Single entity financial statements and management report ... · Drägerwerk AG & Co. KGaA from...

Single entity financial statements and management reportof Drägerwerk AG & Co. KGaA

as of December 31, 2011

1CONTENT

Management report of Drägerwerk AG & Co. KGaA 2

Forward-looking statements 43

Single entity financial statements of Drägerwerk AG & Co. KGaA 45

Income statement of Drägerwerk AG & Co. KGaA from January 1 to December 31, 2011 45

Balance sheet of Drägerwerk AG & Co. KGaA as of December 31, 2011 46

Analysis of non-current assets of Drägerwerk AG & Co. KGaA 48

Notes to Drägerwerk AG & Co. KGaA single entity financial statements 50

The Company’s Boards 72

Major direct and indirect shareholdings of Drägerwerk AG & Co. KGaA 76

Management compliance statement 81

Possible rounding differences in the financial report may lead to slight discrepancies.

2 IMPOrTANT ChANGES IN FISCAL yEAr 2011 | CONTrOL SySTEM

Management report of Drägerwerk AG & Co. KGaA

Important changes in fiscal year 2011

DIVIDENDS

The calculation of the dividend to be distributed to pre-ferred and common shareholders is based on certain factors: particularly profitability, financial position, capi-tal requirements, business outlook, the Company’s gen-eral economic environment and the share of net profit to be issued to participation certificate holders (including minimum dividend). As participation certificates are entitled to receive ten times as much as the dividend paid to preferred shareholders, it must be remembered when determining the dividend for preferred and common shares that an increase of the latter would always result in an increase of the dividend for participation certificates. In the case of an increase, a little less than half of the total amount paid to participation certificate holders and shareholders in the past generally pertained to participa-tion certificates.

Subject to the above-mentioned determinant factors and the Company having generated sufficient net earnings, the Executive Board of the general partner, together with the Supervisory Board of Drägerwerk AG & Co. KGaA, Lübeck, plan to propose to the annual shareholders’ meeting on May 4, 2012 a dividend of EUR 0.19 for preferred shares and a dividend per common share of EUR 0.13 for fiscal year 2011 for the purpose of financing the current improvements to the capital structure.

Drägerwerk AG & Co. KGaA also aims to increase its equity base to 40 percent of consolidated total assets in the medium term to improve its strategic leeway to account for the continuing macroeconomic uncertain-

ties. As soon as the Dräger Group achieves this equity ratio, it plans to distribute around 30 percent of Group net profit (less earnings attributable to non-controlling interests) as a dividend again. Until this equity ratio has been reached, the Executive Board of the general partner intends to distribute 15 percent of Group net profit (less earnings attributable to non-controlling interests).

The Executive Board of the general partner, together with the Supervisory Board, aim to provide shareholders with higher interest on capital employed in the long term, on the basis of the improved future capital structure.

CHANGE IN THE EXECUTIVE BOARD OF

DRÄGERWERK VERWALTUNGS AG

Dr. Carla Kriwet, Executive Board member since January 1, 2011 and responsible for Marketing and Sales, left the Company on December 31, 2011 by mutual agreement. Both parties agreed to maintain secrecy about the reasons for her resignation.

BUSINESS ACTIVITIES

Drägerwerk AG & Co. KGaA, Lübeck holds all shares in Dräger Medical GmbH and Dräger Safety AG & Co. KGaA and therefore the parent companies of the medical and safety divisions. Apart from the investments in Dräger Medical GmbH and Dräger Safety AG & Co. KGaA, Dräger-werk AG & Co. KGaA also holds a few equity investments which do not form part of the two divisions’ operations (see pages 80 et seq. in the notes). All the shareholdings which form part of the global operations of the two divi-sions are either directly or indirectly owned by the respec-tive parent.

Apart from fulfilling the core tasks of the Company, Drägerwerk AG & Co. KGaA provides central services to the divisions and monitors their risk management. These services are provided for the functions HR, Legal, Compli-ance, Customs and Export Control, Tax, Audit, Insurance,

3NOTESFINANCIAL STATEMENTS MANAGEMENT REPORT

Accounting, Controlling, Treasury, Capital Market Com-munication, IT and Corporate Communications as well as Strategic Purchasing, Marketing Communications and Basic Research.

The services to the divisions are closely coordinated with them and invoiced in accordance with arm’s length principles, as between unrelated parties.

Control system

NEW MANAGEMENT MODEL

In 2007, Dräger first started implementing a functional, cross-departmental management model, beginning with the Executive Board. Functional responsibility has been established since 2006 in the safety division and since 2008 in the medical division. The objective is to reduce unnecessary double structures and to use synergy effects. In 2011, Strategic Purchasing, Logistics, IT, HR, Account-ing, Marketing Communications and Group Real Estate already received a cross-departmental structure. Dräger will introduce cross-departmental functions in Sales and Controlling in 2012. The Group internally introduced its management model in November 2011. It supports this functional structure and the One Dräger concept. Each Executive Board member will take on one regional responsibility so as to gain more knowledge about cross-departmental activities. This ensures that the Executive Board has an understanding of the effects of its decisions on an operational level, maintains customer contact and makes the connection between global thinking and local requirements. To achieve this, the Executive Board mem-bers will assume regional responsibilities in addition to their functional tasks: Gert-Hartwig Lescow will head the Americas region, Dr. Herbert Fehrecke all of Europe and Anton Schrofner the Middle East, Africa and Asia/Pacific. As part of Dräger’s functional orientation, the members of the Executive Board of Drägerwerk AG & Co. KGaA will

also take over the management of Dräger Medical GmbH and Dräger Safety AG & Co. KGaA. All three companies’ Supervisory Boards will be manned by the same members on the capital side.

On a local level, Dräger already appointed one Regional Sales and Service Manager each in 2012 who carries the responsibility for the previously divided medical and safety divisions. At a national level, the Group aims to strength-en the Sales and Service function, in particular, and focus even more on different customers in various segments and niches. The other functions will also be linked on a transnational basis. As from 2012, one Country Manager per country will be tasked with coordinating the various functions within one country; in countries with more than 50 employees, this person will be chosen by the Executive Board member responsible for the region. The Executive Board members will assume this role in addi-tion to their other tasks. This ensures that Dräger employs its resources more efficiently by, for instance, jointly using infrastructures and central service functions. At the same time, this new structure explicitly and concisely allocates tasks and responsibilities. A clearly defined escalation path will help to deal with difficult situations more quick-ly. The Company will also improve its system of checks and balances and reduce potential risks. Joint targets and performance-related remuneration ensure that no-one loses focus of the major goals.

VALUE-DRIVEN MANAGEMENT – DRÄGER VALUE ADDED

In order to achieve long-term success, Dräger has to generate steady growth as well as stable and sustainable economic performance. The Group uses a value-driven management system to increase the Company value in the long term.

4

BUSINESS DISTRIBUTION PLAN

Functional responsibilities

regional responsibilities regional responsibilitiesregional responsibilities

Stefan Dräger CEO

Dr. Herbert Fehrecke CTO

Vice CEO

Anton SchrofnerCOO

Purchasing

Research and Development

Marketing Medical Division (temporary)

Patents

Quality

IT

Logistics

Marketing Safety Division(temporary)

Production

Europe North America

Central and South America

Middle East

Africa

Asia / Pacific

Gert-Hartwig LescowCFO

Controlling

Capital Market Communications

Accounting

Tax

Treasury

Insurance

Customs and Export Control

Real estate

HR

Legal

Audit

Company Development

Corporate Communications

Sales

CONTrOL SySTEM | MAIN ACCOuNTING FEATurES OF ThE INTErNAL CONTrOL ANd rISk MANAGEMENT SySTEM

This system is based on the financial key figure Dräger Value Added (DVA). The main DVA targets are:

– Profitable growth,– Increasing operating efficiency and– Increasing capital efficiency.

DVA is the central key management figure by which the Company measures its added value and that of its various

units. DVA makes it possible to combine the various targets within the Group and all relevant key figures. This way, business decisions can be adjusted so as to assist in increasing Company value. The major proportion of annual variable remuneration of Executive Board mem-bers is measured by DVA performance for this reason. The DVA key figure also has been integrated in internal report-ing and the managers have been given specific training regarding this topic.


DVA is the difference between Group earnings before interest and taxes (EBIT) and cost of capital, which was calculated on the basis of historical costs for equity and debt. The weighted average cost of capital (WACC) used for calculating the cost of capital was the current rate of 9.0 percent (2010. 9.0 percent) before taxes.

In fiscal year 2011, Dräger generated DVA of EUR 134.6 million (2010: EUR 114.5 million), corresponding to a rise of 17.6 percent year-on-year. While cost of capital remained largely unchanged, this increase was achieved by improving EBIT. The average capital invested rose by 1.1 percent to EUR 879.4 million – constituting below average growth compared to net sales (+3.6 percent).

Main accounting features of the internal control and risk management system as it relates to the financial reporting process

DEFINITIONS AND ELEMENTS OF THE INTERNAL

CONTROL AND RISK MANAGEMENT SYSTEM

The internal control system includes all principles, processes and measures for guaranteeing the effective-

ness, efficiency and correctness of the financial reporting system and ensuring compliance with all relevant legal requirements.

The internal control system comprises controls as well as a monitoring system. The Executive Board of Drägerwerk Verwaltungs AG, in its role as management of Drägerwerk AG & Co. KGaA, appointed the Group Controlling and Group Accounting functions of Drägerwerk AG & Co. KGaA with the responsibility for the internal control system.

This primarily comprises both process-integrated and process-independent measures. Manual process controls, such as a system of checks and balances and automated IT process controls are both essential parts of the process-integrated measures. Bodies like the Compliance Com-mittee and specific Group functions like the central tax and Group legal departments ensure process-integrated monitoring.

The Supervisory Board of Drägerwerk AG & Co. KGaA, particularly its Audit Committee, and Internal Audit implement audit activities as part of the internal monitor-ing system. Internal Audit carries out regular audits at

DEVELOPMENT OF DRÄGER VALUE ADDED (DVA)

Dräger medical division Dräger safety division Dräger Group

2011 2010 2011 2010 2011 2010

DVA € million 144.0 136.5 57.5 43.1 134.6 114.5

EBIT € million 191.8 186.6 76.1 61.0 213.8 192.8

Cost of capital € million 47.9 50.1 18.6 18.0 79.1 78.3

WACC 1 € million 9.0 9.0 9.0 9.0 9.0 9.0

Capital employed 2 € million 532.0 557.0 206.8 199.5 879.4 870.2

Net current assets 2 € million 264.2 292.4 130.3 122.8 363.4 357.3

Other capital employed 2 € million 267.8 264.5 76.5 76.6 516.0 512.9

1 WACC = Weighted Average Cost of Capital2 Average over the past 12 months

6 MAIN ACCOuNTING FEATurES OF ThE INTErNAL CONTrOL ANd rISk MANAGEMENT SySTEM | OvErALL ECONOMIC ENvIrONMENT

foreign Group companies. The auditor of the financial statements implements process-independent audit activi-ties. The risk management system is aimed at avoiding incorrect entries during the accounting process and the external reporting process, among other things. It com-prises operational risk management and a systematic early-warning system for detecting business risks.

USE OF IT SYSTEMS

Data relevant to financial reporting is recorded during the accounting process using the SAP standard software. Dräger Group uses a uniform accounts structure through-out the Group, which also stipulates the reconciliation methods for items in the financial statements.

Dräger assesses the IT environment, identifies potential risks, regularly records them and reports them at least twice a year to the Executive Board within the scope of the risk management system. In addition, the auditor of the group financial statements carries out an independent audit of the entire IT control system, change manage-ment, IT operations, access to programs and data and system development once a year.

Since 2007, the Company has been carrying out selected tasks in-house or outsourcing them to specialized service providers. As a result, the central Corporate IT function also developed its own capacities in selected areas and will continue to do so in the future. External partners will continue operating technical systems at their computer centers.

ESSENTIAL REGULATORY MEASURES AND CONTROLS

FOR ENSURING COMPLIANCE AND RELIABILITY OF THE

FINANCIAL REPORTING SYSTEM

Dräger has an internal control system to ensure the compliance and reliability of the financial reporting system and also to ensure that business transactions are recorded completely and promptly and in accordance

with commercial and tax laws. Pursuant to these regula-tions, Dräger carries out inventories, measures assets and liabilities and recognizes them in the financial state-ments.

Amounts reported in the income statement are checked to ensure they were recognized in the correct period. The Company ensures that reliable and traceable information regarding the business transaction is included in the records. It is ensured that accounting transactions are promptly and completely recorded by clearly allocating responsibilities and control mechanisms, by providing transparent accounting and reporting guidelines, and by using highly reliable IT accounting systems. In addition, monthly financial statements are checked by Controlling and reconciled with the plans and the latest forecast.

Separating administrative, executive and authorization functions by issuing different access profiles in the accounting systems reduces the potential for fraudulent acts against the Company.

Overall economic environment

The macroeconomic environment in 2011 was shaped by the weak momentum of the global economy and the at times serious turbulences in the capital market caused by the worsening debt crisis in the eurozone.

GLOBAL ECONOMY: UP 3.8 PERCENT

The global economy grew strongly in 2011, albeit less strongly than in the previous year, as global growth start-ed to increasingly slow down in the second half of the year. The 2011 gross domestic product (GDP) rose by 3.8 percent, compared to 5.2 percent in 2010. In the emerging markets like China, India and Brazil, restrictive fiscal and particularly monetary policies slowed down


economic momentum: their GDP grew by 6.2 percent compared to 7.3 percent in the previous year. The relatively low growth momentum of international trade as well as the reduction of government stimulus packages contributed to cutting the growth rate by half to 1.6 percent in the industrialized nations. As a result, governments’ demand for goods and services, which stimulates the economy, declined.

Although each quarter, the Japanese economy recovered considerably from the effects of the natural and nuclear disaster in spring 2011, the country’s GDP shrunk slightly by 0.9 percent year-on-year (previous year: +4.4 percent). Dropping global demand, interruptions to deliveries caused by the floods in Thailand and the strong apprecia-tion of the yen prevented stronger growth in Japan. Although at 1.8 percent the US economy grew significant-ly less strongly than in the previous year (+3.0 percent), it gained momentum through increased consumer spend-ing and capital investments in the last two quarter of 2011.

EUROZONE: UP 1.6 PERCENT

The economic development in the eurozone lost more and more momentum during the course of the year, and the GDP growth rate fell from 1.9 percent to 1.6 percent as a result. Declining global demand and the debt crisis, which worsened in the second half of 2011, as well as the resulting trust crisis among companies and consumers in the eurozone all contributed to this development. The continuing turbulences in the capital market in the eurozone and the necessary budget cuts increasingly subdued domestic demand in the second half of 2011. Despite the great amount of uncertainty in the eurozone about the duration and also the solvability of the debt crisis in some of the member states, the German economy continued to catch up in the second year after the eco-nomic crisis. Especially consumer spending, whose main driver was the positive development in the labor market,

provided impulses that helped push up the German GDP by 3.0 percent (previous year: + 3.7 percent): The private consumption growth rate was the highest in five years.

INFLATION: UP 2.3 PERCENT IN GERMANY:

The very strong global economic recovery at the begin-ning of 2011 significantly increased demand for raw materials in the beginning. Political instability in oil-pro-ducing countries in the Middle East and North Africa sent the oil price up even further to over USD 126 per barrel at times. The announcement by the International Energy Agency (IEA) in the summer that it was placing 60 billion barrels of oil in the market and the flattening out of the global economy – and consequently demand for crude oil − then pushed prices down again.

Crude oil was traded at an annual average price of USD 110 per barrel – significantly up on the prior-year price USD 80 per barrel. The increased prices for energy and other raw materials were the main reason for the rising rates of inflation past the 2.0 mark in the eurozone, up to which the European Central Bank (ECB) believes that prices will remain stable. In September 2011, the inflation rate went past 3.0 percent for the first time in the year. It only fell below the 3.0 percent mark again to 2.7 percent in December. Consumer prices in Germany rose by an annual average of 3.4 percent – 2.3 percent up year-on-year (+1.1 percent) – primarily on account of the rise in energy prices.

The European Central Bank raised the 2011 key interest rates by 25 basis points respectively in June and July to 1.50 percent to account for inflationary developments in the eurozone. The ECB responded to the economic slow-down and the continuing trust crisis in the financial sector in the eurozone by lowering its key interest rates again in two steps by 0.25 percentage points respectively in November and December to 1.00 percent. In the US, the Federal Reserve did not impose restrictive monetary

8 OvErALL ECONOMIC ENvIrONMENT | BuSINESS TrENd ANd rESuLTS OF OPErATIONS

policies on account of economic developments. It had announced in the summer that it would keep the key interest rate at practically 0.00 percent until at least mid-2013. In order to dampen the overheating of the Chinese economy, the Chinese central bank raised the key interest rate for the third and last time in 2011 up to 6.56 percent in July.

CURRENCY: EURO LOSES COMPARED TO KEY

CURRENCIES IN 2011

The uncertainties about the solvability of the sovereign debt crisis and the stability of the European Economic and Monetary Union led to strong fluctuations of the European currency. The euro initially gained significantly compared to other central currencies. Then the worsen-ing debt crisis started triggering losses, some of them serious: The annual average nominal effective exchange rate of the euro (measured by the currencies of the 20 most important trading partners in the eurozone) in 2011 remained almost stable year-on-year, In the final quarter of 2011, however, it depreciated among continuing volatil-ity and in December 2011 was 0.9 percentage points lower than in the fourth quarter of 2010. The drop in value in the fourth quarter of 2011 was considerable: In January 11, the due date of the January 2012 ECB report, the nominal effective exchange rate of the euro was 4.1 percent down on the figure at the end of September 2011 and 5.0 percent lower than its average value in the past year. Since the end of September 2011 until January 11, 2012, the common currency depreciated by 5.8 percent compared to Dräger’s most important foreign currency, the US dollar, and by as much as 8.6 percent compared to the annual average in 2011. The average 2011 euro-US dol-lar exchange rate of USD 1.39 was nevertheless around 5 percent up on the average prior-year rate of USD 1.33. On the first trading day of 2011, the euro closed at USD 1.34 and at USD 1.30 on the last trading day of the year. The common currency reached its high of USD 1.48 on April 28, 2011 and its low at USD 1.29 on June 7, 2011.

EFFECTS OF THE ECONOMIC ENVIRONMENT ON THE

DRÄGER GROUP

As in fiscal year 2010, Dräger – just like the economic momentum − profited again from large demand in the emerging markets such as China, India and Brazil. Will-ingness to invest was unusually great in Russia compared to economic growth – both in the industrial and public sectors. Demand in Central Europe, North Europe and Asia, however, also outperformed economic develop-ments. In these regions, Dräger profited from great willingness to invest in the industrial as well as public sectors. The above-average rise is most likely the result of customers catching up on their investments. In North America, especially in the US, demand for medical tech-nology dropped sharply – primarily on account of budget spending cuts. In the fourth quarter of 2011, on the other hand, the safety technology market made up for its decline in the first nine months mainly thanks to larger capital investments. The reserved government spending policies had also taken its effect in this market. In South Europe, the restrictive government investment policies, caused by the region’s debt problems, had an even worse effect than in the previous year. Demand from customer groups such as hospitals, fire fighting services and the police force dropped, while industrial demand for safety technology remained stable in these countries.

In 2011, low interest rates again created stimuli for demand as they provided customers with favorable financing terms. Despite the general weakness of the euro compared to the currencies of Germany’s 20 most impor-tant trading partners, the changes in exchange rates reduced Dräger’s net sales compared to the previous year. Net of currency effects, net sales would have risen by 4.4 percent instead of 3.6 percent and order intake by as much as 7.6 percent instead of 6.9 percent. Purchasing conditions were improved as part of the turnaround program and were able to partly make up for higher commodity prices again in fiscal year 2011.


Industry performance

MEDICAL DIVISION

2011 saw a constant stream of global demand with slight regional fluctuations. In Germany, for instance, demand for sophisticated medical technology remained high. In the rest of Europe however, the debt crisis in individual countries had an increasingly negative impact. Govern-ment austerity programs led to a decline in investment volumes in South Europe that also applied to investments in the hospital sector. Russia, on the other hand, showed a positive performance, driven by political events such as the presidential elections. In the Americas – particularly in the US – demand for medical technology was still strong in the first half of the year, then dropped signifi-cantly in the second half on account of the US budget deficit. With China’s and India’s help, which both contin-ued to invest in their infrastructures, and due to an overall increase in demand for high-quality medical technology, Asia remained the global growth driver. The impact of the natural and nuclear disaster in Japan and political developments in North Africa on global demand was minimal. Overall, Dräger profited from growing demand for sophisticated medical technology for the optimization of clinical work processes.

SAFETY DIVISION

Demand for safety technology products developed very positively overall in 2011 in line with global economic developments, even though demand in Germany declined slightly in the second half of the year compared to the first half. In the rest of Europe, demand was sometimes sub-dued due to factors such as the financial and economic crisis. Both public and industry order volumes were rather low in South Europe. The Americas also developed very differently: In the US, on the one hand, public and industrial demand for safety technology was very weak, just like the economy. Various South American industrial sectors, on the other hand, recorded robust growth. In

Asia, excluding Japan, growth remained strong as a whole. The other countries region also developed posi-tively on account of the continuing industrialization and further infrastructure investments in various countries. Overall, Dräger’s safety division, with its clearly positioned product portfolio, also profited from the positive market performance.

Business trend and results of operations at Drägerwerk AG & Co. KGaA

In 2011, Drägerwerk AG & Co. KGaA’s business trend and net profit of EUR 101.5 million (2010: EUR 19.5 million) have essentially been influenced by

– improved result from operating activities – high results of group companies – positive interest result development

IMPROVED RESULT FROM OPERATING ACTIVITIES

In fiscal year 2011, Drägerwerk AG & Co. KGaA increased its result from the operating activities – excluding earn-ings from profit and loss transfer agreements, interest result and taxes – by EUR 24.8 million year on year. The following one-off effects influenced the result in the previous year: Extraordinary result of EUR 14.5 million from the change in accordance with the German Account-ing Law Modernization Act, transaction costs totaling EUR 6.4 million in connection with the capital increase, the measurement of the option component (EUR 20.3 million) as well as the cash settlement of EUR 7.8 million to be paid to holders of series A, K and D participation certificates. Although these one-off effects were not incurred in 2011, the expenses did not fall as expected in 2011. This was countered by the rise in personnel expens-es as against 2010 as a result of the increase in headcount resulting from the hiring of new employees as well as the transfer of employees to implement shared services.

10 BuSINESS TrENd ANd rESuLTS OF OPErATIONS | INvESTMENTS | NET ASSETS ANd FINANCIAL POSITION | BOrrOWING / FINANCING MEASurES |

rESEArCh ANd dEvELOPMENT

Higher consultancy costs and an increase of other exter-nal services – including the higher bonus and severance payment to the members of the Executive Board of Drägerwerk Verwaltungs AG – also impacted the result of Drägerwerk AG & Co. KGaA. Since the change to the Company’s legal form, the Executive Board of Drägerwerk Verwaltungs AG receives its remuneration from the general partner while their pension obligations are handled by Drägerwerk AG & Co. KGaA.

At the same time, other operating income increased due to the year-on-year rise in the allocation of other operating expenses to subsidiaries, which included the income from the debt reduction of tranche III of the vendor note from Siemens to the amount of EUR 8.5 million.

