 10 68 78
Korea
Tel +8 227 98 49 25
Fax +8 227 98 49 27
TaiwanTel +88 6 227 12 15 94
Fax +88 6 227 12 10 89• South Asia/Pacific
Australia
Tel +61 2 9225 05 00
Fax +61 2 9225 05 01
India
Tel +91 11 2460 45 68
Fax +91 11 2465 75 86

107

Owning EADS shares

Stock price evolution for the year 2002
EADS

CAC 40MSCI World Aero/Defence
EADS Stock Price in w

base 100

21.8

130

19.1
16.4
100

13.6
10.9
8.2

70

5.4
2.7

50

0
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2002

Trading of EADS shares went through two distinct phases in 2002:• Robust performance mirrored EADS success stories
EADS shares soundly outperformed the CAC 40, DAX 30 and IBEX 35 indices in the first halfof 2002. This strong showing reflected EADS’ business achievements, renewed market
confidence due to improving air travel passenger traffic statistics, and successes with defence
products: the selection of EADS team “Paradigm” for Skynet 5, positive momentum for the
A400M programme, the successful maiden flight of the first German series Eurofighter, andinclusion in the US Coast Guards “Deepwater” programme all contributing to raised investor
awareness of the value of EADS’ defence segment.
• Market forces cast cloud on share performance
EADS’ stock underwent strong pressure in the second half of the year, precipitated by US
Airways’ bankruptcy filing and exacerbated by the anticipated filing of United Airlines andnegative news from American Airlines. This trend was amplified by the general climate of
economic and political uncertainty and by further delays in the A400M and Meteor programmes
which cast shadows on the budgetary backdrop of European defence programmes.
As general market uncertainties rose during the year, there was a transition from investment
predicated on fundamental analysis towards more technical investing styles such as pair-trading,and increased volatility arising from short-term positions triggered by news flow. Investor focus onnear term liquidity and cash, brought about by the unsure environment, did not allow prospects
from the A380 “Superjumbo”, the A400M military transport aircraft, Eurofighter or our helicopter
programmes, Tiger or NH90, to be factored into the share price. Management expects that as themarket focus returns to growth, the contribution of these long term programmes will increasingly
be reflected in EADS’ stock performance.
Dividend and cash distribution for 2002.
The EADS Board of Directors has decided to propose to the Annual General Meeting on
6th May 2003, to vote a dividend of €0.30 (gross amount) per share for the business year 2002
to be paid on 12th June 2003. This proposal is consistent with EADS dividend policy to pay out
about 2% of EADS’ market capitalisation, based on a average 2002 share price of about €14. The
utmost focus of management at this time is to maintain the highest standard of financial discipline.

108

EADS 2002 Owning EADS shares

EADS at a glance

Airbus p22 – 27
The Airbus family of passenger jets ranges in size from 100 to 555 seats. During 2003,
the company expects to consolidate its leadership as the world’s largest supplier of
jet airliners in terms of deliveries. In 2006, the product range will be joined in service
by the 555-seat A380, the largest civil aircraft ever designed, for which production
began in 2002.

• A380 manufacturing begins

Financial calendar 2003
2002 Annual results release:10th March 2003

2002 (€bn)• 120 A319s ordered by easyJet in 2002s largest purchase

Revenues

Global investor forum:
28th – 29th April 2003, Munich, Germany

19.5• Four major flag carrier airlines join the Airbus family
Order book

• Year-end order book represents five years’ production at current rates

5

141.0

First Quarter 2003 results release:
6th May 2003

Order book/2002 deliveries (in aircraft)
5 Years

A340-600

Annual General Meeting:
6th May 2003, Amsterdam, The Netherlands
Global Investor Forum, Marseille 2002

Military Transport Aircraft p28 – 29
The Division manufactures the highly successful C-212, CN-235 and C-295 lightand medium military transports which are in service with some 50 countries aroundthe world. It is also responsible for the A400M, a new strategic heavy-lifting military
freighter which makes use of Airbus technology. The launch of this programme
is expected in 2003.

• CN-235 chosen for the US Coast Guard’s Deepwater programme

2002 (€bn)• Brazil selects the EADS CASA medium transport aircraft to support
the Amazon Protection System

Revenues• Work sharing on the A400M programme agreed

Order book

The Division’s business activities include Eurocopter (the world market leader
in commercial helicopters), Eurofighter combat aircraft, ATR regional airliners,
light aircraft, service and maintenance, passenger-to-freighter conversions
and aerostructures.

Third Quarter 2003 results release:
6th November 2003

0.5

0.2

0.6

• Air Refuelling Boom system development started

Key information for Shareholders
EADS proactively offers a variety of information sources updating shareholders on its major
events and progress such as the quarterly newsletter called “Aeronotes” and a monthly investor
summary available on EADS website.

Order book/revenues
1.2 Years

C-295

Aeronautics p30 – 33

First Half 2003 results release:28th July 2003

• Eurocopter wins 60% of world commercial helicopter market deliveries

2002 (€bn)• Orders of Tiger in Australia and NH90 in Norway

Revenues• First production Eurofighters rolled out; export sales drive under way• EADS EFW delivers 50th passenger-to-freighter conversion to FedEx

The EADS website, www.eads.net, also provides a wide range of information including financial
topics. Shareholders can contact us everyday on our special toll-free lines. It received the Fils d’Or
award in 2002 as “best Cac 40 website” from la Vie Financière.
Investor Relations contact:
Toll Free Telephone Numbers:
France0 800 01 2001
Germany 00 800 00 02 2002
Spain
00 800 00 02 2002

5.3
Order book2

13.5

Order book/revenues
2.5 Years

EC135

Defence & Civil Systems p34 – 37
The Division includes MBDA, the world’s second-largest missile company.
It also manufactures sophisticated defence electronics and secure communications
systems for civil and military applications. The EADS Services business unit caters to
the growing demand for outsourced military functions.

• MBDA books Meteor missile contract (€0.9 billion EADS share)

2002 (€bn)• EADS LFK, the German missile subsidiary, signs €485 million Taurus missile
contract with Germany

Revenues• Preferred bidder for Herkules with German army

Order book

Shareholders from other countries can contact us at:+33 1 41 33 90 94
An e-mail box is dedicated to answering shareholders’ inquiries:
ir@eads.net

3.3

10.1

2

• EADS command and control systems selected for the German K130 corvette
Order book/revenues• Strategic restructuring, achieves return to profit

3.1 Years

TaurusSpace p38 – 41
The Space Division is active in all aspects of today’s space industry – from the
Ariane launchers to telecommunications and scientific satellites and services throughAstrium subsidiary. It is involved in many of the most advanced programmes in
the field, including the International Space Station ISS and the future European global
satellite navigation system, Galileo.

• Paradigm is the preferred bidder for the Skynet 5 defence programme

2002 (€bn)• Ariane wins 11 of the year’s 18 commercial launch contracts in the world

Revenues
2.2• Difficulties compounded by market deterioration

Order book

• Decision to acquire full control of Astrium announced

3.9

Order book/revenues
1.8 Years

Envisat

EADS 2002 EADS at a glance

2

EADS 2002 EADS at a glancewww.eads.net

Designed and produced by Addison Corporate Marketing Limited
Printed by Kriechbaumer© Copyrights: Airbus; Airbus Military; Arianespace; Astrium; EADS CASA; EADS Launch Vehicles;
EADS LFK; EADS Military Aircraft; EADS Telecom; ESA; Eurocopter; Gamma agency; MBDA;
Polizeihubschrauberstaffel Dresden; The International Herald Tribune 2002; H. Bèrenger; H. Gousse;
K. Henseler; T. Jullien; D. Modes; H. Moulonquet; E. Nojaroff; P. Penna; C. Serna.
All rights reserved

European Aeronautic Defence and Space
Company – EADSIn France
37, boulevard de Montmorency
75781 Paris cedex 16 – France
In Germany
81663 Munich – Germany
In Spain
Avenida de Aragón 404
28022 Madrid – Spain

European Aeronautic Defence and Space Company EADS N.V.

This document is also available at thefollowing addresses:

European Aeronautic Defence and Space Company EADS N.V.

EADS in 2002

Annual Report 2002

Annual Report 2002

Delivering measurable results

Contents

European Aeronautic Defence
and Space Company EADS N.V.
Le Carré
Beechavenue 130 – 132
1119 PR Schiphol-Rijk
The Netherlands
www.eads.net

From top to bottom
A380
A400M
Eurofighter
NH90
MeteorAriane 5

02
08
10
14
16
18
21
22
28
30
34
38
42
46

EADS at a glance (under flap)
Delivering measurable results
Message from the Chairmen
Message from the CEOs
Executive Committee
Key measures in 2002
The world in which we operate
Our business
AirbusMilitary Transport Aircraft
Aeronautics
Defence and Civil Systems
Space
Corporate governanceCorporate social responsibility

48 Financial section
48 Financial policy
50 Mangement’s analysis of thefinancial situation
68 Consolidated financial statements
72 Notes to the consolidated
financial statements
102 Information on principal investments
105 Auditors’ report
106 Addresses
108 Owning EADS shares