HIGH RESULTS OF GROUP COMPANIES

Earnings from profit and loss transfer agreements (including intragroup tax allocations) came to EUR 190.2 million in fiscal year 2011 (2010: EUR 120.8 million). While the profit transferred by Dräger Medical GmbH in fiscal year 2011 was up some EUR 61.2 million, the profit transferred to Drägerwerk AG & Co. KGaA from Dräger Safety AG & Co. KGaA was up approximately EUR 8.1 million on the previous year. In fiscal year 2010, this item includes the distribution of EUR 70.4 million by Dräger Medical AG & Co. KG to Dräger Medical Holding GmbH for fiscal year 2009 resulting from a profit and loss trans-fer agreement as well as profit of around EUR 19.0 mil-lion transferred from Dräger Medical GmbH, less approxi-mately EUR 86 million in expenses incurred by the integration.

POSITIVE INTEREST RESULT DEVELOPMENT

The positive development of the interest result – up EUR 12.9 million – in 2011 against 2010 is mainly as a result of one-off effects in 2010. In 2010, Dräger not only paid costs incurred for issuing loans in the total amount of EUR 8.2 million for unused loans but also interest on

the Siemens vendor note of EUR 1.9 million. The pro-posed distribution for participation certificates is also down a total of EUR 4.2 million on fiscal year 2010.

Investments

In fiscal year 2011, the Company invested EUR 6.8 million (2010: EUR 3.2 million) in software and prepayments made. Investments in property, plant and equipment came to EUR 6.1 million (2010: EUR 1.3 million). They focused on building conversions and investments in notebooks and IT hardware. The later if mainly related to replacement.

Net assets and financial position

As a result of its function within the Dräger Group, Drägerwerk AG & Co. KGaA’s balance sheet is character-ized by high financial assets and liabilities from group financing as well as intercompany receivables and liabili-ties.

After deducting cash and cash equivalents, net financial liabilities to banks as of December 31, 2011 amounted to EUR 123.4 million (2010: EUR 129.0 million); group financing of group companies came to EUR 72.0 million (2010: EUR 134.7 million).

Drägerwerk AG & Co. KGaA’s equity amounted to EUR 610.9 million and increased by EUR 82.5 million year on year as a result of the positive result for fiscal year 2011. Drägerwerk AG & Co. KGaA’s equity ratio as of the reporting date therefore came to 48.1 percent (2010: 40.5 percent).


Borrowing / financing measures

Our short-term operating requirements are funded via bilateral credit lines with selected banks. The Company also maintains internal cash pools in several currencies that are used for offsetting liquidity within the Group. On December 31, 2011, short-term loans amounted to around EUR 84.5 million (2010: EUR 54.9 million).

The Company has arranged for bilateral credit lines with renowned banks to the amount of EUR 240 million due on December 31, 2015 to secure its working capital. Dräger only utilized these credit lines in form of sureties in Germany and abroad in the reporting year.

Dräger uses note loans in addition to bilateral credit lines for its medium and long-term financing. This financing instrument has a low minimum volume and is highly flexible. The costs for issuing note loans are usually lower than those for issuing bonds. A note loan is rather more suited to smaller refinancing volumes than a bond, for which a credit rating has to be obtained as well.

On December 19, 2011, the Group issued note loans to the amount of EUR 57.5 million at an annual interest rate of 3.21 percent and a term of five years and to the amount of EUR 38.5 million at an annual interest rate of 3.88 per-cent and a term of seven years. In the reporting year, Dräger repaid due note loans totaling EUR 54.5 million. Of this sum, EUR 30 million carried variable interest at the six-month Euribor plus 0.67 percentage points. A further tranche of EUR 24.5 million carried fixed interest of 4.75 percent p.a. Total note loans amounted to EUR 366.5 million on December 31, 2011 (December 31, 2010: EUR 325.0 million).

At present, Dräger does not have a rating from agencies such as Standard & Poor’s, Moody’s or Fitch.

Research and development

As of December 31, 2011, the research and development (R&D) department at Drägerwerk AG & Co. KGaA employs 49 people (December 31, 2010: 48 people). Drägerwerk AG & Co. KGaA spent EUR 4.7 million (2010: EUR 3.3 million) on research and development in fiscal year 2011.

The basic research department’s main task is to investi-gate new technologies and develop technical solutions for potential applications. These technologies are transferred to product development only once they have reached a sufficiently high level of maturity.

In fiscal year 2011, Basic Research systematically moni-tored over 20 technology sectors, including electrochemi-cal and micro-electromechanical sensor technology, software and signal processing technology. This measure aims to identify significant risks and opportunities for the Company’s technological competitiveness at an early stage. Findings with particularly large potential and also employees’ ideas were scrutinized in more detail within the scope of almost 30 small research activities. They included patent applications, identifying customer ben-efits and suggestions for technology projects. In addition, Basic Research worked on almost 50 technology projects that will flow into specific product development projects once they are completed. In the medium term, Dräger expects important contributions to product development from topics such as “secure networking and interoperabil-ity”, “interface human-machine” and “nano-materials”. The Company cooperates with around 50 external part-ners worldwide for this purpose, including university laboratories, clinics, research institutions as well as small, innovative companies. Some projects are also part of government-subsidized undertakings.

In fiscal year 2011, patent and trademark offices around the world issued 118 new patents to Dräger (2010: 110).

12 rESEArCh ANd dEvELOPMENT | PurChASING | MArkETING | COrPOrATE IT

Dräger also applied for another 87 patents at internation-al patent and trademark offices (2010: 62). Dräger takes determined action against any breaches of its patent rights to secure its patent-protected competitive advan-tages.

Purchasing

COMMODITY PRICES – CHALLENGES IN

FISCAL YEAR 2011

The high prices for commodities such as copper, alumi-num, platinum and rare soils as well as the increasing shortage of materials like plastics throughout 2011 proved the greatest challenge for Dräger’s purchasing function. Conventional purchasing methods are often no longer sufficient to ensure supply capability at still reasonable prices. Dräger’s purchasers are focusing their efforts on commodities purchasing concepts with the aim of increasing volumes so as to strengthen the Company’s market position. The same was applied to Dräger’s suppli-ers, which were intensively included in mastering these challenges and which the Group methodically supported by offering possible solutions. A positive trend showed for the first time in the fourth quarter, but it was unable to fully compensate for the extremely high price hikes in the first nine months. Purchasing as well as Research and Development intensified their cooperation by carrying out joint value analysis projects (design to cost) to be even better prepared for future price fluctuations.

Purchasing achieved positive results again for the pur-chase of non-production materials and IT in 2011, gener-ating excellent savings for the purchase of goods and services.

SUPPLIER QUALITY – A BASIC REQUIREMENT FOR

DRÄGER QUALITY

The objective of the supplier quality improvement pro-gram, launched at the end of 2010, is to optimize all

aspects of Dräger’s suppliers with regard to the functions Research and Development, Production and Quality. In fiscal year 2011, this improvement program started to show its first successes in Lübeck. The Company man-aged, for instance, to lower one electronics supplier’s rate of internal production errors by a two-digit percentage figure. This was a great success for both Dräger and the supplier. The Group also uses the experiences gained from the quality improvement program to directly improve its basic cooperation with suppliers. An efficient initial sampling process and an optimized complaints procedure are just two examples of long-term improve-ments of a partnership.

Dräger is now also using the quality improvement pro-gram at production sites in the US and Great Britain. The next step will be to launch the program in China in 2012.

SUPPLIERS – KEY TO SUCCESSFUL PURCHASING

In addition to highly qualified purchasers, reliable, inno-vative and high-quality suppliers form an important basis for excellent purchasing performance. Dräger will hold its first cross-departmental supplier day in 2012 to appropri-ately acknowledge the importance of its suppliers. At this event, the best suppliers will be awarded the “Dräger Supplier Award” in the categories quality, innovation, logistics, competitiveness and services and one supplier will be declared the overall winner in all categories.

Marketing

VARIETY OF SALES CHANNELS

Dräger regularly analyzes and evaluates the importance of the variety of global sales channels as part of its sales and marketing strategy. The Group is represented by subsidiar-ies in the majority of key markets. In addition, the Company reaches out to customers via established regional specialist retailers wherever this serves its purpose. The proportion in the growth regions Asia / Pacific, the Middle East and


Africa as well as South America is disproportionately large. The retailers in these regions often provide the momen-tum for Dräger’s growth. In some established markets like Canada, the US, Australia and some European markets, the Group works closely together with specialist retailers to gain even better access to its target groups in the various customer segments.

SUSTAINABLE CUSTOMER RELATIONSHIP MANAGEMENT

By introducing a global comprehensive customer relation-ship management (CRM), Dräger continues to invest in the long-term success of the Company. It regards a synchronized customer focus of employees, organization, processes and IT as a key success factor for expanding long term and developing new customer relationships. The CRM program, which has been running since 2009, is now being used in 13 countries, which together con-tribute almost 50 percent of total net sales of the Dräger Group. For the future, Dräger plans to launch this pro-gram in all sales companies to generate new opportuni-ties in customer relationship management, both locally and strategically for the whole Group.

Dräger also maintains personal customer relationships at its headquarters in Lübeck, where visitors can experi-ence hands-on medical technology system solutions at the new Dräger Design Center. Since September 2011, Dräger has been exhibiting its complete portfolio of products and solutions across the entire acute care patient process chain on roughly 700 m2 of floor space. In addition, visi-tors can attend workshops to develop virtual floor plans for clinical workstations or whole departments and docu-ment them with a 3D tool.

Corporate IT

IT STRATEGY

Dräger’s fundamental goal is to support its business processes with IT. This primarily pertains to the ongoing

adjustments of IT systems to suit requirements, a high technological standard and the constant striving for simplifying the use of IT as much as possible for employ-ees.

In the past year, the Company launched a new pilot platform for supporting cooperation between its employ-ees and business partners. Based on the Microsoft Share-point application, virtual team rooms will be available to provide more effective teamwork between several loca-tions. Additional functions will be added to this platform in the coming years and in the future it will also be used for the Intranet and Internet. Old applications from various producers can be replaced by the new Sharepoint system in the coming years.

In 2011, the Group transferred the operation of numerous applications in the computer center to a new service provider as part of the “Strategic Hosting” project. At the same time, the applications were updated to the latest ver-sions, new mechanisms were implemented for increasing operating security and uptimes and operating costs were reduced. In the coming years, Dräger will transfer the majority of remaining applications to this model and reduce the number of outsourcing service providers.

The Group will focus its IT investments on the global consolidation of numerous enterprise resource planning (ERP) systems from various developers into one central SAP system over the next years. Dräger will carry on using the Microsoft Dynamics CRM application for supporting its customer relationship management and continue with its implementation, which started last year. In 2012, the number of employees using this system around the world will be in excess of 2,000.

IT HEADCOUNT

As already announced in the Annual Report 2010, head-count was significantly increased by 17 employees to 58 employees in ERP and CRM Project and Application

14 COrPOrATE IT | ENvIrONMENTAL PrOTECTION

Management in the reporting period. An additional 19 employees completed the project management team outside the stated core applications in the fields of system integration as well as support for other applications. This area now has a total headcount of 65. At the same time, we reduced the extent of external services in these areas in the medium term, thereby accumulating strategically important know-how and improved internal IT manage-ment processes. The Company plans to continue expand-ing its workforce in the coming year. The progressive internationalization of the IT organization will make it possible to integrate the subsidiaries’ IT resources even more effectively.

Environmental protection

Comprehensive environmental protection as well as occupational health and safety have always been a priority for the Dräger Group. The Company continued to increase the number of environmental certifications for its global subsidiaries in 2011. A total of 31 Dräger compa-nies now have certified environmental management systems in compliance with DIN EN ISO 14001 (2010: 28 companies). This represents coverage of approximately 64 percent. 22 of the safety division’s 42 foreign subsidiaries (52 percent) are certified in accordance with OHSAS 18001 (2010: 40 percent). The two US production sites of Dräger Medical Systems Inc. in Andover, Massachusetts, and Telford, Pennsylvania, as well as the sales and service company Dräger Medical Inc., Telford, were included for the first time last year in the medical division. Four of the medical division’s key subsidiaries are therefore also certified in accordance with this standard (2010: two). At the same time, Dräger also had the occupational health and safety management systems of its two US production sites certified.

The systematic documentation and assessment of energy and resources consumption was expanded further in 2011. 89 Dräger companies around the world (2009: 65 companies) participated in the “Carbon Disclosure Project” reporting system in fiscal year 2010. The employ-ees working there represent 96.2 percent of all Dräger employees. The companies involved record their direct and indirect carbon dioxide emissions from the use of electricity, heating, vehicles and air travel and asses corresponding savings potential.

For the first time, the logistics data of the subsidiary Dräger Interservices GmbH was also reported. Almost 120,000 tons of direct and indirect carbon dioxide emis-sions were recorded, of which 50 percent was created in Germany (see illustration “Direct and indirect CO2 emissions 2010”): While the data for direct CO2 emissions remained relatively stable, the first-time inclusion of the logistics data resulted in a rise of around 25 percent in total CO2 emissions. Unlike in the case of indirect CO2 emissions from local energy consumption, there are very few possibilities of reducing the emissions of customer-specific logistics processes as these are largely pre-deter-mined by the volume and regularity of goods transports.

ENERGY MANAGEMENT

AAt headquarters in Lübeck, the main environmental aspects were electricity, water, natural gas and heating oil consumption as well as waste volumes. In 2011, Dräger managed to further reduce its relative energy consump-tion in all segments.

Primary energy consumption at the Lübeck site in 2011 went down by 12.7 percent year-on-year to 50.3 million kWh (2010: 57.6 million kWh). Environmentally-friendly natural gas consumption amounts to 97.6 percent and heating oil consumption to only 2.4 percent, resulting in direct CO2 emissions of approximately 10,200 tons. This corresponds to a drop of 12.8 percent compared to the


previous year (2010: 11,700 tons). As over 75 percent of externally purchased primary energy is used for heating, the mild weather in 2011 helped to considerably reduce both gas and oil consumption. Taking into account all different types of weather conditions, the theoretical heating energy consumption decreased slightly by 0.3 percent.

The local gas-fuelled cogeneration plant produced a steady 6.2 million kWh/a of environmentally-friendly electricity. The effectiveness of the cogeneration plant, in other words the ratio between fed-in energy and produced heat and electricity, rose slightly from 86 percent to 88 percent. Changed operating times and the resulting fluctuations in annual electricity production are due to the weather, as the generated byproduct heat cannot always be utilized.

Electricity consumption at the Lübeck site declined slightly by 3.3 percent to 32.7 million kWh in 2011. 17.6 percent of electricity was produced at the local cogenera-tion plant, a similar amount to that in the previous year. In relation to the Dräger companies only, which con-sumed 23.5 million kWh in electricity, the share of self-produced electricity was as much as 24.6 percent. At around 13 million kWh, the safety division continues to consume the largest amount of electricity of all Dräger companies headquartered in Lübeck. Its important production process, like the soda lime and filter produc-

tion, use a relatively large amount of energy and some require special climatized rooms to ensure the safety of products and processes. By certifying the energy manage-ment in accordance with DIN EN ISO 50001:2011, Dräger aims to further increase the efficiency of its energy con-sumption in 2012. Similar to the previous year, electricity amounted to a mere 35.2 percent of the total volume of externally purchased energy.

In 2010, water consumption had gone up significantly on account of certain production processes. This figure dropped to 81,000 m3, the lowest level since consumption has been systematically recorded. Filter production in the safety division remains the main user at approximately 20,000 m3 or 25 percent of total consumption. We aim to further reduce water consumption in this area in 2012 by constructing an energy and water-saving filter fleece plant.

WASTE MANAGEMENT

The waste volume recorded by Dräger Abfallwirtschafts-verbandes w.V., Lübeck, increased slightly by 0.7 percent to 3,980 tons year-on-year (2010: 3,950 tons), but devel-oped below average in relation to production volume. The quantities of individual types of waste shifted slightly in the overall waste mix. Although soda lime production increased on account of a fourth production line being started-up, the volume of waste lime resulting from these processes remained stable. The waste from activated

DIRECT AND INDIRECT CO2 EMISSIONS 2010 (COMPANIES RECORDED: 89)

Cause

Electricity Heating Vehicles Air travel Total emissions (excluding

distribution logistics)

Distribution logistics

Measured CO2 emissions 29,200 t 16,300 t 31,400 t 15,700 t 92,600 t 30,100 t

Share in total CO2 emissions (excluding distribution logistics) 31% 18% 34% 17%

16 ENvIrONMENTAL PrOTECTION | rEMuNErATION rEPOrT

carbon production decreased by around 20 percent − contrary to paper and cardboard waste, which increased; a sign of improved waste separation. The waste recycling ratio of Dräger Abfallwirtschaftsverbandes w.V. was 98 percent last year; only around 80 tons had to be disposed. Product returns went up slightly by 5 percent to 222 tons. By disposing of and recycling materials in a legal manner, especially those used in devices and products containing critical chemicals and substances, the Company makes an important contribution to protecting the environment and supports the recycling system.

PRODUCT-RELATED ENVIRONMENTAL PROTECTION

In 2011, product-related environmental protection focused on implementing statutory requirements resulting from the new RoHS II guideline (2011/65/EU) and the REACH EC Regulation. In order to comply with the new RoHS requirements within the specified period, the Company started a project group that will coordinate and implement all necessary measures by 2014. Project work will focus on managing internal processes so as to document and – if necessary – substitute critical substances. The project team also maintains close contact with the Company’s suppliers to bring all relevant aspects of RoHS compliance and the particularly critical SVHC substances in line with the new requirements.

EMISSIONS OF HAZARDOUS SUBSTANCES AND

TOXIC MATERIALS

Installation and service work most commonly carried out in the production departments does not release any hazardous emissions into the air. For process security and product safety reasons, cleaning agents, adhesives and coatings that contain solvents continue to be used in certain areas of some production departments at the Lübeck site only. In 2011, the associated emissions again totaled less than 2.7 tons per year and were therefore below the reporting thresholds established by the regula-tory authorities. This also applied to the anesthetic gases

used by the Company in small quantities for the purpose of calibrating anesthesia equipment. A recycling process reduces these emissions by approximately 60 percent.

Powerful extraction systems in the respective production departments ensure that safe work conditions are main-tained for the employees working there. This is under-scored by the results of exposure measurements which fall far below the legal workplace concentration limits. Regular examinations by a Company doctor and system-atic occupational safety training are also provided.

The Company does not release any hazardous, reportable air emissions pursuant to the European hazardous emis-sion registry EPER.

Remuneration report

EXECUTIVE BOARD REMUNERATION

Dräger places great value on providing detailed informa-tion on the remuneration of the Executive Board as this forms part of exemplary governance and also creates transparency for our shareholders.

This report provides an overview of the amount and structure of Executive Board remuneration at Dräger and outlines the joint remuneration systems for the Executive Board members and top managers in the Group (Top Management Incentive − TMI). The main focus is on illustrating how Dräger implements the requirements of the Act on the Appropriateness of Executive Board Remu-neration (VorstAG) and the German Corporate Gover-nance Code (GCGC):

– The remuneration structure is designed to support sustainable business performance;

– The variable remuneration component is based on a long-term measurement period over several years;


– Positive and negative business developments are taken into consideration;

– Remuneration is designed to appropriately reflect the performance of each individual Executive Board mem-ber, the Company and the industry;

– No incentives are given that would encourage the taking of inappropriately high risks

All employment contracts of the Executive Board mem-bers of Drägerwerk Verwaltungs AG have been concluded with Drägerwerk Verwaltungs AG. The Supervisory Board of Drägerwerk Verwaltungs AG is responsible for deter-mining the remuneration of the Executive Board mem-bers. Each contract expires after a different period of time between three and five years. Based on the resolution adopted at the annual shareholders’ meeting of Dräger-werk AG & Co. KGaA on June 2, 2006, the remuneration of individual members of the Executive Board for fiscal year 2010 could not be disclosed, with the exception of that of the Chairman. This resolution had a term of five years and applied for the last time to fiscal year 2010. As from fiscal year 2011, remuneration of all Executive Board members will be disclosed individually.

Since 2010, Dräger has been using a holistic value man-agement approach with the aim of managing the Com-pany with the long-term and sustainable growth of its value in mind. Dräger Value Added (DVA) was introduced as a key performance indicator for measuring the Com-pany value. Dräger Value Added is the result of EBIT in the past twelve months less costing-based capital costs (basis: average capital employed in the past twelve months). DVA-driven management forms an integral part of all management processes. The maxim of value added is particularly important for the definition of strategies, planning, regular reporting and when making investment and business decisions. Consequently, performance-relat-ed variable remuneration of the Dräger management also reflects DVA. In the previous year, the Company already

adjusted the existing management and Executive Board remuneration systems by setting all quantitative targets so as to have a direct and positive impact on DVA. Targets can also be defined on the basis of other key performance indicators for individual functions. Each year, the Supervi-sory Board sets the Executive Board members’ personal targets in consultation with each member of the Execu-tive Board.

In fiscal year 2011, remuneration included five compo-nents: fixed annual remuneration, a DVA target-based bonus which reflects the rise in Company value, a KPI target-based bonus, a personal performance bonus and additional benefits.

– Fixed remuneration is paid monthly as a salary. The fixed remuneration of existing Executive Board mem-bers was determined upon their appointments or at the time their contracts were extended and have remained unchanged since.

– Variable Executive Board remuneration focuses on increasing the value of the Company. Dräger has made it its goal to increase DVA between 2010 and 2014. 60 percent to 80 percent of the variable remuneration component for Executive Board members is essentially dependent on achieving this DVA goal and is therefore based on a long-term, sustainability-focused measure-ment period. When targets are fully met, this portion corresponds to around 60 percent of total remunera-tion of the Chairman of the Executive Board and roughly 35 percent to 50 percent of total remuneration of all other Executive Board members. If a target has been exceeded to a considerable extent, the bonus payment will be capped at double its original amount. If the target is exceeded by more than 200 percent (300 percent maximum cap) or performance drops below 0 percent (-100 percent maximum cap), a corre-sponding amount is added or deducted from the bonus reserve. For fiscal year 2011, Executive Board members

18 rEMuNErATION rEPOrT

are subject to the special rule that the difference between the DVA target value calculated for 2011 and the 2010 bonus, multiplied by the DVA factor, is recog-nized in the bonus reserve already. The factor is the ratio between the DVA 2011 and DVA 2010.

– 20 percent of total variable remuneration for Executive Board members who are responsible for operating functions (Research and Development, Purchasing, Production, Logistics, and IT) may be calculated on the basis of key performance indicators (KPI). These targets are to relate to the areas of responsibility of each member of the Executive Board and have a posi-tive impact on Dräger’s company targets. Each year, the Chairman of the Supervisory Board determines KPI targets in consultation with each member of the Execu-tive Board. They should not exceed five individual targets. Again, if a target has been exceeded to a consid-erable extent, the bonus payment will be capped at double its original amount. If the target has been missed by a long way, the bonus may not be paid at all. If the target is exceeded by more than 200 percent (300 percent maximum cap) or performance drops below 0 percent (-100 percent maximum cap), a corresponding amount is added or deducted from the bonus reserve.

– When a personal target is fully met, the corresponding variable bonus amounts to 20 percent of total variable remuneration. Each year, the Chairman of the Supervi-sory Board sets personal targets in consultation with each member of the Executive Board. If a target has been exceeded, the payment will be capped at double its original amount. If the target has been missed by a long way, the bonus may not be paid at all. There are no plans to recognize a bonus reserve for personal targets. The Supervisory Board may choose to pay a special bonus for extraordinary performance or services ren-dered by individual Executive Board members in the respective reporting year.

– Fringe benefits awarded to members of the Execu-tive Board encompass private use of the company car

they are each provided with and payment of health, care and pension insurance premiums. The Company has taken out group accident insurance for Executive Board members. The Company pays the premium for the D&O liability insurance policy and legal expense insurance policy for economic loss claims for members of the Executive Board. In the opinion of the German tax authorities, this does not constitute part of the Exec-utive Board’s remuneration. The financial loss liability insurance includes a deductible, which was adjusted as from 2010 to one and a half times the amount of gross fixed annual remuneration in accordance with VorstAG.

Dräger integrated a bonus reserve in the remuneration system for Executive Board members and top managers to further emphasize its sustainability. Bonuses correspond-ing to 0 percent to 200 percent target achievement are paid annually. If DVA and KPI targets are exceeded (between 200 percent and 300 percent) or missed (between 0 percent and 100 percent), the corresponding amount is recognized in the bonus reserve. The bonus reserve is held and netted over the entire target period of four years so that it is possible to compensate for cases of exceeded or missed targets. The positive net amount of the bonus reserve is only distributed with the last bonus payment at the end of the target period (2014). A negative amount would be carried forward to the next period. The bonus reserve therefore lets Executive Board members and top managers share in the opportunities and risks of Dräger’s medium term business performance.

The incentive system aims to measure the success of Executive Board members and top managers. The abso-lute amount of remuneration for Executive Board mem-bers and top managers is based on each person’s range of tasks, responsibilities and scope of required abilities. The total remuneration for Executive Board members is shown in the following table:


The following amounts were added to the bonus reserve as a long-term, performance-related component for the members of the Executive Board: Stefan Dräger: EUR 673,158; Gert-Hartwig Lescow: EUR 744,934; Dr. Herbert Fehrecke: EUR 253,282; and Anton Schrofner: EUR 180,988; totaling EUR 1,852,362. Components with long-term incentives included in the performance-related remuneration came to EUR 2,913,158 for Stefan Dräger, EUR 1,419,697 for Gert-Hartwig Lescow, EUR 1,096,102

for Dr. Herbert Fehrecke, and EUR 720,563 for Anton Schrofner.

On November 2, 2011, the Company came to an agree-ment with Dr. Carla Kriwet to terminate her employment contract dated September 15, 2010 with effect from December 31, 2011. Additional benefits include a compen-sation payment of EUR 1,785,256.


2011 2010

Fixed remuneration Variable remuneration

Fixed remuneration Variable remuneration

Fixed Other Short-term components

Total Fixed Other Variable Total

€ € € € € € € €

Chairman of the Executive Board

Dräger, Stefan 600,000 10,254 2,492,800 3,103,054 571,451 10,648 1,987,500 2,569,599

Other Executive Board Members

Lescow, Gert-Hartwig 377,708 21,984 801,563 1,201,255

Fehrecke, Dr. Herbert 400,000 20,192 1,111,595 1,531,787

Schrofner, Anton 330,000 35,248 774,780 1,140,028

Amount of other ExecutiveBoard Members 1,107,708 77,424 2,687,938 3,873,070 796,330 102,035 1,428,000 2,326,365

Active ExecutiveBoard members 1,707,708 87,678 5,180,738 6,976,124 1,367,781 112,683 3,415,500 4,895,964

Executive Board members departing during the fiscal year 2011

Kriwet, Dr. Carla 350,000 1,808,922 1,278,832 3,437,754 – – – –

Executive Board Members removed in the previous year – – – – 481,392 1,385,417 776,375 2,643,184

Total orders on hand 2,057,708 1,896,600 6,459,570 10,413,878 1,849,173 1,498,100 4,191,875 7,539,148


The employment contracts of all active Executive Board members contain regulations regarding the early termi-nation of their contracts without good cause. These regulations cap compensation at one year’s remunera-tion; it may also never exceed total remuneration for the remaining term of the respective employment contract, including additional benefits. Total remuneration for one fiscal year is used as a basis for calculating the compensa-tion cap.

In the fiscal year, no payments were made or promised by a third party to any member of the Executive Board in relation to his or her duties as member of the Executive Board. If Executive Board remuneration is paid by Dräger-werk Verwaltungs AG, pursuant to Sec. 11 (1) and (3) of the articles of association of Drägerwerk AG & Co. KGaA it is entitled to claim reimbursement from Drägerwerk AG & Co. KGaA monthly. Pursuant to Sec. 11 (4) of the Com-pany’s articles of association, the general partner receives a fee for the management of the Company and the assumption of personal liability, regardless of profit and loss, of 6 percent of the equity disclosed in its financial

statements, payable one week after the general partner prepares its financial statements. For fiscal year 2011, this remuneration amounts to EUR 73 thousand (2009: EUR 71 thousand) plus any VAT incurred.

Obligations from the pension plan remain at Drägerwerk AG & Co. KGaA pursuant to the terms and conditions of individual contracts. Defined benefit plans for members of the Executive Boards are agreed individually, based on “Führungskräfteversorgung 2005”, which has been in effect within the Group since January 1, 2006.

The defined benefits under the pension plans offered to the members of the Executive Board are either fixed or based on the basic annual salary and years of service on the Executive Board. The defined benefit is based on an annual contribution of up to 15 percent of the basic annual salary. Under the deferred compensation option, an additional annual contribution of up to 20 percent of the basic annual remuneration can be made. Stefan Dräger receives a further contribution of 50 percent from the Company on deferred compensation,

PENSION OBLIGATIONS OF THE ACTIVE EXECUTIVE BOARD MEMBERS

Addition 2011 Obligation December 31, 2011

Addition 2010 Obligation December 31, 2010

€ € € €


Dräger, Stefan 204,810 718,938 113,745 514,128

Other Executive Board Members

Lescow, Gert-Hartwig 33,457 114,690

Fehrecke, Dr. Herbert 35,024 109,410

Schrofner, Anton 55,630 69,069

Amount of other Executive Board Members 124,111 293,169 73,732 169,058

Incumbent members of the Executive Board 328,921 1,012,107 187,477 683,186


but no more than 8 percent of his basic annual salary. This top-up payment is made if the Group EBIT margin equals 5 percent or more of net sales.

Pension obligations to Executive Board members who retired in fiscal year 2011 are recognized in provisions for former members of the Executive Board and their surviv-ing dependents. EUR 3,022,224 was paid to former mem-bers of the Executive Board and their surviving depen-dants (2010: EUR 2,963,612). EUR 37,939,984 was paid in provisions for pension obligations to former members of the Executive Board and their surviving dependants (2010: EUR 38,071,289).

SUPERVISORY BOARD REMUNERATION

Supervisory Board remuneration is the remuneration of the members of the Supervisory Board of Drägerwerk AG & Co. KGaA.

In the past, the annual shareholders’ meeting of Drägerwerk AG & Co. KGaA approved the remuneration of Supervisory Board members on a yearly basis (2010: EUR 631,750). In order to increase the transparency of the remuneration system, the annual shareholders’ meeting of Drägerwerk AG & Co. KGaA on May 6, 2011 stipulated the remuneration for Supervisory Board mem-bers in the articles of association, effective for the first time in fiscal year 2011.

In accordance with Sec. 21 (1) of the articles of associa-tion of Drägerwerk AG & Co. KGaA, each Supervisory Board member receives compensation for expenses incurred plus annual remuneration, which is composed of fixed remuneration of EUR 20,000.00 (2010: EUR 10,000) and variable remuneration of EUR 20,000.00 (2010: EUR 31,500). The variable component is 0.015 percent of the Company-related key figure “Dräger Value Added” (2010: 0.03 percent of Group


2011 2010

Fixed Variable Other Total Fixed Variable Other Total

€ € € € € € € €

Prof. Dr. Nikolaus Schweickart (Chairman) 60,000 60,000 10,000 130,000 30,000 94,500 5,000 129,500

Siegfrid Kasang(Vice-Chairman) 30,000 30,000 – 60,000 15,000 47,250 – 62,250

Daniel Friedrich 20,000 20,000 – 40,000 10,000 31,500 – 41,500

Dr. Thorsten Grenz 20,000 20,000 20,000 60,000 10,000 31,500 10,000 51,500

Peter-Maria Grosse 20,000 20,000 – 40,000 10,000 31,500 – 41,500

Uwe Lüders 20,000 20,000 – 40,000 10,000 31,500 – 41,500

Walter Neundorf 20,000 20,000 10,000 50,000 10,000 31,500 5,000 46,500

Jürgen Peddinghaus 20,000 20,000 10,000 50,000 10,000 31,500 5,000 46,500

Prof. Dr. Klaus Rauscher 20,000 20,000 – 40,000 10,000 31,500 – 41,500

Thomas Rickers 20,000 20,000 – 40,000 10,000 31,500 – 41,500

Ulrike Tinnefeld 20,000 20,000 10,000 50,000 10,000 31,500 5,000 46,500

Dr. Reinhard Zinkann 20,000 20,000 – 40,000 10,000 31,500 – 41,500

Total 290,000 290,000 60,000 640,000 145,000 456,750 30,000 631,750

22 rEMuNErATION rEPOrT | PErSONNEL ANd SOCIAL MATTErS

net profit). The variable remuneration component is capped at EUR 20,000.

Pursuant to Sec. 21 (2) of the articles of association of Drägerwerk AG & Co. KGaA, the distribution of the remu-neration of members of the Supervisory Board is deter-mined according to the following principles: Its chairman is entitled to three times (2010: three times) and the vice chairman to one and a half times (2010: one and a half times) the amount. The members of the Audit Committee receive an additional fixed annual remunera-tion of EUR 10,000.00 (2010: EUR 5,000) and the Chair-man of the Audit Committee an additional EUR 20,000 (2010: EUR 10,000). The members of the Nomination Committee do not receive any additional remuneration. As from fiscal year 2009, Supervisory Board members have not been receiving a per diem any more.

Supervisory Board members are included in a D&O policy, including deductible, to be concluded by the Company. In the opinion of the German tax authorities, the premium for a D & O liability insurance policy and a legal expense insurance policy for economic loss claims is not part of the Supervisory Board’s remuneration. The deductible for Supervisory Board members is one and a half times their fixed annual salary.

In fiscal year 2011, the total remuneration of the six members of the Supervisory Board of the general partner, Drägerwerk Verwaltungs AG, amounted to EUR 135,000 thousand (2010: EUR 135,000). In addition, the Supervi-sory Board members receive annual flat fees for out-of-pocket expenses totaling EUR 55,000.00 (2010: EUR 55,000). No remuneration was paid to Supervisory Board members of Group companies.

Personnel and social matters

The passion and fresh ideas of Dräger’s employees are at the heart of the Company’s success. This is why Dräger intends to continue finding the right talent and retaining it in the long term. The Company actively advertises in schools, colleges and universities for the brightest stu-dents and positions itself as an attractive employer in the labor market. It systematically secures its future demand by developing young talent in its own ranks. Dräger also continuously trains and supports its existing employees, as it knows that the Company can only grow as far as its employees.

On December 31, 2011, headcount at Drägerwerk AG & Co. KGaA was up approximately 180 employees compared to December 31, 2010. A major reason for this change was the transfer of 90 employees in the Company’s HR and Accounting from the divisions to Drägerwerk AG & Co. KGaA for organizational reasons. Dräger also increase headcount in its administrative functions such as IT (+34) and HR (+24).

ATTRACTIVE EMPLOYER

The increasing competition for qualified professionals and managers made it necessary for the Dräger Group to increase its profile and attractiveness for potential employ-ees further in 2011. The Company focused even more strongly on directly approaching applicants from an even more diverse background in the reporting year. Our active marketing and the expansion of our online activities attracted the number of visitors to our German career portal as well as the number of applications: The number of applications in Germany alone rose by 38 percent to 19,691(2010: 14,266)

The Company also managed to improve its position in the trendence ranking of most popular German employers in the eyes of university graduates. Dräger reached number


39 of most popular employers among engineers (2010: 43) and number 65 among IT professionals (2010: 71). In the reporting year, Dräger was also included for the first time in the top 100 employers for graduates of economic sciences.

INVESTING IN TOMORROW‘S EMPLOYEES

Every year, Dräger specifically trains young people to fill positions within the Company. This measure ensures the Group’s future growth and also means that Dräger is facing up to its social responsibility of providing young people with career prospects. All Dräger trainers and those responsible for providing training are extremely committed to giving all trainees and dual students the best possible foundation for their future careers. With this in mind, the Company invested in the construction of a new and modern training facility at the Lübeck site. Last year, 75 new trainees and dual students were also taken on for 14 different career paths; this corresponds to a 31.5 percent increase year-on-year. In addition, all 62 trainees and students who completed their training were offered a permanent employment contract in the report-ing year, of which 97 percent took this opportunity.

Dräger identifies promising talent in all parts of the world. Its trainee program 2011 had a very international focus with eight trainees from six countries. Sales and Marketing trainees work at three different locations during their 21-month program: in the country they will be deployed to, its related sales region and headquarters in Lübeck. Dräger invests in the professional and personal qualifications and development of its young colleagues in the form of comprehensive training measures to prepare them as best as possible for their future tasks in a respon-sible position. The Company places special importance on international cooperation and global knowledge transfer. It therefore deliberately promotes “networking” – develop-ing and maintaining contacts in different countries and regions.

Among the highly desirable academic young talent, Dräger positions itself as an attractive employer long before these students actually start their first jobs. In order to do so, the Company visited 14 career and univer-sity recruitment days and further intensified its coopera-tions with 11 selected universities and technical colleges. In 2011, Dräger offered 311 young people the chance to gain practical experience and often even get a start on the career ladder with a Dräger internship or a final project, as the majority of Dräger trainee positions are filled from the ranks of interns.

ACTIVELY COMMITTED TO HEALTH AND SAFETY

Since Dräger was founded in 1889, occupational health and safety has been of upmost importance for the Com-pany. For this reason, occupational health management is regarded as a crucial part of strategic HR management. And this commitment pays off: With 34 accidents (2010: 38) across all German Dräger companies, this number was low again in 2011. In addition, 1,008 employees partici-pated in one of the Company’s health promotion pro-grams on the subjects including accident prevention, sport, nutrition and stress management in the reporting year (2010: 660 employees). Dräger also managed to keep the absence rate of employees in Germany to a low 4.26 percent (2010: 4.23 percent). This is lower than the average recorded by the member companies of the employer association NORDMETALL (5.05 percent).

SUPPORTING AND DEVELOPING EMPLOYEES

In 2011, the Dräger Group invested EUR 13.8 million in employee training and education (2010: EUR 12.3 mil-lion). In the reporting year, 9,247 days were spent on training in Germany (2010: 7,686 days). This corre-sponds to 1.9 training days per employee (2010: 1.7 training days). Individual training and support cannot only be provided in typical classroom scenarios. In the past year, Dräger therefore expanded its entire eLearn-ing portfolio with online-based training courses and

24 PErSONNEL ANd SOCIAL MATTErS | POTENTIAL | rISkS ANd OPPOrTuNITIES rELATING TO FuTurE dEvELOPMENT

webinars, raising the standard of specialist, method and language training throughout the Group.

The Company has to keep up with the constant changes and development processes of its business environment to remain competitive in the long term. For this reason, it also supports strategic organizational development within the scope of HR activities. The number of specifi-cally trained change managers went up by 12 to 26 in the reporting year (2010: 14). These highly qualified employees from various hierarchy levels monitor and support complex change processes within the Group. They carry out this task in addition to their ordinary daily responsibilities.

Every two years, Dräger holds a global employee survey. The Company implements a differentiated follow-up process for this management tool so as to initiate tar-geted improvement measures. The consistently high attendance rate of 82 percent (2009: 82 percent) is proof of the large acceptance of the survey among employees. Dräger is pleased that in the reporting year, 90 percent of employees who participated in the survey were proud to work for Dräger (2009: 86 percent) and 85 percent would recommend Dräger as an employer (2009: 78 percent).

Potential

Risks and opportunities relating to future development

RISK AND OPPORTUNITY MANAGEMENT

The risk policies pursued by Dräger serve to effectively increase the value of the Company by consistently taking advantage of opportunities while recognizing and manag-ing risks in a timely manner.

Risk and opportunity management at Dräger ensures a responsible approach to dealing with the inevitable uncertainties of doing business. The system enables Dräger to meet its targets by consistently taking advantage of opportunities without losing sight of the associated risks. Since risks are identified early and updated regu-larly as part of risk management, the Company can implement measures in a timely manner in order to ensure that the Company’s objectives are met. This applies in particular to identifying developments that could threaten the existence of Dräger. The risk manage-ment system therefore meets the requirements of the Control and Transparency Act (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich – KonTraG).

The long-term basis for our opportunity management is the strategic planning process and the resulting develop-ment and market positioning plans for products over their respective life cycles. In order to respond to market changes in a flexible manner, Dräger Group pursues the continuous improvement of Company structures and processes.

The risk management system comprises all measures that allow us to identify, measure, monitor and manage poten-tial strategic and operational risks at an early stage. Strategic corporate planning constitutes the basis for recognizing potential risks: even during the planning process, potential uncertainties are specified in the assumptions underlying the plans. The internal control system continuously monitors these uncertainties and communicates potential uncertainties as part of regular reporting. Controlling prepares the regular risk report twice a year; this is supplemented by ad-hoc reporting. Material risks can therefore be addressed very quickly. The risks are reported by all operating functions based on specified risk categories and aggregated at the Company level. Information on risks and opportunities is exchanged between the respective process owners, the Executive and


Supervisory Boards and, if necessary, enables action to be taken at short notice. Risk management is complemented by the Internal Auditing department and the Supervisory Board, which regularly verifies the effectiveness of the risk management system pursuant to the regulations of the German Commercial Code (Handelsgesetzbuch – HGB) and Sec. 107 (3) of the German Stock Corporation Act (Aktiengesetz – AktG). The Dräger early risk identifica-tion system is a part of the Dräger risk management system and remains part of the annual audit.

As a matter of course, our medical and safety divisions submit their products and services to quality inspections and ongoing checks in accordance with stringent national and international standards, always in keeping with the special quality and risk orientation of these sectors.

The risks that may have an impact on the Company as described below are not necessarily the only risks Dräger is exposed to. Risks that are not known or have been considered immaterial as of the reporting date may also affect the business activities of Dräger in the future.

OVERALL ECONOMIC RISKS

The global economy continued to grow strongly in 2011, albeit less strongly than in the previous year. The financial markets have not yet stabilized and the central banks have to carry on investing in them. Major volatility in the money market continues. Negative influences are still a probability in view of the financial difficulties that indi-vidual countries in the eurozone are faced with. The IMF expects less growth momentum in the industrial nations as well as the emerging countries such as India, China and Brazil. The likely reasons are reduced demand impulses from international trade partners and also a decline in domestic demand. This scenario prompted the IMF to reduce its growth forecast from 4.0 percent in September 2010 to 3.3 percent in January 2012. There is a possibility, however, of basic economic momentum slow-ing down even further.

Natural disasters in countries rich in raw materials as well as the artificial scarcity of commodities due to specu-lative transactions could continue to lead to rising costs and supply bottlenecks in the commodities market.

By strengthening its global business, Dräger has achieved a broad regional diversification of net sales. The Group continues to see particular growth potential in the Ameri-cas and Asia. The production sites in the US, Great Britain and China are instrumental in reducing the currency risks associated with global business.

Numerous other factors such as global, political and cultural conflicts, including the situation in the Middle East, can affect macroeconomic factors and international capital markets and shape demand for our products and services.

STRATEGIC RISKS

The industries in which Dräger operates are considered future-oriented with strong growth. Within each industry, further consolidation processes are expected that are like-ly to affect the structure and intensity of competition. The pooling of purchasing volumes due to the consolidation of hospitals or the establishment of purchasing cooperatives provides customers with more market power. We have also noticed a trend towards outsourcing secondary and tertiary services (e.g. maintenance and repair), meaning that Dräger might only be able to act as a subcontractor. Dräger is up against strong competitors, some of whom have access to extensive resources. New competitors, especially in Asia, have made significant quality improve-ments over the last few years and are offering products in the lower and middle performance and price group. The Dräger Group depends on the investment budgets of public authorities in both divisions since domestic and foreign public institutions make up a large proportion of the customer base. These include public hospitals, fire services, the police force, the military and disaster man-agement. Public spending cuts were evident in numer-ous industrialized countries over the last few years, for

26 rISkS ANd OPPOrTuNITIES rELATING TO FuTurE dEvELOPMENT | OPErATIONAL rISkS

example in the US and Europe. This trend could continue given the current market environment. Dräger is meeting these challenges through customer orientation, innova-tion, high product and service quality and reliability as well as active consolidation where applicable in order to protect and strengthen the Company’s market position.

Operational risks

SUPPLIER AND MATERIAL PRICE RISKS

The current and planned product portfolio requires extensive coordination with reliable and competent suppliers. The suppliers are integrated into processes, since the level of vertical integration in our business model has been reduced to the necessary core technolo-gies and the assembly of purchased parts and compo-nents. To manage the risks this entails, information processes are structured, the necessary internal and external interfaces in the global processes are optimized and the performance of external partners is carefully reviewed. Quality standards safeguard the supplier selec-tion and procurement processes. The operating processes are continuously being improved.

Risks due to increases in the cost of metals were con-firmed in fiscal year 2011 and are expected to continue in 2012. The supply situation in the area of electronic com-ponents remains difficult. As a safeguard against price increase, Dräger has concluded annual contracts with suppliers of electronic components, electricity and, to a large extent, commodities.

PRODUCT LIFECYCLE RISKS

It is important for the profitability of the Company that the product portfolios of both divisions are up to date. Experience has shown that new products are more profit-able than products in a later phase of the product life-cycle. This is why Dräger continuously invests in research

and development in order to keep the proportion of new products as high as possible. This necessitates making both top technological products and products which appeal to a large section of the market available in a timely manner. Together with technology, an excellent cost position is important for the market position and economic success of Dräger. This requires not only a high quality product portfolio in line with market requirements but also the ability to control operating processes, from development, sales and order fulfillment through to maintenance of the product portfolio. Risks may therefore arise from factors such as the unexpectedly high complex-ity of development projects, delayed product launches and changes in market requirements.

The Company is also exposed to an increased risk from adapting its medical technology products to conform to the EU directive 2002/95/EG, applicable as from 2014, concerning the limitation of use of certain hazardous substances in electric and electronic devices (RoHS – Regulations of Hazardous Substances). Up to now, medi-cal devices have been subject to special regulations. In summer 2011, however, the decision was made that medical devices must also comply with the RoHS regula-tion by July 2014. Due to their long life- and development cycles, the switchover and change of these products can be expected to incur high costs. This creates the risk of not being able to complete the adaptation of these prod-ucts by mid-2014. The consequence would be the loss of the CE mark, which would make it illegal to market them in some countries like those within the European Union.

PROJECT RISKS

Projects account for a material proportion of business in the Dräger divisions. Large-scale projects that require the highest technical standards and specific know-how bear particularly high levels of risk. The expected profit mar-gins may deviate from the actual margins for reasons such as cost changes or lost productivity. Possible risks


include quality problems, the loss or shortage of qualified skilled workers, delivery problems on the part of suppliers or payment difficulties on the part of customers. If spe-cific contractual obligations are not met in a timely manner or at all, this can lead to contractual penalties, compensation claims or temporary measures. Risks are kept as low as possible with the help of project manage-ment standards and ongoing project controlling.

IT RISKS

Our business processes require reliable, cost-effective IT systems. The breakdown of IT systems could compromise critical business processes and lead to temporary produc-tion shutdown, for instance. Breakdowns could be caused by factors such as overload or external hazard (virus attack).

Dräger has launched an initiative to further enhance IT security. Focal points include improving numerous inter-nal IT business processes and risk management proce-dures. In addition, the switch to a new service provider for the operation of the computer center, which commenced in 2010, and accompanying measures to improve security standards were completed.

PERSONNEL RISKS

The remuneration systems and personnel development programs are geared towards retaining employees, enhancing their identification with the Company and motivating them for maximum performance. Dräger Group invests in employee qualification measures in order to counteract risks due to employee turnover and the loss of know-how associated with retirement. The Company protects itself against the increasingly tough competition for highly qualified professional and execu-tive employees by maintaining close contact with universi-ties and actively implementing recruitment measures, among other things. Positioning the Company as an attractive employer is the main key to be successful in the competition for professional employees and managers.

Remuneration risk with regards to the development of personnel expenses exists due to the possible cancellation of the collective pay agreement applicable to the German Dräger companies effective March 31, 2012. New collec-tive agreements are to be expected for the subsequent period. The terms and duration of pending collective agreements in the planning period are uncertain.

REGULATORY AND LEGAL RISKS

Dräger companies are subject to various and frequently changing legal provisions in all countries in which Dräger operates. The measures required for compliance can generate considerable operating costs. The obligations can arise from public law, such as tax law, or from civil law. Laws to protect intellectual property and third-party concessions, varying approval and licensing regulations for products, competition rules, regulations in connection with awarding contracts, export control regulations and more are also relevant to business operations. Dräger-werk AG & Co. KGaA is also subject to legal regulations governing capital markets.

The Dräger companies are currently involved in legal disputes and may be involved in legal disputes within the scope of their business activities in the future. To counter such legal risks, Dräger has taken out liability insurance policies with coverage which the Executive Board of the general partner considers appropriate and customary for the industry.

In some regions, legal uncertainty could result from Dräger only having limited possibilities to assert its rights.

The control and prevention mechanisms of the compli-ance structure may not have been sufficient in the past or may not be sufficient in the future to effectively protect Dräger against legal violations. Dräger has implemented compliance rules that apply throughout the Company. The business policies and a code of conduct are intended

28 OPErATIONAL rISkS | OPPOrTuNITIES

to ensure that business is conducted responsibly and in accordance with legal requirements.

Distribution partners may assert compensation or equal-ization claims pursuant to the respective applicable laws when their contracts are terminated. Such claims are excluded in the distribution agreements to the extent permitted by law. Contracts are concluded with short terms, especially with new distribution partners.

The Dräger Group endeavors to comply with all legal and regulatory obligations and corresponding internal regula-tions and directives are in place.

RISKS FROM FINANCIAL INSTRUMENTS

The aim of Dräger is to minimize liquidity risk and risk from financial instruments, i.e. interest rate, currency and credit risk. Liquidity risk and interest rate risk are hedged centrally by Drägerwerk AG & Co. KGaA, whereas currency risk is the joint responsibility of Drägerwerk AG & Co. KGaA and the divisions. The credit risk with regard to cash investments and derivatives is mitigated centrally, while the credit risk from receivables from operating activities is the responsibility of the divisions.

The only financial derivatives we use are marketable hedging instruments contracted with reputable banks as counterparties. Derivatives may only be traded by mem-bers of the Dräger Group if they are covered by the trea-sury guidelines or have been approved by the Executive Board.

Dräger uses various financing instruments to reduce liquidity risk: In addition to participation certificates, Dräger Group has outstanding note loans with various maturities of up to seven years. Total annual repayments are less than the usually expected free cash flow to reduce the risk of not being able to arrange for follow-up financ-ing. Dräger has also entered into an agreement with

select banks in 2010 to grant binding lines of credit to secure liquidity. The volume of this line of credit is EUR 240 million. The respective bilateral agreements have a term of five years. The framework agreement for the bilateral credit lines stipulates financial covenants. If Dräger does not comply with these, the banks have the right to terminate the bilateral credit lines. If Dräger’s financial position was to deteriorate drastically, the Company would run the risk of being unable to match these key figures. It is also possible to obtain the banks’ approval for exceeding these key figures at an early stage. Compliance with the financial key figures is monitored continuously and the findings are regularly reported to the CFO and the banks.

Dräger is mainly exposed to interest rate risks in relation to the euro. The Company counteracts these risks with a mix of financial liabilities at fixed and variable interest rates. Part of the variable interest is hedged by interest rate caps 1. Cash investments are only made in the form of overnight money at commercial banks with high credit ratings.

Dräger manages currency risks associated with curren-cies other than the euro by entering into forward 2 and swap 3 hedging transactions with selected banking part-ners, wherein the payment streams are hedged on a transaction-specific basis.

OTHER RISKS

Dräger Group does not have unlimited liability coverage and therefore the risk exists that the liability insurance does not sufficiently cover any claims against the Com-pany (e.g. in case of a class action lawsuit). However, the probability of such a risk materializing is very remote.

The Company’s production facilities are subject to operat-ing and accident risks. Dräger addresses these risks with suitable measures. In addition to investments in occupa-

1 Option transaction in the form of a contractually stipulated maximum interest rate. Buying a cap protects the buyer against possible interest rate increases.2 Currency future. Contractual agreement between two parties to exchange two agreed currency amounts on a specified future date and at an agreed exchange rate.3 Simultaneous conclusion of a cash currency transaction and a currency future with the same counterparty. The amount purchased in cash is sold on the future date or vice

versa.


tional safety and fire protection, these also include obtain-ing comprehensive industrial insurance cover to financially secure the insurable operating risks and result-ing sales risks.

OVERALL RISK

Overall, the most important of all risks facing the Group are the strategic risks, especially those stemming from consolidation processes in the market that affect the competitive structure. However, this risk is mitigated both by the regional spread and the diversification of the product and service offerings of the Dräger Group. The performance risks from the completion of orders are well spread and are therefore limited.

All in all, the risks to the Dräger Group are limited and, based on the information currently available, the contin-ued existence of the Company as a going concern is not at risk.

Opportunities

EXPANSION OF LEADING MARKET POSITIONS

Based on net sales, Dräger considers itself one of the global market leaders in many areas and product groups of its two divisions. The Company sees opportunities for the continued growth of its market share by building on outstanding technological know-how, high product qual-ity, brand awareness and long-term customer relation-ships. In this context, Dräger focuses on attractive market segments and niches where the Company sees above-aver-age profitability and growth opportunities. Dräger also strives to develop new markets by developing new prod-ucts.

EXPANSION IN DEVELOPING AND EMERGING COUNTRIES

Dräger is favorably positioned based on investments and restructuring over the last few years, especially in sales

and service. Building on this foundation, Dräger sees opportunities for profitable and sustained expansion in the rapidly growing developing and emerging countries.

EXPANSION OF THE SERVICE AND ACCESSORIES

BUSINESS

We intend to pursue the further growth of sales in the stable and attractive service and accessories business; here both divisions of the Dräger Group stand to benefit from the large number of Dräger devices already in use. Growth of the service business is to be achieved through the further development of customer support following equipment sales as well as service and product offerings in the accessories and consumables business.

SYNERGIES BETWEEN THE DIVISIONS

Dräger strives to realize additional synergy potential between both the medical and safety division. Among other things, this is to be achieved through the organiza-tional merger of marketing and sales activities, which have been separated to date, in keeping with the func-tional management structure, and through the imple-mentation of a uniform Group-wide CRM (customer relationship management) system for both divisions. Dräger expects the implementation of the CRM will enhance customer loyalty and allow target groups to be addressed more effectively in order to achieve additional sales growth. In this context, Dräger Group continues to see potential for higher margins and a greater market share by improving efficiency in sales.

30 dISCLOSurES PurSuANT TO SEC. 289 (4) hGB ANd ExPLANATIONS By ThE GENErAL PArTNEr

Disclosures pursuant to Sec. 289 (4) HGB and explanations by the general partner

The following disclosures pursuant to Secs. 289 (4) HGB describe the conditions as they were on the balance sheet date.

COMPOSITION OF CAPITAL STOCK

The capital stock of Drägerwerk & Co. KGaA amounts to EUR 42,265,600. It consists of 10,160,000 voting bearer common shares and 6,350,000 bearer preferred shares, each with a EUR 2.56 share in capital stock. Shares of the same type carry the same rights and obligations. The rights and obligations of the shareholders are laid down in the German Stock Corporation Act, in particular in Secs. 12, 53a et seq., 118 et seq. and 186 AktG, as well as in the articles of association of Drägerwerk AG & Co. KGaA. As compensation for the lack of voting rights, an advance dividend of EUR 0.13 per preferred share is distributed from net earnings. If sufficient profits are available, a dividend of EUR 0.13 per common share is then paid. Any profit in excess of this amount, if distributed, is allocated so that preferred shareholders receive EUR 0.06 more than common shareholders. If the profit is not sufficient to distribute the advance dividend for preferred shares in one or more years, the amounts are paid from the profit of subsequent fiscal years before a dividend is paid on common shares. If amounts in arrears are not paid in the next year along with the full preferred dividend for that year, the preferred shareholders have voting rights until the arrears have been paid. In the event of liquidation, the preferred shareholders receive 25 percent of net liquidation proceeds in advance. The remaining liquida-tion proceeds are distributed evenly to all shares.

RESTRICTIONS RELATING TO VOTING RIGHTS OR THE

TRANSFER OF SHARES

Due to the legal structures of Dr. Heinrich Dräger GmbH, neither Stefan Dräger nor Stefan Dräger GmbH, which he

controls, have any influence on the exercise of the voting rights of those common shares held by Dr. Heinrich Dräger GmbH in the case of the annual shareholders’ meeting of Drägerwerk AG & Co. KGaA passing resolu-tions on agenda items within the meaning of Sec. 285 (1) Sentence 2 AktG. There are no further restrictions which relate to voting rights or the transfer of shares, even though they could arise from agreements between share-holders.

DIRECT OR INDIRECT SHAREHOLDINGS EXCEEDING

10 PERCENT

67.19 percent of the common shares of Drägerwerk AG & Co. KGaA, equivalent to 6,826,000 common shares or 41.34 percent of the total capital stock, belong to Dr. Heinrich Dräger GmbH, Lübeck. 58.73 percent of its shares are held by Stefan Dräger GmbH, Lübeck, 23.15 percent by the Dräger Foundation Lübeck / Munich, and the remainder by various members of the Dräger family. Stefan Dräger GmbH is wholly owned by Stefan Dräger, Lübeck. On July 14, 2010, Stefan Dräger GmbH and Dr. Heinrich Dräger GmbH informed us in accordance with Sec. 21 of the German Securities Trade Act (WpHG) that their shares in the voting rights of Drägerwerk AG & Co. KGaA, Lübeck, equal 67.19 percent each. On July 14, 2010, Stefan Dräger and the Dräger Foundation informed us in accordance with Sec. 21 WpHG (Wertpapierhandelsgesetz – German Securities Trading Act) that their shares in the voting rights of Drägerwerk AG & Co. KGaA, Lübeck, equal 68.36 percent (Stefan Dräger) and 67.31 percent (Dräger Foundation), respectively. In accordance with Sec. 22 (1) Sentence 1 No. 1 WpHG (Wertpapierhandelsgesetz – Ger-man Securities Trading Act), the voting rights are to be counted towards those of Dr. Heinrich Dräger GmbH − due to existing regulations – as well as Stefan Dräger GmbH and its majority shareholder and the Dräger Foundation. The voting rights of Stefan Dräger GmbH are to be allocated to its partner, Stefan Dräger, pursuant to Sec. 22 WpHG. Through Stefan Dräger GmbH, Stefan


Dräger also holds all shares in Drägerwerk Verwaltungs AG, Lübeck, the general partner of Drägerwerk AG & Co. KGaA. This means Stefan Dräger is both a shareholder of the general partner and also common shareholder of Drägerwerk AG & Co. KGaA. In the cases covered by Sec. 285 (1) Sentence 2 AktG he would therefore not be enti-tled to vote. The legal structure of Dr. Heinrich Dräger GmbH ensures that, for such resolutions, Stefan Dräger does not exert any influence on the exercise of the voting rights of common shares held by Dr. Heinrich Dräger GmbH.

SHARES WITH SPECIAL RIGHTS CONFERRING CONTROL

There are no shares with special rights conferring control or special controls over voting rights.

NATURE OF CONTROL OVER VOTING RIGHTS BY

EMPLOYEE SHAREHOLDERS WHO DO NOT DIRECTLY

EXERCISE THEIR CONTROL RIGHTS

If employees of the Company or the Dräger Group wish to acquire shares in the Company, they can purchase com-mon shares with voting rights or preferred shares without voting rights on the stock exchange. Preferred shares do not confer any control rights. Employees can exercise the control rights to which they are entitled through the ownership of common shares with voting rights directly like other shareholders, subject to the applicable legal regulations and the provisions of the articles of associa-tion.

APPOINTMENT AND REMOVAL OF MANAGEMENT AND

AMENDMENTS TO THE ARTICLES OF ASSOCIATION

In the legal form of a partnership limited by shares (KGaA), the general partner is authorized to manage and represent the Company, a regulation derived from part-nership law. Drägerwerk Verwaltungs AG, Lübeck, is the sole general partner of Drägerwerk AG & Co. KGaA. The Supervisory Board of Drägerwerk AG & Co. KGaA, which has half of its members elected by employees, is not autho-

rized to appoint or remove the general partner or its Executive Board. The general partner joined the Company with a corresponding declaration; it withdraws from the Company in the cases defined under Article 14 (1) of the articles of association.

The general partner’s Executive Board, which is autho-rized to manage and represent Drägerwerk AG & Co. KGaA, is appointed and removed pursuant to Secs. 84 and 85 AktG and Art. 8 of the articles of incorporation and bylaws of Drägerwerk Verwaltungs AG. The Executive Board of the general partner comprises at least two persons, the Supervisory Board of the general partner determines how many other members there are. The Supervisory Board of the general partner, elected by its annual shareholders’ meeting, is responsible for appoint-ing and removing members of the Executive Board. It appoints members of the Executive Board for a maximum of five years. Repeat appointments or extensions of the term of office are permissible.

The Supervisory Board of Drägerwerk AG & Co. KGaA is not authorized to adopt rules of procedure for manage-ment or to define a catalog of management transactions requiring approval. The Joint Committee – comprising four members of each of the Supervisory Boards of the Company and its general partner – and not the annual Shareholders’ Meeting, decides on the management transactions by the general partner which require approv-al as set out in Article 23 (2) of the articles of association of Drägerwerk AG & Co. KGaA. The Supervisory Board of Drägerwerk AG & Co. KGaA represents the Company in dealings with the general partner.

Pursuant to Secs. 133, 179, 278 (3) AktG, amendments to the articles of association must be approved by the annual shareholders’ meeting. Such resolution requires a major-ity of at least three quarters of the capital stock represent-ed at the time of the vote. The articles of association may

32 dISCLOSurES PurSuANT TO SEC. 289 (4) hGB ANd ExPLANATIONS By ThE GENErAL PArTNEr | SuBSEquENT EvENTS | OuTLOOk

stipulate a different majority of capital stock, but for changes in the purpose of the Company this can only be a greater majority (Sec. 179 (2) Sentence 2 AktG). At Drägerwerk AG & Co. KGaA, pursuant to Art. 30 (3) of the articles of association, resolutions by the annual general meeting are adopted by a simple majority of votes cast (simple voting majority) if this does not conflict with any legal provisions. If the law additionally requires a majority of capital they are still adopted by a simple majority of the capital stock represented upon adoption of the resolution (simple capital majority). The Company has not made use of the possibility pursuant to Sec. 179 (2) Sentence 3 AktG to define further requirements in the articles of associa-tion for amendments to the same agreement. As well as the relevant majority of limited shareholders, amend-ments to the articles of association also require the approval of the general partner (Sec. 285 (2) AktG). Pursuant to Article 20 (7) of the articles of association of the Company, the Supervisory Board is authorized to make amendments and additions to the articles of asso-ciation which relate only to its wording.

POWER OF THE GENERAL PARTNER TO ISSUE OR BUY

BACK SHARES

By resolution of May 7, 2010, the annual shareholders’ meeting conditionally increased the Company’s capital stock by up to EUR 3,200,000 in order to issue up to 1,250,000 new no-par preferred bearer shares (no-par shares) in return for cash and / or contributions in kind (conditional capital, Article 6 (5) of the articles of associa-tion). The capital stock will only be conditionally increased to the extent that applicable option rights are exercised. Dräger issued warrant bonds with option rights guaranteed in the form of warrants on account of the resolution on the authorization and instruction passed by the annual shareholders’ meeting on May 7, 2010 regard-ing agenda point 7 a). The option rights have not been exercised up to now.

In accordance with the resolution agreed upon at the annual shareholders’ meeting on May 6, 2011, the general partner is entitled to increase the Company’s capital until May 5, 2016, with the approval of the Supervisory Board, by up to EUR 21,132,800.00 (approved capital) by issuing new bearer common shares and / or preferred shares (no-par value shares) in return for cash and / or contribu-tions in kind, in either one or several tranches. The authorization includes the approval to issue new common shares and / or non-voting preferred shares, which carry the same status as the previously issued non-voting preferred shares with regard to the distribution of profits and / or Company assets. The statutory maximum as stipulated in Sec. 139 (2) AktG is to be taken into account: No more than half of the capital stock may be issued as non-voting preferred shares. Shareholders must be given a subscription right that can be excluded, with the approval of the Supervisory Board, under certain conditions. In the case of common and preferred shares being issued togeth-er, the right of holders of one share type to subscribe to the other type of shares (“crossed exclusion of subscrip-tion rights”) can be excluded.

The authorization of the general partner to increase the Company’s capital stock until May 7, 2014 issued at the annual shareholders’ meeting on May 8, 2009 was lifted to the extent that it had not been used on the day of the annual shareholders’ meeting on May 6, 2011.

MATERIAL ARRANGEMENTS MADE BY THE COMPANY

SUBJECT TO A CHANGE OF CONTROL IN THE WAKE

OF A TAKEOVER BID

The Company has not made any material arrangements subject to a change of control in the wake of a takeover bid.


COMPENSATION AGREEMENTS MADE BY THE COMPANY

WITH MEMBERS OF THE EXECUTIVE BOARD OF THE

GENERAL PARTNER OR EMPLOYEES IN THE EVENT OF A

TAKEOVER BID

There are no agreements in place in the Dräger Group with members of the Executive Board of the general partner or employees in the event of a takeover bid.

Subsequent events

SUBSEQUENT EVENTS

On February 15, 2012, Drägerwerk AG & Co. KGaA announced that it is requesting for the holders of series A, K and D participation certificates to offer these for sale to Drägerwerk AG & Co. KGaA at a price of EUR 201.00 each. The offer period started on February 20, 2012 and is expected to end on March 19, 2012. If all participation certificates were offered at the offer price, the total pur-chase price would be EUR 296.8 million. Depending on the volumes of the offers, the statutory supervisory bodies of the Company have to approve them. DISTRIBUTIONS

The general partner and the Supervisory Board of Dräger-werk AG & Co. KGaA, Lübeck, plan to propose to distribute out of the net earnings of Drägerwerk AG & Co. KGaA of EUR 158.2 million for fiscal year 2011 a dividend of EUR 0.13 per common share and EUR 0.19 per preferred share, totaling EUR 2.5 million. The remaining amount of EUR 155.7 will be carried forward to new account. The pre-ferred share dividend also governs the dividend for partici-pation certificates, which will amount to EUR 1.90 each – ten times the preferred share dividend.

Outlook

FUTURE MARKET ENVIRONMENT

Global economic growth is likely to slow down in 2012. The German Institute for Economic Research (“Deutsch-es Institut für Wirtschaftsforschung”: DIW) believes that the reason is the problems many countries are facing in view of excessive sovereign and private debt, which are forcing governments to make harsh budget cuts. In addition, the turbulences in the capital markets caused by the debt problem are having an adverse effect on senti-ment among companies and consumers. At the same time, banks are expected to reduce their risk exposure from third-party corporate financing to take the burden off their core capital. The International Monetary Fund (IMF) sees only poor growth perspectives that go hand in hand with steeply increased risks in the wake of the worsening of the euro crisis in the fourth quarter of 2011. The IMF expects less economic momentum in the indus-trial nations as well as the emerging countries such as China, India and Brazil. The likely reasons are reduced demand impulses from international trade partners and also a decline in domestic demand. The IMF has there-fore lowered its global economic forecast compared to September 2011: It now expects global gross domestic product (GDP) to expand by 3.3 percent – after 3.8 per-cent growth in 2011. The industrial nations are expected to grow by 1.2 percent (2011: +1.6 percent) and the emerging markets by 5.4 percent (2011: +6.2 percent).

Economic growth in the eurozone, which slowed down considerably already at the end of the year, will not pick up significantly for the meantime in the opinion of the European Central Bank (ECB). The basic economic momentum is likely to inhibit the moderately growing global demand; added to this is the low level of confidence among companies and consumers in the eurozone. The continuing tension on the government bond markets in the eurozone and the necessary budget consolidations are

34 OuTLOOk

slowing down domestic demand. According to some current poll indicators and ECB estimates, however, there are first signs of the global economy stabilizing at a low level. The global economy looks like it might start recover-ing very gradually during the course of 2012 – on the back of global demand, very low short-term interest rates and the measures for boosting the business operations of the financial sector in the eurozone. The economic outlook, so ECB, will however remain burdened by high uncer-tainty and considerable downward risks.

The IMF expects GDP to decrease slightly by 0.5 percent in the full year. The crisis in the eurozone will also have a considerable negative impact on Germany’s economic performance in the eyes of the IMF. The DIW forecasts for the German GDP to shrink slightly at times. The Interna-tional Monetary Fund anticipates German GDP to stag-nate (+0.3 percent) in the full year 2012.

DRÄGER MANAGEMENT ESTIMATES ON THE OVERALL

ECONOMIC ENVIRONMENT

The overall economic environment has deteriorated. Economic growth has already slowed down considerably in Dräger’s key markets and is likely to decline further in the near future. The downward risks remain high, espe-cially on account of currently still existing uncertainties regarding the question if a sustainable solution can be found for resolving the euro debt crisis. Despite Dräger’s diversification in various product markets and its geo-graphically well-balanced portfolio, poor overall economic performance is likely to also negatively affect the Com-pany’s order situation. The Group expects the part of the safety division’s industrial business, which is more depen-dent on economic developments, to perform slightly positively in the beginning. The gas and oil industry business, which follows long-term investor cycles, will likely grow moderately. Public sector order policies are expected to be restrictive, particularly in Europe but also in the USA. This, in turn, is likely to lead to lower or

stagnating order volumes in the police force and fire services customer groups as well as in the medical divi-sion. In Asia and South America, Dräger anticipates growth to be higher than the overall economic momen-tum. All in all, the Company is expected to grow at least as fast as the global economy (January 2012 IMF estimate: 3.3 percent).

The forecast relaxation on the commodity markets is likely to have a slightly positive effect on the Group. According to Dräger’s estimates, the risk of another steep rise in commodity prices is generally low in view of the global economic slowdown and the resulting drop in demand. Due to the weaker growth and realized capacity expan-sions in global logistics, Dräger should profit from slightly declining freight rates.

Although the rate of inflation might still remain above the target bandwidth set by the European Central Bank (ECB) for some months to come, inflation has a rather dispro-portionately low and indirect impact on Dräger; it is more important in this respect for the risk of an early key interest rate rise to be low in view of the further slowdown of the global economy. The risks for the refinancing markets arising from such a step are therefore likely to be low.

The financial sector’s lending policies might become restrictive as a result of higher equity requirements, but this is unlikely to affect Dräger because of its financing structure. Although the risk of haircuts for individual countries in the eurozone remains in 2012, the Group currently does not anticipate any major burdens to arise from this when taking into account its outstanding receiv-ables and agreed hedges for them. Should it be impos-sible, however, to bring the eurozone crisis to an end, the resulting implications for Dräger cannot be reliably determined at this time.


Generally speaking, Dräger benefits from the euro being weak compared to the currencies of its key trade partners. It is difficult to forecast the euro exchange rate to key currencies given the current situation of high uncertain-ty, but the Company expects exchange rates to continue developing in a volatile manner. The downgraded ratings of some member states of the European Monetary Union and the drastically risen consolidation pressure on gov-ernment budgets could create favorable conditions for a weakening of the euro exchange rate, in Dräger’s eyes.

FUTURE SITUATION OF THE MEDICAL TECHNOLOGY

INDUSTRY

Dräger expects overall positive performance in the medi-cal technology markets in 2012. The German professional association Spectaris, for instance, anticipates 5 percent growth. In Germany, the outlook should be cautiously optimistic. As medical technology was little affected by the economic crisis, the outlooks for other Central Euro-pean countries like the Netherlands and Austria are also positive. Switzerland is forecasting a 3.4 percent rise in healthcare spending in 2012. North Europe can be expect-ed to grow steadily, as standards are high in this region. Norway, for instance, plans to improve and modernize its healthcare infrastructure. Budget cuts in crisis-hit South Europe are taking their toll on the healthcare sector: In Greece, for instance, around 10 percent of all public hospitals were closed by the end of 2011 with further sav-ings measures being on the horizon. Turkey is proving to be one positive exemption: As the country is modernizing its government-run hospitals and the number of private healthcare facilities is increasing, German Trade & Invest is anticipating medical technology sales there to rise by 10 percent per year. Sales opportunities are likely to remain high in Russia as the country continues to modernize its healthcare system. The Russian Interior Ministry forecasts investments of USD 16 billion by 2020. In North America, the percentage of elderly people in the total population is increasing. This is pushing up spending in the healthcare

sector and is therefore likely to lead to moderate growth. The US might cut its budgets, however, on account of the necessary budget consolidations. Demand for medi-cal technology continues to be high in Brazil, as both the private and public healthcare sectors are being developed intensively. The 2012 forecast for the Asia / Pacific region is positive. Demand in densely populated countries like India and China continues to be high and other nations like Singapore and Thailand are also showing great growth potential. For the Japanese market, on the other hand, Germany Trade & Invest forecasts rather moderate growth. In the other countries region, the German profes-sional association Spectaris, for instance, expects invest-ments in medical technology to be made in Algeria, Tuni-sia and Libya after the end of the so-called Arab spring in parts of North Africa. Taking into account the basically unchanged cost pressure in the global healthcare sector, Dräger expects a steady demand for high-quality medical technology products that optimize processes and improve efficiency. The Group is excellently positioned to meet these requirements with its solutions.

FUTURE SITUATION OF THE SAFETY TECHNOLOGY

INDUSTRY

In 2012, Dräger expects performance in safety technol-ogy markets to be cautiously positive with regional differences and for it to be impacted by the weakened global economy. Various forecasts predict that Germany will be overshadowed by the crisis in the eurozone in the first half of 2012. The DIW, however, anticipates for the economy to grow in the second half of the year, meaning that growth would be slightly positive in the full year. In the rest of Europe, the continuing tense situation in South Europe is likely to dampen demand, while in other parts of Europe such as Scandinavia demand is expected to develop positively. Russia is also expected to continue showing momentum as it is about to join the World Trade Organization (WTO). The Americas region, on the other hand, will develop cautiously, with exception of the

36 OuTLOOk

oil and gas production and mining sectors. The forecast for Brazil, for instance, is only moderate growth com-pared to the strong previous years. In view of the reduc-tion of public funds due to rising sovereign debt as well as increasing unemployment in the industrial sector, demand in the US is likely to be subdued. After the strong previous years, the Asian markets are expected to calm down. In China and India, for instance, the mar-kets are anticipated to grow moderately. In some smaller markets like Thailand and Vietnam, on the other hand, sector-specific growth is being forecast. In the other countries region − in South Africa, for example − demand is expected to rise in various sectors due to investments in modernizations and the expansion of production volumes. All in all, Dräger forecasts a solid performance in the safety technology markets − in a changed general economic environment.

FUTURE SITUATION OF THE DRÄGER GROUP

Dräger expects its order intake and net sales in fiscal year 2012 to grow at least at the pace of global economic growth (IMF January 2012 forecast: +3.3 percent). This is based on the assumption of a stabilizing economy in Europe, continued economic recovery in North America, sustained market growth in developing countries and stable exchange rates. The majority of Dräger’s growth will likely be supported by non-European regions like the emerging countries and the US. In the medical division, Dräger expects above-average growth in the equipment business. The Company also anticipates for Lifecycle Solutions to make major contributions to net sales growth. In the safety division, the Group forecasts further business volume increases in all product areas. New products will boost growth in both divisions: Overall, the Company plans to launch twelve new medical technology products and 19 new safety technology products and product developments. Dräger therefore expects the share of new and improved products in net sales to rise.

In the medical division, changes in the very favorable country and product mix in 2011 can lead to a slight drop in gross margin. Although the new products launched in the past years, in particular, should generally improve the margin, the Company also expects that it will be unable to fully compensate for the negative effects on the margin. In the safety division, Dräger forecasts a drop in the share of the high-margin business with industrial customers and therefore also expects a slight decline of the gross margin.

Research and development expenses are likely to rise by 12 percent to around EUR 180 million in 2012 (2011: EUR 161 million) so as to continue expanding the share of new products and to make existing products compliant with RoHS/Reach by 2014.

Of this increase, Dräger plans to invest between EUR 5 million and EUR 10 million into ensuring that all prod-ucts adhere to the RoHS/Reach regulations by 2014. The improvement of the Group-wide IT infrastructure will again push up IT costs by a disproportionately high 9 percent to roughly EUR 110 million in 2012 (2011: EUR 100.6 million). Overall, Dräger expects a Group EBIT margin between 8.0 percent and 9.5 percent for fiscal year 2012 (2011: 9.5 percent).

In 2012, Dräger Group’s interest expense is anticipated to be on par with the previous year and come to around EUR 30 million (2011: EUR 33.0 million) – assuming that interest rates are going to remain unchanged. This does not account for the effects on earnings of the buyback of participation certificates, which will amount to a figure in the lower to higher one-digit million euro range, depending on the rate of acceptance. Due to the positive earnings performance and optimization of Group structures, Dräger expects a tax rate of approximately 28 percent to 32 percent in fiscal year 2012 (2011: 30.8 percent).


In 2012, Dräger Group expects cash inflow from operating activities to remain high in the region from 65 percent to 80 percent of EBIT (2011: 73.8 percent) within the scope of anticipated earnings developments. The investment volume is likely to be higher than depreciation and amor-tization at around EUR 75 million to EUR 85 million (2011: EUR 71.5 million) on account of real estate invest-ments for the purpose of increasing production capaci-ties.

The repayment of a note loan totaling EUR 55.0 million, which is planned for 2012, and the proposed dividend distribution on common and preferred shares and partici-pation certificates (excluding minimum dividend, after taxes) of EUR 4.1 million as well as the acceptance rate for the buyback of participation certificates, which is under way at the time of publication of this report, all will have an effect on the development of cash and cash equivalents. Cash outflow would come to EUR 296.8 million if all participation certificate holders were to accept the offer. Dräger can pay this amount in full from existing liquidity (December 31, 2011: EUR 412.3 million).

The overall capital structure is also being influenced by the current offer. All in all, Dräger expects this offer to increase net debt (2011: EUR 39.8 million) and to decrease the equity ratio, as part of the participation capital is recognized as equity pursuant to IFRS. The Company continues to work on raising its capital efficien-cy and reducing its long-term financing costs. If the credit markets were to develop positively in 2012, the Group would increase its long-term financing.

For fiscal year 2013, Dräger forecasts net sales growth to outperform market in both divisions and the Group EBIT margin to increase compared to 2012, providing the Company’s relevant markets continue their positive performance. Overall, Dräger expects to achieve at least one percentage point in savings regarding the relevant

marketing and sales costs by the end of 2014. The Com-pany also plans to continue to grow faster than the market in the medium term and achieve a minimum EBIT margin of 10 percent.

FUTURE SITUATION OF

DRÄGERWERK AG & CO. KGAA

In fiscal years 2012 and 2013, Drägerwerk AG & Co. KGaA will continue to provide services to its group companies.

The Company’s 2012 and 2013 earnings will principally be impacted by income from investments and profit and loss transfers.

In 2012, the improvement of the Group-wide IT infrastruc-ture will again lead to a rise in IT costs; interest expense in 2012 is expected to be on par with the previous year – assuming interest rates remain at the same level.

The repayment of two note loans totaling EUR 55.0 million, which is planned for 2012, and the planned dividend distribution on common and preferred shares and partici-pation certificates (including minimum dividend, before taxes) of EUR 5.2 million as well as the acceptance rate for the buyback of participation certificates, which is under way at the time of publication of this report, all will have an effect on the development of cash and cash equivalents. Cash outflow would come to EUR 296.8 million if all partic-ipation certificate holders were to accept the offer.

The overall capital structure is also being influenced by the current offer. All in all, Dräger expects this offer to increase net debt (2011: EUR 123.4 million) and to decrease the equity ratio, as series D of the participation capital is recognized as equity pursuant to IFRS.

38 dECLArATION OF COrPOrATE GOvErNANCE

Declaration of corporate governance

The Company management prepared the single entity financial statements and management report of Dräger-werk AG & Co. KGaA and is responsible for the contents of both documents and the objectivity of the information provided therein.

The financial statements were prepared in accordance with the German Commercial Code (Handelsgesetzbuch – HGB).

The Executive Board has implemented effective internal control systems and relevant employee training measures to ensure that the Group’s financial reporting system is correct and complies with legal requirements. The Com-pany’s principles are based on integrity and social respon-sibility in all areas such as environmental protection, quality, product and process safety, and compliance with local laws and regulations. The internal audit department continuously monitors the implementation of these principles as well as the reliability and functionality of the control systems.

The Executive Board governs the Group in the interest of its shareholders and is aware of its responsibility to employees, society and the environment. We have made it our goal to use the resources entrusted to us for increas-ing the value of Dräger Group.

According to the resolution passed by the annual share-holders’ meeting on May 6, 2011, the Supervisory Board appointed PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft as the independent auditor of the single entity financial statements of Dräger-werk AG & Co. KGaA. The auditing firm also examined the existing risk management system with regard to the Control and Transparency in Business Act (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich

– KonTraG). Representatives of the statutory auditor will attend the Audit Committee’s meeting as well as the Supervisory Board’s meeting to discuss the financial statements, during which the single entity and group financial statements including management report and auditor’s report will be deliberated on. The Supervisory Board has issued a separate report on this subject in the report of the Supervisory Board in the annual report 2011.

DECLARATION OF CONFORMITY

The joint declaration of conformity by the general partner and the Supervisory Board of Drägerwerk AG & Co. KGaA was discussed and approved in the meeting of the Super-visory Board of the Company on 15.12.11. It states that the recommendations of the German Corporate Governance Code Government Commission were applied with one exception.

The declaration was published on December 16, 2011, with the following wording:

“The recommendations of the German Corporate Gover-nance Code Government Commission were designed with stock corporations in mind. Dräger applies these recom-mendations to Drägerwerk Verwaltungs AG wherever they are relevant to the general partner and bodies of the AG & Co. KGaA following the change in legal form.

The general partner, represented by its Executive Board, and the Supervisory Board declare that Drägerwerk AG & Co. KGaA has acted and will continue to act on the recom-mendations of the German Corporate Governance Code Government Commission, as amended on May 26, 2010, from the date of the issue of its previous declaration of conformity on December 15, 2010. This applies subject to the following exception:

1. When appointing the members of the Executive Board, the Supervisory Board of the general partner exclusive-


ly takes into account qualifications of the available persons. In this respect, the Supervisory Board of the general partner does not comply with the recommenda-tions stated in 5.1.2. clause 3 of the Code.”

SUPERVISORY BOARD

The Supervisory Board of Drägerwerk AG & Co. KGaA has twelve members, half of whom are elected by sharehold-ers and half by employees in accordance with the German Codetermination Act. Several members of the Supervisory Board hold or held high-ranking positions at other compa-nies. The majority of the members of the Supervisory Board are independent of the Company for the purposes of the Corporate Governance Code. Where business relationships exist with Supervisory Board members, transactions are conducted on an arm’s length basis as between unrelated parties and do not affect the indepen-dence of the members. The Supervisory Board of Dräger-werk Verwaltungs AG has six members who are also the shareholder representatives on the Supervisory Board of Drägerwerk AG & Co. KGaA. The Supervisory Boards of Drägerwerk AG & Co. KGaA and Drägerwerk Verwaltungs AG each appoint four members to the Joint Committee.

In its meeting on December 15, 2010, the Supervisory Board resolved to apply the following objectives when selecting its members pursuant to 5.4.1 of the Code:

When proposing a new member, the Supervisory Board will be guided by the following criteria that take into account diversity:

– Professional and personal qualifications regardless of gender

– Business management experience in German and foreign companies with a global presence in various cultural regions

– Experienced representatives of family-owned as well as listed companies

– Persons with proven track record in finance and accounting and know-how in financing and capital market communication

– Experience in marketing and sales in diversified tech-nology companies

– Intellectually and financially independent persons with a high degree of personal integrity who do not have a conflict of interest with the Company

– Re-elected or newly elected members must be under 70 years of age at the time of the election

The Supervisory Board of Drägerwerk AG & Co. KGaA monitors and advises the Executive Board of the general partner in the management of the partnership limited by shares. The Supervisory Board regularly discusses busi-ness performance and plans as well as the implementa-tion of the business strategy based on written and oral reports by the Executive Board of the general partner. It reviews the financial statements of Drägerwerk AG & Co. KGaA and the Dräger Group.

In doing so, it takes into account the audit reports of the statutory auditors and the results of the review by the Audit Committee. The Supervisory Board makes a recom-mendation to the annual shareholders’ meeting for a resolution to approve the financial statements and the group financial statements.

The Joint Committee makes decisions on extraordinary management transactions by the general partner: The individual transactions requiring approval are defined in Sec. 23 (2) of the articles of association of the Company.

Appointing and removing members of the Executive Board of Drägerwerk Verwaltungs AG, which manages the operations of Drägerwerk AG & Co. KGaA as the legal representative of the general partner, is the task of the Supervisory Board of Drägerwerk Verwaltungs AG.

40 dECLArATION OF COrPOrATE GOvErNANCE

In an effort to improve its effectiveness and efficiency, the Supervisory Board of Drägerwerk AG & Co. KGaA estab-lished an Audit Committee. This Committee consists of the Chairman of the Supervisory Board as well as four further members, two of which are shareholder represen-tatives and two employee representatives. The Supervisory Board ensures that the Committee members are indepen-dent and places great emphasis on their particular knowl-edge and experience in applying accounting standards and internal control processes. The Audit Committee monitors the adequacy and functionality of the Company’s external and internal financial reporting system. Together with the statutory auditors, the Audit Committee discuss-es the reports drawn up by the Executive Board during the year, the Company’s financial statements and audit reports. On this basis, the Audit Committee draws up recommendations for the approval of the financial state-ments by the annual shareholders’ meeting. It deals with the Company’s internal control system and with the procedure for recording risks, for risk control and risk management. The internal audit department reports regularly to the Audit Committee, and is engaged by this Committee to carry out audits as is deemed necessary. Reference is also made to the report of the Supervisory Board.

In addition, the Supervisory Board also established a Nomination Committee in accordance with 5.3.3 of the Code. This Committee is charged with proposing suitable candidates for election to the Supervisory Board. On this basis, the Supervisory Board compiles suggestions for the annual shareholders’ meeting.

MANAGEMENT

Drägerwerk Verwaltungs AG manages the operations of Drägerwerk AG & Co. KGaA.

In its role as managing body of Drägerwerk AG & Co. KGaA and of the Dräger Group, the Executive Board of

Drägerwerk Verwaltungs AG governs corporate policy. It determines the Company’s strategic focus, plans and sets budgets, approves resource allocation and monitors business performance. The Executive Board compiles the Company’s quarterly reports, the financial statements of Drägerwerk AG & Co. KGaA and the group financial statements. It works closely with the oversight bodies. The Chairman of the Supervisory Boards of the Company and of the general partner works closely with the Chairman of the Executive Board of the general partner. He regularly provides up-to-date and comprehensive information on all issues relevant to the Company: strategy and its imple-mentation, planning, business performance, financial position and results of operations as well as business risk. The Supervisory Board of Drägerwerk Verwaltungs AG approved the rules of procedure for the Executive Board at its meeting on December 14, 2008.

Investor relations

Drägerwerk AG & Co. KGaA has issued a total of 16,510,000 shares. These are all traded on the German stock exchanges and are divided into 10,160,000 common shares and 6,350,000 preferred shares. The Dräger family holds 71.46 percent of the 10,160,000 common shares. Dräger reports to its shareholders on business perfor-mance, net assets, financial position and results of opera-tions in two quarterly reports, one half-yearly report and the annual report.

The annual shareholders’ meeting is held in the first eight months of the fiscal year. The resolution on the approval of the financial statements of Drägerwerk AG & Co. KGaA is adopted at the annual shareholders’ meeting. In addition, the annual shareholders’ meeting votes on profit appropriation, the exoneration of the general partner and of the Supervisory Board and the election of the statutory auditors. In addition, it also elects the share-holder representatives to the Supervisory Board, approves amendments to the articles of association and changes in capital, which the general partner implements.


The shareholders exercise their rights at the annual shareholders’ meeting in accordance with the legal requirements and the Company’s articles of association. Insofar as the resolutions of the annual shareholders’ meeting relate to extraordinary transactions and core business, they also require the approval of the general partner.

In the course of our investor relations work, the Chair-man of the Executive Board and the CFO, as well as the other Executive Board members hold regular meetings with analysts and institutional investors. Besides an annual analysts’ conference, a conference call also takes place when the quarterly figures are announced or for other important events.

Compliance

Compliance is a term used to describe all measures which ensure that companies, their managing bodies and

employees act in accordance with the law and internal guidelines. The Dräger Compliance Program aims to support all managing bodies and employees in correctly applying laws and internal guidelines and to live accord-ing to Dräger’s values. At Dräger, compliance forms the natural basis for all daily business and is part of its corpo-rate culture.

All employees and business partners are expected to act with integrity and show respect toward other people. It is also goes without saying that current laws must be com-plied with at all times. These basic principles were updat-ed at the end of 2011, compiled in the Dräger business policies and code of conduct and translated into 18 lan-guages. The business policies and code of conduct are complimented by further Group guidelines which describe and explain in more detail the underlying legal requirements and internal regulations.


Stefan Dräger GmbH

Drägerwerk AG & Co. KGaA

Joint Committee

Supervisory Board of Drägerwerk Verwaltungs AG

Limited shareholders

Supervisory Board of Drägerwerk AG & Co. KGaA

Executive Board

of Drägerwerk Verwaltungs AG

General partner resolutions on transactions requiring approval

Monitoring

Monitoring and appointing the Executive Board

Company management / representativesdeployment

deployment

100 %

0 %

42 FOrWArd-LOOkING STATEMENTS

Dräger regards compliance as a major performance and monitoring task. Each and every person at Dräger, from employee to manager, is expected to actively contribute to implementing the Dräger Compliance Program in his or her area of responsibility. In addition, the Compliance unit of the Legal department was expanded in 2011. Employees at this unit are responsible for realizing, managing and developing the Compliance Program. Their activities include regular training on major legal requirements and internal guidelines and they are always happy to answer individual questions. Each employee can also enquire at any time about any compliance-related issue on the specifically set-up compliance helpline. A special compliance hotline was also launched at the end of 2011, which is now going live in one country at a time. This hotline will be made available on a global scale. Employees will be able to use it for reporting any suspect-ed infringements of business laws and anti-trust laws as well as other breaches of the compliance regulations; they may do so anonymously.


FORWARD-LOOKING STATEMENTS

This management report contains forward-looking statements. The statements are based on the current expectations, presumptions, and forecasts of the Executive Board as well as the information available to it to date. The forward-looking statements do not provide any war-ranty for the future developments and results contained therein. Rather, the future developments and results are dependent on a number of factors; they entail various risks and uncertainties and are based on assumptions which could prove to be incorrect. Dräger does not assume any responsibility for updating the forward-look-ing statements made in this report.

Lübeck, Germany, February 28, 2012

Drägerwerk AG & Co. KGaAThe general partnerDrägerwerk Verwaltungs AGrepresented by its Executive Board

Stefan DrägerHerbert FehreckeGert-Hartwig LescowAnton Schrofner

44 INCOME STATEMENT

45NOTESFINANCIAL STATEMENTS MANAGEMENT rEPOrT

INCOME STATEMENT OF DRÄGERWERK AG & CO. KGAA FOR THE PERIOD FROM JANUARY 1 TO DECEMBER 31

Note 2011 2010

€ thousand € thousand

Other operating income 23 144,142 123,369

Personnel expenses 24 –50,866 –36,114

Depreciation/amortization 25 –8,614 –6,435

Other operating expenses 26 –139,309 –143,888

Income from profit transfer agreements 27 190,164 120,751

Income from other investments 28 2,109 271

Interest result 29 –23,294 –36,173

Results from ordinary operations 114,332 21,781

Extraordinary income – 1,957

Extraordinary expenses – –16,482

Extraordinary result – –14,525

Income taxes 30 –10,453 24,335

Other taxes –478 –315

Profit before distribution for participation capital 103,401 31,276

Distribution for participation capital 40 –1,886 –11,812

Net profit 101,515 19,464

Profit brought forward from previous year 56,706 56,280

Net earnings 42 158,221 75,744

Single entity financial statements of Drägerwerk AG & Co. KGaA

46 BALANCE ShEET

BALANCE SHEET OF DRÄGERWERK AG & CO. KGAA AS OF DECEMBER 31

Note December 31, 2011 December 31, 2010


Assets

Intangible assets 7 9,934 5,598

Property, plant and equipment 8 38,770 38,125

Financial assets 9 858,289 852,567

Non-current assets 906,993 896,290

Trade receivables 147 347

All other receivables and other assets 47,253 135,195

Receivables and other assets 10 47,400 135,542

Guthaben bei Kreditinstituten 243,191 196,415

Current assets 290,591 331,957

Prepaid expenses 11 7,681 6,541

Deferred tax assets 12 61,886 69,421

Excess of plan assets over pension liability 13 1,828 1,113

Total assets 1,268,979 1,305,322


Note December 31, 2011 December 31, 2010


Equity and liabilities

Capital stock, conditional capital: € 3,200 thousand 14 42,266 42,266

Capital reserves 15 161,266 161,266

Retained earnings 16 199,191 199,191

Other retained earnings (199,191) (199,191)

Net earnings 158,221 75,744

Participation capital – par value: € 25,371 thousand (Serie D) 18 49,929 49,929

Equity 610,873 528,396

Provisions for pensions and similar obligations 84,590 85,871

Other provisions 43,082 40,785

Provisions 19 127,672 126,656

Participation capital – par value: € 10,756 thousand (Serien A+K) 18 24,868 24,868

Liabilities to banks 366,592 325,399

Trade receivables 17,027 15,153

All other liabilities 121,947 284,850

Liabilities 20 530,434 650,270

Total equity and liabilities 1,268,979 1,305,322

48 ANALySIS OF NON-CurrENT ASSETS

ANALYSIS OF NON-CURRENT ASSETS OF DRÄGERWERK AG & CO. KGAA

Cost Depreciation / amortization Carrying values

As ofJan. 1, 2011

Additions Disposals Additions from Group

companies /Reclassifications

As ofDec. 31, 2011

As ofJan. 1, 2011

Additions Disposals Write-ups Additions from Group


As ofDec. 31, 2011

31. Dez. 2011 31. Dez. 2010

€ thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand

Franchises, concessions, industrial property and similar rights and assets, as well as licenses thereto 21,866 3,970 2,574 255 23,517 17,310 2,416 2,556 – 17 17,187 6,330 4,556

Payments made 1,042 2,800 – –238 3,604 – – – – – – 3,604 1,042

Intangible assets 22,908 6,770 2,574 17 27,121 17,310 2,416 2,556 – 17 17,187 9,934 5,598

Land, equivalent titles and buildings (incl. on leased land) 128,886 2,303 – 8 131,197 93,661 2,809 – – – 96,470 34,727 35,225

Production plant and machinery 2,132 2 – – 2,134 1,897 76 – – – 1,973 161 235

Other plant, factory and office equipment 20,136 2,830 1,831 611 21,746 17,766 2,554 1,764 – 322 18,878 2,868 2,370

Prepayments made and assets under construction 295 981 – -262 1,014 – – – – – – 1,014 295

Property, plant and equipment 151,449 6,116 1,831 357 156,091 113,324 5,439 1,764 – 322 117,321 38,770 38,125

Intangible assets and property, plant and equipment 174,357 12,886 4,405 374 183,212 130,634 7,855 4,320 – 339 134,508 48,704 43,723

Shares in Group companies 855,471 26 – – 855,497 3,051 – – – – 3,051 852,446 852,420

Loans to Group companies 472 5,871 160 – 6,183 472 – – – – 472 5,711 –

Shareholdings 173 – 38 – 135 26 – – – – 26 109 147

Other loans 5 22 0 – 27 5 – 1 – – 4 23 –

Financial assets 856,121 5,919 198 – 861,842 3,554 – 1 – – 3,553 858,289 852,567

1,030,478 18,805 4,603 374 1,045,054 134,188 7,855 4,321 – 339 138,061 906,993 896,290

The addition of intangible assets and property, plant and equipment from Group companies can be found in the “Additions from Group companies / reclassifications” columns with their historical values.


ANALYSIS OF NON-CURRENT ASSETS OF DRÄGERWERK AG & CO. KGAA

Cost Depreciation / amortization Carrying values

As ofJan. 1, 2011

Additions Disposals Additions from Group


As ofDec. 31, 2011

As ofJan. 1, 2011

Additions Disposals Write-ups Additions from Group


As ofDec. 31, 2011

31. Dez. 2011 31. Dez. 2010

€ thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand

Franchises, concessions, industrial property and similar rights and assets, as well as licenses thereto 21,866 3,970 2,574 255 23,517 17,310 2,416 2,556 – 17 17,187 6,330 4,556

Payments made 1,042 2,800 – –238 3,604 – – – – – – 3,604 1,042

Intangible assets 22,908 6,770 2,574 17 27,121 17,310 2,416 2,556 – 17 17,187 9,934 5,598

Land, equivalent titles and buildings (incl. on leased land) 128,886 2,303 – 8 131,197 93,661 2,809 – – – 96,470 34,727 35,225

Production plant and machinery 2,132 2 – – 2,134 1,897 76 – – – 1,973 161 235

Other plant, factory and office equipment 20,136 2,830 1,831 611 21,746 17,766 2,554 1,764 – 322 18,878 2,868 2,370

Prepayments made and assets under construction 295 981 – -262 1,014 – – – – – – 1,014 295

Property, plant and equipment 151,449 6,116 1,831 357 156,091 113,324 5,439 1,764 – 322 117,321 38,770 38,125

Intangible assets and property, plant and equipment 174,357 12,886 4,405 374 183,212 130,634 7,855 4,320 – 339 134,508 48,704 43,723

Shares in Group companies 855,471 26 – – 855,497 3,051 – – – – 3,051 852,446 852,420

Loans to Group companies 472 5,871 160 – 6,183 472 – – – – 472 5,711 –

Shareholdings 173 – 38 – 135 26 – – – – 26 109 147

Other loans 5 22 0 – 27 5 – 1 – – 4 23 –

Financial assets 856,121 5,919 198 – 861,842 3,554 – 1 – – 3,553 858,289 852,567

1,030,478 18,805 4,603 374 1,045,054 134,188 7,855 4,321 – 339 138,061 906,993 896,290

The addition of intangible assets and property, plant and equipment from Group companies can be found in the “Additions from Group companies / reclassifications” columns with their historical values.

50 NOTES TO dräGErWErk AG & CO. kGAA SINGLE ENTITy FINANCIAL STATEMENTS 2011

Notes to Drägerwerk AG & Co. KGaA single entity financial statements 2011 GENERAL

Drägerwerk Verwaltungs AG, Lübeck, is the sole general partner of Drägerwerk AG & Co. KGaA. Drägerwerk Verwaltungs AG, Lübeck holds no shares. The capital stock of the general partner amounts to EUR 1 million.

The single entity financial statements of Drägerwerk AG & Co. KGaA have been prepared in accordance with the provisions of the Commercial Code (Handelsgesetz-buch – HGB). For the income statement, the nature of expense method of presentation has been used.

With a view to enhancing the transparency of presentation, certain items of the balance sheet and income statement have been summarized, but are detailed further down in these notes. The financial statements were prepared in euros. Unless stated otherwise, all figures are disclosed in thousands of euros (EUR thousand); rounding differences may arise as a result.

CORPORATE GOVERNANCE

Drägerwerk AG & Co. KGaA’s declaration of conformity under the terms of Sec. 161 of the German Stock Corporation Act (Aktiengesetz – AktG) has been issued and made available to the shareholders (see the annual report of the Dräger Group or www.draeger.com/GC/en/investor_relations/corporate_governance).

CHANGES TO ACCOUNTING POLICIES

The effects from the adjustment of the balance sheet as from January 1, 2010, to the new regulations of German commercial law in accordance with the German Accounting Law Modernization Act (Bilanzierungsmodernisierungsgesetz – BilMoG) were reflected in the 2010 extraordinary result and in retained earnings.

CURRENCY TRANSLATION

Foreign currency assets and liabilities are stated at the historical exchange rate on the day of transaction.

Foreign currency assets and liabilities with a remaining term of up to one year are recognized at the mean spot exchange rate prevailing on the balance sheet date. Exchange gains and losses from this conversion are recognized in income. Only losses resulting from different currency exchange rates are recognized for assets and liabilities with a remaining term of more than one year. Income and expenses from currency translation are recognized separately in other operating income and expenses.

ACCOUNTING POLICIES

Purchased intangible assets are carried at cost less straight-line amortization over an estimated useful life of no more than four years. Internally developed intangible assets that are part of non-current assets and development expenses are not recognized.

1

2

3

4

5


Property, plant and equipment are carried at cost less straight-line depreciation over the assets’ estimated useful life. Cost is recognized in accordance with the provisions of Sec. 255 (1) HGB. Consequently, it includes incidental purchase costs and post-acquisi-tion expenses, duly allowing for acquisition cost deductions. Costs include materials and production costs, special production costs, and materials and production overheads to an appropriate extent as well as the impairment of non-current assets insofar as it is caused by production. Research and sales costs and interest on debt are not taken into account. Factory and office buildings are depreciated over a maximum period of 50 years, build-ing fixtures and fittings over 10 years, production plant and machinery over eight years, and other plant, factory and office equipment up to 15 years, but mainly between two and five years. Movable items of property, plant and equipment recognized until December 31, 2009 are depreciated according to the declining balance method, applying the maxi-mum rates permitted by tax regulations. For assets received after that date, the declining balance method is only applied any more if it corresponds with the actual impairment of non-current assets. Low-value assets with a value between EUR 150 and EUR 500 are recognized, fully expensed and written off in the fiscal year of acquisition. Assets with a value of more than EUR 500 are recognized separately and depreciated over their respec-tive useful lives.

Within financial assets, the shares in Group companies and investments are stated at the lower of cost or realizable value.

Non or low-interest bearing loans are disclosed at their present value, carried at the customary market nominal value. Discounting and compounding are shown as write-downs or write-ups respectively. Non-current assets whose values, when determined according to the aforesaid principles, exceed the lower current values are written down accordingly.

Receivables and other assets are stated at principal or par, less any necessary allow-ances for bad debts, etc. Adequate general allowances provide for the normal collection risk. Non or low-interest receivables with a remaining term of more than one year are discounted if their value will be permanently impaired.

Derivative financial instruments are reported at cost or the lower of fair value. A provision for contingent losses is recognized for derivatives with negative fair values. If the market value cannot be reliably determined, the fair value is derived from the mar-ket value of similar derivatives or calculated with the help of established measurement methods such as the discounted cash flow method (present value approach) and the Black Sholes model (in the case of options). The applied yield curves, exchange rates and commodity prices that are in line with the market are the primary factors for these models.

Bank balances are stated at the nominal value.Deferred taxes are calculated for temporary differences between the values of non-

current and current assets as well as prepaid expenses, provisions and liabilities under commercial law and tax law, which in all probability will be reversed in the future. Drägerwerk AG & Co. KGaA, in its role as a parent company, includes the differences from its own balance sheet items as well as those from Group companies. Tax loss carry-forwards and interest carryforwards are recognized in addition to these temporary differences. Deferred taxes are determined on the basis of the income tax rate applicable to Drägerwerk AG & Co. KGaA’s fiscal unit. The deferred taxes are measured at the amount expected to be paid or recovered in subsequent fiscal years. Deferred tax assets

52 NOTES TO dräGErWErk AG & CO. kGAA SINGLE ENTITy FINANCIAL STATEMENTS 2011

from loss and interest carryforwards are only recognized if it is sufficiently probable that they will be realized within the next five years.

For accounting purposes, series D participation capital is reported as equity due to the terms and conditions upon which the participation certificates are based. Therefore, it is shown in a separate line additional to the statutory classification format, under equity and after Drägerwerk AG & Co. KGaA’s net earnings. The par value of this partici-pation capital is disclosed in the previous column. Although participation capital is treated as accounting equity, the underlying participation rights maintain their obliga-tory nature under law. Therefore, the premium yielded over and above the par value can be neither transferred to the capital reserve nor allocated otherwise. Hence it follows that this premium continues to form an integral part of the caption “Participation capital”. The dividends for series D participation certificates reduce the net profit or increase the net loss for the period. The underlying dividend distribution is shown in a separate line immediately preceding net profit / loss.

Series A and K participation capital is reclassified as non-current debt because the terms and conditions of these participation certificates includes a minimum dividend and no loss transfer. Civil law considerations require that any profit distributed in favor of participation capital must be offset against net profit. The dividends for series A and K participation certificates are recognized in the interest result.

The actuarial calculations for determining pension obligations are based on bio-metric probability (2005 G Heubeck mortality table) and use the projected unit credit method. The calculation also takes into account future expected pay and pension increases. The underlying interest rate for compounding and discounting of pension obligations is based on the average market rate of the past seven fiscal years for an anticipated remaining term of 15 years determined and published by Deutsche Bundes-bank.

The new company pension plan for the German Group companies introduced on January 1, 2005, is composed of three levels – the employer-funded basic level, employee-funded top-up level and employer-funded supplementary level. The pension cost for the employer-funded basic level is based on the respective employee’s income. The employee funded top-up level allows employees to increase their pension entitlement through deferred compensation. The contribution made at the employer-funded supplementary level depends on the employee contribution through deferred compensation and on Dräger Group’s business performance (EBIT).

The funds resulting from the new pension plan are invested in a restricted fund set up especially for Dräger that is subject to special restraints on disposal. The employees’ pension accounts have a minimum guaranteed return of 2.75 percent. The measure-ment is carried out at fair value, which is offset against the respective underlying obliga-tions. If the result is a backlog of obligations, this amount is recognized in pension provisions. If the value of plan assets exceeds the obligations, it is recognized in “Excess of plan assets over pension liability”.

Other provisions adequately allow for all identifiable risks in accordance with pru-dent business judgment and contingent liabilities. The amount recognized reflects the sum required to fulfill the obligations according to prudent business judgment. Future price and cost increases are taken into consideration if there is sufficient evidence to substantiate their actual occurrence. Non-current provisions are discounted at the market rate relating to their remaining terms published by Bundesbank.


Expenses incurred from the compounding of provisions are recognized separately in “Interest and similar expenses”.

Liabilities are stated at the amount repayable.Contingent liabilities are valued at the respective extent of the possible liabilities as

of the balance sheet date. For contingent liabilities from guarantees, suretyships and warranty/indemnity contracts, the loan sums actually drawn as of the balance sheet date are disclosed in addition to the guaranteed ceilings.

The other financial obligations under contracts are measured at their nominal value and disclosed in the notes.

54 NOTES TO ThE BALANCE ShEET

Notes to the balance sheet(amounts in EUR thousand unless stated otherwise)

NON-CURRENT ASSETS

The breakdown and development of non-current assets in fiscal year 2011, including cost and accumulated amortization, depreciation and write-downs is shown in the analysis of non-current assets.

INTANGIBLE ASSETS

The additions to this item relate to the purchase of software in the amount of EUR 4.0 million (2010: EUR 2.1 million) as well as prepayments made and software still being developed of EUR 2.8 million (2010: EUR 1.1 million).

PROPERTY, PLANT AND EQUIPMENT

Investments in property, plant and equipment amounted to EUR 6.1 million (2010: EUR 1.3 million). These focused on building conversions in the amount of EUR 2.2 million (2010: EUR 0.2 million), investments in notebooks and IT hardware of EUR 2.5 million as well as investments in factory and office equipment amounting to EUR 0.3 million (2010: EUR 0.9 million). Additions to prepayments made and assets under construction amounted to EUR 1.0 million as of December 31, 2011 (2010: EUR 0.2 million).

FINANCIAL ASSETS

Dräger Grundstücksverwaltungs GmbH was founded in fiscal year 2011. Its main purposes are to become the general partner of OPTIO Grundstücks-Verwal-

tungsgesellschaft mbH & Co. KG and to acquire and manage investments, primarily in real estate companies.

In addition, all limited shares in OPTIO Grundstücks-Verwaltungsgesellschaft mbH & Co. KG were acquired, making Drägerwerk AG & Co. KG the limited partner with a capital contribution of EUR 25,820.25 as on December 31, 2011. OPTIO Grundstücks-Verwaltungsgesellschaft mbH & Co. KG was granted an interest-bearing loan of EUR 5.9 million in fiscal year 2011 to redeem its liabilities to banks; EUR 160,000 of this amount was redeemed in 2011.

RECEIVABLES AND OTHER ASSETS

This item includes EUR 4,537,000 in receivables from Group companies from cash management (2010: EUR 9,634,000) and from trade receivables. The current loan of EUR 110 million issued to Dräger Medical GmbH was repaid.

Other assets include taxes receivable which stem from income tax and VAT credit and miscellaneous non-trade receivables.

In addition, the cap premiums from interest rate hedges were recognized in other assets.

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7

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RECEIVABLES AND OTHER ASSETS

2011 2010

Trade receivables 147 347

All other receivables and other assets

Receivables from Group companies 32,578 123,528

Other assets 14,675 11,667

thereof due in more than one year (724) (1,775)

47,253 135,195

Receivables and other assets 47,400 135,542

PREPAID EXPENSES

These exclusively comprise transitory items.

DEFERRED TAX ASSETS

In total, Drägerwerk AG & Co. KGaA, in its role as parent company, expected future tax relief of EUR 61,886,000 from temporary differences (2010: EUR 69,421,000) and from tax loss carryforwards as of December 31, 2011. Deferred taxes are determined on the basis of a 30.92 percent income tax rate (2010: 30.92 percent). Income taxes include corporate income tax and the corresponding solidarity surcharge as well as trade tax.

DEFERRED TAX ASSETS / LIABILITIES

Deferred tax assets Deferred tax liabilities

2011 2010 2011 2010

Non-current assets 9,063 12,579 189 –

Current assets 2,547 2,953 6,144 4,059

Prepaid expenses 137 – 54 –

Provisions 25,870 16,629 1 –

Liabilities 1 – 246 343

Tax loss and interest carryforwards 30,902 41,662 – –

Gross amount 68,520 73,823 6,634 4,402

Netting –6,634 –4,402 -6,634 –4,402

Carrying amount 61,886 69,421 – –

The Company made use of the option in accordance with Sec. 274 (1) Sentence 2 of the German Commercial Code (Handelsgesetzbuch – HGB) to recognize deferred tax assets for the surplus.

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EXCESS OF PLAN ASSETS OVER PENSION LIABILITY

Plan assets were offset against the underlying obligations from the new pension plan in accordance with Sec. 246 (2) Sentence 2 HGB. If the fair value of plan assets exceeds the amount of pension obligations, the difference is recognized in “Excess of plan assets over pension liability”.

The fair value of plan assets stated in the table below was derived from the stock exchange price of the plan assets, if these pertained to fund shares.

The plan assets are shares in a restricted fund set up exclusively for Dräger (WKN – securities identification number – A0HG1B) and a settlement account. They are man-aged by AllianzGI-Fonds as a trustee for Drägerwerk AG & Co. KGaA and their access is restricted for other creditors. On July 1, 2010, their management was transferred from Commerztrust GmbH to Allianz GI.

The fund and the settlement account serve to safeguard pension obligations made under the new pension plan and are subject to special restraints on disposal.

EXCESS OF PLAN ASSETS OVER PENSION LIABILITY

2011 2010

Fair value of plan assets 7,064 4,577

Pension obligations under the 2005 pension plan –5,236 –3,464

Excess of plan assets over pension liability 1,828 1,113

Cost of plan assets 6,875 4,404

CAPITAL STOCK

The capital stock of Drägerwerk & Co. KGaA remains unchanged against the previous year at EUR 42,265,600. This capital stock is divided into 10,160,000 no-par bearer shares and 6,350,000 no-par preferred shares. Drägerwerk Verwaltungs AG, the general partner, holds no shares in capital.

The general partner increased the capital of Drägerwerk AG & Co. KGaA until May 7, 2014, with the approval of the Supervisory Board, by a further EUR 6,502,400.00 (exist-ing authorized share capital). The authorization of the general partner to increase the Company’s capital stock until May 7, 2014 issued at the annual shareholders’ meeting on May 8, 2009 was lifted to the extent that it had not been used on the day of the annual shareholders’ meeting on May 6, 2011.

In accordance with the resolution agreed upon at the annual shareholders’ meeting on May 06, 2011, the general partner is entitled to increase the Company’s capital until May 05, 2016, with the approval of the Supervisory Board, by up to EUR 21,132,800.00 (approved capital) by issuing new bearer common and / or preferred shares (no-par value shares) in return for cash and / or contributions in kind, in either one or several tranches. The authorization includes the approval to issue new common shares and / or non-voting preferred shares, which carry the same status as the previously issued non-voting preferred shares with regard to the distribution of profits and / or Company assets. The ceiling prescribed by Sec. 139 (2) AktG must be taken into account: No more than

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half of the capital stock may be issued as non-voting preferred shares. Shareholders must be given a subscription right that can be excluded, with the approval of the Supervisory Board, under certain conditions. In the case of common and preferred shares being issued together, the right of holders of one share type to subscribe to the other type of shares (“crossed exclusion of subscription rights”) can be excluded.

All shares have been fully paid in. As before, the preferred shares are traded on the capital market. The new common shares were first admitted to the regulated market (Prime Standard) on July 2, 2010.

Other than voting rights, the preferred shares have the same rights as those attached to the common shares. As compensation for the lack of voting rights, an advance divi-dend of EUR 0.13 per preferred share is distributed from net earnings.

If sufficient profits are available, a dividend of EUR 0.13 per common share is then paid. Any profit in excess of this amount, if distributed, is allocated so preferred shares receive EUR 0.06 more than common shares.

If the profit is not sufficient to distribute the advance dividend for preferred shares in one or more years, the amounts are paid from the profit of subsequent fiscal years before a dividend is paid on common shares.

If amounts in arrears are not paid in the next year along with the full preferred dividend for that year, the preferred shareholders have voting rights until the arrears have been paid.

In the event of liquidation, the preferred shareholders receive 25 percent of net liquidation proceeds in advance. The remaining liquidation proceeds are distributed evenly to all shares.

CAPITAL RESERVE

CAPITAL RESERVE

Drägerwerk AG & Co. KGaA’s capital reserves originated from the share premiums from Amount

The Company’s establishment (transformation) 2,556

The increases in capital stock of

March 1979 5,726

June 1981 7,016

July 1991 23,569

Dividend waiver by Stefan Dräger in 2009 582

Increase of capital reserves in 2010 by issuing 3,810,000 new common shares 95,277

Replacement of variable option component with equity instrument in 2010 26,540

Capital reserves as of Dec. 31, 2011 161,266

The capital reserve on December 31, 2011 remained unchanged compared to the previ-ous year.

RETAINED EARNINGS

The retained earnings of EUR 199,191,000 recognized on December 31, 2011, pertained to recognitions from previous years.

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DISCLOSURES ON AMOUNTS RESTRICTED FROM DISTRIBUTION IN ACCORDANCE

WITH SEC. 268 (8) HGB

The amount restricted from distribution in accordance with Sec. 268 (8) HGB amounted to EUR 62,075,000 (2010: EUR 69,541,000).

DISCLOSURES ON AMOUNTS RESTRICTED FROM DISTRIBUTION IN ACCORDANCE WITH SEC. 268 (8) HGB

Restricted amount

Dec. 31, 2011 Deferred taxes Dec. 31, 2011 Dec. 31, 2010

Fair value of plan assets exceeding cost 189 –57 132 120

Balance of deferred taxes – 61,943 61,943 69,421

Total of amounts restricted from distribution in acc. with Sec. 268 (8) HGB 189 61,886 62,075 69,541

Equity interests available to cover amounts 357,994 275,517

Freely available equity interests 295,919 205,976

The measurement of the special fund assets of the new pension plan is carried out in accordance with Sec. 253 (1) Sentence 4 HGB at fair value. On December 31, 2011, this amounted to EUR 7,064,000 (2010: EUR 4,577,000), EUR 189,000 up on costs of EUR 6,875,000 (2010: EUR 4,404,000). The amount in excess of costs was offset by freely available retained earnings of EUR 199,191,000 (2010: EUR 199,191,000), free capital reserves of EUR 582,000 (2010: EUR 582,000) and net earnings of EUR 158,221,000 (2010: EUR 75,744,000).

PARTICIPATION CERTIFICATES

PARTICIPATION CAPITAL

Participation capital from the participation certificates issued and floated up to June 30, 1991 forms part of securities series A and is recognized as debt. Participation capital created after June 30, 1991 covering securities series K is also stated as debt. The terms and conditions underlying the series K participation certificates differ from those for the (series A) certificates outstanding up to June 30, 1991 in that their holders may give five years’ notice of termination, however, not to take effect prior to December 31, 2021; the period of termination thereafter is again five years.

Since the 1997 annual shareholders’ meeting, series D participation certificates have been floated; their terms and conditions have been amended in order to qualify as accounting equity, mainly to adapt to the terms defined by the Institute of Public Audi-tors (“Institut der Wirtschaftsprüfer”): waiver of minimum yield, loss-sharing concept for participation certificates and adequate cumulative, compensatory terms. The cases in which the minimum return is not paid are the same as those in which the preferred dividend is not paid. As with the subsequent payment of preferred dividends, the dividend for participation certificates is paid in arrears. Series D participation certificates share in losses. The proportionate loss attributable to the participation capital is offset by

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future profits. Series D participation certificate holders may exercise their calling right every five years with five years’ notice as of calendar year-end, however, not to take effect prior to December 31, 2026. Series D participation certificates are stated in equity.

Since December 1, 1999, the par value of participation certificates has amounted to EUR 25.56.

Drägerwerk AG & Co. KGaA does not intend to terminate the participation certificates. If the participation certificate holder exercises the calling right, the amount repayable shall equal the average mean rate of the last three months at the Hamburg Stock Exchange or a maximum of the weighted average issue price of this tranche.

The dividend for participation certificates is 10 times the preferred share dividend, as the par value of the securities was originally identical, but the arithmetic par value of the preferred share has since been reduced to one tenth of the original par value.

For details, please refer to the terms and conditions of series A, K and D participation certificates.

PARTICIPATION CAPITAL

Number Nominal amount Premium Participation capital

€ € €

As of December 31, 2011(No new participation certificates were issued in 2011.)

1,413,425 36,127,143.00 38,670,225.37 74,797,368.37

disclosed in equity

Series A 315,600 8,066,736.00 12,353,585.70 20,420,321.70

Series K 105,205 2,689,039.80 1,758,718.44 4,447,758.24

Series A and K 420,805 10,755,775.80 14,112,304.14 24,868,079.94

disclosed in equity

Series D 992,620 25,371,367.20 24,557,921.23 49,929,288.43

The capital increase carried out in 2010 also affected participation certificates, as the terms and conditions for participation certificates provide similar subscription rights for holders of series A, K and D participation certificates in the case of a capital increase with subscription rights for shareholders. Holders of participation certificates had the right to acquire further participation certificates with subscription rights similar to those of the capital increase. Participation capital must be increased correspondingly. The subscription right and increase of participation capital are subject to the approval of the Company’s annual shareholders’ meeting as well as the exclusion or limitation of any other legal subscription rights, if this is necessary. In accordance with the terms and conditions of participation certificates, if the annual shareholders’ meeting does not approve of participation certificate holders exercising their subscription rights or if other legal subscription rights cannot be excluded or limited to the required extent, the com-pany must issue cash compensation to the amount of the loss it deems participation certificate holders would incur through the capital increase (Sec. 315 BGB [“Bürgerli-ches Gesetzbuch”: German Civil Code]). Dräger recognized EUR 7.8 million in provi-sions for this contingency last year and paid on May 9, 2011.


As the annual shareholders’ meeting rejected the proposal by the Supervisory Board and the general partner to issue new participation certificates, Dräger paid cash compensa-tion – in addition to a distribution of EUR 11.90 – on May 9, 2011 of EUR 5.48 for each Series A participation certificate, EUR 5.51 for Series K and EUR 5.53 for Series D. The amount of the cash compensation corresponds to the amount of a notional subscription right for new participation certificates on June 16, 2010. Unlike the participation certifi-cates already in issue, the distribution for the notional, new participation certificates is linked to the dividends for common shares and not to the dividends for preferred shares. The calculation of the cash compensation is based on the mathematical principles announced within the scope of the capital increase on June 16, 2010 which were then clarified at the annual shareholders’ meeting on May 6, 2011. In addition, the cash compensation enjoys an interest rate of five percentage points above the base rate, corresponding to EUR 0.25 per participation certificate. The paid compensation there-fore offsets the disadvantage caused to participation certificate holders by the capital increase in June 2010.

PARTICIPATION CAPITAL CONDITIONS

PARTICIPATION CAPITAL CONDITIONS

Termination right of Drägerwerk

AG & Co. KGaA

Termination right of participation

certificate holders

Loss share Mindest-verzinsung

Genussscheindividende

€

Series A Yes No No 1.30 Dividend on preferred share x 10

Series K Yes Yes No 1.30 Dividend on preferred share x 10

Series D Yes Yes Yes – Dividend on preferred share x 10

Please refer to the explanations in Note 5.

PROVISIONS

PROVISIONS

2011 2010

Provisions for pensions and similar obligations 84,590 85,871

Tax provisions 11,038 8,395

Other provisions 32,044 32,390

Provisions 127,672 126,656

The pension obligations for fiscal year 2011 were calculated using the generally recog-nized projected unit credit method. In addition, the calculation also takes into account future expected pay and pension increases. The underlying interest rate for compound-ing and discounting of pension obligations is based on the average market rate of the past seven fiscal years for an anticipated remaining term of 15 years determined and published by Deutsche Bundesbank. The pension obligations were calculated using an interest rate of 5.13 percent (2010: 5.17 percent).

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ACTUARIAL ASSUMPTIONS

Balance sheet date

Dec. 31, 2011Balance sheet date

Dec. 31, 2010Balance sheet date

Jan. 1, 2010

Discount rate 5.13%* 5.17% 5.25%

Future wage and salary increases 3.00% 3.00% 3.00%

Future pension increases 1.00–2.00% 1.00–2.00% 1.00–2.00%

Average employee turnover 3.00% 3.00% 3.00%

* using the interest rate published by Bundesbank on September 30, 2011

Other provisions provide for personnel-related risks, mainly from profit shares/incentives to employees, accrued vacation pay and phased retirement, as well as for supplier invoices not yet received, lawsuit costs/risks and various other risks.

The risk of properties with long-term lease contracts standing empty as a result of the medical division’s new building has been accounted for in other provisions with EUR 11.0 million.

No provisions were to be set up for expected losses from the settlement of currency forwards in fiscal year 2011 (2010: EUR 113,000).

Provisions for the profit share to employees increased on account of the very positive result. This was also aided by the restructuring of variable remuneration for top manag-ers. A new, standardized variable remuneration system for top managers, the “Top Management Incentive” (TMI), has come into force as from fiscal year 2011. The system focuses on two target components: the increase of DVA (Dräger Value Added) and per-sonal targets. If the DVA targets are exceeded or missed, a corresponding amount is recognized in the bonus reserve which is added to until 2014 and then paid out to the managers in the following year. This long-term portion is discounted accordingly.

LIABILITIES

LIABILITIES

2011 thereof due 2010 thereof due

within 1 year

within 1–5 years

in more than 5 years

within 1 year

within 1–5 years

in more than 5 years

Participation capital series A+K 24,868 – – 24,868 24,868 – – 24,868

Liabilities to banks 366,592 55,092 273,000 38,500 325,399 54,899 270,500 –

Trade payables 17,027 17,027 – – 15,153 15,153 – –

Liabilities to Group companies 96,200 96,200 – – 248,425 248,425 – –

Liabilities to companies in which participating interests are held 12 12 – – 0 0 – –

Other liabilities 25,735 25,502 225 8 36,425 36,240 185 –

thereof for taxes (19) (19) – – (827) (827) – –

thereof for social security (75) (75) – – – – – –

Liabilities 530,434 193,833 273,225 63,376 650,270 354,717 270,685 24,868

There were no liabilities secured by pledges or similar rights.

20


LIABILITIES TO BANKS

Liabilities to banks mainly changed due to the repayment of two note loans totaling EUR 54.5 million. Two new note loans were taken out in December, one for EUR 57.5 million and one for EUR 38.5 million with maturities of five and seven years respectively. Conse-quently, total liabilities of EUR 366.5 million (2010: EUR 325.0 million) were recorded from promissory note loans with remaining terms of up to six years as of December 31, 2011.

LIABILITIES TO GROUP COMPANIES

EUR 76,496,000 in liabilities to Group companies mainly resulted from cash manage-ment (2010: EUR 254,287,000) and from trade receivables.

CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS

CONTINGENT LIABILITIES

2011 2010

Contingent liabilities under warranty/indemnity contracts 65,470 67,411

Loan amounts actually drawn (23,012) (23,418)

In fiscal year 2007, Drägerwerk AG & Co. KGaA took on an order completion guarantee, which is still in place, for an order totaling EUR 27.3 million (2010: EUR 27.3 million) placed with Dräger Safety AG & Co. KGaA. Guarantees of around EUR 65.5 million (2010: EUR 67.4 million) were issued for Group companies. The Company also issued comfort letters for subsidiaries.The financial situation of the Group companies ensures that they will meet their obliga-tions. There is therefore no risk of these guarantees being called upon.

OTHER FINANCIAL OBLIGATIONS

Rental and lease agreements

As of the balance sheet date, other financial obligations from long-term rental and lease agreements came to around EUR 68.3 million (2010: EUR 74.4 million), of which around EUR 28.1 million (2010: EUR 35.8 million) were to Group companies. The annual amount came to some EUR 7.2 million (2010: EUR 7.5 million).

Purchase obligations

In line with the usual requirements, Drägerwerk AG & Co. KGaA has also entered into purchase obligations with other service providers in order to guarantee the availability of IT services.

Due to the centralization of IT activities at Drägerwerk AG & Co. KGaA, the Company has assumed all existing long-term obligations to IT service providers of the medical and safety divisions.

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Other

As a result of outstanding orders, the Group had obligations to purchase intangible assets of EUR 565,000 (2010: EUR 208,000) and items of property, plant and equipment of EUR 905,000 (2010: EUR 69,000) as of December 31, 2011.

In connection with the construction of a building for Dräger Medical AG & Co. KG (now: Dräger Medical GmbH), Drägerwerk AG (now: Drägerwerk AG & Co. KGaA) entered into a rental obligation in respect of MOLVINA Vermietungsgesellschaft mbH & Co. Objekt Finkenstrasse KG under a real estate lease agreement.

As of December 31, 2011, Drägerwerk AG & Co. KGaA was not obligated to make any capital payments on interests held.

At present, no significant opportunities and risks arise from the investments in the special purpose entities – OPTIO Grundstück-Verwaltungsgesellschaft mbH & Co. KG, – Dräger Grundstückverwaltungs GmbH,– Hamus Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Lübeck KG, – MOLVINA Vermietungsgesellschaft mbH & Co. Objekt Finkenstraße KG – Fimmus Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Lübeck KG – DRENITA Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Fertigung Dräger

Medizintechnik KG

LEGAL RISKS

Drägerwerk AG & Co. KGaA is involved in certain legal disputes and claims arising in the ordinary course of business. The Executive Board believes that the outcome of such litigation and claims will not have any material adverse effect on the Company’s net assets, financial position or results of operations.

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64 NOTES TO ThE INCOME STATEMENT

Notes to the income statement(amounts in EUR thousand unless stated otherwise)

OTHER OPERATING INCOME

This item chiefly covers income from services rendered to Group companies. Otherwise, this item basically includes gains from foreign exchange and currency translation, income from the reversal of provisions as well as rental income.

Drägerwerk AG & Co. KGaA performs shared services in the areas of IT, Corporate Communications, Marketing Communications, Strategic Purchasing as well as HR and Accounting. The increase in other operating income mainly resulted from the allocation of higher other operating expenses arising from these shared services provided by Drägerwerk AG & Co. KGaA to the relevant Group companies.

Other operating income was impacted by licensing costs of around EUR 6.4 million being invoiced to the divisions, cost allocations for IT services of EUR 14.3 million as well as cost allocations for other services in the sectors of EUR 10.5 million – all of which were higher than in the previous year.

Income from currency translation recognized in this item came to EUR 3,437,000 (2010: EUR 8,037,000).

Other operating income includes income from other periods from the reversal of provisions in fiscal year 2010 of approximately EUR 2.0 million.

PERSONNEL EXPENSES / HEADCOUNT

PERSONNEL EXPENSES / HEADCOUNT

2011 2010

Salaries 43,226 30,376

Social security, pension expenses and related employee benefits 7,640 5,738

thereof pension expenses (1,914) (1,606)

Personnel expenses 50,866 36,114

Annual average headcount / other operations 542 387

Headcount as of the balance sheet date / other operations 605 423

Personnel expenses are up EUR 14,752,000 on the previous year due to the rise in head-count as well as the increase in profit share within the scope of the TMI (see 19 Provi-sions) as a result of the rise in DVA.

The number of people employed rose mainly as a result of the transfers of employees from Dräger Medical GmbH, Dräger Safety AG & Co. KGaA as well as Dräger Medical Deutschland GmbH to implement shared HR and external accounting services at Drägerwerk AG & Co. KGaA. The hiring of new employees also resulted in the headcount increasing.

The interest portion of pension provisions is recognized in interest expense. See Note 29 “Interest result”.

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Effects from the change in interest rates in the calculation of pension provisions are shown in the personnel expenses. For this reason, the change in the fair value of plan assets is recognized in the operating result.

Pension plans were offered to the members of the Executive Board of Drägerwerk Verwaltungs AG by Drägerwerk AG & Co. KGaA, with the related expenses and liabilities being recognized as personnel expenses at Drägerwerk AG & Co. KGaA.

AMORTIZATION

AMORTIZATION

2011 2010

Amortization of intangible assets and depreciation of property, plant and equipment 7,855 6,435

Amortization of current assets to the extent that this exceeds that normal for the Company 759 0

Amortization 8,614 6,435

The amortization of current assets relates to a write-down of receivables from subsidiaries.Depreciation charged in previous years for tax purposes pursuant with Secs. 254, 280

(2) HGB (old version) improved net profit for fiscal year 2011 by EUR 604,100 (2010: EUR 1,676,700).

OTHER OPERATING EXPENSES

These primarily include administrative expenses, such as rent and lease expenses, insurance premiums, contributions, fees and public levies, travel expenses, provisions, losses from foreign exchange and currency translation, as well as from the disposal of non-current assets.

Other operating income in the previous year increased mainly as a result of capital increase transaction costs (EUR 6.4 million), the increase in the value of the cash settled option originally agreed (EUR 20.3 million) as well as the cash compensation of EUR 7.8 million to be paid to holders of series A, K and D participation certificates.

The year-on-year increase in other operating expenses excluding these one-off effects also stems from the increase in outside services purchased in connection with the shared services of Drägerwerk AG & Co. KGaA. The rise in expenses is offset by the increase in other operating income, as the material amounts are passed on to the subsidiaries.

Higher consultancy costs for process improvements and an increase of other external services – including the remuneration to the members of the Executive Board of Dräger-werk Verwaltungs AG – also increased this item.

This item includes expenses from currency translation of EUR 3,630,000 (2010: EUR 7,462,000).

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26

66 NOTES TO ThE INCOME STATEMENT

INCOME FROM PROFIT AND LOSS TRANSFER AGREEMENTS

INCOME FROM PROFIT AND LOSS TRANSFER AGREEMENTS

2011 2010

Income from profit and loss transfer agreements 155,897 97,572

Expenses from loss transfers – –8,182

Intragroup tax allocation 34,267 31,361

Income from profit and loss transfer agreements 190,164 120,751

The profit transferred by Dräger Medical GmbH in fiscal year 2011 was up some EUR 61.2 million, whereas the profit transferred by Dräger Safety AG & Co. KGaA was up approximately EUR 8.1 million on the previous year.

The intragroup tax allocation is calculated based on the taxable income of each company.

INCOME FROM OTHER INVESTMENTS

INCOME FROM OTHER INVESTMENTS

2011 2010

Income from other investments 2,109 271

thereof from Group companies (1,897) –

INTEREST RESULT

Interest expense from pension obligations is offset against the original income from plan assets in accordance with Sec. 246 (2) Sentence 2 HGB. In fiscal year 2011, interest income from plan assets amounted to EUR 143,000 and interest expense from pension obligations to EUR 4,492,000, resulting in a net amount of EUR 4,349,000.

As effects from the change in interest rates in the calculation of pension provisions are shown in the personnel expenses, the change in the fair value of plan assets is recog-nized in the operating result.

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29

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INTEREST RESULT

2011 2010

Income from other non-current securities and loans 79 8

from Group companies (79) (8)

Other interest and similar income 1,883 2,636

from Group companies (387) (1,795)

Interest and similar expenses –20,907 –34,362

to Group companies (–2,648) (–1,902)

from compounding of non-current provisions (–719) (–818)

from distribution for series A and K participation certificates (–800) (–5,008)

Interest expense from pension provisions –4,492 –4,542

Income from plan assets 143 87

Net amount –4,349 –4,455

Interest result –23,294 –36,173

Interest income from Group companies dropped by EUR 1.4 million due to lower interest rates and less receivables from Group companies (2010: EUR 1.0 million). Interest expense to Group companies, however, went up by EUR 0.7 million despite lower liabilities to Group companies as of the reporting date (2010: EUR 1.1 million). The fall in interest and similar expenses by EUR 13.5 million against fiscal year 2010 is due to one-off effects in 2010: costs incurred for unused loans of the syndicated loan and the unused loan from Kreditanstalt für Wiederaufbau (KfW) in the total amount of EUR 8.2 million as well as interest on the Siemens vendor note of EUR 1.9 million. No significant interest amounts were accrued in the fiscal year for vendor notes taken up in 2011.

INCOME TAXES

Income taxes comprise corporate income tax, the corresponding solidarity surcharge and trade tax as well as deferred taxes for the fiscal unit of Drägerwerk AG & Co. KGaA.

In fiscal year 2011, Drägerwerk AG & Co. KGaA, in its role as parent company, recog-nized deferred tax expense of EUR 7,536,000 from temporary differences and from tax loss carryforwards (2010: deferred tax income of EUR 30,707,000). Deferred taxes are determined on the basis of a 30.92 percent income tax rate (2010: 30.92 percent). Income taxes include corporate income tax and the corresponding solidarity surcharge as well as trade tax.

In the previous year, tax income of EUR 6,733,000 resulted from deferred taxes on the adjustments in profit and loss due to the change to the new regulations of German Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz – BilMoG).

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68 NOTES TO ThE INCOME STATEMENT | rEMuNErATION rEPOrT

INCOME TAXES

2011 2010

Actual taxes –2,917 –6,372

Deferred tax expense from temporary differences 3,225 13,154

Deferred tax income / expense from loss and interest carryforwards –10,761 17,553

Deferred tax income / expense –7,536 30,707

Income taxes –10,453 24,335

The actual tax expense reflects tax earnings performance.

DERIVATIVE FINANCIAL INSTRUMENTS

To hedge against currency and interest rate risks, derivatives are used, particularly currency forwards and options, as well as interest rate hedges (caps). Such contracts are only transacted with banks of prime standing and confined to finance transactions. The volume of currency forwards substantially includes exchange rate hedges on behalf of Group companies for operations-related underlying transactions. At Drägerwerk AG & Co. KGaA, these only involve closed positions. Interest rate hedges comprise caps. The determination of the fair values is based on a mark-to-market valuation as of the balance sheet date. The caps have maturities up to 2013 and a residual carrying amount of EUR 7,000 after write-downs (2010: EUR 249,000) and are contained in other assets. Other provisions do not include any obligations from currency forwards (2010: EUR 113,000). In fiscal year 2011, as in the prior year, no income was achieved through interest rate swaps.

DERIVATIVE FINANCIAL INSTRUMENTS 2011

Nominal amount Term in years Fair value Carrying amount

Interest rate hedges 123,500 up to 5 7 7

Currency forwards 18,722 up to 1 185 –

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Remuneration report


Total remuneration for Executive Board members amounted to EUR 10,413,878 in fiscal year 2011 (2010: EUR 7,539,148). This amount is made up of non-performance related payments of EUR 3,954,308 (2010: EUR 3,347,273) and performance related short-term payments of EUR 6,459,570 (2010: EUR 4,191,875).

An amount of EUR 1,852,362 has been set aside in the bonus reserve for Executive Board members as a long-term, performance related component. The performance-related components include long-term incentives of EUR 6,149,520 (2010: EUR 315,000).

An agreement was reached with Dr. Carla Kriwet on November 2, 2011 to annul the employment contract signed on September 15, 2010 effective December 31, 2011. The compensation included in the non-performance related payments amounted to EUR 1,785,256.

The Company has taken out group accident insurance for Executive Board members. The Company pays the premium for the D&O liability insurance policy and legal expense insurance policy for economic loss claims for members of the Executive Board. In the opinion of the German tax authorities, this does not constitute part of the Executive Board’s remuneration. The financial loss liability insurance includes a deductible, which was adjusted as from 2010 to one and a half times the amount of gross fixed annual remuneration in accordance with VorstAG.

In the fiscal year, no payments were made or promised by a third party to any member of the Executive Board in relation to his or her duties as member of the Executive Board. If Executive Board remuneration is paid by Drägerwerk Verwaltungs AG, pursuant to Sec. 11 (1) and (3) of the articles of association of Drägerwerk AG & Co. KGaA it is entitled to claim reimbursement from Drägerwerk AG & Co. KGaA monthly. Pursuant to Sec. 11 (4) of the Company’s articles of association, for the management of the Company and the assumption of personal liability the general partner receives a fee, independent of profit and loss, of 6 percent of the equity disclosed in its financial statements, payable one week after the general partner prepares its financial statements. For fiscal year 2011, this remuneration amounts to EUR 73,000 (2010: EUR 71,000) plus any VAT incurred.

Obligations to Executive Board members under pension plans are stated in the financial statements 2011 at EUR 1,012,107 (2010: EUR 683,186).

Pension obligations to Executive Board members who retired in fiscal year 2011 are recognized in provisions for former members of the Executive Board and their surviving dependents.

In fiscal year 2011, the Company made pension provisions contributions of EUR 328,921 for members of the Executive Board (2010: EUR 187,477).

EUR 3,022,224 was paid to former members of the Executive Board and their surviv-ing dependants (2010: EUR 2,963,612). Pension commitments to former members of the Executive Board and their surviving dependants amounted to EUR 37,939,984 (2010: EUR 38,071,289).

In the event that an Executive Board member dies while still in active employment, the surviving spouse is entitled to the Dräger widow’s or widower’s pension. Surviving children are entitled to the Dräger orphan’s pension.The annual Dräger widow’s and widower’s pension amounts to 55 percent of the Dräger

32


pension received by or which would have been received by the deceased executive if said executive would have been unable to work when they died (notional invalidity pension). The amount of the Dräger orphan’s pension amounts to 10 percent of the notional Dräger invalidity pension or the current Dräger pension of the deceased executive.


The remuneration report also includes information on the shares owned by the mem-bers of the Supervisory Board of Drägerwerk AG & Co. KGaA as defined above. To date, the annual shareholder’s meeting of Drägerwerk AG & Co. KGaA has approved the remuneration of Supervisory Board members every year (2010: EUR 631,750). In order to increase the transparency of the remuneration system, the annual shareholders’ meeting of Drägerwerk AG & Co. KGaA on May 6, 2011 specified the remuneration of Supervisory Board members in the articles of association with effect from fiscal year 2011.

Accordingly, Supervisory Board remuneration for fiscal year 2011 amounted to EUR 640,000 (2010: EUR 631,750). This amount is made up of a fixed component of EUR 350,000 (2010: EUR 175,000) and a variable component of EUR 290,000 (2010: EUR 456,750).

Supervisory Board members are included in a D&O policy, considering the deduct-ible, to be concluded by the Company. In the opinion of the German tax authorities, the premium for a D&O liability insurance policy and a legal expense insurance policy for economic loss claims is not part of the Supervisory Board’s remuneration. The deduct-ible for Supervisory Board members is one and a half times their fixed annual salary.

In fiscal year 2011, the total remuneration of the six members of the Supervisory Board of the general partner, Drägerwerk Verwaltungs AG, amounted to EUR 135,000.00 (2010: EUR 135,000.00). In addition, the Supervisory Board members receive annual flat fees for out-of-pocket expenses totaling EUR 55,000 (2010: EUR 55,000). No remunera-tion was paid to Supervisory Board members of Group companies.

Further information on the itemized remuneration of the Executive Board and the Supervisory Board can be found in the management report.

SHARES OWNED BY THE EXECUTIVE AND SUPERVISORY BOARDS

As of December 31, 2011, the members of the Executive Board of Drägerwerk Verwal-tungs AG and their related parties directly held 6,000 preferred shares in Drägerwerk AG & Co. KGaA, equivalent to 0.04 percent of the Company’s total shares, and 119,300 common shares, corresponding to 0.72 percent of the Company’s total shares.

Dr. Heinrich Dräger GmbH holds around 67.19 percent of common shares of Dräger-werk AG & Co. KGaA with 68.36 percent attributable to the Chairman of the Executive Board Stefan Dräger under the terms of Sec. 22 (1) Sentence 1 No. 1 WpHG (Wertpapier-handelsgesetz – German Securities Trading Act).

On December 31, 2011, the members of the Supervisory Board and their related parties directly or indirectly held a total of 150 preferred shares, equivalent to 0.01 percent of the Company’s total shares and 295 common shares (directly or indirectly), or 0.004 percent of the Company’s total shares.

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RELATED PARTY TRANSACTIONS

Services were rendered for companies related to Stefan Dräger and for the Dräger Foundation totaling EUR 92,000 in fiscal year 2011 (2010: EUR 69,000). Claudia Dräger, Stefan Dräger’s wife, is an employee of Drägerwerk AG & Co. KGaA.

All transactions with related parties were conducted at arm’s length terms and condi-tions.

AUDITOR’S FEE

The auditor’s fee is not stated as the Company is included in the group financial state-ments of Drägerwerk AG & Co. KGaA and is detailed under Note 52 of the notes to the Group financial statements.

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72 ThE COMPANy’S BOArdS

The Company’s Boards

THE COMPANY’S BOARDS

SUPERVISORY BOARD OF DRÄGERWERK AG & CO. KGAA

Chairman

Prof. Dr. Nikolaus Schweickart

Lawyer, Bad homburg

Former Chairman of the Executive Board of ALTANA AG, Bad homburg

Supervisory Board memberships:

– drägerwerk verwaltungs AG, Lübeck (Chairman)

Memberships on comparable boards of German or foreign companies:

– diehl Group, Nuremberg (Chairman of the Advisory Board)

– Max-Planck-Innovation Gmbh, München (Advisory Board)

vice-Chairman

Siegfrid Kasang

Works Council Chairman of dräger Medical Gmbh, Lübeck

Group Works Council Chairman of the medical division

Group Works Council Chairman of drägerwerk AG & Co. kGaA,

Lübeck


– dräger Medical Gmbh, Lübeck (vice-Chairman)

Daniel Friedrich

district secretary of the metalworkers’ union IG Metall küste,

hamburg


– dräger Medical Gmbh, Lübeck

Dr. Thorsten Grenz

Chairman of the management team

veolia umweltservice Gmbh, hamburg


– drägerwerk verwaltungs AG, Lübeck

37

Peter-Maria Grosse

Works Council Chairman of dräger Safety AG & Co. kGaA, Lübeck,

until September 30, 2011

Works Council member of dräger Safety AG & Co. kGaA, Lübeck,

since October 1, 2011


– dräger Safety AG & Co. kGaA, Lübeck

Uwe Lüders

Chairman of the Executive Board of L. Possehl & Co. mbh, Lübeck


– Nordex AG, Norderstedt (Chairman)


Walter Neundorf

Officer of dräger Medical Gmbh, Lübeck

Jürgen Peddinghaus

Self-employed business consultant, hamburg


– Faber-Castell AG, Nuremberg (Chairman), until July 31, 2011

– Jungheinrich AG, hamburg (Chairman)


– Zwilling J. A. henckels AG, Solingen

Prof. Dr. Klaus Rauscher

Former Chairman of the Management Board of vattenfall Europe

AG, Berlin


– Endi AG, halle (Chairman)

– deutsche Annington Immobilien Gmbh, düsseldorf


Thomas Rickers

1st delegate of the metalworkers’ union IG Metall administrative

agency Lübeck-Wismar, Lübeck




Ulrike Tinnefeld

Works Council vice-Chairperson of dräger Safety AG & Co. kGaA,

Lübeck, until September 30, 2011

Works Council Chairperson of dräger Safety AG & Co. kGaA,

Lübeck, since October 1, 2011

Group Works Council Chairperson of dräger Safety AG & Co. kGaA,

Lübeck

Group Works Council vice-Chairperson of drägerwerk AG & Co. kGaA,

Lübeck



Dr. Reinhard Zinkann

Managing Partner of Miele & Cie. kG, Gütersloh


– Falke kGaA, Schmallenberg (Chairman)


Memberships on comparable boards of German or foreign companies:

– krombacher Brauerei Gmbh & Co. kG, kreuztal-krombach

(Advisory Board)

– Nobilia-Werke J. Stickling Gmbh & Co. kG, verl (Advisory Board)

– viessmann-Werke Gmbh & Co. kG, Allendorf (Advisory Board),

until June 30, 2011

Members of the Audit Committee:

dr. Thorsten Grenz (Chairman)

Walter Neundorf

Jürgen Peddinghaus

Prof. dr. Nikolaus Schweickart

ulrike Tinnefeld

Members of the Nomination Committee:

Prof. dr. Nikolaus Schweickart (Chairman)

uwe Lüders

dr. reinhard Zinkann

Members of the Joint Committee

representatives of drägerwerk verwaltungs AG:

dr. Thorsten Grenz

uwe Lüders

Jürgen Peddinghaus

Prof. dr. klaus rauscher

representatives of drägerwerk AG & Co. kGaA:

Prof. dr. Nikolaus Schweickart (Chairman)

Siegfrid kasang

Thomas rickers

dr. reinhard Zinkann

74 ThE COMPANy’S BOArdS | OThEr dISCLOSurES

MEMBERS OF THE EXECUTIVE BOARD OF

DRÄGERWERK VERWALTUNGS AG,

ACTING FOR DRÄGERWERK AG & CO. KGAA

Stefan Dräger


CEO Safety

Chairman of the Executive Board of drägerwerk verwaltungs AG,

Lübeck

(general partner of drägerwerk AG & Co. kGaA)

Chairman of the Executive Board of dräger Safety verwaltungs AG,

Lübeck (general partner of dräger Safety AG & Co. kGaA)

Chairman of the Executive Board of dräger Medical Gmbh, Lübeck

(since February 1, 2012)


– dräger Medical Gmbh, Lübeck (Chairman)

(until January 31, 2012)

– Sparkasse zu Lübeck, Lübeck

Dr. Herbert Fehrecke

Purchasing, quality, research and development and IT

(until October 31, 2011)

vice-Chairman of the Executive Board

vice-Chairman of the Executive Board of drägerwerk verwaltungs AG,

Lübeck (general partner of drägerwerk AG & Co. kGaA)

General Manager of dräger Medical Gmbh, Lübeck


Dr. Carla Kriwet (until December 31, 2011)

Marketing and Sales

Member of the Executive Board of drägerwerk verwaltungs AG,

Lübeck, (general partner of drägerwerk AG & Co. kGaA)

Gert-Hartwig Lescow

CFO







– dräger Safety verwaltungs AG, Lübeck


(until January 31, 2012)

Anton Schrofner

Production, Logistics and (since November 1, 2011) IT






Other disclosures

PUBLICATIONS REGARDING SIGNIFICANT VOTING RIGHTS IN ACCORDANCE WITH

SEC. 25 OF THE GERMAN SECURITIES TRADING ACT (WERTPAPIERHANDELSGESETZ

– WPHG)

Drägerwerk AG & Co. KGaA has not published any reports on significant voting rights in the last twelve months.

DIRECTORS’ DEALINGS

In fiscal year 2011, the Company was informed about business transactions with execu-tive employees pursuant to Sec. 15a WpHG (Wertpapierhandelsgesetz – German Securi-ties Trading Act). Announcements of transactions with executive employees pursuant to Sec. 15a WpHG (Wertpapierhandelsgesetz – German Securities Trading Act) are pub-lished at www.dgap.de in the Directors’ Dealings section.

DISTRIBUTION FOR PARTICIPATION CAPITAL

The distribution for series D participation certificates is shown in a separate line, “Distribution for participation capital”, in the income statement, after taxes and before net loss / profit. The dividends for series A and K participation certificates are recognized in the interest result. Therefore, the participation capital dividend is determined above the line and thus reduces net profit (or increases net loss). The claim to annual dividends under the terms of Sec. 2 (1) of the participation certificate covenants corresponds to 10 times the cash dividend for the Company’s preferred shares, hence EUR 1.90.

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76 MAJOr dIrECT ANd INdIrECT ShArEhOLdINGS dräGErWErk AG & CO. kGAA

MAJOR DIRECT AND INDIRECT SHAREHOLDINGS


SHARES OWNED BY DRÄGERWERK AG & CO. KGAA AS OF DECEMBER 31, 2011

Shareholdings in %

Name and registered office direct indirect Equity Earnings

Germany

Dräger Medical GmbH, Lübeck 100 529,797 0 1

Dräger Safety AG & Co. KGaA, Lübeck 100 152,079 0 1

Dräger Medical Deutschland GmbH, Lübeck 100 26,047 0 1

Dräger Safety Verwaltungs AG, Lübeck 100 1,120 0 1

Dräger MSI GmbH, Hagen 100 1,486 479

Dräger Medizin System Technik GmbH, Lübeck 100 1,553 24

Dräger TGM GmbH, Lübeck 100 812 0 1

MAPRA – Assekuranzkontor GmbH, Lübeck * 49 625 570 2

Dräger Interservices GmbH, Lübeck 3 100 306 2 1

Dräger Gebäude und Service GmbH, Lübeck 3 100 268 1 1

Dräger Electronics GmbH, Lübeck 100 –10,752 –65

Fachklinik für Anästhesie und Intensivmedizin Vahrenwald GmbH, Lübeck 100 –7,670 0 1

FIMMUS Grundstücks-Verm.ges.mbH & Co. Objekt Lübeck KG, Lübeck 100 47 4

FIMMUS Grundstücks-Verm. GmbH, Lübeck 100 30 0 1

Dräger Medical International GmbH, Lübeck 100 213,546 0 1

Dräger Medical ANSY GmbH, Lübeck 100 2,826 0 1

Dräger Finance Services GmbH & Co. KG, Bad Homburg v. d. Höhe 95 519 24

OPTIO Grundstücks-Verwaltungsgesellschaft mbH & Co. KG, Grünwald 100 –864 –830

HAMUS Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Lübeck KG, Munich 100 –455 –38

MOLVINA Vermietungsgesellschaft mbH & Co. Objekt Finkenstraße KG, Lübeck 100 6 –6

Dräger Energie GmbH, Lübeck 100 25 0 1

DRENITA Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Fertigung Dräger Medizintechnik KG, Düsseldorf 100 59 95

Dräger Grundstücksverwaltungs GmbH, Lübeck 100 25 0

Europe

Draeger Safety UK Limited, Blyth 100 40,126 11,260

Dräger Medical Hispania SA, Madrid 100 37,908 6,254

Dräger Médical SAS, Antony 100 17,587 1,856

Dräger ST-Holding Nederland B.V., Zoetermeer 100 15,756 1,959

Dräger Medical Austria GmbH, Vienna 100 48,394 5,527

Dräger Safety Hispania SA, Madrid 100 12,792 1,376

Draeger Medical Italia S.p.A., Corsico-Milano 100 19,378 919

Draeger Safety France SAS, Strasbourg 100 14,021 3,273

Dräger Medical Schweiz AG, Liebefeld-Bern 100 7,800 2,252

Dräger Medical Belgium NV, Wemmel 100 5,262 2,026

Dräger Safety Nederland B.V., Zoetermeer 100 10,045 2,017

1 Profit and loss transfer agreement2 Previous year3 recognized value corresponds to the amount restricted from distribution.* Associates within the meaning of Secs. 311, 312 hGB

41



Shareholdings in %


Europe (continued)

Safety Service Center B.V., Rotterdam 100 4,548 688

Dräger Polska Sp. zo.o., Bydgoszcz 100 7,270 2,661

Dräger Safety Belgium NV, Wemmel 100 7,264 2,035

Dräger Medical Netherlands B.V., Zoetermeer 100 28,359 3,525

Dräger MT-Holding Nederland B.V., Zoetermeer 100 –6,942 –627

Dräger Safety Danmark A / S, Herlev 100 1,271 597

Dräger Safety Austria GmbH, Vienna 100 3,969 912

Dräger Medical s.r.o., Prague 100 2,656 590

Draeger Safety Italia S.p.A., Corsico-Milano 100 4,076 763

Dräger Medical Croatia d.o.o., Zagreb 100 5,498 465

Dräger Safety Schweiz AG, Dietlikon 100 4,923 1,882

Dräger Slovensko s.r.o., Piestany 100 1,617 587

Draeger Medizinskaja Technika OOO, Moscow 100 10,204 6,979

Dräger Safety s.r.o, Prague 100 2,344 805

Dräger Safety Sverige AB, Svenljunga 100 2,783 1,027

ACE Protection AB, Svenljunga 100 3,847 1,004

Dräger Slovenija d.o.o., Ljubljana-Crnuce 100 1,829 266

Dräger Safety Norge AS, Oslo 100 2,886 1,089

Draeger Medikal Ticaret ve Servis Limited Sirketi, Istanbul 67 910 2,458

Draeger Safety Korunma Teknolojileri Limited Sirketi, Ankara 90 1,517 553

Draeger Medical Bulgaria EOOD, Sofia 100 825 217

Dräger Medical Norge AS, Drammen 100 1,916 80

Dräger Safety Hungaria Kft., Budapest 100 1,136 359

Dräger Finanz AG i.L., Zug 100 411 6

Dräger Medical Hungary Kft., Budapest 100 1,870 171

Dräger Finance B.V., Zoetermeer 100 11 7

Dräger Medical Romania SRL, Bukarest 100 2,690 628

Draeger Tehnika d.o.o., Beograd 100 2,545 40

Dräger Medical Sverige AB, Bromma 100 2,262 1,203

Dräger Medical Danmark A / S, Allerod 100 395 0

Draeger Medical Ireland Ltd., Dublin 100 408 211

W.S.P. Safety Equipment B.V., Rotterdam 100 20 0

Dräger Safety Romania SRL, Bukarest 100 363 80

Dräger Medical B.V., Best 100 10,997 249

AEC SAS, Antony 100 1,192 426

Draeger Safety Bulgaria EOOD, Sofia 100 583 18

Dräger Safety d.o.o., Zagreb 100 493 111

Draeger Medical UK Ltd., Hemel Hempstead 30 70 9,584 3,555

W.S. Poppeliers Brandblusmaterialen B.V., Rotterdam 100 20 0

Dräger Safety Polska Sp. z o.o., Bydgoszcz 100 1,092 346

Dräger-Busch Helmets Production s.r.o, Chomutov 51 –117 –165

Dräger Portugal, Lda, Lisbon 100 1,374 331

78 MAJOr dIrECT ANd INdIrECT ShArEhOLdINGS dräGErWErk AG & CO. kGAA


Shareholdings in %


Europe (continued)

Danisevsky spol. s r.o., Policka 100 2,887 617

Dräger Suomi OY, Helsinki 100 838 40

Draeger Hellas A.E. for Products of Medical and Safety Technology, Athens 100 213 –329

Africa

Dräger South Africa (Pty.) Ltd., Bryanston 100 5,507 1,820

Dräger Medical South Africa (Pty.) Ltd., Johannesburg 69 4,166 858

Dräger Safety Zenith (Pty.) Ltd., King Williams Town 100 590 157

Draeger Maroc SARLAU, Casablanca 100 784 0

Americas

Draeger Medical, Inc., Telford 100 26,118 7,211

Draeger Safety, Inc., Pittsburgh 100 11,395 675

Draeger Safety Diagnostics, Inc., Irving 100 8,991 1,300

Draeger Safety Canada Ltd., Mississauga / Ontario 100 2,560 695

Draeger Safety S.A. de C.V., Querétaro 100 –202 –853

Dräger Industria e Comércio Ltda., Sao Paulo 100 12,776 4,988

Draeger Medical Canada Inc., Richmond Hill / Ontario 100 817 801

Dräger Medical Chile Ltda., Santiago 100 2,102 670

Dräger Medical Mexico S.A.de C.V., Mexiko D.F.D. 100 8,106 614

Draeger Interservices, Inc., Pittsburgh 100 709 99

Dräger do Brasil Ltda., Sao Paulo 100 –2,781 –339

Dräger Safety do Brasil Ltda., Sao Paulo 100 1,255 –1,468

Draeger Medical Systems, Inc., Telford 100 146,104 3,953

Dräger Medical Argentina S.A., Buenos Aires 100 1,744 334

Draeger Colombia SA, Bogota D.C. 100 2,195 578

Draeger Medical Venezuela S.A., Caracas 100 83 5

Draeger Peru S.A.C., Piso Miraflores-Lima (Peru) 100 258 –326

Draeger Panama S. de R.L., Panama 100 139 0

Asia

Shanghai Dräger Medical Instrument Co., Ltd., Shanghai 67,5 11,744 2,031

Draeger Safety Asia Pte. Ltd., Singapore 100 13,073 3,609

Draeger Safety Pacific Pty. Ltd., Notting Hill 100 14,263 5,338

Dräger Medical Equipment (Shanghai) Co., Ltd., Shanghai 100 16,565 9,137

Beijing Fortune Draeger Safety Equipment Co., Ltd., Beijing 100 13,728 2,651

Draeger Medical Australia Pty. Ltd., Notting Hill 100 4,706 –633

Draeger Medical Japan Ltd., Tokyo 100 6,474 1,104

Draeger Arabia Co. Ltd., Riyadh 51 2,725 2,537

Joseph Leslie Drager Mfg., Pvt. Ltd., Mumbai * 36 1,659 302 2

Draeger Medical South East Asia Pte. Ltd., Singapore 100 254 –1,880

2 Previous year* Associates within the meaning of Secs. 311, 312 hGB



Shareholdings in %


Asia (continued)

Draeger Safety Japan Ltd., Tokyo 100 389 111

PT Draegerindo Jaya, Jakarta 100 967 651

Draeger Safety Taiwan Co., Ltd., Hsinchu City 100 1,276 139

Draeger Medical Hong Kong Limited, Wanchai 100 1,287 445

Draeger Safety (Thailand) Ltd., Bangkok 100 385 422

Draeger Medical (Thailand) Ltd., Bangkok 100 1,159 370

Draeger Medical Taiwan Ltd., Taipei 100 1,000 528

Draeger Medical Korea Co., Ltd., Seoul 100 1,117 518

Draeger Medical (India) Pvt. Ltd., Mumbai 100 2,827 406

Draeger Medical Systems (Shanghai) Co., Ltd., Shanghai 100 8,441 4

Draeger Medical Vietnam Co., Ltd., Ho Chi Minh City 100 308 39

PT Draeger Medical Indonesia, Jakarta 100 2,182 796

Draeger NC SARL, Noumea 100 8 0

80 MANAGEMENT COMPLIANCE STATEMENT

PROPOSED APPROPRIATION OF NET EARNINGS

Net earnings for fiscal year 2011 amount to EUR 158,221,372.26. This includes profits of EUR 56,705,893.81. Together with the Supervisory Board of Drägerwerk AG & Co. KGaA, Lübeck, Drägerwerk Verwaltungs AG, general partner of Drägerwerk AG & Co. KGaA, intends to propose to the annual shareholders’ meeting that these net earnings should be distributed as follows:

PROPOSED APPROPRIATION OF NET EARNINGS

€

EUR 0.13 cash dividend for 10,160,000 common shares 1,320,800,00

EUR 0.19 cash dividend for 6,350,000 preferred shares 1,206,500,00

The Company proposes that the remaining net earnings for fiscal year 2011 of EUR 155,694,072.26 be carried forward to new account.




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Management compliance statement

We confirm to the best of our knowledge that, in accordance with the applicable financial reporting framework, the single entity financial statements give a true and fair view of the net assets, financial position and results of operations of the Company, the management report presents business performance including business results and the situation of the Company so as to give a true and fair view, and that the significant opportunities and risks relating to the Company’s development have been described.




82 AudITOr’S OPINION

Auditor’s opinion

We have audited the annual financial statements, comprising the balance sheet, the income statement and the notes to the financial statements, together with the account-ing system, and the management report of Drägerwerk AG & Co. KGaA, Lübeck, for the fiscal year from January 1 to December 31, 2011. Maintaining the books and records and the preparation of the annual financial statements and management report in accor-dance with German commercial law are the responsibility of the Executive Board of the Company’s managing general partner. Our responsibility is to express an opinion on the single entity financial statements, together with the accounting system, and on the management report based on our audit.

We conducted our audit of the annual financial statements in accordance with Sec. 317 of the German Commercial Code (Handelsgesetzbuch – HGB) and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with (German) principles of proper accounting and in the management report are detected with reasonable assurance. Knowledge of the busi-ness activities and the economic and legal environment of the Company and expectations as to possible misstatements are taken into account in the determination of audit proce-dures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Executive Board of the Company’s managing general partner, as well as evaluating the overall presentation of the annual financial statements and manage-ment report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.Based on the findings of our audit, we believe that the annual financial statements

comply with the legal requirements and give a true and fair view of the net assets, financial position and results of operations of the Company in accordance with (German) principles of proper accounting. The management report is consistent with the annual financial statements and as a whole provides a suitable view of the Company’s position and suitably presents the opportunities and risks relating to future development.

Hamburg, Germany, February 29, 2012

PricewaterhouseCoopersAktiengesellschaftWirtschaftsprüfungsgesellschaft

Andreas Borcherding Dr. Andreas FockeWirtschaftsprüfer Wirtschaftsprüfer(German Public Auditor) (German Public Auditor)


Disclaimer: The invitation to buy back participation certificates complies with the buyback conditions stated in the tender offer memorandum from February 15, 2012 and is subject to the offer and sales restrictions stipulated therein. The invitation does not apply to US citizens within the meaning of regulation S of the US Securities Act 1933 and persons who are staying or living in the US.

84 NOTES

Drägerwerk AG & Co. KGaAMoislinger Allee 53 – 5523558 Lübeck, Germanywww.draeger.com

Corporate CommunicationsTel + 49 451 882 - 3998Fax + 49 451 882 - 3944

Investor RelationsTel + 49 451 882 - 2685Fax + 49 451 882 - 3296 90

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